EXHIBIT 13.1

FINANCIAL STATEMENTS  GENZYME CORPORATION AND SUBSIDIARIES

|                                                                                                                            |  | Page No.
|--------------------------------------------------------------------------------------------------------------------------- |  | --------
|Consolidated Selected Financial Data                                                                                        |  | F-2     
|Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations |  | F-8     
|Report of Independent Registered Public Accounting Firm                                                                     |  | F-72    
|Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2004, 2003 and 2002         |  | F-74    
|Consolidated Balance Sheets as of December 31, 2004 and 2003                                                                |  | F-76    
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002                                  |  | F-77    
|Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2004, 2003 and 2002                        |  | F-79    
|Notes to Consolidated Financial Statements                                                                                  |  | F-82    

F-1

---



GENZYME CORPORATION
Consolidated Selected Financial Data

These selected financial data have been derived from our audited, consolidated financial statements, including the consolidated balance sheets at
December 31, 2004 and 2003 and the related consolidated statements of income and of cash flows for the three years ended December 31, 2004 and notes thereto appearing elsewhere herein.
You should read the following information in conjunction with our audited, consolidated financial statements and related notes contained elsewhere in this annual report. 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Factors Affecting Future Operating Results" included in this annual report.

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

Effective
July 1, 2003, we eliminated our tracking stock capital structure by exchanging, in accordance with the provisions of our charter, each share of Biosurgery Stock for
0.04914 of a share of Genzyme General Stock and each share of Molecular Oncology Stock for 0.05653 of a share of Genzyme General Stock. Options and warrants to purchase shares of Biosurgery Stock and
options to purchase shares of Molecular Oncology Stock were converted into options and warrants to purchase shares of Genzyme General Stock. Effective July 1, 2003, we have one outstanding
series of common stock. From July 1, 2003 through May 27, 2004, we referred to our outstanding series of common stock as Genzyme General Stock. At our annual meeting of shareholders on
May 27, 2004, our shareholders approved an amendment to our charter that eliminated the designation of separate series of common stock, resulting in 690,000,000 authorized shares of a single
series of common stock, which we now refer to as Genzyme Stock.

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

F-2

---





CONSOLIDATED STATEMENTS OF OPERATIONS DATA

|                                                                                                                     |                                                                                    | For the Years Ended December 31,   |               
|-------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ---------------------------------- | --------------
|
|
|Revenues:                                                                                                            |                                                                                    |                                    |               
|                                                                                                                     | Net product sales                                                                  |                                    | $             
|                                                                                                                     | Net service sales                                                                  |                                    |               
|                                                                                                                     | Revenues from research and development contracts:                                  |                                    |               
|                                                                                                                     |                                                                                    | Related parties                    |               
|                                                                                                                     |                                                                                    | Other                              |               
|                                                                                                                     |                                                                                    |                                    |               
|                                                                                                                     |                                                                                    |                                    | Total revenues
|                                                                                                                     |                                                                                    |                                    |               
|Operating costs and expenses:                                                                                        |                                                                                    |                                    |               
|                                                                                                                     | Cost of products sold                                                              |                                    |               
|                                                                                                                     | Cost of services sold                                                              |                                    |               
|                                                                                                                     | Selling, general and administrative (1)                                            |                                    |               
|                                                                                                                     | Research and development (including research and development related to contracts) |                                    |               
|                                                                                                                     | Amortization of intangibles (2)                                                    |                                    |               
|                                                                                                                     | Purchase of in-process research and development (3)                                |                                    |               
|                                                                                                                     | Charge for impaired goodwill (4)                                                   |                                    |               
|                                                                                                                     | Charge for impaired assets (5)                                                     |                                    |               
|                                                                                                                     |                                                                                    |                                    |               
|                                                                                                                     |                                                                                    | Total operating costs and expenses |               
|                                                                                                                     |                                                                                    |                                    |               
|Operating income (loss)                                                                                              |                                                                                    |                                    | 252,913       
|                                                                                                                     |                                                                                    |                                    |               
|Other income (expenses):                                                                                             |                                                                                    |                                    |               
|                                                                                                                     | Equity in loss of equity method investments                                        |                                    |               
|                                                                                                                     | Gain on affiliate sale of stock (6)                                                |                                    |               
|                                                                                                                     | Gain (loss) on investments in equity securities (7)                                |                                    |               
|                                                                                                                     | Minority interest                                                                  |                                    |               
|                                                                                                                     | Loss on sale of product lines (8)                                                  |                                    |               
|                                                                                                                     | Other (9)                                                                          |                                    |               
|                                                                                                                     | Investment income                                                                  |                                    |               
|                                                                                                                     | Interest expense                                                                   |                                    |               
|                                                                                                                     |                                                                                    |                                    |               
|                                                                                                                     |                                                                                    | Total other income (expenses)      |               
|                                                                                                                     |                                                                                    |                                    |               
|Income (loss) before income taxes                                                                                    |                                                                                    |                                    | 227,696       
|(Provision for) benefit from income taxes                                                                            |                                                                                    |                                    | (141,169      
|                                                                                                                     |                                                                                    |                                    |               
|Net income (loss) before cumulative effect of change in accounting for goodwill and derivative financial instruments |                                                                                    |                                    | 86,527        
|Cumulative effect of change in accounting for goodwill (2)                                                           |                                                                                    |                                    |              
|Cumulative effect of change in accounting for derivative financial instruments, net of tax (10)                      |                                                                                    |                                    |              
|                                                                                                                     |                                                                                    |                                    |               
|Net income (loss)                                                                                                    |                                                                                    | $                                  | 86,527        
|                                                                                                                     |                                                                                    |                                    |               

F-3

---



|                                                                                                 |                                                                                                    | For the Years Ended December 31,                                                                           |       
|------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | ------
|
|
|Net income (loss) per share:                                                                     |                                                                                                    |                                                                                                            |       
|Allocated to Genzyme Stock (11,12):                                                              |                                                                                                    |                                                                                                            |       
|Net income before cumulative effect of change in accounting for derivative financial instruments |                                                                                                    | $                                                                                                          | 86,527
|Cumulative effect of change in accounting for derivative financial instruments, net of tax (10)  |                                                                                                    |                                                                                                            |      
|Tax benefit allocated from Genzyme Biosurgery                                                    |                                                                                                    |                                                                                                            |       
|Tax benefit allocated from Genzyme Molecular Oncology                                            |                                                                                                    |                                                                                                            |      
|                                                                                                 |                                                                                                    |                                                                                                            |       
|Net income allocated to Genzyme Stock                                                            |                                                                                                    | $                                                                                                          | 86,527
|                                                                                                 |                                                                                                    |                                                                                                            |       
|Net income per share of Genzyme Stock:                                                           |                                                                                                    |                                                                                                            |       
|                                                                                                 | Basic:                                                                                             |                                                                                                            |       
|                                                                                                 |                                                                                                    | Net income per share before cumulative effect of change in accounting for derivative financial instruments |       
|                                                                                                 |                                                                                                    | Per share cumulative effect of change in accounting for derivative financial instruments, net of tax (10)  |       
|                                                                                                 |                                                                                                    |                                                                                                            |       
|                                                                                                 |                                                                                                    | Net income per share allocated to Genzyme Stock                                                            |       
|                                                                                                 |                                                                                                    |                                                                                                            |       
|                                                                                                 | Diluted (13):                                                                                      |                                                                                                            |       
|                                                                                                 |                                                                                                    | Net income per share before cumulative effect of change in accounting for derivative financial instruments |       
|                                                                                                 |                                                                                                    | Per share cumulative effect of change in accounting for derivative financial instruments, net of tax (10)  |       
|                                                                                                 |                                                                                                    |                                                                                                            |       
|                                                                                                 |                                                                                                    | Net income per share allocated to Genzyme Stock                                                            |       
|                                                                                                 |                                                                                                    |                                                                                                            |       
|Weighted average shares outstanding (12):                                                        |                                                                                                    |                                                                                                            |       
|                                                                                                 | Basic                                                                                              |                                                                                                            |       
|                                                                                                 |                                                                                                    |                                                                                                            |       
|                                                                                                 | Diluted                                                                                            |                                                                                                            |       
|                                                                                                 |                                                                                                    |                                                                                                            |       
|Allocated to Biosurgery Stock (11,14):                                                           |                                                                                                    |                                                                                                            |       
|                                                                                                 | Genzyme Biosurgery division net loss before cumulative effect of change in accounting for goodwill |                                                                                                            |       
|                                                                                                 | Cumulative effect of change in accounting for goodwill                                             |                                                                                                            |       
|                                                                                                 | Allocated tax benefit                                                                              |                                                                                                            |       
|                                                                                                 |                                                                                                    |                                                                                                            |       
|                                                                                                 | Net loss allocated to Biosurgery Stock                                                             |                                                                                                            |       
|                                                                                                 |                                                                                                    |                                                                                                            |       
|                                                                                                 | Net loss per share of Biosurgery Stockbasic and diluted:                                          |                                                                                                            |       
|                                                                                                 | Net loss per share before cumulative effect of change in accounting for goodwill                   |                                                                                                            |       
|                                                                                                 | Per share cumulative effect of change in accounting for goodwill                                   |                                                                                                            |       
|                                                                                                 |                                                                                                    |                                                                                                            |       
|                                                                                                 | Net loss per share of Biosurgery Stockbasic and diluted                                           |                                                                                                            |       
|                                                                                                 |                                                                                                    |                                                                                                            |       
|                                                                                                 | Weighted average shares outstanding                                                                |                                                                                                            |       
|                                                                                                 |                                                                                                    |                                                                                                            |       

F-4

---



|                                              |                                                                  | For the Years Ended December 31, | 
|--------------------------------------------- | ---------------------------------------------------------------- | -------------------------------- | 
|
|
|Allocated to Molecular Oncology Stock (11):   |                                                                  |                                  | 
|                                              | Net loss allocated to Molecular Oncology Stock                   |                                  | 
|                                              |                                                                  |                                  | 
|                                              | Net loss per share of Molecular Oncology Stockbasic and diluted |                                  | 
|                                              |                                                                  |                                  | 
|                                              | Weighted average shares outstanding                              |                                  | 
|                                              |                                                                  |                                  | 
|Allocated to Surgical Products Stock (11,14): |                                                                  |                                  | 
|                                              | Net loss                                                         |                                  | 
|                                              |                                                                  |                                  | 
|                                              | Net loss per share of Surgical Products Stockbasic and diluted  |                                  | 
|                                              |                                                                  |                                  | 
|                                              | Weighted average shares outstanding                              |                                  | 
|                                              |                                                                  |                                  | 
|Allocated to Tissue Repair Stock (11,14):     |                                                                  |                                  | 
|                                              | Net loss                                                         |                                  | 
|                                              |                                                                  |                                  | 
|                                              | Net loss per share of Tissue Repair Stockbasic and diluted      |                                  | 
|                                              |                                                                  |                                  | 
|                                              | Weighted average shares outstanding                              |                                  | 
|                                              |                                                                  |                                  | 

CONSOLIDATED BALANCE SHEET DATA

|                                                                                               |                                    | December 31,
|---------------------------------------------------------------------------------------------- | ---------------------------------- | ------------
|
|
|Cash and investments (15)                                                                      |                                    | $           
|Working capital (16)                                                                           |                                    |             
|Total assets                                                                                   |                                    |             
|Long-term debt, capital lease obligations and convertible debt, including current portion (17) |                                    |             
|Stockholders' equity                                                                           |                                    |             
|                                                                                               | There were no cash dividends paid. |             

---

F-5

---



F-6

---





December 31,2004

2003

2002

2001

20001.25% convertible senior notes

$
690.0

$
690.0

$


$


$
3% convertible subordinated debentures





575.0


575.0


575.0


Capital lease obligations


150.1


154.5


25.8


26.9


27.9Revolving credit facility


100.0





284.0


234.0


368.06.5% convertible note





11.3








Notes payable


0.4


5.0





6.7


5.56.9% convertible subordinated note








10.0


10.0


10.05% convertible subordinated debentures














23.751/4% convertible subordinated notes














250.0Total

$
940.5

$
1,435.8

$
894.8

$
852.6

$
685.1


F-7

---





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

INTRODUCTION

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



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

Through
June 30, 2003, we had three outstanding series of common stockGenzyme General Stock, Biosurgery Stock and Molecular Oncology Stock. We also referred to our
series of stock as "tracking stock." Unlike typical common stock, each of our tracking stocks was designed to reflect the value and track the financial performance of a specific subset of our business
operations and its allocated assets, rather than the operations and assets of our entire company. Through June 30, 2003, we allocated earnings or losses to each series of tracking stock based
on the net income or loss

F-8

---



attributable
to the corresponding division determined in accordance with accounting principles generally accepted in the United States as adjusted for the allocation of tax benefits.

Effective
July 1, 2003, we eliminated our tracking stock capital structure by exchanging, in accordance with the provisions of our charter, each share of Biosurgery Stock for
0.04914 of a share of Genzyme General Stock and each share of Molecular Oncology Stock for 0.05653 of a share of Genzyme General Stock. Options and warrants to purchase shares of Biosurgery Stock, and
options to purchase shares of Molecular Oncology Stock were converted into options and warrants to purchase shares of Genzyme General Stock. Effective July 1, 2003, we have one outstanding
series of common stock. From July 1, 2003 through May 27, 2004, we referred to our outstanding series of common stock as Genzyme General Stock. At our annual meeting of shareholders on
May 27, 2004, our shareholders approved an
amendment to our charter that eliminated the designation of separate series of common stock, resulting in 690,000,000 authorized shares of a single series of common stock, which we now refer to as
Genzyme Stock.

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

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



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

F-9

---



2003
to Genzyme General without making any compensating payments or allocations to the division that generated the benefit.

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

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

The
elimination of our tracking stock capital structure had no effect on our consolidated net income (loss). In this annual report, and future quarterly and annual reports, we will not
provide separate financial statements for each of our former divisions, but will continue to provide our financial statements for the corporation as a whole.

MERGERS AND ACQUISITIONS

Acquisition of Verigen AG

In February 2005, we acquired Verigen AG, a private company based in Germany with a proprietary cell therapy product for cartilage repair currently sold in
Europe and Australia, for $10.0 million in initial payments and potential payments of up to an aggregate of approximately $40 million over the next six years based upon the achievement
of development and commercial milestones relating to regulatory approval and commercialization in the United States for Verigen's Matrix-induced Autologous Chondrocyte Implantation product, which is
referred to as MACI, and royalties on sales of the product. To date we have acquired approximately 96% of Verigen's shares and anticipate acquiring the remaining shares in the first half of 2005.

Acquisition of Synvisc Sales and Marketing Rights from Wyeth

On January 6, 2005, we consummated an arrangement with Wyeth under which we reacquired Wyeth's sales and marketing rights to Synvisc in the United States,
as well as Germany, Poland, Greece, Portugal and the Czech Republic. In exchange for the sales and marketing rights, we paid a total of $121.0 million in cash to Wyeth in the first quarter of
2005. Additionally, we will make a series of contingent payments to Wyeth based on the volume of Synvisc sales in the covered territories. These additional payments could extend out to June 2012, or
could total a maximum of $293.7 million, whichever comes first. Upon closing this transaction, we began to record revenue from sales of Synvisc to end-users in these territories. We
will continue to record all of the research and development expenses related to Synvisc and will also now record SG&A expenses related to the additional Synvisc sales force we assumed from Wyeth.

Acquisition of ILEX

In December 2004, we completed our acquisition of ILEX, an oncology drug development company. The ILEX shareholders received 0.4682 of a share of Genzyme
Stock for each ILEX share owned. Cash was paid for fractional shares. The transaction had a total value of approximately $1.1 billion, based on ILEX's 39.4 million shares outstanding at
the date of acquisition and $55.88, the

F-10

---



per
share value of Genzyme Stock exchanged in the acquisition. We accounted for the acquisition as a purchase and, accordingly, included its results of operations in our consolidated statements of
operations from December 20, 2004, the date of acquisition.

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

Issuance of 18,457,679 shares of Genzyme Stock

$
1,031,485Issuance of options to purchase 1,736,654 shares of Genzyme Stock


38,440Acquisition costs


10,728Total purchase price

$
1,080,653Cash and cash equivalents

$
121,128Restricted cash


604Accounts receivable


13,100Inventories


16,584Deferred tax assetcurrent


27,307Other current assets


2,896Property, plant and equipment


2,162Restricted long-term investments


1,691Goodwill


478,539Other intangible assets (to be amortized over 11 to 12 years)


228,627In-process research and development


254,520Deferred tax assetnoncurrent


24,983Other noncurrent assets


1,648Assumed liabilities:Notes payableshort-term


(19,968
)Unfavorable lease liability


(1,610
)Liabilities for exit activities


(5,330
)Income tax payable


(40,852
)Other


(25,376
)Allocated purchase price

$
1,080,653


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

In-Process Research and Development

In connection with our acquisition of ILEX, we acquired IPR&D related to three development projects, Campath (for indications other than B-cell
chronic lymphocytic leukemia), Clolar (clofarabine) and tasidotin hydrochloride, formerly referred to as ILX-651.

Campath
is a humanized monoclonal antibody that binds to a specific target, CD52, on cell surfaces leading to the destruction of malignant, or cancerous, cells. Campath was launched in
May 2001 in the United States and in August 2001 in Europe under the name MabCampath. The product is approved for use in patients with B-cell chronic lymphocytic leukemia who
have been treated with alkylating agents and who have failed fludarabine therapy. At the time of acquisition, clinical trials in non-Hodgkin's lymphoma, multiple sclerosis and other cancer
and non-cancer indications were being conducted.

Clolar
is a next-generation, purine nucleoside antimetabolite that is currently under investigation in pediatric and adult leukemias and solid tumors. In December 2004, after
the date of acquisition of ILEX, the FDA granted marketing approval for Clolar for the treatment of children with refractory or

F-11

---



relapsed
acute lymphoblastic leukemia. At the time of the acquisition, clinical trials for hematologic cancer, solid tumor and additional pediatric acute leukemia indications were being conducted.

Tasidotin
is a next-generation synthetic pentapeptide analog of the natural substance dolastatin-15. This product candidate targets tubulin and has been
chemically modified to provide improved pharmacological properties over earlier members of its class. ILEX initiated phase 2 clinical trials of tasidotin in late 2003 and 2004 in a variety of
indications.

As
of the date this transaction closed, none of these projects had reached technological feasibility nor had an alternative future use. Accordingly, we allocated to IPR&D, and charged to
expense in our consolidated statements of operations in December 31, 2004, $254.3 million, representing the portion of the purchase price attributable to these projects, of which
$96.9 million is attributable to the Campath development projects, $113.4 million is attributable to the clofarabine development projects and $44.2 million is related to the
tasidotin development projects.

Management
assumes responsibility for determining the IPR&D valuation. The fair value assigned to purchased IPR&D was estimated by discounting, to present value, the cash flows expected
to result from each project once it has reached technological feasibility. We used a discount rate of 11% for Campath, 12% for Clolar and 13% for tasidotin and cash flows that have been
probability-adjusted to reflect the risks of advancement through the product approval process. In estimating future cash flows, we also considered other tangible and intangible assets required for
successful exploitation of the technology resulting from the purchased IPR&D projects and adjusted future cash flows for a charge reflecting the contribution to value of these assets.

Acquisition of Physician Services and Analytical Services Business Units of IMPATH

In May 2004, we acquired substantially all of the pathology/oncology testing assets related to the Physician Services and Analytical Services business
units of IMPATH, a national medical testing provider, for total cash consideration of $215.3 million. We accounted for the acquisition as a purchase and accordingly, included its results of
operations related to these business units in our consolidated statements of operations from May 1, 2004, the date of acquisition. The purchase price is subject to adjustment based upon the
completion of a post-closing assessment of the working capital of the acquired business units as of April 30, 2004, which we expect to complete in 2005.

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

Accounts receivable

$
14,483Other current assets


5,021Property, plant and equipment


15,028Goodwill


157,516Other intangible assets (to be amortized over 0.4 to 10 years)


34,760Other noncurrent assets


1,048Assumed liabilities


(12,579
)Allocated purchase price

$
215,277


Acquisition of Alfigen

In February 2004, we acquired substantially all of the assets of Alfigen, a national genetic testing provider based in Pasadena, California, for an
aggregate purchase price of $47.5 million in cash. We accounted for the acquisition as a purchase and, accordingly, the results of operations of Alfigen are included in our consolidated
financial statements from February 21, 2004, the date of acquisition.

F-12

---



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

Deferred tax assetscurrent

$
52Other current assets


103Property, plant and equipment


1,244Goodwill


33,235Other intangible assets (to be amortized over 5 to 10 years)


13,000Liabilities for exit activities


(134
)Allocated purchase price

$
47,500


Acquisition of SangStat

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

DISPOSITIONS

In June 2003, we sold to Teleflex, for $34.5 million in cash, substantially all of the tangible and intangible assets directly associated with our
cardiac devices business, excluding our Fall River, Massachusetts manufacturing facility, the assets related to our FocalSeal product and certain other assets. In addition,
Teleflex assumed $6.3 million of trade obligations directly associated with our cardiac devices business. The assets sold had a net carrying value of approximately $68.1 million at the
time of the sale. We recorded a net loss of $27.7 million in our consolidated statements of operations in 2003 in connection with this sale. We also recorded a tax benefit of
$9.2 million for the reversal of related deferred tax liabilities. At the time of the sale, Teleflex decided to lease the Fall River facility through December 2004, with an option to
extend the term to June 2005. In August 2004, Teleflex exercised this option and extended its lease to June 2005.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT 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" in the Notes to Consolidated Financial Statements of Genzyme Corporation and Subsidiaries. The preparation of consolidated financial statements under accounting
principles generally accepted in the United States requires us to make certain estimates and judgments that affect reported amounts of assets, liabilities, revenues, expenses, and disclosure of
contingent assets and liabilities in our financial statements. Our actual results could differ from these estimates under different assumptions and conditions. We believe that the following critical
accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements:



F-13

---





Revenue Recognition

We evaluate revenue from agreements entered into after June 15, 2003 that have multiple elements to determine whether the components of the arrangement
represent separate units of accounting as defined in Emerging Issues Task Force, or EITF, Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." EITF 00-21
requires that: the delivered items have value to the customer on a standalone basis; there is objective and reliable evidence of fair value of the undelivered items; and the delivery or performance is
probable and within our control for any delivered items that have a right of return. 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.

We
recorded revenues from sales of Gengraf, which we co-promoted with Abbott Laboratories through the end of 2004, on a gross basis, because we meet certain criteria that
indicate we act as a principal as set forth in EITF Issue No. 99-19. The cost of purchasing Gengraf from Abbott is recorded as cost of products sold.

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. Also, most of our products,
including Cerezyme, Renagel, Synvisc and Fabrazyme, are sold at least in part through wholesalers. Inventory in the distribution channel consists of inventory held by wholesalers, who are our
customers, and inventory held by retailers, such as pharmacies and hospitals. Our revenue in a particular period can be impacted by increases or decreases in wholesaler inventories. If wholesaler
inventories increased to excessive levels, we could experience 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 our United States distribution channel. For Cerezyme, Fabrazyme and Synvisc, we receive data on sales and
inventory levels directly from our primary distributors. For Renagel, our data sources include prescription and wholesaler data purchased from external data providers and, in some cases, sales and
inventory data received directly from wholesalers. As part of our efforts to limit inventory held by wholesalers and to gain improved visibility into the distribution channel, we executed inventory
management agreements with our primary Renagel distributors during 2002 and renewed those agreements in 2003. These agreements provide incentives for the distributors to limit the amount of inventory
that they carry, and to provide us with specific inventory and sales data.

We
record reserves for rebates payable under Medicaid and contracts with payors, such as managed care organizations, as a reduction of revenue at the time product sales are recorded. Our
Medicaid and payor rebate reserves have two components:



F-14

---





Because
the second component is calculated based on the amount of inventory in the distribution channel, our assessment of distribution channel inventory levels impacts our estimated reserve
requirements. Our calculation also requires other estimates, including estimates of sales mix, to determine which sales will be subject to rebates and the amount of such rebates. As of
December 31, 2004, our reserve for Medicaid and payor rebates was $30.6 million.

We
record allowances for product returns as a reduction of revenue at the time product sales are recorded. The product returns reserve is estimated based on our experience of returns for
each of our products or, if the product does not have sufficient history of sales, for similar products. If product return trends change, the reserve is adjusted appropriately. Our estimate of
distribution channel inventory is also used to assess the reasonableness of our product returns reserve.

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
were to deteriorate and result in an impairment of their ability to make payments, additional allowances may be required.

In
2002, we adjusted our revenue accounting to comply with the provisions of EITF Issue No. 01-09, "Accounting for Consideration given by a Vendor to a Customer
(including a Reseller of a Vendor's Products)." EITF Issue No. 01-09 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. 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 fees paid to our distributors for services as operating expense where the criteria set forth above are met. The fees incurred for these services were $12.4 million in 2004,
$13.8 million in 2003 and $19.4 million in 2002.

Income Taxes

We use the assets and liability method of accounting for deferred income taxes.

Our
calculation of the income tax provision includes significant estimates, including estimates of income from foreign sales, research and development credits, orphan drug credits, state
and foreign income taxes and other permanent items. Changes in estimates are reflected in our tax provision in the period of change. On a quarterly basis, we make our best estimate of the full year
impact of these items on our tax rate. We adjust these estimates as required, including a tax return to provision adjustment.

We
record liabilities for income tax contingencies based on our best estimate of the underlying exposures. We are currently under IRS audit for tax years 1996 to 1999. We believe that we
have provided sufficient liabilities for all exposures related to this audit. A favorable settlement of this audit
may result in a reduction of future tax provisions, and the amount could be significant. Any such benefit would be recorded upon final resolution of the audit or expiration of the statute of
limitations.

Inventories

We value inventories at cost or, if lower, fair value. We determine cost using the first-in, first-out method. We analyze our inventory
levels quarterly and write down inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value and inventory in excess of

F-15

---



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 that has not been approved for sale. The determination of when inventory is
ready for commercial sale requires the use of judgement. If a product is not approved for sale, it would likely result in the write-off of the inventory and a charge to earnings. At
December 31, 2004, our total inventories included $5.5 million of inventory for Myozyme, which has not yet been approved for sale. In December 2004, we submitted a marketing
application for Myozyme in the European Union and anticipate filing marketing applications in the United States and Japan in 2005. At December 31, 2003 our inventory for products not yet
approved for sale was not significant.

Long-Lived and Intangible Assets

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.

For
products we expect to be commercialized, we capitalize the cost of validating new equipment for the underlying manufacturing process. We begin capitalization when we consider the
product 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 and interest. 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. To date, all of our manufacturing process validation efforts have been successful. As of December 31, 2004, capitalized validation costs, net of accumulated
depreciation, were $10.3 million.

We
generally depreciate plant and equipment using the straight-line method over its estimated economic life, which ranges from 3 to 15 years. Determining the economic
lives of plant and equipment requires us to make significant judgments that can materially impact our operating results. For certain specialized manufacturing plant and equipment, we use the
units-of-production depreciation method. The units-of-production method requires us to make significant judgments and estimates, including estimates of
the number of units that will be produced using the assets. There can be no assurance that our estimates are accurate. If our estimates require adjustment, it could have a material impact on our
reported results.

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



F-16

---





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

As
of December 31, 2004, there was approximately $1.3 billion of net goodwill on our consolidated balance sheet. As of December 31, 2004, there were approximately
$1.1 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 to 15 years or, if significantly greater, as the economic benefits of the assets are realized. To date, all of our assets have been amortized using 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.

Asset Impairments

Impairment of Tangible and Intangible Assets, Other Than Goodwill

We periodically evaluate long-lived assets for potential impairment under SFAS No. 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 SFAS No. 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.

As
a result of our evaluations of long-lived assets, we recorded an impairment charge in 2004 of $4.5 million to write down assets related to a manufacturing facility
in Oklahoma. We recorded an impairment charge in 2003 of $8.0 million to write off tangible and intangible assets associated with our decision to discontinue the active marketing and,
ultimately, the sale of our FocalSeal product. In 2002, we recorded impairment charges of $14.0 million to write off capitalized engineering and design costs that were specific to a proposed
manufacturing facility in Framingham, Massachusetts and $9.0 million for a manufacturing facility in Haverhill, England that manufactures bulk hyaluronic acid, or HA, with excess capacity.

Impairment of Goodwill

Effective January 1, 2002, we adopted SFAS No. 142, which requires that ratable amortization of goodwill and certain intangible assets be replaced
with periodic tests of goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. SFAS No. 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

F-17

---



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

We
are required to perform impairment tests under SFAS No. 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 completed the annual impairment tests for the $1.3 billion of net goodwill related to our reporting units during 2004, and determined
that impairment charges were not required. 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.

In
November 2001, we sold our Snowden-Pencer line of surgical instruments and recorded a loss of $25.0 million. In the three months ended March 31, 2002, upon
adoption of SFAS No. 142, we tested the goodwill of Biosurgery's cardiothoracic reporting unit in accordance with the transitional provisions of that standard, using the present value of
expected future cash flows to estimate the fair value of this reporting unit. We recorded a charge for impairment of goodwill of $98.3 million, which we reflected as a cumulative effect of a
change in accounting for goodwill in our consolidated statements of operations in March 2002.

Strategic Equity Investments

We invest in marketable securities as part of our strategy to align ourselves with technologies and companies that fit with Genzyme's future strategic direction.
Most often we will collaborate on scientific programs and research with the issuer of the marketable securities.

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



If
our review indicates that the decline in value is "other than temporary," we write down our investment to the then current market value and record an impairment charge to our
consolidated statements of operations. The determination of whether an unrealized loss is "other than temporary" requires significant judgment, and can have a material impact on our reported results.
In September 2004, we recorded a $2.9 million impairment charge in connection with our investment in MacroGenics, Inc. and in June 2003, we recorded a $3.6 million
impairment charge in connection with our investment in the common stock of ABIOMED, Inc. In 2002, we recorded impairment charges of $15.4 million, including:



F-18

---





Given
the significance and duration of the declines in the market values of these investments, we concluded that it was unclear over what period the recovery of the stock price for each of these
investments would take place and, accordingly, that any evidence suggesting that the investments would recover to at least our historical cost was not sufficient to overcome the presumption that the
current market price was the best indicator of the value of these investments.

At
December 31, 2004, our stockholders' equity includes $56.0 million of unrealized gains and $4.6 million of unrealized losses related to our investments in
strategic equity securities. The unrealized losses are related to our investment in the common stock of BioMarin Pharmaceutical Inc. However, based on the following facts, we believe that the
decline in market value of BioMarin stock below our costs is considered to be temporary:



It
is our practice to record impairment charges for investments that remain below cost for an extended duration.

F-19

---



Other Reserve Estimates

Determining accruals and reserves requires significant judgments and estimates on the part of management. If our reserve estimates require adjustment, it could
have a material impact on our reported results.

Policies Relating to Tracking Stocks (in effect through June 30, 2003)

Through June 30, 2003, we had certain policies that specifically related to our tracking stocks, which are described below. Effective July 1, 2003,
in connection with the elimination of our tracking stock structure, we rescinded these policies.

Earnings per Share

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

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

Allocation of Revenue, Expenses, Assets, and Liabilities

Our charter set forth which operations and assets were initially allocated to each division and stated that the division would also include all business, products
or programs, developed by or acquired for the division, as determined by our board of directors. We then managed and accounted for transactions between our divisions and with third parties, and any
resulting re-allocations of assets and liabilities, by applying consistently across divisions a detailed set of policies established by our board of directors. Our charter required that
all of our assets and liabilities be allocated among our divisions in a reasonable and consistent manner. Our board of directors retained considerable discretion in determining the types, magnitude
and extent of allocations to each series of common stock.

Allocations
to our divisions were based on one of the following methodologies:



F-20

---





Income Tax Allocation Policy

Through June 30, 2003, we calculated the income tax provision of each division as if such division were a separate taxpayer, which included assessing the
realizability of deferred tax assets at the division level. Our management and accounting policies in effect at the time provided that if, as of the end of any fiscal quarter, a division could not use
any projected annual tax benefit attributable to it to offset or reduce its current or deferred income tax expense, we could allocate the tax benefit to other divisions in proportion to their taxable
income without compensating payment or allocation to the division generating the benefit.

