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

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
ý

ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2008
~~QUARTERLY~~
or

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the ~~quarterly period ended September 30, 2007~~
or

o

~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

~~For the~~ transition period from                             to
~~Commission file number 0-14680~~
Commission File No. 0-14680
GENZYME CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts
(State or other jurisdiction of
incorporation or organization) 06-1047163
(I.R.S. Employer Identification No.)

500 Kendall Street
Cambridge, Massachusetts
(Address of principal executive offices)

02142
(Zip Code)

(617) 252-7500
(Registrant's telephone number, including area code)
~~(617) 252-7500~~
~~(Registrant's telephone number, including area code)~~
        Indicate by check mark whether the ~~registrant:~~registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o
        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a ~~non-accelerated filer.~~smaller reporting company. See ~~definition~~the definitions of "large accelerated filer," "accelerated ~~filer~~filer" and ~~large accelerated filer"~~"smaller reporting company" in Rule 12b-2 of the Exchange Act. ~~(Check one):~~
~~Large accelerated filer~~ ý        ~~Accelerated filer~~ o        ~~Non-accelerated filer~~ o
Large accelerated filer ý Accelerated filer o Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company o
        Indicate by check mark whether the registrant is a shell company (as defined inby Rule 12b-2 of the Exchange Act). Yes o    No ý
        ~~The number~~Number of shares of Genzyme Stock outstanding as of ~~October 31, 2007: 265,975,721~~April 30, 2008: 267,313,161
NOTE REGARDING REFERENCES TO OUR COMMON STOCK
        Throughout this Form 10-Q, the words "we," "us," "our" and "Genzyme" refer to Genzyme Corporation as a whole, and "our board of directors" refers to the board of directors of Genzyme Corporation. We have one outstanding series of common stock, which we refer to as "Genzyme Stock."
NOTE REGARDING FORWARD-LOOKING STATEMENTS
        This Form 10-Q contains forward-looking statements, including statements regarding:
•
our plans to seek marketing approvals for our products in additional jurisdictions, including Renvela, Myozyme, Aldurazyme, and ~~Thymoglobulin;~~Synvisc-One;

•
our plans and our anticipated timing for pursuing additional indications and uses for our products and services, including ~~Synvisc,~~Renvela, Synvisc-One, Campath and Clolar and for ~~pursuing approvals of Renvela and~~regulatory action on our U.S. submission for Synvisc-One;

•
our expectations for Renvela, including our ability to use it to expand the market for our phosphate binder to patients with chronic kidney disease, or CKD, not yet on dialysis;

•
our expectations for Thymoglobulin, including our estimates of product to be recalled in 2008, our ability to maintain adequate supply levels and our ability to accelerate sales of the ~~timing and availability of data from clinical trials;~~product as supply levels increase;

•
our expectations regarding United States Food and Drug Administration, commonly referred to as the FDA, approval of a separate biologics license application, or BLA, for Myozyme manufactured at the 2000 liter, or 2000L, scale and the timing of FDA action; our expectations for Myozyme revenue and costs in 2008; our expectations regarding Myozyme sales growth; and our estimate of the timing for providing U.S. patients with commercial 2000L Myozyme;

•
our expectations for sales of Renagel/Renvela and Hectorol and the anticipated drivers for the future growth of ~~our products, including Renvela, Hectorol and Synvisc-One;~~these products;

•
our ~~estimates of the capacity of,~~ability to develop, obtain marketing approval for and commercialize mipomersen and the ~~projected timetable of approvals for, manufacturing and other facilities and production methods to support our products and services, including the larger-scale manufacturing process for Myozyme;~~timing thereof;

•
our assessment of competitors and potential competitors and the anticipated impact of potentially competitive products and services on our revenues;

•
~~our estimates of the potential markets for our products and services;~~

•
~~our ability to meet the expected demand for our products, including Thymoglobulin and our ability to optimize the U.S. supply of Myozyme;~~

•
Cerezyme's future contribution to ~~revenues;~~our revenues and our expectations regarding its current growth trends;

•
our intention to pursue our rights with respect to insurance coverage for our settlement of a class action lawsuit under a director and officer liability insurance program;

•
our assessment of the ~~outcome, timetables and~~ financial impact of ~~litigation and other governmental~~legal proceedings and ~~the potential impact~~claims on our financial position and results of ~~unasserted claims;~~operations;

•
the sufficiency of our cash, cash equivalents, short- and long-term investments and cash flows from operations;

•
our U.S. and foreign income tax audits, including our provision for potential liabilities and our assessment of the timing and impact of settlement of the Internal Revenue Service, commonly referred to as the IRS, ~~and foreign~~2004 to 2005 tax ~~disputes;~~audit;

•
our estimates of the cost to complete and estimated commercialization dates for our in-process research and development, or IPR&D, programs;

•
~~our expected future revenues, operations, expenditures, allocations and expenses, and the assumptions underlying those estimates;~~

•
~~our projected future earnings and earnings per share;~~

•
our estimates of the pre-tax gain we will record on our investment in the common stock of Sirtris Pharmaceuticals, Inc., or Sirtris, upon completion of the proposed acquisition of Sirtris by GlaxoSmithKline, or GSK, and the anticipated timing for the completion of the acquisition;

•
our assessment of the ~~impact~~deductibility of recent accounting pronouncements, including Financial Accounting Standards Board, or FASB, Statement of Financial Accounting Standards No., or FAS, 157, regarding fair value measurements, FAS 159, regarding the fair value option for financial assets and financial liabilities and Emerging Issues Task Force, or EITF, Issue No. 07-3, regarding accounting for nonrefundable advance payments for goods or services used in future research and development activities;goodwill;

•
our sales and marketing plans; and

•
our ~~assessment~~expectations regarding the amortization of ~~certain lots of Thymoglobulin finished goods inventory to determine if they meet product specifications and the expected timing of the completion of this review;~~

•
~~our acquisition of Bioenvision, Inc., or Bioenvision, and the expected timing and payments~~intangible assets related to ~~the acquisition;~~

•
~~our planned acquisition of the diagnostics division of Diagnostic Chemicals Limited, or DCL, and the expected timing and payments related to the acquisition;~~

•
our expected future contingent payments due to Synpac (North Carolina), Inc.~~, or Synpac;~~ and

•
our expected future payments related to our acquisitions, including milestone and royalty payments to the former shareholders of Surgi.B Chirugie et Medicine SAS, or Surgi.B, Wyeth, and Verigen AG, or Verigen, and employee benefits and leased facilities acquired from AnorMED Inc., or AnorMED, and the expected timing of these payments. Wyeth.
        These statements are subject to risks and uncertainties, and our actual results may differ materially from those that are described in this report. These risks and uncertainties include:
•
our ability to successfully complete preclinical and clinical development of our products and services;

•
our ability to secure regulatory approvals for our products, services and manufacturing facilities, and to do so in the anticipated ~~timeframes;~~timeframes, including our ability to obtain and maintain regulatory approvals for Myozyme produced at the 2000L scale in the United States and the 4000 liter, or 4000L, scale in Europe and the timing of these anticipated approvals;

•
the content and timing of submissions to and decisions made by the ~~United States Food and Drug Administration, commonly referred to as the~~ FDA, the European Agency for the Evaluation of Medicinal Products, or the EMEA, and other regulatory agencies related to our products and services and the facilities and processes used to manufacture our products (including our ability to accurately anticipate the receipt of FDA approval of larger-scale manufacturing of Myozyme);

•
our ability to ~~satisfy~~accurately forecast the ~~post-marketing commitments made as a condition~~impact of ~~the marketing approvals of Fabrazyme, Aldurazyme~~regulatory delays on revenues and ~~Myozyme;~~costs;

•
our ability to manufacture sufficient amounts of our products for development and commercialization activities and to do so in a timely and cost-effective manner, including our ability to manufacture Thymoglobulin that meets our product specifications and in quantities sufficient to meet projected market ~~demand;~~demand and our ability to manufacture Myozyme;

•
our ability to satisfy the post-marketing commitments made as a condition of the marketing approvals of Fabrazyme, Aldurazyme, Myozyme and Clolar;

•
our reliance on third parties to provide us with materials and services in connection with the manufacture of our products;

•
~~our ability to obtain and maintain adequate patent and other proprietary rights protection for our products and services and successfully enforce these proprietary rights;~~

•
~~the scope, validity and enforceability of patents and other proprietary rights held by third parties and their impact on our ability to commercialize our products and services;~~

•
the accuracy of our estimates of the size and characteristics of the markets to be addressed by our products and services, including growth projections;

•
market acceptance of our products and services in expanded areas of use and new markets;

•
our ability to identify new patients for our products and services;

•
our ability to successfully complete a transaction with Isis Pharmaceuticals, Inc., or Isis, on the timeframes and terms disclosed;

•
our ability to increase market penetration of our products and services both outside and within the United ~~States of our products and services;~~States;

•
the accuracy of our information regarding the products and resources of our competitors and potential competitors;

•
the availability of reimbursement for our products and services from third party payors, the extent of such coverage and the accuracy of our estimates of the payor mix for our products;

•
our ability to effectively manage wholesaler inventories of our products and the levels of their compliance with our inventory management programs;

•
our ~~ability to establish and maintain strategic license, collaboration and distribution arrangements and to successfully manage our relationships with licensors, collaborators, distributors and partners;~~

•
~~the continued funding and operation of our joint ventures by our partners;~~

•
~~our~~ use of cash in business combinations or other strategic initiatives;

•
the resolution of ~~the~~our dispute with our insurance carriers regarding our claim for coverage under a director and officer liability insurance program;

•
the initiation of legal proceedings by or against us;

•
~~the impact of changes in the exchange rate for the Euro and other currencies on our product and service revenues in future periods;~~

•
~~our ability to successfully integrate the business we acquired from AnorMED;~~

•
our ability to successfully integrate the business we acquired from Bioenvision, ~~effective October 23, 2007;~~

•
~~our ability to complete the planned acquisition of the diagnostics division of DCL on the anticipated terms and timeline;~~

•
the number of diluted shares of our stock considered outstanding, which will depend on business combination activity, our stock price and any further changes in the accounting rules for the calculation of earnings per share;

•
~~the estimates and input variables used in accounting for stock options and the related stock-based compensation expense;~~Inc., or Bioenvision;

•
the outcome of our IRS and foreign tax audits; and

•
the possible disruption of our operations due to terrorist activities, armed conflict, severe climate change or outbreak of diseases, ~~such as severe acute respiratory syndrome (SARS) or avian influenza,~~ including as a result of the disruption of operations of regulatory authorities, our subsidiaries, manufacturing facilities, customers, suppliers, distributors, couriers, collaborative partners, licensees ~~and~~or clinical trial sites.
        We ~~provide~~have included more detailed descriptions of these and other risks and uncertainties under the heading ~~"Risk~~"Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—Risk Factors," ~~included~~ in Part I., Item 2. of this ~~report.~~Quarterly Report on Form 10-Q. We encourage you to read those descriptions carefully. We caution investors not to place substantial reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report

~~(unless~~ (unless another date is indicated), and we undertake no obligation to update or revise the statements in light of future developments.
NOTE REGARDING INCORPORATION BY REFERENCE
        The ~~U.S.~~United States Securities and Exchange Commission, commonly referred to as the SEC, allows us to disclose important information to you by referring you to other documents we have filed ~~or will file~~ with them. The information that we refer you to is "incorporated by reference" into this Form 10-Q. Please read that information.
NOTE REGARDING TRADEMARKS
        Genzyme®, Cerezyme®, Ceredase®, Fabrazyme®, Thyrogen®, Myozyme®, Renagel®, Renvela®, Campath®, Clolar®, Evoltra®, Thymoglobulin®, Synvisc®, Synvisc-One®, Sepra®, Seprafilm®, Carticel®, Epicel®, MACI®, Lymphoglobuline®, Hylaform®, Cholestagel® and Hectorol® are registered trademarks, and ~~Lymphoglobuline™, Sepra™,~~ Mozobil™~~, Renvela™ and Synvisc-One™ are trademarks,~~ is a trademark, of Genzyme or its subsidiaries. WelChol® is a registered trademark of Sankyo Pharma, Inc. Aldurazyme® is a registered trademark of BioMarin/Genzyme LLC. All rights reserved.

GENZYME CORPORATION AND SUBSIDIARIES

FORM 10-Q, ~~SEPTEMBER 30, 2007~~MARCH 31, 2008

TABLE OF CONTENTS

PAGE NO.
PART I. FINANCIAL INFORMATION 6
ITEM 1. Financial Statements 6
Unaudited, Consolidated Statements of Operations and Comprehensive Income for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2008 and 2007 ~~and 2006~~ 6
Unaudited, Consolidated Balance Sheets as of ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006~~2007 7
Unaudited, Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2008 and 2007 ~~and 2006~~ 8
Notes to Unaudited, Consolidated Financial Statements 9
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 29
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 65
ITEM 4. Controls and Procedures 66
PART II. OTHER INFORMATION 67
ITEM 1. Legal Proceedings 67
ITEM 1A. Risk Factors 67
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 67
ITEM 6. Exhibits 67
Signatures
68

PART I.    FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS

GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Income

(Unaudited, amounts in thousands, except per share amounts)

Three Months Ended
September 30,
Nine Months Ended
September 30,

Three Months Ended March 31,

2007
2006
2007
2006

2008
2007

Revenues: Revenues: Revenues:
Net product sales $ 867,682 $ 734,231 $ 2,511,354 $ 2,110,301 Net product sales $ 1,006,268 $ 798,190
Net service sales 83,177 71,153 241,533 210,987 Net service sales 85,864 75,881
Research and development revenue 9,300 3,190 23,874 11,484 Research and development revenue 7,929 9,112

Total revenues 960,159 808,574 2,776,761 2,332,772 Total revenues 1,100,061 883,183

Operating costs and expenses: Operating costs and expenses: Operating costs and expenses:
Cost of products sold 190,475 134,140 508,451 388,609 Cost of products sold 216,739 154,724
Cost of services sold 54,137 50,536 156,222 148,350 Cost of services sold 55,574 47,739
Selling, general and administrative 270,306 239,700 878,807 743,849 Selling, general and administrative 318,386 269,021
Research and development 175,800 162,293 540,362 483,557 Research and development 262,797 166,120
Amortization of intangibles 49,819 50,542 149,301 156,117 Amortization of intangibles 55,658 50,017
Charge for impaired goodwill — 219,245 — 219,245

Total operating costs and expenses 909,154 687,621
Total operating costs and expenses 740,537 856,456 2,233,143 2,139,727

Operating income (loss) 219,622 (47,882 ) 543,618 193,045
Operating income Operating income 190,907 195,562

Other income (expenses): Other income (expenses): Other income (expenses):
Equity in income (loss) of equity method investments (12,648 ) 4,530 (1,091 ) 10,630 Equity in income of equity method investments 188 5,612
Minority interest 5 2,545 3,932 7,741 Minority interest 463 3,912
Gains on investments in equity securities, net 1,105 128 14,036 75,037 Gains on investments in equity securities, net 775 12,788
Other 913 (873 ) 110 (1,331 ) Other (160 ) (525 )
Investment income 18,222 16,760 51,687 39,401 Investment income 14,870 16,219
Interest expense (1,474 ) (3,772 ) (9,283 ) (12,245 ) Interest expense (1,655 ) (4,188 )

Total other income 6,123 19,318 59,391 119,233 Total other income 14,481 33,818

Income (loss) before income taxes 225,745 (28,564 ) 603,009 312,278
(Provision for) benefit from income taxes (66,432 ) 44,530 (201,715 ) (60,841 )
Income before income taxes Income before income taxes 205,388 229,380
Provision for income taxes Provision for income taxes (60,117 ) (71,193 )

Net income Net income $ 159,313 $ 15,966 $ 401,294 $ 251,437 Net income $ 145,271 $ 158,187

Net income per share: Net income per share: Net income per share:
Basic $ 0.61 $ 0.06 $ 1.52 $ 0.96 Basic $ 0.54 $ 0.60

Diluted $ 0.58 $ 0.06 $ 1.45 $ 0.93 Diluted $ 0.52 $ 0.57

Weighted average shares outstanding: Weighted average shares outstanding: Weighted average shares outstanding:
Basic 262,775 261,541 263,387 260,565 Basic 267,276 263,476

Diluted 279,206 278,271 279,898 277,130 Diluted 285,208 279,924

Comprehensive income, net of tax: Comprehensive income, net of tax:
Comprehensive income, net of tax:

Net income Net income $ 159,313 $ 15,966 $ 401,294 $ 251,437 Net income $ 145,271 $ 158,187

Other comprehensive income (loss):
Other comprehensive income: Other comprehensive income:
Foreign currency translation adjustments 76,836 7,914 98,082 85,647 Foreign currency translation adjustments 109,654 12,610

Other, net of tax (274 ) (129 ) (540 ) (406 ) Pension liability adjustments, net of tax 78 198

Unrealized gains (losses) on securities, net of tax: Unrealized gains on securities, net of tax:
Unrealized gains arising during the period, net of tax 7,450 7,066 12,812 43,004 Unrealized gains arising during the period, net of tax 3,905 9,878
Reclassification adjustment for (gains) losses included in net income, net of tax (991 ) 242 (8,839 ) (45,490 ) Reclassification adjustment for gains included in net income, net of tax (270 ) (8,161 )

Unrealized gains (losses) on securities, net of tax 6,459 7,308 3,973 (2,486 ) Unrealized gains on securities, net of tax 3,635 1,717

Other comprehensive income 83,021 15,093 101,515 82,755
Other comprehensive income 113,367 14,525

Comprehensive income Comprehensive income $ 242,334 $ 31,059 $ 502,809 $ 334,192 Comprehensive income $ 258,638 $ 172,712

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

GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited, amounts in thousands, except par value amounts)

September 30,
2007
December 31,
2006

March 31,
2008
December 31,
2007

ASSETS ASSETS ASSETS
Current assets: Current assets: Current assets:
Cash and cash equivalents $ 849,864 $ 492,170 Cash and cash equivalents $ 882,798 $ 867,012
Short-term investments 87,503 119,894 Short-term investments 79,050 80,445
Accounts receivable, net 879,163 746,746 Accounts receivable, net 1,031,095 904,101
Inventories 438,872 374,644 Inventories 468,824 439,115
Prepaid expenses and other current assets 137,793 119,122 Prepaid expenses and other current assets 160,029 154,183
Deferred tax assets 131,772 136,925 Deferred tax assets 158,593 164,341

Total current assets 2,524,967 1,989,501 Total current assets 2,780,389 2,609,197

Property, plant and equipment, net
Property, plant and equipment, net

1,850,754

1,610,593

Property, plant and equipment, net

2,118,960

1,968,402

Long-term investments Long-term investments 512,181 673,540 Long-term investments 486,135 512,937
Note receivable—related party — 7,290
Goodwill, net 1,299,946 1,298,781
Goodwill Goodwill 1,403,716 1,403,828
Other intangible assets, net Other intangible assets, net 1,389,180 1,492,038 Other intangible assets, net 1,982,735 1,555,652
Deferred tax assets—noncurrent 78,243 —
Deferred tax assets Deferred tax assets 120,707 95,664
Investments in equity securities Investments in equity securities 107,734 66,563 Investments in equity securities 168,301 89,181
Other noncurrent assets Other noncurrent assets 79,296 52,882 Other noncurrent assets 22,110 66,880

Total assets $ 7,842,301 $ 7,191,188 Total assets $ 9,083,053 $ 8,301,741

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: Current liabilities: Current liabilities:
Accounts payable $ 77,823 $ 98,063 Accounts payable $ 121,192 $ 128,380
Accrued expenses 569,559 477,442 Accrued expenses 616,592 645,645
Income taxes payable — 54,853 Income taxes payable 19,567 18,479
Deferred revenue and other income 39,307 14,855 Deferred revenue and other income 21,569 13,277
Current portion of long-term debt and capital lease obligations 6,519 6,226 Current portion of long-term debt and capital lease obligations 696,743 696,625

Total current liabilities 693,208 651,439 Total current liabilities 1,475,663 1,502,406

Long-term debt and capital lease obligations
Long-term debt and capital lease obligations

115,096

119,803

Long-term debt and capital lease obligations

111,144

113,748

Convertible notes 690,000 690,000
Deferred revenue—noncurrent Deferred revenue—noncurrent 5,574 6,675 Deferred revenue—noncurrent 15,536 16,662
Deferred tax liabilities — 10,909
Other noncurrent liabilities Other noncurrent liabilities 54,652 51,651 Other noncurrent liabilities 532,719 55,988

Total liabilities 1,558,530 1,530,477 Total liabilities 2,135,062 1,688,804

Commitments and contingencies
Commitments and contingencies

Commitments and contingencies

Stockholders' equity:
Stockholders' equity:

Stockholders' equity:

Preferred stock, $0.01 par value — — Preferred stock, $0.01 par value — —
Common stock, $0.01 par value 2,635 2,630 Common stock, $0.01 par value 2,670 2,660
Additional paid-in capital 5,193,116 5,106,274 Additional paid-in capital 5,461,714 5,385,154
Notes receivable from stockholders (15,516 ) (15,057 ) Notes receivable from stockholders (15,824 ) (15,670 )
Accumulated earnings 747,816 312,659 Accumulated earnings 971,986 826,715
Accumulated other comprehensive income 355,720 254,205 Accumulated other comprehensive income 527,445 414,078

Total stockholders' equity 6,283,771 5,660,711 Total stockholders' equity 6,947,991 6,612,937

Total liabilities and stockholders' equity $ 7,842,301 $ 7,191,188 Total liabilities and stockholders' equity $ 9,083,053 $ 8,301,741

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

GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited, amounts in thousands)

Nine Months Ended
September 30,

Three Months Ended
March 31,

2007
2006

2008
2007

Cash Flows from Operating Activities: Cash Flows from Operating Activities: Cash Flows from Operating Activities:
Net income $ 401,294 $ 251,437
Reconciliation of net income to cash flows from operating activities: Net income $ 145,271 $ 158,187
Depreciation and amortization 246,556 246,651 Reconciliation of net income to cash flows from operating activities:
Stock-based compensation 146,441 160,219 Depreciation and amortization 91,039 81,919
Provision for bad debts 7,045 6,329 Stock-based compensation 42,346 40,737
Charge for impaired goodwill — 219,245 Provision for bad debts 2,862 2,041
Equity in income (loss) of equity method investments 1,091 (10,630 ) Equity in income of equity method investments (188 ) (5,612 )
Minority interest (3,932 ) (7,741 ) Minority interest (463 ) (3,912 )
Gains on investments in equity securities, net (14,036 ) (75,037 ) Gains on investments in equity securities, net (775 ) (12,788 )
Deferred income tax benefit (81,629 ) (92,815 ) Deferred income tax benefit (24,712 ) (24,328 )
Tax benefit from employee stock-based compensation 12,459 20,751 Tax benefit from employee stock-based compensation 17,599 3,715
Excess tax benefits from stock-based compensation (1,229 ) (8,979 ) Excess tax benefits from stock-based compensation (5,790 ) (264 )
Other 5,585 (2,511 ) Other 2,233 1,049
Increase (decrease) in cash from working capital changes (excluding impact of acquired assets and assumed liabilities): Increase (decrease) in cash from working capital changes (excluding impact of acquired assets and assumed liabilities):
Accounts receivable (103,285 ) (77,211 ) Accounts receivable (57,928 ) (37,806 )
Inventories (32,559 ) (29,092 ) Inventories (1,239 ) (25,048 )
Prepaid expenses and other current assets (16,790 ) (1,519 ) Prepaid expenses and other current assets (6,326 ) (15 )
Income taxes payable (17,419 ) 13,545 Income taxes payable 9,229 29,734
Accounts payable, accrued expenses and deferred revenue 61,235 4,290 Accounts payable, accrued expenses and deferred revenue (53,625 ) (9,803 )

Cash flows from operating activities 610,827 616,932 Cash flows from operating activities 159,533 197,806

Cash Flows from Investing Activities: Cash Flows from Investing Activities:
Cash Flows from Investing Activities:

Purchases of investments (602,451 ) (750,855 ) Purchases of investments (146,862 ) (187,380 )
Sales and maturities of investments 796,612 643,594 Sales and maturities of investments 180,037 219,440
Purchases of equity securities (20,362 ) (6,115 ) Purchases of equity securities (80,699 ) (17,518 )
Proceeds from sales of investments in equity securities 20,712 137,806 Proceeds from sales of investments in equity securities 1,148 16,121
Purchases of property, plant and equipment (281,309 ) (236,917 ) Purchases of property, plant and equipment (121,967 ) (82,982 )
Acquisition of Bioenvision stock (72,229 ) — Distributions from equity method investments 6,595 6,000
Distributions from equity method investments 17,100 12,000 Purchases of other intangible assets (7,046 ) (12,207 )
Payment of note receivable from Dyax Corp. 7,771 370 Other 3,107 603
Purchases of other intangible assets (45,821 ) (67,793 )

Other 658 4,292 Cash flows from investing activities (165,687 ) (57,923 )

Cash flows from investing activities (179,319 ) (263,618 )

Cash Flows from Financing Activities: Cash Flows from Financing Activities:
Cash Flows from Financing Activities:

Proceeds from issuance of common stock 100,276 112,012 Proceeds from issuance of common stock 90,243 27,765
Repurchase of common stock (181,210 ) — Repurchases of our common stock (73,218 ) —
Excess tax benefits from stock-based compensation 1,229 8,979 Excess tax benefits from stock-based compensation 5,790 264
Payments of debt and capital lease obligations (4,606 ) (3,155 ) Payments of debt and capital lease obligations (2,554 ) (2,117 )
Increase (decrease) in bank overdrafts 19,259 (16,285 ) Increase in bank overdrafts 18,549 29,528
Minority interest contributions 4,136 8,265 Minority interest contributions — 4,136
Other 3,525 2,610 Other 959 2,482

Cash flows from financing activities (57,391 ) 112,426 Cash flows from financing activities 39,769 62,058

Effect of exchange rate changes on cash Effect of exchange rate changes on cash (16,423 ) 5,187
Effect of exchange rate changes on cash

(17,829
)

(6,346
)

Increase in cash and cash equivalents Increase in cash and cash equivalents 357,694 470,927 Increase in cash and cash equivalents 15,786 195,595
Cash and cash equivalents at beginning of period Cash and cash equivalents at beginning of period 492,170 291,960 Cash and cash equivalents at beginning of period 867,012 492,170

Cash and cash equivalents at end of period Cash and cash equivalents at end of period $ 849,864 $ 762,887 Cash and cash equivalents at end of period $ 882,798 $ 687,765

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

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements
1.    Description of Business
        We are a global biotechnology company dedicated to making a major impact on the lives of people with serious diseases. Our broad product and service portfolio is focused on rare disorders, renal diseases, orthopaedics, organ transplant, ~~and~~ diagnostic and predictive ~~testing.~~testing, and cancer. We are organized into ~~five~~six financial reporting units, which we also consider to be our reporting segments:
•
Renal, which develops, manufactures and distributes products that treat patients suffering from renal diseases, including chronic renal failure. The unit derives substantially all of its revenue from sales of ~~Renagel~~Renagel/Renvela (including sales of bulk sevelamer) and Hectorol;

•
Therapeutics, which develops, manufactures and distributes therapeutic products, with an expanding focus on products to treat patients suffering from genetic diseases and other chronic debilitating diseases, including a family of diseases known as lysosomal storage disorders, or LSDs, and other specialty therapeutics, such as Thyrogen. The unit derives substantially all of its revenue from sales of Cerezyme, Fabrazyme, Myozyme, Aldurazyme and Thyrogen;

•
Transplant, which develops, manufactures and distributes therapeutic products that address pre-transplantation, prevention and treatment of graft rejection in organ transplantation and other hematologic and auto-immune disorders. The unit derives substantially all of its revenue from sales of Thymoglobulin;

•
Biosurgery, which develops, manufactures and distributes biotherapeutics and biomaterial-based products, with an emphasis on products that meet medical needs in the orthopaedics and broader surgical areas. The unit derives substantially all of its revenue from sales of Synvisc, the Sepra line of products, Carticel and Matrix-induced Autologous Chondrocyte Implantation, or MACI; ~~and~~

•
Genetics, which provides testing services for the oncology, prenatal and reproductive ~~markets.~~markets; and

•
Oncology, which develops, manufactures and distributes products for the treatment of cancer, with a focus on antibody- and small molecule-based therapies. The unit derives substantially all of its revenue from sales and royalties received on sales of Campath and Clolar and from the reimbursement of Campath development expenses.
        We report the activities of our diagnostic products, ~~oncology,~~ bulk pharmaceuticals and cardiovascular business units under the caption "Other." We report our corporate, general and administrative operations and corporate science activities under the caption "Corporate."
        Effective January 1, 2008, as a result of changes in how we review our business, certain general and administrative expenses, which were formerly allocated amongst our reporting segments and Other, are now allocated to Corporate.
        As a result of our acquisition of Bioenvision in October 2007, our Oncology business unit, which was formerly reported combined with "Other," now meets the criteria for disclosure as a separate reporting segment. We have revised our 2007 segment disclosures to conform to our 2008 presentation.

GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
2.    Basis of Presentation and Significant Accounting Policies
Basis of Presentation
        Our unaudited, consolidated financial statements for each period include the statements of operations and comprehensive income, balance sheets and statements of cash flows for our operations taken as a whole. We have eliminated all intercompany items and transactions in consolidation. ~~We have reclassified certain 2006 data to conform to our 2007 presentation.~~ We prepare our unaudited, consolidated financial statements following the requirements of the SEC for interim reporting. As permitted under these rules, we condense or omit certain footnotes and other financial information that are normally required by accounting principles generally accepted in the United States.
        These financial statements include all normal and recurring adjustments that we consider necessary for the fair presentation of our financial position and results of operations. Since these are interim financial statements, you should also read our audited, consolidated financial statements and notes included in our ~~2006~~2007 Form 10-K. Revenues, expenses, assets and liabilities can vary from quarter to quarter. Therefore, the results and trends in these interim financial statements may not be indicative of results for future periods.

        Our unaudited, consolidated financial statements for each period include the accounts of our ~~wholly-owned~~wholly owned and ~~majority-owned~~majority owned subsidiaries. As a result of our adoption of FASB Interpretation No., or FIN, 46R, ~~"Consolidation~~"Consolidation of Variable Interest Entities," we also consolidate certain variable interest entities for which we are the primary beneficiary. For consolidated subsidiaries in which we have less than a 100% interest, we record minority interest in our consolidated statements of operations for the ownership interest of the minority owner. We use the equity method of accounting to account for our investments in entities in which we have a substantial ownership interest (20% to 50%) which do not fall in the scope of FIN 46R, or over which we exercise significant influence. Our consolidated net income includes our share of the earnings or losses of these entities.
~~Income Taxes~~
        Effective January 1, 2007, we adopted the provisions of FIN 48, "Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109," which clarifies the accounting for income tax positions by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on the derecognition of previously recognized deferred tax items, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. Under FIN 48, we recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the tax position. The tax benefits recognized in our financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. For more information regarding the impact the adoption of FIN 48 had on our results of operations, financial condition and liquidity, see Note 13., "(Provision for) Benefit from Income Taxes," included in this report.
Recent Accounting Pronouncements
~~FAS 157, "Fair Value Measurements."~~ In September 2006, the FASB issued FAS 157, "Fair Value Measurements," which provides enhanced guidance for using fair value to measure assets and liabilities. FAS 157 establishes a common definition of fair value, provides a framework for measuring fair value under accounting principles generally accepted in the United States and expands disclosure requirements regarding fair value measurements. FAS 157 will be effective for us as of January 1, 2008. We are currently evaluating the impact, if any, the adoption of FAS 157 will have on our financial position and results of operations.
FAS 159, "The Fair Value Option for Financial Assets and Financial ~~Liabilities—~~Liabilities, Including an Amendment of FASB Statement No. 115."    ~~In February 2007, the FASB issued~~Effective January 1, 2008, we adopted FAS 159, "The Fair Value Option for Financial Assets and Financial ~~Liabilities—~~Liabilities, Including an Amendment of FASB Statement No. 115," which permits, but does not require, entities to measure certain financial instruments and other assets and liabilities at fair value on an instrument-by-instrument basis. Unrealized gains and losses on items for which the fair value option has been elected should be recognized in earnings at each subsequent reporting date. In adopting FAS 159, we did not elect to measure any new assets or liabilities at their respective fair values and, therefore, the adoption of FAS 159 did not have an impact on our results of operations and financial position.
        EITF Issue No. 07-1, "Accounting for Collaborative Arrangements."    In December 2007, the Emerging Issues Task Force, or EITF, of the FASB reached a consensus on Issue No. 07-1, "Accounting for Collaborative Arrangements." The EITF concluded on the definition of a collaborative arrangement and that revenues and costs incurred with third parties in connection with collaborative arrangements would be presented gross or net based on the criteria in EITF 99-19 and other accounting literature. Companies are also required to disclose the nature and purpose of collaborative arrangements along with the accounting policies and the classification and amounts of significant financial-statement amounts related to the arrangements. EITF 07-1 will bebecome effective for us January 1, 2009 and will be applied retrospectively to all periods presented for all collaborative arrangements existing as of ~~January 1, 2008~~the

GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
2.    Basis of Presentation and ~~cannot be adopted early unless FAS 157 is also adopted.~~Significant Accounting Policies (Continued)

effective date. We are ~~currently~~ evaluating the impact, if any, ~~the adoption of FAS 159 may~~this standard will have on our consolidated financial ~~position and results of operations.~~statements.

EITF Issue No. 07-3, "~~Accounting~~ "Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities.""    In June 2007, the FASB ratified the EITF consensus reached in EITF Issue No. 07-3, "Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities," which provides guidance for nonrefundable prepayments for goods or services that will be used or rendered for future research and development activities and directs that such payments should be deferred and capitalized. Such amounts should be recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered. EITF 07-3 iswas effective for us beginning January 1, 2008 and ~~will be~~we applied it prospectively to new contracts we ~~enter~~entered into on or after that date. ~~Earlier application is~~The implementation of this standard did not ~~permitted. We are currently evaluating the~~have a material impact ~~if any, the adoption of EITF No. 07-3 will have~~ on our financial position, results of operations or cash flows.
~~3. Stockholders' Equity~~        FAS 141 (revised 2007), "Business Combinations."    In December 2007, the FASB issued FAS 141 (revised 2007), "Business Combinations," or FAS 141R, which replaces FAS 141, "Business Combinations." FAS 141R retains the underlying concepts of FAS 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting but changes a number of significant aspects of applying this method. Acquisition costs will generally be expensed as incurred; noncontrolling interests will be valued at fair value at the acquisition date; IPR&D will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. FAS 141R is effective for us on a prospective basis for all business combinations for which the acquisition date is on or after January 1, 2009. Early adoption is not permitted. We are currently evaluating the effects, if any, that FAS 141R will have on our consolidated financial statements.
        FAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51."    In December 2007, the FASB issued FAS 160, "Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51," which establishes new accounting and reporting standards that require the ownership interests in subsidiaries not held by the parent to be clearly identified, labeled and presented in the consolidated statement of financial position within equity, but separate from the parent's equity. FAS 160 also requires the amount of consolidated net income attributable to the parent and to the non-controlling interest, commonly referred to as the minority interest, to be clearly identified and presented on the face of the consolidated statement of income. Changes in a parent's ownership interest while the parent retains its controlling financial interest must be accounted for consistently, and when a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary must be initially measured at fair value. The gain or loss on the deconsolidation of the subsidiary is measured using the fair value of any non-controlling equity investment. FAS 160 also requires entities to provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. FAS 160 is effective for us January 1, 2009 and adoption is prospective only; however, upon adoption, presentation and disclosure requirements described above must be applied retrospectively for all periods presented in our consolidated financial statements. We are currently evaluating the effects, if any, that FAS 160 will have on our consolidated financial statements.

GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
2.    Basis of Presentation and Significant Accounting Policies (Continued)
        FAS No. 161, "Disclosures About Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133."    In March 2008, the FASB issued FAS 161, "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133," which amends and expands the disclosure requirements of FAS 133, "Accounting for Derivative Instruments and Hedging Activities." FAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. FAS 161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. We are currently evaluating the effects, if any, that FAS 161 will have on our consolidated financial statements.
3.    Fair Value Measurements
        A significant number of our financial instruments are carried at fair value. These assets and liabilities include:
•
fixed income investments;

•
derivatives; and

•
investments in publicly-traded equity securities.

~~Stock Repurchase~~Fair Value Measurement—Definition and Hierarchy
        Effective January 1, 2008, we implemented FAS 157, "Fair Value Measurements," for our financial assets and liabilities that are re-measured and reported at fair value at each reporting period. The adoption of FAS 157 to our financial assets and liabilities did not have a material impact on our financial position and results of operations.
        FAS 157 provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. FAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date. In ~~May 2007,~~determining fair value, FAS 157 permits the use of various valuation approaches, including market, income and cost approaches. FAS 157 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available.
        The fair value hierarchy is broken down into three levels based on the reliability of inputs. We have categorized our ~~board~~fixed income, derivatives and equity securities within the hierarchy as follows:
•
Level 1—These valuations are based on a "market approach" using quoted prices in active markets for identical assets. Valuations of ~~directors authorized~~these products do not require a ~~stock repurchase program~~significant degree of judgment. Assets utilizing Level 1 inputs include money market funds, U.S. government securities, bank deposits and exchange-traded equity securities;

•
Level 2—These valuations are based primarily on a "market approach" using quoted prices in markets that are not very active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Fixed income assets utilizing Level 2 inputs include U.S. agency securities, including direct issuance bonds and mortgage-backed securities, asset-backed

GENZYME CORPORATION AND SUBSIDIARIES
Notes to ~~repurchase up~~Unaudited, Consolidated Financial Statements (Continued)
3.    Fair Value Measurements (Continued)
securities, corporate bonds and commercial paper. Derivative securities utilizing Level 2 inputs include forward foreign-exchange contracts; and
•
Level 3—These valuations are based on various approaches using inputs that are unobservable and significant to ~~an aggregate maximum amount~~the overall fair value measurement. Certain assets are classified within Level 3 of ~~$1.5 billion~~the fair value hierarchy because they trade infrequently and, therefore, have little or ~~20,000,000 shares~~no transparency. We currently have no assets or liabilities that are valued with Level 3 inputs because all our fixed income and equity securities, derivatives and warrants have high or reasonable levels of price transparency.
Valuation Techniques
        Fair value is a market-based measure considered from the perspective of a market participant who would buy the asset or assume the liability rather than our own specific measure. All of our ~~outstanding common stock over~~fixed income securities are priced by our custodial agent and nationally known pricing vendors, using a variety of daily data sources, largely readily-available market data and broker quotes. To validate these prices, we compare the ~~next three years, beginning~~fair market values of our fixed income investments using market data from observable and corroborated sources. We also perform the fair value calculations for our derivative and equity securities using market data from observable and corroborated sources. In periods of market inactivity, the observability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2 or from Level 2 to Level 3.

GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
3.    Fair Value Measurements (Continued)
        The following table sets forth our financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2008 (amounts in ~~June 2007. The repurchases~~thousands):
Description
Total
Level 1
Level 2
Level 3
Fixed income investments(1): Cash equivalents: Money market funds $ 552,031 $ 552,031 $ — $ —

Short-term investments:

U.S. Treasury notes

—

—

—

—
U.S. agency notes 15,821 — 15,821 —
Corporate notes—global 53,274 — 53,274 —
Corporate commercial paper 9,955 — 9,955 —

Total 79,050 — 79,050 —

Long-term investments:

U.S. Treasury notes

117,267

117,267

—

—
U.S. agency notes 156,829 — 156,829 —
Corporate notes—global 212,039 — 212,039 —

Total 486,135 117,267 368,868 —

Total fixed
income
investments 1,117,216 669,298 447,918 —

Derivatives:

Foreign exchange contracts(2)

(28,894
)

—

(28,894
)

—

Equity holdings:

Publicly-traded equity securities(1)

63,296

63,296

—

—

Total assets and (liabilities) at fair value $ 1,151,618 $ 732,594 $ 419,024 $ —

(1)
Changes in fair value of our fixed income investments and investments in publicly-traded equity securities are ~~being made from time to time~~recorded in accumulated other comprehensive income (loss), a component of stockholders' equity, in our consolidated balance sheets; and can be effectuated through open market purchases, privately negotiated transactions, transactions structured through investment banking institutions, or by other means, subject to management's discretion and as permitted by securities laws and other legal requirements.

(2)
As of ~~September 30, 2007, we have repurchased a total of 2,808,738 shares~~March 31, 2008, the aggregate fair value of our ~~common stock at~~foreign exchange contracts was an ~~average price~~unrealized loss of ~~$64.50 per share for a total of $181.2~~$28.9 million, of cash, including fees. In July 2004, the Massachusetts Business Corporation Act, or MBCA, became effective and eliminated the concept of treasury shares. Under the MBCA, shares repurchased by Massachusetts corporations constitute authorized but unissued shares. As result,which we recorded ~~the repurchases~~as an increase to accrued expenses in our consolidated balance sheet as of ~~September 30, 2007,~~that date. Changes in fair value of our forward foreign exchange contracts are recorded in unrealized foreign exchange gains and losses, a component of selling, general and administrative expenses in our consolidated statements of operations.
        In accordance with the provisions of FASB Staff Position, or FSP, No. FAS 157-2, "Effective Date of FASB Statement No. 157," we elected to defer implementation of FAS 157, as ~~a reduction~~it relates to our ~~common stock account~~non-financial assets and non-financial liabilities that are recognized and disclosed at fair value in our consolidated financial statements on a nonrecurring basis, until January 1, 2009. We are evaluating the impact, if any, the adoption of FAS 157, for those assets and liabilities within the ~~par value~~scope of ~~the repurchased shares and~~FSP No. FAS 157-2, will have on our financial position, results of operations or liquidity. We did not have any non-financial assets or non-financial liabilities that would be recognized or disclosed on a recurring basis as ~~a reduction to our additional paid-in capital account.~~of March 31, 2008.

GENZYME CORPORATION AND SUBSIDIARIES
~~Equity Plans~~Notes to Unaudited, Consolidated Financial Statements (Continued)
3.    Fair Value Measurements (Continued)
        AtThe carrying amounts reflected in our annual meeting of shareholders held on May 24, 2007, which we refer to as our 2007 Annual Meeting, our shareholders approved the merger of our 1997 Equity Incentive Plan into our 2004 Equity Incentive Planconsolidated balance sheets for cash, accounts receivable, other current assets, accounts payable and authorized an increase of 3,500,000 shares for issuance under our 2004 Equity Incentive Plan. Our 2004 Equity Incentive Plan authorizes the issuance of stock options, restricted stock and restricted stock units, or RSUs. We began issuing RSUs under our 2004 Equity Incentive Plan in connection with a general grant to employees in May 2007.
        ~~Our 1998 Director Stock Option Plan was~~accrued expenses approximate fair value due to expire in March 2008. On February 28, 2007, our board of directors approved our 2007 Director Equity Plan which was created to amend, restate and replace our 1998 Director Stock Option Plan. At our 2007 Annual Meeting, our shareholders also approved the 2007 Director Equity Plan. Similar to our 2004 Equity Incentive Plan, our 2007 Director Equity Plan authorizes the issuance of stock options, restricted stock and RSUs to our directors.their short-term maturities.

~~Employee Stock Purchase Plan~~
        ~~At our 2007 Annual Meeting, our shareholders approved an increase of 1,500,000 shares authorized for issuance under our 1999 Employee Stock Purchase Plan.~~
~~Stock-Based Compensation Expense, Net of Estimated Forfeitures~~
        ~~We allocate pre-tax stock-based compensation expense, net of estimated forfeitures, based on the functional cost center of each employee as follows (amounts in thousands, except per share amounts):~~

Three Months Ended
September 30,
Nine Months Ended
September 30,

2007
2006
2007
2006

Pre-tax stock-based compensation expense, net of estimated forfeitures charged to:
Cost of products and services sold(1) $ (5,779 ) $ (5,663 ) $ (18,540 ) $ (12,893 )
Selling, general and administrative expense (25,091 ) (24,421 ) (82,838 ) (96,560 )
Research and development expense (13,518 ) (14,556 ) (44,973 ) (50,682 )

Total (44,388 ) (44,640 ) (146,351 ) (160,135 )
Less: tax benefit from stock options 14,093 14,312 45,228 52,237

Total stock-based compensation expense, net of tax $ (30,295 ) $ (30,328 ) $ (101,123 ) $ (107,898 )

Effect per common share:
Basic $ (0.12 ) $ (0.12 ) $ (0.38 ) $ (0.41 )

Diluted $ (0.11 ) $ (0.11 ) $ (0.36 ) $ (0.39 )

~~(1)~~
We also capitalized the following amounts of stock-based compensation expense to inventory, all of which is attributable to participating employees that support our manufacturing operations (amounts in thousands):

Three Months Ended
September 30,
Nine Months Ended
September 30,

2007
2006
2007
2006
Stock-based compensation expense capitalized to inventory $ 2,484 $ 3,377 $ 10,323 $ 11,640
        ~~In July 2006, we began amortizing stock-based compensation expense capitalized to inventory based on inventory turns.~~
        At September 30, 2007, there was $292.6 million of pre-tax stock-based compensation expense, net of estimated forfeitures, related to unvested awards not yet recognized which are expected to be recognized over a weighted average period of 2.3 years.

4.    Net Income Per Share
        The following table sets forth our computation of basic and diluted net income per share (amounts in thousands, except per share amounts):

Three Months Ended
September 30,
Nine Months Ended
September 30,

Three Months Ended
March 31,

2007
2006
2007
2006

2008
2007
Net income—basic Net income—basic $ 159,313 $ 15,966 $ 401,294 $ 251,437 Net income—basic $ 145,271 $ 158,187
Effect of dilutive securities: Effect of dilutive securities: Effect of dilutive securities:
Interest expense and debt fee amortization, net of tax, related to our 1.25% convertible senior notes 1,886 1,874 5,658 5,622 Interest expense and debt fee amortization, net of tax, related to our 1.25% convertible senior notes 1,886 1,886

Net income—diluted Net income—diluted $ 161,199 $ 17,840 $ 406,952 $ 257,059 Net income—diluted $ 147,157 $ 160,073

Shares used in computing net income per common
share—basic Shares used in computing net income per common
share—basic 262,775 261,541 263,387 260,565
Shares used in computing net income per common share—basic

267,276

263,476
Effect of dilutive securities: Effect of dilutive securities: Effect of dilutive securities:
Shares issuable upon the assumed conversion of our 1.25% convertible senior notes 9,686 9,686 9,686 9,686 Shares issuable upon the assumed conversion of our 1.25% convertible senior notes 9,686 9,686
Stock options(1) 6,584 7,033 6,747 6,868 Stock options(1) 7,791 6,751
Restricted stock units(2) 150 — 67 — Restricted stock units(2) 443 —
Warrants and stock purchase rights 11 11 11 11 Warrants and stock purchase rights 12 11

Dilutive potential common shares 16,431 16,730 16,511 16,565 Dilutive potential common shares 17,932 16,448

Shares used in computing net income per common
share—diluted(1,2) Shares used in computing net income per common
share—diluted(1,2) 279,206 278,271 279,898 277,130 Shares used in computing net income per common share—diluted(1,2) 285,208 279,924

Net income per common share: Net income per common share:
Net income per common share:

Basic $ 0.61 $ 0.06 $ 1.52 $ 0.96 Basic $ 0.54 $ 0.60

Diluted $ 0.58 $ 0.06 $ 1.45 $ 0.93 Diluted $ 0.52 $ 0.57

(1)
We did not include the securities described in the following table in the computation of diluted earnings per share because these securities were anti-dilutive during the corresponding period (amounts in thousands):

Three Months Ended
September 30,
Nine Months Ended
September 30,

2007
2006
2007
2006
Shares issuable upon exercise of outstanding options 17,689 14,278 15,408 11,199

Three Months Ended
March 31,

2008
2007
Shares issuable upon exercise of outstanding options 1,982 13,483
(2)
We began issuing restricted stock units, or RSUs, under our 2004 Equity Incentive Plan in May 2007, in connection with aour general grant ~~to employees in May 2007.~~program.

GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
5.    Mergers and Acquisitions
~~Pending Acquisition of the Diagnostics Division of Diagnostic Chemicals Limited~~
        On November 2, 2007, we entered into an agreement with DCL, a privately-held diagnostics and biopharmaceutical company based in Charlottetown, Prince Edward Island, Canada, to acquire DCL's diagnostics division, including DCL's line of over 50 formulated clinical chemistry reagents and its diagnostics operations in Prince Edward Island, Canada and Connecticut, for an aggregate purchase price of approximately $53 million Canadian dollars, or approximately $57 million U.S. dollars (based on the November 2, 2007 spot rate for the Canadian dollar), in cash. We expect to close the transaction in December 2007.
~~Acquisition of~~ Bioenvision
        ~~On May 29,~~Effective October 23, 2007, we ~~entered into an agreement~~completed our acquisition of Bioenvision through the culmination of a two step process consisting of a tender offer completed in July 2007, and ~~plan~~a merger approved in October 2007. We paid gross consideration of ~~merger with~~$349.9 million in cash, including $345.4 million for the outstanding shares of Bioenvision ~~a publicly-traded biopharmaceutical company based in New York City~~Common and ~~Edinburgh, Scotland, and Wichita Bio Corporation, one of our wholly-owned subsidiaries, to acquire Bioenvision in an all-cash transaction valued at $11.20 per outstanding share of Bioenvision~~ Series A Preferred Stock ~~(plus accrued but unpaid dividends)~~ and ~~$5.60 per outstanding share~~options to purchase shares of Bioenvision Common Stock, orand approximately ~~$345~~$5 million ~~in aggregate.~~for acquisition costs.
        Bioenvision iswas focused on the acquisition, development and marketing of compounds and technologies for the treatment of cancer, autoimmune disease and infection. Effective October 23, 2007, we completed the acquisition of Bioenvision. This acquisition was completed through a two step process consisting of a tender offer completed in July 2007, and a merger approved in October 2007.
The acquisition of Bioenvision provides us with the exclusive, worldwide rights to clofarabine. We currently market clofarabine in the United States and Canada under the brand name Clolar for relapsed and refractory pediatric acute lymphoblastic leukemia, or ALL, patients. In Europe, we co-developed clofarabine with Bioenvision and Bioenvision has been marketing the product under the brand name Evoltra, also for the treatment of relapsed and refractory pediatric ALL patients. We and Bioenvision have been developing clofarabine for diseases with significantly larger patient populations, including use as a first-line therapy for the treatment of adult acute myeloid leukemia, or AML. Clofarabine has been granted orphan drug status for ALL and AML in both the United States and European Union.
~~Tender Offer~~
        On July 10, 2007, we completed the tender offer and purchased 2,250,000 shares of Bioenvision Series A Preferred Stock for $25.2 million, which we recorded as a component of investments in equity securities, and 8,398,098 shares of Bioenvision Common Stock for $47.0 million, which we recorded as a component of other noncurrent assets in our consolidated balance sheet. As a result of the tender offer, we acquired approximately 22% of the then outstanding shares of Bioenvision Common Stock on an as-converted basis, including 100% of the outstanding Bioenvision Series A Preferred Stock.
        We accounted for our investments in Bioenvision Series A Preferred Stock and Bioenvision Common Stock using two different methods. In the third quarter of 2007, we accounted for our investment in Bioenvision Series A Preferred Stock under the cost method of accounting because these shares did not qualify as similar or substantially similar to common stock (in-substance common stock) under the guidance of EITF Issue No. 02-14, "Whether the Equity Method of Accounting Applies When an Investor Does Not Have an Investment in Voting Stock of an Investee but Exercises

Significant Influence through Other Means." Our initial investments in Bioenvision Common Stock and Bioenvision Series A Preferred Stock gave us significant influence over Bioenvision and, as a result, we accounted for our investment in Bioenvision Common Stock under the equity method of accounting. Accordingly, in July 2007, we recorded our initial $47.0 million investment in Bioenvision Common Stock as a single amount in other noncurrent assets in our consolidated balance sheet. Of this amount, we attributed $7.1 million to our 15% proportional share of the assets and liabilities of Bioenvision and $39.9 million, representing the excess of the purchase price over our proportional share of the net assets of Bioenvision, to the underlying intangible assets, IPR&D and goodwill based on their fair values, including $16.8 million, net of tax, to intangible assets, $19.1 million to IPR&D and $4.0 million to goodwill. Equity in income (loss) of equity method investments for the three and nine months ended September 30, 2007 reflects a total of $20.5 million of charges related to our initial investment in Bioenvision Common Stock, including a $19.1 million charge for IPR&D and a total of $1.4 million of charges for the period from July 10, 2007 through September 30, 2007, of which $1.0 million represents our portion of the losses of Bioenvision for that period and $0.4 million represents amortization expense, net of tax, related to the value assigned to technology and other intangible assets. As of September 30, 2007, other noncurrent assets in our consolidated balance sheet includes a net balance of $26.5 million for our initial investment in Bioenvision Common Stock including $47.0 million for the cash consideration we paid, which was offset by the $20.5 million of charges described above.
~~Stockholder Approval of the Merger~~
        On October 22, 2007, a special meeting of the Bioenvision stockholders was held to seek approval for the merger. Holders of a majority of the issued and outstanding shares of Bioenvision Common Stock and Bioenvision Series A Preferred Stock, voting together as a single class on an as converted basis, approved the merger. On October 23, 2007, we paid approximately $245 million in cash consideration to the former Bioenvision stockholders and Bioenvision Common Stock ceased trading and was delisted from The Nasdaq Stock Market, Inc., or NASDAQ. In the fourth quarter of 2007, we will pay approximately $11 million of cash for the outstanding options to purchase shares of Bioenvision Common Stock. The full purchase accounting for our acquisition of Bioenvision, including the impact of our merger in October 2007, will be reflected in our consolidated financial statements as of December 31, 2007 and for the year ended December 31, 2007.
        In connection with the merger, holders of 2,880,000 shares of Bioenvision Common Stock, representing less than 5% of the outstanding shares of Bioenvision Common Stock on an as-converted basis immediately before the merger became effective, submitted written demands for appraisal of their shares and have, as a result, elected not to accept the $5.60 per share merger consideration. We refer to these stockholders as dissenting stockholders.
~~Acquisition of AnorMED~~
        In November 2006, we acquired AnorMED, a publicly-held chemical-based biopharmaceutical company based in Langley, British Columbia, Canada, with a focus on the discovery, development and commercialization of new therapeutic products in the area of hematology, oncology and human immunodeficiency virus, or HIV. We paid gross consideration of $589.2 million in cash, including $584.2 million for the shares of AnorMED's common stock outstanding on the date of acquisition and $5.0 million for acquisition costs. Net consideration was $569.0 million as we acquired AnorMED's cash and cash equivalents totaling $20.2 million. We accounted for the acquisition as a business combination

~~and accordingly, included AnorMED's results of operations in our consolidated statements of operations from November 7, 2006, the date of acquisition.~~
        The purchase price ~~was allocated to the estimated fair value of the acquired tangible and intangible assets and assumed liabilities as follows (amounts in thousands, except share data):~~
Purchase of 43,272,085 shares of AnorMED common stock $ 584,173
Acquisition costs 5,000

Total purchase price $ 589,173

Cash and cash equivalents

$
20,220

Other current assets 6,340
Property, plant and equipment 758
Goodwill 31,703
Other intangible assets (to be amortized over 10 years) 3,500
In-process research and development 552,900
Deferred tax assets—noncurrent 27,380
Other noncurrent assets 573
Assumed liabilities:
Deferred tax liability (25,288 )
Liabilities for exit activities (7,733 )
Other liabilities (21,180 )

Allocated purchase price $ 589,173

        ~~The allocation of the purchase price was adjusted in 2007 to:~~
•
~~write off $2.1 million of fixed assets associated with the acquisition;~~

•
~~revise the estimated liabilities related to exit activities by $1.2 million; and~~

•
~~adjust the deferred taxes by $(0.7) million.~~
        ~~The purchase price, as adjusted,~~ was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed amounted to ~~$31.7~~$85.3 million, which was allocated to goodwill. We expect that substantially all of the amount allocated to goodwill will be deductible for tax purposes.
        The allocation of ~~the~~ purchase price remains subject to potential adjustments, including adjustments for liabilities associated with certain exit ~~activities~~ and tax restructuring activities. We recorded immaterial adjustments to the purchase price in the first quarter of 2008.
Purchase of In-Process Research and Development
        In connection with ~~five~~certain of our acquisitions we completed between January 1, ~~2004~~2006 and ~~September 30,~~December 31, 2007, we have acquired various IPR&D projects. Substantial additional research and development ~~costs~~ will be required prior to any of our acquired IPR&D programs and technology platforms reaching technological feasibility. In addition, once research is completed, each product candidate acquired will need to complete a series of clinical trials and receive FDA or other regulatory approvals prior to

commercialization. Our current estimates of the time and investment required to develop these products and technologies may change depending on the different applications that we may choose to pursue. We cannot give assurances that these programs will ever reach technological feasibility or develop into products that can be marketed profitably. In addition, we cannot guarantee that we will be able to develop and commercialize products before our competitors develop and commercialize products for the same indications. If products based on our acquired IPR&D programs and technology platforms do not become commercially viable, our results of operations could be materially adversely affected. We did not complete any acquisitions in the three months ended March 31, 2008.

GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
5.    Mergers and Acquisitions (Continued)
        The following table sets forth the significant IPR&D projects for companies and certain assets we have acquired between January 1, ~~2004~~2006 and ~~September 30, 2007~~March 31, 2008 (amounts in millions):
Company/Assets Acquired
Purchase
Price
IPR&D(1)
Programs Acquired
Discount Rate
Used in
Estimating
Cash
Flows(1)
Year of
Expected
Launch
AnorMED (2006) $ 589.2 $ 526.8 Mozobil (stem cell transplant) 15% 2009-2014
26.1 AMD070 (HIV)(2) 15% —

$ 552.9

Avigen, Inc. (2005)

$
12.0

$
7.0

AV201 (Parkinson's disease)

N/A

2016

Bone Care International, Inc. (2005)

$
712.3

$
12.7

LR-103 (secondary

hyperparathyroidism)(3) 25% —

Verigen (2005)

$
12.7

$
9.5

MACI (cartilage repair)

24%

2012-2014

ILEX Oncology, Inc. (2004)

$
1,080.3

$
96.9

Campath(4)

11%

2009-2011
113.4 Clolar(4) 12% 2008-2011
44.2 Tasidotin 16% 2011-2014

$ 254.5

Company/Assets Acquired
Purchase
Price
IPR&D(1)
Programs Acquired
Discount Rate
Used in
Estimating
Cash Flows(1)
Year of
Expected
Launch
Bioenvision (2007) $ 349.9 $ 125.5 Clofarabine (rights outside North America)(2,3) 17 % 2008-2010

AnorMED Inc. (2006)

$
589.2

$

526.8
26.1

Mozobil (stem cell transplant)
AMD070 (HIV)(4)

15
15
%
%
2009-2014
—

$ 552.9

(1)
Management assumes responsibility for determining the valuation of the acquired IPR&D projects. The fair value assigned to IPR&D for each acquisition is estimated by discounting, to present value, the cash flows expected once the acquired projects have reached technological feasibility. The cash flows are probability-adjusted to reflect the risks of advancement through the product approval process. In estimating the future cash flows, we also considered the 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.