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:

|                                 |                                   | 2004 |           | 2003      |   | 2002      |           | 04/03
Increase/
(Decrease)
% Change |           | 03/02
Increase/
(Decrease)
% Change |    
|-------------------------------- | --------------------------------- | ---- | --------- | --------- | - | --------- | --------- | ----------------------------------- | --------- | ----------------------------------- | ---
|
|Product revenue                  |                                   | $    | 1,976,191 |           | $ | 1,563,509 |           | $                                   | 1,199,617 |                                     | 26 
|Service revenue                  |                                   |      | 212,392   |           |   | 130,984   |           |                                     | 114,493   |                                     | 62 
|                                 |                                   |      |           |           |   |           |           |                                     |           |                                     |    
|                                 | Total product and service revenue |      |           | 2,188,583 |   |           | 1,694,493 |                                     |           | 1,314,110                           |    
|Research and development revenue |                                   |      | 12,562    |           |   | 19,378    |           |                                     | 15,362    |                                     | (35
|                                 |                                   |      |           |           |   |           |           |                                     |           |                                     |    
|                                 | Total revenues                    |      | $         | 2,201,145 |   | $         | 1,713,871 |                                     | $         | 1,329,472                           |    
|                                 |                                   |      |           |           |   |           |           |                                     |           |                                     |    

Product Revenue

We derive product revenue primarily from sales of:



F-21

---





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

|                      |                                             | 2004                       |        | 2003    |           | 2002   |         | 04/03
Increase/
(Decrease)
% Change |        | 03/02
Increase/
(Decrease)
% Change |          
|--------------------- | ------------------------------------------- | -------------------------- | ------ | ------- | --------- | ------ | ------- | ----------------------------------- | ------ | ----------------------------------- | ---------
|
|Renal:                |                                             |                            |        |         |           |        |         |                                     |        |                                     |          
|                      | Renagel (including sales of bulk sevelamer) |                            | $      | 363,720 |           | $      | 281,701 |                                     | $      | 156,864                             |          
|                      |                                             |                            |        |         |           |        |         |                                     |        |                                     |          
|Therapeutics:         |                                             |                            |        |         |           |        |         |                                     |        |                                     |          
|                      | Cerezyme                                    |                            |        | 839,366 |           |        | 733,817 |                                     |        | 619,184                             |          
|                      | Fabrazyme                                   |                            |        | 209,637 |           |        | 80,617  |                                     |        | 26,101                              |          
|                      | Thyrogen                                    |                            |        | 63,454  |           |        | 43,438  |                                     |        | 28,270                              |          
|                      | Other Therapeutics                          |                            |        | 2,462   |           |        | 1,802   |                                     |        | 871                                 |          
|                      |                                             |                            |        |         |           |        |         |                                     |        |                                     |          
|                      |                                             | Total Therapeutics         |        |         | 1,114,919 |        |         | 859,674                             |        |                                     | 674,426  
|                      |                                             |                            |        |         |           |        |         |                                     |        |                                     |          
|Transplant:           |                                             |                            |        |         |           |        |         |                                     |        |                                     |          
|                      | Thymoglobulin/Lymphoglobuline               |                            |        | 108,928 |           |        | 29,953  |                                     |        |                                    |          
|                      | Other Transplant                            |                            |        | 42,125  |           |        | 14,367  |                                     |        |                                    |          
|                      |                                             |                            |        |         |           |        |         |                                     |        |                                     |          
|                      |                                             | Total Transplant           |        |         | 151,053   |        |         | 44,320                              |        |                                     |         
|                      |                                             |                            |        |         |           |        |         |                                     |        |                                     |          
|Biosurgery:           |                                             |                            |        |         |           |        |         |                                     |        |                                     |          
|                      | Synvisc                                     |                            |        | 88,296  |           |        | 108,498 |                                     |        | 89,820                              |          
|                      | Sepra products                              |                            |        | 61,647  |           |        | 47,731  |                                     |        | 39,142                              |          
|                      | Other Biosurgery                            |                            |        | 30,415  |           |        | 60,700  |                                     |        | 98,890                              |          
|                      |                                             |                            |        |         |           |        |         |                                     |        |                                     |          
|                      |                                             | Total Biosurgery           |        |         | 180,358   |        |         | 216,929                             |        |                                     | 227,852  
|                      |                                             |                            |        |         |           |        |         |                                     |        |                                     |          
|Diagnostics/Genetics: |                                             |                            |        |         |           |        |         |                                     |        |                                     |          
|                      | Diagnostics Products                        |                            |        | 90,955  |           |        | 88,588  |                                     |        | 83,065                              |          
|                      | Other Diagnostics/Genetics                  |                            |        | 753     |           |        | 607     |                                     |        | 322                                 |          
|                      |                                             |                            |        |         |           |        |         |                                     |        |                                     |          
|                      |                                             | Total Diagnostics/Genetics |        |         | 91,708    |        |         | 89,195                              |        |                                     | 83,387   
|                      |                                             |                            |        |         |           |        |         |                                     |        |                                     |          
|Other product revenue |                                             |                            | 74,433 |         |           | 71,690 |         |                                     | 57,088 |                                     | 4        
|                      |                                             |                            |        |         |           |        |         |                                     |        |                                     |          
|                      |                                             | Total product revenue      |        | $       | 1,976,191 |        | $       | 1,563,509                           |        | $                                   | 1,199,617
|                      |                                             |                            |        |         |           |        |         |                                     |        |                                     |          

F-22

---



2004 As Compared to 2003

Renal

Worldwide sales of Renagel, including sales of bulk sevelamer, the raw material used to formulate Renagel, increased 29% to $363.7 million in 2004, as
compared to 2003, primarily due to:



Sales
of Renagel, including sales of bulk sevelamer, were approximately 18% of our total product revenue for 2004 and 2003. We expect sales of Renagel to increase, driven primarily by
the continued adoption of the product by nephrologists worldwide. Renagel competes with several products and our future sales may be impacted negatively by these products. We discuss these competitors
under the heading "Factors Affecting Future Operating ResultsOur future success will depend upon our ability to effectively develop and market our products against our competitors," in
this report. In addition, our ability to continue to increase sales of Renagel will be dependent on many other factors, including:



In
addition, our ability to effectively manage wholesaler inventories and the levels of compliance with the inventory management programs we implemented with our wholesalers in 2002, and
renewed in 2003 for a two year term terminable at will, could impact the revenue that we record from period to period.

Therapeutics

The increase in our Therapeutics product revenue for 2004, as compared to 2003, is primarily due to continued growth in sales of Cerezyme, Fabrazyme and Thyrogen.

The
growth in sales of Cerezyme for 2004, as compared to 2003, is attributable to our continued identification of new Gaucher disease patients, particularly internationally. Our price
for Cerezyme has remained consistent from period to period. Although we expect Cerezyme to continue to be a substantial contributor to revenues in the future, it is a mature product and we do not
expect the current new patient growth trend to continue. The growth in sales of Cerezyme was also impacted by a 10% increase in the average exchange rate, which positively impacted sales of Cerezyme
by $25.5 million.

F-23

---



Our
results of operations are highly dependent on sales of Cerezyme and a reduction in revenue from sales of this product would adversely affect our results of operations. Sales of
Cerezyme are approximately 42% of our total product revenue for 2004, as compared to approximately 47% for 2003. Revenue from Cerezyme would be impacted negatively if competitors develop alternative
treatments for Gaucher disease and the alternative products gain commercial acceptance, if our marketing activities
are restricted, or if reimbursement is limited. Although orphan drug status for Cerezyme, which provided us with exclusive marketing rights for Cerezyme in the United States, expired in
May 2001, we continue to have patents protecting our method of manufacturing Cerezyme until 2010 and the composition of Cerezyme as made by that process until 2013. The expiration of market
exclusivity and orphan drug status will likely subject Cerezyme to increased competition, which may decrease the amount of revenue we receive from this product or the growth of that revenue. We are
aware of companies that have initiated efforts to develop competitive products, and other companies may do so in the future. We discuss these competitors under the heading "Factors Affecting Future
Operating ResultsOur future success will depend upon our ability to effectively develop and market our products against our competitors," in this report.

The
increase in sales of Fabrazyme for 2004, as compared to 2003, is primarily attributable to:



The
increase in sales of Thyrogen in 2004, as compared to 2003, is primarily attributable to volume growth, particularly in Europe, where sales increased 51% to $25.9 million.

Transplant

We began recording product revenue for our Transplant business unit on September 11, 2003, the day that we completed the acquisition of SangStat and began
including its results of operations in our
consolidated financial statements. Other Transplant revenues for 2004 include $33.6 million in sales of Gengraf, which we co-promoted with Abbott Laboratories under an agreement
that expired on December 31, 2004. We are aware of several products that compete with Thymoglobulin and Lymphoglobuline and that could have an adverse effect on our sales of these products. We
discuss these competitors under the heading "Factors Affecting Future Operating ResultsOur future success will depend upon our ability to effectively develop and market our products
against our competitors," in this report.

Biosurgery

Biosurgery's product revenue decreased 17% to $180.4 million for 2004, as compared to 2003. The decrease is primarily due to the absence of revenues from
our line of cardiac device products following our sale of this product line in June 2003. Revenues from sales of cardiac device products were $40.2 million in 2003. Additionally, sales
of Synvisc decreased 19% to $88.3 million for 2004 as compared to 2003. The decrease is primarily due to inventory reductions in the first half of 2004, as well as competitive pricing pressures
and price discounts by Wyeth, our then U.S. marketing partner, in response to Medicare pricing rate changes. In addition, Wyeth reduced its inventory of Synvisc in the fourth quarter of 2004 in
anticipation of our reacquisition of sales and marketing rights. We expect our purchase from Wyeth of sales and marketing rights to Synvisc in the U.S. and several European

F-24

---



countries
will have a positive impact on the revenues we record for the product in 2005. These decreases were partially offset by a $13.9 million increase in sales of Sepra products, primarily
due to increased market penetration in the U.S. and Japan. Additionally, we recognized a one-time, $5.0 million royalty payment in September 2004 under an agreement with
Q-Med AB, for which there was no comparable amount in 2003. We are aware of several competitive viscosupplementation products on the market and in development that could adversely affect
our sales of Synvisc in the future. We discuss these competitors under the heading "Factors Affecting Future Operating ResultsOur future success will depend upon our ability to
effectively develop and market our products against our competitors," in this report.

Diagnostics/Genetics

Diagnostics/Genetics product revenue increased slightly for 2004, as compared to 2003. The increase is attributable to a 16% increase in the combined sales of
infectious disease testing products and HDL and LDL cholesterol testing products to $68.3 million. This increase was partially offset by a 14% decrease in sales of point of care rapid
diagnostic tests for pregnancy and infectious diseases to $22.7 million, and the expiration of our royalty agreement with Techne Corporation in June 2003, which resulted in no royalty
revenue being recorded in 2004, as compared to $3.3 million in 2003.

Other Product Revenue

The increase in Other product revenue for 2004, as compared to 2003, is primarily attributable to a $5.0 million milestone payment received in
October 2004 from Schering-Plough in accordance with the terms of a license agreement related to p53 gene therapy. Additionally, sales of bulk pharmaceuticals increased 25% to
$44.2 million primarily due to increased demand for liquid crystals. These increases were partially offset by a decrease in bulk sales of and royalties earned on sales of WelChol. Bulk sales of
and royalties earned on WelChol decreased 31% to $24.9 million as a result of a decrease in demand from our U.S. marketing partner, Sankyo Pharma, Inc. Because we began recording
revenues from our two marketed oncology products, Campath and Clolar, under this category at the end of 2004, we expect Other product revenue to increase in 2005.

2003 As Compared to 2002

Renal

In the first quarter of 2003, we obtained reimbursement approval for the 800 mg tablet formulation of Renagel in France, the last major European market where this
form of the product had been unavailable. In addition, in March 2003, we began shipping Renagel tablets to the European market from our manufacturing facility in Waterford, Ireland, upon
receiving approval from the EMEA, to commence production of Renagel at the plant. In October 2003 we received final approval of this plant from the FDA.

Worldwide
sales of Renagel, including sales of bulk sevelamer, increased 80% to $281.7 million for the year ended December 31, 2003, as compared to the same period of 2002,
primarily due to:



F-25

---





Sales
of Renagel, including sales of bulk sevelamer, are 18% of our total product revenue for 2003 as compared to approximately 13% for 2002.

Therapeutics

The increase in our Therapeutics product revenue for 2003, as compared to 2002, is primarily due to continued growth in sales of Cerezyme, Fabrazyme and Thyrogen.

The
growth in sales of Cerezyme for 2003, as compared to 2002, is attributable to our continued identification of new Gaucher disease patients, particularly internationally, where unit
sales of Cerezyme increased 17% from 2002. Our price for Cerezyme has remained consistent period to period. The growth in sales of Cerezyme was also positively impacted by the weakened U.S. Dollar
against the Euro. During 2003, the U.S. Dollar weakened against the Euro by 20% on average, as compared to 2002. This positively impacted sales by $43.0 million.

The
increase in sales of Fabrazyme in 2003, as compared to 2002, is primarily attributable to:



The
increase in sales of Thyrogen in 2003, as compared to 2002, is attributable to increased market penetration, particularly in Europe, where sales increased 94% to $17.1 million
for 2003 as compared to 2002.

Transplant

Transplant's product revenue for 2003 reflects sales beginning on September 11, 2003, the day on which we began including the results of operations of
SangStat in our consolidated financial statements. Other Transplant revenue for 2003 include $13.1 million of sale of Gengraf, which we co-promoted with Abbott Laboratories under an
agreement which expired on December 31, 2004.

Biosurgery

Biosurgery's product revenue decreased 5% to $216.9 million in 2003, as compared to 2002. The decrease is primarily due to the absence of revenue from our
line of cardiac device products following our sale of this product line in June 2003. Revenue from sales of cardiac products was $40.2 million through the date of disposition as compared
to $80.1 million of the full year in 2002. This decrease was partially offset by a 21% increase in sales of Synvisc to $108.5 million, primarily due to increased utilization of the
product within the existing customer base as well as the creation of new accounts. Additionally, sales of Sepra products increased 22% to $47.7 million for 2003, primarily due to increased
market penetration.

F-26

---



Diagnostics/Genetics

Diagnostic/Genetics product revenue increased 7% for 2003, as compared to 2002. The increase is primarily attributable to an 18% increase in sales of point of
care rapid diagnostic tests for pregnancy and infectious diseases to $26.4 million, and a 2% increase in the combined sales of infectious disease testing products, and HDL and LDL cholesterol
testing products to $62.2 million. This increase was partially offset by the expiration of our royalty agreement with Techne on June 30, 2003, which resulted in a decrease in royalty
revenue to $3.3 million in 2003, as compared to $6.0 million in 2002.

Other Product Revenue

The increase in Other product revenue for 2003, as compared to 2002, is primarily attributable to an increase in bulk sales of and royalties earned on sales of
WelChol and an increase in sales of bulk pharmaceuticals. Bulk sales of and royalties earned on WelChol increased 34% to $36.3 million as a result of sales to our U.S. marketing partner,
Sankyo, which has experienced continued market growth of the product in the United States. Sales of bulk pharmaceuticals increased 17% to $35.3 million primarily due to increased demand for
liquid crystals.

Service Revenue

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

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

|                      |                       | For the year ended December 31, |         | 04/03
Increase/
(Decrease)
% Change |   | 03/02
Increase/
(Decrease)
% Change |        
|--------------------- | --------------------- | ------------------------------- | ------- | ----------------------------------- | - | ----------------------------------- | -------
|
|
|Biosurgery            |                       | $                               | 24,917  |                                     | $ | 29,317                              |        
|Diagnostics/Genetics  |                       |                                 | 187,413 |                                     |   | 101,540                             |        
|Other service revenue |                       |                                 | 62      |                                     |   | 127                                 |        
|                      |                       |                                 |         |                                     |   |                                     |        
|                      | Total service revenue |                                 | $       | 212,392                             |   | $                                   | 130,984
|                      |                       |                                 |         |                                     |   |                                     |        

2004 As Compared to 2003

Service revenue attributable to our Biosurgery segment decreased 15% to $24.9 million in 2004, as compared to 2003, primarily due to $6.2 million of
reimbursed expenses, classified as revenue, received from Wyeth in 2003, for which there were no comparable amounts in 2004 and will be no comparable
amounts in the future. This decrease was partially offset by a 17% increase to $20.7 million in Carticel revenue due to volume growth and a price increase in 2004.

Service
revenue attributable to our Diagnostics/Genetics reporting segment increased 85% to $187.4 million in 2004, as compared to 2003. This increase is primarily attributable
to:



F-27

---





2003 As Compared to 2002

Service revenue attributable to our Biosurgery segment increased 18% to $29.3 million in 2003, as compared to 2002, primarily due to $6.2 million of
reimbursed expenses, classified as revenue, from our Synvisc distribution partner in 2003, as compared to $1.5 million in 2002.

Service
revenue attributable to our Diagnostics/Genetics segment increased 14% to $101.5 million in 2003 as compared to 2002. This increase is primarily attributable to:



International Product and Service Revenue

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

|                                          |  | 2004 |         | 2003 |   | 2002    |   | 04/03
Increase/
(Decrease)
% Change |         | 03/02
Increase/
(Decrease)
% Change |   
|----------------------------------------- |  | ---- | ------- | ---- | - | ------- | - | ----------------------------------- | ------- | ----------------------------------- | --
|
|International product and service revenue |  | $    | 992,643 |      | $ | 741,757 |   | $                                   | 523,981 |                                     | 34
|% of total product and service revenue    |  |      | 45      | %    |   | 44      | % |                                     | 40      | %                                   |   

2004 As Compared to 2003

The increase in international product and service revenue for 2004, as compared to 2003, is primarily due to:



International
sales of Renagel increased 60% to $140.8 million in 2004 primarily due to:



International
sales of Cerezyme increased 19% to $510.7 million in 2004 primarily due to an increase in the average exchange rate of the Euro of 10%, which positively impacted
sales by $25.5 million.

F-28

---



International
sales of Fabrazyme increased 110% to $128.4 million in 2004 primarily due to:



2003 As Compared to 2002

The increase in international product and service revenue as a percentage of total product and service revenue for 2003, as compared to 2002, is primarily due to:



International
sales of Renagel increased 102% to $87.8 million for 2003, primarily due to:



International
sales of Cerezyme increased 31% to $429.5 million, primarily due to:



These
increases were offset, in part, by $5.1 million of additional liabilities in 2003 arising from the UK Competition Appeal Tribunal's decision regarding Cerezyme pricing in
the United Kingdom.

International
sales of Fabrazyme increased 134% to $61.1 million for 2003, primarily due to:



Research and Development Revenue

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

|             |                                        | For the year ended December 31, |       | 04/03
Increase/
(Decrease)
% Change |   | 03/02
Increase/
(Decrease)
% Change |       
|------------ | -------------------------------------- | ------------------------------- | ----- | ----------------------------------- | - | ----------------------------------- | ------
|
|
|Therapeutics |                                        | $                               |      |                                     | $ | 1                                   |       
|Transplant   |                                        |                                 | 310   |                                     |   |                                    |       
|Biosurgery   |                                        |                                 | 4,241 |                                     |   | 7,046                               |       
|Other        |                                        |                                 | 5,109 |                                     |   | 9,245                               |       
|Corporate    |                                        |                                 | 2,902 |                                     |   | 3,086                               |       
|             |                                        |                                 |       |                                     |   |                                     |       
|             | Total research and development revenue |                                 | $     | 12,562                              |   | $                                   | 19,378
|             |                                        |                                 |       |                                     |   |                                     |       

F-29

---



2004 As Compared to 2003

The research and development revenue attributable to our Biosurgery reporting segment decreased in 2004 as compared to 2003 primarily due to:



Other
research and development revenue decreased primarily due to research and development contracts in our oncology business that expired at the end of 2003.

2003 As Compared to 2002

For 2003, research and development revenue attributable to our Biosurgery reporting segment is primarily due to:



For
2003 and 2002, Other research and development revenue includes revenue derived primarily from the following sources:



MARGINS

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

|                                       |                                        | 2004 |           | 2003 |   | 2002      |    | 04/03
Increase/
(Decrease)
% Change |         | 03/02
Increase/
(Decrease)
% Change |   
|-------------------------------------- | -------------------------------------- | ---- | --------- | ---- | - | --------- | -- | ----------------------------------- | ------- | ----------------------------------- | --
|
|Product margin                         |                                        | $    | 1,527,749 |      | $ | 1,163,548 |    | $                                   | 889,983 |                                     | 31
|                                       | % of total product revenue             |      |           | 77   | % |           | 74 | %                                   |         | 74                                  | % 
|Service margin                         |                                        | $    | 72,248    |      | $ | 55,301    |    | $                                   | 47,918  |                                     | 31
|                                       | % of total service revenue             |      |           | 34   | % |           | 42 | %                                   |         | 42                                  | % 
|Total product and service gross margin |                                        | $    | 1,599,997 |      | $ | 1,218,849 |    | $                                   | 937,901 |                                     | 31
|                                       | % of total product and service revenue |      |           | 73   | % |           | 72 | %                                   |         | 71                                  | % 

2004 As Compared to 2003

Product Margin

Our overall product margin increased $364.2 million, or 31% for 2004, as compared to 2003. This is primarily due to a $340.0 million, or 28%,
increase in the combined sales of Renal, Therapeutics and

F-30

---



Diagnostics/Genetics
products as well as an increase in sales of our newly acquired SangStat products beginning in September 2003.

Product
margin for our Renal reporting segment increased 43% for 2004, as compared to 2003. The increase is primarily due to a 29% increase in sales of Renagel (including bulk
sevelamer), an 8% price increase, which became effective in January 2004, and the scale up of our global manufacturing facilities. In March 2003, we began shipping Renagel tablets
manufactured at our facility in Ireland to the European market upon receiving approval from the EMEA to commence production of Renagel at the plant. In October 2003, we received final approval
of this plant from the FDA, allowing shipment to the U.S.

Product
margin for our Therapeutics reporting segment increased 29% in 2004, as compared to 2003. The increase is primarily due to a 14% increase in sales of Cerezyme, a 160% increase in
sales of Fabrazyme and a 46% increase in sales of Thyrogen in 2004. In addition, product margin for our Therapeutics reporting segment in 2003 includes the write off of $2.3 million of Cerezyme
finished goods due to production issues, for which there is no similar write off in 2004.

Product
margin for our Biosurgery reporting segment increased 1% for 2004, as compared to 2003. The increase is primarily due to a 29% increase in sales of Sepra products and a
one-time royalty payment recognized in 2004 for which there was no comparable amount recognized in 2003. These increases were partially offset by a 19% decrease in Synvisc sales and a 50%
decrease in Other Biosurgery product revenue resulting from the sale of our cardiac device business in June 2003.

Product
margin for our Diagnostics/Genetics reporting segment decreased 19% for 2004, as compared to 2003. The decrease is primarily due to a 19% increase in cost of diagnostic products
sold resulting from a one-time royalty payment of $1.2 million and manufacturing capacity variances attributable to a decline in the demand for certain diagnostic rapid test kits.
Additionally, the expiration of our royalty agreement with Techne Corporation in June 2003 resulted in no royalty revenue being recorded in 2004 and therefore no product margin related to this
royalty.

Service Margin

Service margin for our Biosurgery reporting segment decreased 28% in 2004, as compared to 2003, primarily due to the absence of service revenue related to Synvisc
in 2004. This decrease was a result of $6.2 million of reimbursed expenses, classified as revenue, received from Wyeth in 2003, for which there were no comparable amounts in 2004.

Service
margin for our Diagnostics/Genetics reporting segment increased 52% in 2004, as compared to 2003. This increase is primarily due to an 85% increase in service revenue resulting
from our acquisition of certain of the pathology/oncology testing assets of IMPATH in May 2004, our acquisition of substantially all of the assets Alfigen in February 2004, continued
growth in the prenatal screening and diagnosis market and increased sales of DNA testing services. These increases were offset by a 106% increase in costs associated with these services, including a
one-time royalty payment of $3.3 million.

2003 As Compared to 2002

Product Margin

Our overall product margin increased $273.6 million, or 31%, in 2003, as compared 2002, primarily due to $315.9 million, or 35%, increase in the
combined sales of Renal, Therapeutics and Diagnostics/Genetics products as well as the introduction of sales of our newly acquired SangStat products beginning in September 2003.

F-31

---



Product
margin for our Renal reporting segment increased 75% in 2003, as compared to 2002. The increase is primarily due to a 71% increase in sales of Renagel, which was partially offset
by $13.1 million in sales of bulk sevelamer, a lower margin product, to our Asian marketing partners, and an increase in the rebate reserve for the product corresponding to an increase in our
estimates of the percentage of patients being reimbursed by government programs. Sales of Renagel (including sales of bulk sevelamer) increased 80% in 2003.

Product
margin for our Therapeutics reporting segment increased 28% in 2003, as compared to 2002. The increase is primarily due to a 19% increase in sales of Cerezyme, a 209% increase in
sales of Fabrazyme and a 54% increase in sales of Thyrogen in 2003. The increase in Therapeutics product margin for 2003 is offset, in part, by the write off of $2.3 million of Cerezyme
finished goods due to production issues, for which there is no similar charge in 2002.

Product
margin for our Biosurgery reporting segment increased 5% in 2003, as compared to 2002. The increase is primarily due to a 21% increase in sales of Synvisc and a 22% increase in
sales of Sepra products, which were partially offset by a 39% decrease in Other Biosurgery product revenue resulting from the sale of our cardiac device business in June 2003.

Product
margin for our Diagnostics/Genetics reporting segment increased 35% in 2003, as compared to 2002. The increase is primarily due to a 7% increase in sales of diagnostic products
and a 7% decrease in cost of products sold. The decrease in the cost of products sold in 2003 is primarily attributable to a charge of $2.9 million recorded in 2002 for the closure of a
diagnostic products manufacturing facility in San Carlos, California for which there is no comparable charge in 2003.

Service Margin

Service margin for our Biosurgery reporting segment increased 45% in 2003, as compared to 2002 primarily due to a 317% increase in service revenue related to
Synvisc in 2003. These increases were a result of the classification of $6.2 million of reimbursed expenses from our Synvisc distribution partner as service revenue in 2003, compared to
$1.5 million of reimbursed expenses in 2002.

Service
margin for our Diagnostics/Genetics reporting segment increased 8% in 2003, as compared to 2002, primarily due to a 22% increase in the combined sales of our molecular genetics
(DNA) and cancer testing services.

OPERATING EXPENSES

Selling, General and Administrative Expenses

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

|                                             |  | For the year ended December 31, |         | 04/03
Increase/
(Decrease)
% Change |   | 03/02
Increase/
(Decrease)
% Change | 
|-------------------------------------------- |  | ------------------------------- | ------- | ----------------------------------- | - | ----------------------------------- | 
|
|
|Selling, general and administrative expenses |  | $                               | 599,388 |                                     | $ | 519,977                             | 

2004 As Compared to 2003

SG&A increased $79.4 million for 2004, as compared to 2003, primarily due to:



F-32

---





These
increases were partially offset by decreases of:



2003 As Compared to 2002

SG&A increased $81.9 million, or 19% to $520.0 million in 2003 as compared to $438.0 million in 2002, primarily due to:



F-33

---





These
increases were offset by a decrease of $14.0 million in spending for Biosurgery's cardiac device business resulting from the sale of this business in June 2003. SG&A for
Biosurgery's cardiac device business includes $9.9 million of costs related to exiting this business in 2003.

In
2003, the three remaining patients in the clinical trial for human transgenic alpha-glucosidase were transitioned to a CHO-cell derived product as part of the termination
of the transgenic portion of our Pompe program and, as a result, we no longer required an accrual for costs related to our legal obligation associated with providing transgenic products to these
patients. During 2003, we reversed the $2.1 million remaining in the reserve to Therapeutics SG&A. The following table shows the reserve for our contractual obligations to provide transgenic
product. As of December 31, 2003, the remaining reserve was fully reversed (amounts in thousands):

Balance at December 31, 2001


14,124Payments in 2002


(6,031
)Revision of estimate


(5,497
)Balance at December 31, 2002


2,596Payments in 2003


(491
)Revision of estimate


(2,105
)Balance at December 31, 2003

$



Research and Development Expenses

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

|                                                                                            |  | 2004 |         | 2003 |   | 2002    |  | 04/03
Increase/
(Decrease)
% Change |         | 03/02
Increase/
(Decrease)
% Change |   
|------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- |  | ----------------------------------- | ------- | ----------------------------------- | --
|
|Research and development expenses (including research and development related to contracts) |  | $    | 391,802 |      | $ | 335,256 |  | $                                   | 308,487 |                                     | 17

F-34

---



2004 As Compared to 2003

Research and development expenses increased $56.5 million for 2004, as compared to 2003, primarily due to:



These
increases were partially offset by decreases of:



2003 As Compared to 2002

Research and development expenses increased $26.8 million or 9% to $335.3 million in 2003, as compared to $308.5 million in 2002, primarily
due to:



F-35

---





These
increases were partially offset by:



The
$15.7 million net increase in spending for Therapeutics research and development programs includes a $26.5 million increase primarily due to the increased spending on
Therapeutics research and development programs, partially offset by $10.8 million of additional research and development expenses in 2002, for which there are no comparable amounts during 2003.
The $10.8 million consisted primarily of $8.8 million to reflect bulk product purchases and contract cancellation charges resulting from canceling our manufacturing contract for the
clinical development of the enzyme replacement therapy for Pompe disease produced using the CHO cell line licensed from Synpac (North Carolina), Inc.

Amortization of Intangibles

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

|                            |  | 2004 |         | 2003 |   | 2002   |  | 04/03
Increase/
Decrease)
% Change |        | 03/02
Increase/
(Decrease)
% Change |   
|--------------------------- |  | ---- | ------- | ---- | - | ------ |  | ---------------------------------- | ------ | ----------------------------------- | --
|
|Amortization of intangibles |  | $    | 109,473 |      | $ | 80,257 |  | $                                  | 70,278 |                                     | 36

Amortization
expense increased by $29.2 million for 2004, as compared to 2003, primarily due to additional amortization expense attributable to the intangible assets acquired in
connection with our acquisition of SangStat in September 2003, our acquisition of substantially all of the assets of Alfigen in
February 2004 and our acquisition of certain of the pathology/oncology testing assets of IMPATH in May 2004.

The
increase in amortization of intangibles to $80.3 million for the year ended December 31, 2003, as compared to $70.3 million the year ended December 31,
2002, is primarily due to amortization of intangible assets acquired in connection with our acquisition of SangStat in September 2003, which resulted in $10.6 million of amortization
expense during 2003.

Purchase of In-Process Research and Development

In connection with six of our acquisitions since 2000, we have acquired various IPR&D projects. Substantial additional research and development will be required
prior to any of our acquired IPR&D programs and technology platforms reaching technological feasibility. In addition, once research is

F-36

---



completed,
each product candidate acquired from ILEX, SangStat, Novazyme, GelTex and Biomatrix will need to complete a series of clinical trials, and receive FDA or other regulatory approvals prior to
commercialization. Our current estimates of the time and investment required to develop these products and technologies may change depending on the different applications that we may choose to pursue.
We cannot give assurances that these programs will ever reach feasibility or develop into products that can be marketed profitably. In addition, we cannot guarantee that we will be able to develop and
commercialize products before our competitors develop and commercialize products for the same indications. If products based on our acquired IPR&D programs and technology platforms do not become
commercially viable, our results of operations could be materially adversely affected.

ILEX

In connection with our acquisition of ILEX, we have acquired IPR&D related to three development projects, Campath (for indications other than B-cell
chronic lymphocytic leukemia), Clolar (clofarabine) and tasidotin hydrochloride, formerly referred to as ILX-651.

Campath
is a humanized monoclonal antibody that binds to a specific target, CD52, on cell surfaces leading to the destruction of malignant, or cancerous, cells. Campath was launched in
May 2001 in the United States, and in August 2001 in Europe under the name MabCampath. The product is approved for use in patients with B-cell chronic lymphocytic leukemia
who have been treated with alkylating agents and who have failed fludarabine therapy. At the time of acquisition, clinical trials in
non-Hodgkin's lymphoma, multiple sclerosis and other cancer and non-cancer indications were being conducted.

Clolar
is a next-generation, purine nucleoside antimetabolite that is currently under investigation in pediatric and adult leukemias and solid tumors. In
December 2004, after the date of our acquisition of ILEX, the FDA granted marketing approval for Clolar for the treatment of children with refractory or relapsed acute lymphoblastic leukemia.
Clolar is the first new leukemia treatment approved specifically for children in more than a decade. At the time of the acquisition, clinical trials for hematologic cancer, solid tumor and additional
pediatric acute leukemia indications were being conducted.

Tasidotin
is a next-generation synthetic pentapeptide analog of the natural substance dolastatin-15. This product candidate targets tubulin and has been
chemically modified to provide improved pharmacological properties over earlier members of its class. ILEX initiated phase 2 clinical trials of tasidotin in late 2003 and 2004 in a variety of
indications.

As
of the date our acquisition of ILEX, none of these projects had reached technological feasibility nor had an alternative future use. Accordingly, we allocated to IPR&D, and charged to
expense in our consolidated statements of operations in December 2004, $254.5 million, representing the portion of the purchase price attributable to these projects, of which
$96.9 million is attributable to the Campath development projects, $113.4 million is attributable to the clofarabine development project and $44.2 million is related to the
tasidotin development projects.

As
of December 31, 2004, we estimated that it will take approximately three to six years and an investment of approximately $45 million to complete the development of,
obtain approval for and commercialize Campath for non-Hodgkin's lymphoma and multiple sclerosis and other cancer and non-cancer indications. We estimated that it will take approximately
three to six years and an investment of approximately $11 million to complete the development of, obtain approval for and commercialize Clolar for hematologic cancer, solid tumor and additional
pediatric acute leukemia indications. We estimated that it will take approximately 5 years and an investment of approximately $23 million to complete the development of, obtain approval for and
commercialize tasidotin.

F-37

---



SangStat

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

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

Also
in March 2004, we received marketing authorization for both 25mg and 100mg cyclosporine capsules in a European country. We terminated our license for cyclosporine capsules in
January 2005 and exited this market.

As
of December 31, 2004, we estimated that it will take approximately ten years and an investment of approximately $75.0 million to $100.0 million to complete the
development of, obtain approval for and commercialize the first product based on the RDP58 technology for pulmonary and other disorders not licensed to PGP.

Novazyme

In September 2001, in connection with our acquisition of Novazyme, we acquired a technology platform that we believe can be leveraged in the development of
treatments for various LSDs. As of the acquisition date, the technology platform had not achieved technological feasibility and would require significant further development to complete. Accordingly,
we allocated to IPR&D and charged to expense $86.8 million, representing the portion of the purchase price attributable to the technology platform. We recorded this amount as a charge to
expense in our consolidated statements of operations for the year ended December 31, 2001.

The
platform technology is specific to LSDs and there is currently no alternative use for the technology in the event that it fails as a platform for enzyme replacement therapy for the
treatment of LSDs. As of December 31, 2004, we estimated that it will take approximately four to eight years and an investment of approximately $100.0 million to $125.0 million to
complete the development of, obtain approval for and commercialize the first product based on this technology platform.

Wyntek

In June 2001, in connection with our acquisition of Wyntek, we allocated approximately $8.8 million of the purchase price to IPR&D. We recorded this
amount as a charge to expense in our consolidated statements of operations for the year ended December 31, 2001.

Wyntek
was developing a cardiovascular product to rapidly measure the quantitative levels of cardiac marker proteins. In 2003, we cancelled our cardiac and stroke quantitative point of
care rapid test development programs. No further development is planned for these programs.

F-38

---



GelTex

In December 2000, in connection with the acquisition of GelTex, we allocated approximately $118.0 million of the purchase price to IPR&D, which we
recorded as a charge to expense in our consolidated statements of operations for the year ended December 31, 2000. In 2003, we cancelled our original polymer development program. No further
development is planned for this program. However,
we have several ongoing development programs that are exploring potential alternative applications for the polymer platform technology. As of December 31, 2004, the technological feasibility of
these projects had not yet been reached and no significant departures from the assumptions included in the valuation analysis had occurred.

Biomatrix

In connection with our acquisition of Biomatrix in December 2000, we allocated approximately $82.1 million to IPR&D, which we recorded as a charge
to expense in our consolidated statements of operations for the year ended December 31, 2000. As of December 31, 2004, the technological feasibility of the Biomatrix IPR&D projects had
not yet been reached and no significant departures from the assumptions included in the valuation analysis had occurred.

Charge for Impairment of Goodwill

In connection with our assessment of the value of our Biosurgery reporting unit and the elimination of our tracking stock structure, we determined that the fair
value of Biosurgery's net assets was lower than their carrying value, indicating a potential impairment of the goodwill allocated to Biosurgery's orthopaedics reporting unit. Based on our analysis, we
have concluded that the goodwill assigned to Biosurgery's orthopaedics reporting unit is fully impaired. Accordingly, we recorded a charge for impairment of goodwill of $102.8 million in our
consolidated statements of operations in June 2003 to write off this goodwill.

Charge for Impaired Assets

In 2004, due to a change in plans for future manufacturing capacity and research and development facilities, we determined that we will not require all of the
space we had been leasing at our facility in Oklahoma City, Oklahoma. As a result, in December 2004, we recorded a charge of $2.1 million to research and development expenses to record
the exit costs related to space we have vacated and a charge for impaired assets of $4.5 million to write off the assets related to that specific area of our Oklahoma facility.

In
connection with the sale of assets to Teleflex, we tested the carrying value of our manufacturing facility in Fall River, Massachusetts in June 2003 to determine whether the
impairment recognition criteria had been met. Our impairment analysis indicated that the carrying value for the Fall River facility would not be fully recoverable. As a result of this assessment, we
recorded a charge for
impaired asset of $2.9 million in our consolidated statements of operations in June 2003 to write down the carrying value of the Fall River facility to its estimated fair value.

In
2003, we discontinued the active marketing and, ultimately sold our FocalSeal product. In connection with the discontinuation of this product, we tested the carrying value of the
assets associated with the product to determine whether the impairment recognition criteria had been met. Our impairment analysis indicated that the carrying value of these assets would not be fully
recoverable. As a result of this assessment, we recorded total charges of $14.3 million in our consolidated financial statements in 2003 to write off the tangible and intangible assets
associated with our FocalSeal product.

F-39

---



During
2001, we began constructing a recombinant protein manufacturing facility adjacent to our existing facilities in Framingham, Massachusetts. During the quarter ended
December 31, 2001, we suspended development of this site in favor of developing the manufacturing site we acquired from Pharming N.V. in Geel, Belgium. Throughout 2002, we considered various
alternative plans for use of the Framingham manufacturing facility, including contract manufacturing arrangements, and whether the $16.8 million of capitalized engineering and design costs for
this facility would be applicable to the future development of and activities at this site. In December 2002, due to a change in our plans for future manufacturing capacity requirements, we
determined that we would not proceed with construction of the Framingham facility for the foreseeable future. As a result, we recorded a charge in 2002 to write off $14.0 million of capitalized
engineering and design costs that were specific to the Framingham facility. The remaining $2.8 million of capitalized engineering and design costs were used in the construction of the Belgium
manufacturing facility and, accordingly, have been reallocated as a capitalized cost of that facility.

In
the first quarter of 2002, we began a capital expansion program to build HA manufacturing capacity at one of our existing manufacturing facilities in Framingham, Massachusetts. We
previously manufactured bulk HA at our manufacturing facility in Haverhill, United Kingdom. During the third quarter of 2002, we determined that we have sufficient inventory levels to meet demand
until the Framingham facility is completed and validated, which is estimated to be within one year. In connection with this assessment, we concluded that we no longer require the manufacturing
capacity at the HA Plant in England and we recorded an impairment charge of $9.0 million to write off the assets at the England facility.

OTHER INCOME AND EXPENSES

|                                            |                                   | 2004 |         | 2003    |   | 2002    |         | 04/03
Increase/
(Decrease)
% Change |         | 03/02
Increase/
(Decrease)
% Change |     
|------------------------------------------- | --------------------------------- | ---- | ------- | ------- | - | ------- | ------- | ----------------------------------- | ------- | ----------------------------------- | ----
|
|Equity in loss of equity method investments |                                   | $    | (15,624 | )       | $ | (16,743 | )       | $                                   | (16,858 | )                                   | (7  
|Minority interest                           |                                   |      | 5,999   |         |   | 2,232   |         |                                     |        |                                     | 169 
|Loss on investments in equity securities    |                                   |      | (1,252  | )       |   | (1,201  | )       |                                     | (14,497 | )                                   | 4   
|Loss on sale of product line                |                                   |      |        |         |   | (27,658 | )       |                                     |        |                                     | (100
|Other                                       |                                   |      | (357    | )       |   | 959     |         |                                     | 40      |                                     | (137
|Investment income                           |                                   |      | 24,244  |         |   | 43,015  |         |                                     | 51,038  |                                     | (44 
|Interest expense                            |                                   |      | (38,227 | )       |   | (26,600 | )       |                                     | (27,152 | )                                   | 44  
|                                            |                                   |      |         |         |   |         |         |                                     |         |                                     |     
|                                            | Total other income (expense), net |      | $       | (25,217 | ) | $       | (25,996 | )                                   | $       | (7,429                              | )   
|                                            |                                   |      |         |         |   |         |         |                                     |         |                                     |     

2004 As Compared to 2003

Equity in Loss of Equity Method Investments

Under this caption, we record our portion of the results of our joint ventures with BioMarin, Diacrin, Inc. and MG Biotherapeutics, and our investments in
Peptimmune, Inc. and Therapeutic Human Polyclonals, Inc., which we refer to as THP.

Our
equity in loss of equity method investments decreased 7% to $15.6 million in 2004, as compared to $16.7 million in 2003. The largest component of our equity in loss of
equity method investments was net losses from our joint venture with BioMarin, which decreased 36% to $9.7 million primarily due to increased sales of Aldurazyme, which was launched in the U.S.
in April 2003 and in Europe in June 2003. This decrease is partially offset by a $2.5 million increase in equity in loss of

F-40

---



equity
method investments due to the net losses from our newly created joint venture, MG Biotherapeutics LLC, which we entered into with Medtronic in June 2004.

Minority Interest

As a result of our adoption of FASB Interpretation No., or FIN, 46, "Consolidation of Variable Interest Entities," we have consolidated the results of
Dyax-Genzyme LLC, formerly known as Kallikrein LLC, and Excigen Inc., a collaboration partner. Our consolidated balance sheet as of December 31, 2004 includes assets of
$0.5 million related to Dyax-Genzyme LLC, substantially all of which are included in other current assets. We have recorded Dyax's portion of this joint venture's losses as minority
interest in our consolidated statements of operations. The results of Excigen are not significant.

Loss on Investment in Equity Securities

We review for potential impairment the carrying value of each of our strategic investments in equity securities on a quarterly basis. In September 2004, we
recorded a $2.9 million impairment charge in connection with our investment in MacroGenics and in June 2003, we recorded a $3.6 million impairment charge in connection with our
investment in the common stock of ABIOMED because we considered the decline in value of these investments to be other than temporary. Given the significance and duration of the decline as of
September 30, 2004, with respect to our investment in MacroGenics, and as of June 30, 2003, with respect to our investment in ABIOMED, we concluded that it was unclear over what period
the recovery of the stock price for these investments would take place, and, accordingly, that any evidence suggesting that the investments would recover to at least our historical cost was not
sufficient to overcome the presumption that the current market price was the best indicator of the value of these investments.

At
December 31, 2004, our stockholders' equity includes $56.0 million of unrealized gains and $4.6 million of unrealized losses related to our investments in
strategic equity securities. The unrealized losses are related to our investment in the common stock of BioMarin. The price of BioMarin common stock remained below cost for a portion of 2004. However,
in the three months ended December 31, 2004, the stock price began to recover. As a result, we believe the unrealized losses related to our investment in BioMarin common stock at
December 31, 2004 are temporary.

Investment Income

Our investment income decreased 44% for 2004, as compared to 2003, due to decreases in our average portfolio yield, the amount of unrealized gains on our
portfolio and our average cash and investment balances in 2004.

Interest Expense

Our interest expense increased 44% for 2004, as compared to 2003, primarily due to an increase in average debt balances outstanding in 2004 resulting from:



In
addition, in June 2004, we completed the redemption of our 3% convertible subordinated debentures for cash. This included charges of $4.3 million for premium paid upon redemption and
$5.3 million to write off the unamortized debt fees associated with these debentures. These charges

F-41

---



were
recorded as interest expense on our consolidated statements of operations in 2004. There were no similar charges in 2003.

The
increases were offset, in part, by



2003 As Compared to 2002

Equity in Loss of Equity Method Investments

We record in equity in loss of equity method investments our portion of the results of our joint ventures with BioMarin and Diacrin and our portion of the losses
of Peptimmune, THP, and through May 31, 2002, GTC.

Our
equity in loss of equity method investments decreased 1% to $16.7 million for the year ended December 31, 2003, as compared to $16.9 million for the year ended
December 31, 2002. The largest component of our equity in loss of equity method investments was net losses from our joint venture with BioMarin.

In
January 2002, we formed Peptimmune as our wholly-owned subsidiary by contributing $5.0 million of cash and $0.3 million of other assets to Peptimmune in exchange
for 5.5 million shares of Peptimmune's Series A voting preferred stock and 100 shares of Peptimmune common stock. We consolidated the results of Peptimmune through February 2003
because during that period we owned 100% of its outstanding stock. In March 2003, our investment in Peptimmune decreased to approximately 12% as a result of the sale by Peptimmune of shares of
its Series B voting preferred stock to third-party investors. In accordance with our policy pertaining to affiliate sales of stock, we recorded a $2.9 million net gain
($4.5 million pre-tax) due to this sale, which was recorded as an increase to our investment in Peptimmune in Other noncurrent assets and an increase to Accumulated other
comprehensive income in stockholders' equity in our consolidated balance sheet in June 2003. Although our ownership interest in Peptimmune has declined below 20%, we account for the investment
in Peptimmune under the equity method of accounting because certain factors exist that cause us to continue to have significant influence over Peptimmune, including that the chairman of Peptimmune is
a member of our board of directors and we have license and continuing service agreements with Peptimmune. Our equity in loss of equity method investments for Peptimmune has not been significant to
date.

In
September 2003, in connection with the acquisition of SangStat, we acquired SangStat's interest in two collaborations with THP for the development of humanized polyclonal
therapeutic products to be generated by the immune systems of transgenic animals. In December 2003, SangStat, our wholly-owned subsidiary, made an additional equity investment of
$3.2 million in THP because THP produced the proof-of-principle engineered rabbit required for completion of this specific milestone. We are accounting for this
investment under the equity method because we believe that conditions exist that indicate an ability to exercise significant influence over THP, including that one of our officers is a director of
THP. When THP has produced a commercial-grade engineered rabbit, SangStat has the option to make an additional equity investment of $15.0 million, which would give us ownership of approximately
40% of THP's issued share capital.

F-42

---



We
accounted for our investment in GTC under the equity method of accounting through May 2002, at which point our ownership interest and board representation was reduced below 20%
and we did not have any other factors of significant influence. Accordingly, we began accounting for our investment in GTC under the cost method of accounting in June 2002.

Loss on Investments in Equity Securities

We review for potential impairment the carrying value of each of our strategic investments in equity securities on a quarterly basis. In June 2003, we
recorded a $3.6 million impairment charge in connection with our investment in the common stock of ABIOMED because we considered the decline in value of this investment to be other than
temporary.

In
December 2002, we recorded $15.4 million in impairment charges, including:



Given
the significance and duration of the declines, we concluded that it was unclear over what period the recovery of the stock price for each of these investments would take place and, accordingly,
that any evidence suggesting that the investments would recover to at least our historical cost was not sufficient to overcome the presumption that the current market price was the best indicator of
the value of each of these investments. At December 31, 2003, our stockholders equity includes $16.4 million of unrealized gains and $3.8 million of unrealized losses related to
our other investments in equity securities.

Minority Interest

In 2003, we acquired a 49.99% interest in Dyax-Genzyme LLC, our joint venture with Dyax for the development of DX-88 for the potential
treatment of HAE and other chronic inflammatory diseases. Under our collaboration agreement with Dyax, we have agreed that both companies will share development costs for HAE going forward. The first
significant research and development activities of the joint venture commenced in the fourth quarter of 2003. In addition, Dyax will receive milestone payments from us upon dosing the first HAE
patient in a pivotal clinical trial of DX-88 and upon regulatory approval for the first indication. Dyax will also receive milestone payments from us if DX-88 is approved for
additional indications. Both companies will share equally in profits from sales of DX-88 for HAE and/or other chronic inflammatory diseases. In March 2003, Dyax exercised an option
to acquire from us all rights to DX-88 for surgical indications.

In
January 2003, the Financial Accounting Standards Board, or FASB, issued FASB Interpretation No., or FIN, 46, "Consolidation of Variable Interest Entities," as amended and
revised in December 2003, which addresses the consolidation of variable interest entities, or VIEs, by business enterprises that are the primary beneficiaries. A VIE is an entity that does not
have sufficient equity investment to permit it to finance its activities without additional financial support from a third party, or whose equity investors lack the characteristics of a controlling
financial interest. The primary beneficiary of a VIE is the enterprise with the majority of the risk or rewards associated with the VIE. Immediate application of FIN 46 was required for all potential
VIEs created after January 31, 2003. For potential VIEs created prior to February 1, 2003, the consolidation requirements apply for periods ending after March 15, 2004. FIN 46
also requires enhanced disclosures related to VIEs. As a result of our adoption of FIN 46, we have consolidated the results of Dyax-Genzyme LLC, which we became a member of in 2003. Our
consolidated balance sheet at December 31, 2004 includes assets of $1.4 million related to Dyax-Genzyme LLC, substantially all of which are included in accounts

F-43

---



receivable.
We have recorded Dyax's portion of this joint venture's losses as minority interest in our consolidated statements of operations.

Investment Income

Our investment income decreased 16% for the year ended December 31, 2003, as compared to the year ended December 31, 2002, due to a 1% decline in
our average portfolio yield and a slight decline in average cash balances.

Interest Expense

Our interest expense decreased 2% for 2003, as compared to 2002, primarily due to a slight decline in average debt balances outstanding for most of the year
resulting from:



The
decrease was offset, in part, by additional interest related to the following debt we assumed in 2003:



Provision for Income Taxes

|                           |  | 2004 |          | 2003 |   | 2002    |   | 04/03
Increase/
(Decrease)
% Change |         | 03/02
Increase/
(Decrease)
% Change |   
|-------------------------- |  | ---- | -------- | ---- | - | ------- | - | ----------------------------------- | ------- | ----------------------------------- | --
|
|Provision for income taxes |  | $    | (141,169 | )    | $ | (72,647 | ) | $                                   | (19,015 | )                                   | 94
|Effective tax rate         |  |      | 62       | %    |   | 1,437   | % |                                     | 18      | %                                   |   

F-44

---



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

|                                               |  | 2004 |   | 2003    |   | 2002  |  
|---------------------------------------------- |  | ---- | - | ------- | - | ----- | -
|Tax provision (benefit) at U.S. statutory rate |  | 35.0 | % | 35.0    | % | 35.0  | %
|State taxes, net                               |  | 2.8  |   | 114.0   |   | 3.2   |  
|Extra-territorial income                       |  | (7.1 | ) | (221.0  | ) | (8.9  | )
|Goodwill impairment                            |  |     |   | 711.7   |   |      |  
|Charges for purchased research and development |  | 39.1 |   | 1,094.0 |   | 0.6   |  
|Benefit of tax credits                         |  | (4.7 | ) | (343.3  | ) | (15.7 | )
|Foreign rate differential                      |  | (4.4 | ) | (13.4   | ) | 3.8   |  
|Other                                          |  | 1.3  |   | 60.1    |   | 0.3   |  
|                                               |  |      |   |         |   |       |  
|Effective tax rate                             |  | 62.0 | % | 1,437.1 | % | 18.3  | %
|                                               |  |      |   |         |   |       |  

Our
effective tax rates for 2004, 2003 and 2002 varied from the U.S. statutory rate as a result of:



In
addition, our overall tax rate has changed significantly due to fluctuations in our income (loss) before taxes, which was $227.7 million in 2004, $5.1 million in 2003 and
$104.2 million in 2002.

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

In
2001, the World Trade Organization, or WTO, determined that the tax provisions of the FSC Repeal and Extraterritorial Income Exclusion Act of 2000, or ETI, constitute an export
subsidy prohibited by the WTO Agreement on Subsidies and Countervailing Measures Agreement. As a result, in October 2004, the U.S. enacted the American Jobs Creation Act of 2004, or the Act,
which repeals the ETI export subsidy for transactions after 2004 with two years of transition relief (2005-2006). The Act also provides a 9% deduction for income from domestic production
activities which will be phased in over the years 2005-2010. While we are still evaluating the net impact of this new legislation, we do not expect it to have a material effect on our
ongoing effective tax rate. In addition, the Act creates a temporary incentive for U.S. multinational corporations to repatriate accumulated income earned outside the U.S. While we are still
evaluating this provision, we do not expect to benefit from the repatriation provisions under this Act.

Earnings Allocations

Through June 30, 2003, we calculated earnings per share for each series of stock using the two-class method. To calculate basic earnings per
share for each series of stock, we divided the earnings allocated to each series of stock by the weighted average number of outstanding shares of that series of stock during the applicable period.
When we calculated diluted earnings per share, we also included in

F-45

---



the
denominator all potentially dilutive securities outstanding during the applicable period if inclusion of such securities was not anti-dilutive. We allocated our earnings to each series
of our common stock based on the earnings attributable to that series of stock. Through June 30, 2003, the earnings attributable to Genzyme Stock, as defined in our charter, were equal to the
net income or loss of Genzyme General determined in accordance with accounting principles generally accepted in the United States, and as adjusted for tax benefits allocated to or from Genzyme General
in accordance with our management and accounting policies in effect at the time. Earnings attributable to Biosurgery Stock and Molecular Oncology Stock were defined similarly and, as such, were based
on the net income or loss of the corresponding division as adjusted for the allocation of tax benefits. The earnings allocated to each series of common stock are indicated in the table below:

2003

2002(Amounts in thousands)Earnings allocated to:Genzyme Stock

$
94,283

$
178,526Biosurgery Stock


(152,651
)

(167,886
)Molecular Oncology Stock


(9,224
)

(23,714
)Total net income (loss)

$
(67,592
)
$
(13,074
)


Through
June 30, 2003, we calculated the income tax provision of each division as if such division were a separate taxpayer, which included assessing the realizability of deferred
tax assets at the division level. Our management and accounting policies in effect at the time provided that if, as of the end of any fiscal quarter, a division could not use any projected annual tax
benefit attributable to it to offset or reduce its current or deferred income tax expense, we could allocate the tax benefit to other divisions in proportion to their taxable income without
compensating payment or allocation to the division generating the benefit. The tax benefits allocated to Genzyme General and included in earnings attributable to Genzyme Stock were (amounts in
thousands):

2003

2002(Amounts in thousands)Tax benefits allocated from:Genzyme Biosurgery

$
8,720

$
18,508Genzyme Molecular Oncology


3,420


9,287Total

$
12,140

$
27,795


These
tax benefits represent 13% and 16% of earnings allocated to Genzyme Stock in 2003 and 2002, respectively. The amount of tax benefits allocated to Genzyme General fluctuated based
on the results of Genzyme Biosurgery and Genzyme Molecular Oncology. If the losses of those divisions declined then the tax benefits allocated to Genzyme General also declined.

Cumulative Effect of Change in Accounting Principle

On January 1, 2002, we adopted SFAS No. 142, which requires that ratable amortization of goodwill and certain intangible assets be replaced with
periodic tests of goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. SFAS No. 142 requires a
transitional impairment test to compare the fair value of a reporting unit with the carrying amount of the goodwill.

Upon
adoption of SFAS No. 142, we tested the goodwill of our cardiothoracic reporting unit in accordance with the transitional provisions of that standard, using the present value
of expected future cash flows to estimate the fair value of this reporting unit. We recorded an impairment charge of

F-46

---



$98.3 million,
which was reflected as a cumulative effect of a change in accounting for goodwill in our consolidated statements of operations in 2002.

Research and Development Programs

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



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

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

|Program      |  | Program Description
or Indication |  | Development Status
at December 31, 2004                                                                                                                                                                                                                             |  | Year of
Expected
Product
Launch
|------------ |  | --------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------
|Fabrazyme    |  | Fabry disease                     |  | Received European Commission marketing approval in 2001, FDA marketing approval in April 2003 and marketing approval in Japan in January 2004; post-marketing phase 4 trial completed and patients enrolled in open
label study; post-marketing commitments ongoing |  | Product was launched in 2001   
|Aldurazyme   |  | MPS 1                             |  | Received FDA marketing approval in April 2003 and European Commission marketing approval in June 2003; several post-marketing commitments ongoing. We incur 50% of the research and development costs of our joint venture with
BioMarin                            |  | Product was launched in 2003   
|Myozyme      |  | Pompe disease                     |  | Pivotal trial ongoing; submitted marketing application in the E.U. in December 2004; and anticipate filing in the U.S. and Japan in 2005.                                                                                                                           |  | 2006                           
|Tolevamer(1) |  | C.difficileassociated diarrhea    |  | Phase 2 trials completed in 2004; anticipate enrolling patients in a Phase 3 trial in the first half of 2005.                                                                                                                                                       |  | 2007                           
|             |  |                                   |  |                                                                                                                                                                                                                                                                     |  |                                

F-47

---



|TGF-beta antagonists                       |  | I.P.F.                                                                                                                     |  | Phase 1-2 trial to start in 2005; Preliminary results anticipated in the first half of 2004. We incur 55% of the research and development costs incurred under our collaboration with Cambridge Antibody Technology Group |  | 2010             
|------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------
|Cyclosporine capsule(2)                    |  | Smaller size formulation of Cyclopsporine for chronic immunosuppression after transplantation (to prevent organ rejection) |  | Delivered notice terminating product license in January 2005                                                                                                                                                              |  | n/a              
|Viscosupplementation for osteoarthritis(3) |  | Viscosupplementation products to treat osteoarthritis of the knee, hip and other joints                                    |  | Filed for Synvisc registration in Japan in 2003; currently enrolling patients in a pivotal clinical trial in U.S. for Synvisc in the hip and in Europe for Synvisc in the ankle and shoulder;                             |  | 2005 through 2008
|Sepra products(3)                          |  | Next stage products to prevent surgical adhesions for various indications                                                  |  | Preclinical; currently working on the development of a new anti-adhesion product                                                                                                                                          |  | 2005 through 2008
|Campath(4)                                 |  | B-cell chronic lymphocytic leukemia, non-Hodgkins lymphoma and multiple sclerosis                                          |  | Phase 3 clinical trials in earlier-line CLL ongoing; phase 1-2 clinical trial in NHL ongoing; phase 2 clinical trial in MS fully enrolled                                                                                 |  | 2007 through 2010
|Clolar(4)                                  |  | Pediatric and adult leukemias and solid tumors                                                                             |  | Phase 2 trial in pediatric acute leukemias fully enrolled; phase 1-2 trial in adult hematologic cancers ongoing; phase 1 trial in solid tumors ongoing                                                                    |  | 2007 through 2010
|Tasidotin(4)                               |  | Solid tumors                                                                                                               |  | Phase 2 clinical trials ongoing                                                                                                                                                                                           |  | 2009             
|DENSPM(1)                                  |  | Liver cancer                                                                                                               |  | Phase 1-2 clinical trial ongoing                                                                                                                                                                                          |  | 2011             
|HIF-1a                                     |  | Angiogenic gene therapy to treat coronary and peripheral artery disease                                                    |  | Phase 2 clinical trial ongoing                                                                                                                                                                                            |  | 2008 through 2010
|Cardiac cell therapy product               |  | Tissue regeneration to treat congestive heart failure                                                                      |  | Phase 1 clinical trial ongoing in Europe; anticipate filing IND in the U.S. by 2006                                                                                                                                       |  | 2009             

---

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

Costs incurred for the year ended December 31, 2003

$128.9Costs incurred for the year ended December 31, 2004

$165.4Cumulative costs incurred as of December 31, 2004

$684.8Estimated costs to complete as of December 31, 2004

$640 to $795


F-48

---



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

Liquidity and Capital Resources

We continue to generate cash from operations. At December 31, 2004, we had cash, cash equivalents, and short- and long-term investments of
$1.1 billion, a decrease of $145.7 million from cash, cash equivalents and short- and long-term investments of $1.2 billion at December 31, 2003. This decrease
in our cash balance is due primarily to our expenditure of $580.1 million in connection with the redemption of our 3% convertible subordinated debentures in June 2004.

The
following is a summary of our statements of cash flows for 2004 and 2003.

Cash Flows from Operating Activities

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

|                                      |                                                                                                             | 2004                                 |   | 2003     |        
|------------------------------------- | ----------------------------------------------------------------------------------------------------------- | ------------------------------------ | - | -------- | -------
|Cash flows from operating activities: |                                                                                                             |                                      |   |          |        
|                                      | Net cash provided by operating activities before working capital changes                                    |                                      | $ | 678,068  |        
|                                      | Decrease in cash from working capital changes (excluding impact of acquired assets and assumed liabilities) |                                      |   | (100,556 | )      
|                                      |                                                                                                             |                                      |   |          |        
|                                      |                                                                                                             | Cash flows from operating activities |   | $        | 577,512
|                                      |                                                                                                             |                                      |   |          |        

Cash
flows from operating activities increased $189.7 million, or 49%, for 2004, as compared to 2003, primarily due to growth in earnings, adjusted for
non-cash items (including depreciation, amortization, charges for purchase of IPR&D deferred income taxes and impairment charges), which increased $198.3 million, or 41%, to
$678.1 million for 2004, as compared to 2003. This increase was offset, in part, by a $8.6 million net increase in cash used to fund working capital changes primarily due to a
$111.3 million increase in accounts receivable and a $13.9 million decrease in accounts payable and accrued expenses, offset in part, by a $18.8 million decrease in inventory and
a $5.9 million decrease in prepaid expenses and other current assets.

Cash
flows from operating activities increased 74% for 2003, as compared to 2002, primarily due to growth in earnings, adjusted for non-cash items (including depreciation,
amortization, charges for purchase of IPR&D, deferred income taxes, tax benefits from employee stock options and impairment charges), which increased $166.6 million, or 53%, to
$479.8 million in 2003, as compared to 2002. This increase was offset in part by $92.0 million in net cash used to fund working capital changes primarily due to a $65.6 million
increase in accounts receivable and a $45.1 million increase in prepaid expenses and other current assets, offset in part by an $11.8 million decrease in inventory and a
$6.9 million increase in accounts payable and accrued expenses.

F-49

---



Cash Flows from Investing Activities

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

|                                      |                                                                      | 2004                                 |   | 2003     |        
|------------------------------------- | -------------------------------------------------------------------- | ------------------------------------ | - | -------- | -------
|Cash flows from investing activities: |                                                                      |                                      |   |          |        
|                                      | Net sales of investments, including investments in equity securities |                                      | $ | 318,453  |        
|                                      | Purchases of property, plant and equipment                           |                                      |   | (187,400 | )      
|                                      | Sale of product line                                                 |                                      |   |         |        
|                                      | Investments in equity method investments                             |                                      |   | (24,107  | )      
|                                      | Acquisitions, net of acquired cash                                   |                                      |   | (152,377 | )      
|                                      | Other investing activities                                           |                                      |   | (265     | )      
|                                      |                                                                      |                                      |   |          |        
|                                      |                                                                      | Cash flows from investing activities |   | $        | (45,696
|                                      |                                                                      |                                      |   |          |        

In
2004, net sales of investments, including investments in equity securities, provided $318.5 million in cash. For the same period, acquisitions and capital
expenditures accounted for significant cash outlays. In 2004, we used:



For
2003, acquisitions, capital expenditures and net purchases of investments accounted for the most significant cash outlays for investing activities. In 2003, we used:



These
uses of cash were offset, in part, by $34.5 million in cash generated by the sale to Teleflex of substantially all of the assets directly associated with our cardiac device
business.

F-50

---



Cash Flows from Financing Activities

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

|                                      |                                               | 2004                                 |   | 2003     |         
|------------------------------------- | --------------------------------------------- | ------------------------------------ | - | -------- | --------
|Cash flows from financing activities: |                                               |                                      |   |          |         
|                                      | Proceeds from issuance of common stock        |                                      | $ | 140,311  |         
|                                      | Proceeds from draw on credit facility         |                                      |   | 135,000  |         
|                                      | Payment of debt and capital lease obligations |                                      |   | (650,818 | )       
|                                      | Proceeds from issuance of debt                |                                      |   |         |         
|                                      | Bank overdraft                                |                                      |   | 15,434   |         
|                                      | Minority interest                             |                                      |   | 5,424    |         
|                                      | Other financing activities                    |                                      |   | 922      |         
|                                      |                                               |                                      |   |          |         
|                                      |                                               | Cash flows from financing activities |   | $        | (353,727
|                                      |                                               |                                      |   |          |         

In
2004, financing activities used $353.7 million of cash primarily due to $650.8 million of cash utilized to repay debt and capital lease obligations,
including:



This
decrease was offset, in part, by $140.3 million of proceeds from the issuance of stock under our stock plans and $135.0 million drawn under our revolving credit facility that
matures in December 2006.

For
2003, financing activities generated $494.1 million of cash primarily due to $116.5 million of proceeds from the issuance of common stock under our stock plans and
$673.0 million of proceeds, net of $17.0 million of debt issuance costs, from the issuance of $690.0 million in principal of 1.25% convertible senior notes. This source was offset
by $298.1 million in cash utilized to repay debt and capital lease obligations, including $284.0 million used to repay the amounts outstanding under our revolving credit
facility and $10.0 million used to pay the 6.9% convertible subordinated note assumed in connection with our acquisition of Biomatrix.