(2)
IPR&D charges totaled $125.5 million related to the acquisition of Bioenvision, of which $106.4 million was charged to IPR&D and $19.1 million was charged to equity in income of equity method investments.

(3)
Clolar is marketed for the treatment of relapsed and refractory pediatric acute lymphoblastic leukemia, or ALL. The IPR&D projects for Clolar are related to the development of the product for the treatment of other medical issues.

(4)
Year of expected launch is not provided for AMD070 at this time because we are assessing our future plans for this program.

~~(3)~~
Year of expected launch is not provided for LR-103 at this time because this program is in its early stages and we are evaluating several potential applications for LR-103 to determine which application we will pursue. Therefore, the year of expected launch cannot be determined.

~~(4)~~
Campath is currently marketed for the treatment ofB-cell chronic lymphocytic leukemia and Clolar is marketed for the treatment of relapsed and refractory pediatric ALL. The IPR&D projects for Campath and Clolar are related to the development of these products for the treatment of other medical issues.
        In addition, we account for our investment in Bioenvision Common Stock under the equity method of accounting and, accordingly, we recorded a charge of $19.1 million in equity in income (loss) of equity method investments in our consolidated statement of operations for the three and nine months ended September 2007 for the portion of the purchase price for this investment that we allocated to IPR&D. The full purchase accounting for our acquisition of Bioenvision, including the impact of our merger in October 2007, will be reflected in our consolidated financial statements as of December 31, 2007 and for the year ended December 31, 2007.

Exit Activities
        In connection with several of our acquisitions, we initiated integration plans to consolidate and restructure certain functions and operations, including the relocation and termination of certain personnel of these acquired entities and the closure of certain of the acquired entities' leased facilities. These costs have been recognized as liabilities ~~assumed in connection with the acquisition of these entities~~ in accordance with EITF Issue No. 95-3, "Recognition of Liabilities in Connection with a Purchase or Business Combination," and are subject to potential

GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
5.    Mergers and Acquisitions (Continued)

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

Employee
Related
Benefits
Closure of
Leased
Facilities
Other Exit
Activities
Total
Exit
Activities

Balance at December 31, 2005 $ 2,249 $ 199 $ 8,117 $ 10,565
Acquisition(1) 6,478 — — 6,478
Revision of estimates (165 ) (132 ) (750 ) (1,047 )
Payments (2,457 ) (43 ) (7,367 ) (9,867 )

Balance at December 31, 2006 6,105 24 — 6,129
Revision of estimates (75 ) 1,307 — 1,232
Payments (4,870 ) — — (4,870 )

Balance at September 30, 2007 $ 1,160 $ 1,331 $ — $ 2,491

Employee
Related
Benefits
Closure of
Leased
Facilities
Other
Exit
Activities
Total
Exit
Activities

Balance at December 31, 2006(1) $ 6,105 $ 24 $ — $ 6,129
Acquisition(2) 2,601 — 70 2,671
Revision of estimates(1) (931 ) 2,593 — 1,662
Payments (5,602 ) (453 ) — (6,055 )

Balance at December 31, 2007 2,173 2,164 70 4,407
Payments (1,416 ) (155 ) (70 ) (1,641 )

Balance at March 31, 2008 $ 757 $ 2,009 $ — $ 2,766

(1)
We expect to pay employee ~~related~~ benefits related to ~~the~~our acquisition of AnorMED through 2008 and payments related to the closing of the leased facility through 2012.

(2)
We expect to pay employee-related benefits related to our acquisition of Bioenvision through June 2008.
Pro Forma Financial Summary
        The following pro forma financial summary is presented as if the acquisition of ~~AnorMED was~~Bioenvision had been completed as of January 1, ~~2006.~~2007. These pro forma combined results are not necessarily indicative of the actual results that would have occurred had the acquisition been consummated on that date, or of the future operations of the combined entities. Material nonrecurring charges related to the acquisition of ~~AnorMED,~~Bioenvision, such as IPR&D charges of ~~$552.9~~$125.5 million, are included in the following pro forma financial summary as of January 1, ~~2006~~2007 (amounts in thousands, except per share amounts):

Three Months Ended
September 30, 2006
Nine Months Ended
September 30, 2006

Three Months Ended
March 31, 2007
Total revenues Total revenues $ 823,078 $ 2,347,514 Total revenues $ 885,305

Net income (loss) $ 17,783 $ (168,271 )
Net income Net income $ 40,773

Net income (loss) per share:
Net income per share: Net income per share:
Basic $ 0.07 $ (0.65 ) Basic $ 0.15

Diluted $ 0.07 $ (0.65 ) Diluted $ 0.15

Weighted average shares outstanding: Weighted average shares outstanding: Weighted average shares outstanding:
Basic 261,541 260,565 Basic 263,476

Diluted 278,271 260,565 Diluted 279,924

GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
6.    Inventories

September 30,
2007
December 31,
2006

March 31,
2008
December 31,
2007

(Amounts in thousands)

(Amounts in thousands)

Raw materials Raw materials $ 125,841 $ 100,698 Raw materials $ 113,887 $ 120,409
Work-in-process Work-in-process 120,735 119,510 Work-in-process 148,436 130,812
Finished goods Finished goods 192,296 154,436 Finished goods 206,501 187,894

Total $ 438,872 $ 374,644 Total $ 468,824 $ 439,115

        ~~We capitalize inventory produced for commercial sale, which may result in~~During the capitalization of inventory prior to regulatory approval of a product. In no event is inventory capitalized prior to the completion of a phase 3 clinical trial. If a product is not approved for sale, it would result in the write off of the inventory and a charge to earnings. Our total inventories at September 30, 2007, included $17.4 million of inventory for Renvela that had not yet been approved for sale. On October 22, 2007, the FDA granted marketing approval for Renvela.
        ~~As of June 30, 2007,~~three months ended March 31, 2008, we ~~had placed four lots~~recalled one lot of Thymoglobulin finished goods inventory, valued at $11.8 million, under review pending investigation and resolution of out of trend assay results we observed during quality testing. In September 2007, we determined that ~~these lots did not~~failed to meet our specifications for ~~saleable~~ product ~~and recorded a charge~~appearance. In April, we recalled an additional three lots for the same reason. The value of ~~$11.8 million to cost of products sold to write off~~ the inventory for these lots. Currently, we have three additional finished lots of Thymoglobulin, valued at approximately $8 million, which are under review to determine whether they meet product specifications. If we determine that anyunused portion of these four lots dowas not ~~meet the specifications for saleable product, we will write off that inventory as a charge to earnings.~~significant.
7.    Goodwill and Other Intangible Assets
Goodwill
        The following ~~table~~tables contains the change in our ~~net~~ goodwill during the ~~nine~~three months ended ~~September 30, 2007~~March 31, 2008 (amounts in thousands):

December 31,
2006
Adjustments
September 30,
2007
As of
December 31,
2007
Adjustments
As of
March 31,
2008
Renal~~(1)~~ Renal~~(1)~~ $ 305,528 $ (1,577 ) $ 303,951 Renal~~(1)~~ $ 303,951 $ — $ 303,951
Therapeutics Therapeutics 354,709 — 354,709 355,494 — 355,494
Transplant~~(2)~~ Transplant~~(2)~~ 157,591 2,563 160,154 Transplant~~(2)~~ 163,061 — 163,061
Biosurgery Biosurgery 7,585 — 7,585 7,585 — 7,585
Oncology 530,909 477 531,386
Other Other 473,368 179 473,547 42,828 (589 ) 42,239

Goodwill $ 1,403,828 $ (112 ) $ 1,403,716
Net goodwill $ 1,298,781 $ 1,165 $ 1,299,946

~~(1)~~
~~The adjustments to Renal goodwill include adjustments associated with our acquisition of Bone Care International, Inc., or Bone Care, in July 2005.~~

~~(2)~~
The adjustments to Transplant goodwill represent purchase accounting adjustments related to our November 2006 acquisition of AnorMED, including increases of $2.1 million from the write off of certain fixed assets associated with the acquisition and $1.2 million of revisions to the estimates of liabilities related to exit activities, offset by a decrease of $(0.7) million to adjust deferred taxes.

        ~~We are required~~GENZYME CORPORATION AND SUBSIDIARIES
Notes to ~~perform impairment tests related to our goodwill under FAS 142, "Goodwill~~Unaudited, Consolidated Financial Statements (Continued)
7.    Goodwill and Other Intangible Assets" annually and whenever events or changes in circumstances suggest that the carrying value of an intangible asset may not be recoverable. We completed the required annual impairment tests for our $1.3 billion of net goodwill in the third quarter of 2007 and determined that no impairment charge was required. (Continued)
Other Intangible Assets
        The following table contains information about our other intangible assets for the periods presented (amounts in thousands):

September 30, 2007
December 31, 2006

As of March 31, 2008
As of December 31, 2007

Gross
Other
Intangible
Assets
Accumulated
Amortization
Net
Other
Intangible
Assets
Gross
Other
Intangible
Assets
Accumulated
Amortization
Net
Other
Intangible
Assets

Gross
Other
Intangible
Assets
Accumulated
Amortization
Net
Other
Intangible
Assets
Gross
Other
Intangible
Assets
Accumulated
Amortization
Net
Other
Intangible
Assets
Technology(1) Technology(1) $ 1,506,998 $ (512,594 ) $ 994,404 $ 1,505,748 $ (424,650 ) $ 1,081,098 Technology(1) $ 2,162,032 $ (586,396 ) $ 1,575,636 $ 1,680,190 $ (545,817 ) $ 1,134,373
Patents Patents 194,561 (100,076 ) 94,485 194,560 (87,063 ) 107,497 Patents 194,560 (108,750 ) 85,810 194,560 (104,413 ) 90,147
Trademarks Trademarks 60,227 (35,445 ) 24,782 60,227 (31,439 ) 28,788 Trademarks 60,618 (38,142 ) 22,476 60,634 (36,787 ) 23,847
License fees~~(1)~~ License fees~~(1)~~ 90,084 (26,477 ) 63,607 77,807 (20,597 ) 57,210 License fees~~(1)~~ 91,229 (31,394 ) 59,835 90,237 (28,833 ) 61,404
Distribution rights(2) Distribution rights(2) 293,217 (117,994 ) 175,223 260,073 (85,543 ) 174,530 Distribution rights(2) 314,213 (136,630 ) 177,583 307,260 (125,678 ) 181,582
Customer lists(3) Customer lists(3) 67,082 (30,984 ) 36,098 90,783 (48,760 ) 42,023 Customer lists(3) 88,483 (27,461 ) 61,022 97,031 (33,209 ) 63,822
Other Other 2,050 (1,469 ) 581 2,045 (1,153 ) 892 Other 2,052 (1,679 ) 373 2,050 (1,573 ) 477

Total $ 2,214,219 $ (825,039 ) $ 1,389,180 $ 2,191,243 $ (699,205 ) $ 1,492,038 Total $ 2,913,187 $ (930,452 ) $ 1,982,735 $ 2,431,962 $ (876,310 ) $ 1,555,652

(1)
~~Includes a $9.9~~Effective January 1, 2008, reflects the consolidation of the results of BioMarin/Genzyme LLC at fair value in accordance with FIN 46R, including $480.5 million payment to Sanofi Pasteur, or Sanofi, in September 2007 in connection with an amendment to an existing license agreement in which we acquired manufacturing expertise related to the production of bulk Thymoglobulin and a $2.5 million milestone payment to Synpac in June 2007 for the ~~approval~~fair value of ~~Myozyme in Japan.~~the manufacturing and commercialization rights to Aldurazyme, net of $6.0 million of related accumulated amortization. This intangible asset is being amortized on a straight-lined basis over a period of 20 years.

(2)
Includes an additional ~~$32.4~~$6.9 million of intangible assets resulting from additional payments made or accrued in ~~2007~~the first quarter of 2008 in connection with our reacquisition of the Synvisc sales and marketing rights from ~~Wyeth in January 2005.~~Wyeth.

(3)
Reflects the write off, during the first quarter of ~~2007,~~2008, of ~~$23.7~~$8.3 million of fully amortized customer lists ~~related~~assigned to our ~~acquisition of Bone Care.~~Genetics reporting unit.
        All of our other intangible assets are amortized over their estimated useful lives. Total amortization expense for our other intangible assets was:
•
$~~49.8~~55.7 million for the three months ended ~~September 30, 2007;~~March 31, 2008; and

•
$~~50.5~~50.0 million for the three months ended ~~September 30, 2006;~~

•
~~$149.3 million for the nine months ended September 30, 2007; and~~

•
~~$156.1 million for the nine months ended September 30, 2006.~~March 31, 2007.

GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
7.    Goodwill and Other Intangible Assets (Continued)
        The estimated future amortization expense for other intangible assets for the remainder of fiscal year ~~2007,~~2008, the four succeeding fiscal years and thereafter is as follows (amounts in thousands):
Year ended December 31,
Estimated
Amortization
Expense(1)
2007 (remaining three months) $ 49,878
2008 209,387
Year Ended December 31,
Estimated
Amortization
Expense(1,2)
2008 (remaining nine months) $ 169,320
2009 215,620 228,795
2010 227,665 241,970
2011 238,507 259,691
2012 200,681
Thereafter 625,327 567,345
(1)
Includes estimated future amortization expense for the Synvisc distribution rights based on the forecasted respective future sales of Synvisc and the resulting future contingent payments we will be required to make to Wyeth, and for the Myozyme patent and technology rights pursuant to a license agreement with Synpac based on forecasted future sales of Myozyme and the milestone payments we will be required to make to Synpac related to future anticipated regulatory approvals. These contingent payments will be recorded as intangible assets when the payments are accrued. Estimated future amortization expense also includes estimated future amortization expense for other arrangements involving contingent payments.

(2)
Estimated future amortization expense related to the $480.5 million of technology recorded effective January 1, 2008, related to our consolidation of the results of BioMarin/Genzyme LLC, is entirely offset by the corresponding amortization of a noncurrent liability related to the consolidation of BioMarin/Genzyme LLC.
8.    Investments in Equity Securities
        We recorded the following net gains on investments in equity securities ~~net of charges for impairment of investments, for~~during the ~~three and nine months ended September 30, 2007 and 2006~~periods presented (amounts in thousands):

Three Months Ended
September 30,
Nine Months Ended
September 30,

2007
2006
2007
2006

Gross gains on investments in equity securities:
Therapeutic Human Polyclonals, Inc. (THP) $ — $ — $ 10,848 $ —
Cambridge Antibody Technology Group plc (CAT) — — — 69,359
BioMarin Pharmaceutical Inc. (BioMarin) — — — 6,417
Other 1,105 128 3,188 2,154

Total 1,105 128 14,036 77,930
Less: charges for impairment of investments — — — (2,893 )

Gains on investments in equity securities, net $ 1,105 $ 128 $ 14,036 $ 75,037

Three Months Ended
March 31,

2008
2007
Therapeutic Human Polyclonals, Inc. (THP) $ — $ 10,848
Other 775 1,940

Gains on investments in equity securities, net $ 775 $ 12,788

        In March 2007, we recorded a $10.8 million gain in connection with the sale of the entire investment in the capital stock of THP, held by our wholly-owned subsidiary, SangStat Medical, LLC, which had a zero cost basis, for net cash proceeds of $10.8 million.
Unrealized Gains (Losses)
        At ~~September 30, 2007,~~March 31, 2008, our stockholders' equity ~~included $23.3~~includes $27.6 million of unrealized gains and ~~$0.4~~$1.2 million of unrealized losses related to our strategic investments in equity securities.

GENZYME CORPORATION AND SUBSIDIARIES
~~9. Payment of Note Receivable from Dyax Corp.~~Notes to Unaudited, Consolidated Financial Statements (Continued)
8.    Investments in Equity Securities (Continued)
Strategic Alliance with Isis
        On January 7, 2008, we entered into a strategic alliance with Isis, whereby we obtained an exclusive license to develop and commercialize mipomersen, a lipid-lowering drug targeting apolipoprotein B-100, for the treatment of familial hypercholesterolemia, or FH, an inherited disorder that causes exceptionally high levels of LDL-cholesterol. In ~~2007,~~February 2008, we ~~received cash payments totaling $7.8 million from Dyax Corp., or Dyax, to settle the secured promissory note receivable from Dyax, including $7.0~~paid Isis $150.0 million to ~~satisfy~~purchase five million shares of Isis common stock for $30 per share, of which $80.1 million was recorded as an increase to investment in equity securities in our consolidated balance sheets based on the ~~outstanding principal balance due~~$16.02 closing price per share of Isis common stock on February 4, 2008, the date we acquired the shares, and $69.9 million was charged to research and development expense in our consolidated statements of operations for the premium we paid to purchase the stock. We are working with Isis to finalize the contracts under ~~the note~~which we will develop and ~~$0.8 million of accrued interest.~~commercialize mipomersen.
~~10.~~9.    Joint Venture with BioMarin
        We and BioMarin Pharmaceutical Inc., or BioMarin, formed BioMarin/Genzyme LLC to develop and commercialize Aldurazyme, a recombinant form of the human enzyme alpha-L-iduronidase, used to treat an LSD known as mucopolysaccharidosis I, or MPS I. ~~We record~~Prior to January 1, 2008, we recorded our portion of the ~~income~~results of BioMarin/Genzyme LLC in equity in income (loss) of equity method investments in our ~~unaudited,~~ consolidated statements of operations. Our portion of BioMarin/Genzyme LLC's ~~net income was:~~
•
~~$8.2 million~~results for the three months ended ~~September 30,~~March 31, 2007, ~~as compared~~was net income of $6.1 million.
        Effective January 1, 2008, we restructured our relationship with BioMarin/Genzyme LLC regarding the manufacturing and commercialization of Aldurazyme by entering into several new agreements. BioMarin/Genzyme LLC will no longer engage in commercial activities related to ~~$5.0 million for~~Aldurazyme and will solely:
•
hold the ~~same period of 2006;~~intellectual property relating to Aldurazyme and other future collaboration products; and

•
~~$20.8~~engage in research and development activities that are mutually selected and funded by BioMarin and us, the costs of which we will share equally.
Under the restructured relationship, BioMarin/Genzyme LLC has licensed all intellectual property related to Aldurazyme and other collaboration products on a royalty-free basis to BioMarin and us. BioMarin holds the manufacturing rights and we hold the global marketing rights. We are required to pay BioMarin a tiered royalty payment ranging from 39.5% to 50% of worldwide net product sales of Aldurazyme.
        As a result of the restructuring of our relationship with BioMarin/Genzyme LLC, effective January 1, 2008, in accordance with the provisions of FIN 46R, we began consolidating the results of BioMarin/Genzyme LLC. Upon consolidation of BioMarin/Genzyme LLC, we recorded the assets and liabilities of the joint venture in our consolidated balance sheets at fair value. The value of the intellectual property of the joint venture of approximately $480.5 million was recorded as an intangible asset and will be amortized over a useful life of 20 years. As this intellectual property has been out-licensed from the joint venture to BioMarin and us for no consideration, a noncurrent liability was recorded for an amount equal to the negative value of these licenses. The noncurrent liability is being amortized over a period of 20 years. We recorded BioMarin's portion of the joint venture's losses, the

GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
9.    Joint Venture with BioMarin (Continued)

amount of which was not significant for the ~~nine~~three months ended ~~September 30, 2007,~~March 31, 2008, as ~~compared to $13.0 million for the same period~~minority interest in our consolidated statements of ~~2006.~~
        ~~During the nine months ended September 30, 2007, we received $17.1 million of cash distributions from BioMarin/Genzyme LLC.~~operations.
        Condensed financial information for BioMarin/Genzyme LLC is summarized below for the three months ended March 31, 2007 (amounts in thousands):

Three Months Ended
September 30,
Nine Months Ended
September 30,

2007
2006
2007
2006
Three Months Ended
March 31, 2007

Revenue $ 32,322 $ 25,029 $ 88,270 $ 69,891 $ 26,822
Gross margin 25,284 18,883 68,241 51,674 20,523
Operating expenses (8,709 ) (9,110 ) (26,743 ) (26,209 ) (8,474 )
Net income 16,793 9,959 42,029 25,953 12,220
~~11.~~10.    Revolving Credit Facility
        As of ~~September 30, 2007,~~March 31, 2008, no amounts were outstanding under our five-year $350.0 million senior unsecured revolving credit facility, with JPMorgan Chase Bank, N.A., as administrative agent, Bank of America, N.A., as syndication agent, ABN AMRO Bank N.V., Citizens Bank of Massachusetts and Wachovia Bank, National Association, as co-documentation agents, and a syndicate of lenders, which we refer to as our 2006 revolving credit facility. The terms of our 2006 revolving credit facility include various covenants, including financial covenants, that require us to meet minimum interest coverage ratios and maximum leverage ratios. As of ~~September 30, 2007,~~March 31, 2008, we were in compliance with these covenants.
11.    Stockholders' Equity
Stock Repurchase
        During the three months ended March 31, 2008, we repurchased and retired an additional 1,000,000 shares of our common stock at an average price of $73.20 per share for a total of $73.2 million in cash, including fees. Since June 2007, when we first began making repurchases, we have repurchased a cumulative total of 4,500,000 shares of our common stock at an average price of $67.71 per share for a total of $304.8 million in cash, including fees. As a result, we recorded the repurchases in our consolidated balance sheets as of March 31, 2008 and December 31, 2007, as a reduction to our common stock account for the par value of the repurchased shares and as a reduction to our additional paid-in capital account.

GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
11.    Stockholders' Equity (Continued)
Stock-Based Compensation Expense, Net of Estimated Forfeitures
        We allocated pre-tax stock-based compensation expense, net of estimated forfeitures, based on the functional cost center of each employee as follows (amounts in thousands, except per share amounts):

Three Months Ended
March 31,

2008
2007

Pre-tax stock-based compensation expense, net of estimated forfeitures charged to:
Cost of products and services sold(1) $ (6,514 ) $ (5,896 )
Selling, general and administrative expense (22,889 ) (22,499 )
Research and development expense (12,585 ) (12,312 )

Total (41,988 ) (40,707 )
Less: tax benefit from stock options 12,537 12,432

Total stock-based compensation expense, net of tax $ (29,451 ) $ (28,275 )

Effect per common share:
Basic $ (0.12 ) $ (0.11 )

Diluted $ (0.10 ) $ (0.10 )

(1)
We also capitalized stock-based compensation expense to inventory of $3.1 million for the three months ended March 31, 2008 and $2.9 million for the three months ended March 31, 2007, all of which is attributable to participating employees that support our manufacturing operations. We amortize stock-based compensation expense capitalized to inventory based on inventory turns.

        At March 31, 2008, there was $219.7 million of pre-tax stock-based compensation expense, net of estimated forfeitures, related to unvested awards not yet recognized which is expected to be recognized over a weighted average period of 1.9 years.
Notes Receivable from Stockholders
        In connection with our acquisition of Biomatrix, we assumed notes receivable from five former employees, directors and consultants of Biomatrix, which we refer to as the Makers of the notes. The notes are full-recourse promissory notes that accrue interest at rates ranging from 5.30% to 7.18% and mature at various dates from May 2007 through September 2009, at which point the outstanding principal and accrued interest for each note will become payable. As of March 31, 2008, there is a total of $15.8 million outstanding for these notes, including $10.2 million of principal and $5.6 million of accrued interest. Of these amounts, a total of $8.0 million of principal and $4.6 million of accrued interest is attributable to one Maker. We record the amount of principal and interest outstanding under the notes in stockholders' equity because the notes were originally received in exchange for the issuance of Biomatrix common stock, which was subsequently converted into Genzyme Stock.
        On April 29, 2008, we received $1.0 million of cash from one of the Makers as payment in full upon maturity of that Maker's note, including accrued interest. A total of $2.8 million in principal and accrued interest has come due under the notes but has not yet been repaid, of which $1.9 million was

GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
11.    Stockholders' Equity (Continued)

due as of March 31, 2008 and an additional $0.8 million became due as of April 30, 2008. We are pursuing collection of these past due amounts and the notes will continue to accrue interest until the outstanding principal and accrued interest have been repaid. A total of $0.7 million of the principal and accrued interest that was due but not repaid as of April 30, 2008 is attributable to the Maker that owes a total of $8.0 million in principal under the notes. In June 2008, an additional $6.7 million in principal will become due from this Maker plus accrued interest.
12. ~~Other~~    Commitments and Contingencies
Legal Proceedings
        We periodically become subject to legal proceedings and claims arising in connection with our business.

        Through June 30, 2003, we had three outstanding series of common stock, which we referred to as tracking stocks; Genzyme General Stock (which we now refer to as Genzyme Stock), Biosurgery Stock and Molecular Oncology Stock. Four lawsuits were filed against us regarding the exchange of all of the outstanding shares of Biosurgery Stock for shares of Genzyme Stock in connection with the elimination of our tracking stocks in July 2003. Each of the lawsuits was a purported class action on behalf of holders of Biosurgery Stock. The first case, filed in the Massachusetts Superior Court (MSC) in May 2003, alleged a breach of the implied covenant of good faith and fair dealing in our charter and a breach of our board of directors' fiduciary duties. The plaintiff in this case sought an injunction to adjust the exchange ratio for the tracking stock exchange. The MSC dismissed the complaint in its entirety in November 2003. Upon appeal, the Massachusetts Appeals Court upheld the dismissal by the MSC of the fiduciary duty claim, but reversed the earlier decision to dismiss the implied covenant claim. The Massachusetts Supreme Judicial Court (SJC) granted our petition for further appellate review. On June 4, 2007, the SJC reversed the Appeals Court's decision and affirmed dismissal of the complaint in its entirety. On July 25, 2007, the SJC denied the plaintiff's petition for rehearing. Two substantially similar cases were filed in the MSC in August and October 2003. These cases were consolidated in January 2004, and in July 2004, the consolidated case was stayed pending disposition of a fourth case, which was filed in the U.S. District Court for the Southern District of New York in June 2003. As amended, this complaint alleged violations of federal securities laws, as well as various state law claims, related to the exchange, on behalf of a certified class of holders of Biosurgery Stock as of May 8, 2003. On August 6, 2007, we reached an ~~agreement-in-principle with counsel~~agreement in principle to settle lawsuits related to our 2003 repurchase of Biosurgery Stock for $64.0 million. The court entered an order approving the settlement on December 30, 2007. As a result, we recorded a liability for the ~~plaintiff class to settle and dismiss this case for approximately $64 million. A definitive~~ settlement ~~agreement was approved by the court on October 26, 2007. Because the members~~payment of ~~the class in the New York action released all claims, the settlement has,~~$64.0 million as a ~~practical matter, resolved the~~charge to selling, general and administrative expenses, or SG&A, in our consolidated ~~case~~statements of operations in ~~the MSC.~~June 2007, which we subsequently paid in August 2007. We have submitted claims to our insurers for reimbursement of portions of the expenses incurred ~~and to be incurred~~ in connection with these cases; the insurer has purported to deny ~~coverage.~~coverage and therefore, we have not recorded a receivable for any potential recovery from our insurer. We intend to vigorously pursue our rights with respect to insurance ~~coverage. As a result,~~coverage and to the extent we ~~recorded a liability for~~are successful, we will record the ~~settlement payment of approximately $64 million as a charge to selling, general and administrative expense, or SG&A,~~recovery in our consolidated ~~statement~~statements of ~~operations in June 2007, which we subsequently paid in August 2007.~~operations.
        We ~~are not able~~periodically become subject to legal proceedings and claims arising in connection with our business. Although we cannot predict the outcome of ~~other legal~~these additional proceedings ~~to which we may become subject in the normal course of business or estimate the amount or range of any reasonably possible loss we might incur if~~and claims, we do not ~~prevail in~~believe the ~~final, non-appealable determinations~~ultimate resolution of ~~such matters. Therefore, we have no current accruals for~~any of these ~~potential contingencies. We cannot provide you with assurance that other legal proceedings will not~~existing matters would have a material adverse ~~impact~~affect on our financial ~~condition~~position or results of operations.
13.    ~~(Provision for) Benefit from~~Provision for Income Taxes

Three Months Ended
September 30,
Nine Months Ended
September 30,
Three Months Ended
March 31,

2007
2006
2007
2006
2008
2007

(Amounts in thousands)

(Amounts in thousands)

(Provision for) benefit from income taxes $ (66,432 ) $ 44,530 $ (201,715 ) $ (60,841 )
Provision for income taxes $ 60,117 $ 71,193
Effective tax rate 29 % (156 )% 33 % 19 % 29 % 31 %

Our effective tax rate for all periods presented varies from the U.S. statutory tax rate as a result of:
•
our provision for state income taxes;

•
the tax benefits from ~~export sales;~~

•
~~the tax benefits from domestic production~~manufacturing activities;

•
benefits related to tax credits;

GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
13.    Provision for Income Taxes (Continued)
•
income and expenses taxed at rates other than the U.S. statutory tax rate; and

•
non-deductible stock-based compensation ~~expenses; and~~

•
~~non-deductible~~ expenses ~~associated with the settlement of litigation related to the consolidation of our former tracking stocks.~~

~~Our effective tax rate~~totaling $8.1 million for the three ~~and nine~~ months ended ~~September 30, 2006, was also impacted by a charge for impaired goodwill of $219.2~~March 31, 2008 and $6.9 million ~~of which $29.5 million was not deductible for tax purposes.~~
        Effective January 1, 2007, we adopted FIN 48 and recognized a cumulative effect adjustment of $33.9 million to increase our retained earnings balance as of January 1, 2007, which consisted of $25.8 million to record the combined effect of our gain contingency and the change in the recognition standard pursuant to the settlement criteria of FASB Staff Position, or FSP, FIN 48-1, "Definition of~~Settlement~~ in FASB Interpretation No. 48," or FSP FIN 48-1, and $8.1 million resulting from our settlement of the IRS audit for tax years 2002 to 2003. After these adjustments, as of January 1, 2007, we had approximately $36.5 million of total gross unrealized tax benefits, of which approximately $26.6 million represents the amount of unrecognized tax benefits that, if recognized, would favorably affect our effective income tax rate in future periods. These gross unrealized tax benefits did not change significantly during the nine months ended September 30, 2007.
        We continue to recognize interest relating to unrecognized tax benefits within our provision for income taxes but have not recorded any amounts related to potential penalties. The amount of accrued interest related to unrecognized tax benefits within our provision for income taxes for the three ~~and nine~~ months ended ~~September 30, 2007, and our accrued interest related to unrecognized tax benefits as of January 1, 2007 and September 30, 2007 were not significant.~~
March 31, 2007.
        We are subject to U.S. federal income tax and various state, local and international income taxes in numerous jurisdictions, however, our only significant tax jurisdiction is the United States. We record liabilities for income tax contingencies based on our best estimate of the underlying exposures.        We are currently under IRS audit for tax years 2004 to 2005 and ~~in certain state and foreign jurisdictions from 2003 forward.~~various states for 1999 to 2005. We believe that we have provided sufficiently for all audit ~~exposures~~exposures. We expect to settle the 2004 to 2005 IRS audit within the next twelve months and ~~assessments.~~do not expect that the settlement will have a material impact on our financial position or results of operations. Settlement of these audits or the expiration of the statute of limitations on the assessment of income taxes for any tax year may result in ~~an increase or~~a reduction of future tax provisions. Any such ~~tax or tax~~ benefit would be recorded upon ~~final resolution~~the effective settlement of the ~~audits~~audit or expiration of the applicable statute of limitations.

14.    Segment Information
        In accordance with FAS 131, "Disclosures about Segments of an Enterprise and Related Information," we present segment information in a manner consistent with the method we use to report this information to our management. Applying FAS 131, we have ~~five~~six reporting segments as described above in Note 1., "Description of Business," to these consolidated financial statements. Effective January 1, 2008, as a result of changes in how we review our business, certain general and administrative expenses, which were formerly allocated amongst our reporting segments and Other, are now allocated to Corporate. We have revised our 2007 segment presentation to conform to our 2008 presentation.

GENZYME CORPORATION AND SUBSIDIARIES
Notes to Unaudited, Consolidated Financial Statements (Continued)
14.    Segment Information (Continued)
        We have provided information concerning the operations inof these ~~reporting~~reportable segments in the following tables (amounts in thousands):

Three Months Ended
September 30,
Nine Months Ended
September 30,

Three Months Ended
March 31,

2007
2006
2007
2006

2008
2007

Revenues: Revenues: Revenues:
Renal $ 197,770 $ 165,677
Renal $ 184,424 $ 160,204 $ 522,350 $ 446,774 Therapeutics(1) 568,693 429,517
Therapeutics 471,351 388,267 1,365,617 1,107,262 Transplant 45,930 41,277
Transplant 42,881 39,241 127,582 114,719 Biosurgery 111,662 98,393
Biosurgery 106,146 93,449 312,428 286,386 Genetics 74,329 66,158
Genetics 73,050 61,360 212,922 179,853 Oncology 29,048 22,449
Other 81,841 66,043 234,693 197,674 Other 72,246 59,409
Corporate 466 10 1,169 104 Corporate 383 303

Total $ 960,159 $ 808,574 $ 2,776,761 $ 2,332,772 Total $ 1,100,061 $ 883,183

Income (loss) before income taxes:
Income (loss) before income taxes:

Income (loss) before income taxes:

Renal $ 75,706 $ 52,243 $ 201,796 $ 126,313 Renal $ 93,275 $ 65,004
Therapeutics(1) 304,376 259,137 870,706 741,124 Therapeutics(1) 365,210 297,973
Transplant(2) (19,902 ) 4,809 (33,645 ) 15,160 Transplant (7,914 ) (3,197 )
Biosurgery(2) 15,526 10,773 41,577 28,021 Biosurgery 18,787 12,866
Genetics(3) 4,277 (220,778 ) 19,909 (224,995 ) Genetics 4,108 3,804
Other(4) (32,330 ) (11,273 ) (51,079 ) (35,253 ) Oncology(2) (24,985 ) (6,886 )
Corporate(5) (121,908 ) (123,475 ) (446,255 ) (338,092 ) Other(2,3) (64,979 ) 1,639

Corporate(4) (178,114 ) (141,823 )
Total $ 225,745 $ (28,564 ) $ 603,009 $ 312,278

Total $ 205,388 $ 229,380

(1)
~~Includes~~Effective January 1, 2008, as a ~~$25.0 million upfront payment made~~result of our restructured relationship with BioMarin/Genzyme LLC, instead of sharing all costs and profits of Aldurazyme equally, we began to ~~Ceregene, Inc., or Ceregene, in June 2007 in connection with a collaboration agreement for the development~~record all sales of and ~~commercialization of CERE-120, a gene therapy product for the treatment of Parkinson's disease.~~SG&A related to Aldurazyme.

(2)
The results of operations of acquired companies and assets and the amortization expense related to acquired intangible assets are included in segment results beginning on the date of acquisition.

(3)
Includes a charge of $69.9 million recorded to research and development expense in our consolidated statements of operations for ~~impaired goodwill~~the premium paid to purchase five million shares of ~~$219.2 million~~Isis in ~~September 2006 to write off the goodwill related to our Genetics reporting unit in accordance with FAS 142.~~February 2008.

(4)
Includes $20.5 million of charges recorded against our initial $47.0 million investment in Bioenvision Common Stock, including a $19.1 million charge for IPR&D and a total of $1.4 million of charges for the period from July 10, 2007 through September 30, 2007, of

which $1.0 million represents our portion of the losses of Bioenvision for that period and $0.4 million represents amortization expense, net of tax, related to the value assigned to Bioenvision's technology and other intangible assets.
~~(5)~~
Loss before income taxes for Corporate includes our corporate, general and administrative and corporate science activities, all of ~~the~~our stock-based compensation expense, as well as net gains on investments in equity securities, interest income, interest expense and other income and expense items that we do not specifically allocate to a particular reporting segment. ~~Loss before income taxes for Corporate for the nine months ended September 30, 2007, includes a charge of $64.0 million for the settlement of the litigation related~~

GENZYME CORPORATION AND SUBSIDIARIES
Notes to ~~the consolidation of our former tracking stocks.~~

Unaudited, Consolidated Financial Statements (Continued)
14.    Segment Information (Continued)
Segment Assets
        We provide information concerning the assets of our reportable segments in the following table (amounts in thousands):

September 30,
2007
December 31,
2006
Segment Assets(1):
Renal $ 1,439,908 $ 1,380,003
Therapeutics 1,221,528 1,094,520
Transplant 411,530 410,436
Biosurgery 470,765 477,334
Genetics 148,311 133,839
Other 854,763 851,343
Corporate(2) 3,295,496 2,843,713

Total $ 7,842,301 $ 7,191,188

March 31,
2008
December 31,
2007
Segment Assets(1):
Renal $ 1,476,506 $ 1,468,428
Therapeutics(2) 1,821,712 1,230,128
Transplant 420,802 415,903
Biosurgery 447,503 458,412
Genetics 157,489 148,787
Oncology 944,830 940,097
Other 235,055 246,496
Corporate(3) 3,579,156 3,393,490

Total $ 9,083,053 $ 8,301,741

(1)
Assets for our ~~five~~six reporting segments and Other include primarily accounts receivable, inventory and certain fixed and intangible assets, including goodwill.

(2)
Includes the consolidation of the results of BioMarin/Genzyme LLC at fair value, including $480.5 million of additional technology recorded in the first quarter of 2008 for the fair value of BioMarin/Genzyme LLC's manufacturing and commercialization rights to Aldurazyme, net of $6.0 million of related accumulated amortization.

(3)
Includes the assets related to our corporate, general and administrative operations, and corporate science activities that we do not allocate to a particular ~~segment, including cash, cash equivalents, short-and long-term investments, net property, plant and equipment and net deferred tax assets.~~
segment. Segment assets for Corporate consist of the following (amounts in thousands):

September 30,
2007
December 31,
2006
Cash, cash equivalents, short- and long-term investments $ 1,449,548 $ 1,285,604
Deferred tax assets, net 210,015 136,925
Property, plant & equipment, net 1,180,890 1,036,182
Investments in equity securities 107,734 66,563
Other 347,309 318,439

    Total $ 3,295,496 $ 2,843,713

March 31,
2008
December 31,
2007
Cash, cash equivalents, short- and long-term investments in debt securities $ 1,447,983 $ 1,460,394
Deferred tax assets, net 279,300 260,005
Property, plant & equipment, net 1,361,381 1,240,992
Investments in equity securities 168,301 89,181
Other 322,191 342,918

Total $ 3,579,156 $ 3,393,490

ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF GENZYME CORPORATION AND SUBSIDIARIES' FINANCIAL CONDITION AND RESULTS OF OPERATIONS
        When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that characterize our business. In particular, we encourage you to review the risks and uncertainties described under the ~~caption~~heading "Risk Factors" below. These risks and uncertainties could cause actual results to differ materially from those forecasted in forward-looking statements or implied by past results and trends. Forward-looking statements are statements that attempt to project or anticipate future developments in our business; we encourage you to review the examples of forward-looking statements ~~included~~ under ~~the heading~~ "Note Regarding Forward-Looking Statements" at the beginning of this report. These statements, like all statements in this report, speak only as of the date of this report (unless another date is indicated), and we undertake no obligation to update or revise the statements in light of future developments.
INTRODUCTION
        We are a global biotechnology company dedicated to making a major impact on the lives of people with serious diseases. Our broad product and service portfolio is focused on rare disorders, renal diseases, orthopaedics, organ transplant, ~~and~~ diagnostic and predictive ~~testing.~~testing, and cancer. We are organized into ~~five~~six financial reporting units, which we also consider to be our reporting segments:
•
Renal, which develops, manufactures and distributes products that treat patients suffering from renal diseases, including chronic renal failure. The unit derives substantially all of its revenue from sales of ~~Renagel~~Renagel/Renvela (including sales of bulk sevelamer) and Hectorol;

•
Therapeutics, which develops, manufactures and distributes therapeutic products, with an expanding focus on products to treat patients suffering from genetic diseases and other chronic debilitating diseases, including a family of diseases known as LSDs, and other specialty therapeutics, such as Thyrogen. The unit derives substantially all of its revenue from sales of Cerezyme, Fabrazyme, Myozyme, Aldurazyme and Thyrogen;

•
Transplant, which develops, manufactures and distributes therapeutic products that address pre-transplantation, prevention and treatment of graft rejection in organ transplantation and other hematologic and auto-immune disorders. The unit derives substantially all of its revenue from sales of Thymoglobulin;

•
Biosurgery, which develops, manufactures and distributes biotherapeutics and biomaterial-based products, with an emphasis on products that meet medical needs in the orthopaedics and broader surgical areas. The unit derives substantially all of its revenue from sales of Synvisc, the Sepra line of products, Carticel and MACI; ~~and~~

•
Genetics, which provides testing services for the oncology, prenatal and reproductive ~~markets.~~markets; and

•
Oncology, which develops, manufactures and distributes products for the treatment of cancer, with a focus on antibody- and small molecule-based therapies. The unit derives substantially all of its revenue from sales and royalties received on sales of Campath and Clolar and from the reimbursement of Campath development expenses.
        We report the activities of our diagnostic products, ~~oncology,~~ bulk pharmaceuticals and cardiovascular business units under the caption "Other." We report our corporate, general and administrative operations and corporate science activities under the caption "Corporate."
        Effective January 1, 2008, as a result of a change in how we review our business, certain general and administrative expenses which were formerly allocated amongst our reporting segments and Other, are now allocated to Corporate.

        As a result of our acquisition of Bioenvision in October 2007, our Oncology business unit, which was formerly reported combined with "Other," now meets the criteria for disclosure as a separate reporting segment. We have revised our 2007 segment disclosures to conform to our 2008 presentation.
MERGERS AND ACQUISITIONS
        The following acquisitions were accounted for as business combinations and, accordingly, we have included their results of operations in our consolidated statements of operations from the date of acquisition.
~~Pending Acquisition of the Diagnostics Division~~Diagnostic Assets of Diagnostic Chemicals Limited
        On ~~November 2,~~December 3, 2007, we ~~entered into an agreement with~~acquired certain diagnostic assets from Diagnostic Chemicals Limited, or DCL, a privately-held diagnostics and biopharmaceutical company based in Charlottetown, Prince Edward Island, Canada, ~~to acquire DCL's diagnostics division,~~ including DCL's line of over 50 formulated clinical chemistry reagents and its diagnostics operations in Prince Edward Island, Canada and ~~Connecticut, for an aggregate purchase price~~Connecticut. We paid consideration of ~~approximately $53~~$53.8 million ~~Canadian dollars, or approximately $57 million U.S. dollars (based~~

~~on the November 2, 2007 spot rate for the Canadian dollar),~~ in cash. ~~We expect to close the transaction in December 2007.~~
~~Acquisition of~~ Bioenvision
        ~~On May 29,~~Effective October 23, 2007, we ~~entered into an agreement~~completed our acquisition of Bioenvision through the culmination of a two step process consisting of a tender offer completed in July 2007, and ~~plan~~a merger approved in October 2007. We paid gross consideration of ~~merger with~~$349.9 million in cash, including $345.4 million for the outstanding shares of Bioenvision ~~a publicly-traded biopharmaceutical company based in New York City~~Common and ~~Edinburgh, Scotland, and Wichita Bio Corporation, one of our wholly-owned subsidiaries, to acquire Bioenvision in an all-cash transaction valued at $11.20 per outstanding share of Bioenvision~~ Series A Preferred Stock ~~(plus accrued but unpaid dividends)~~ and ~~$5.60 per outstanding share~~options to purchase shares of Bioenvision Common Stock, orand approximately ~~$345~~$5 million ~~in aggregate.~~for acquisition costs. Net consideration was $304.7 million as we acquired Bioenvision's cash and cash equivalents totaling $45.2 million.
        Bioenvision iswas focused on the acquisition, development and marketing of compounds and technologies for the treatment of cancer, autoimmune disease and infection. Effective October 23, 2007, we completed the acquisition of Bioenvision. This acquisition was completed through a two step process consisting of a tender offer completed in July 2007, and a merger approved in October 2007.
The acquisition of Bioenvision provides us with the exclusive, worldwide rights to clofarabine. We currently market clofarabine in the United States and Canada under the brand name Clolar for relapsed and refractory pediatric ALL patients. In Europe, we co-developed clofarabine with Bioenvision and Bioenvision ~~has~~had been marketing the product under the brand name Evoltra, also for the treatment of relapsed and refractory pediatric ALL patients. We ~~and Bioenvision have been~~are developing clofarabine for diseases with significantly larger patient populations, including use as a first-line therapy for the treatment of adult ~~acute myeloid leukemia, or~~ AML. Clofarabine has been granted orphan drug status for the treatment of ALL and AML in both the United States and European Union.
~~Tender Offer~~STRATEGIC TRANSACTION
        On July 10, 2007, we completed the tender offer and purchased 2,250,000 shares of Bioenvision Series A Preferred Stock for $25.2 million, which we recorded as a component of investments in equity securities, and 8,398,098 shares of Bioenvision Common Stock for $47.0 million, which we recorded as a component of other noncurrent assets in our consolidated balance sheet. As a result of the tender offer, we acquired approximately 22% of the then outstanding shares of Bioenvision Common Stock on an as-converted basis, including 100% of the outstanding Bioenvision Series A Preferred Stock.
        We accounted for our investments in Bioenvision Series A Preferred Stock and Bioenvision Common Stock using two different methods. In the third quarter of 2007, we accounted for our investment in Bioenvision Series A Preferred Stock under the cost method of accounting because these shares did not qualify as similar or substantially similar to common stock (in-substance common stock) under the guidance of EITF Issue No. 02-14, "Whether the Equity Method of Accounting Applies When an Investor Does Not Have an Investment in Voting Stock of an Investee but Exercises Significant Influence through Other Means." Our initial investments in Bioenvision Common Stock and Bioenvision Series A Preferred Stock gave us significant influence over Bioenvision and, as a result, we accounted for our investment in Bioenvision Common Stock under the equity method of accounting. Accordingly, in July 2007, we recorded our initial $47.0 million investment in Bioenvision Common Stock as a single amount in other noncurrent assets in our consolidated balance sheet. Of this amount, we attributed $7.1 million to our 15% proportional share of the assets and liabilities of Bioenvision and $39.9 million, representing the excess of the purchase price over our proportional share of the net assets of Bioenvision, to the underlying intangible assets, IPR&D and goodwill based on their fair values, including $16.8 million, net of tax, to intangible assets, $19.1 million to IPR&D and $4.0 million to goodwill. Equity in income (loss) of equity method investments for the three and nine months ended September 30, 2007, reflects a total of $20.5 million of charges related to our initial investment in Bioenvision Common Stock, including a $19.1 million charge for IPR&D and a total of $1.4 million of charges for the period from July 10, 2007 through September 30, 2007, of which $1.0 million represents

our portion of the losses of Bioenvision for that period and $0.4 million represents amortization expense, net of tax, related to the value assigned to technology and other intangible assets. As of September 30, 2007, other noncurrent assets in our consolidated balance sheet includes a net balance of $26.5 million for our initial investment in Bioenvision Common Stock, consisting of the $47.0 million cash consideration we paid, which was offset by the $20.5 million of charges described above.
~~Stockholder Approval of the Merger~~
        On October 22, 2007, a special meeting of the Bioenvision stockholders was held to seek approval for the merger. Holders of a majority of the issued and outstanding shares of Bioenvision Common Stock and Bioenvision Series A Preferred Stock, voting together as a single class on an as converted basis, approved the merger. On October 23, 2007, we paid approximately $245 million in cash consideration to the former Bioenvision stockholders and Bioenvision Common Stock ceased trading and was delisted from NASDAQ. In the fourth quarter of 2007, we will pay approximately $11 million of cash for the outstanding options to purchase shares of Bioenvision Common Stock. The full purchase accounting for our acquisition of Bioenvision, including the impact of our merger in October 2007, will be reflected in our consolidated financial statements as of December 31, 2007 and for the year ended December 31, 2007.
        In connection with the merger, holders of 2,880,000 shares of Bioenvision Common Stock, representing less than 5% of the outstanding shares of Bioenvision Common Stock on an as-converted basis immediately before the merger became effective, submitted written demands for appraisal of their shares and have, as a result, elected not to accept the $5.60 per share merger consideration. We refer to these stockholders as dissenting stockholders.
~~Acquisition of AnorMED~~Strategic Alliance with Isis
        On January 7, 2008, we entered into a strategic alliance with Isis, whereby we obtained an exclusive license to develop and commercialize mipomersen, a lipid-lowering drug targeting apolipoprotein B-100, for the treatment of FH, an inherited disorder that causes exceptionally high levels of LDL-cholesterol. In ~~November 2006,~~February 2008, we ~~acquired AnorMED, a publicly-traded chemical-based biopharmaceutical company based in Langley, British Columbia, Canada, with a focus on the discovery, development and commercialization~~paid Isis $150.0 million to purchase five million shares of ~~new therapeutic products in the area~~Isis common stock for $30 per share, consisting of ~~hematology, oncology and human immunodeficiency virus, or HIV. We paid gross consideration of $589.2 million in cash, including $584.2~~$69.9 million for the ~~shares of AnorMED's common~~premium we paid to purchase the stock, ~~outstanding on the date of acquisition~~which was charged to research and $5.0 million for acquisition costs. Net consideration was $569.0 million as we acquired AnorMED's cash and cash equivalents totaling $20.2 million. As part of the transaction, we acquired Mozobil, a late-stage product candidate in development for hematopoietic stem cell transplantation, which we have added to our Transplant business. Multiple early studies showed that Mozobil rapidly increases the number of stem cells that move out of the bone marrow and into a patient's blood, which is an important step in preparing a patient for a stem cell transplant. On July 19, 2007, we announced the successful completion of a phase 3 clinical trial of Mozobil in treating non-Hodgkin's lymphoma and on August 2, 2007, we announced the successful completion of a second phase 3 clinical trial of Mozobil in treating multiple myeloma. The trials met their respective primary and secondary endpoints. We accounted for the acquisition as a business combination and accordingly, we included AnorMED's results of operationsexpenses in our consolidated statements of operations, ~~from November 7, 2006,~~and $80.1 million for the ~~date of acquisition.~~
        The purchase price, as adjusted, was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair value of the ~~assets acquired and liabilities assumed amounted to $31.7 million,~~stock, which was ~~allocated~~recorded as an increase to ~~goodwill.~~investment in equity securities in our consolidated balance sheet. We ~~expect that substantially all of~~are working with Isis to finalize the ~~amount allocated to goodwill~~contracts under which we will ~~be deductible for tax purposes. The allocation of the purchase price remains subject to potential adjustments, including adjustments for liabilities associated with certain exit activities~~develop and ~~tax restructuring activities.~~commercialize mipomersen.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES
        Our critical accounting policies and significant judgments and estimates are set forth under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—Critical Accounting Policies and Significant Judgments and Estimates" in Exhibit 13 to our ~~2006~~2007 Form 10-K. Additional information regarding significant judgments and estimates ~~and updates~~related to ~~our policies for Revenue Recognition, Income Taxes and Inventories~~sales reserves are included below. ~~Excluding these additional disclosures, there~~There have been no significant changes to our ~~other~~ critical accounting policies or significant judgments and estimates since December 31, ~~2006.~~2007. Additional information regarding our provisions and estimates for our product sales allowances, sales allowance reserves and accruals, and distributor fees are included below.
Revenue Recognition
~~Product Sales~~
        The timing of product shipments and receipts by the customer can have a significant impact on the amount of revenue recognized in a particular period. A significant portion of our products are sold at least in part through wholesalers and specialty distributors, along with direct sales to hospitals, homecare providers, government agencies and physicians. Consequently, our net sales and quarterly growth comparisons may be affected by fluctuations in the buying patterns of our major distributors and other trade buyers, which may result from seasonality, pricing, wholesaler buying decisions or other factors. Inventory in the distribution channel consists of inventory held by wholesalers and specialty distributors, who are our customers, and inventory held by their retail customers, such as pharmacies and hospitals. Our revenue in a particular period can be impacted by increases or decreases in channel inventories. Significant increases in wholesaler or retail inventories could result in reduced purchases in subsequent periods, or product returns from the distribution channel due to overstocking, low end-user demand or product expiration.
        We use a variety of data sources to determine the amount of inventory in the distribution channel. For most product lines, we receive data on sales and inventory levels directly from our primary customers. For key product lines in our Renal and Therapeutics areas, our data sources also include prescription and wholesaler data purchased from external data providers. As part of our efforts to limit the amount of Renal and Therapeutics inventory held by distributors and to gain improved visibility into the distribution channel, we have executed agreements to limit the amounts of inventory they carry and to provide us ongoing reports to verify distributor inventory levels and sales data.
Product Sales Allowances
        Sales of many biotechnology products in the United States are subject to increased pricing pressure from managed care groups, institutions, government agencies, and other groups seeking discounts. We and other biotechnology companies in the U.S. market are also required to provide statutorily defined rebates and discounts to various U.S. government agencies in order to participate in the Medicaid program and other government-funded programs. In most international markets, we operate in an environment where governments may and have mandated cost-containment programs, placed restrictions on physician prescription levels and patient reimbursements, emphasized greater use of generic drugs and enacted across-the-board price cuts as methods to control costs. The sensitivity of our estimates can vary by program, type of customer and geographic location. Estimates associated with Medicaid and other government allowances may become subject to adjustment in a subsequent ~~period due to the time delay between the recording of the accrual and its ultimate settlement.~~period.
        We record product sales net of the following significant categories of product sales allowances:
•
Contractual adjustments—We offer chargebacks and contractual discounts and rebates, which we collectively refer to as contractual adjustments, to certain private institutions and various

government agencies in both the United States and international markets. We record chargebacks and contractual discounts as allowances against accounts receivable in our consolidated balance sheets. We account for rebates by establishing an accrual for the amounts payable by us to these agencies and institutions, which is included in accrued liabilities in our consolidated balance sheets. We estimate the allowances and accruals for our contractual adjustments based on historical experience and current contract prices, using both internal data as well as information obtained from external sources, such as independent market research agencies and data from wholesalers. We continually monitor the adequacy of these estimates and adjust the allowances and accruals periodically throughout each quarter to reflect our actual experience. In evaluating these allowances and accruals, we consider several factors, including significant changes in the sales performance of our products subject to contractual adjustments, inventory in the distribution channel, changes in U.S. and foreign healthcare legislation impacting rebate or allowance rates, changes in contractual discount rates and the estimated lag time between a sale and payment of the corresponding rebate;

•
Discounts—In some countries, we offer cash discounts for certain products as an incentive for prompt payment, which are generally a stated percentage off the sales price. We account for cash discounts by reducing accounts receivable by the full amounts of the discounts. We consider payment performance and adjust the accrual to reflect actual experience; and

•
Sales returns—We record allowances for product returns at the time product sales are recorded. The product returns reserve is estimated based on the returns policies for our individual products and our experience of returns for each of our products. If the price of a product changes or if the history of product returns changes, the reserve is adjusted accordingly. We

determine our estimates of the sales return accrual for new products primarily based on the historical sales returns experience of similar products, ~~such as those within the same line of product~~ or those within the same or similar therapeutic category.
        Our provisions for product sales allowances reduced gross product sales as ~~follows:~~follows (amounts in thousands):

Three Months Ended
September 30,

Nine Months Ended September 30,

Increase/
(Decrease)
% Change
Increase/
(Decrease)
% Change

Three Months Ended
March 31,

2007
2006
2007
2006

Increase/
Decrease
% Change

(Amounts in thousands)

2008
2007

Product sales allowances: Product sales allowances: Product sales allowances:
Contractual adjustments $ 66,931 $ 49,661 35 % $ 180,622 $ 144,384 25 % Contractual adjustments $ 101,919 $ 84,795 20 %
Discounts 45,065 33,384 35 % 126,547 90,202 40 % Discounts 5,505 4,414 25 %
Sales returns 1,827 2,570 (29 )% 9,248 9,458 (2 )% Sales returns 6,751 1,717 >100 %

Total product sales allowances $ 113,823 $ 85,615 33 % $ 316,417 $ 244,044 30 % Total product sales allowances $ 114,175 $ 90,926 26 %

Total gross product sales Total gross product sales $ 981,505 $ 819,846 20 % $ 2,827,771 $ 2,354,345 20 % Total gross product sales $ 1,120,442 $ 889,116 26 %

Total product sales allowances as a percent of total gross product sales 12 % 10 % 11 % 10 %
Product sales allowances as a percent of total gross product sales Product sales allowances as a percent of total gross product sales 10 % 10 %
        ~~Product~~Total product sales allowances ~~for contractual adjustments and discounts~~ increased $23.2 million, or 26%, for the three ~~and nine~~ months ended ~~September 30, 2007,~~March 31, 2008, as compared to the same ~~periods~~period of ~~2006,~~2007, primarily due to ~~growth~~an increase in overall gross product ~~sales.~~sales, and to a lesser extent, changes in rebate rates or product mix. The increase in sales returns allowances for the three months ended March 31, 2008, as compared to the same period of 2007, is primarily due to increased estimates for the volume of product returns for our Transplant, Biosurgery and Renal segments.
        Total estimated product sales allowance reserves and accruals in our consolidated balance sheets increased ~~23%~~4% to approximately ~~$159~~$162 million as of ~~September 30, 2007,~~March 31, 2008, as compared to approximately ~~$129~~$155 million as of December 31, ~~2006,~~2007, primarily due to increased product sales. ~~Historically, our~~Our actual results have not differed materially from amounts ~~estimated.~~recorded. The annual variation has been less than 0.5% of total product sales for each of the last three years.