Revolving Credit Facility

In December 2003, we entered into a three year, $350.0 million revolving credit facility maturing in December 2006. In June 2004, we
drew down $135.0 million under this facility to maintain a certain level of cash balances. In September 2004, we repaid $25.0 million of the outstanding principal balance and in
November we repaid $10.0 million. As of December 31, 2004, $100.0 million in principal remained outstanding under this credit facility. This amount is included in current portion
of long-term debt, convertible notes and capital lease obligations in our consolidated balance sheet because we repaid the entire $100.0 million in principal outstanding under the
credit facility in January 2005. Borrowings under this credit facility bear interest at LIBOR plus an applicable margin, which was 2.83% at December 31, 2004. The terms of our revolving credit
facility include various covenants, including maximum leverage ratios. We currently are in compliance with these covenants.

F-51

---



3% Convertible Subordinated Debentures

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

Contractual Obligations

As of December 31, 2004, we had committed to make the following payments under contractual obligations (amounts in millions):

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

---

Location

Cost to
Complete at
December 31, 2004Geel, Belgium

$
122.5Waterford, Ireland


14.9Waltham, Massachusetts, U.S.


32.4Allston, Massachusetts, U.S.


12.7Other


51.0Total estimated cost to complete

$
233.5


F-52

---



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 intend to use substantial portions of our available cash for:



Our
cash reserves may be further reduced to pay principal and interest on outstanding debt, including the $100.0 million in principal outstanding under our revolving credit
facility and our $690.0 million in principal of 1.25% convertible senior notes due December 1, 2023. The notes are initially convertible into Genzyme Stock at a conversion price of
approximately $71.24 per share. Holders of the notes may require us to repurchase all or any part of the notes for cash, common stock, or a combination, at our option, on December 1, 2008, 2013
or 2018, at a price equal to 100% of the principal amount of the notes plus accrued and unpaid interest through the date prior to the date of repurchase. Additionally, upon a change of control, each
holder may require us to repurchase for cash at 100% of the principal amount of the notes plus accrued interest, all or a portion of the holder's notes. On or after December 1, 2008, we may
redeem for cash at 100% of the principal amount of the notes plus accrued interest, all or part of the notes that have not been previously converted or repurchased.

In
addition, we have several outstanding legal proceedings. Involvement in investigations and litigation can be expensive and a court may ultimately require that we pay expenses and
damages. As a result of legal proceedings, we also may be required to pay fees to a holder of proprietary rights in order to continue certain operations. We have provided you detail on certain of
these legal proceedings in the notes to our consolidated financial statements.

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

Off-Balance Sheet Arrangements

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

F-53

---



Related Party Relationships

The table below describes our significant related party relationships as of December 31, 2004. This information is taken from questionnaires that our
directors and senior executives are asked to complete on an annual basis. We have not undertaken to independently confirm the accuracy of this information.

|                                        |  |                                                                                         |  |                                                                                                                            |                                                                                                                    |        | Officer & Director Ownership
in and Compensation from
Related Entity
|--------------------------------------- |  | --------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------ | ------ | --------------------------------------------------------------------
|
|
|ABIOMED, Inc.                           |  | -Cost method investment                                                                 |  | Henri A. Termeer, Genzyme Chairman, President and Chief Executive Officer, is a director of ABIOMED                        |                                                                                                                    | 29,551 |                                                                     
|Biogen IDEC Inc.                        |  | -Distribution arrangement for Avonex                                                    |  | Mark R. Bamforth, Genzyme officer, is a passive investor in Biogen IDEC Inc.                                               |                                                                                                                    |       |                                                                     
|                                        |  |                                                                                         |  |                                                                                                                            | C. Ann Merrifield, Genzyme officer, is a passive investor in Biogen IDEC Inc.                                      |        |                                                                    
|BioMarin Pharmaceutical Inc.            |  | -Cost method investment
-Joint venture partner in
    BioMarin/Genzyme LLC              |  | None                                                                                                                       |                                                                                                                    |       |                                                                     
|Caduceus Private Investments II, L.P.   |  | -Cost method investment                                                                 |  | None                                                                                                                       |                                                                                                                    |       |                                                                     
|Cambridge Antibody Technology Group plc |  | -Cost method investment
-Collaboration partner                                          |  | Mark. R. Bamforth, Genzyme officer, is a passive investor in CAT                                                           |                                                                                                                    |       |                                                                     
|Cortical Pty Ltd.                       |  | -Cost method investment
-Collaboration partner                                          |  | None                                                                                                                       |                                                                                                                    |       |                                                                     
|Dyax Corporation                        |  | -Cost method investment
-Joint venture partner with
    Genzyme in
    Dyax-Genzyme LLC |  | Henri A. Termeer, Genzyme Chairman, President and Chief Executive Officer, is a former strategic advisory committee member |                                                                                                                    | 2,649  |                                                                     
|                                        |  |                                                                                         |  |                                                                                                                            | Henry E. Blair, Genzyme director and co-founder, is the Chairman, President and Chief Executive Officer of Dyax(1) |        | 124,953                                                             
|                                        |  |                                                                                         |  |                                                                                                                            | Constantine E. Anagnostopoulos, Genzyme director, is also a director of Dyax                                       |        | 13,585                                                              
|                                        |  |                                                                                         |  |                                                                                                                            | Charles L. Cooney, Genzyme director, is a former strategic advisory committee member                               |        |                                                                    
|                                        |  |                                                                                         |  |                                                                                                                            | Mark R. Bamforth, Genzyme officer, is a passive investor in Dyax                                                   |        | 1,000                                                               
|                                        |  |                                                                                         |  |                                                                                                                            | Peter Wirth, Genzyme officer, is a former strategic advisory committee member                                      |        | 9,780                                                               
|                                        |  |                                                                                         |  |                                                                                                                            | The wife of Donald E. Pogorzelski, Genzyme officer, is a passive investor in Dyax                                  |        | 5,000                                                               
|                                        |  |                                                                                         |  |                                                                                                                            |                                                                                                                    |        |                                                                     

F-54

---



|Excigen, Inc.                   |  | -Collaboration partner                                        |  | Earl M. Collier, Jr. and James A. Geraghty, both Genzyme officers, are directors of Excigen           |                                                                                          |      |        |       |         |  | 
|------------------------------- |  | ------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | ----- | ------ | ------ | ------- |  | -
|GTC Biotherapeutics, Inc.       |  | -Cost method investment                                       |  | Henri A. Termeer, Genzyme Chairman, President and Chief Executive Officer is a former director of GTC |                                                                                          | 9,500 |        | 50,500 |         |  |  
|                                |  |                                                               |  |                                                                                                       | Henry E. Blair, Genzyme director and co-founder, is a former director of GTC             |       | 1,530  |        | 29,500  |  |  
|                                |  |                                                               |  |                                                                                                       | Charles L. Cooney, Genzyme director, is a member of the strategic advisory board for GTC |       |       |        | 3,000   |  |  
|                                |  |                                                               |  |                                                                                                       | James A. Geraghty, Genzyme officer, is a director of GTC                                 |       | 51,791 |        | 100,000 |  | $
|                                |  |                                                               |  |                                                                                                       | Earl M. Collier, Jr., Genzyme officer, is a passive investor in GTC                      |       | 1,000  |        |         |  |  
|                                |  |                                                               |  |                                                                                                       | Richard H. Douglas, Genzyme officer, is a passive investor in GTC                        |       | 180    |        |        |  |  
|                                |  |                                                               |  |                                                                                                       | Peter Wirth, Genzyme officer(2)                                                          |       |       |        | 2,000   |  |  
|MacroGenics, Inc.               |  | -Cost method investment                                       |  | None                                                                                                  |                                                                                          |      |        |       |         |  | 
|                                |  | -Collaboration partner                                        |  |                                                                                                       |                                                                                          |      |        |       |         |  |  
|Medtronic, Inc.                 |  | -Joint venture partner with Genzyme in MG Biotherapeutics LLC |  | Gail K. Boudreaux, Genzyme director, is a passive investor in Medtronic                               |                                                                                          | 67    |        |       |         |  | 
|                                |  |                                                               |  |                                                                                                       | Earl M. Collier, Jr., Genzyme officer, is a passive investor in Medtronic                |       | 1,000  |        |        |  |  
|                                |  |                                                               |  |                                                                                                       | Elliott D. Hillback, Genzyme officer, is a passive investor in Medtronic                 |       | 1,000  |        |        |  |  
|                                |  |                                                               |  |                                                                                                       | Evan M. Lebson, Genzyme officer, is a passive investor in Medtronic                      |       | 100    |        |        |  |  
|                                |  |                                                               |  |                                                                                                       | Senator Connie Mack III, Genzyme director, is a passive investor in Medtronic            |       | 95     |        |        |  |  
|MPM BioVentures III, Q.P., L.P. |  | -Cost method investment                                       |  | MPM had invested in Peptimmune, Inc.                                                                  |                                                                                          |      |        |       |         |  | 
|Myosix SA                       |  | -Consolidated investment
-Collaboration partner               |  | Earl M. Collier, Jr. and James A. Geraghty, both Genzyme officers, are directors of Myosix            |                                                                                          |      |        |       |         |  | 
|                                |  |                                                               |  |                                                                                                       |                                                                                          |       |        |        |         |  |  

F-55

---



|Oxford Bioscience Partners IV, L.P. |  | -Cost method investment                            |  | Peter Wirth, Genzyme officer, is a limited partner in the MRNA Fund II, L.P. and has a made a $100,000 capital commitment to the partnership |                                                                                                                                                                 |                     |       |          |        |   |       
|----------------------------------- |  | -------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | ----- | --------- | ------ | - | -------
|                                    |  |                                                    |  |                                                                                                                                              | Alison Lawton, Genzyme officer, is a limited partner and has made a $50,000 capital commitment to the partnership                                               |                      |      |           |       |   |        
|Peptimmune                          |  | -Equity method investment
-Service agreements      |  | Robert J. Carpenter, Genzyme director, is the Chairman of Peptimmune
*  Series B preferred stock
**  Common stock                            |                                                                                                                                                                 | 119,047*
1,000,000** |       | 1,050,000 |        | $ | 258,671
|ProQuest Investment II, L.P.        |  | -Cost method investment                            |  | None                                                                                                                                         |                                                                                                                                                                 |                     |       |          |        |   |       
|Therapeutic Human Polyclonals, Inc. |  | -Equity method investment                          |  | James A. Geraghty, Genzyme officer, is a director of THP                                                                                     |                                                                                                                                                                 |                     |       |          |        |   |       
|Theravance, Inc.                    |  | -Cost method investment                            |  | Elliott D. Hillback Genzyme officer, is a passive investor in Theravance                                                                     |                                                                                                                                                                 | 800                  |       |          |        |   |       
|ViaCell, Inc.                       |  | -Cost method investment
-Research agreement        |  | None                                                                                                                                         |                                                                                                                                                                 |                     |       |          |        |   |       
|Wyeth Laboratories, Inc.            |  | -Distribution arrangement for Synvisc through 2004 |  | Earl M. Collier, Jr., Genzyme officer, is a passive investor in Wyeth                                                                        |                                                                                                                                                                 |                     |       |          |        |   |       
|                                    |  |                                                    |  |                                                                                                                                              | Zoltan A. Csimma, Genzyme officer, is a former employee of Wyeth. His spouse is a current employee of Wyeth. Totals exclude options and compensation of spouse. |                      | 1,442 |           | 60,000 |   |        

---

Recent Accounting Pronouncements

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

F-56

---



EITF Issue No. 04-8, "The Effect of Contingently Convertible Debt on Diluted Earnings Per Share."In
September 2004, the EITF reached a consensus on Issue No. 04-8, "The Effect of Contingently Convertible Debt on Diluted Earnings Per Share." EITF 04-8 requires
that all contingently convertible debt instruments be included in diluted earnings per share using the if-converted method, regardless of whether the market price trigger (or other
contingent feature) has been met. EITF 04-8 is effective for reporting periods ending after December 15, 2004 and requires that prior period earnings per share amounts presented for
comparative purposes be restated. Under the provisions of EITF 04-8, the $690.0 million in principal under our 1.25% convertible senior notes, which represent 9.7 million
potential shares of common stock, will be included in the calculation of diluted earnings per share using the if-converted method regardless of whether or not the contingent requirements
have been met for conversion to common stock. We adopted EITF 04-8 during the fourth quarter of 2004, and have determined that the adoption of EITF 04-8 has not had a
significant impact on prior periods' earnings per share calculations due to the fact that the Notes were outstanding for only a portion of the month in 2004.

EITF Issue No. 04-10, "Determining Whether to Aggregate Operating Segments That Do Not Meet the Quantitative
Thresholds."In September 2004, the EITF reached a consensus on Issue No. 04-10, "Determining Whether to Aggregate Operating Segments
That Do Not Meet the Quantitative Thresholds." EITF 04-10 requires that operating segments that do not meet the quantitative thresholds can be aggregated to produce a reporting segment if:
(i) the aggregation is consistent with the objective and basic principles of SFAS No. 131, "Segment Reporting"; (ii) the segments have similar economic characteristics; and
(iii) the segments have a majority of other aggregation criteria, such as similar products and services, production processes, types of customers, distribution methods and regulatory
environment. The consensus on EITF 04-10 originally was effective for fiscal years ended after October 13, 2004. Concurrently, the FASB staff began drafting a proposed FASB Staff
Position, or FSP, to provide guidance in determining whether two or more operating segments have similar economic characteristics. Since the guidance in EITF 04-10 and the proposed FSP are
interrelated, the effective date of Issue 04-10 has been postponed to coincide with the effective date of the FSP. In March 2005, the FASB released for public comment proposed FSP
No. FAS 131-a,
"Determining Whether Operating Segments Have 'Similar Economic Characteristics' under Paragraph 17 of FASB Statement No. 131,Disclosures about Segments of an
Enterprise and Related Information." The proposed FSP provides additional guidance on how to determine whether two or more of a company's operating segments have similar economic characteristicswhen assessing whether those operating segments may be aggregated into a single operating segment. The proposed FSP
indicates that (1) both quantitative and qualitative factors should be considered in determining whether the economic characteristics of two or more operating segments are similar and
(2) the factors that a company should consider in making this assessment should be based on the factors that the company's chief operating decision maker uses in allocating resources to the
individual segments. We are monitoring developments related to EITF 04-10 and proposed FSP No. FAS 131-a and will adopt the final standards, if any, upon issuance.

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

SFAS No. 123R, "Share-Based Payment, an amendment of FASB Statement Nos. 123 and 95"In December 2004, the FASB
issued a revision to SFAS 123,also known as SFAS 123R, that amends existing accounting pronouncements for share-based payment
transactions in which an enterprise receives employee and certain non-employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are
based on the fair value of the enterprise's equity instruments or that

F-57

---



may
be settled by the issuance of such equity instruments. SFAS 123R eliminates the ability to account for share-based compensation transactions using APB 25 and generally requires such
transactions be accounted for using a fair-value-based method. SFAS 123R's effective date would be applicable for awards that are granted, modified, become vested, or settled in
cash in interim or annual periods beginning after June 15, 2005. SFAS 123R includes three transition methods: one that provides for prospective application and two that provide for
retrospective application. We intend to adopt SFAS 123R prospectively commencing in the third quarter of the fiscal year ending December 31, 2005. We expect that the adoption of
SFAS 123R will cause us to record, as expense each quarter, a non-cash accounting charge approximating the fair value of such share based compensation meeting the criteria outlined
in the provisions of SFAS 123R.

Market Risk

We are exposed to potential loss from financial market risks that may occur as a result of changes in interest rates, equity prices and foreign currency exchange
rates. At December 31, 2004, we held various
derivative contracts in the form of foreign exchange forwards and an interest rate swap. The derivatives contain no leverage or option features. We also held a number of other financial instruments,
including investments in marketable securities, and had balances outstanding under several debt securities.

Interest Rate Risk

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

We
used the following assumptions in preparing the sensitivity analysis:



On
this basis, we estimate the potential loss in fair value from changes in interest rates to be $17.6 million, with fair value of losses on our debt instruments partially offset
by the fair value of gains on our investment portfolio.

F-58

---





Foreign Exchange Risk

As a result of our worldwide operations, we may face exposure to adverse movements in foreign currency exchange rates, primarily to the Euro, British pounds and
Japanese yen. These exposures are reflected in market risk sensitive instruments, including foreign currency receivables and payables, foreign exchange forward contracts and foreign equity holdings.

Taking
these variances into account, as of December 31, 2004, by applying a 10% unfavorable change in exchange rates, we estimated the potential impact in fair value of our
foreign exchange exposure to be $2.6 million at December 31, 2004.

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 equity
prices of each security held at year-end to be $11.8 million. This estimate assumes no change in foreign exchange rates from year-end spot rates and excludes any
potential risk associated with securities that do not have readily determinable market value.

Factors Affecting Future Operating Results

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

Our financial results are highly dependent on sales of Cerezyme.

We generate a significant portion of our revenue from sales of Cerezyme, our enzyme-replacement product for patients with Gaucher disease. Sales of Cerezyme
totaled $839.4 million for the year ended December 31, 2004, representing approximately 42% of our consolidated product revenue for 2004. Because our business is highly dependent on
Cerezyme, negative trends in revenue from this product could have a significant adverse effect on our operations and cause the value of our securities to decline substantially. We will lose revenue if
alternative treatments gain commercial acceptance, if our marketing activities are restricted, or if reimbursement is limited. In addition, the patient population with Gaucher disease is not large.
Because a significant percentage of that population already uses Cerezyme, opportunities for future sales growth are constrained. Furthermore, changes in the methods for treating patients with Gaucher
disease, including treatment protocols that combine Cerezyme with other therapeutic products or reduce the amount of Cerezyme prescribed, could limit growth, or result in a decline, in Cerezyme sales.

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

Over the next few years, our success will depend substantially on our ability to increase revenue from many different products and services. The products include
Cerezyme, Renagel, Synvisc, Thymoglobulin, Thyrogen, Clolar, Campath and diagnostic testing services. Our ability to increase sales will depend on a number of factors, including:



F-59

---





Part
of our growth strategy involves conducting additional clinical trials to support approval of expanded uses of some of our products and pursuing marketing approval for our products
in new jurisdictions. With Synvisc, for example, we are pursuing marketing approval in Japan and are seeking to expand approval in the United States to cover use as a treatment of pain from
osteoarthritis in the hip. The success of this component of our growth strategy will depend on the content and timing of our submissions to regulatory authorities and whether and when those
authorities determine to grant approvals.

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

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

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

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

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

Outside
the United States, TKT is marketing a competitive enzyme replacement therapy for Fabry disease, the disease addressed by Fabrazyme. In addition, while Fabrazyme has received
Orphan Drug designation, which provides us with seven years of market exclusivity for the product in the United

F-60

---



States,
other companies may seek to overcome our market exclusivity and, if successful, compete with Fabrazyme in the United States.

Several
companies market products that, like Thymoglobulin and Lymphoglobuline, are used for the prevention and treatment of acute rejection in renal transplant. These products include
Novartis AG's Simulect®, Pfizer Inc.'s ATGAM®, Ortho Biotech's Orthoclone OKT®3, Fresenius Biotech GmbH's ATG-Fresenius S® and the Roche
Group's Zenapax®. Competition in the acute transplant rejection market
largely is driven by product efficacy due to the potential loss of transplanted organs as the result of an acute organ rejection episode.

Current
competition for Synvisc includes Hyalgan®, produced by Fidia S.p.A. and marketed in the United States by Sanofi-Synthelabo; Orthovisc®, produced and
marketed outside of the United States by Anika Therapeutics, Inc. and marketed in the United States by Ortho Biotech; Artz®, a product manufactured by Seikagaku Kogyo that is sold
in Japan by Kaken Pharmaceutical Co. and in the United States by Smith & Nephew Orthopaedics under the name Supartz®; a product owned and manufactured by Savient
Pharmaceuticals, Inc., which is marketed under the name Nuflexxa in the United States and Euflexxa in Europe; and Durolane®, manufactured by
Q-Med AB. We are also aware of other directly competitive products are under development. Furthermore, several companies market products designed to relieve the pain associated with
osteoarthritis. Synvisc will have difficulty competing with any of these products to the extent the competitive products are considered more efficacious, less burdensome to administer or more
cost-effective.

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

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

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

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



F-61

---





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

Furthermore,
legislatures, including the U.S. Congress, occasionally discuss implementing broad-based measures to contain healthcare costs. If third party reimbursement is further
constrained, or if legislation is passed to contain healthcare costs, our profitability and financial condition will suffer. For example, the Medicare Prescription Drug, Improvement and Modernization
Act (or the Medicare Modernization Act (MMA)) was enacted into law in December 2003. Reimbursement changes resulting from the MMA may negatively affect product sales of some of our marketed
products. Previously, the "average wholesale price" (AWP) mechanism was the basis of Medicare Part B payment for physician-administered drugs and biologics. Effective January 1, 2005,
this changed to an "average sales price" (ASP) methodology under the MMA. Under the new ASP methodology, Thyrogen, Synvisc and our
LSD products are being reimbursed under a new Medicare Part B system that reimburses each product at 106% of its ASP (sometimes referred to as "ASP + 6%"). As a result,
reimbursement rates for these products may be lower than 2004 reimbursement rates, in particular, because the ASP methodology deducts sales incentives offered to healthcare providers from the sale
prices used to calculate ASP, a deduction that was not made to AWP. Under the MMA, Medicare coverage for Renagel will be available for the first time beginning in 2006. Medicare Part D, which
applies to Renagel, will be administered by private vendors under contract with the U.S. government. Each vendor will establish its own Part D formulary for prescription drug coverage and
pricing for the first time during 2005, and we are therefore unable to predict how many vendors will cover Renagel and on what terms.

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

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

We may encounter substantial difficulties managing our growth.

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

F-62

---



manufacturing
plants. We cannot assure you that these facilities will prove sufficient to meet demand for our products or that we will not have excess capacity at these facilities. In addition,
building our facilities is expensive, and our ability to recover these costs will depend on increased revenue from the products produced at the facilities.

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

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

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



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

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

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

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

F-63

---



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

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

Manufacturing
is also subject to extensive government regulation. Regulatory authorities must approve the facilities in which human healthcare products are produced. Any third party we
use to fill-finish or
package our products to be sold in the U.S. must also be licensed by the FDA. As a result, third party providers may not be readily available on a timely basis. In addition, facilities are subject to
ongoing inspections and minor changes in manufacturing processes may require additional regulatory approvals, either of which could cause us to incur significant additional costs and lose revenue.

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

Certain materials necessary for commercial production of our products, including specialty chemicals and components necessary for manufacture,
fill-finish and packaging, are provided by unaffiliated third-party suppliers. In some cases, such materials are specifically cited in our drug application with the FDA so that they must
be obtained from that specific source and could not be obtained from another supplier unless and until the FDA approved that other supplier. In addition, there may only be one available source for a
particular chemical or component. For example, we acquire polyalylamine (PAA), used in the manufacture of Renagel and Welchol, from Cambrex Charles City, Inc., the only source for this material
currently qualified in our FDA drug applications for these products. Our suppliers may also be subject to FDA regulations regarding manufacturing practices. We may be unable to manufacture our
products in a timely manner or at all if these third-party suppliers were to cease or interrupt production or otherwise fail to supply these materials or products to us for any reason, including due
to regulatory requirements or actions, adverse financial developments at or affecting the supplier, or labor shortages or disputes.

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

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

Several of our strategic initiatives involve alliances with other biotechnology and pharmaceutical companies, including a joint venture with BioMarin
Pharmaceutical Inc. with respect to Aldurazyme. The success of this and similar arrangements is largely dependent on technology and other intellectual

F-64

---



property
contributed by our strategic partners or the resources, efforts, and skills of our partners. Disputes and difficulties in such relationships are common, often due to conflicting priorities or
conflicts of interest. Merger and acquisition activity may exacerbate these conflicts. The benefits of these alliances are reduced or eliminated when strategic partners:



Furthermore,
payments we make under these arrangements may exacerbate fluctuations in our financial results. In addition, under some of our strategic alliances, we make milestone
payments well in advance of commercialization of products with no assurance that we will ever recoup these payments. We also may make equity investments in our strategic partners, as we did with
Cambridge Antibody Technology Group plc and MacroGenics, Inc. in 2003. Our strategic equity investments are subject to market fluctuations, access to capital and other business events, such as
initial public offerings, the completion of clinical trials and regulatory approvals, which can impact the value of these investments. As a result, if any of our strategic equity investments decline
in value and remain below cost for an extended duration, we will incur financial statement charges related to the decline in value of that investment.

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

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

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



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



F-65

---





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

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

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

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

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



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

F-66

---



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

Legislative or regulatory changes may adversely impact our business.

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

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



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

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

In the United States and abroad, 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. Our products that require a prescription in the United States may be available to consumers in markets such as Canada
and Mexico without a prescription, which may cause consumers to further seek out these products in these lower priced markets. The ability of patients and other customers to obtain these lower priced
imports has grown significantly as a result of the Internet, an expansion of pharmacies in Canada and elsewhere that target to American purchasers, the increase in U.S.-based businesses affiliated
with Canadian pharmacies marketing to

F-67

---



American
purchasers, and other factors. Most of these foreign imports are illegal under current U.S. law. However, the volume of imports continues to rise due to the limited enforcement resources of
the FDA and the U.S. Customs Service, and there is increased political pressure to permit the 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, 2004, we had $1.1 billion in cash, cash equivalents and short- and long-term investments, excluding investments in
equity securities.

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



We
may further reduce available cash reserves to pay principal and interest on outstanding debt, including our $690.0 million in principal of 1.25% convertible senior notes due
December 2023.

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

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

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

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

F-68

---



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

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

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

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

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

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



We
are also currently involved in litigation matters and investigations that do not involve intellectual property claims and may be subject to additional actions in the future. For
example, we are currently defending several lawsuits brought in connection with the elimination of our tracking stock in June 2003, some of which claim considerable damages. Also, the federal
government, state governments and private payors are investigating and have begun to file actions against numerous pharmaceutical and biotechnology companies, including Genzyme, alleging that the
companies have overstated prices in order to inflate reimbursement rates. Enforcement authorities also have instituted actions under health care "fraud and abuse" laws, including
anti-kickback and false claims statutes. Moreover, individuals who use our products or services, including our diagnostic products and genetic testing services, sometimes bring product and
professional liability claims against us or our subsidiaries.

We
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

F-69

---



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

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



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

Our international operations accounted for approximately 45% of our consolidated product and service revenues for the year ended December 31, 2004. We
expect that international product and service sales will continue to account for a significant percentage of our revenues for the foreseeable future. In addition, we have direct investments in a
number of subsidiaries outside of the United States, primarily in the European Union, Latin America and Japan. Our international sales and operations could be limited or disrupted, and the value of
our direct investments may be diminished, by any of the following:



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

F-70

---



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

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

At December 31, 2004, we had $790.4 million of outstanding indebtedness, excluding capital leases. We may incur additional indebtedness in the
future. Our level of indebtedness will have several important effects on our future operations, including:



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

F-71

---



Management's Report on Internal Control Over Financial Reporting

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



Under
the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of
our internal control over financial reporting based on the framework inInternal ControlIntegrated Frameworkissued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework inInternal ControlIntegrated Framework,
our management concluded that our internal control over financial reporting was effective as of December 31, 2004.

We
have excluded the acquisition of certain assets of two business units of IMPATH and the acquisition of ILEX from our assessment of internal controls over financial reporting as of
December 31, 2004 because they were acquired in purchase business combinations during 2004. The two acquired business units of IMPATH are a component of our Diagnostics/Genetics reporting
segment and represent 1% and 3% respectively, of the consolidated assets and revenues as of and for the year ended December 31, 2004. ILEX, a wholly-owned subsidiary, represents 3% and 0%,
respectively, of the consolidated assets and revenues as of and for the year ended December 31, 2004.

Our
management's assessment of the effectiveness of our internal controls over financial reporting as of December 31, 2004 has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in their report which is included below.

F-72

---



Report of Independent Registered Public Accounting Firm

To
the Board of Directors and Shareholders of Genzyme Corporation:

We
have completed an integrated audit of Genzyme Corporation's 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2004
and audits of its 2003 and 2002 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits,
are presented below.

Consolidated
financial statements and financial statement schedule

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, 2004 and 2003, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These
financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial
statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes 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. We believe that our audits provide a reasonable basis for our opinion.

As
discussed in Note I to the consolidated financial statements, the Company changed its method for accounting for goodwill in 2002.

Internal
control over financial reporting

Also,
in our opinion, management's assessment, included in the accompanying "Management's Report on Internal Control Over Financial Reporting," that the Company maintained effective
internal control over financial reporting as of December 31, 2004 based on criteria established inInternal Control-Integrated Frameworkissued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established inInternal
Control-Integrated Frameworkissued by the COSO. The Company's management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management's assessment and on the effectiveness of the Company's internal
control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinions.

F-73

---



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.

As
described in "Management's Report on Internal Control Over Financial Reporting," management has excluded the acquisitions of IMPATH and ILEX Oncology, Inc. from its assessment
of internal control over financial reporting as of December 31, 2004 because they were acquired by the Company in purchase business combinations during 2004. We have also excluded IMPATH and
ILEX Oncology, Inc. from our audit of internal control over financial reporting. The two acquired business units of IMPATH, components of the Company's Diagnostic/Genetics reporting segment,
represent 1% and 3%,
respectively, of the consolidated assets and revenues as of and for the year ended December 31, 2004. ILEX Oncology, Inc., a wholly owned subsidiary of the Company, represents 3% and 0%,
respectively, of the consolidated assets and revenues as of and for the year ended December 31, 2004.