Distributor Fees
        EITF Issue No. ~~01-09,~~01-9, "Accounting for Consideration given by a Vendor to a Customer (including a Reseller of a Vendor's Products)" specifies that cash consideration (including a sales incentive) given by a vendor to a customer is presumed to be a reduction of the selling prices of the vendor's products or services and, therefore, should be characterized as a reduction of revenue. We include such fees in contractual adjustments, which are recorded as a reduction to product sales. That presumption is overcome and the consideration should be characterized as a cost incurred if, and to the extent that, both of the following conditions are met:
•
the vendor receives, or will receive, an identifiable benefit (goods or services) in exchange for the consideration; and

•
the vendor can reasonably estimate the fair value of the benefit received.
        We record ~~service~~ fees paid to our distributors for services as a charge to SG&A, a component of operating expenses, only if the criteria set forth above are met. The following table sets forth the

distributor fees recorded as a reduction to product sales and charged to SG~~&A:~~

Three Months Ended
September 30,
Nine Months Ended
September 30,

2007
2006
2007
2006

(Amounts in thousands)

Distributor fees:
Included in contractual adjustments and recorded as a reduction to product sales $ 2,948 $ 2,151 $ 9,238 $ 6,784
Charged to SG&A 3,210 2,826 9,644 7,860

Total distributor fees $ 6,158 $ 4,977 $ 18,882 $ 14,644

~~Income Taxes~~
        Effective January 1, 2007, we adopted the provisions of FIN 48, which clarifies the accounting for income tax positions by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized&A (amounts in the financial statements. FIN 48 also provides guidance on the derecognition of previously recognized deferred tax items, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. Under FIN 48, we recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the tax position. The tax benefits recognized in our financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.
        We operate in numerous countries where our income tax returns are subject to audit and adjustment by local tax authorities. Because we operate globally, the nature of the uncertain tax positions is often very complex and subject to change and the amounts at issue can be substantial. We develop our cumulative probability assessment of the measurement of uncertain tax positions using internal expertise, experience, judgment and assistance from professional advisors. Estimates are refined as additional information becomes known. Any outcome upon settlement that differs from our current estimate may result in additional or lower tax expense in future periods.
        As of January 1, 2007, we had approximately $36.5 million of total gross unrealized tax benefits, of which approximately $26.6 million represents the amount of unrecognized tax benefits that, if recognized, would favorably affect our effective income tax rate in future periods. These gross unrealized tax benefits did not change significantly during the nine months ended September 30, 2007.
        We continue to recognize interest related to unrecognized tax benefits within our provision for income taxes but have not recorded any amounts related to potential penalties. The amount of accrued interest related to unrecognized tax benefits included in our provision for income taxes for the three and nine months ended September 30, 2007, and our accrued interest related to unrecognized tax benefits as of January 1, 2007 and September 30, 2007, were not significant.thousands):

Three Months Ended
March 31,

2008
2007
Distributor fees:
Included in contractual adjustments and recorded as a reduction to product sales $ 4,408 $ 3,092
Charged to SG&A 2,951 2,976

Total distributor fees $ 7,359 $ 6,068

~~Inventories~~
        We value inventories at cost or, if lower, fair value. We determine cost using the first-in, first-out method. We analyze our inventory levels quarterly and write down inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value and inventory in excess of expected requirements. Expired inventory is disposed of and the related costs are written off. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
        We capitalize inventory produced for commercial sale, which may result in the capitalization of inventory prior to regulatory approval. In no event is inventory capitalized prior to the completion of a phase 3 clinical trial. If a product is not approved for sale, it would result in the write off of the inventory and a charge to earnings. Our total inventories at September 30, 2007 included $17.4 million of inventory for Renvela that had not yet been approved for sale. On October 22, 2007, the FDA granted marketing approval for Renvela.
        As of June 30, 2007, we had placed four lots of Thymoglobulin finished goods inventory, valued at $11.8 million, under review pending investigation and resolution of out of trend assay results we observed during quality testing. In September 2007, we determined that these lots did not meet our specifications for saleable product and recorded a charge of $11.8 million to cost of products sold to write off the inventory for these lots. Currently, we have three additional finished lots of Thymoglobulin, valued at approximately $8 million, which are under review to determine whether they meet product specifications. If we determine that any of those lots do not meet the specifications for saleable product, we will write off that inventory as a charge to earnings. Even with the four finished lots of Thymoglobulin that have been written off and the possibility of lots under review being written off, we currently expect to be able to meet projected market demand. We will continue to closely monitor our inventory levels and intend to manage production in order to maintain adequate supply levels in 2008.
A.    RESULTS OF OPERATIONS
        The following discussion summarizes the key factors our management believes are necessary for an understanding of our consolidated financial statements.
REVENUES
        The components of our total revenues are described in the following table:

Three Months Ended
September 30,

Nine Months Ended September 30,

Three Months Ended
March 31,

Increase/
(Decrease)
% Change
Increase/
(Decrease)
% Change

Increase/
(Decrease)
% Change

2007
2006
2007
2006

2008
2007

(Amounts in thousands)

(Amounts in thousands)

Product revenue Product revenue $ 867,682 $ 734,231 18 % $ 2,511,354 $ 2,110,301 19 % Product revenue $ 1,006,268 $ 798,190 26 %
Service revenue Service revenue 83,177 71,153 17 % 241,533 210,987 14 % Service revenue 85,864 75,881 13 %

Total product and service revenue 950,859 805,384 18 % 2,752,887 2,321,288 19 % Total product and service revenue 1,092,132 874,071 25 %
Research and development revenue Research and development revenue 9,300 3,190 >100 % 23,874 11,484 >100 % Research and development revenue 7,929 9,112 (13 )%

Total revenues $ 960,159 $ 808,574 19 % $ 2,776,761 $ 2,332,772 19 % Total revenues $ 1,100,061 $ 883,183 25 %

Product Revenue
        We derive product revenue from sales of:
•
Renal products, including ~~Renagel for the reduction of elevated serum phosphorus levels in end-stage renal disease patients on hemodialysis,~~Renagel/Renvela, Hectorol ~~for the treatment of secondary~~

~~hyperparathyroidism in patients on dialysis and those with chronic kidney disease, or CKD,~~ and bulk sevelamer;

•
Therapeutics products, including Cerezyme, ~~for the treatment of Gaucher disease,~~ Fabrazyme, ~~for the treatment of Fabry disease,~~ Myozyme, ~~for the treatment of Pompe disease~~Aldurazyme, and ~~Thyrogen, which is an adjunctive diagnostic agent used in the follow-up treatment of patients with well-differentiated thyroid cancer;~~Thyrogen;

•
Transplant products, ~~for the treatment of immune-mediated diseases,~~ primarily ~~Thymoglobulin, which induces immunosuppression of certain types of cells responsible for organ rejection in transplant patients;~~Thymoglobulin;

•
Biosurgery products, including orthopaedic products, such as Synvisc, and the Sepra line of products, such as Seprafilm;

•
Oncology products, including Campath and Clolar; and

•
Other products, including:

•
diagnostic products, including infectious disease and cholesterol testing products;

•
~~oncology products, including Campath for the treatment of B-cell chronic lymphocytic leukemia, and Clolar for the treatment of relapsed and refractory pediatric ALL after at least two prior regimens;~~ and

•
bulk pharmaceuticals, including ~~WelChol, which is a mono and adjunctive therapy for the reduction of LDL cholesterol in patients with primary hypercholesterolemia.~~WelChol.
        The following table sets forth our product revenue on a reporting segment basis:

Three Months Ended
September 30,

Nine Months Ended
September 30,

Three Months Ended
March 31,

Increase/
(Decrease)
% Change
Increase/
(Decrease)
% Change

Increase/
(Decrease)
% Change

2007
2006
2007
2006

2008
2007

(Amounts in thousands)

(Amounts in thousands)

Renal: Renal: Renal:
Renagel (including sales of bulk sevelamer) $ 154,159 $ 134,722 14 % $ 436,497 $ 379,976 15 % Renagel/Renvela (including sales of bulk sevelamer) $ 168,694 $ 137,384 23 %
Hectorol 30,265 25,482 19 % 85,853 66,798 29 % Hectorol 29,076 28,293 3 %

Total Renal 184,424 160,204 15 % 522,350 446,774 17 % Total Renal 197,770 165,677 19 %

Therapeutics:
Therapeutics:

Therapeutics:

Cerezyme 304,303 263,791 15 %
Cerezyme 286,071 252,227 13 % 832,841 745,225 12 % Fabrazyme 116,475 100,664 16 %
Fabrazyme 104,610 93,170 12 % 309,623 262,714 18 % Myozyme 67,324 37,919 78 %
Thyrogen 26,828 22,396 20 % 82,706 69,112 20 % Aldurazyme 36,839 — N/A
Myozyme 53,568 20,402 >100 % 138,232 28,984 >100 % Thyrogen 33,785 26,338 28 %
Other Therapeutics 153 72 >100 % 1,025 227 >100 % Other Therapeutics 9,772 167 >100 %

Total Therapeutics 471,230 388,267 21 % 1,364,427 1,106,262 23 % Total Therapeutics 568,498 428,879 33 %

Transplant:
Transplant:

Transplant:

Thymoglobulin/ Lymphoglobuline 41,036 37,619 9 % 121,854 110,291 10 % Thymoglobulin/Lymphoglobuline 43,673 39,442 11 %
Other Transplant 1,845 1,622 14 % 5,548 4,428 25 % Other Transplant 2,257 1,655 36 %

Total Transplant 42,881 39,241 9 % 127,402 114,719 11 % Total Transplant 45,930 41,097 12 %

Biosurgery:
Biosurgery:

Biosurgery:

Synvisc 61,175 55,929 9 % 179,634 172,782 4 % Synvisc/Synvisc-One 56,142 53,596 5 %
Sepra products 26,381 21,054 25 % 74,572 62,430 19 % Sepra products 30,604 23,115 32 %
Other Biosurgery 7,107 7,067 1 % 26,065 21,277 23 % Other Biosurgery 13,581 10,572 28 %

Total Biosurgery 94,663 84,050 13 % 280,271 256,489 9 % Total Biosurgery 100,327 87,283 15 %

Oncology Oncology 22,281 16,697 33 %

Other product revenue Other product revenue 74,484 62,469 19 % 216,904 186,057 17 % Other product revenue 71,462 58,557 22 %

Total product revenues $ 867,682 $ 734,231 18 % $ 2,511,354 $ 2,110,301 19 % Total product revenue $ 1,006,268 $ 798,190 26 %

Renal
        Sales of ~~Renagel,~~Renagel/Renvela, including sales of bulk sevelamer, increased ~~14%~~23% to ~~$154.2~~$168.7 million for the three months ended ~~September 30, 2007,~~March 31, 2008, as compared to the same period of ~~2006.~~2007. Renagel price increases in the United States in December 2006 and April 2007 accounted for ~~$9.5~~$6.6 million of the additional revenue, while increased end-user demand worldwide accounted for ~~$9.9~~$19.6 million of additional revenue. The strengthening of foreign currencies, primarily the Euro ~~and British pound sterling,~~ against the U.S. dollar, for the three months ended ~~September 30, 2007,~~March 31, 2008, as compared to the same period of ~~2006,~~2007, positively impacted Renagel revenue by ~~$3.7~~$8.6 million. Sales of ~~Renagel,~~Renagel/Renvela, including sales of bulk sevelamer, were ~~16%~~15% of our total revenue for the three months ended ~~September 30, 2007,~~March 31, 2008, as compared to ~~17% of our total revenue~~16% for the same period of ~~2006.~~2007.
        ~~Sales~~On October 22, 2007, the FDA granted marketing approval for Renvela, a second-generation buffered form of Renagel ~~including sales of bulk sevelamer, increased 15% to $436.5 million~~ for the ~~nine months ended September 30, 2007, as compared to the same period~~control of 2006. Price increases for Renagel in the United States in December 2006 and April 2007 accounted for $25.1 million of additional revenue, while increased end-user demand worldwide accounted for $31.4 million of the additional revenue. The strengthening of foreign currencies, primarily the Euro and British pound sterling, against the U.S. dollar for the nine months ended September 30, 2007, as compared to the same period of 2006, positively impacted Renagel revenue by $10.8 million. Sales of Renagel, including sales of bulk sevelamer, were 16% of our total revenue for both the nine months ended September 30, 2007 and 2006.
        ~~Hectorol, used to treat secondary hyperparathyroidism~~serum phosphorus in patients ~~on dialysis and those~~ with CKD ~~is sold to nephrologists~~on dialysis. In March 2008, we launched the product for dialysis patients in the United States. Sales of ~~Hectorol increased 19% to $30.3~~Renvela in the United States were $4.6 million for the three months ended March 31, 2008. We are currently pursuing regulatory approvals in Europe, South America and in other markets internationally.
        In October 2007, an FDA advisory committee voted to recommend that the agency extend the indications for phosphate binders to include pre-dialysis patients with hyperphosphatemia. We are engaged in discussions with the FDA regarding the expansion of the product's labeling to include CKD patients with hyperphosphatemia who have not progressed to dialysis. In addition, we expect to file for approval of a powder form of Renvela that may make it easier for patients to comply with their prescribed treatment program. While Renagel will remain available for a period of time, our long-term goal is to transition patients to Renvela.
        Sales of Hectorol increased ~~29%~~3% to ~~$85.9 million for the nine months ended September 30, 2007, as compared to $25.5~~$29.1 million for the three months ended ~~and $66.8~~March 31, 2008 as compared to $28.3 million for the ~~nine months ended September 30, 2006,~~same period of 2007, primarily due to ~~price increases for the 0.5 and 2.5 microgram tablets in July and December 2006 and a price increase for Hectorol IV in April 2006, as well as~~ higher end-user ~~demand during both periods.~~demand.
        We expect sales of ~~Renagel~~Renagel/Renvela and Hectorol to continue to increase, driven primarily by growing patient access to these products, including through the Medicare Part D program in the United States, and the continued adoption of the products by nephrologists worldwide. ~~We expect adoption~~Adoption rates for ~~Renagel~~Renagel/Renvela are expected to trend favorably as a result of ~~our DCOR trial~~the recent introduction of Renvela in the U.S. market, anticipation of a label expansion to include hyperphosphatemic patients who are not on dialysis, and the ~~growing acceptance~~introduction of a powder formulation expected in the first half of 2009. Adoption rates for Hectorol are expected to trend favorably as a result of growth of the ~~National Kidney Foundation's 2003 Kidney Disease Outcome Quality Initiative, or K/DOQI, Guidelines for Bone Metabolism and Disease in~~ CKD market and the ~~RIND study. Renagel~~anticipated launch of a 1 mg capsule form of Hectorol in the first half of 2009. In addition, we expect adoption rates to increase for both Renagel/Renvela and Hectorol as the result of our recent expansion and redeployment of our Renal sales force.
        Renagel/Renvela and Hectorol compete with several other products and our future sales may be impacted negatively by these products. ~~We discuss some~~In addition, a generic manufacturer has filed an Abbreviated New Drug Application (ANDA) seeking to market a generic version of ~~these competitors under~~Hectorol prior to the ~~heading "Risk Factors—Our future success will depend on our ability to effectively develop and market our products and services against those~~expiration dates of our ~~competitors," included in~~patents covering the product. If this ~~report.~~or any other generic manufacturer were to receive approval to sell a generic version of Hectorol, our revenues from this product would be adversely affected. In addition, our ability to continue to increase sales of ~~Renagel~~Renagel/Renvela and Hectorol will depend on many other factors, including our ability to optimize dosing and improve patient compliance with ~~Renagel~~Renagel/Renvela dosing, the availability of reimbursement from third-party payors and the extent of coverage, including under the Medicare Part D program. Also, the accuracy of our estimates of fluctuations in the payor mix and our ability to effectively manage wholesaler inventories and the levels of compliance with the inventory management programs we implemented for Renagel and Hectorol with our wholesalers could impact the revenue from our Renal reporting segment that we record from period to period.
        On October 22, 2007, the FDA granted marketing approval for Renvela, a second-generation buffered form of Renagel for the control of serum phosphorus in patients with CKD on dialysis. We expect to launch Renvela for dialysis patients in the United States during the first quarter of 2008 and are pursuing regulatory approvals in Europe, South America and in other markets internationally. We will continue to make Renagel available, with the long-term goal of transitioning patients to Renvela.

        We expect Renvela will enable us to expand the market for our phosphate binder by reaching patients with CKD who have not progressed to dialysis. In October 2007, an FDA advisory committee voted to recommend that the agency extend the indications for phosphate binders to include pre-dialysis patients with hyperphosphatemia. During the first half of 2008, we plan to file a supplemental New Drug Application with the FDA seeking approval of Renvela for hyperphosphatemic patients with CKD who are not on dialysis. In addition, we expect to file for approval of a powder form of Renvela that may make it easier for patients to comply with their prescribed treatment program.
Therapeutics
        Therapeutics product revenue increased ~~21%~~33% to ~~$471.2~~$568.5 million for the three months ended ~~and 23% to $1.4 billion for the nine months ended September 30, 2007,~~March 31, 2008, as compared to the same ~~periods~~period of ~~2006,~~2007, due to continued growth in sales of Cerezyme, Fabrazyme and ~~Thyrogen~~Myozyme and the inclusion of Aldurazyme sales in our results beginning in 2008. As a result of our restructured relationship with BioMarin and BioMarin/Genzyme LLC regarding the manufacturing, marketing and sale of Aldurazyme, effective January 1, 2008, we began to ~~the launch~~record all sales of ~~Myozyme in the European Union, the United States and Canada in 2006.~~Aldurazyme.
        The ~~13%~~15% growth in sales of Cerezyme to ~~$286.1~~$304.3 million for the three months ended ~~and 12% growth in sales to $832.8 million for the nine months ended September 30, 2007,~~March 31, 2008, as compared to the same ~~periods~~period of ~~2006,~~2007, is attributable to our continued identification of new Gaucher disease patients, particularly in international markets. Through October 2007, our price for Cerezyme ~~has~~ remained consistent from period to period. ~~However, effective~~Effective November 1, 2007, we implemented a 3% price increase in the United States for Cerezyme. Although we expect Cerezyme to continue to be a substantial contributor to revenues in the future, it is a mature product, and as a result, we do not expect that the current new patient growth trend will continue. The strengthening of foreign currencies, primarily the Euro ~~and British pound sterling,~~ against the U.S. dollar, positively impacted Cerezyme revenue by ~~$8.4~~$17.2 million for the three months ended ~~and by $25.0 million for the nine months ended September 30, 2007,~~March 31, 2008, as compared to the same ~~periods~~period of ~~2006.~~2007.
        ~~Our results of operations are highly dependent on~~The 16% increase in sales of Cerezyme and a reduction in revenue from sales of this product would adversely affect our results of operations. Sales of Cerezyme were approximately 30% of our total revenue for the three months ended September 30, 2007, as comparedFabrazyme to 31% for the same period of 2006, and 30% of our total revenue for the nine months ended September 30, 2007, as compared to 32% for the same period of 2006. Revenue from Cerezyme would be impacted negatively if competitors developed alternative treatments for Gaucher disease, and the alternative products gained commercial acceptance, if our marketing activities are restricted, or if coverage, pricing or reimbursement is limited. Although orphan drug status for Cerezyme, which provided us with exclusive marketing rights for Cerezyme in the United States for seven years, expired in May 2001, we continue to have patents protecting our method of manufacturing Cerezyme until 2010 and the composition of Cerezyme as made by that process until 2013. The expiration of market exclusivity and orphan drug status will likely subject Cerezyme to increased competition, which may decrease the amount of revenue we receive from this product or the growth of that revenue. We are aware of companies that have developed or have initiated efforts to develop competitive products, and other companies may do so in the future. We discuss these competitors under the heading "Risk Factors—Our future success will depend on our ability to effectively develop and market our products and services against those of our competitors," in this report.
        ~~The 12% increase to $104.6~~$116.5 million for the three months ended ~~and the 18% increase to $309.6 million for the nine months ended September 30, 2007 in sales of Fabrazyme,~~March 31, 2008, as compared to the same ~~periods~~period of ~~2006,~~2007, is primarily attributable to increased patient identification worldwide as Fabrazyme is introduced into new markets. We implemented a 3% price increase in the United States for Fabrazyme in November 2007 which did not have a significant impact on Fabrazyme revenue for the three months ended March 31, 2008. The strengthening of foreign currencies, primarily the Euro ~~and British pound sterling,~~ against the U.S. dollar, positively impacted Fabrazyme revenue by ~~$2.9~~$7.6 million for the three months ended ~~and by $8.3 million for the nine months ended September 30, 2007,~~March 31, 2008, as compared to the same ~~periods of 2006.~~

        Sales of Thyrogen increased 20% to $26.8 million for the three months ended and 20% to $82.7 million for the nine months ended September 30, 2007, as compared to the same periods of 2006, due to worldwide volume growth which impacted sales by $2.7 million in the three month period and $11.5 million in the nine month period. The strengthening of foreign currencies, primarily the Euro and British pound sterling, against the U.S. dollar did not have a material impact on Thyrogen revenue for the three months ended but positively impacted Thyrogen revenue by $2.0 million for the nine months ended September 30, 2007, as compared to the same periods of 2006. We expect to receive FDA approval for the use of Thyrogen in thyroid cancer remnant ablation procedures by the end of 2007.
        Sales of Myozyme were ~~$53.6~~$67.3 million for the three months ended ~~and $138.2~~March 31, 2008, as compared to $37.9 million for the nine months ended September 30, 2007, as compared to $20.4 million for the three months ended and $29.0 million for the nine months ended September 30, 2006. In March 2006, we received marketing authorization for Myozyme in the European Union. In April 2006, the FDA granted marketing approval for Myozyme in the United States.same period of 2007. We launched Myozyme in the United States in May 2006, in Europe a month later and in Canada in September 2006. We are introducing Myozyme on a country-by-country basis in the European Union, as pricing and reimbursement approvals are obtained. Myozyme has received orphan drug designation in the United States, which provides seven years of market exclusivity, and in the European Union, which provides ten years of market exclusivity. In April 2007, Myozyme was approved for commercial sale in Japan and subsequently, in June 2007, we launched the product ~~after we received~~upon receipt of reimbursement approval. We expect to file for approval in several additional countries in ~~2007.~~2008. The ~~8% increase in~~strengthening of foreign currencies, primarily the Euro against the U.S. dollar, positively impacted Myozyme revenue by $3.5 million for the three months ended September 30, 2007, as compared to the same period of 2006, positively impacted Myozyme revenue by $1.2 million. The 8% increase in the Euro against the U.S. dollar for the nine months ended September 30, 2007, as compared to the same period of 2006, positively impacted Myozyme revenue by $1.7 million. The positive impact of the increase in the Euro against the U.S. dollar on Myozyme revenue for both the three and nine months ended September 30, 2007, is driven by the growth in sales volume of Myozyme in Europe, in each such period, as compared to the same periods of 2006.March 31, 2008.
        We currently manufacture Myozyme in the United States at the 160 liter, or 160L, scale at our manufacturing facility in Framingham, Massachusetts and at the 2000 liter, or 2000L, scale at our manufacturing facility in Allston, Massachusetts, and have begun Myozyme fill-finish at our 2000L facility in Waterford, Ireland. We ~~expect~~have U.S. approval to ~~commence~~sell Myozyme ~~engineering runs~~manufactured at ~~our protein manufacturing facility~~the 160L scale and production at the 2000L scale has been approved for sale in ~~Geel, Belgium later this year.~~more than 40 countries outside the United States.
        In ~~addition, in~~ October 2007, we submitted an application to the FDA seeking approval of ~~a larger-scale manufacturing process, based in Allston, Massachusetts, to enable us~~production at the 2000L scale to meet the expected demand for Myozyme in the U.S. market going forward. ~~We currently anticipate a decision from~~In April 2008, the FDA concluded that Myozyme produced at the 160L scale and at the 2000L scale should be classified as two different products because of differences in the carbohydrate structures of the molecules. As a result, the FDA will require us to submit a separate BLA to gain U.S. approval for Myozyme produced at the 2000L scale. The FDA proposed that we initiate a rolling BLA review process by submitting results from our Late Onset Treatment Study, or LOTS study, for Myozyme because the Myozyme used in that study was produced at the 2000L scale. We had already been in the

process of preparing the results of that study for submission to the FDA to fulfill a post-marketing commitment. The LOTS study, which met its co-primary efficacy endpoints, was undertaken to evaluate the safety and efficacy of Myozyme in juvenile and adult patients with Pompe disease. We expect the FDA to give the BLA priority review and to act on the application ~~for~~by the end of 2008. We anticipate that this process will culminate in the availability of two commercial versions of Myozyme in the United States: one produced at the 160L scale and the other produced at the 2000L scale. This decision by the FDA will negatively impact our ~~larger-scale manufacturing process~~anticipated 2008 Myozyme revenue by approximately $45 million and because we will continue to provide Myozyme to some patients through a clinical access program, we anticipate that costs related to Myozyme will be approximately $8-$10 million more than originally expected in 2008. We expect sales of Myozyme to continue to grow and expect to begin providing U.S. patients with commercial 2000L Myozyme during the first quarter of ~~2008.~~2009. In the meantime, we are continuing our efforts to optimize supply for the U.S. market.
        Effective January 1, 2008, we, BioMarin and BioMarin/Genzyme LLC restructured our relationship regarding the manufacturing, marketing and sale of Aldurazyme and entered into several new agreements. BioMarin will continue to manufacture Aldurazyme. We will continue to purchase Aldurazyme exclusively from BioMarin and globally market ~~including temporarily transitioning some patients~~and sell the product. Effective January 1, 2008, instead of sharing all costs and profits of Aldurazyme equally, we began to record all sales of Aldurazyme and began paying BioMarin a ~~clinical access program through which they may receive Myozyme until~~tiered payment ranging from approximately 39.5% to 50% of worldwide net product sales of Aldurazyme. Aldurazyme product revenue was $36.8 million for the three months ended March 31, 2008. Prior to January 1, 2008, on behalf of BioMarin/Genzyme LLC, we were commercializing Aldurazyme in the United States, Canada, the European Union, Latin America and the Asia-Pacific regions and continuing to launch Aldurazyme on a country-by-country basis as pricing and reimbursement approvals were obtained. BioMarin/Genzyme LLC's Aldurazyme product revenue was $26.8 million for the three months ended March 31, 2007. The $10.0 million increase in sales of Aldurazyme is attributable to increased patient identification worldwide as Aldurazyme is introduced into new markets. We have applications for marketing approval for Aldurazyme currently pending in several countries in Latin America, Central and Eastern Europe and the Asia-Pacific regions.
        Sales of Thyrogen increased 28% to $33.8 million for the three months ended March 31, 2008, as compared to the same period of 2007. A Thyrogen price increase of approximately 10% in the United States in April 2007 accounted for $1.4 million of the additional revenue while worldwide volume growth positively impacted sales by $4.3 million. The strengthening of foreign currencies, primarily the Euro against the U.S. dollar, positively impacted Thyrogen revenue by $1.9 million for the three months ended March 31, 2008, as compared to the same period of 2007. In December 2007 we received FDA ~~approves~~approval for the ~~larger-scale manufacturing process. Production at this larger scale is already approved~~use of Thyrogen in 33 countries. We discuss the risks involved in manufacturing Myozyme and other products under the heading "Risk Factors—Manufacturing problems may cause product launch delays, inventory shortages, recalls and unanticipated costs," in this report.thyroid cancer remnant ablation procedures.
Transplant
        Transplant product revenue increased 9%12% to ~~$42.9~~$45.9 million for the three months ended ~~and 11% to $127.4 million for the nine months ended September 30, 2007,~~March 31, 2008, as compared to the same ~~periods~~period of ~~2006. The increases are~~2007. This was primarily due to a ~~$5.6~~$4.1 million increase ~~for~~in Thymoglobulin revenue as a result of an 11% increase in the ~~three month period and an $11.9~~worldwide average sales price of Thymoglobulin. In addition, there was a $2.6 million increase ~~for the nine month period~~ in sales of Thymoglobulin asdue to an increase in volume. This was a result of ~~its~~ increased utilization of Thymoglobulin in transplant procedures worldwide.
        ~~We received a warning letter from~~In the ~~FDA on September 19,~~second quarter of 2007, ~~that addresses~~we began experiencing certain manufacturing challenges with respect to the production of Thymoglobulin at our manufacturing ~~procedures in our Thymoglobulin production~~ facility in Lyon, ~~France. There is no~~France, which resulted in product stability issues. We have worked closely with the FDA in addressing these challenges, and have implemented process changes at our Lyon facility to resolve these production issues. In addition, the FDA has accepted our responses to their warning letter, which was issued in 2007, regarding the production processes at our Lyon facility. We continue to monitor Thymoglobulin

~~current impact~~lots produced in 2007 and, if necessary, will recall any lots that are expected to ~~product supply as a result~~trend outside of ~~the FDA warning letter and we are in ongoing discussions with the FDA to resolve the issues described in the letter.~~
        ~~Additionally, we determined that four lots of Thymoglobulin finished goods inventory did not meet~~ our ~~internal~~ specifications for saleable product ~~which caused those lots~~prior to ~~be written off. Currently,~~the originally established expiration period. In the three months ended March 31, 2008, we have three additional finished lots of Thymoglobulin, valued at approximately $8 million, which are under review to determine whether they meet product specifications. If we determine that any of those lots do not meet the specifications for saleable product, we will write off that inventory as a charge to earnings. Even with the four finished lotsrecalled one lot of Thymoglobulin that ~~have been written off and~~no longer met our specifications for product appearance. In April 2008 we recalled an additional three lots for the ~~possibility~~same reason. The value of the unused portion of these four lots ~~under review being written off, we currently~~was not significant. We expect to recall additional lots this year, although most of the product will likely be ~~able~~consumed prior to ~~meet projected market demand.~~a recall being necessary. We will continue to closely monitor our Thymoglobulin inventory levels and intend to manage production in order to maintain adequate supply levels throughout the remainder of 2008. We expect Thymoglobulin sales to accelerate in ~~2008.~~
        ~~We discuss~~ the ~~risks involved in manufacturing Thymoglobulin and our other products under~~second half of 2008 as supply levels increase to meet the ~~heading "Risk Factors—Manufacturing problems may cause product launch delays, inventory shortages, recalls and unanticipated costs," in this report.~~full demand of the product.
Biosurgery
        Biosurgery product revenue increased ~~13%~~15% to ~~$94.7~~$100.3 million for the three months ended ~~and increased 9% to $280.3 million for the nine months ended September 30, 2007,~~March 31, 2008, as compared to the same ~~periods~~period of ~~2006. There was a $5.5~~2007. Seprafilm revenue increased $6.7 million ~~increase~~ for the three ~~month~~months ended March 31, 2008, as compared to the same period ~~and a $13.5 million increase for the nine month period, in sales~~ of ~~Seprafilm~~2007, primarily due to greater penetration of the product into the United States, Japanese and European markets.
        The combined revenues of Synvisc ~~sales~~and Synvisc-One increased ~~$5.2~~by $2.5 million for the three months ended ~~and $6.9 million for the nine months ended September 30, 2007,~~March 31, 2008, as compared to the same ~~periods~~period of ~~2006,~~2007, primarily due to ~~a $2.5 million adjustment recorded in September 2007 to accruals related to our reacquisition of the~~an expanded sales and marketing ~~rights~~investment.
        We received approval to ~~Synvisc~~market Synvisc-One, a single injection regimen, in ~~January 2005. Currently, Synvisc is delivered through three injections administered at one-week intervals.~~the European Union in December 2007. In November ~~2006~~2007, we ~~completed a pivotal trial evaluating Synvisc-One, a single-injection regimen of Synvisc, which showed that patients who~~ received a ~~single-injection regimen of Synvisc achieved a statistically significant improvement in~~letter from the ~~pain caused by osteoarthritis of the knee in 26 weeks compared to those using placebo. We filed~~FDA requesting additional analysis and data regarding our marketing application for ~~marketing approval of~~ Synvisc-One in the United States ~~in June 2007~~ and ~~in the European Union in July 2007. We anticipate receiving U.S. and European~~we currently expect regulatory action ~~this year~~ on our marketing ~~applications. The clinical advantages~~application by the end of 2008. We also plan on pursuing marketing approvals for Synvisc-One ~~have the potential to expand the market for Synvisc.~~
        ~~We are aware of several products that compete with Synvisc, several companies that have initiated efforts to develop competitive products~~in Canada, Asia and several companies that market products designed to relieve the pain of osteoarthritis. We discuss some of these competitors under the heading "Risk Factors—Our future success will depend on our ability to effectively develop and market our products and services against those of our competitors," included in this report.

~~Other Product Revenue~~Latin America.
        Other Biosurgery product revenue increased ~~19%~~28% to ~~$74.5~~$13.6 million for the three months ended ~~and 17% to $216.9 million for the nine months ended September 30, 2007,~~March 31, 2008, as compared to the same ~~periods~~period of ~~2006,~~2007, primarily due ~~to:~~
•
to $2.4 million of revenue related to a ~~14% increase~~dermal filler we are developing with Mentor Corporation, or Mentor.
Oncology
        Oncology product revenue increased 33% to ~~$15.3~~$22.3 million for the three months ended ~~and a 37% increase~~March 31, 2008, as compared to ~~$46.1 million for~~ the ~~nine months ended September 30,~~same period of 2007, inprimarily due to the ~~combined~~addition of sales of ~~Campath and Clolar;~~

•
~~a 5% increase~~Clolar outside of North America, which rights we acquired in ~~sales~~connection with our acquisition of ~~diagnostic products to $29.4 million for the three months ended and a 7% increase to $89.1 million for the nine months ended September 30, 2007, due to increased demand; and~~

•
~~a 37% increase to $29.0 million for the three months ended and an 18% increase to $80.4 million~~Bioenvision in sales of bulk pharmaceuticals for the nine months ended September 30, 2007, due to bulk sales of and royalties earned on WelChol as a result of increased demand from our U.S. marketing partner, Sankyo Pharma, Inc., or Sankyo.
October 2007.
        In September 2007, the FDA approved expanded labeling for Campath to include first-line treatment of patients with B-cell chronic lymphocytic leukemia, or B-CLL, significantly increasing the number of patients eligible to receive the product. ~~We expect to receive~~In December 2007 we received European approval for an expanded indication byas well.
        We are developing the ~~end~~intravenous formulation of Clolar for significantly larger indications, including first-line and relapsed or refractory AML in adults. We are also developing an oral formulation of Clolar and have initiated clinical trials for the treatment of myelodysplastic syndrome, or MDS. Clolar has been granted orphan drug status for the treatment of ALL and AML in both the United States and European Union.

Other Product Revenue
        Other product revenue increased 22% to $71.5 million for the three months ended March 31, 2008, as compared to the same period of 2007, ~~following~~primarily due to:
•
a 31% increase in sales of diagnostic products to $40.4 million, due to the ~~positive opinion issued~~acquisition of DCL in ~~October~~December 2007 byand an increase in demand for the ~~Committee for Medicinal Products for Human Use.~~
        ~~In October 2007, we obtained European Union~~rapid tests used to diagnose a strain of influenza; and

•
a 37% increase in sales of liquid crystals to $13.3 million combined with a 5% increase in sales of WelChol to $15.7 million, due to bulk sales and royalties earned as a result of increased demand from our U.S. marketing approval for and subsequently launched Cholestagel in Europe. Cholestagel is a new, non-absorbed, cholesterol-lowering agent aimed at treating patients with primary hypercholesterolemia who cannot meet their targeted cholesterol levels with standard therapies alone.
partner, Sankyo Pharma, Inc., or Sankyo.
Service Revenue
        We derive service revenue primarily from the following sources:
•
sales of MACI, aour proprietary cell therapy product for cartilage repair, in Europe and Australia, Carticel for the treatment of cartilage damage, and Epicel for the treatment of severe burns, all of which are included in our Biosurgery reporting segment; and

•
~~genetic~~reproductive/genetics and pathology/oncology diagnostic testing services, which are included in our Genetics reporting segment.
        The following table sets forth our service revenue on a segment basis:

Three Months Ended
September 30,

Nine Months Ended
September 30,

Three Months Ended
March 31,

Increase/
(Decrease)
% Change
Increase/
(Decrease)
% Change

Increase/
(Decrease)
% Change

2007
2006
2007
2006

2008
2007

(Amounts in thousands)

(Amounts in thousands)

Therapeutics Therapeutics $ 176 $ — N/A
Biosurgery Biosurgery $ 9,786 $ 9,399 4 % $ 27,486 $ 29,892 (8 )% Biosurgery 10,732 9,362 15 %
Genetics Genetics 73,050 61,360 19 % 212,922 179,853 18 % Genetics 74,329 66,158 12 %
Oncology Oncology 410 282 45 %
Other Other 341 394 (13 )% 1,125 1,242 (9 )% Other 217 79 >100 %

Total service revenue $ 83,177 $ 71,153 17 % $ 241,533 $ 210,987 14 % Total service revenue $ 85,864 $ 75,881 13 %

        Service revenue attributable to our Biosurgery reporting segment increased 4%15% to ~~$9.8~~$10.7 million for the three months ended ~~September 30, 2007,~~March 31, 2008, as compared to the same period of ~~2006.~~2007. The increase is primarily due to higher demand for ~~Carticel, offset, in part, by a decline in sales of~~ Epicel ~~due to a decrease in patients requesting this service.~~

        Service revenue attributable to our Biosurgery segment decreased 8% to $27.5 million for the nine months ended September 30, 2007, as compared to the same period of 2006 as a result of a decline in the sales of Epicel due to a decrease in patients requesting this service.and MACI.
        Service revenue attributable to our Genetics reporting segment increased ~~19%~~12% to ~~$73.1~~$74.3 million for the three months ended ~~and 18% to $212.9 million for the nine months ended September 30, 2007,~~March 31, 2008, as compared to the same ~~periods~~period of ~~2006. These increases were~~2007. The increase was primarily attributable to continued growth in ~~sales of DNA~~revenue from our genetic testing and ~~cancer testing services as well as growth in the~~ prenatal screening ~~and diagnosis market.~~services.
        The strengthening of foreign currencies for the three months ended March 31, 2008, as compared to the same period of 2007, did not have a significant impact on service revenue.

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

Three Months Ended
September 30,

Nine Months Ended
September 30,

Three Months Ended
March 31,

Increase/
(Decrease)
% Change
Increase/
(Decrease)
% Change
Increase/
(Decrease)
% Change

2007
2006
2007
2006
2008
2007

(Amounts in thousands)

(Amounts in thousands)

International product and service revenue $ 451,881 $ 375,211 20% $ 1,302,797 $ 1,057,507 23% $ 564,127 $ 411,019 37 %
% of total product and service revenue 48% 47% 47% 46% 52 % 47 %
        The ~~20%~~37% increase to ~~$451.9~~$564.1 million ~~for the three months ended and the 23% increase to $1.3 billion for the nine months ended September 30, 2007,~~ in international product and service revenue for the three months ended March 31, 2008, as compared to the same ~~periods~~period of ~~2006,~~2007, is primarily due to ~~a $71.5~~an $89.5 million increase ~~for the three month period and a $284.7 million increase for the nine month period,~~ in the combined international sales of Renagel, Cerezyme, Fabrazyme and Myozyme primarily due to an increase in the number of patients using these products in the European Union, South America and the Asia-Pacific rim. In addition, we began to record Aldurazyme revenue effective January 1, 2008. Revenue generated outside the United States for Aldurazyme was $29.8 million for the three months ended March 31, 2008, which had been recorded as joint venture revenue in 2007.
        International product and service revenue as a percentage of total product and service revenue increased due primarily to the addition of revenue generated outside the United States for Aldurazyme and clofarabine. As of January 1, 2008, we began to record revenue for Aldurazyme as a result of the restructured relationship with BioMarin/Genzyme LLC. We began recording clofarabine revenue outside the United States as a result of our acquisition of Bioenvision in October 2007 which provided us with the exclusive, worldwide rights to clofarabine.
        The strengthening of foreign currencies, primarily the Euro ~~and British pound sterling,~~ against the U.S. dollar, positively impacted total product and service revenue by ~~$19.8~~$46.6 million for the three months ended ~~and $57.5 million for the nine months ended September 30, 2007,~~March 31, 2008, as compared to the same ~~periods~~period of ~~2006.~~2007.
Research and Development Revenue
        The following table sets forth our research and development revenue on a segment basis:

Three Months Ended
September 30,

Nine Months Ended
September 30,

Three Months Ended
March 31,

Increase/
(Decrease)
% Change
Increase/
(Decrease)
% Change

Increase/
(Decrease)
% Change

2007
2006
2007
2006

2008
2007

(Amounts in thousands)

(Amounts in thousands)

Therapeutics Therapeutics $ 121 $ — N/A $ 1,190 $ 1,000 19 % Therapeutics $ 19 $ 638 (97 )%
Transplant Transplant — — N/A 180 — N/A Transplant — 180 (100 )%
Biosurgery Biosurgery 1,697 — N/A 4,671 5 >100 % Biosurgery 603 1,748 (66 )%
Oncology Oncology 6,357 5,470 16 %
Other Other 7,016 3,180 >100 % 16,665 10,376 61 % Other 567 773 (27 )%
Corporate Corporate 466 10 >100 % 1,168 103 >100 % Corporate 383 303 26 %

Total research and development revenue $ 9,300 $ 3,190 >100 % $ 23,874 $ 11,484 >100 % Total research and development revenue $ 7,929 $ 9,112 (13 )%

        Total research and development revenue ~~increased $6.1~~decreased $1.2 million for the three months ended ~~and $12.4 million for the nine months ended September 30, 2007,~~March 31, 2008, as compared to the same ~~periods~~period of ~~2006,~~2007, primarily due to ~~increases~~decreases in revenue recognized by our Therapeutics and Biosurgery reporting ~~segment and Other research and development revenue. Biosurgery research and development~~segments partially offset by an increase in revenue primarily represents work done related to dermal filler products as a result of new contracts entered into with Mentor Corporation in September 2006 and February 2007, for which there were no comparable amounts for the three and nine months ended September 30, 2006. Other research and development revenue includes $2.9 million of revenue for the three months ended and $8.7 million for the nine months ended September 30, 2007, for research and development work related to alemtuzumab for the treatment of multiple sclerosis that we perform on behalf of Bayer Schering Pharma AG for which there were no comparable amounts for the same periods of 2006. Other research and development revenue also includes revenue related tofrom our ~~pharmaceuticals and cardiovascular businesses.~~Oncology reporting segment.

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

Three Months Ended
September 30,

Nine Months Ended
September 30,

Three Months Ended
March 31,

Increase/
(Decrease)
% Change
Increase/
(Decrease)
% Change
Increase/
(Decrease)
% Change

2007
2006
2007
2006
2008
2007

(Amounts in thousands)

(Amounts in thousands)

Product margin $ 677,207 $ 600,091 13% $ 2,002,903 $ 1,721,692 16% $ 789,529 $ 643,466 23 %
% of total product revenue 78 % 82 % 80 % 82 % 78 % 81 %
Service margin $ 29,040 $ 20,617 41% $ 85,311 $ 62,637 36% $ 30,290 $ 28,142 8 %
% of total service revenue 35 % 29 % 35 % 30 % 35 % 37 %
Total product and service margin $ 706,247 $ 620,708 14% $ 2,088,214 $ 1,784,329 17%
Total product and service gross margin $ 819,819 $ 671,608 22 %
% of total product and service revenue 74 % 77 % 76 % 77 % 75 % 77 %
Product Margin
        Our overall product margin increased ~~$77.1~~$146.1 million, or ~~13%~~23%, for the three months ended ~~and $281.2 million, or 16%, for the nine months ended September 30, 2007,~~March 31, 2008, as compared to the same ~~periods~~period of ~~2006.~~2007. This is primarily due to:
•
improved margins for Hectorol and Renagel due to price increases, increased ~~customer~~unit volume and increased efficiency at our global manufacturing ~~facilities as well as the favorable foreign exchange rate for the Euro against the U.S. dollar;~~facilities;

•
~~improved~~increased margins for Cerezyme, Fabrazyme, ~~and~~ Thyrogen ~~due to increased sales volume~~ and ~~improved unit costs;~~

•
~~improved margins for~~ Myozyme due to increased sales ~~volume. We launched Myozyme in the European Union, the United States and Canada in 2006;~~volume;

•
an increase in product margin for Seprafilm due to increased sales;

•
an increase in product margin for Hylaform due to a milestone payment received in March 2008; and

•
an increase in product margin for our oncology business due to ~~increased global~~higher demand for Campath worldwide, and an increase in worldwide sales of ~~Campath and increased U.S. sales~~Clolar due to our acquisition of ~~Clolar.~~Bioenvision in October 2007.
These increases in product margin were partially offset by ~~a $5.6~~the $9.5 million ~~increase in stock-based compensation expenses charged to cost~~unfavorable effect of ~~goods sold for the nine months ended September 30, 2007, as compared~~exchange due to the ~~same period~~weakening of ~~2006. In July 2006, we began amortizing stock-based compensation expense capitalized to inventory based on margin turns.~~the U.S. dollar against many currencies, particularly the Euro.

        Total product margin as a percentage of total product revenue for the three ~~and nine~~ months ended ~~September 30, 2007, decreased~~March 31, 2008, as compared to the same ~~periods~~period of ~~2006,~~2007, decreased due to ~~the change in product mix~~higher unit costs for Cerezyme and Fabrazyme, increased sales of ~~the lower margin~~ Myozyme and ~~an $11.8 million manufacturing-related charge recorded in September 2007~~the addition of Aldurazyme to ~~write off four finished lots~~the results, both of Thymoglobulin that did not meet product specifications for saleable product. Three additional finished lots of Thymoglobulin are currently under review to determine whether they meet product specifications.which have lower than average margins.
        The amortization of product related intangible assets is included in amortization expense and, as a result, is excluded from cost of products sold and the determination of product margins.
Service Margin
        Our overall service margin increased ~~$8.4~~$2.1 million, or ~~41%~~8%, for the three months ended ~~and $22.7 million, or 36%, for the nine months ended September 30, 2007. This is primarily due~~March 31, 2008, as compared to the ~~increases~~same period of 2007. The increase was primarily attributable to an increase in ~~revenue recorded~~revenues from our ~~DNA~~genetic testing and ~~cancer testing services as well as the~~ prenatal screening ~~and diagnosis market for the three and nine months ended September 30, 2007.~~services.
        Total service margin as a percent of total service revenue ~~increased~~decreased by 2% for the three ~~and nine~~ months ended ~~September 30, 2007,~~March 31, 2008, as compared to the same ~~periods~~period of ~~2006,~~2007, primarily due to ~~increased productivity~~an increase in Carticel and ~~efficiencies in lab operations for our Genetics reporting segment.~~MACI unit costs.

OPERATING EXPENSES
Selling, General and Administrative Expenses
        Effective January 1, 2008, as a result of changes in how we review our business, certain general and administrative expenses which were formerly allocated amongst our reporting segments and Other, are now allocated to Corporate. We have revised our 2007 segment disclosures to conform to our 2008 presentation.
        The following table provides information regarding the change in SG&A during the periods presented:

Three Months Ended
September 30,

Nine Months Ended
September 30,

Three Months Ended
March 31,

Increase/
(Decrease)
% Change
Increase/
(Decrease)
% Change
Increase/
(Decrease)
% Change

2007
2006
2007
2006
2008
2007

(Amounts in thousands)

(Amounts in thousands)

Selling, general and administrative expenses $ 270,306 $ 239,700 13 % $ 878,807 $ 743,849 18 % $ 318,386 $ 269,021 18 %
% of total revenue 28 % 30 % 32 % 32 % 29 % 30 %
        SG&A increased ~~$30.6~~$49.4 million for the three months ended ~~and $135.0 million for the nine months ended September 30, 2007,~~March 31, 2008, as compared to the same ~~periods~~period of ~~2006,~~2007, primarily due to spending increases of:
•
$~~4.1~~2.7 million ~~for the three month period and $15.7 million for the nine month period~~ for Renal, primarily due to ~~continued support of the growth in Renal's international business operations;~~sales force expansion for Renvela;

•
$~~6.6~~12.4 million ~~for the three month period and $23.3 million for the nine month period~~ for Therapeutics, primarily due to costs incurred related to ~~Myozyme's launch~~Aldurazyme which were recorded by BioMarin/Genzyme LLC in ~~additional countries during 2007;~~the same period of 2007, combined with continued promotional activities for Cerezyme, Fabrazyme and Myozyme;

•
$~~2.7~~1.6 million ~~for the three month period and $8.2 million for the nine month period~~ for Transplant, primarily due to ~~expenses incurred for pre-launch activities for Mozobil. Also contributing to this increase is spending on additional personnel to support the expansion of Thymoglobulin into new markets;~~our investment in international programs and personnel;

•
$~~4.3~~5.3 million ~~for the three month period and $9.8 million for the nine month period~~ for Biosurgery, primarily due to sales force ~~expansion;~~expansion combined with additional marketing activities;

•
$~~4.1~~2.2 million ~~for the three month period and $8.2 million for the nine month period~~ for Genetics, primarily due to ~~headcount additions; and~~

•
$7.2 million for the three month period and $85.7 million for the nine month period for Corporate SG&A primarily due to a charge of $64.0 million recorded in June 2007 related to the final court approved settlement agreement, subject to insurance coverage, of the litigation related to the consolidation of our former tracking stocks,personnel additions and increased spending for ~~information technology, legal expenses, employee recruiting~~advertising and ~~temporary help.~~trade shows;

        ~~These increases were partially offset in the nine month period by decreases of:~~
•
$~~6.1~~4.6 million for ~~Genetics~~Oncology, primarily due to ~~an adjustment in June 2007~~the inclusion of Bioenvision activities after the acquisition and increased domestic marketing expenses for Clolar;

•
$3.8 million for Other, primarily due to ~~accruals related to our~~the continued Cholestagel commercial infrastructure build out combined with the acquisition of ~~the Physician Services and Analytical Services business units of IMPATH Inc.~~diagnostic assets from DCL in ~~May 2004;~~December 2007; and

•
$~~13.7~~16.9 million ~~attributable~~for Corporate, primarily due to ~~a decrease in stock-based compensation expenses charged to SG&A. In May 2007, in connection with a general grant to employees, we issued a combination~~the strengthening of ~~stock options and RSUs, whereas in prior years we had only issued stock options for~~foreign currencies, primarily the ~~general grant to employees.~~Euro against the U.S. dollar.
Research and Development Expenses
        The following table provides information regarding the change in research and development expenses during the periods presented:

Three Months Ended
September 30,

Nine Months Ended
September 30,

Three Months Ended
March 31,

Increase/
(Decrease)
% Change
Increase/
(Decrease)
% Change
Increase/
(Decrease)
% Change

2007
2006
2007
2006
2008
2007

(Amounts in thousands)

(Amounts in thousands)

Research and development expenses $ 175,800 $ 162,293 8 % $ 540,362 $ 483,557 12 % $ 262,797 $ 166,120 58 %
% of total revenue 18 % 20 % 19 % 21 % 24 % 19 %

        Research and development expenses increased ~~$13.5~~$96.7 million for the three months ended ~~and $56.8 million for the nine months ended September 30, 2007,~~March 31, 2008, as compared to the same ~~periods~~period of ~~2006,~~2007, primarily due to:
•
~~increases~~an increase of ~~$7.3~~$18.1 million in spending on certain Therapeutics research and development programs and the addition of Aldurazyme expenses due to the restructuring of our relationship with BioMarin/Genzyme LLC;

•
an increase of $4.8 million in spending on Transplant research and development programs, primarily on Mozobil due to new drug application filing activity and new initiatives;

•
an increase of $15.8 million in spending on Oncology research and development programs, primarily on the development of alemtuzumab for the treatment of multiple sclerosis and the addition of Bioenvision expenses for the development of Clolar for adult AML;

•
an increase of $70.3 million in spending on Other research and development programs, primarily due to a charge of $69.9 million for the ~~three month period~~premium we paid on shares of Isis common stock that we purchased in February 2008; and ~~$47.0~~

•
an increase of $5.2 million ~~for~~due to the ~~nine month period~~weakening of the U.S. dollar against many currencies, particularly the Euro.

        These increases were partially offset by decreases of:
•
$9.4 million in spending on certain Therapeutics research and development programs, including a $25.0 million up-front payment paid to Ceregene in June 2007 in connection with our entry into a collaboration agreement for the development and commercialization of CERE-120, a gene therapy product for the treatment of Parkinson's disease;

•
increases of $11.9 million for the three month period and $28.6 million for the nine month period in spending on Transplant research and development programs, primarily due to our acquisition of AnorMED in November 2006; and

•
increases of $9.8 million for the three month period and $18.5 million for the nine month period in spending on Other research and development programs, primarily on alemtuzumab for the treatment of multiple sclerosis.
~~These increases were partially offset by decreases of:~~
•
$3.3 million for the three month period and $13.9 million for the nine month period in spending on our Renal programs due to the termination of our collaboration with RenaMed Biologics, Inc., or RenaMed, in February 2007;

•
~~$6.5 million in spending for the three month period and $7.6 million in spending for the nine month period on certain Therapeutics research and development programs, including a $4.6~~$7.8 million decrease in spending ~~for the three month period and a $6.2 million decrease in~~

~~spending for the nine month period~~ due to the termination in February 2007 of our joint venture with Dyax for the development of DX-88 for the treatment of HAE; and

•
$~~3.5~~3.9 million ~~for the three month period and $12.3 million for the nine month period for~~in spending on our ~~Corporate research and development~~Renal programs ~~primarily~~ due to ~~decreases~~the termination of ~~$1.0 million~~our late stage clinical trial for the three months ended and $5.7 million for the nine months ended September 30, 2007 in stock-based compensation expenses attributable to the issuance of a combination of stock options and RSUs in connection with a general grant to employees in May 2007. In prior years, only stock options were awarded in the general grant to employees.Tolevamer.

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

Three Months Ended
September 30,

Nine Months Ended
September 30,

Three Months Ended
March 31,

Increase/
(Decrease)
% Change
Increase/
(Decrease)
% Change
Increase/
(Decrease)
% Change

2007
2006
2007
2006
2008
2007

(Amounts in thousands)

(Amounts in thousands)

Amortization of intangibles $ 49,819 $ 50,542 (1 )% $ 149,301 $ 156,117 (4 )% $ 55,658 $ 50,017 11 %
% of total revenue 5 % 6 % 5 % 7 % 5 % 6 %
        Amortization of intangibles expense ~~decreased by $0.7~~increased $5.6 million for the three months ended ~~and $6.8 million for the nine months ended September 30, 2007,~~March 31, 2008, as compared to the same ~~periods~~period of ~~2006,~~2007, primarily due to ~~$23.7 million~~the acquisition of technology in connection with our acquisition of Bioenvision in October 2007 and the acquisition of customer lists ~~related to~~and trademarks in connection with our acquisition of ~~Bone Care~~the diagnostic assets of DCL in ~~July 2005, which became fully amortized in the first quarter of~~December 2007.
        As discussed in Note 7., "Goodwill and Other Intangible Assets," to our financial statements included in this report, we calculate amortization expense for the Synvisc sales and marketing rights we reacquired from Wyeth and the Myozyme patent and technology rights ~~acquired~~ pursuant to a licensing agreement with Synpac by taking into account forecasted future sales of ~~Synvisc and Myozyme, respectively,~~the products, and the resulting estimated future contingent payments we will be required to ~~make to Wyeth and Synpac.~~make. As a result, we expect amortization of intangibles expense to fluctuate over the next five years based on these future contingent payments.
~~Charge for Impaired Goodwill~~
        We are required to perform impairment tests related to our goodwill under FAS 142 annually and whenever events or changes in circumstances suggest that the carrying value of an asset may not be recoverable. We completed the required annual impairment tests for our $1.3 billion of net goodwill in the third quarter of 2007 and determined that no impairment charges were required.
        As a result of the required annual impairment tests we performed on our $1.5 billion of net goodwill in the third quarter of 2006, we determined that the $219.2 million of goodwill assigned to our Genetics reporting unit was fully impaired and we recorded a pre-tax impairment charge of $219.2 million and $69.8 million of related tax benefits in September 2006.

Purchase of In-Process Research and Development
        In connection with ~~five~~certain of our acquisitions we completed between January 1, ~~2004~~2006 and ~~September 30,~~December 31, 2007, we have acquired various IPR&D projects. Substantial additional research and development ~~costs~~ will be required prior to any of our acquired IPR&D programs and technology platforms reaching technological feasibility. In addition, once research is completed, each product candidate acquired will need to complete a series of clinical trials and receive FDA or other regulatory approvals prior to commercialization. Our current estimates of the time and investment required to develop these

products and technologies may change depending on the different applications that we may choose to pursue. We cannot give assurances that these programs will ever reach technological feasibility or develop into products that can be marketed profitably. In addition, we cannot guarantee that we will be able to develop and commercialize products before our competitors develop and commercialize products for the same indications. If products based on our acquired IPR&D programs and technology platforms do not become commercially viable, our results of operations could be materially adversely affected. We did not complete any acquisitions in the three months ended March 31, 2008.
        The following table sets forth IPR&D projects for companies and certain assets we have acquired between January 1, ~~2004~~2006 and ~~September 30, 2007~~March 31, 2008 (amounts in millions):
Company/Assets Acquired
Purchase
Price
IPR&D(1)
Programs Acquired
Discount Rate
Used in
Estimating
Cash Flows(1)
Year of
Expected
Launch
Estimated
Cost to
Complete
AnorMED (2006) $ 589.2 $ 526.8 Mozobil (stem cell transplant) 15% 2009-2014 $125
26.1 AMD070 (HIV)(2) 15% — $—

$ 552.9

Avigen, Inc. (2005) $ 12.0 $ 7.0 AV201 (Parkinson's disease) N/A 2016 $100

Bone Care (2005) $ 712.3 $ 12.7 LR-103 (secondary hyperparathyroidism)(3) 25% — $—

Verigen (2005) $ 12.7 $ 9.5 MACI (cartilage repair) 24% 2012-2014 $20-$35

ILEX Oncology, Inc. (2004) $ 1,080.3 $ 96.9 Campath(4) 11% 2009-2011 $194
113.4 Clolar(4) 12% 2008-2011 $99
44.2 Tasidotin 16% 2011-2014 $44

$ 254.5

Company/Assets Acquired
Purchase
Price
IPR&D(1)
Programs Acquired
Discount Rate
Used in
Estimating
Cash Flows(1)
Year of
Expected
Launch
Estimated
Cost to
Complete
Bioenvision (2007) $ 349.9 $ 125.5 Clofarabine (rights outside North America)(2,3) 17 % 2008-2010 $ 41

AnorMED (2006) $ 589.2 $ 526.8 Mozobil (stem cell transplant) 15 % 2009-2014 $ 125
26.1 AMD070 (HIV)(4) 15 % — $ —

$ 552.9

(1)
Management assumes responsibility for determining the valuation of the acquired IPR&D projects. The fair value assigned to IPR&D for each acquisition is estimated by discounting, to present value, the cash flows expected once the acquired projects have reached technological feasibility. The cash flows are probability-adjusted to reflect the risks of advancement through the product approval process. In estimating the future cash flows, we also considered the 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.