/s/
Pricewaterhouse Coopers LLP

---

PricewaterhouseCoopers LLP
Boston, Massachusetts
March 14, 2005

F-74

---





GENZYME CORPORATION AND SUBSIDIARIES        Consolidated Statements of Operations and Comprehensive Income        (Amounts in thousands)

|                                         |                                                                                    | For the Years Ended December 31,            |                                                                             
|---------------------------------------- | ---------------------------------------------------------------------------------- | ------------------------------------------- | ----------------------------------------------------------------------------
|
|Revenues:                                |                                                                                    |                                             |                                                                             
|                                         | Net product sales                                                                  |                                             | $                                                                           
|                                         | Net service sales                                                                  |                                             |                                                                             
|                                         | Revenues from research and development contracts:                                  |                                             |                                                                             
|                                         |                                                                                    | Related parties                             |                                                                             
|                                         |                                                                                    | Other                                       |                                                                             
|                                         |                                                                                    |                                             |                                                                             
|                                         |                                                                                    |                                             | Total revenues                                                              
|                                         |                                                                                    |                                             |                                                                             
|Operating costs and expenses:            |                                                                                    |                                             |                                                                             
|                                         | Cost of products sold                                                              |                                             |                                                                             
|                                         | Cost of services sold                                                              |                                             |                                                                             
|                                         | Selling, general and administrative                                                |                                             |                                                                             
|                                         | Research and development (including research and development related to contracts) |                                             |                                                                             
|                                         | Amortization of intangibles                                                        |                                             |                                                                             
|                                         | Purchase of in-process research and development                                    |                                             |                                                                             
|                                         | Charge for impaired goodwill                                                       |                                             |                                                                             
|                                         | Charge for impaired asset                                                          |                                             |                                                                             
|                                         |                                                                                    |                                             |                                                                             
|                                         |                                                                                    |                                             | Total operating costs and expenses                                          
|                                         |                                                                                    |                                             |                                                                             
|Operating income                         |                                                                                    |                                             | 252,913                                                                     
|                                         |                                                                                    |                                             |                                                                             
|Other income (expenses):                 |                                                                                    |                                             |                                                                             
|                                         | Equity in loss of equity method investments                                        |                                             |                                                                             
|                                         | Minority interest                                                                  |                                             |                                                                             
|                                         | Loss on investments in equity securities                                           |                                             |                                                                             
|                                         | Loss on sale of product line                                                       |                                             |                                                                             
|                                         | Other                                                                              |                                             |                                                                             
|                                         | Investment income                                                                  |                                             |                                                                             
|                                         | Interest expense                                                                   |                                             |                                                                             
|                                         |                                                                                    |                                             |                                                                             
|                                         |                                                                                    |                                             | Total other income (expenses)                                               
|                                         |                                                                                    |                                             |                                                                             
|                                         | Income before income taxes                                                         |                                             |                                                                             
|                                         | Provision for income taxes                                                         |                                             |                                                                             
|                                         |                                                                                    |                                             |                                                                             
|                                         | Net income (loss) before cumulative effect of change in accounting for goodwill    |                                             |                                                                             
|                                         | Cumulative effect of change in accounting for goodwill                             |                                             |                                                                             
|                                         |                                                                                    |                                             |                                                                             
|                                         | Net income (loss)                                                                  |                                             | $                                                                           
|                                         |                                                                                    |                                             |                                                                             
|Comprehensive income (loss), net of tax: |                                                                                    |                                             |                                                                             
|                                         | Net income (loss)                                                                  |                                             | $                                                                           
|                                         | Other comprehensive income (loss), net of tax:                                     |                                             |                                                                             
|                                         |                                                                                    | Foreign currency translation adjustments    |                                                                             
|                                         |                                                                                    | Gain on affiliate sale of stock, net of tax |                                                                             
|                                         |                                                                                    | Other                                       |                                                                             
|                                         |                                                                                    | Unrealized gains (losses) on securities:    |                                                                             
|                                         |                                                                                    |                                             | Unrealized gains (losses) arising during the period                         
|                                         |                                                                                    |                                             | Reclassification adjustment for (gains) losses included in net income (loss)
|                                         |                                                                                    |                                             |                                                                             
|                                         |                                                                                    |                                             | Unrealized gains (losses) on securities, net of tax                         
|                                         |                                                                                    |                                             |                                                                             
|                                         |                                                                                    | Other comprehensive income                  |                                                                             
|                                         |                                                                                    |                                             |                                                                             
|Comprehensive income                     |                                                                                    | $                                           | 184,301                                                                     
|                                         |                                                                                    |                                             |                                                                             

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

F-75

---





|                                           |                                                                                           | For the Years Ended December 31,                                       |  
|------------------------------------------ | ----------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | -
|
|Net income (loss) per share:               |                                                                                           |                                                                        |  
|Allocated to Genzyme Stock (1):            |                                                                                           |                                                                        |  
|                                           | Genzyme General net income (loss)                                                         |                                                                        | $
|                                           | Tax benefit allocated from Genzyme Biosurgery                                             |                                                                        |  
|                                           | Tax benefit allocated from Genzyme Molecular Oncology                                     |                                                                        |  
|                                           |                                                                                           |                                                                        |  
|                                           | Net income allocated to Genzyme Stock                                                     |                                                                        | $
|                                           |                                                                                           |                                                                        |  
|Net income per share of Genzyme Stock:     |                                                                                           |                                                                        |  
|                                           | Basic                                                                                     |                                                                        | $
|                                           |                                                                                           |                                                                        |  
|                                           | Diluted                                                                                   |                                                                        | $
|                                           |                                                                                           |                                                                        |  
|Weighted average shares outstanding:       |                                                                                           |                                                                        |  
|                                           | Basic                                                                                     |                                                                        |  
|                                           |                                                                                           |                                                                        |  
|                                           | Diluted                                                                                   |                                                                        |  
|                                           |                                                                                           |                                                                        |  
|Allocated to Biosurgery Stock (1):         |                                                                                           |                                                                        |  
|                                           | Genzyme Biosurgery net loss before cumulative effect of change in accounting for goodwill |                                                                        |  
|                                           | Cumulative effect of change in accounting for goodwill                                    |                                                                        |  
|                                           | Allocated tax benefit                                                                     |                                                                        |  
|                                           |                                                                                           |                                                                        |  
|                                           | Net loss allocated to Biosurgery Stock                                                    |                                                                        |  
|                                           |                                                                                           |                                                                        |  
|                                           | Net loss per share of Biosurgery Stockbasic and diluted:                                 |                                                                        |  
|                                           |                                                                                           | Net loss before cumulative effect of change in accounting for goodwill |  
|                                           |                                                                                           | Per share cumulative effect of change in accounting for goodwill       |  
|                                           |                                                                                           |                                                                        |  
|                                           | Net loss per share of Biosurgery Stockbasic and diluted                                  |                                                                        |  
|                                           |                                                                                           |                                                                        |  
|Weighted average shares outstanding        |                                                                                           |                                                                        |  
|                                           |                                                                                           |                                                                        |  
|Allocated to Molecular Oncology Stock (1): |                                                                                           |                                                                        |  
|                                           | Net loss allocated to Molecular Oncology Stock                                            |                                                                        |  
|                                           |                                                                                           |                                                                        |  
|                                           | Net loss per share of Molecular Oncology Stockbasic and diluted                          |                                                                        |  
|                                           |                                                                                           |                                                                        |  
|                                           | Weighted average shares outstanding                                                       |                                                                        |  
|                                           |                                                                                           |                                                                        |  

---

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

F-76

---





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

|                                                 |                                                                                    | December 31, |                                           
|------------------------------------------------ | ---------------------------------------------------------------------------------- | ------------ | ------------------------------------------
|
|ASSETS                                           |                                                                                    |              |                                           
|Current assets:                                  |                                                                                    |              |                                           
|                                                 | Cash and cash equivalents                                                          |              | $                                         
|                                                 | Cash and cash equivalentsrestricted                                               |              |                                           
|                                                 | Short-term investments                                                             |              |                                           
|                                                 | Accounts receivable, net                                                           |              |                                           
|                                                 | Inventories                                                                        |              |                                           
|                                                 | Prepaid expenses and other current assets                                          |              |                                           
|                                                 | Notes receivablerelated party                                                     |              |                                           
|                                                 | Deferred tax assets                                                                |              |                                           
|                                                 |                                                                                    |              |                                           
|                                                 |                                                                                    |              | Total current assets                      
|Property, plant and equipment, net               |                                                                                    |              | 1,310,256                                 
|Long-term investments                            |                                                                                    |              | 528,262                                   
|Restricted investments                           |                                                                                    |              | 1,691                                     
|Notes receivablerelated parties                 |                                                                                    |              | 9,491                                     
|Goodwill, net                                    |                                                                                    |              | 1,290,916                                 
|Other intangible assets, net                     |                                                                                    |              | 1,069,399                                 
|Investments in equity securities                 |                                                                                    |              | 150,253                                   
|Other noncurrent assets                          |                                                                                    |              | 75,524                                    
|                                                 |                                                                                    |              |                                           
|                                                 |                                                                                    |              | Total assets                              
|                                                 |                                                                                    |              |                                           
|LIABILITIES AND STOCKHOLDERS' EQUITY             |                                                                                    |              |                                           
|Current liabilities:                             |                                                                                    |              |                                           
|                                                 | Accounts payable                                                                   |              | $                                         
|                                                 | Accrued expenses                                                                   |              |                                           
|                                                 | Deferred revenue and other income                                                  |              |                                           
|                                                 | Current portion of long-term debt, convertible notes and capital lease obligations |              |                                           
|                                                 |                                                                                    |              |                                           
|                                                 |                                                                                    |              | Total current liabilities                 
|Long-term debt and capital lease obligations     |                                                                                    |              | 120,991                                   
|Convertible notes and debentures                 |                                                                                    |              | 690,000                                   
|Deferred revenuenoncurrent                      |                                                                                    |              | 7,716                                     
|Deferred tax liabilities                         |                                                                                    |              | 225,850                                   
|Other noncurrent liabilities                     |                                                                                    |              | 20,310                                    
|                                                 |                                                                                    |              |                                           
|                                                 |                                                                                    |              | Total liabilities                         
|                                                 |                                                                                    |              |                                           
|Commitments and contingencies (Notes J, K, M, O) |                                                                                    |              |                                           
|Stockholders' equity:                            |                                                                                    |              |                                           
|                                                 | Preferred stock, $0.01 par value                                                   |              |                                           
|                                                 | Common stock, $0.01 par value                                                      |              |                                           
|                                                 | Additional paid-in capital                                                         |              |                                           
|                                                 | Notes receivable from stockholders                                                 |              |                                           
|                                                 | Accumulated earnings (deficit)                                                     |              |                                           
|                                                 | Accumulated other comprehensive income                                             |              |                                           
|                                                 |                                                                                    |              |                                           
|                                                 |                                                                                    |              | Total stockholders' equity                
|                                                 |                                                                                    |              |                                           
|                                                 |                                                                                    |              | Total liabilities and stockholders' equity
|                                                 |                                                                                    |              |                                           

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

F-77

---





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

|                                      |                                                                            | For the Years Ended
December 31,                                                                                        |                                                        
|------------------------------------- | -------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------
|
|Cash Flows from Operating Activities: |                                                                            |                                                                                                                         |                                                        
|                                      | Net income (loss)                                                          |                                                                                                                         | $                                                      
|                                      | Reconciliation of net income (loss) to net cash from operating activities: |                                                                                                                         |                                                        
|                                      |                                                                            | Depreciation and amortization                                                                                           |                                                        
|                                      |                                                                            | Non-cash compensation expense                                                                                           |                                                        
|                                      |                                                                            | Provision for bad debts                                                                                                 |                                                        
|                                      |                                                                            | Charge for purchase of in-process research and development                                                              |                                                        
|                                      |                                                                            | Charge for impairment of goodwill                                                                                       |                                                        
|                                      |                                                                            | Charge for impaired assets                                                                                              |                                                        
|                                      |                                                                            | Minority interest                                                                                                       |                                                        
|                                      |                                                                            | Equity in loss of equity method investments                                                                             |                                                        
|                                      |                                                                            | Loss on investments in equity securities                                                                                |                                                        
|                                      |                                                                            | Loss on sale of product line                                                                                            |                                                        
|                                      |                                                                            | Write off of unamortized debt fees                                                                                      |                                                        
|                                      |                                                                            | Deferred income tax provision                                                                                           |                                                        
|                                      |                                                                            | Tax benefit from employee stock options                                                                                 |                                                        
|                                      |                                                                            | Cumulative effect of change in accounting for goodwill                                                                  |                                                        
|                                      |                                                                            | Other                                                                                                                   |                                                        
|                                      |                                                                            | Increase (decrease) in cash from working capital changes (excluding impact of acquired assets and assumed liabilities): |                                                        
|                                      |                                                                            |                                                                                                                         | Accounts receivable                                    
|                                      |                                                                            |                                                                                                                         | Inventories                                            
|                                      |                                                                            |                                                                                                                         | Prepaid expenses and other current assets              
|                                      |                                                                            |                                                                                                                         | Accounts payable, accrued expenses and deferred revenue
|                                      |                                                                            |                                                                                                                         |                                                        
|                                      |                                                                            |                                                                                                                         |                                                        
|                                      |                                                                            |                                                                                                                         |                                                        
|Cash Flows from Investing Activities: |                                                                            |                                                                                                                         |                                                        
|                                      | Purchases of investments                                                   |                                                                                                                         |                                                        
|                                      | Sales and maturities of investments                                        |                                                                                                                         |                                                        
|                                      | Purchases of equity securities                                             |                                                                                                                         |                                                        
|                                      | Proceeds from sale of equity securities                                    |                                                                                                                         |                                                        
|                                      | Purchases of property, plant and equipment                                 |                                                                                                                         |                                                        
|                                      | Proceeds from sale of product line                                         |                                                                                                                         |                                                        
|                                      | Investments in equity method investees                                     |                                                                                                                         |                                                        
|                                      | Purchases of intangible assets                                             |                                                                                                                         |                                                        
|                                      | Milestone payment to BioMarin                                              |                                                                                                                         |                                                        
|                                      | Note received from collaborator                                            |                                                                                                                         |                                                        
|                                      | Acquisitions, net of acquired cash                                         |                                                                                                                         |                                                        
|                                      | Other                                                                      |                                                                                                                         |                                                        
|                                      |                                                                            |                                                                                                                         |                                                        
|                                      |                                                                            |                                                                                                                         |                                                        
|                                      |                                                                            |                                                                                                                         |                                                        

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

F-78

---





|                                                   |                                                     | For the Years Ended December 31,     |        
|-------------------------------------------------- | --------------------------------------------------- | ------------------------------------ | -------
|
|Cash Flows from Financing Activities:              |                                                     |                                      |        
|                                                   | Proceeds from issuance of common stock              |                                      |        
|                                                   | Proceeds from draw on credit facility               |                                      |        
|                                                   | Proceeds from issuance of debt                      |                                      |        
|                                                   | Payments of debt and capital lease obligations      |                                      |        
|                                                   | Payments of notes receivable from stockholders      |                                      |        
|                                                   | Bank overdraft                                      |                                      |        
|                                                   | Minority interest payable                           |                                      |        
|                                                   | Other                                               |                                      |        
|                                                   |                                                     |                                      |        
|                                                   |                                                     | Cash flows from financing activities |        
|                                                   |                                                     |                                      |        
|Effect of exchange rate changes on cash            |                                                     |                                      | 9,335  
|                                                   |                                                     |                                      |        
|Increase (decrease) in cash and cash equivalents   |                                                     |                                      | 187,424
|Cash and cash equivalents at beginning of period   |                                                     |                                      | 292,774
|                                                   |                                                     |                                      |        
|Cash and cash equivalents at end of period         |                                                     | $                                    | 480,198
|                                                   |                                                     |                                      |        
|Supplemental disclosures of cash flows:            |                                                     |                                      |        
|Cash paid during the year for:                     |                                                     |                                      |        
|                                                   | Interest, net of capitalized interest               |                                      | $      
|                                                   | Income taxes                                        |                                      | $      
|Supplemental disclosures of non-cash transactions: |                                                     |                                      |        
|                                                   | Mergers and AcquisitionsNote C.                    |                                      |        
|                                                   | Dispositions of assetsNote D.                      |                                      |        
|                                                   | Property, Plant and EquipmentNote H.               |                                      |        
|                                                   | Equity Method InvestmentsNote K.                   |                                      |        
|                                                   | Capital lease obligation for Genzyme CenterNote M. |                                      |        

In conjunction with the acquisitions of ILEX, substantially all of the assets of Alfigen and the Physician Services and Analytical Services
business units of IMPATH in 2004 and SangStat in 2003, we assumed the following net liabilities (amounts in thousands):

|                                                    |                         | For the Years Ended December 31,
|--------------------------------------------------- | ----------------------- | --------------------------------
|
|Net cash paid for acquisition and acquisition costs |                         | $                               
|Issuance of common stock and options                |                         |                                 
|Fair value of assets acquired                       |                         |                                 
|Net deferred tax assetcurrent and noncurrent       |                         |                                 
|Acquired in-process research and development        |                         |                                 
|Goodwill                                            |                         |                                 
|Liabilities for exit activities and integration     |                         |                                 
|Income taxes payable                                |                         |                                 
|Net deferred tax liability assumed                  |                         |                                 
|                                                    |                         |                                 
|                                                    | Net liabilities assumed |                                 
|                                                    |                         |                                 

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

F-79

---





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

|                          |                                                                                   | Shares |         | Dollars
|------------------------- | --------------------------------------------------------------------------------- | ------ | ------- | -------
|
|COMMON STOCK:             |                                                                                   |        |         |        
|GENZYME STOCK:            |                                                                                   |        |         |        
|                          | Balance at beginning of year                                                      |        | 224,717 |        
|                          | Issuance of Genzyme Stock under stock plans                                       |        | 5,950   |        
|                          | Exercise of warrants and stock purchase rights                                    |        |        |        
|                          | Shares issued for the conversion of Biosurgery Stock to Genzyme Stock             |        |        |        
|                          | Shares issued for the conversion of Molecular Oncology Stock to Genzyme Stock     |        |        |        
|                          | Shares issued for the acquisition of ILEX
Oncology                                |        | 18,458  |        
|                          | Cancellation of shares                                                            |        |        |        
|                          |                                                                                   |        |         |        
|                          | Balance at end of year                                                            |        | 249,125 |        
|                          |                                                                                   |        |         |        
|BIOSURGERY STOCK:         |                                                                                   |        |         |        
|                          | Balance at beginning of year                                                      |        |         |        
|                          | Issuance of Biosurgery Stock under stock plans                                    |        |         |        
|                          | Shares issued in connection with investment in Myosix                             |        |         |        
|                          | Shares converted into Genzyme Stock from the consolidation of the tracking stocks |        |         |        
|                          |                                                                                   |        |         |        
|                          | Balance at end of year                                                            |        |         |        
|                          |                                                                                   |        |         |        
|MOLECULAR ONCOLOGY STOCK: |                                                                                   |        |         |        
|                          | Balance at beginning of year                                                      |        |         |        
|                          | Issuance of Molecular Oncology Stock under stock plans                            |        |         |        
|                          | Cancellation of shares                                                            |        |         |        
|                          | Shares converted into Genzyme Stock from the consolidation of the tracking stocks |        |         |        
|                          |                                                                                   |        |         |        
|                          | Balance at end of year                                                            |        |         |        
|                          |                                                                                   |        |         |        

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

F-80

---





|                                    |                                                                                                 | 2004 |   | 2003      |   | 2002 |          
|----------------------------------- | ----------------------------------------------------------------------------------------------- | ---- | - | --------- | - | ---- | ---------
|ADDITIONAL PAID-IN CAPITAL:         |                                                                                                 |      |   |           |   |      |          
|GENZYME STOCK:                      |                                                                                                 |      |   |           |   |      |          
|                                    | Balance at beginning of year                                                                    |      | $ | 2,957,578 |   | $    | 1,810,358
|                                    | Issuance of Genzyme Stock under stock plans                                                     |      |   | 140,251   |   |      | 115,938  
|                                    | Exercise of warrants and stock purchase rights                                                  |      |   |          |   |      |         
|                                    | Conversion of Biosurgery Stock to Genzyme Stock                                                 |      |   |          |   |      | 814,982  
|                                    | Conversion of Molecular Oncology Stock to Genzyme Stock                                         |      |   |          |   |      | 149,103  
|                                    | Payment from Genzyme Biosurgery in connection with transfer of NeuroCell joint venture interest |      |   |          |   |      |         
|                                    | Acquisition of ILEX Oncology                                                                    |      |   | 1,069,732 |   |      |         
|                                    | Tax benefit from disqualified dispositions                                                      |      |   | 49,974    |   |      | 57,536   
|                                    | Amortization of deferred compensation                                                           |      |   | 10        |   |      | 592      
|                                    | Other                                                                                           |      |   | (188      | ) |      | 9,069    
|                                    |                                                                                                 |      |   |           |   |      |          
|                                    | Balance at end of year                                                                          |      | $ | 4,217,357 |   | $    | 2,957,578
|                                    |                                                                                                 |      |   |           |   |      |          
|BIOSURGERY STOCK:                   |                                                                                                 |      |   |           |   |      |          
|                                    | Balance at beginning of year                                                                    |      |   |           |   | $    | 823,364  
|                                    | Issuance of Biosurgery Stock under stock plans                                                  |      |   |           |   |      | 308      
|                                    | Payment to Genzyme General in connection with transfer of NeuroCell joint venture interest      |      |   |           |   |      |         
|                                    | Issuance of Biosurgery Stock in connection with investment in Myosix                            |      |   |           |   |      |         
|                                    | Other                                                                                           |      |   |           |   |      | (9,077   
|                                    | Conversion of Biosurgery Stock to Genzyme Stock                                                 |      |   |           |   |      | (814,595 
|                                    |                                                                                                 |      |   |           |   |      |          
|                                    | Balance at end of year                                                                          |      |   |           |   | $    |         
|                                    |                                                                                                 |      |   |           |   |      |          
|MOLECULAR ONCOLOGY STOCK:           |                                                                                                 |      |   |           |   |      |          
|                                    | Balance at beginning of year                                                                    |      |   |           |   | $    | 148,799  
|                                    | Issuance of Molecular Oncology Stock under stock plans                                          |      |   |           |   |      | 141      
|                                    | Other                                                                                           |      |   |           |   |      | 3        
|                                    | Conversion of Molecular Oncology Stock to Genzyme Stock                                         |      |   |           |   |      | (148,943 
|                                    |                                                                                                 |      |   |           |   |      |          
|                                    | Balance at end of year                                                                          |      |   |           |   | $    |         
|                                    |                                                                                                 |      |   |           |   |      |          
|NOTES RECEIVABLE FROM STOCKHOLDERS: |                                                                                                 |      |   |           |   |      |          
|                                    | Balance at beginning of year                                                                    |      | $ | (13,285   | ) | $    | (12,706  
|                                    | Accrued interest receivable on notes                                                            |      |   | (614      | ) |      | (613     
|                                    | Payments of notes receivable                                                                    |      |   | 34        |   |      | 34       
|                                    |                                                                                                 |      |   |           |   |      |          
|                                    | Balance at end of year                                                                          |      | $ | (13,865   | ) | $    | (13,285  
|                                    |                                                                                                 |      |   |           |   |      |          
|ACCUMULATED DEFICIT:                |                                                                                                 |      |   |           |   |      |          
|                                    | Balance at beginning of year                                                                    |      | $ | (198,560  | ) | $    | (130,968 
|                                    | Net income (loss)                                                                               |      |   | 86,527    |   |      | (67,592  
|                                    |                                                                                                 |      |   |           |   |      |          
|                                    | Balance at end of year                                                                          |      | $ | (112,033  | ) | $    | (198,560 
|                                    |                                                                                                 |      |   |           |   |      |          

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

F-81

---





|                                                    |                                                                                | 2004 |   | 2003    |  | 2002 |        
|--------------------------------------------------- | ------------------------------------------------------------------------------ | ---- | - | ------- |  | ---- | -------
|ACCUMULATED OTHER COMPREHENSIVE INCOME,
NET OF TAX: |                                                                                |      |   |         |  |      |        
|                                                    | Balance at beginning of year                                                   |      | $ | 188,432 |  | $    | 56,278 
|                                                    | Foreign currency translation adjustments                                       |      |   | 80,371  |  |      | 133,317
|                                                    | Gain on affiliate sale of stock, net of tax                                    |      |   |        |  |      | 2,856  
|                                                    | Additional minimum pension liability, net of tax                               |      |   |        |  |      | 2,529  
|                                                    | Change in unrealized gains (losses) on investments and derivatives, net of tax |      |   | 17,403  |  |      | (6,548 
|                                                    |                                                                                |      |   |         |  |      |        
|                                                    | Accumulated other comprehensive income                                         |      | $ | 286,206 |  | $    | 188,432
|                                                    |                                                                                |      |   |         |  |      |        

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

F-82

---





GENZYME CORPORATION AND SUBSIDIARIES        Notes To Consolidated Financial Statements

NOTE A.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

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



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

Policies Relating to Tracking Stock and the Elimination of Our Tracking Stock Structure

Elimination of Tracking Stock Structure

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

Effective
July 1, 2003, we eliminated our tracking stock capital structure by exchanging, in accordance with the provisions of our charter, each share of Biosurgery Stock for
0.04914 of a share of Genzyme General Stock and each share of Molecular Oncology Stock for 0.05653 of a share of

F-83

---



Genzyme
General Stock. In the aggregate, 1,997,392 shares of Genzyme General Stock were exchanged for the outstanding shares of Biosurgery Stock and 959,045 shares of Genzyme General Stock were
exchanged for the outstanding shares of Molecular Oncology Stock. Options and warrants to purchase shares of Biosurgery Stock were converted into options and warrants to purchase 401,257 shares of
Genzyme General Stock, with exercise prices ranging from $24.42 to $2,370.98, and options to purchase shares of Molecular Oncology Stock were converted into options to purchase 198,855 shares of
Genzyme General Stock, with exercise prices ranging from $25.83 to $474.97. Effective July 1, 2003, we have one outstanding series of common stock, which we now refer to as Genzyme Stock.

Effective
July 1, 2003, as a result of the elimination of our tracking stock capital structure, all of our earnings or losses are now allocated to Genzyme Stock. Earnings or
losses allocated to Biosurgery Stock and Molecular Oncology Stock prior to that date remain allocated to those series of stock in the preparation of our consolidated financial statements and are not
affected by the elimination of our tracking stock structure. Accordingly, earnings or losses allocated to Biosurgery Stock and Molecular Oncology Stock represent earnings allocated to those tracking
stocks through June 30, 2003. Earnings or losses allocated to Genzyme Stock through June 30, 2003 represent the earnings or losses of Genzyme General, as adjusted for the allocation of
tax benefits. Earnings or losses allocated to Genzyme Stock after June 30, 2003 represent the earnings or losses for the corporation as a whole. Accordingly, earnings allocated to Genzyme Stock
for the year ended December 31, 2004, reflect the earnings for the corporation as a whole. Earnings allocated to Genzyme Stock for the year ended December 31, 2003 reflect the earnings
allocated to Genzyme General for the period from January 1, 2003 through June 30, 2003 and do not include the losses allocated to Biosurgery Stock and Molecular Oncology Stock for that
period. Earnings allocated to Genzyme Stock for the period from July 1, 2003 through December 31, 2003 reflect earnings for the corporation as a whole.

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



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

F-84

---



June 30,
2003, Genzyme Biosurgery and Genzyme Molecular Oncology had not generated taxable income, and thus had not had the ability to use any projected annual tax benefits. Genzyme General had
generated taxable income, providing it with the ability to utilize the tax benefits generated by Genzyme Biosurgery and Genzyme Molecular Oncology. Consistent with our policy, we allocated the tax
benefits generated by Genzyme Biosurgery and Genzyme Molecular Oncology through June 30, 2003 to Genzyme General without making any compensating payments or allocations to the division that
generated the benefit.

The
tax benefits allocated to Genzyme General and included in earnings attributable to Genzyme Stock for the years ended December 31, 2003 and 2002, reflecting allocations through
June 30, 2003, were (amounts in thousands):

For the Years Ended December 31,2004

2003

2002Tax benefits allocated from:Genzyme Biosurgery

N/A

$
8,720

$
18,508Genzyme Molecular Oncology

N/A


3,420


9,287Total

N/A

$
12,140

$
27,795


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

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

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

Allocation Policy Related to Tracking Stocks

Through June 30, 2003, our charter set forth which operations and assets were initially allocated to each division and stated that the division would also
include all business, products or programs, developed by or acquired for the division, as determined by our board of directors. We then managed and accounted for transactions between our divisions and
with third parties, and any resulting re-allocations of assets and liabilities, by applying consistently across divisions a detailed set of policies established by our board of directors.
Our charter required that all of our assets and liabilities be

F-85

---



allocated
among our divisions in a reasonable and consistent manner. Our board of directors retained considerable discretion in determining the types, magnitude and extent of allocations to each
series of common stock.

Allocations
to our divisions were based on one of the following methodologies:



Risks and Uncertainties

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



F-86

---





Basis of Presentation

Our consolidated financial statements for each period include the statements of operations and comprehensive income, balance sheets, statements of cash flows and
statement of stockholders' equity for our corporate operations taken as a whole. We have eliminated all significant intercompany items and transactions in consolidation. We have reclassified certain
2003 and 2002 data to conform to our 2004 presentation.

Principles of Consolidation

Our consolidated financial statements include the accounts of our wholly owned and majority owned subsidiaries. As a result of the adoption of FIN 46,
"Consolidation of Variable Interest Entities," we also consolidate certain variable interest entities for which we are the primary beneficiary. For consolidated subsidiaries in which we 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 fall in the scope of FIN 46, or over which we exercise significant influence. Our consolidated net income includes our share of the
earnings of these entities. All significant intercompany accounts and transactions have been eliminated in consolidation.

Dividend Policy

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

Use of Estimates

Under accounting principles generally accepted in the United States, we are required to make certain estimates and assumptions that affect reported amounts of
assets, liabilities, revenues, expenses,

F-87

---



and
disclosure of contingent assets and liabilities in our 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 and municipal notes with original maturities of three months or less. We generally invest our cash in investment-grade securities to mitigate risk.

Investments

We invest our excess cash balances in short-term and long-term marketable debt securities. 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 our auction rate municipal bonds and variable rate municipal demand notes as current investments. As of December 31, 2003, such investments had been classified as cash
and cash equivalents. The carrying value of these securities as of December 31, 2004 was approximately $33 million. The carrying value of the securities as of December 31, 2003
was not significant.

We
accounted for our investment in GTC under the equity method of accounting until May 2002, at which point our ownership interest and board representation was reduced below 20%
and we did not have any other factors of significant influence. Accordingly, we ceased to have significant influence over GTC and we ceased accounting for our investment in GTC under the equity method
of accounting in June 2002.

We
consolidated the results of Peptimmune through February 2003 because during that period we owned 100% of its outstanding stock. In March 2003, our investment in
Peptimmune decreased to approximately 12% as a result of the sale by Peptimmune of shares of its Series B voting preferred stock to third-party investors. Although our ownership interest in
Peptimmune has declined below 20%, we account for the investment in Peptimmune under the equity method of accounting because certain factors exist that cause us to continue to have significant
influence over Peptimmune, including that the chairman of Peptimmune is a member of our board of directors and we have license and continuing service agreements with Peptimmune.

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

F-88

---



We
classify our investments with remaining maturities of 12 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 do not expect to hold the investment to maturity.

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

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 that has not been approved for sale. If a product is not approved for sale, it
would result in the write-off of the inventory and a charge to earnings. At December 31, 2004, our total inventories included $5.5 million of inventory for Myozyme, which has
not yet been approved for sale. In December 2004, we submitted a marketing application for Myozyme in the European Union. At December 31, 2003, our inventory for products not yet
approved for sale was not significant.

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
depreciate certain specialized manufacturing equipment and facilities over their remaining useful lives using the units-of-production method. 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.

F-89

---



For
products we expect to commercialize, we capitalize, to construction-in-progress, the costs we incur in validating the manufacturing process. We begin this
capitalization when we consider the product to have demonstrated technological feasibility and end this capitalization when the asset is substantially complete and ready for its intended use. These
capitalized costs include incremental labor and direct material, and incremental fixed overhead and interest. We depreciate these costs using the straight-line method or the
units-of-production method.

Goodwill and Other Intangible Assets

Our intangible assets consist of:



Effective
January 1, 2002, we adopted SFAS No. 142, "Goodwill and Other Intangible Assets," which requires that ratable amortization of goodwill and certain intangible
assets be replaced with the periodic tests of goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite.

We
amortize intangible assets using the straight-line method over their estimated useful lives, which range between 1 to 15 years or, if significantly greater, as the
economic benefits of the assets are realized. To date, all of our assets have been amortized using the straight-line method.

Accounting for the Impairment of Long-Lived Assets

We periodically evaluate our long-lived assets for potential impairment under SFAS No. 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 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 SFAS No. 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-90

---



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 included translation adjustments for these subsidiaries in
stockholders' equity. We also record as a charge or credit to 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 $253.7 million at December 31, 2004 and $173.3 million at December 31, 2003. Gains and
losses on all other foreign currency transactions are included in our results of operations.

Derivative Instruments

SFAS No. 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 sheet and measure those instruments at fair value. Subsequent changes in fair value are reflected in current earnings or other comprehensive income, depending on whether a
derivative instrument is designated as part of a hedge relationship and, if it is, the type of hedge relationship.

Revenue Recognition

We recognize revenue from product sales when persuasive evidence of an arrangement exists, the product has been shipped, and 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 at the time 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." EITF 00-21 requires that the delivered items have value to the customer on a standalone basis, there is
objective and reliable evidence of fair

F-91

---



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

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

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.

Issuance of Stock By a Subsidiary or an Affiliate

We include gains on the issuance of stock by our subsidiaries and affiliates in net income unless that subsidiary or affiliate is a research and development,
start-up or development stage company or an entity whose viability as a going concern is under consideration. In those situations, we account for the change in our equity ownership of that
subsidiary or affiliate in other comprehensive income or loss.

Income Taxes

We use the asset and liability method of accounting for deferred income taxes. Our provision for income taxes includes income taxes currently payable and those
deferred because of temporary

F-92

---



differences
between the financial statement and tax bases of assets and liabilities. We record liabilities for income tax contingencies based on our best estimate of the underlying exposures.

We
have not provided for possible U.S. taxes on the undistributed earnings of foreign subsidiaries. We do not believe it is practicable to determine the tax liability associated with the
repatriation of our foreign earnings because it is our policy to indefinitely reinvest these earnings in non-U.S. operations. These undistributed foreign earnings totaled
$133.4 million at December 31, 2004 and $64.4 million at December 31, 2003.