(2)
IPR&D charges totaled $125.5 million related to the acquisition of Bioenvision, of which $106.4 million was charged to IPR&D and $19.1 million was charged to equity in income (loss) of equity method investments.

(3)
Clolar is marketed for the treatment of relapsed and refractory pediatric ALL. The IPR&D projects for Clolar are related to the development of these products for the treatment of other medical issues.

(4)
Year of expected launch and estimated cost to complete data is not provided for AMD070 at this time because we are assessing our future plans for this program.

~~(3)~~
Year of expected launch and estimated cost to complete data is not provided for LR-103 at this time because this program is in its early stages and we are evaluating several potential applications for LR-103 to determine which application we will pursue. Therefore, the year of expected launch and cost to complete cannot be determined.

~~(4)~~
Campath is currently marketed for the treatment ofB-cell chronic lymphoeytic leukemia and Clolar is marketed for the treatment of relapsed and refractory pediatric ALL. The IPR&D projects for Campath and Clolar are related to the development of these products for the treatment of other medical issues.
        In addition, we account for our investment in Bioenvision Common Stock under the equity method of accounting and, accordingly, we recorded a charge of $19.1 million in equity in income (loss) of equity method investments in our consolidated statement of operations for the three and nine months ended September 2007 for the portion of the purchase price for this investment that we allocated to IPR&D. The full purchase accounting for our acquisition of Bioenvision, including the impact of our merger in October 2007, will be reflected in our consolidated financial statements as of December 31, 2007 and for the year ended December 31, 2007.

OTHER INCOME AND EXPENSES

Three Months Ended
September 30,

Nine Months Ended
September 30,

Three Months Ended
March 31,

Increase/
(Decrease)
% Change
Increase/
(Decrease)
% Change

Increase/
(Decrease)
% Change

2007
2006
2007
2006

2008
2007

(Amounts in thousands)

(Amounts in thousands)

Equity in income (loss) of equity method investments $ (12,648 ) $ 4,530 >(100 )% $ (1,091 ) $ 10,630 >(100 )%
Equity in income of equity method investments Equity in income of equity method investments $ 188 $ 5,612 (97 )%
Minority interest Minority interest 5 2,545 (100 )% 3,932 7,741 (49 )% Minority interest 463 3,912 (88 )%
Gains on investments in equity securities, net Gains on investments in equity securities, net 1,105 128 >100 % 14,036 75,037 (81 )% Gains on investments in equity securities, net 775 12,788 (94 )%
Other Other 913 (873 ) >100 % 110 (1,331 ) >100 % Other (160 ) (525 ) (70 )%
Investment income Investment income 18,222 16,760 9 % 51,687 39,401 31 % Investment income 14,870 16,219 (8 )%
Interest expense Interest expense (1,474 ) (3,772 ) (61 )% (9,283 ) (12,245 ) (24 )% Interest expense (1,655 ) (4,188 ) (60 )%

Total other income $ 6,123 $ 19,318 (68 )% $ 59,391 $ 119,233 (50 )% Total other income $ 14,481 $ 33,818 (57 )%

Equity in Income ~~(Loss)~~ of Equity Method Investments
        Under this caption, we record our portion of the results of our joint ~~ventures~~venture with ~~BioMarin and~~ Medtronic, Inc., or Medtronic, and our ~~investments~~investment in Peptimmune, Inc., or Peptimmune, and for the ~~period from July 10,~~three months ended March 31, 2007, ~~through September 30, 2007, Bioenvision, which we subsequently acquired in October 2007.~~our portion of the results of BioMarin/Genzyme LLC.
        Equity in income ~~(loss)~~ of equity method investments decreased ~~$17.2 million, or more than 100%, for the three months ended and $11.7 million, or more than 100%, for the nine months ended September 30, 2007, as compared~~97% to the same periods of 2006, primarily due to $20.5 million of charges related to our investment in Bioenvision Common Stock, including a $19.1 million charge for IPR&D, representing our proportionate share of the fair value of IPR&D programs of Bioenvision. These decreases were offset in part by an increase of $3.2$0.2 million for the three months ended ~~and $7.8~~March 31, 2008, as compared to $5.6 million for the ~~nine months ended September 30,~~same period of 2007, ~~in our portion~~primarily due to the restructuring of the ~~net income~~relationship with BioMarin/Genzyme LLC. Beginning January 1, 2008, as a result of our restructured relationship with BioMarin, we no longer account for BioMarin/Genzyme LLC ~~attributable to increased sales~~using the equity method of ~~Aldurazyme.~~accounting.
Minority Interest
        ~~Prior to February 20, 2007,~~As a result of the restructuring of our relationship with BioMarin/Genzyme LLC, effective January 1, 2008, in accordance with the provisions of FIN 46R, we began consolidating the results of BioMarin/Genzyme LLC. We recorded BioMarin's portion of this joint venture's income for the three months ended March 31, 2008 as minority interest in our consolidated statement of operations for that period, the amount of which was not significant.
        As a result of our application of FIN 46R, ~~"Consolidation of Variable Interest Entities,"~~ we consolidated the results of ~~Dyax-Genzyme LLC and~~ Excigen Inc. ~~Effective~~, or Excigen, and, prior to February 20, 2007, Dyax-Genzyme LLC. On February 20, 2007, we agreed with Dyax to terminate our participation and interest in Dyax-Genzyme LLC. In connection with this termination, we made a capital contribution of approximately $17 million in cash to Dyax-Genzyme LLC, and Dyax purchased our interest in the joint venture for 4.4 million shares of Dyax common stock, valued at $16.9 million, based on the closing price of Dyax common stock on February 23, 2007. Prior to February 20, 2007, in accordance with FIN 46R, we consolidated the assets related to Dyax-Genzyme LLC, which were not significant and consisted primarily of lab equipment net of their associated accumulated depreciation, andWe recorded Dyax's portion of this joint venture's losses as minority interest in our consolidated statements of operations through February 20, 2007. The results of Excigen ~~Inc.~~ were not ~~significant.~~significant for both the three months ended March 31, 2008 and 2007.

Gains on Investments in Equity Securities, ~~net~~Net
        We recorded the following net realized gains on investments in equity securities during the periods presented (amounts in thousands):

Three Months Ended
March 31,

2008
2007
THP $ — $ 10,848
Other 775 1,940

Gains on investments in equity securities, net $ 775 $ 12,788

        In March 2007, we recorded a $10.8 million gain in connection with the sale of the entire investment in the capital stock of THP held by our wholly-owned subsidiary, SangStat Medical, LLC, which had a zero cost basis, for net cash proceeds of $10.8 million.
        At March 31, 2008, our stockholders' equity includes $27.6 million of unrealized gains and $1.2 million of unrealized losses related to our strategic investments in equity securities.
Acquisition of Sirtris by GSK
        As of March 31, 2008, we owned 660,204 shares of the common stock of Sirtris that had a total cost basis of $4.5 million. In April 2008, Sirtris announced its entry into a definitive agreement with GSK, under which GSK will acquire Sirtris for approximately $720 million through a cash tender offer of $22.50 per share. Sirtris and GSK anticipate that the tender offer will commence in early May and close in the second quarter of 2008. We plan to record a pre-tax gain of approximately $10 million, based on the current tender offer price, in gains on investments in equity securities, net, in our consolidated statements of ~~charges~~operations in the period in which our shares of Sirtris common stock are successfully tendered and accepted for ~~impairment of investments, for the periods presented:~~

Three Months Ended
September 30,
Nine Months Ended
September 30,

2007
2006
2007
2006

(Amounts in thousands)

Gross gains on investments in equity securities:
THP $ — $ — $ 10,848 $ —
CAT — — — 69,359
BioMarin — — — 6,417
Other 1,105 128 3,188 2,154

Total 1,105 128 14,036 77,930
Less: charges for impairment of investments — — — (2,893 )

Gains on investments in equity securities, net $ 1,105 $ 128 $ 14,036 $ 75,037

~~Unrealized Gains (Losses)~~
        ~~At September 30, 2007, our stockholders' equity included $23.3 million of unrealized gains and $0.4 million of unrealized losses related to our investments in equity securities.~~payment.
Investment Income
        Our investment income ~~increased 9%~~decreased 8% to ~~$18.2~~$14.9 million for the three months ended ~~and 31%~~March 31, 2008, as compared to ~~$51.7~~$16.2 million for the ~~nine months ended September 30,~~same period of 2007, ~~as compared to the same periods of 2006,~~ primarily due to ~~an increase~~a decrease in ~~the~~our average portfolio yield, ~~and~~partially offset by higher domestic average cash balances.
Interest Expense
        Our interest expense decreased ~~61%~~60% to ~~$1.5~~$1.7 million for the three months ended ~~September 30, 2007,~~March 31, 2008, as compared to $4.2 million for the same period of ~~2006,~~2007, primarily due to a $1.4 million increase in capitalized interest, which resulted in a decrease in interest expense, a $0.2 million decrease in interest related to our 2003 revolving credit facility, which was replaced in July 2006, and a $0.5 million decrease in interest expense related to asset retirement obligations ~~for which there was no similar amount in 2006.~~
        ~~Our interest expense decreased 24% to $9.3 million for the nine months ended September 30, 2007, as compared to the same period of 2006, primarily due to~~and a ~~$4.3~~$1.1 million increase in capitalized interest, which resulted in a decrease in interest expense, and a $0.6 million decrease in interest related to our 2003 revolving credit facility, which was replaced in July 2006. These overall decreases were offset in part by a $2.3 million increase in interest expense related to asset retirement obligations, for which there was no similar amount in 2006.interest.
(Provision ~~for) Benefit from~~for Income Taxes

Three Months Ended
September 30,

Nine Months Ended
September 30,

Three Months Ended
March 31,

Increase/
(Decrease)
% Change
Increase/
(Decrease)
% Change
Increase/
(Decrease)
% Change

2007
2006
2007
2006
2008
2007

(Amounts in thousands)

(Amounts in thousands)

(Provision for) benefit from income taxes $ (66,432 ) $ 44,530 >(100 )% $ (201,715 ) $ (60,841 ) >100 %
Provision for income taxes $ 60,117 $ 71,193 (16 )%
Effective tax rate 29 % (156 )% 33 % 19 % 29 % 31 %
Our effective tax rate for all periods presented varies from the U.S. statutory tax rate as a result of:
•
our provision for state income taxes;

•
the tax benefits from ~~export sales;~~

•
~~the tax benefits from domestic production~~manufacturing activities;

•
benefits related to tax credits;

•
income and expenses taxed at rates other than the U.S. statutory tax rate; and

•
non-deductible stock-based compensation ~~expenses; and~~

•
~~non-deductible~~ expenses ~~associated with the settlement~~ of ~~litigation related to the consolidation of our former tracking stocks.~~
~~Our effective tax rate~~$8.1 million for the three ~~and nine~~ months ended ~~September 30, 2006, was also impacted by a charge for impaired goodwill of $219.2~~March 31, 2008 and $6.9 million ~~of which $29.5 million was not deductible for tax purposes.~~
        Effective January 1, 2007, we adopted FIN 48 and recognized a cumulative effect adjustment of $33.9 million to increase our retained earnings balance as of January 1, 2007, which consisted of $25.8 million to record the combined effect of our gain contingency and the change in the recognition standard pursuant to the settlement criteria of FSP FIN 48-1 and $8.1 million resulting from our settlement of the IRS audit for tax years 2002 to 2003. After these adjustments, as of January 1, 2007, we had approximately $36.5 million of total gross unrealized tax benefits, of which approximately $26.6 million represents the amount of unrecognized tax benefits that, if recognized, would favorably affect our effective income tax rate in future periods. These gross unrealized tax benefits did not change significantly during the nine months ended September 30, 2007.
        We continue to recognize interest relating to unrecognized tax benefits within our provision for income taxes but have not recorded any amounts related to potential penalties. The amount of accrued interest related to unrecognized tax benefits within our provision for income taxes for the three ~~and nine~~ months ended ~~September 30, 2007 and our accrued interest related to unrecognized tax benefits as of January 1, 2007 and September 30, 2007 were not significant.~~
March 31, 2007.
        We are subject to U.S. federal income tax and various state, local and international income taxes in numerous jurisdictions, however, our only significant tax jurisdiction is the United States. We record liabilities for income tax contingencies based on our best estimate of the underlying exposures.        We are currently under IRS audit for tax years 2004 to 2005 and ~~in certain state and foreign jurisdictions from 2003 forward.~~various states for 1999 to 2005. We believe that we have provided sufficiently for all audit ~~exposures~~exposures. We expect to settle the 2004 to 2005 IRS audit within the next twelve months and ~~assessments.~~do not expect that the settlement will have a

material impact on our financial position or results of operations. Settlement of these audits or the expiration of the statute of limitations on the assessment of income taxes for any tax year may result in ~~an increase or~~a reduction of future tax provisions. Any such ~~tax or tax~~ benefit would be recorded upon ~~final resolution~~the effective settlement of the ~~audits~~audit or expiration of the applicable statute of limitations.
        ~~Management has concluded that it is not reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next 12 months.~~
B. LIQUIDITY AND CAPITAL RESOURCES
        We continue to generate cash from operations. ~~At September 30, 2007, we~~We had cash, cash equivalents and short- and long-term investments of $1.4 billion ~~an increase of $0.1 billion from $1.3~~at March 31, 2008 and $1.5 billion at December 31, ~~2006.~~2007.
        The following is a summary of our statements of cash flows for the ~~nine~~three months ended ~~September 30, 2007~~March 31, 2008 and ~~2006.~~2007.

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

Nine Months Ended
September 30,

2007
2006

Cash flows from operating activities:
Net income $ 401,294 $ 251,437
Non-cash charges 318,351 455,482
Decrease in cash from working capital changes (excluding impact of acquired assets and assumed liabilities) (108,818 ) (89,987 )

Cash flows from operating activities $ 610,827 $ 616,932

Three Months Ended
March 31,

2008
2007

Cash flows from operating activities:
Net income $ 145,271 $ 158,187
Non-cash charges 124,151 82,557
Decrease in cash from working capital changes (excluding impact of acquired assets and assumed liabilities) (109,889 ) (42,938 )

Cash flows from operating activities $ 159,533 $ 197,806

        Cash provided by operating activities decreased ~~$6.1~~$38.3 million for the ~~nine~~three months ended ~~September 30, 2007,~~March 31, 2008, as compared to the same period of ~~2006,~~2007, primarily ~~due~~driven by a $12.9 million decrease in net income, which was impacted by a $69.9 million charge to research and development expense for the premium paid to purchase five million shares of Isis stock, a ~~$149.9 million increase in earnings, excluding non-cash charges, offset by an $18.8~~$67.0 million increase in cash used for working ~~capital.~~capital, offset, in part, by an increase of $41.6 million in non-cash charges, net. The increase in non-cash charges, net, for the three months ended March 31, 2008, as compared to the same period of 2007, is primarily attributable to:
•
a $9.1 million increase in depreciation and amortization;

•
a $13.6 million decrease in gains on investments in equity securities; and

•
a $13.9 million increase in the tax benefit from employee stock-based compensation.

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

Nine Months Ended
September 30,

2007
2006

Cash flows from investing activities:
Net sales (purchases) of investments, excluding investments in equity securities $ 194,161 $ (107,261 )
Net sales of investments in equity securities 350 131,691
Purchases of property, plant and equipment (281,309 ) (236,917 )
Acquisition of Bioenvision stock (72,229 ) —
Distributions from equity method investments 17,100 12,000
Payment of note receivable from Dyax 7,771 370
Purchases of other intangible assets (45,821 ) (67,793 )
Other investing activities 658 4,292

Cash flows from investing activities $ (179,319 ) $ (263,618 )

Three Months Ended
March 31,

2008
2007

Cash flows from investing activities:
Net sales of investments, excluding investments in equity securities $ 33,175 $ 32,060
Net purchases of investments in equity securities (79,551 ) (1,397 )
Purchases of property, plant and equipment (121,967 ) (82,982 )
Distributions from equity method investments 6,595 6,000
Purchases of other intangible assets (7,046 ) (12,207 )
Other investing activities 3,107 603

Cash flows from investing activities $ (165,687 ) $ (57,923 )

        For the ~~nine~~three months ended ~~September 30, 2007, we used a total~~March 31, 2008, net purchases of ~~$416.3 million of cash to fund~~investments in equity securities and capital expenditures ~~and acquisitions including:~~accounted for significant cash outlays for investing activities. During the three months ended March 31, 2008, we used:
•
~~approximately $17~~$80.1 million to purchase five million shares of ~~cash for a capital contribution~~Isis common stock in ~~connection with the termination of our participation~~February 2008; and ~~interest in Dyax-Genzyme LLC:~~

•
$~~281.3~~122.0 million ofin cash to fund the purchase of property, plant and equipment, primarily related to the ongoing expansion of our manufacturing capacity in the Republic of Ireland, the United Kingdom, Belgium and ~~Belgium,~~France, the construction of a new research and development facility in Framingham, Massachusetts, ~~and internally developed capitalized software costs related to our Genetics business, which is based~~planned improvements at our facility in ~~Westborough, Massachusetts;~~

•
~~$72.2 million~~Allston, Massachusetts and capitalized costs of ~~cash to fund the acquisition of 22% of the outstanding shares of Bioenvision Common Stock on~~ an ~~as-converted basis. Effective October 23, 2007, we completed the acquisition of Bioenvision; and~~

•
~~$45.8 million of cash~~internally developed enterprise software system for our ~~reacquisition of the Synvisc sales and marketing rights from Wyeth and a milestone payment to Synpac.~~Genetics business.
These decreases in cash were partially offset ~~by:~~
•
~~$194.2 million of cash received from the net sales of investments;~~

•
~~$17.1~~by $6.6 million of cash distributions from our joint venture with ~~BioMarin; and~~

•
$7.8 million of cash received from Dyax, including $7.0 million to satisfy the outstanding principal balance due under the note receivable from Dyax and $0.8 million of accrued interest due under the note.

BioMarin.
Cash Flows from Financing Activities
        ~~Our cash~~Cash flows from financing activities are as follows (amounts in thousands):

Nine Months Ended
September 30,

2007
2006

Cash flows from financing activities:
Proceeds from issuance of common stock $ 100,276 $ 112,012
Repurchases of common stock (181,210 ) —
Excess tax benefits from stock-based compensation 1,229 8,979
Payments of debt and capital lease obligations (4,606 ) (3,155 )
Increase (decrease) in bank overdrafts 19,259 (16,285 )
Minority interest contributions 4,136 8,265
Other financing activities 3,525 2,610

Cash flows from financing activities $ (57,391 ) $ 112,426

Three Months Ended
March 31,

2008
2007

Cash flows from financing activities:
Proceeds from issuance of our common stock $ 90,243 $ 27,765
Repurchases of our common stock (73,218 ) —
Excess tax benefits from stock-based compensation 5,790 264
Payments of debt and capital lease obligations (2,554 ) (2,117 )
Increase in bank overdrafts 18,549 29,528
Minority interest contributions — 4,136
Other financing activities 959 2,482

Cash flows from financing activities $ 39,769 $ 62,058

        In May 2007, our board of directors authorized a stock repurchase program to repurchase up to an aggregate maximum amount of $1.5 billion or 20,000,000 shares of our outstanding common stock over ~~the next~~ three years, beginning in June 2007. The repurchases are being made from time to time and can be effectuated through open market purchases, privately negotiated transactions, transactions structured

through investment banking institutions, or by other means, subject to management's discretion and as permitted by securities laws and other legal requirements. ~~As of September 30, 2007,~~During the three months ended March 31, 2008, we ~~had~~ repurchased ~~a total of 2,808,738~~an additional 1,000,000 shares of our common stock at an average price of ~~$64.50~~$73.20 per share for a total of ~~$181.2~~$73.2 million in cash, including fees. As of March 31, 2008, we have repurchased a cumulative total of 4,500,000 shares of our common stock at an average price of $67.71 per share for a total of $304.8 million in cash, including fees.
~~Payment of Note Receivable from Dyax~~Revolving Credit Facility
        In ~~2007,~~July 2006, we ~~received cash payments totaling $7.8~~entered into a five-year $350.0 million ~~from Dyax~~senior unsecured revolving credit facility, which we refer to ~~settle~~as our 2006 revolving credit facility. The proceeds of loans under our 2006 revolving credit facility can be used to finance working capital needs and for general corporate purposes. Our 2006 revolving credit facility may be increased at any time by up to an additional $350.0 million in the ~~secured promissory note receivable from Dyax, including $7.0 million to satisfy~~aggregate, as long as no default or event of default has occurred or is continuing and certain other customary conditions are satisfied. Borrowings under our 2006 revolving credit facility will bear interest at various rates depending on the ~~outstanding principal balance due under~~nature of the ~~note and $0.8 million of accrued interest.~~
~~Revolving Credit Facility~~loan.
        As of ~~September 30, 2007,~~March 31, 2008, no amounts were outstanding under our 2006 revolving credit facility. The terms of our 2006 revolving credit facility include various covenants, including financial covenants that require us to meet minimum interest coverage ratios and maximum leverage ratios. As of ~~September 30, 2007,~~March 31, 2008, we were in compliance with these covenants.

Contractual Obligations
        The disclosure of payments we have committed to make under our contractual obligations is set forth under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—Liquidity and Capital Resources" in Exhibit 13 to our ~~2006~~2007 Form 10-K. ~~Excluding additional contingent payments to Wyeth for the reacquisition~~As of ~~the Synvisc sales and marketing rights as of September 30, 2007~~March 31, 2008, there have been no material changes to our contractual obligations since December 31, ~~2006.~~2007.
Financial Position
        We believe that our available cash, investments and cash flows from operations will be sufficient to fund our planned operations and capital requirements for the foreseeable future. Although we currently have substantial cash resources and positive cash flow, we have used or intend to use substantial portions of our available cash and may make additional borrowings for:
•
product development and marketing;

•
payments related to the cash consideration ~~for our merger with~~due to the dissenting Bioenvision ~~including~~shareholders, the ~~approximately $245 million~~amount of ~~cash we paid in October 2007 upon completion~~which will be determined by the Delaware Court of ~~the merger, the approximately $11 million of cash we intend to pay in the fourth quarter of 2007 for the outstanding options to purchase shares of Bioenvision Common Stock;~~Chancery;

•
~~other~~ business combinations and strategic business initiatives, including the approximately $53 million in Canadian dollars, or approximately $57 million in U.S. dollars (based on the November 2, 2007 spot rate for the Canadian dollar), of cash we intend to spend in December 2007 for our planned acquisition of the diagnostics division of DCL;initiatives;

•
the remaining $1.2 billion approved for our ~~$1.5 billion~~ongoing stock repurchase ~~program;~~program over approximately the next 2 years;

•
expanding existing and constructing ~~additional~~new manufacturing facilities;

•
upgrading our information technology systems;

•
contingent payments under license and other ~~agreements;~~agreements, including payments related to our license of mipomersen from Isis;

•
expanding staff; and

•
working capital and satisfaction of our obligations under capital and operating leases.

        Our cash reserves may be further reduced to pay principal and interest on the $690.0 million in principal under our 1.25% convertible senior notes due December 1, 2023. The notes are initially convertible into Genzyme Stock at a conversion price of approximately $71.24 per share. Holders of the notes may require us to repurchase all or any part of the notes for cash, common stock, or a combination, at our option, on December 1, 2008, 2013 or 2018, at a price equal to 100% of the principal amount of the notes plus accrued and unpaid interest through the date prior to the date of repurchase. Additionally, upon a change of control, each holder may require us to repurchase, ~~for cash,~~ at 100% of the principal amount of the notes plus accrued interest, all or a portion of the holder's ~~notes.~~notes for cash. On or after December 1, 2008, we may redeem for cash at 100% of the principal amount of the notes plus accrued interest, all or part of the notes that have not been previously converted or repurchased.
        In addition, we have several outstanding legal proceedings. Involvement in investigations and litigation can be expensive and a court may ultimately require that we pay expenses and damages. As a result of legal proceedings, we also may be required to pay fees to a holder of proprietary rights in order to continue certain operations. ~~We have provided you details on one set of pending legal proceedings in the notes to our consolidated financial statements.~~

        To satisfy these and other commitments, we may have to obtain additional financing. We cannot guarantee that we will be able to obtain any additional financing, extend any existing financing arrangement, or obtain either on favorable terms.
Off-Balance Sheet Arrangements
        We do not use special purpose entities or other off-balance sheet financing arrangements. We enter into guarantees in the ordinary course of business related to the guarantee of our own performance and the performance of our subsidiaries. In addition, we have joint ventures and certain other arrangements that are focused on research, development, and the commercialization of products. Entities falling within the scope of FIN 46R are included in our consolidated statements of operations if we qualify as the primary beneficiary. Entities not subject to consolidation under FIN 46R are accounted for under the equity method of accounting if our ownership percent exceeds 20% or if we exercise significant influence over the entity. We account for our portion of the ~~income/losses~~results of these entities in the line item "Equity in income ~~(loss)~~ of equity method investments" in our consolidated statements of operations. We also acquire companies in which we agree to pay contingent consideration based on attaining certain thresholds.
Recent Accounting Pronouncements
~~FAS 157, "Fair Value Measurements."~~ In September 2006, the FASB issued FAS 157, "Fair Value Measurements," which provides enhanced guidance for using fair value to measure assets and liabilities. FAS 157 establishes a common definition of fair value, provides a framework for measuring fair value under accounting principles generally accepted in the United States and expands disclosure requirements regarding fair value measurements. FAS 157 will be effective for us as of January 1, 2008. We are currently evaluating the impact, if any, the adoption of FAS 157 will have on our financial position and results of operations.
FAS 159, "The Fair Value Option for Financial Assets and Financial ~~Liabilities—~~Liabilities, Including an Amendment of FASB Statement No. 115."    ~~In February 2007, the FASB issued~~Effective January 1, 2008, we adopted FAS 159, "The Fair Value Option for Financial Assets and Financial ~~Liabilities—~~Liabilities, Including an Amendment of FASB Statement No. 115," which permits, but does not require, ~~entities~~us to measure certain financial instruments and other assets and liabilities at fair value on an instrument-by-instrument basis. Unrealized gains and losses on items for which the fair value option has been elected ~~should be~~are recognized in earnings at each subsequent reporting date. In adopting FAS 159, we did not elect to measure any new assets or liabilities at their respective fair values and, therefore, the adoption of FAS 159 did not have an impact on our results of operations or financial position.

        EITF Issue No. 07-1, "Accounting for Collaborative Arrangements."    In December 2007, the EITF of the FASB reached a consensus on Issue No. 07-1, "Accounting for Collaborative Arrangements." The EITF concluded on the definition of a collaborative arrangement and that revenues and costs incurred with third parties in connection with collaborative arrangements would be presented gross or net based on the criteria in EITF 99-19 and other accounting literature. Companies are also required to disclose the nature and purpose of collaborative arrangements along with the accounting policies and the classification and amounts of significant financial-statement amounts related to the arrangements. EITF 07-1 will bebecome effective for us beginning January 1, 2009 and will be applied retrospectively to all periods presented for all collaborative arrangements existing as of ~~January 1, 2008 and cannot be adopted early unless FAS 157 is also adopted.~~the effective date. We are ~~currently~~ evaluating the impact, if any, ~~the adoption of FAS 159~~this standard will have on our consolidated financial ~~position and results of operations.~~statements.
EITF Issue No. 07-3, "~~Accounting~~ "Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities.""    In June 2007, the FASB ratified the EITF consensus reached in EITF Issue No. 07-3, "Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities," which provides guidance for nonrefundable prepayments for goods or services that will be used or rendered for future research and development activities and directs that such payments should be deferred and capitalized. Such amounts should be recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered. EITF 07-3 iswas effective for us beginning January 1, 2008 and ~~will be~~we applied it prospectively to new contracts we ~~enter~~entered into on or after that date. ~~Earlier application is~~The implementation of this standard did not ~~permitted. We are currently evaluating the~~have a material impact ~~if any, the adoption of EITF No. 07-3 will have~~ on our financial position, results of operations or cash flows.
        FAS 141 (revised 2007), "Business Combinations."    In December 2007, the FASB issued FAS 141 (revised 2007), "Business Combinations," or FAS 141R, which replaces FAS 141, "Business Combinations." FAS 141R retains the underlying concepts of FAS 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting but changes a number of significant aspects of applying this method. Acquisition costs will generally be expensed as incurred; noncontrolling interests will be valued at fair value at the acquisition date; IPR&D will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. FAS 141R is effective for us on a prospective basis for all business combinations for which the acquisition date is on or after January 1, 2009. Early adoption is not permitted. We are currently evaluating the effects, if any, that FAS 141R will have on our consolidated financial statements.
        FAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51."    In December 2007, the FASB issued FAS 160, "Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51," which establishes new accounting and reporting standards that require the ownership interests in subsidiaries not held by the parent company to be clearly identified, labeled and presented in the consolidated statement of financial position within equity, but separate from the parent's equity. FAS 160 also requires the amount of consolidated net income attributable to the parent and to the non-controlling interest, commonly referred to as the minority interest, to be clearly identified and presented on the face of the consolidated statement of income. Changes in a parent's ownership interest while the parent retains its controlling financial interest must be accounted for consistently, and when a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary must be initially measured at fair value. The gain or loss on the deconsolidation of the subsidiary is measured using the fair value of any non-controlling equity investment. FAS 160 also requires entities to provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. FAS 160 is effective for us beginning January 1, 2009 and adoption is

prospective only; however, upon adoption, presentation and disclosure requirements described above must be applied retrospectively for all periods presented in our consolidated financial statements. We are currently evaluating the effects, if any, that FAS 160 will have on our consolidated financial statements.
        FAS No. 161, "Disclosures About Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133."    In March 2008, the FASB issued FAS 161, "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133," which amends and expands the disclosure requirements of FAS 133, "Accounting for Derivative Instruments and Hedging Activities." FAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. FAS 161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. We are currently evaluating the effects, if any, that FAS 161 will have on our consolidated financial statements.