Comprehensive Income (Loss)

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

Net Income (Loss) Per Share

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

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

Accounting for Stock Based Compensation

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

F-93

---



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

|                   |                                                                            | For the Years Ended December 31, |  
|------------------ | -------------------------------------------------------------------------- | -------------------------------- | -
|
|
|Net income (loss): |                                                                            |                                  |  
|                   | As reported                                                                |                                  | $
|                   | Add: employee stock-based compensation included in as-reported, net of tax |                                  |  
|                   | Deduct: pro forma employee stock-based compensation expense, net of tax    |                                  |  
|                   |                                                                            |                                  |  
|                   | Pro forma                                                                  |                                  | $
|                   |                                                                            |                                  |  

F-94

---





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

|                                                                          |          | For the Years Ended December 31, | 
|------------------------------------------------------------------------- | -------- | -------------------------------- | 
|
|Net income (loss) per share allocated to Genzyme Stock (1):               |          |                                  | 
|                                                                          | Basic:   |                                  | 
|                                                                          |          | As reported                      | 
|                                                                          |          |                                  | 
|                                                                          |          | Pro forma                        | 
|                                                                          |          |                                  | 
|                                                                          | Diluted: |                                  | 
|                                                                          |          | As reported                      | 
|                                                                          |          |                                  | 
|                                                                          |          | Pro forma                        | 
|                                                                          |          |                                  | 
|Net loss per share allocated to Biosurgery Stock 
basic and diluted (1): |          |                                  | 
|                                                                          |          | As reported                      | 
|                                                                          |          |                                  | 
|                                                                          |          | Pro forma                        | 
|                                                                          |          |                                  | 
|Net loss per share of Molecular Oncology Stock 
basic and diluted (1):   |          |                                  | 
|                                                                          |          | As reported                      | 
|                                                                          |          |                                  | 
|                                                                          |          | Pro forma                        | 
|                                                                          |          |                                  | 

---

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

F-95

---



We
estimate the fair value of each option grant using the Black-Scholes option-pricing model. In computing these pro forma amounts, we used the following assumptions:

|                          |  | Risk-Free
Interest Rate |  | Volatility |  | Dividend
Yield |  | Expected
Option Life
(In Years) |  | Average
Fair Value
|------------------------- |  | ----------------------- |  | ---------- |  | -------------- |  | ------------------------------- |  | ------------------
|GENZYME STOCK:            |  |                         |  |            |  |                |  |                                 |  |                   
|2004                      |  | 3.47%                   |  | 54%        |  | 0%             |  | 5                               |  | $                 
|2003                      |  | 3.26%                   |  | 54%        |  | 0%             |  | 5                               |  | $                 
|2002                      |  | 4.64%                   |  | 54%        |  | 0%             |  | 5                               |  | $                 
|BIOSURGERY STOCK:         |  |                         |  |            |  |                |  |                                 |  |                   
|Through June 30, 2003     |  | 2.16%                   |  | 91%        |  | 0%             |  | 5                               |  | $                 
|2002                      |  | 4.64%                   |  | 91%        |  | 0%             |  | 5                               |  | $                 
|MOLECULAR ONCOLOGY STOCK: |  |                         |  |            |  |                |  |                                 |  |                   
|Through June 30, 2003     |  | 2.16%                   |  | 105%       |  | 0%             |  | 5                               |  | $                 
|2002                      |  | 4.64%                   |  | 105%       |  | 0%             |  | 5                               |  | $                 

Recent Accounting Pronouncements

EITF Issue No. 03-01, "The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments." In March 2004, the FASB approved the consensus reached on EITF Issue No. 03-01, "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments".EITF 03-01 provides guidance on
determining when an investment is considered impaired, whether that impairment is other than temporary and the measure of the impairment loss. EITF 03-01 also provides new disclosure
requirements for other-than-temporary impairments on debt and equity investments. In September 2004, the FASB delayed until further notice the effective date of the
measurement and recognition guidance contained in EITF 03-01, however the disclosure requirements are currently effective. We do not expect the adoption of EITF 03-01 to have a
material impact on our financial position, results of operations or cash flows.

EITF Issue No. 03-6, "Participating Securities and the Two-Class Method Under FASB Statement
No. 128."In April 2004, the EITF issued Statement No. 03-6, "Participating Securities and the Two-Class Method Under FASB
Statement No. 128, Earnings Per Share." EITF 03-6 addresses a number of questions regarding the computation of earnings per share by a company that has issued securities other than
common stock that contractually entitle the holder to the right to participate in dividends when, and if, declared. The issue also provides further guidance in applying the two-class
method of calculating earnings per share, clarifying the definition of a participating security and how to apply the two-class method. EITF 03-6 was effective for fiscal
periods beginning after March 31, 2004 and was required to be retroactively applied. We evaluated the terms of our convertible notes and debentures and determined that none of these instruments
qualified as participating securities under the provisions of EITF 03-6. As a result, the adoption of EITF 03-6 had no effect on our earnings per share for the years ended
December 31, 2004, 2003 and 2002.

EITF Issue No. 04-8, "The Effect of Contingently Convertible Debt on Diluted Earnings Per Share."In
September 2004, the EITF reached a consensus on Issue No. 04-8, "The Effect of Contingently Convertible Debt on Diluted Earnings Per Share." EITF 04-8 requires
that all contingently convertible debt instruments be included in diluted earnings per share using the if-converted method, regardless of

F-96

---



whether
the market price trigger (or other contingent feature) has been met. EITF 04-8 is effective for reporting periods ending after December 15, 2004 and requires that prior
period earnings per share amounts presented for comparative purposes be restated. Under the provisions of EITF 04-8, the $690.0 million in principal under our 1.25% convertible
senior notes, which represent 9.7 million potential shares of common stock, will be included in the calculation of diluted earnings per share using the if-converted method
regardless of whether or not the contingent requirements have been met for conversion to common stock. We adopted EITF 04-8 during the fourth quarter of 2004, and have determined that the
adoption of EITF 04-8 has not had a significant impact on the 2003 earnings per share calculations due to the fact that the notes were not outstanding for a significant period of time in
2003.

EITF Issue No. 04-10, "Determining Whether to Aggregate Operating Segments That Do Not Meet the Quantitative
Thresholds."In September 2004, the EITF reached a consensus on Issue No. 04-10, "Determining Whether to Aggregate Operating Segments That Do Not Meet
the Quantitative Thresholds." EITF 04-10 requires that operating segments that do not meet the quantitative thresholds can be aggregated to produce a reporting segment if: (i) the
aggregation is consistent with the objective and basic principles of SFAS No. 131, "Segment Reporting"; (ii) the segments have similar economic characteristics; and (iii) the
segments have a majority of other aggregation criteria, such as similar products and services, production processes, types of customers, distribution methods and regulatory environment. The consensus
on EITF 04-10 originally was effective for fiscal years ended after October 13, 2004. Concurrently, the FASB staff began drafting a proposed FASB Staff Position, or FSP, to provide
guidance in determining whether two or more operating segments have similar economic characteristics. Since the guidance in EITF 04-10 and the proposed FSP are interrelated, the effective date
of Issue 04-10 has been postponed to coincide with the effective date of the FSP. In March 2005, the FASB released for public comment proposed FSP No. FAS 131-a, "Determining Whether
Operating Segments Have 'Similar Economic Characteristics' under Paragraph 17 of FASB Statement No. 131,Disclosures about Segments of an Enterprise and Related
Information." The proposed FSP provides additional guidance on how to determine whether two or more of a company's operating segments havesimilar
economic characteristicswhen assessing whether those operating segments may be aggregated into a single operating segment. The proposed FSP indicates that (1) both
quantitative and qualitative factors should be considered in determining whether the economic characteristics of two or more operating segments are similar and (2) the factors that a company
should consider in making this assessment should be based on the factors that the company's chief operating decision maker uses in allocating resources to the individual segments. We are monitoring
developments related to EITF 04-10 and proposed FSP No. FAS 131-a and will adopt the final standards, if any, upon issuance.

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

SFAS No. 123R, "Share-Based Payment, an amendment of FASB Statement Nos. 123 and 95"In December 2004, the FASB,
issued a revision to SFAS 123,also known as SFAS 123R, that amends existing accounting pronouncements for share-based payment
transactions in which an enterprise receives employee and certain non-employee services in exchange for (a) equity instruments of the

F-97

---



enterprise
or (b) liabilities that are based on the fair value of the enterprise's equity instruments or that may be settled by the issuance of such equity instruments. SFAS 123R
eliminates the ability to account for share-based compensation transactions using APB 25 and generally requires such transactions be accounted for using a fair-value-based method.
SFAS 123R's effective date would be applicable for awards that are granted, modified, become vested, or settled in cash in interim or annual periods beginning after June 15, 2005.
SFAS 123R includes three transition methods: one that provides for prospective application and two that provide for retrospective application. We intend to adopt SFAS 123R prospectively
commencing in the third quarter of the fiscal year ending December 31, 2005. We expect that the adoption of SFAS 123R will cause us to record, as expense each quarter, a
non-cash accounting charge approximating the fair value of such share based compensation meeting the criteria outlined in the provisions of SFAS 123R.

NOTE B.    NET INCOME (LOSS) PER SHARE

Genzyme Stock (1):

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

|                                                                       |                                | For the Years Ended December 31,                                                    
|---------------------------------------------------------------------- | ------------------------------ | ------------------------------------------------------------------------------------
|
|Net income                                                             |                                | $                                                                                   
|Tax benefit allocated from Genzyme Biosurgery                          |                                |                                                                                     
|Tax benefit allocated from Genzyme Molecular Oncology                  |                                |                                                                                     
|                                                                       |                                |                                                                                     
|Net income allocated to Genzyme Stock  basic                          |                                |                                                                                     
|                                                                       | Effect of dilutive securities: |                                                                                     
|                                                                       |                                | 11/4% convertible senior notes (2):                                                 
|                                                                       |                                |                                                                                     
|                                                                       |                                |                                                                                     
|Net income allocated to Genzyme Stock  diluted                        |                                | $                                                                                   
|                                                                       |                                |                                                                                     
|Shares used in computing net income per common share  basic           |                                |                                                                                     
|                                                                       | Effect of dilutive securities: |                                                                                     
|                                                                       |                                | Shares issuable for the assumed conversion of our 1.25% convertible senior notes (2)
|                                                                       |                                | Stock options (3)                                                                   
|                                                                       |                                | Warrants and stock purchase rights                                                  
|                                                                       |                                |                                                                                     
|                                                                       |                                |                                                                                     
|                                                                       |                                |                                                                                     
|Shares used in computing net income per common share 
diluted (2,3,4) |                                |                                                                                     
|                                                                       |                                |                                                                                     
|Net income per share of Genzyme Stock:                                 |                                |                                                                                     
|                                                                       | Basic                          |                                                                                     
|                                                                       |                                |                                                                                     
|                                                                       | Diluted                        |                                                                                     
|                                                                       |                                |                                                                                     

---

F-98

---



| |                                                                       |  | For the Years Ended December 31,
| | --------------------------------------------------------------------- |  | --------------------------------
|
| | Shares of Genzyme Stock issuable upon exercise of outstanding options |  | 6,078                           
| |                                                                       |  |                                 

Biosurgery Stock (1):

For the periods presented, basic and diluted net loss per share of Biosurgery Stock were the same. We did not include the securities described in the following
table in the computation of Biosurgery Stock diluted net loss per share for each period because these securities would have an anti-dilutive effect due to the net loss allocated to
Biosurgery Stock (amount in thousands):

|                                                                                                              |  | For the Years Ended
December 31,
|------------------------------------------------------------------------------------------------------------- |  | --------------------------------
|
|Shares of Biosurgery Stock issuable upon exercise of outstanding options                                      |  | 7,796                           
|Warrants to purchase Biosurgery Stock                                                                         |  | 7                               
|Biosurgery designated shares(2)                                                                               |  | 3,128                           
|Biosurgery designated shares reserved for options(2)                                                          |  | 62                              
|Shares issuable upon conversion of the 6.9% convertible subordinated note allocated to Genzyme Biosurgery (3) |  |                                
|                                                                                                              |  |                                 
|Total shares excluded from the calculation of diluted net loss per share of Biosurgery Stock                  |  | 10,993                          
|                                                                                                              |  |                                 

---

F-99

---



Molecular Oncology Stock (1):

For all periods presented, basic and diluted net loss per share of Molecular Oncology Stock are the same. We did not include the securities described in the
following table in the computation of Molecular Oncology Stock diluted net loss per share for each period because these securities would have an anti-dilutive effect due to the net loss
allocated to Molecular Oncology Stock (amounts in thousands):

|                                                                                                     |  | For the Years Ended
December 31,
|---------------------------------------------------------------------------------------------------- |  | --------------------------------
|
|Shares of Molecular Oncology Stock issuable upon exercise of outstanding options                     |  | 3,465                           
|Molecular Oncology designated shares (2)                                                             |  | 1,651                           
|                                                                                                     |  |                                 
|Total shares excluded from the calculation of diluted net loss per share of Molecular Oncology Stock |  | 5,116                           
|                                                                                                     |  |                                 

---

F-100

---



NOTE C.    MERGERS AND ACQUISITIONS

Acquisition of Verigen AG

In February 2005, we acquired Verigen AG, a private company based in Germany with a proprietary cell therapy product for cartilage repair currently sold in
Europe and Australia, for $10.0 million in initial payments and potential payments of up to an aggregate of approximately $40 million over the next six years based upon the achievement
of development and commercial milestones relating to regulatory approval and commercialization in the United States for Verigen's MACI and royalties on sales of the product. To date we have acquired
approximately 96% of Verigen's shares and anticipate acquiring the remaining shares in the first half of 2005.

Acquisition of Synvisc Sales and Marketing Rights from Wyeth

On January 6, 2005 we consummated an arrangement with Wyeth under which we reacquired the sales and marketing rights to Synvisc in the United States, as
well as Germany, Poland, Greece, Portugal and the Czech Republic. In exchange for the sales and marketing rights, we paid a total of $121.0 million in cash to Wyeth in the first quarter of
2005. Additionally, we will make a series of contingent payments to Wyeth based on the volume of Synvisc sales in the covered territories. These additional payments could extend out to June 2012, or
could total a maximum of $293.7 million, whichever comes first. Upon closing this transaction, we began to record revenue from sales of Synvisc to end-users in these territories. We
will continue to record all of the research and development expenses related to Synvisc and will also now record SG&A expenses related to the additional Synvisc sales force we assumed from Wyeth.

Acquisition of ILEX

In December 2004, we completed our acquisition of ILEX, an oncology drug development company. The ILEX shareholders received 0.4682 of a share of Genzyme
Stock for each ILEX share owned. Cash was paid for fractional shares. The transaction had a total value of approximately $1.1 billion, based on ILEX's 39.4 million shares outstanding at
the date of acquisition, and our offer price of $55.88, the per share value of Genzyme Stock exchanged in the acquisition. We accounted for the acquisition as a purchase and accordingly, included its
results of operations in our consolidated statements of operations from December 20, 2004, the date of acquisition.

F-101

---



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

Issuance of 18,457,679 shares of Genzyme Stock

$
1,031,485Issuance of options to purchase 1,736,654 shares of Genzyme Stock


38,440Acquisition costs


10,728Total purchase price

$
1,080,653Cash and cash equivalents

$
121,128Restricted cash


604Accounts receivable


13,100Inventories


16,584Deferred tax assets  current


27,307Other current assets


2,896Property, plant and equipment


2,162Restricted long-term investments


1,691Goodwill


478,539Other intangible assets (to be amortized over 11 to 12 years)


228,627In-process research and development


254,520Deferred tax assets  noncurrent


24,983Other noncurrent assets


1,648Assumed liabilities:Notes payable  short-term


(19,968
)Unfavorable lease liability


(1,610
)Liabilities for exit activities


(5,330
)Income tax payable


(40,852
)Other


(25,376
)Allocated purchase price

$
1,080,653


The
purchase price was allocated to the intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase
price over the estimated fair value of the assets acquired and liabilities assumed amounted to $478.5 million, which was allocated to goodwill. We expect that substantially all of the amount
allocated to goodwill will not be deductible for tax purposes.

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

In-Process Research and Development

In connection with our acquisition of ILEX, we acquired IPR&D related to three development projects, Campath (for indications other than B-cell
chronic lymphocytic leukemia), Clolar (clofarabine) and tasidotin hydrochloride, formerly referred to as ILX-651.

Campath
is a humanized monoclonal antibody that binds to a specific target, CD52, on cell surfaces leading to the destruction of malignant, or cancerous, cells. Campath was launched in

F-102

---



May 2001
in the United States and in August 2001 in Europe under the name MabCampath. The product is approved for use in patients with B-cell chronic lymphocytic leukemia who
have been treated with alkylating agents and who have failed fludarabine therapy. At the time of acquisition, clinical trials in non-Hodgkin's lymphoma, multiple sclerosis and other cancer
and non-cancer indications were being conducted.

Clolar
is a next-generation, purine nucleoside antimetabolite that is currently under investigation in pediatric and adult leukemias and solid tumors. In December 2004, after
the date of acquisition of ILEX, the FDA granted marketing approval for Clolar for the treatment of children with refractory or relapsed acute lymphoblastic leukemia. At the time of the acquisition,
clinical trials for hematologic cancer, solid tumor and additional pediatric acute leukemia indications were being conducted.

Tasidotin
is a next-generation synthetic pentapeptide analog of the natural substance dolastatin-15. This product candidate targets tubulin and has been
chemically modified to provide improved pharmacological properties over earlier members of its class. ILEX initiated phase 2 clinical trials of tasidotin in late 2003 and 2004 in a variety of
indications.

As
of the date this transaction closed, none of these projects had reached technological feasibility nor had an alternative future use. Accordingly, we allocated to IPR&D, and charged to
expense in our consolidated statements of operations in December 31, 2004, $254.5 million, representing the portion of the purchase price attributable to these projects, of which
$96.9 million is attributable to the Campath development projects, $113.4 million is attributable to the clofarabine development projects and $44.2 million is related to the
tasidotin development projects.

Management
assumes responsibility for determining the IPR&D valuation. The fair value assigned to purchased IPR&D was estimated by discounting, to present value, the cash flows expected
to result from each project once it has reached technological feasibility. We used a discount rate of 11% for Campath, 12% for Clolar and 13% for tasidotin and cash flows that have been
probability-adjusted to reflect the risks of advancement through the product approval process. In estimating future cash flows, we also considered other tangible and intangible assets required for
successful exploitation of the technology resulting from the purchased IPR&D projects and adjusted future cash flows for a charge reflecting the contribution to value of these assets.

Restructuring Plans

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

F-103

---



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

|                             |  | Employee
Related
Benefits |       | Closure of
Leased
Facilities |   | Other
Exit
Activities |   | Total
Exit
Activities |    
|---------------------------- |  | ------------------------- | ----- | ---------------------------- | - | --------------------- | - | --------------------- | ---
|Recorded at acquisition date |  | $                         | 4,900 |                              | $ | 216                   |   | $                     | 214
|Payments in 2004             |  |                           |      |                              |   | (140                  | ) |                       | (5 
|                             |  |                           |       |                              |   |                       |   |                       |    
|Balance at December 31, 2004 |  | $                         | 4,900 |                              | $ | 76                    |   | $                     | 209
|                             |  |                           |       |                              |   |                       |   |                       |    

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

We
also recorded an estimated tax liability of $40.9 million related to the integration of ILEX.

Acquisition of Physician Services and Analytical Services Business Units of IMPATH

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

F-104

---



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

Cash paid

$
212,094Acquisition costs


3,183Total purchase price.

$
215,277Accounts receivable

$
14,483Inventory


1,956Deferred tax assets  current


541Other current assets


2,524Property, plant & equipment


15,028Goodwill


157,516Other intangible assets (to be amortized over 0.4 to 10 years)


34,760Deferred tax assets  noncurrent


835Other non current assets


213Assumed liabilities:Customer credit balances


(6,674
)Unfavorable lease liability


(2,269
)Liabilities for exit activities


(1,470
)Other assumed liabilities


(2,166
)Allocated purchase price

$
215,277


The
purchase price was allocated to the intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase
price over the estimated fair value of the assets acquired and liabilities assumed amounted to $157.5 million, which was allocated to goodwill. Pro forma results are not presented for our
acquisition for the pathology/oncology testing assets of IMPATH because the acquisition did not have a significant effect on our results of operations.

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

Employee
Related
Benefits

Closure of
Leased
Facilities

Total
Exit
ActivitiesRecorded at acquisition date

$
1,434

$
36

$
1,470Payments in 2004


(447
)

(4
)

(451
)Balance at December 31, 2004

$
987

$
32

$
1,019


F-105

---





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

Acquisition of Alfigen

In February 2004, we acquired substantially all of the assets of Alfigen, Inc., or Alfigen, a national genetic testing provider based in Pasadena,
California, for an aggregate purchase price of $47.5 million in cash. We accounted for the acquisition as a purchase and accordingly, the results of operations of Alfigen are included in our
consolidated financial statements from February 21, 2004, the date of acquisition.

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

Cash paid

$
47,500Total purchase price

$
47,500Deferred tax assetscurrent

$
52Other current assets


103Property, plant & equipment


1,244Goodwill


33,235Other intangible assets (to be amortized over 5 to 10 years)


13,000Liabilities for exit activities


(134
)Allocated purchase price

$
47,500


The
purchase price was allocated to the intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase
price over the estimated fair value of the assets acquired and liabilities assumed amounted to $33.2 million, which was allocated to goodwill. We will perform an impairment test for the
goodwill on a periodic basis in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets." Pro forma results are not presented for the acquisition of substantially all of the assets
of Alfigen because the acquisition did not have a significant effect on our results of operations.

In
connection with the acquisition of Alfigen, we initiated an integration plan to consolidate and restructure certain functions and operations of Alfigen, including the termination of
certain Alfigen personnel. These costs have been recognized as liabilities for employee related benefits assumed in connection with the acquisition of the Alfigen assets in accordance with EITF
95-3. The amount of assumed liabilities for employee related benefits was not significant and, as of December 31, 2004, all employee related benefits have been paid to the eligible
former employees of Alfigen.

Acquisition of SangStat

In September 2003, we completed an all cash tender offer for the outstanding common stock (and associated preferred stock purchase rights) of SangStat for
$22.50 per outstanding SangStat share. The aggregate consideration paid (or set aside) was $636.6 million in cash. We accounted for the acquisition

F-106

---



as
a purchase. Accordingly, the results of operations of SangStat are included in our consolidated financial statements from September 11, 2003, the day after the expiration of the tender
offer.

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

Cash paid for shares tendered

$
602,269Amount paid for the buyout of options to purchase shares of SangStat common stock


28,269Acquisition costs


6,021Total purchase price

$
636,559Cash and cash equivalents

$
71,253Marketable securities


28,182Accounts receivable


25,745Inventories


33,069Deferred tax asset current


68,040Other current assets


4,385Property, plant and equipment


2,779Intangible assets (to be amortized over 1.25 to 10 years)


256,000Goodwill


132,111In-process research and development


158,000Other assets


11,438Assumed liabilities:6.5% convertible note due March 29, 2004


(11,267
)Notes payable


(6,965
)Other assumed liabilities


(39,733
)Liabilities for exit activities


(11,067
)Deferred tax liability


(85,411
)Allocated purchase price

$
636,559


The
purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the
purchase price over the estimated fair values of the assets acquired and liabilities assumed amounted to $132.1 million, which was allocated to goodwill. We expect that substantially all of the
amount allocated to goodwill will not be deductible for tax purposes.

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

F-107

---



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

|                             |  | Employee
Related
Benefits |        | Closure of
Leased
Facilities (1) |   | Other
Exit
Activities |   | Total
Exit
Activities |     
|---------------------------- |  | ------------------------- | ------ | -------------------------------- | - | --------------------- | - | --------------------- | ----
|Recorded at acquisition date |  | $                         | 7,118  |                                  | $ | 2,561                 |   | $                     | 49  
|Revision of estimate         |  |                           | 1,315  |                                  |   | (233                  | ) |                       | 257 
|Payments in 2003             |  |                           | (831   | )                                |   |                      |   |                       |    
|                             |  |                           |        |                                  |   |                       |   |                       |     
|Balance at December 31, 2003 |  |                           | 7,602  |                                  |   | 2,328                 |   |                       | 306 
|Revision of estimate         |  |                           | (455   | )                                |   | (320                  | ) |                       | (184
|Payments in 2004             |  |                           | (5,454 | )                                |   | (1,408                | ) |                       | (122
|                             |  |                           |        |                                  |   |                       |   |                       |     
|Balance at December 31, 2004 |  | $                         | 1,693  |                                  | $ | 600                   |   | $                     |    
|                             |  |                           |        |                                  |   |                       |   |                       |     

---

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

Pro Forma Financial Summary (Unaudited)

The following pro forma financial summary is presented as if the acquisitions of ILEX and SangStat were completed as of the beginning of each period presented.
The pro forma combined results are not necessarily indicative of the actual results that would have occurred had the acquisitions been consummated on those dates, or of the future operations of the
combined entities. Material nonrecurring charges related to these acquisitions, such as IPR&D charges of $254.5 million resulting

F-108

---



from
the acquisition of ILEX and $158.0 million resulting from the acquisition of SangStat are included in the following pro forma financial summary:

|                                                        |                                                                      | For the Years Ended December 31, |          
|------------------------------------------------------- | -------------------------------------------------------------------- | -------------------------------- | ---------
|
|Total revenues                                          |                                                                      | $                                | 2,235,274
|                                                        |                                                                      |                                  |          
|Net income (loss)                                       |                                                                      | $                                | 43,805   
|                                                        |                                                                      |                                  |          
|Net income (loss) allocated to Genzyme Stock            |                                                                      | $                                | 43,805   
|                                                        |                                                                      |                                  |          
|Net income (loss) per share allocated to Genzyme Stock: |                                                                      |                                  |          
|                                                        | Basic                                                                |                                  | $        
|                                                        |                                                                      |                                  |          
|Diluted                                                 |                                                                      | $                                | 0.17     
|                                                        |                                                                      |                                  |          
|Weighted average shares outstanding:                    |                                                                      |                                  |          
|                                                        | Basic                                                                |                                  |          
|                                                        |                                                                      |                                  |          
|                                                        | Diluted                                                              |                                  |          
|                                                        |                                                                      |                                  |          
|Net loss allocated to Biosurgery Stock:                 |                                                                      |                                  |          
|                                                        | Net loss allocated to Biosurgery Stock                               |                                  |          
|                                                        |                                                                      |                                  |          
|                                                        | Net loss per share allocated to Biosurgery Stock  basic and diluted |                                  |          
|                                                        |                                                                      |                                  |          
|                                                        | Weighted average shares outstanding  basic and diluted              |                                  |          
|                                                        |                                                                      |                                  |          
|Net loss allocated to Molecular Oncology Stock:         |                                                                      |                                  |          
|                                                        | Net loss allocated to Molecular Oncology Stock                       |                                  |          
|                                                        |                                                                      |                                  |          
|                                                        | Net loss per share allocated to Molecular Oncology Stock             |                                  |          
|                                                        |                                                                      |                                  |          
|                                                        | Weighted average shares outstanding  basic and diluted              |                                  |          
|                                                        |                                                                      |                                  |          

NOTE D.    DISPOSITION OF ASSETS

Cardiac Device Assets

In June 2003, we sold to Teleflex, for $34.5 million in cash, substantially all of the tangible and intangible assets directly associated with our
cardiac devices business, excluding our Fall River, Massachusetts manufacturing facility, the assets related to our FocalSeal product and certain other assets. In addition, Teleflex assumed
$6.3 million of trade obligations directly associated with our cardiac devices business. The assets sold had a net carrying value of $68.1 million at the time of the sale. We recorded a
net loss of $27.7 million in our consolidated financial statements in June 2003 in connection with this sale. We also recorded a tax benefit of $9.2 million for the reversal of
related deferred tax liabilities, which was also recorded in our consolidated statements of operations. Teleflex is leasing the Fall River facility and in August 2004, exercised its option to
extend the term of the lease to June 30, 2005.

F-109

---



NOTE E.    DERIVATIVE FINANCIAL INSTRUMENTS

We use an interest rate swap to mitigate the risk associated with a floating rate lease obligation, and have designated the swap as a cash flow hedge. The
notional amount of this swap at December 31, 2004 was $25.0 million. Because the critical terms of the swap agreement correspond to the related lease obligation, there were no amounts of
hedge ineffectiveness for any period presented. No gains or losses were excluded from the assessment of hedge effectiveness. We record the differential to be paid or received on the swap as
incremental interest expense. The fair value of the swap at December 31, 2004, representing the cash requirements to settle the agreement, was approximately $(1.1) million. The lease obligation
that the interest rate swap is associated with matures in the fourth quarter of 2005.

We
periodically enter into foreign currency forward contracts, all of which have a maturity of less than three years. These contracts have not been designated as hedges and, accordingly,
unrealized gains or losses on these contracts are reported in current earnings. The notional settlement value of foreign currency forward contracts outstanding at December 31, 2004 is
$86.4 million. At December 31, 2004, these contracts had a fair value of $4.1 million, representing an unrealized loss. The amount has been recorded in our consolidated statement
of operations for the year ended December 31, 2004 and in accrued expenses in our consolidated balance sheet as of December 31, 2004.

NOTE F.    ACCOUNTS RECEIVABLE

Our trade receivables primarily represent amounts due from distributors, healthcare service providers, and companies and institutions engaged in research,
development or production of pharmaceutical and biopharmaceutical products. We perform credit evaluations of our customers on an ongoing basis and generally do not require collateral. We state
accounts receivable at fair value after reflecting certain allowances. This allowance was $42.4 million at December 31, 2004 and $22.8 million at December 31, 2003.

NOTE G.    INVENTORIES

December 31,2004

2003(Amounts in thousands)Raw materials

$
65,000

$
53,056Work-in-process


79,747


96,088Finished products


148,911


118,328Total

$
293,658

$
267,472


In
June 2003, we sold $21.3 million of inventory related to our cardiac devices business to Teleflex.

In
connection with the acquisition of SangStat in September 2003, we acquired $33.1 million of inventory, of which $1.0 million is raw materials,
$22.6 million is work in-process and $9.5 million is finished goods. In addition, we acquired $8.0 million of generic cyclosporine inventory that is included in other
noncurrent assets in our consolidated balance sheet as of December 31, 2003 because we did not expect to sell this inventory in the twelve months following that date. In the fourth quarter of
2004 we wrote off this $8.0 million of generic cyclosporine inventory because we have exited this market.

F-110

---



In
connection with the acquisition of ILEX in December 2004, we acquired $16.6 million of inventory, of which $0.4 million is raw materials and $16.2 million
are finished goods.

We
capitalize inventory produced for commercial sale, which may result in the capitalization of inventory that has not yet been approved for sale. If a product is not approved for sale,
it would likely
result in the write-off of the inventory and a charge to earnings. At December 31, 2004, our total inventories included $5.5 million of inventory for Myozyme, which has not
yet been approved for sale. In December 2004, we submitted a marketing application for Myozyme in the European Union. At December 31, 2003, our inventory for products not yet approved
for sale was not significant.

NOTE H.    PROPERTY, PLANT AND EQUIPMENT

December 31,2004

2003(Amounts in thousands)Plant and equipment

$
657,697

$
618,997Land and buildings


473,400


418,481Leasehold improvements


203,204


182,564Furniture and fixtures


44,029


38,772Construction-in-progress


429,474


301,7171,807,804


1,560,531Less accumulated depreciation


(497,548
)

(409,398
)Property, plant and equipment, net

$
1,310,256

$
1,151,133


Our
total depreciation expense was $95.6 million in 2004, $80.2 million in 2003 and $62.5 million in 2002.

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

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

December 31, 2004Building  Corporate headquarters in Cambridge, Massachusetts

$
130,221Building  Administrative offices in Waltham, Massachusetts


25,000Total


155,221Less accumulated depreciation


(13,348
)Assets subject to capital leases, net

$
141,873


We
capitalize costs we have incurred in validating the manufacturing process for products which have reached technological feasibility. As of December 31, 2004, capitalized
validation costs, net of

F-111

---



accumulated
depreciation, were $10.3 million. We have capitalized the following amounts of interest costs incurred in financing the construction of our manufacturing facilities (amounts in
millions):

For the Years Ended December 31,2004

2003

2002$
8.7

$
6.2

$
4.5


The
estimated cost of completion for assets under construction as of December 31, 2004 is $233.5 million.

In
2004, due to a change in plans for future manufacturing capacity and research and development facilities, we determined that we will not require all of the space we had been leasing
at our facility in Oklahoma City, Oklahoma. As a result, in December 2004, we recorded a charge of $2.1 million to research and development expenses to record the exit costs related to
space we have vacated and a charge for impaired assets of $4.5 million to write off the assets related to that specific area of our Oklahoma facility.

During
2001, we began constructing a recombinant protein manufacturing facility adjacent to our existing facilities in Framingham, Massachusetts. During the quarter ended
December 31, 2001, we suspended development of this site in favor of developing the manufacturing site we acquired from Pharming N.V. in Geel, Belgium. Throughout 2002, we considered various
alternative plans for use of the Framingham manufacturing facility, including contract manufacturing arrangements, and whether the $16.8 million of capitalized engineering and design costs for
this facility would be applicable to the future development at this site. In December 2002, due to a change in our plans for future manufacturing capacity requirements, we determined that we
would not proceed with construction of the Framingham facility for the foreseeable future. As a result, we recorded a charge in the fourth quarter of 2002 to write off $14.0 million of
capitalized engineering and design costs that were specific to the Framingham facility. The remaining $2.8 million of capitalized engineering and design costs were used in the construction of
the Belgium manufacturing facility and, accordingly, have been reallocated as a capitalized cost of that facility.

In
2002, we began a capital expansion program to build HA manufacturing capacity at one of our existing manufacturing facilities in Framingham. We previously manufactured bulk HA at our
manufacturing facility in Haverhill, United Kingdom. During the third quarter of 2002, we determined that we had sufficient inventory levels to meet demand until the Framingham facility was completed
and validated, which was estimated to be within one year. In connection with this assessment, we concluded that we no longer require the manufacturing capacity at the HA plant in the United
Kingdom and recorded an impairment charge of $9.0 million in our consolidated statements of operations to write off the assets at the United Kingdom facility.

NOTE I.    GOODWILL AND OTHER INTANGIBLE ASSETS

Effective January 1, 2002, we adopted SFAS No. 142, "Goodwill and Other Intangible Assets," which requires that ratable amortization of goodwill and
certain intangible assets be replaced with periodic tests of the goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be
indefinite.

F-112

---



Cumulative Effect of Change in Accounting for Goodwill

Upon adoption of SFAS No. 142, we tested the goodwill of Biosurgery's cardiothoracic reporting unit in accordance with the transitional provisions of that
standard, using the present value of expected future cash flows to estimate the fair value of this former reporting unit. We recorded an impairment charge of $98.3 million, which we reflected
as a cumulative effect of a change in accounting for goodwill in our consolidated statements of operations in March 2002.

Goodwill

Effective January 1, 2002, in accordance with the provisions of SFAS No. 142, we ceased amortizing goodwill. The following table contains the
changes in our net goodwill during the years ended December 31, 2004 and 2003 (amounts in thousands):

|                          |  | As of
December 31,
2003 |         | Acquisition |   | Impairment |  | Adjustments |   | As of
December 31,
2004
|------------------------- |  | ----------------------- | ------- | ----------- | - | ---------- |  | ----------- | - | -----------------------
|Renal                     |  | $                       | 76,753  |             | $ |           |  | $           |  |                        
|Therapeutics              |  |                         | 354,709 |             |   |           |  |             |  |                        
|Transplant (1)            |  |                         | 132,550 |             |   |           |  |             |  |                        
|Biosurgery                |  |                         | 7,585   |             |   |           |  |             |  |                        
|Diagnostic/Genetics (2,3) |  |                         | 49,249  |             |   | 190,751    |  |             |  |                        
|Other (3,4)               |  |                         | 1,101   |             |   | 478,539    |  |             |  |                        
|                          |  |                         |         |             |   |            |  |             |   |                        
|Goodwill, net             |  | $                       | 621,947 |             | $ | 669,290    |  | $           |  |                        
|                          |  |                         |         |             |   |            |  |             |   |                        

|                        |  | As of
December 31,
2002 |         | Acquisition |   | Impairment |  | Adjustments |          | As of
December 31,
2003
|----------------------- |  | ----------------------- | ------- | ----------- | - | ---------- |  | ----------- | -------- | -----------------------
|Renal                   |  | $                       | 76,753  |             | $ |           |  | $           |         |                        
|Therapeutics            |  |                         | 354,709 |             |   |           |  |             |         |                        
|Transplant (1)          |  |                         |        |             |   | 132,550    |  |             |         |                        
|Biosurgery (5)          |  |                         | 110,376 |             |   |           |  |             | (102,791 | )                      
|Diagnostic/Genetics (3) |  |                         | 49,244  |             |   |           |  |             |         |                        
|Other (3)               |  |                         | 993     |             |   |           |  |             |         |                        
|                        |  |                         |         |             |   |            |  |             |          |                        
|Goodwill, net           |  | $                       | 592,075 |             | $ | 132,550    |  | $           | (102,791 | )                      
|                        |  |                         |         |             |   |            |  |             |          |                        

---

F-113

---



We
completed the annual impairment tests for the $801.4 million of net goodwill in the third quarter of 2004, as provided by SFAS No. 142, and determined that none of the
goodwill allocated to our reporting units was impaired and, therefore, no impairment charges were required. We are required to perform impairment tests under SFAS No. 142 annually and whenever
events or changes in circumstances suggest that the carrying value of an asset may not be recoverable.

Other Intangible Assets

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

|                        |       | As of December 31, 2004 |           | As of December 31, 2003
|----------------------- | ----- | ----------------------- | --------- | -----------------------
|
|Technology (1)          |       | $                       | 1,011,068 |                        
|Patents                 |       |                         | 183,360   |                        
|Trademarks              |       |                         | 60,227    |                        
|License fees            |       |                         | 44,789    |                        
|Distribution agreements |       |                         | 14,075    |                        
|Customer lists (2)      |       |                         | 83,578    |                        
|Other                   |       |                         | 11,420    |                        
|                        |       |                         |           |                        
|                        | Total |                         | $         | 1,408,517              
|                        |       |                         |           |                        

---

F-114

---



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



The
estimated future amortization expense for other intangible assets for the five succeeding fiscal years is as follows (amounts in thousands):

Year ended December 31,

Estimated
Amortization
Expense2005

$
123,2142006


114,6332007


114,6332008


113,9242009


110,464


F-115

---



NOTE J.    INVESTMENTS IN MARKETABLE SECURITIES AND STRATEGIC EQUITY INVESTMENTS

Marketable Securities (amounts in thousands):

|                                                         |                                                 | December 31,
|-------------------------------------------------------- | ----------------------------------------------- | ------------
|
|
|Cash equivalents(1):                                     |                                                 |             
|                                                         | Corporate notes                                 |             
|                                                         | U.S. Government agencies                        |             
|                                                         | Money market funds                              |             
|                                                         | Money market funds  restricted cash (2)        |             
|                                                         |                                                 |             
|                                                         |                                                 |             
|                                                         |                                                 |             
|Short-term:                                              |                                                 |             
|                                                         | Corporate notes                                 |             
|                                                         | U.S. Government agencies                        |             
|                                                         | Non U.S. Government agencies                    |             
|                                                         | U.S. Treasury notes                             |             
|                                                         |                                                 |             
|                                                         |                                                 |             
|                                                         |                                                 |             
|Long-term:                                               |                                                 |             
|                                                         | Corporate notes                                 |             
|                                                         | U.S. Government agencies                        |             
|                                                         | Non U.S. Government agencies                    |             
|                                                         | Fixed income fund                               |             
|                                                         | Money market funds  restricted investments (2) |             
|                                                         | U.S. Treasury notes                             |             
|                                                         |                                                 |             
|                                                         |                                                 |             
|                                                         |                                                 |             
|Total cash equivalents, short- and long-term investments |                                                 | $           
|                                                         |                                                 |             
|Investments in equity securities                         |                                                 | $           
|                                                         |                                                 |             

---

F-116

---





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

December 31,2004

2003Cost

Market
Value

Cost

Market
ValueWithin 1 year

$
400,316

$
400,355

$
219,140

$
219,3111-2 years


236,312


235,433


322,265


325,4352-10 years


297,179


294,520


482,839


488,539$
933,807

$
930,308

$
1,024,244

$
1,033,285


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

We review the carrying value of each of our strategic investments in equity securities on a quarterly basis for potential impairment. In September 2004, we
recorded a $2.9 million impairment charge in connection with our investment in MacroGenics and in June 2003, we recorded a $3.6 million impairment charge in connection with our
investment in the common stock of ABIOMED because we considered the decline in value of these investments to be other than temporary. Given the significance and duration of the decline in value of
these investments as of September 30, 2004, with respect to our investment in MacroGenics, and as of June 30, 2003, with respect to our investment in ABIOMED, we concluded that it was
unclear over what period the recovery of the stock price for these investments would take place, and, accordingly, that any evidence suggesting that the investments would recover to at least our
historical cost was not sufficient to overcome the presumption that the current market price was the best indicator of the value of these investments.

At
December 31, 2004, our stockholders' equity includes $56.0 million of unrealized gains and $4.6 million of unrealized losses related to our investments in
strategic equity securities. The unrealized losses are related to our investment in the common stock of BioMarin. However, based on the following facts, we believe that the decline in market value of
BioMarin stock below our costs is considered to be temporary:



F-117

---





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

December 31,2004

2003Unrealized holding gains

$
57.1 million

$
26.6 millionUnrealized holding losses

$
9.2 million

$
5.0 million


The
following table shows strategic investments in equity securities of unconsolidated entities that we hold as of December 31, 2004 (amounts in thousands):

|                                              |  | December 31, 2004 |       
|--------------------------------------------- |  | ----------------- | ------
|
|ABIOMED, Inc. (1)                             |  | $                 | 12,185
|BioMarin Pharmaceutical Inc. (1)              |  |                   | 18,000
|Caduceus Private Investments II, L.P. (2)     |  |                   | 1,388 
|Cambridge Antibody Technology Group plc (1,3) |  |                   | 41,012
|Cortical Pty Ltd. (2,4)                       |  |                   | 736   
|Dyax Corporation (1)                          |  |                   | 1,096 
|GTC Biotherapeutics, Inc. (1)                 |  |                   | 5,811 
|Healthcare Ventures V and VII                 |  |                   | 2,757 
|MacroGenics, Inc. (2)                         |  |                   | 2,138 
|MPM Bioventures III Q.P., L.P.                |  |                   | 2,124 
|Oxford Bioscience Partners IV LP              |  |                   | 3,375 
|Proquest Investments II, L.P.                 |  |                   | 3,214 
|Theravance, Inc. (1)                          |  |                   |      
|ViaCell, Inc. (5)                             |  |                   | 5,000 
|                                              |  |                   |       
|Total at December 31, 2004                    |  | $                 | 98,836
|                                              |  |                   |       

|                           |  | December 31, 2003
|-------------------------- |  | -----------------
|
|
|Total at December 31, 2003 |  | $                
|                           |  |                  

---

F-118

---



Cambridge Antibody Technology Group plc

We have a strategic alliance with CAT, a UK-based biotechnology company which we refer to as CAT, for the development and commercialization of human
monoclonal antibodies directed against transforming growth factor (TGF)-beta. Prior to September 2003, we owned 307,982 ordinary shares of CAT, which were purchased upon entering
into the initial collaboration in September 2000. We purchased 1.8 million ordinary shares of CAT in September 2003 for $15.8 million and an additional 2.5 million
ordinary shares in October 2003 for $22.3 million. Following these purchases, we hold approximately 9% of the outstanding shares of CAT at December 31, 2004.

GTC Biotherapeutics, Inc.

On April 4, 2002, GTC purchased approximately 2.8 million shares of GTC common stock held by us for an aggregate consideration of
$9.6 million. We received $4.8 million in cash and a promissory note for the remaining amount. We committed to a 24-month lock-up provision on the remaining
4.9 million shares of GTC common stock held by us, which was approximately 15% of the shares of GTC common stock outstanding as of December 31, 2003. We accounted for our investment in
GTC under the equity method of accounting until May 2002, at which point our ownership interest and board representation was reduced below 20% and we did not have any other factors of
significant influence. Accordingly, we ceased to have significant influence over GTC and we began accounting for our investment in GTC under the cost method of accounting in June 2002.

We
recorded in equity in loss of equity method investments our portion of GTC's results through May 2002. Our recognized portion of GTC's net losses was $1.9 million in
2002. The fair market value of our investment in GTC common stock was $7.5 million at December 31, 2004 and $14.8 million at December 31, 2003.

We
provide GTC with certain research and development and administrative services and sublease to GTC laboratory, research and development agreement of $2.9 million in 2003. During
2004, we received approximately $2.0 million from GTC under our other agreements. At December 31, 2004, GTC owed us $2.8 million under these agreements.

F-119

---



Through
May 2002, we accounted for our investment in GTC under the equity method of accounting. The following table contains condensed statement of operations data for GTC for the year
ended December 31, 2002 (amounts in thousands):

For the Year Ended
December 31, 2002Revenues

$
10,379Operating loss


(25,909
)Net loss


(24,320
)


Dyax Corporation

In May 2002, we extended to Dyax a $7.0 million line of credit. Dyax issued a senior secured promissory note in the principal amount of
$7.0 million to us under which it can request periodic advances of not less than $250,000 in principal, subject to certain conditions. Advances under this note bear interest at the prime rate
plus 2%, which was 7.25% at December 31, 2004, and are due, together with any accrued but unpaid interest, in May 2005. Dyax may extend the maturity of the note to May 2007 if the
collaboration is in effect, no defaults or events of default exist and Dyax satisfies the financial covenants in the note as of the initial maturity date. As of December 31, 2004, Dyax had
drawn $7.0 million under the note, which we have recorded as a note receivable-related party in our consolidated balance sheet. We consider Dyax as a related party because the chairman and
chief executive officer of Dyax is a member of our board of directors.

In
October 1998, we entered into a collaboration agreement with Dyax to develop and commercialize one of Dyax's proprietary compounds for the treatment of chronic inflammatory
diseases. In May 2002, we restructured our collaboration agreement with Dyax for the development of the kallikrein inhibitor DX-88. In 2003, we acquired a 49.99% interest in
Dyax-Genzyme LLC, formerly known as Kallikrein LLC, our joint venture with Dyax for the development of DX-88 for HAE and other chronic inflammatory diseases. As a result of our
adoption of FIN 46, we have consolidated the results of Dyax-Genzyme LLC, which we became a member of in 2003. Our consolidated balance sheet as of December 31, 2004 includes assets
of $0.5 million related to Dyax-Genzyme LLC, substantially all of which are included in other current assets. We have recorded Dyax's portion of this joint venture's losses as
minority interest in our consolidated statements of operations.

Under
the terms of the collaboration agreement, both companies will share development costs of DX-88 for HAE going forward. In addition, Dyax will receive milestone payments
from us upon dosing the first HAE patient in a pivotal clinical trial of DX-88 and upon regulatory approvals for the first indication. Dyax will also receive milestone payments from us if
DX-88 is approved in additional indications. Contingent upon successful development and receipt of regulatory approvals we will market the product worldwide. Both companies will share
equally in profits from sales of DX-88 for HAE and/or other chronic inflammatory diseases. In March 2003, Dyax exercised an option to acquire from us all rights to DX-88
for surgical indications.

F-120

---



NOTE K.    EQUITY METHOD INVESTMENTS

The following tables describe:



Equity Method Investment

Total Funding
through
December 31,
2004

Receivables
as of
December 31,
2004(Amounts in millions)BioMarin/Genzyme LLC

$
107.2

$
Genzyme AG Research LLC


21.9


Genzyme AG Research LLC II


8.5


Diacrin-Genzyme LLC


33.3


0.2Peptimmune, Inc.





0.2Therapeutic Human Polyclonals, Inc.





MG Biotherapeutics LLC.


10.0


2.4Totals

$
180.9

$
2.8


|                                    |        | Our Portion of
the Net Losses from Our
Equity Method Investments |      | Total Losses of Our
Equity Method Investments |  
|----------------------------------- | ------ | ---------------------------------------------------------------- | ---- | --------------------------------------------- | -
|
|
|
|BioMarin/Genzyme LLC                |        | $                                                                | (9.7 | )                                             | $
|Diacrin-Genzyme LLC                 |        |                                                                  | (0.1 | )                                             |  
|Peptimmune, Inc                     |        |                                                                  | (1.8 | )                                             |  
|Therapeutic Human Polyclonals, Inc. |        |                                                                  | (1.5 | )                                             |  
|GTC Biotherapeutics, Inc.           |        |                                                                  |     |                                               |  
|MG Biotherapeutics LLC              |        |                                                                  | (2.5 | )                                             |  
|Other                               |        |                                                                  |     |                                               |  
|                                    |        |                                                                  |      |                                               |  
|                                    | Totals |                                                                  | $    | (15.6                                         | )
|                                    |        |                                                                  |      |                                               |  

F-121

---



Condensed
financial information for our equity method investments, excluding GTC, is summarized below:

For the Year Ended December 31,2004

2003

2002(Amounts in thousands)Revenue

$
42,583

$
11,540

$
296Gross profit


27,630


6,816


(7,692
)Operating expenses


(71,321
)

(47,903
)

(22,776
)Net loss


(43,016
)

(40,907
)

(30,321
)


December 31,2004

2003(Amounts in thousands)Current assets

$
109,097

$
103,067Noncurrent assets


6,184


1,179Current liabilities


19,351


13,881Noncurrent liabilities


1,292





BioMarin/Genzyme LLC

In
September 1998, we and BioMarin Pharmaceutical Inc. formed a joint venture, BioMarin/Genzyme LLC, to develop and commercialize Aldurazyme, a recombinant form of the
human enzyme alpha-L-iduronidase, used to treat an LSD known as MPS I. BioMarin/Genzyme LLC is owned 50% by BioMarin and one of its wholly owned subsidiaries, which we
refer to collectively as the BioMarin Companies, and 50% by us. In connection with the formation of BioMarin/Genzyme LLC, we, the BioMarin Companies and BioMarin/Genzyme LLC entered into a
collaboration agreement under which we and the BioMarin Companies granted to BioMarin/Genzyme LLC a world-wide, exclusive, irrevocable, royalty-free right and license or
sublicense to develop, manufacture and market Aldurazyme for the treatment of MPS I and other alpha-L-iduronidase deficiencies. All program-related costs for BioMarin/Genzyme
LLC are equally funded by BioMarin, on behalf of the BioMarin Companies, and us. We and BioMarin are required to make monthly capital contributions to BioMarin/Genzyme LLC to fund budgeted operating
costs. If either BioMarin or Genzyme fails to make two or more of the monthly capital contribution, and the other party does not exercise its right to terminate the collaboration agreement or compels
performance of the funding obligation, the defaulting party's (or, in the case of default by BioMarin, the BioMarin Companies') percentage interest in BioMarin/Genzyme LLC and future funding
responsibility will be adjusted proportionately.

On
April 30, 2003, the FDA granted marketing approval for Aldurazyme as an enzyme replacement therapy for patients with the Hurler and Hurler-Scheie forms of MPS I, and Scheie
patients with moderate to severe symptoms. Aldurazyme has been granted orphan drug status in the United States, which generally provides seven years of market exclusivity.

On
June 11, 2003, the European Commission granted marketing approval for Aldurazyme to treat the non-neurological manifestations of MPS I in patients with a confirmed
diagnosis of the disease.

F-122

---



Aldurazyme
has been granted orphan drug status in the European Union, which provides ten years of market exclusivity.

We
are commercializing Aldurazyme in the United States and are launching Aldurazyme in the European Union on a country-by-country basis as pricing and
reimbursement approvals are obtained. Aldurazyme is manufactured at BioMarin's facility in California and is sent to either our manufacturing facility in Allston, Massachusetts or to a third-party
facility for the final filling and finish process.

Our
portion of the net losses of BioMarin/Genzyme LLC are included in equity in loss of equity method investments in our consolidated statements of operations.

MG Biotherapeutics LLC

In June 2004, we entered into a collaboration with Medtronic, Inc. for the development of new treatments for heart disease. One aspect of this
collaboration involved the formation of MG Biotherapeutics LLC. In June 2004, we made an initial capital contribution of $10.0 million to MG Biotherapeutics LLC, which is included in
other noncurrent assets in our consolidated balance sheet as of December 31, 2004.

NOTE L.    ACCRUED EXPENSES

December 31,2004

2003(Amounts in thousands)Compensation

$
116,328

$
100,894Purchase accrual


18,119


31,883Bank overdraft


31,085


15,651Income taxes payable


50,080Other


178,531


118,876Total accrued expenses

$
394,143

$
267,304


F-123

---



NOTE M.    LONG-TERM DEBT AND LEASES

Long-Term Debt and Capital Lease Obligations

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

December 31,2004

20031.25% convertible senior notes due December 2023

$
690,000

$
690,0003% convertible subordinated debentures due May 2021





575,0006.5% convertible note





11,275Revolving credit facility maturing in December 2006


100,000


Notes payable


369


5,042Capital lease obligations


150,125


154,442$
940,494

$
1,435,759Less current portion


(129,503
)

(20,410
)Total

$
810,991

$
1,415,349


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

2005

2006

2007

2008

2009

After 2009$
100.4

$


$


$
690.0

$


$



1.25% Convertible Senior Notes

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

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



F-124

---





Furthermore,
on each of December 1, 2008, December 1, 2013 and December 1, 2018, holders of the notes may require us to purchase all or a portion of their notes at a
purchase price equal to 100% of the principal amount of notes to be purchased, plus any accrued and unpaid interest to, but excluding, the purchase date. We will pay the purchase price, solely at our
option, in cash, shares of Genzyme Stock or a combination of cash and shares of Genzyme Stock, provided that we will pay any accrued and unpaid interest in cash. The shares of Genzyme Stock will be
valued at 100% of the average closing sale price of Genzyme Stock for the 10 trading days immediately preceding, and including, the third business day immediately preceding the purchase date.

Interest
expense related to these notes was approximately $12 million in 2004 and was not significant in 2003. The amount in 2004 includes approximately $3 million for
amortization of debt offering costs. The fair value of these notes, was $729.7 million at December 31, 2004 and $706.4 million at December 31, 2003.

3% Convertible Subordinated Debentures

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

Interest
expense related to these debentures was $8.6 million in 2004 and $20.0 million in 2003, which amounts include $1.4 million in 2004 and $2.8 million
in 2003 for amortization of debt offering costs. The fair value of these debentures was $582.9 million at December 31, 2003.

6.5% Convertible Note

In connection with our acquisition of SangStat, we assumed an $11.3 million, 6.5% convertible note due and paid on March 29, 2004 in favor of UBS AG
London.

Revolving Credit Facility

In December 2003 we entered into a three year $350.0 million revolving credit facility, maturing in December 2006. In June 2004, we
drew down $135.0 million under this facility to maintain a certain level of cash balances. In September 2004, we repaid $25.0 million of the outstanding balance and in November we
repaid $10.0 million. As of December 31, 2004, $100.0 million in principal remained outstanding under this credit facility. This amount is included in current portion of
long-term debt, convertible notes and capital lease obligations in our consolidated balance sheet because we repaid the entire $100.0 million in principal outstanding under the
credit facility in January 2005. Borrowings under this credit facility bear interest at LIBOR plus an applicable margin, which was 2.83% at December 31, 2004. The terms of our revolving credit
facility include various covenants, including

F-125

---



financial
covenants, that require us to meet minimum liquidity and interest coverage ratios and to meet maximum leverage ratios. We currently are in compliance with these covenants.

6.9% Convertible Subordinated Note

In connection with our acquisition of Biomatrix, we assumed a 6.9% convertible subordinated note due May 14, 2003 in favor of UBS Warburg LLC. In
May 2003, we paid $10.0 million in cash to satisfy this note.

Notes Payable

Notes payable were assumed as follows:



Capital Leases

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

Our
capital lease obligation related to our administrative offices in Waltham, Massachusetts requires us to make interest-only lease payments of $2.1 million per year
through 2005. During the term of the lease, we have the option to purchase the building and improvements for a purchase price equal to the total amount funded by the lessor of $25.0 million,
plus accrued and unpaid lease payments, and certain other costs. This aggregate amount is referred to as the Purchase Option Price. At the end of the lease term of October 31, 2005, we have the
option to:



In
the case of the latter two options, we are contingently liable to the extent the lessor is not able to realize 85% of the Purchase Option Price upon the sale or disposition of the
property. The $25.0 million is recorded as part of the current portion of the long-term capital lease obligations at December 31, 2004 and as a long-term capital
lease obligation at December 31, 2003.

Our
capital lease obligation related to our new corporate headquarters, which we began to occupy in November 2003, requires us to make monthly payments of $1.3 million,
which will be adjusted to $1.5 million in 2013. We have recorded the value of the building and related obligations of

F-126

---



$130.2 million
in our consolidated balance sheet. The term of the lease is for fifteen years and may be extended at our option for two successive ten-year periods.

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

2005

$
42.12006


15.22007


15.22008


15.22009


15.2Thereafter


146.6Total lease payments


249.5Less: interest


(99.4
)Total principal payments


150.1Less current portion


(29.1
)Total

$
121.0


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 31,2004

2003

2002$
45.7

$
45.7

$
35.5


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

2005

2006

2007

2008

2009

After 2009

Total$
40.1

$
34.4

$
27.2

$
21.8

$
17.0

$
100.9

$
241.4


F-127

---





NOTE N.    STOCKHOLDER'S EQUITY

Common Stock

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



On
July 1, 2003, in connection with the elimination of our tracking stock structure, we reclassified the Biosurgery Stock and Molecular Oncology Stock equity accounts into the
Genzyme General Stock equity accounts. The elimination of our tracking stock capital structure had no effect on our consolidated net income or loss. On May 27, 2004, our shareholders approved
an amendment to our charter that eliminated the designation of separate series of common stock, resulting in 690,000,000 authorized shares of a single series of stock, which we now refer to as Genzyme
Stock.

The
following tables describe the number of authorized, issued and outstanding shares of our common stock at December 31, 2004 and 2003:

|                               |  |             |  | At December 31, 2004
|------------------------------ |  | ----------- |  | --------------------
|
|
|Genzyme Stock, $0.01 par value |  | 690,000,000 |  | 249,124,534         
|Undesignated                   |  |            |  |                    
|                               |  |             |  |                     
|Total                          |  | 690,000,000 |  | 249,124,534         
|                               |  |             |  |                     

|                                                  |  |             |  | At December 31, 2003
|------------------------------------------------- |  | ----------- |  | --------------------
|
|
|Genzyme General Stock, $0.01 par value            |  | 500,000,000 |  | 224,716,717         
|Genzyme Biosurgery Stock, $0.01 par value         |  | 100,000,000 |  |                    
|Genzyme Molecular Oncology Stock, $0.01 par value |  | 40,000,000  |  |                    
|Undesignated                                      |  | 50,000,000  |  |                    
|                                                  |  |             |  |                     
|Total                                             |  | 690,000,000 |  | 224,716,717         
|                                                  |  |             |  |                     

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 deferral to allocate to cash and stock, upon which a cash deferral account and a stock deferral account is
established. The cash account bears interest at the rate paid on 90-day Treasury bills with interest payable quarterly. The stock account is for amounts invested in hypothetical shares of
Genzyme Stock. These amounts will be

F-128

---



converted
into shares quarterly at the average closing price of the 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, 2004, three of the eight eligible directors had accounts under this plan, and two directors are currently participating
under this plan. 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, 2004. Through December 31, 2004, we made cash distributions totaling $36,255 to one director under the terms of his deferral agreement.

Preferred Stock

|                                               |  | At December 31, 2004 |  | At December 31, 2003
|---------------------------------------------- |  | -------------------- |  | --------------------
|
|
|Series A Junior Participating,
$0.01 par value |  | 3,000,000            |  |                    
|Series B Junior Participating,
$0.01 par value |  |                     |  |                    
|Series C Junior Participating,
$0.01 par value |  |                     |  |                    
|Undesignated                                   |  | 7,000,000            |  |                    
|                                               |  |                      |  |                     
|                                               |  | 10,000,000           |  |                    
|                                               |  |                      |  |                     

On
May 27, 2004, our shareholders approved amendments to our charter that:



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.

Stock Rights

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

A
stock purchase right becomes exercisable either:



F-129

---





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

Equity Plans

The purpose of the 2004 Equity Incentive Plan is to attract, retain and motivate key employees and consultants, upon whose judgment, initiative and efforts the
financial success and growth of the business of the company largely depend. The Plan was approved by shareholders in May 2004. All of our employees are eligible to receive grants under the 2004
Equity Incentive Plan. The plan provides for the grant of incentive stock options and nonstatutory stock options. The exercise price of option grants may not be less than the fair market value at the
date of grant. Options granted under the plan may not be re-priced without shareholder approval. Each option has a maximum term of ten years. The compensation committee of our board of
directors, or its delegate as applicable, determines the terms and conditions of each stock option grant, including who among eligible persons
will receive grants, the form of payment of the exercise price, the number of shares granted, the vesting schedule and the terms of exercise. At December 31, 2004, a total of 6,800,000 shares
of Genzyme Stock have been reserved for issuance under the 2004 Equity Incentive Plan. There are currently no options outstanding under the plan.

The
2001 Equity Incentive Plan is an amendment and restatement of the 1990 Equity Incentive Plan which was merged into the 2001 Equity Incentive Plan and approved by shareholders in
May 2001. The purpose of the plan is to attract and retain key employees and consultants, provide an incentive for them to achieve long-range performance goals, and enable them to
participate in our long-term growth. All of our employees are eligible to receive grants under the 2001 Equity Incentive Plan. The plan provides for the grant of incentive stock options
and nonstatutory stock options. The exercise price of option grants may not be less than the fair market value at the date of grant. Options granted under the plan may not be re-priced
without shareholder approval. Each grant has a maximum term of ten years. The compensation committee of our board of directors, or its delegate as applicable, determines the terms and conditions of
each option grant, including who among eligible persons will receive option grants, the form of payment of the exercise price, the number of shares granted, the vesting schedule and the terms of
exercise. At December 31, 2004, a total of 13,628,558 shares of Genzyme Stock have been reserved for issuance under the plan, with 12,797,900 options outstanding and 830,658 options available
for grant.

The
purpose of the 1997 Equity Incentive Plan is to attract and retain key employees and consultants, provide an incentive for them to achieve long-range performance goals,
and enable them to participate in our long-term growth. All employees capable of contributing significantly to the successful performance of Genzyme, except for our officers and directors,
are eligible to receive grants under this plan. The 1997 Equity Incentive Plan provides for the grant of nonstatutory stock options only. The exercise price of option grants may not be less than the
fair market value at the date of grant. Option grants have a maximum term of ten years. The compensation committee of our board of directors, or its delegate as applicable, determines the terms and
conditions of each option grant, including who among eligible persons will receive option grants, the form of payment of the exercise price, the number of shares granted, the vesting schedule and the
terms of exercise. The 1997 Equity Plan was

F-130

---



approved
by our board of directors in October 1997. At December 31, 2004, a total of 18,911,805 shares of Genzyme Stock have been reserved for issuance under the 1997 Equity Incentive
Plan, with 18,700,249 options outstanding and 211,556 options available for grant.

Nonstatutory
options to purchase 15,000 shares of Genzyme Stock are granted annually to non-employee members of our board of directors under our 1998 Director Stock Option
Plan. These options have an exercise price at fair market value on the date of grant, expire ten years after the initial grant date and vest on the date of the next shareholders meeting following the
date of grant. The 1998 Director Stock Option Plan was approved by shareholders in May 1998, and amended by shareholders in May 2001 and May 2004. At December 31, 2004, a
total of 786,491 shares of Genzyme Stock have been reserved for issuance under the 1998 Director Stock Option Plan, with 467,753 options outstanding and 318,738 options available for grant.

|                                 |                                             | Shares Under
Option |            | Weighted
Average
Exercise Price |       | Number
Exercisable
|-------------------------------- | ------------------------------------------- | ------------------- | ---------- | ------------------------------- | ----- | ------------------
|GENZYME STOCK:                   |                                             |                     |            |                                 |       |                   
|Outstanding at December 31, 2001 |                                             | 25,360,780          |            | $                               | 27.80 |                   
|                                 | Granted                                     |                     | 6,950,890  |                                 |       | 32.52             
|                                 | Exercised                                   |                     | (1,204,888 | )                               |       | 14.76             
|                                 | Forfeited and cancelled                     |                     | (1,244,058 | )                               |       | 36.79             
|                                 |                                             |                     |            |                                 |       |                   
|Outstanding at December 31, 2002 |                                             | 29,862,724          |            |                                 | 29.23 |                   
|                                 | Granted                                     |                     | 7,529,838  |                                 |       | 45.74             
|                                 | Exercised                                   |                     | (5,998,204 | )                               |       | 16.84             
|                                 | Forfeited and cancelled                     |                     | (1,260,842 | )                               |       | 52.30             
|                                 | Converted From Biosurgery Stock(1)          |                     | 401,257    |                                 |       | 214.76            
|                                 | Converted From Molecular Oncology Stock (1) |                     | 198,855    |                                 |       | 141.97            
|                                 |                                             |                     |            |                                 |       |                   
|Outstanding at December 31, 2003 |                                             | 30,733,628          |            | $                               | 37.95 |                   
|                                 | Granted                                     |                     | 9,051,690  |                                 |       | 43.66             
|                                 | Exercised                                   |                     | (4,663,495 | )                               |       | 25.41             
|                                 | Forfeited and cancelled                     |                     | (977,102   | )                               |       | 55.99             
|                                 |                                             |                     |            |                                 |       |                   
|Outstanding at December 31, 2004 |                                             | 34,144,721          |            | $                               | 40.66 |                   
|                                 |                                             |                     |            |                                 |       |                   

|                                          |                                | Shares Under
Option |            | Weighted
Average
Exercise Price |       | Number
Exercisable
|----------------------------------------- | ------------------------------ | ------------------- | ---------- | ------------------------------- | ----- | ------------------
|BIOSURGERY STOCK:                         |                                |                     |            |                                 |       |                   
|Outstanding at December 31, 2001          |                                | 7,003,870           |            | $                               | 12.54 |                   
|                                          | Granted                        |                     | 2,107,453  |                                 |       | 4.32              
|                                          | Exercised                      |                     | (18,373    | )                               |       | 6.02              
|                                          | Forfeited and cancelled        |                     | (950,920   | )                               |       | 10.34             
|                                          |                                |                     |            |                                 |       |                   
|Outstanding at December 31, 2002          |                                | 8,142,030           |            |                                 | 10.65 |                   
|                                          | Granted                        |                     | 58,550     |                                 |       | 2.10              
|                                          | Exercised                      |                     |           |                                 |       |                  
|                                          | Forfeited and cancelled        |                     | (500,364   | )                               |       | 10.27             
|                                          | Converted to Genzyme Stock (1) |                     | (7,700,216 | )                               |       | 10.62             
|                                          |                                |                     |            |                                 |       |                   
|Outstanding at December 31, 2003 and 2004 |                                |                    |            |                                 |       |                   
|                                          |                                |                     |            |                                 |       |                   

F-131

---



|                                          |                                | Shares Under
Option |            | Weighted
Average
Exercise Price |      | Number
Exercisable
|----------------------------------------- | ------------------------------ | ------------------- | ---------- | ------------------------------- | ---- | ------------------
|MOLECULAR ONCOLOGY STOCK:                 |                                |                     |            |                                 |      |                   
|Outstanding at December 31, 2001          |                                | 2,774,019           |            | $                               | 9.68 |                   
|                                          | Granted                        |                     | 845,811    |                                 |      | 2.44              
|                                          | Exercised                      |                     | (497       | )                               |      | 4.68              
|                                          | Forfeited and cancelled        |                     | (68,294    | )                               |      | 9.23              
|                                          |                                |                     |            |                                 |      |                   
|Outstanding at December 31, 2002          |                                | 3,551,039           |            |                                 | 7.97 |                   
|                                          |                                |                     |            |                                 |      |                   
|Granted                                   |                                | 39,000              |            |                                 | 2.49 |                   
|                                          | Exercised                      |                     | (5,680     | )                               |      | 2.33              
|                                          | Forfeited and cancelled        |                     | (153,583   | )                               |      | 7.24              
|                                          | Converted to Genzyme Stock (1) |                     | (3,430,776 | )                               |      | 7.97              
|                                          |                                |                     |            |                                 |      |                   
|Outstanding at December 31, 2003 and 2004 |                                |                    |            |                                 |      |                   
|                                          |                                |                     |            |                                 |      |                   

---

The
total exercise proceeds for all options outstanding at December 31, 2004 was $118.5 million.

The
following table contains information regarding the range of option prices for Genzyme Stock as of December 31, 2004:

|                  |  |            |  | Weighted
Average
Remaining
Contractual
Life |  |   |        | Exercisable
|----------------- |  | ---------- |  | ------------------------------------------- |  | - | ------ | -----------
|
|$0.22  $20.59    |  | 4,457,297  |  | 3.10                                        |  | $ | 15.36  |            
|20.61  32.52     |  | 8,543,914  |  | 6.27                                        |  |   | 30.25  |            
|32.61  46.24     |  | 14,064,732 |  | 8.73                                        |  |   | 44.48  |            
|46.25  53.47     |  | 5,755,318  |  | 6.64                                        |  |   | 52.17  |            
|53.56  2,356.12  |  | 1,323,460  |  | 6.45                                        |  |   | 101.52 |            
|                  |  |            |  |                                             |  |   |        |            
|$0.22  $2,356.12 |  | 34,144,721 |  | 7.00                                        |  | $ | 40.66  |            
|                  |  |            |  |                                             |  |   |        |            

Employee Stock Purchase Plan

Our 1999 Employee Stock Purchase Plan allows employees to purchase our stock at a discount. There are 4,829,391 shares of Genzyme Stock authorized for purchase
under the plan as of December 31, 2004, of which 1,565,193 remain available.

We
place limitations on the number of shares of stock that can be purchased under the plan in a given year.

F-132

---



The
following table shows the shares purchased by employees for the past three years:

|Shares Issued                                  |  | Genzyme
Stock |  | Biosurgery
Stock |  | Molecular Oncology
Stock
|---------------------------------------------- |  | ------------- |  | ---------------- |  | ------------------------
|2002                                           |  | 415,622       |  | 283,043          |  | 135,900                 
|2003                                           |  | 970,496       |  | 202,151          |  | 84,143                  
|2004                                           |  | 1,288,424     |  |                 |  |                        
|Available for purchase as of December 31, 2004 |  | 1,565,193     |  |                 |  |                        

Stock Compensation Plans

The disclosure regarding how we account for our five stock-based compensation plans: the 1997 Equity Incentive Plan, the 2001 Equity Incentive Plan, the 2004
Equity Incentive Plan, the 1998 Director Stock Option Plan (each of which are stock option plans) and the 1999 Employee Stock Purchase Plan is included in Note A., "Summary of Significant
Accounting PoliciesAccounting for Stock-Based Compensation," to our consolidated financial statements.

Purchase Rights

Upon our acquisition of Novazyme in 2001, we assumed certain third parties' rights to purchase Novazyme Series B preferred stock that we converted into
rights to purchase 66,846 shares of Genzyme Stock valued at $1.8 million. In connection with the conversion of these rights, we paid cash in lieu of fractional shares, which reduced the number
of converted rights to 66,830. The converted rights have an exercise price of $18.20 per right. The aggregate purchase price of the rights at the date of conversion was $1.2 million. These
purchase rights expire 15 days following the filing of our first IND application with the FDA for a treatment for Pompe disease utilizing certain technology acquired from Novazyme.

Purchase
rights activity is summarized below:

Genzyme StockPurchase Rights

Exercise PriceOutstanding at December 31, 2001

20,829

$
18.20Rights exercised

(798
)

18.20Outstanding at December 31, 2002

20,031


18.20Rights exercised

(4,509
)

18.20Outstanding at December 31, 2003

15,522


18.20Rights exercised




Outstanding at December 31, 2004

15,522


18.20


Designated Shares

Prior to June 30, 2003, designated shares were authorized shares of Biosurgery Stock and Molecular Oncology Stock that were not issued and outstanding, but
which our board of directors could issue, sell or distribute without allocating the proceeds or benefits to the division that the series of stock tracked. Designated shares were not eligible to
receive dividends and could not be voted by us.

F-133

---



We
created designated shares when we transferred cash or other assets from Genzyme General to Genzyme Biosurgery or Genzyme Molecular Oncology or from other interdivision transactions. As part of the
elimination of our tracking stock structure, effective July 1, 2003 all outstanding designated shares of Biosurgery Stock and Molecular Oncology Stock were cancelled. We have reserved for
issuance shares of Genzyme Stock to meet potential commitments under our Directors Deferred Compensation Plan and with respect to outstanding options.

Notes Receivable from Shareholders

In connection with the acquisition of Biomatrix, we acquired notes receivable from certain former employees, directors, and consultants. 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, at which point all
outstanding principal and accrued interest become payable. There is $13.9 million outstanding of principal and accrued interest at December 31, 2004 that is recorded in shareholders'
equity because the notes were originally received in exchange for the issuance of stock.

NOTE O.    COMMITMENTS AND CONTINGENCIES

Legal Proceedings

We periodically become subject to legal proceedings and claims arising in connection with our business. We do not believe that there were any asserted claims
against us as of December 31, 2004 that will have a material adverse effect on our results of operations, financial condition or liquidity.

Four
lawsuits have been filed against us regarding the exchange of all of the outstanding shares of Biosurgery Stock and Molecular Oncology Stock for shares of Genzyme Stock, each of
which is a purported class action on behalf of holders of Biosurgery Stock. The first case, filed in Massachusetts Superior Court in May 2003, alleged a breach of the implied covenant of good
faith and fair dealing in our charter and a breach of our board of directors' fiduciary duties. The plaintiff in this case sought an injunction to adjust the exchange ratio for the tracking stock
exchange. The Court dismissed the complaint in November 2003, but the plaintiff in this case has appealed this dismissal. This appeal was argued before the Massachusetts Appeals Court in
March 2005 and we are awaiting the Appeals Court's ruling. Two substantially similar cases were filed in Massachusetts Superior Court in August and October 2003. These cases were
consolidated in January 2004, and in July 2004, the consolidated case was stayed pending disposition of a fourth case, which was filed in the U.S. District Court for the Southern
District of New York in June 2003. This case alleges violations of federal securities laws, common law fraud, and a breach of the merger agreement with Biomatrix in addition to the state law
claims contained in the other cases. The plaintiffs are seeking an adjustment to the exchange ratio, the rescission of the acquisition of Biomatrix, and unspecified compensatory damages. We believe
each of these cases is without merit and continue to defend against them vigorously.

On
March 27, 2003, the OFT in the United Kingdom issued a decision against our wholly-owned subsidiary, Genzyme Limited, finding that Genzyme Limited held a dominant position and
abused that dominant position with no objective justification by pricing Cerezyme in a way that excludes other delivery/homecare service providers from the market for the supply of home delivery and
homecare services to Gaucher patients being treated with Cerezyme. In conjunction with this decision, the OFT imposed a fine on Genzyme Limited and required modification to its list price for Cerezyme
in the United Kingdom. Genzyme Limited appealed this decision to the Competition Appeal Tribunal. On

F-134

---



May 6,
2003, the Tribunal issued an order that stayed the OFT's decision, but required Genzyme Limited to provide a homecare distributor a discount of 3% per unit during the appeal process. The
Tribunal issued its judgment on Genzyme Limited's appeal on March 11, 2004, rejecting portions of the OFT's decision and upholding others. The Tribunal found that the list price of Cerezyme
should not be reduced, but that Genzyme Limited must negotiate a price for Cerezyme that will allow homecare distributors an appropriate margin. These negotiations are ongoing. The Tribunal also
reduced the fine imposed by the OFT for violation of U.K. competition laws. In response to the Tribunal's decision, we recorded an initial liability of approximately $11 million in our 2003
financial statements and additional liabilities totaling approximately $3 million during 2004, all of which remain in accrued expenses in our consolidated balance sheet as of
December 31, 2004. On April 13, 2004, Genzyme Limited filed an application with the Tribunal for permission to appeal to the High Court. The application is still pending.

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

We
are not able to predict the outcome of these cases or estimate with certainty the amount or range of any possible loss we might incur if we do not prevail in the final,
non-appealable determinations of these matters. Therefore, except for approximately $11 million in liabilities established in 2003 and approximately $3 million in additional
liabilities arising during 2004 from the Tribunal's decision regarding Cerezyme pricing in the United Kingdom, we have not accrued any amounts in connection with these potential contingencies. We
cannot provide you with assurance that the matters listed above, or other legal proceedings, will not have a material adverse impact on our financial condition or results of operations.

F-135

---





NOTE P.    INCOME TAXES

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

For the Years Ended December 31,2004

2003

2002(Amounts in thousands)Domestic

$
103,470

$
(41,764
)
$
92,016Foreign


124,226


46,819


12,195Total

$
227,696

$
5,055

$
104,211Currently payable:Federal

$
51,742

$
42,928

$
(3,598
)State


11,769


8,107


4,249Foreign


32,611


14,611


7,694Total


96,122


65,646


8,345Deferred:Federal


44,423


5,738


11,137State


(2,255
)

118


(882
)Foreign


2,879


1,145


415Total


45,047


7,001


10,670Provision for (benefit from) income taxes

$
141,169

$
72,647

$
19,015


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, |  
|---------------------------------------------- |  | -------------------------------- | -
|
|Tax provision (benefit) at U.S. statutory rate |  | 35.0                             | %
|State taxes, net                               |  | 2.8                              |  
|Extra-territorial income                       |  | (7.1                             | )
|Goodwill impairment                            |  |                                 |  
|Charge for purchased research and development  |  | 39.1                             |  
|Benefit of tax credits                         |  | (4.7                             | )
|Foreign rate differential                      |  | (4.4                             | )
|Other                                          |  | 1.3                              |  
|                                               |  |                                  |  
|Effective tax rate                             |  | 62.0                             | %
|                                               |  |                                  |  

Our
effective tax rates for 2004, 2003 and 2002 varied from the U.S. statutory rate as a result of:



F-136

---





In
addition, our overall tax rate has changed significantly due to fluctuations in our income (loss) before taxes, which was $227.7 million in 2004, $5.1 million in 2003 and
$104.2 million in 2002.

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

December 31,2004

2003(Amounts in thousands)Deferred tax assets:Net operating loss carryforwards

$
149,106

$
72,001Tax credits


30,245


51,240Realized and unrealized capital (gains) losses


(3,575
)

14,469Inventory


4,730


5,505Intercompany profit in inventory eliminations


42,559


45,265Reserves, accruals and other


52,883


32,336Gross deferred tax assets


275,948


220,816Valuation allowance


(10,268
)

(10,268
)Net deferred tax assets


265,680


210,548Deferred tax liabilities:Depreciable assets


(22,045
)

(23,538
)Deferred gain


(898
)

(898
)Intangible assets


(308,149
)

(258,328
)Net deferred tax liabilities

$
(65,412
)
$
(72,216
)


Our
ability to realize the benefit of net deferred tax assets is dependent on our generating sufficient taxable income and capital gain income before net operating loss, capital loss and
tax credit carryforwards expire. 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, 2004, we had for U.S. income tax purposes, net operating loss carryforwards of $417.8 million and tax credit carryforwards of $30.2 million. Our net
operating loss carryforwards expire
between 2007 and 2023 and the tax credits expire between 2011 and 2024. Ownership changes, as defined under the Internal Revenue Code, may have limited the amount of net operating loss carryforwards
which may be utilized annually to offset future taxable income. For foreign purposes, we had net operating loss carryforwards of $9.2 million in 2004, which carryforward indefinitely.

We
are currently under IRS audit for tax years 1996 to 1999. We believe that we have provided sufficiently for all audit exposures. A favorable settlement of this audit or the expiration
of the statute of limitations on the assessment of income taxes for any tax year may result in a reduction of future tax

F-137

---



provisions,
which could be significant. Any such benefit would be recorded upon final resolution of the audit or expiration of the statute.

In
2001, the World Trade Organization, or WTO, determined that the tax provisions of the FSC Repeal and Extraterritorial Income Exclusion Act of 2000, or ETI, constitute an export
subsidy prohibited by the WTO Agreement on Subsidies and Countervailing Measures Agreement. As a result, in October 2004, the U.S. enacted the American Jobs Creation Act of 2004, or the Act,
which repeals the ETI export subsidy for transactions after 2004 with two years of transition relief (2005-2006). The Act also provides a 9% deduction for income from domestic production
activities which will be phased in over the years 2005-2010. While we are still evaluating the net impact of this new legislation, we do not expect it to have a material effect on our
ongoing effective tax rate.

In
addition, the Act creates a temporary incentive for U.S. multinational corporations to repatriate accumulated income earned outside the U.S. While we are still evaluating this
provision, we do not expect to benefit from the repatriation provisions under this Act.

NOTE Q.    BENEFIT PLANS

Defined Contribution Plans

We have three defined contribution plans:



The
401(k) Plan was established effective January 1, 1988 to provide a long-range program of systematic savings for eligible employees. Employees of our wholly-owned
subsidiaries in the United States of America are eligible to participate in the 401(k) Plan, including employees of the former Deknatel Snowden Pencer, Inc., which we acquired in 1996, who also
participate in the GSP Plan and employees of the former Biomatrix, which we acquired in December 2000, who also participate in the Biomatrix Plan. Eligible employees may elect, through salary
reduction agreements, to have up to 18% or a maximum of $13,000, through December 31, 2004, and $14,000, effective January 1, 2005, of their eligible compensation contributed on a
pre-tax basis to the 401(k) Plan each year on their behalf. We make 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 and an insignificant amount of administrative fees incurred in each year:



F-138

---





Effective
December 31, 2000, the GSP Plan and the Biomatrix Plan were frozen. As of that date, no new contributions from participants or contributions from us have been accepted
by either plan and no new participants have been allowed to enter these two plans. Existing participants continue to have full access to their account balances in the GSP Plan and Biomatrix Plan,
including the ability to initiate fund transfers among the available investment options, loans and hardship distributions. Effective December 31, 2000, participants in both the GSP Plan and
Biomatrix Plan became eligible to participate in the Genzyme 401(k) Plan.

Retirement Plans

In December 2003, the FASB issued SFAS No. 132 (revised) "Employers' Disclosures about Pensions and Other Postretirement Benefits." This statement
revises employers' disclosures about pension plans and other postretirement benefit plans. It requires additional disclosures related to the assets, obligations, cash flows, and net periodic benefit
cost of defined benefit pension plans and other defined benefit postretirement plans. For U.S. defined benefit pension plans and other defined benefit postretirement plans, SFAS No. 132
(revised) is effective for fiscal years ending after December 15, 2003. Disclosure of information about foreign plans required under SFAS No. 132 (revised) is effective for fiscal years
ending after June 15, 2004. The adoption of SFAS No. 132 (revised) did not have a material impact on our disclosures about pensions and other postretirement benefits in 2003, because we
only have one U.S. defined benefit plan for the former employees of Deknatel Snowden Pencer, Inc., which has been frozen since December 1995 and is fully funded as of December 31,
2003 and 2004. Disclosure of information about foreign plans required under SFAS No. 132 (revised) is effective for fiscal years ending after June 15, 2004.

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

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

|                                                |  | December 31, |       
|----------------------------------------------- |  | ------------ | ------
|
|Change in benefit obligation:                   |  |              |       
|Projected benefit obligation, beginning of year |  | $            | 40,630
|Service cost                                    |  |              | 2,477 
|Interest cost                                   |  |              | 2,316 
|Plan participants' contributions                |  |              | 1,030 
|Actuarial loss                                  |  |              | 4,176 
|Foreign currency exchange rate changes          |  |              | 3,715 
|Benefits paid                                   |  |              | (455  
|                                                |  |              |       
|Projected benefit obligation, end of year       |  | $            | 53,899
|                                                |  |              |       
|                                                |  |              |       

F-139

---



|Change in plan assets:                       |  |   |         |   |   |        |  
|-------------------------------------------- |  | - | ------- | - | - | ------ | -
|Fair value of plan assets, beginning of year |  | $ | 31,826  |   | $ | 15,639 |  
|Return on plan assets                        |  |   | 3,010   |   |   | 2,862  |  
|Employer contribution                        |  |   | 2,266   |   |   | 9,928  |  
|Plan participants' contributions             |  |   | 1,030   |   |   | 798    |  
|Foreign currency exchange rate changes       |  |   | 2,793   |   |   | 2,865  |  
|Benefits paid                                |  |   | (352    | ) |   | (266   | )
|                                             |  |   |         |   |  
|Fair value of plan assets, end of year       |  | $ | 40,573  |   | $ | 31,826 |  
|                                             |  |   |         |   |  
|Benefit obligation in excess of plan assets  |  | $ | (13,316 | ) | $ | (8,804 | )
|Unrecognized net actuarial loss              |  |   | 18,298  |   |   | 13,747 |  
|                                             |  |   |         |   |  
|Net amount recognized                        |  | $ | 4,982   |   | $ | 4,943  |  
|                                             |  |   |         |   |  

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

|                                       |  | December 31, |       
|-------------------------------------- |  | ------------ | ------
|
|Prepaid benefit cost                   |  | $            | 9,153 
|Accrued benefit liability              |  |              | (4,171
|Accumulated other comprehensive income |  |              |      
|                                       |  |              |       
|Net amount recognized                  |  | $            | 4,982 
|                                       |  |              |       

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

December 31,2004

2003Weighted average assumptions:Discount rate

4.90%

5.43%Rate of compensation increase

3.50%

3.50%


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

December 31,2004

2003

2002Weighted average assumptions:Discount rate

5.43%

5.75%

6.00%Rate of return on assets

8.00%

7.00%

6.75%Rate of compensation increase

3.50%

3.52%

3.50%


F-140

---



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

December 31,2004

2003

2002Service cost

$
2,477

$
1,805

$
1,293Interest cost


2,316


1,762


1,397Expected return on plan assets


(3,010
)

(1,326
)

(1,203
)Amortization and deferral of actuarial (gain)/loss


876


550


154Net pension expense

$
2,659

$
2,791

$
1,641


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 31,2004

2003Projected benefit obligation

$
4,269

$
3,463Accumulated benefit obligation


3,927


3,162Fair value of plan assets








At
December 31, 2003, accumulated other comprehensive income includes the reversal of the additional minimum pension liability and related taxes recorded in 2002.

At
December 31, 2004 and 2003, plan assets for our foreign defined pension benefit plans consist solely of the assets of our defined pension benefit plan in the United Kingdom,
which we refer to as our UK Pension Plan. Defined pension benefit plan assets for our other foreign subsidiaries as of December 31, 2004 and 2003 were not significant.

The
investment objective of our UK 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 UK 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 UK Pension Plan at December 31, 2004 and 2003 were as follows:

December 31,2004

2003United Kingdom equity securities

57%

43%Other overseas equity securities

22%

19%Bonds

10%

8%Real estate

6%

1%Other

5%

29%Total

100%

100%


Our
UK Pension Plan's benchmark asset allocation strategy is to invest plan assets 60% in UK equity securities, 20% in other overseas equity securities, 15% in bonds and 5% in property.
The

F-141

---



assumption
made for the expected return on assets is based on the benchmark allocation strategy for our UK 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 $3 million to our UK Pension Plan in 2005.

Estimated Future Benefit Payments

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

Estimated
Future
Benefit
Payments2005

$
7582006


8222007


9302008


1,1392009


1,2382010-2014


8,081


NOTE R.    SEGMENT REPORTING

In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," we present segment information in a manner
consistent with the method we use to report this information to our management. Applying SFAS No. 131, we have five reporting segments as described in Note A., "Summary of Significant
Accounting PoliciesBusiness," to this Form 10-K.

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

|          |                          | For the Years Ended December 31, |  
|--------- | ------------------------ | -------------------------------- | -
|
|Revenues: |                          |                                  |  
|          | Renal                    |                                  | $
|          | Therapeutics             |                                  |  
|          | Transplant (1)           |                                  |  
|          | Biosurgery               |                                  |  
|          | Diagnostics/Genetics (1) |                                  |  
|          | Other (1)                |                                  |  
|          | Corporate                |                                  |  
|          |                          |                                  |  
|          |                          | Total                            |  
|          |                          |                                  |  
|          |                          |                                  |  

F-142

---



|Depreciation and amortization expense:       |                          |       |   |          |         |   |          |         |   |        
|-------------------------------------------- | ------------------------ | ----- | - | -------- | ------- | - | -------- | ------- | - | -------
|                                             | Renal                    |       | $ | 28,547   |         | $ | 27,418   |         | $ | 22,510 
|                                             | Therapeutics             |       |   | 12,394   |         |   | 11,798   |         |   | 8,246  
|                                             | Transplant (1)           |       |   | 36,199   |         |   | 11,276   |         |   |       
|                                             | Biosurgery               |       |   | 32,785   |         |   | 35,481   |         |   | 37,943 
|                                             | Diagnostics/Genetics (1) |       |   | 22,094   |         |   | 13,334   |         |   | 10,329 
|                                             | Other (1)                |       |   | 24,407   |         |   | 23,272   |         |   | 23,174 
|                                             | Corporate                |       |   | 48,688   |         |   | 37,880   |         |   | 31,798 
|                                             |                          |       |   |          |         |   |         
|                                             |                          | Total |   | $        | 205,114 |   | $        | 160,459 |   | $      
|                                             |                          |       |   |          |         |   |         
|Equity in loss of equity method investments: |                          |       |   |          |         |   |          |         |   |        
|                                             | Therapeutics             |       | $ | (9,853   | )       | $ | (15,497  | )       | $ | (14,928
|                                             | Transplant (1)           |       |   | (1,486   | )       |   | (449     | )       |   |       
|                                             | Biosurgery               |       |   |         |         |   |         |         |   |       
|                                             | Diagnostics/Genetics     |       |   |         |         |   |         |         |   |       
|                                             | Other                    |       |   | (2,485   | )       |   |         |         |   |       
|                                             | Corporate (2)            |       |   | (1,800   | )       |   | (797     | )       |   | (1,930 
|                                             |                          |       |   |          |         |   |         
|                                             |                          | Total |   | $        | (15,624 | ) | $        | (16,743 | ) | $      
|                                             |                          |       |   |          |         |   |         
|Income (loss) before income taxes:           |                          |       |   |          |         |   |          |         |   |        
|                                             | Renal                    |       | $ | 107,608  |         | $ | 49,596   |         | $ | (18,153
|                                             | Therapeutics             |       |   | 592,197  |         |   | 404,131  |         |   | 279,824
|                                             | Transplant (1)           |       |   | (27,093  | )       |   | (166,204 | )       |   |       
|                                             | Biosurgery (3)           |       |   | (3,699   | )       |   | (160,907 | )       |   | (66,718
|                                             | Diagnostics/Genetics (1) |       |   | (15,465  | )       |   | 8,626    |         |   | 6,314  
|                                             | Other (1)                |       |   | (331,374 | )       |   | (81,312  | )       |   | (73,305
|                                             | Corporate (4)            |       |   | (94,478  | )       |   | (48,875  | )       |   | (23,751
|                                             |                          |       |   |          |         |   |         
|                                             |                          | Total |   | $        | 227,696 |   | $        | 5,055   |   | $      
|                                             |                          |       |   |          |         |   |         

---

Company Acquired

Date Acquired

Business Segment(s)

IPR&D ChargeILEX

December 20, 2004

Other

$254.5 millionPathology/oncology testing
assets of IMPATH

May 1, 2004

Diagnostics/Genetics

NoneAlfigen

February 21, 2004

Diagnostics/Genetics

NoneSangStat

September 11, 2003

Transplant

$158.0 million


F-143

---



Segment Assets

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

|                    |                          | December 31,
|------------------- | ------------------------ | ------------
|
|Segment Assets (1): |                          |             
|                    | Renal (2)                |             
|                    | Therapeutics             |             
|                    | Transplant (3)           |             
|                    | Biosurgery (4,5)         |             
|                    | Diagnostics/Genetics (6) |             
|                    | Other (7,8)              |             
|                    | Corporate (3,6,7,8,9)    |             
|                    |                          |             
|                    |                          | Total       
|                    |                          |             

---

F-144

---



Amount

Business
SegmentCash and short-term investments

$
99.4

CorporateAccounts receivable


25.7

TransplantInventory


33.1

TransplantDeferred tax assets-current


68.0

CorporateOther current assets


4.4

TransplantProperty, plant and equipment


2.8

TransplantGoodwill


132.6

TransplantOther intangible assets


256.0

TransplantOther assets


11.4

CorporateTotal

$
633.4


F-145

---



|                              |       | Alfigen |      | IMPATH |   | Total |       | Business
Segment
|----------------------------- | ----- | ------- | ---- | ------ | - | ----- | ----- | ----------------
|Accounts receivable           |       | $       |     |        | $ | 14.5  |       | $               
|Inventories                   |       |         |     |        |   | 2.0   |       |                 
|Deferred tax assetcurrent    |       |         |     |        |   | 0.5   |       |                 
|Other current assets          |       |         | 0.1  |        |   | 2.5   |       |                 
|Property, plant and equipment |       |         | 1.2  |        |   | 15.0  |       |                 
|Goodwill                      |       |         | 33.2 |        |   | 157.5 |       |                 
|Other intangible assets       |       |         | 13.0 |        |   | 34.8  |       |                 
|Deferred tax assetnoncurrent |       |         |     |        |   | 0.8   |       |                 
|Other assets                  |       |         |     |        |   | 0.2   |       |                 
|                              |       |         |      |        |   |       |       |                 
|                              | Total |         | $    | 47.5   |   | $     | 227.8 |                 
|                              |       |         |      |        |   |       |       |                 

Amount

Business
SegmentCash and cash equivalents

$
121.1

CorporateRestricted cash


0.6

CorporateAccounts receivable


13.1

OtherInventories


16.6

OtherDeferred tax assetcurrent


27.3

OtherOther current assets


2.9

Other/CorporateProperty, plant and equipment


2.2

OtherRestricted long-term investments


1.7

CorporateGoodwill


478.5

OtherOther intangible assets


228.6

OtherDeferred tax assetsnoncurrent


25.0

OtherOther assets


1.6

Other/CorporateTotal

$
919.2


F-146

---



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

|                                                         |       | December 31,
|-------------------------------------------------------- | ----- | ------------
|
|Cash, cash equivalents, short- and long-term investments |       | $           
|Deferred tax assets-current                              |       |             
|Property, plant & equipment, net                         |       |             
|Investment in equity securities                          |       |             
|Other                                                    |       |             
|                                                         |       |             
|                                                         | Total |             
|                                                         |       |             

Geographic Segments

We operate in the healthcare industry and we manufacture and market our products primarily in the United States and Europe. Our principal manufacturing facilities
are located in the United States, United Kingdom, Switzerland, Ireland, France and Germany. We purchase products from our subsidiaries in the United Kingdom and Switzerland for sale to customers in
the United States. We set transfer prices from our foreign subsidiaries to allow us to produce profit margins commensurate with our sales and marketing effort. Our subsidiary in Luxembourg is our
primary distributor of therapeutic products in Europe. The following table contains certain financial information by geographic area (amounts in thousands):

For the Years Ended December 31,2004

2003

2002Revenues:United States

$
1,208,184

$
971,821

$
805,492Europe


723,102


544,646


386,928Other


269,859


197,404


137,052Total

$
2,201,145

$
1,713,871

$
1,329,472


December 31,2004

2003

2002(Amounts in thousands)Long-lived assets:United States

$
911,279

$
897,869

$
504,850Europe


621,951


449,949


253,103Other


4,781


1,969


1,744Total

$
1,538,011

$
1,349,787

$
759,697


Our
results of operations are highly dependent on sales of Cerezyme. Sales of this product represented approximately 42% of our product revenue in 2004, approximately 47% of our product
revenue in 2003 and approximately 52% of our product revenue in 2002. We manufacture Cerezyme at a single manufacturing facility in Allston, Massachusetts. We sell this product directly to physicians,

F-147

---



hospitals
and treatment centers as well as through an unaffiliated distributor. Distributor sales of Cerezyme represented 25% of Cerezyme revenue in 2004, 27% in 2003 and 43% in 2002. Sales of
Cerezyme to one of our United States distributors represented 5% of our total revenue in 2004, 7% in 2003 and 9% in 2002. 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 represented 18% of our product revenue in 2004 and 2003 and 13% in 2002. Distributor sales of Renagel represented 59% of Renagel revenue in 2004, 62% in 2003 and 72% in
2002.

NOTE S.    QUARTERLY RESULTS (UNAUDITED)

|                         |                             | 1st Quarter
2004 |         | 2nd Quarter
2004 |      | 3rd Quarter
2004 |   | 4th Quarter
2004 |        
|------------------------ | --------------------------- | ---------------- | ------- | ---------------- | ---- | ---------------- | - | ---------------- | -------
|
|Net revenue              |                             | $                | 491,251 |                  | $    | 549,588          |   | $                | 569,229
|Operating income (loss)  |                             |                  | 102,008 |                  |      | 127,255          |   |                  | 146,639
|Net income (loss)        |                             |                  | 67,894  |                  |      | 78,176           |   |                  | 97,799 
|Income (loss) per share: |                             |                  |         |                  |      |                  |   |                  |        
|                         | Allocated to Genzyme Stock: |                  |         |                  |      |                  |   |                  |        
|                         |                             | Basic            |         | $                | 0.30 |                  | $ | 0.35             |        
|                         |                             | Diluted          |         | $                | 0.29 |                  | $ | 0.33             |        

|                         |                                        | 1st Quarter
2003  |         | 2nd Quarter
2003 |       | 3rd Quarter
2003 |   | 4th Quarter
2003 (1)
|------------------------ | -------------------------------------- | ----------------- | ------- | ---------------- | ----- | ---------------- | - | --------------------
|
|Net revenue              |                                        | $                 | 381,859 |                  | $     | 418,903          |   | $                   
|Operating income (loss)  |                                        |                   | 62,687  |                  |       | (33,875          | ) |                     
|Net income (loss)        |                                        |                   | 45,369  |                  |       | (74,530          | ) |                     
|Income (loss) per share: |                                        |                   |         |                  |       |                  |   |                     
|                         | Allocated to Genzyme Stock:            |                   |         |                  |       |                  |   |                     
|                         |                                        | Basic             |         | $                | 0.29  |                  | $ | 0.33                
|                         |                                        | Diluted           |         | $                | 0.28  |                  | $ | 0.32                
|                         | Allocated to Biosurgery Stock:         |                   |         |                  |       |                  |   |                     
|                         |                                        | Basic and diluted |         | $                | (0.29 | )                | $ | (3.46               
|                         | Allocated to Molecular Oncology Stock: |                   |         |                  |       |                  |   |                     
|                         |                                        | Basic and diluted |         | $                | (0.28 | )                | $ | (0.26               

---

F-148

---





GENZYME CORPORATION        SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS  FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

|Column A                      |                                | Column B |            | Column C |            | Column D |            | Column E
|----------------------------- | ------------------------------ | -------- | ---------- | -------- | ---------- | -------- | ---------- | --------
|
|
|Year ended December 31, 2004: |                                |          |            |          |            |          |            |         
|                              | Accounts receivable allowances |          | 26,638,000 |          | 12,616,000 |          | 34,393,000 |         
|Year ended December 31, 2003: |                                |          |            |          |            |          |            |         
|                              | Accounts receivable allowances |          | 18,869,000 |          | 2,838,000  |          | 13,433,000 |         
|Year ended December 31, 2002: |                                |          |            |          |            |          |            |         
|                              | Accounts receivable allowances |          | 14,210,000 |          | 7,324,000  |          | 2,997,000  |         

F-149

---



QuickLinks