RISK FACTORS
        Our future operating results could differ materially from the results described in this report due to the risks and uncertainties related to our business, including those discussed below.
~~Our financial results are highly dependent on sales of Cerezyme.~~
        We generate a significant portion of our revenue from sales of Cerezyme, our enzyme-replacement product for patients with Gaucher disease. Sales of Cerezyme totaled $832.8 million for the nine months ended September 30, 2007, representing approximately 30% of our consolidated total revenue. Because our business is highly dependent on Cerezyme, negative trends in revenue from this product could have a significant adverse effect on our results of operations and cause the value of our securities to decline substantially. We will lose revenue if alternative treatments gain commercial acceptance, if our marketing activities are restricted, or if reimbursement is limited. In addition, the patient population with Gaucher disease is not large. Because a significant percentage of that population already uses Cerezyme, opportunities for future sales growth are constrained. Furthermore, changes in the methods for treating patients with Gaucher disease, including treatment protocols that combine Cerezyme with other therapeutic products or reduce the amount of Cerezyme prescribed, could limit growth, or result in a decline, in Cerezyme sales.
If we fail to increase sales of several existing products and services, we will not meet our financial goals.
        Over the next few years, our success will depend substantially on our ability to increase revenue from our existing products and services. These products and services include Renagel, Renvela, Synvisc, Synvisc-One, Fabrazyme, Myozyme, Hectorol, Thymoglobulin, Thyrogen, Clolar, Campath, Aldurazyme and diagnostic testing services. Our ability to increase sales will depend on a number of factors, including:
•
acceptance by the medical community of each product or service;

•
the availability of competing treatments that are deemed safer, more efficacious, more convenient to use, or more cost effective;

•
our ability, and the ability of our collaborators, to efficiently manufacture sufficient quantities of each product to meet demand and to do so in a cost efficient manner;

•
regulation by the U.S. Food and Drug Administration, commonly referred to as the FDA, and the European Agency for the Evaluation of Medicinal Products, or EMEA, and other regulatory authorities of these products and the facilities and processes used to manufacture these products;

•
the scope of the labeling approved by regulatory authorities for each product and competitive products;

•
the effectiveness of our sales force;

•
the availability and extent of coverage, pricing and level of reimbursement from governmental agencies and third party payors; and

•
the size of the patient population for each product or service and our ability to identify new patients.
        Part of our growth strategy involves conducting additional clinical trials to support approval of expanded uses of some of our products, including Clolar and alemtuzumab, pursuing marketing approval for our products in new jurisdictions and developing next generation products such as Renvela

and Synvisc-One. The success of this component of our growth strategy will depend on the outcome of

these additional clinical trials, the content and timing of our submissions to regulatory authorities and whether and when those authorities determine to grant approvals.
        Because the healthcare industry is extremely competitive and regulatory requirements are rigorous, we spend substantial funds marketing our products and attempting to expand approved uses for them. These expenditures depress near-term profitability, with no assurance that the expenditures will generate future profits that justify the expenditures.
Our future success will depend on our ability to effectively develop and market our products and services against those of our competitors.
        The human healthcare products and services industry is extremely competitive. Other organizations, including pharmaceutical, biotechnology, device and diagnostic testing companies, have developed and are developing products and services to compete with our products, services, and product candidates. If healthcare providers, patients or payors prefer these competitive products or services or these competitive products or services have superior safety, efficacy, pricing or reimbursement characteristics, we will have difficulty maintaining or increasing the sales of our products and services.
        Renagel competes with two other products approved in the United States for the control of elevated phosphorus levels in patients with chronic kidney failure on hemodialysis. Fresenius Medical Care markets PhosLo®, a calcium-based phosphate binder. Shire Pharmaceuticals Group plc, or Shire, markets Fosrenol®, a non-calcium based phosphate binder. Amgen, Inc. recently acquired Ilypsa and its product candidate, ILY101, a polymeric phosphate binder that completed a phase 2 trial in CKD patients on dialysis. Renagel also competes with over-the-counter calcium carbonate products such as TUMS® and metal-based options such as aluminum and magnesium.
        UCB S.A. has developed Zavesca®, a small molecule drug for the treatment of Gaucher disease, the disease addressed by Cerezyme. Zavesca, sold by Actelion Ltd., has been approved in the United States, European Union and Israel as an oral therapy for use in patients with mild to moderate Type 1 Gaucher disease for whom enzyme replacement therapy is unsuitable. In addition, Shire reported top-line data from a phase 1/2 clinical trial for its gene-activated glucocerebrosidase program, also to treat Gaucher disease, and initiated phase 3 studies in July 2007. Protalix Biotherapeutics Ltd. initiated a phase 3 trial for plant-derived enzyme replacement therapy to treat Gaucher disease in the third quarter of 2007. Amicus Therapeutics, Inc., or Amicus, is conducting phase 2 trials for oral chaperone medication to treat Gaucher disease. We are also aware of other development efforts aimed at treating Gaucher disease.
        Outside the United States, Shire is marketing Replagal™, a competitive enzyme replacement therapy for Fabry disease which is the disease addressed by Fabrazyme. In addition, while Fabrazyme has received orphan drug designation, which provides us with seven years of market exclusivity for the product in the United States, other companies may seek to overcome our market exclusivity and, if successful, compete with Fabrazyme in the United States. Amicus has initiated phase 2 trials for an oral chaperone medication to treat Fabry disease. We are aware of other development efforts aimed at treating Fabry disease.
        Current competition for Synvisc and Synvisc-One includes Supartz®, a product manufactured by Seikagaku ~~Kogyo~~Corporation that is sold in the United States by Smith & Nephew Orthopaedics and in Japan by Kaken Pharmaceutical Co. under the name Artz®; Hyalgan®, produced by Fidia Farmaceutici S.p.A. and marketed in the United States by Sanofi-Aventis; Orthovisc®, produced by Anika Therapeutics, Inc., and marketed in the United States by Johnson & ~~Johnson~~Johnson's Mitek division and marketed outside the United States through distributors; Euflexxa™, a product manufactured and sold by Ferring Pharmaceuticals and marketed in the United States and Europe; and Durolane®,

manufactured by Q-Med AB and distributed outside the United States by Smith & Nephew Orthopedics. Durolane and Euflexxa are produced by bacterial fermentation, which may provide these products a competitive advantage over avian-sourced Synvisc and Synvisc-One. We are aware of various viscosupplementation products on the market or in development, but are unaware of any products that

have physical properties of viscosity, elasticity or molecular weight comparable to those of ~~Synvisc.~~Synvisc and Synvisc-One. Furthermore, several companies market products that are not viscosupplementation products but which are designed to relieve the pain associated with osteoarthritis. Synvisc and Synvisc-One will have difficulty competing with any of these products to the extent the competitive products are considered more efficacious, less burdensome to administer or more cost-effective.
        Myozyme has marketing exclusivity in the United States until 2013 and in the European Union until 2016 due to its orphan drug status. Amicus Therapeutics has completed two phase 1 clinical studies for a small molecule treatment for Pompe disease and has announced their plans to initiate a phase 2 clinical trial in early 2008.
Several companies market products that, like Thymoglobulin, ~~and Lymphoglobuline,~~ are used for the prevention and treatment of acute rejection in renal transplant. These products include Novartis' Simulect® and Pfizer Inc.'s ATGAM®. Competition in the acute transplant rejection market is driven largely by product efficacy due to the potential decreased long-term survival of transplanted organs as the result of an acute organ rejection episode.
        The examples above are illustrative and not exhaustive. Almost all of our products and services face competition. Furthermore, the field of biotechnology is characterized by significant and rapid technological change. Discoveries by others may make our products or services obsolete. For example, competitors may develop approaches to treating LSDs that are more effective, convenient or less expensive than our products and product candidates. Because a significant portion of our revenue is derived from products that address this class of diseases and a substantial portion of our expenditures is devoted to developing new therapies for this class of diseases, such a development would have a material negative impact on our results of operations.
If we fail to obtain and maintain adequate levels of reimbursement for our products from third party payors, the commercial potential of our products will be significantly limited.
        A substantial portion of our domestic and international revenue comes from payments by third party payors, including government health administration authorities and private health insurers. Governments and other third party payors may not provide adequate insurance coverage or reimbursement for our products and services, which could impair our financial results.
        Third party payors are increasingly scrutinizing pharmaceutical budgets and healthcare expenses and are attempting to contain healthcare costs by:
•
challenging the prices charged for healthcare products and services;

•
limiting both the coverage and the amount of reimbursement for new therapeutic products;

•
reducing existing reimbursement rates for commercialized products and services;

•
limiting coverage for the treatment of a particular patient to a maximum dollar amount or specified period of time;

•
denying or limiting coverage for products that are approved by the FDA or other governmental regulatory bodies but are considered experimental or investigational by third party payors; and

•
refusing in some cases to provide coverage when an approved product is used for disease indications in a way that has not received FDA or other applicable marketing approval.

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

        Furthermore, governmental regulatory bodies, such as the Centers for Medicare and Medicaid Services (CMS), may from time-to-time make unilateral changes to reimbursement rates for our products and services. These changes could reduce our revenues by causing healthcare providers to be less willing to use our products and services. Although we actively seek to assure that any initiatives that are undertaken by regulatory agencies involving reimbursement for our products and services do not have an adverse impact on us, we may not always be successful in these efforts. For example, in October 2006, the CMS announced a change to the billing code for viscosupplementation products effective January 2007 that, if unchanged, would have resulted in Medicare reimbursement for Synvisc at a rate that was lower than the price healthcare providers were paying for the product. In December 2006, the CMS reversed its decision. If the CMS billing code decision had been left unchanged, our Synvisc revenues would have been adversely affected because healthcare providers likely would have been less willing to use Synvisc. Although the CMS ultimately reversed its decision and left the mechanism for calculating Synvisc reimbursement in 2007 substantially similar to the reimbursement mechanism for 2006, we have no way of knowing whether, at some point in the future, the CMS will change the method for reimbursing Synvisc or any of our other products and services in a way that could have an adverse effect on our revenues.
The development of new biotechnology products involves a lengthy and complex process, and we may be unable to commercialize any of the products we are currently developing.
        We have numerous products under development and devote considerable resources to research and development, including clinical trials.
        Before we can commercialize our development-stage product candidates, we will need to:
•
conduct substantial research and development;

•
undertake preclinical and clinical testing;

•
develop and scale-up manufacturing processes; and

•
pursue marketing approvals and, in some jurisdictions, pricing and reimbursement approvals.
        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:
•
failure of the product candidate in preclinical studies;

•
difficulty enrolling patients in clinical trials, particularly for disease indications with small patient populations;

•
patients exhibiting adverse reactions to the product candidate or indications of other safety concerns;

•
insufficient clinical trial data to support the effectiveness of the product candidate;

•
our inability to manufacture sufficient quantities of the product candidate for development or commercialization activities in a timely and cost-efficient manner;

•
our failure to obtain the required regulatory approvals for the product candidate, the facilities or the process used to manufacture the product candidate; or

•
changes in the regulatory environment, including pricing and reimbursement, that make development of a new product or indication no longer desirable.

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

primary endpoint. In our pivotal study of hylastan for treatment of patients with osteoarthritis of the

knee, hylastan did not meet its primary endpoint. We may decide to abandon development of a product or service candidate at any time or we may be required to expend considerable resources repeating clinical trials or conducting additional trials, either of which would increase costs of development and delay any revenue from those product candidates.
        Our efforts to expand the approved indications for our products and to gain marketing approval in new jurisdictions and to develop next generation products also may fail. These expansion efforts are subject to many of the risks associated with completely new products and accordingly, we may fail to recoup the investments we make pursuing these strategies.
Our financial results are dependent on sales of Cerezyme.
        Sales of Cerezyme, our enzyme-replacement product for patients with Gaucher disease, totaled $304.3 million for the three months ended March 31, 2008, representing approximately 28% of our total revenue. Because our business is dependent on Cerezyme, negative trends in revenue from this product could have an adverse effect on our results of operations and cause the value of our securities to decline. We will lose revenue if alternative treatments gain commercial acceptance, if our marketing activities are restricted, or if coverage, pricing or reimbursement is limited. In addition, the patient population with Gaucher disease is not large. Because a significant percentage of that population already uses Cerezyme, opportunities for future sales growth are constrained. Furthermore, changes in the methods for treating patients with Gaucher disease, including treatment protocols that combine Cerezyme with other therapeutic products or reduce the amount of Cerezyme prescribed, could limit growth, or result in a decline, in Cerezyme sales.
We may encounter substantial difficulties managing our growth.
        Several risks are inherent to our plans to grow our business. Achieving our goals will require substantial investments in research and development, sales and marketing, and facilities. For example, we have spent considerable resources building and seeking regulatory approvals for our manufacturing plants. We cannot assure you that these facilities will prove sufficient to meet demand for our products or that we will not have excess capacity at these facilities. In addition, building our facilities is expensive, and our ability to recover these costs will depend on increased revenue from the products produced at the facilities.
        We produce relatively small amounts of material for research and development activities and pre-clinical trials. Even if a product candidate receives all necessary approvals for commercialization, we may not be able to successfully scale-up production of the product material at a reasonable cost or at ~~all.~~all and we may not receive manufacturing approvals in sufficient time to meet product demand. For example, the FDA has concluded that Myozyme produced in our 2000 liter bioreactors is a different product than Myozyme produced in our 160 liter bioreactors and is therefore requiring us to submit a separate BLA for the 2000 liter Myozyme. This delay in receipt of FDA approval has had an adverse effect on our revenues and earnings and will continue to have an adverse effect until we receive regulatory approval.
        If we are able to grow sales of our products, we may have difficulty managing inventory levels. Marketing new therapies is a complicated process, and gauging future demand is difficult. With Renagel, for example, we have encountered problems in the past managing inventory levels at wholesalers. Comparable problems may arise with any of our products, particularly during market introduction.

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

•
reimbursement rates;

•
physician prescribing habits;

•
the availability or pricing of competitive products; and

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

Our operating results and financial position may be impacted when we attempt to grow through business combination transactions.
        We may encounter problems assimilating operations acquired in business combination transactions. These transactions often entail the assumption of unknown liabilities, the loss of key employees, and the diversion of management attention. Furthermore, in any business combination, including our ~~acquisitions~~acquisition of ~~AnorMED Inc. and~~ Bioenvision, there is a substantial risk that we will fail to realize the benefits we anticipated when we decided to undertake the transaction. We have in the past taken significant charges for impaired goodwill and for impaired assets acquired in business combination transactions. We may be required to take similar charges in the future.
Manufacturing problems may cause product launch delays, inventory shortages, recalls and unanticipated costs.
        In order to generate revenue from our approved products, we must be able to produce sufficient quantities of the products. Many of our products are difficult to manufacture. Our products that are biologics, for example, require product characterization steps that are more onerous than those required for most chemical pharmaceuticals. Accordingly, we employ multiple steps to attempt to control the manufacturing processes. Minor deviations in these manufacturing processes could result in unacceptable changes in the products that result in lot failures, product recalls, product liability claims and insufficient inventory. For example, we have experienced manufacturing issues with Thymoglobulin that resulted in write offs or recalls of lots produced in 2007 that went out of specification prior to expiry.
        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~~some of our products at a very limited number of facilities and, in some cases, we rely on third parties to formulate and manufacture our products. For example, we manufacture all of our Cerezyme and a portion of our Fabrazyme and Myozyme products

at our facility in Allston, Massachusetts. A number of factors could cause production interruptions at our facilities or the facilities of our third party providers, including equipment malfunctions, labor problems, natural disasters, power outages, terrorist activities, or disruptions in the operations of our suppliers.
        Manufacturing is also subject to extensive government regulation. Regulatory authorities must approve the facilities in which human healthcare products are produced and those facilities are subject to ongoing inspections. In addition, changes in manufacturing processes may require additional regulatory approvals. Obtaining and maintaining these regulatory approvals could cause us to incur significant additional costs and lose revenue. For example, we are currently working with the FDA to obtain approval of a larger-scale Myozyme manufacturing process. We anticipate a decision from the FDA in the first quarter of 2008 and, until that time, are taking actions to optimize our U.S. Myozyme supply, including making Myozyme available to some patients through a clinical access program. Furthermore, any third party we use to manufacture, fill-finish or package our products to be sold must also be licensed by the applicable regulatory authorities. As a result, alternative third party providers may not be readily available on a timely basis.
        Additionally, we determined that four lots of Thymoglobulin finished goods inventory did not meet our internal specifications for saleable product which caused those lots to be written off. Currently, we

have three additional finished lots of Thymoglobulin, valued at approximately $8 million, which are under review to determine whether they meet product specifications. If we determine that any of those lots do not meet the specifications for saleable product, we will write off that inventory as a charge to earnings. Even with the four finished lots of Thymoglobulin that have been written off and the possibility of lots under review being written off, we currently expect to be able to meet projected market demand. We will continue to closely monitor our inventory levels and intend to manage production to maintain adequate supply levels in 2008.
Guidelines and recommendations published by various organizations can reduce the use of our products.
        Professional societies, practice management groups, private health/science foundations, and organizations involved in various diseases may publish guidelines or recommendations to the healthcare and patient communities from time to time. Recommendations of government agencies or these other groups/organizations may relate to such matters as usage, dosage, route of administration, cost-effectiveness, and use of related therapies. Organizations like these have in the past made recommendations about our products and products of our competitors. Recommendations or guidelines that are followed by patients and healthcare providers could result in decreased use of our products. The perception by the investment community or shareholders that recommendations or guidelines will result in decreased use of our products could adversely affect prevailing market price for our common stock. In addition, our success also depends on our ability to educate patients and healthcare providers about our products and their uses. If these education efforts are not effective, then we may not be able to increase the sales of our existing products or successfully introduce new products to the market.
We rely on third parties to provide us with materials and services in connection with the manufacture of our products.
        ~~Certain~~Some materials necessary for commercial production of our products, including specialty chemicals and components necessary for manufacture, fill-finish and packaging, are provided by unaffiliated third party suppliers. In some cases, such materials are specifically cited in our marketing application with regulatory authorities so that they must be obtained from that specific source unless and until the applicable authority ~~approved~~approves another supplier. In addition, there may only be one available source for a particular chemical or component. For example, we acquire polyalylamine (PAA), used in the manufacture of Renagel, Renvela, Cholestagel and WelChol, from Cambrex Charles City, Inc., the only source for this material currently qualified in our FDA drug applications for these products. Our suppliers also may be subject to FDA regulations or the regulations of other governmental agencies outside the United States regarding manufacturing practices. We may be unable to manufacture our products in a timely manner or at all if these third party suppliers were to cease or interrupt production or otherwise fail to supply these materials or products to us for any reason, including due to regulatory requirements or actions, adverse financial developments at or affecting the supplier, or labor shortages or disputes.
        We also source some of our manufacturing, fill-finish, packaging and distribution operations to third party contractors. The manufacture of products, fill-finish, packaging and distribution of our products requires successful coordination among these third party providers and Genzyme. Our inability to coordinate these efforts, the inability of the third party contractor to secure sufficient source materials, the lack of capacity available at a third party contractor or any other problems with the operations of 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 these and similar arrangements is largely dependent on technology and other intellectual property contributed by our strategic partners or the resources, efforts, and skills of our partners. Disputes and difficulties in such relationships are common, often due to conflicting priorities or conflicts of interest. Merger and acquisition activity may exacerbate these conflicts. The benefits of these alliances are reduced or eliminated when strategic partners:
•
~~terminate the agreements or limit our access to the underlying intellectual property;~~

•
~~fail to devote financial or other resources to the alliances and thereby hinder or delay development, manufacturing or commercialization activities;~~

•
~~fail to successfully develop, manufacture or commercialize any products; or~~

•
~~fail to maintain the financial resources necessary to continue financing their portion of the development, manufacturing, or commercialization costs of their own operations.~~
        Furthermore, payments we make under these arrangements may exacerbate fluctuations in our financial results. In addition, under some of our strategic alliances, we make milestone payments well in advance of commercialization of products with no assurance that we will ever recoup these payments. We also may make equity investments in our strategic partners, as we did with RenaMed Biologics, Inc., or RenaMed, in June 2005. Our strategic equity investments are subject to market fluctuations, access to capital and other business events, such as initial public offerings, the completion of clinical trials and regulatory approvals, which can impact the value of these investments. For example, in October 2006, RenaMed suspended clinical trials of its renal assist device which was being developed to treat patients with acute renal failure, causing us to write off our entire investment in RenaMed. If any of our other strategic equity investments decline in value and remain below cost for an extended duration, we may incur additional financial statement charges.
Government regulation imposes significant costs and restrictions on the development and commercialization of our products and services.
        Our success will depend on our ability to satisfy regulatory requirements. We may not receive required regulatory approvals on a timely basis or at all. Government agencies heavily regulate the production and sale of healthcare products and the provision of healthcare services. In particular, the FDA and comparable regulatory agencies in foreign jurisdictions must approve human therapeutic and diagnostic products before they are marketed, as well as the facilities in which they are made. This approval process can involve lengthy and detailed laboratory and clinical testing, sampling activities and other costly and time-consuming procedures. Several biotechnology companies have failed to obtain regulatory approvals because regulatory agencies were not satisfied with the structure or conduct of clinical trials. Similar problems could delay or prevent us from obtaining approvals. Furthermore, regulatory authorities, including the FDA, may not agree with our interpretations of our clinical trial data, which could delay, limit or prevent regulatory approvals.
        Therapies that have received regulatory approval for commercial sale may continue to face regulatory difficulties. If we fail to comply with applicable regulatory requirements, regulatory authorities could take actions against us, including:
•
issuing warning letters;

•
issuing fines and other civil penalties;

•
suspending regulatory approvals;

•
refusing to approve pending applications or supplements to approved applications;

•
suspending product sales, imports and/or exports;

•
requiring us to communicate with physicians and other customers about concerns related to potential safety, efficacy, and other issues involving Genzyme products;

•
mandating product recalls; and

•
seizing products.

        Furthermore, the FDA and comparable foreign regulatory agencies may require post-marketing clinical trials or patient outcome studies. We have agreed with the FDA, for example, to a number of post-marketing commitments as a condition to U.S. marketing approval for Fabrazyme, Aldurazyme and ~~Myozyme.~~Myozyme and Clolar. In addition, regulatory agencies subject a marketed therapy, its manufacturer and the manufacturer's facilities to continual review and periodic inspections. The discovery of previously unknown problems with a therapy or the facility or process used to produce the therapy could prompt a regulatory authority to impose restrictions on us, or could cause us to voluntarily adopt such restrictions, including withdrawal of one or more of our products or services from the market. For example, we received a warning letter from the FDA onin September ~~19,~~ 2007 that addresses certain of our manufacturing procedures in our Thymoglobulin production facility in Lyon, France. ~~There is no current impact~~The FDA has accepted our response to ~~product supply as a result of~~ the ~~FDA~~ warning letter and we ~~are in ongoing discussions with the FDA~~continue to ~~resolve the issues described in the letter.~~work to optimize our processes at this plant.
We may incur substantial costs as a result of litigation or other proceedings.
        A third party may sue us or one of our strategic collaborators for infringing the third party's patent or other intellectual property rights. Likewise, we or one of our strategic collaborators may sue to enforce intellectual property rights or to determine the scope and validity of third party proprietary rights. If we do not prevail in this type of litigation, we or our strategic collaborators may be required to:
•
pay monetary damages;

•
stop commercial activities relating to the affected products or services;

•
obtain a license in order to continue manufacturing or marketing the affected products or services; or

•
compete in the market with a different product.

        We are also currently involved in litigation matters and investigations that do not involve intellectual property claims and may be subject to additional actions in the future. For example, the federal government, state governments and private payors are investigating and have begun to file actions against numerous pharmaceutical and biotechnology companies, including Genzyme, alleging that the companies have overstated prices in order to inflate reimbursement rates. Domestic and international enforcement authorities also have instituted actions under healthcare "fraud and abuse" laws, including anti-kickback and false claims statutes. Moreover, individuals who use our products or services, including our diagnostic products and genetic testing services, sometimes bring product and professional liability claims against us or our subsidiaries.
        We may also become subject to investigations by government authorities in connection with our business activities. For example, we are currently cooperating with an investigation of Bone Care (a company we acquired in July 2005) by the United States Attorney for the Eastern District of New York which was initiated in October 2004, when Bone Care received a subpoena requiring it to provide a wide range of documents related to numerous aspects of its business.

        We believe some of our products are prescribed by physicians for uses not approved by the FDA or comparable regulatory agencies outside the United States. Although physicians may lawfully prescribe our products for off-label uses, any promotion by us of off-label uses would be unlawful. Some of our practices intended to make physicians aware of off-label uses of our products without engaging in off-label promotion could nonetheless be construed as off-label promotion. Although we have policies and procedures in place designed to help assure ongoing compliance with regulatory requirements regarding off-label promotion, some non-compliant actions may nonetheless occur. Regulatory authorities could take enforcement action against us if they believe we are promoting, or have promoted, our products for off-label use.
        We have only limited amounts of insurance, which may not provide coverage to offset a negative judgment or a settlement payment. We may be unable to obtain additional insurance in the future, or we may be unable to do so on acceptable terms. Our insurers may dispute our claims for coverage. For example, we have submitted claims to our insurers for reimbursement of portions of the expenses incurred in connection with the litigation and settlement related to the consolidation of our tracking stock and are seeking coverage for the settlement. The insurer has purported to deny coverage. Any additional insurance we do obtain may not provide adequate coverage against any asserted claims.
        Regardless of merit or eventual outcome, investigations and litigations can result in:
•
the diversion of management's time and attention;

•
the expenditure of large amounts of cash on legal fees, expenses, and payment of damages;

•
limitations on our ability to continue some of our operations;

•
decreased demand for our products and services; and

•
injury to our reputation.
Our international sales, clinical activities, manufacturing and other operations are subject to the economic, political, legal and business environments of the countries in which we do business, and our failure to operate successfully or adapt to changes in these environments could cause our international sales and operations to be limited or disrupted.
        Our international operations accounted for approximately ~~47%~~52% of our consolidated product and service revenues for the ~~nine~~three months ended ~~September 30, 2007.~~March 31, 2008. We expect that international product and

service sales will continue to account for a significant percentage of our revenues for the foreseeable future. In addition, we have direct investments in a number of subsidiaries outside of the United ~~States, primarily in the European Union, Latin America and Japan.~~States. Our international sales and operations could be limited or disrupted, and the value of our direct investments may be diminished, by any of the following:
•
economic problems that disrupt foreign healthcare payment systems;

•
the imposition of governmental ~~controls;~~controls, including foreign exchange and currency restrictions;

•
less favorable intellectual property or other applicable laws;

•
the inability to obtain any necessary foreign regulatory or pricing approvals of products in a timely manner;

•
the inability to obtain third party reimbursement support for products;

•
product counterfeiting and intellectual property piracy;

•
parallel imports;

•
anti-competitive trade practices;

•
import and export license requirements;

•
political instability;

•
terrorist activities, armed conflict, or ~~outbreak of diseases such as severe acute respiratory syndrome (SARS) or avian influenza;~~a pandemic;

•
restrictions on direct investments by foreign entities and trade restrictions;

•
changes in tax laws and tariffs;

•
difficulties in staffing and managing international operations; and

•
longer payment cycles.
        Our operations and marketing practices are also subject to regulation and scrutiny by the governments of the other countries in which we operate. In addition, the United States Foreign Corrupt Practices Act prohibits U.S. companies and their representatives from offering, promising, authorizing or making payments to foreign officials for the purpose of obtaining or retaining business abroad. Failure to comply with domestic or foreign laws could result in various adverse consequences, including possible delay in the approval or refusal to approve a product, recalls, seizures, withdrawal of an approved product from the market, and/or the imposition of civil or criminal sanctions.
Our international sales and operating expenses are subject to fluctuations in currency exchange rates.
        A significant portion of our business is conducted in currencies other than our reporting currency, the U.S. dollar. We recognize foreign currency gains or losses arising from our operations in the period in which we incur those gains or losses. As a result, currency fluctuations among the U.S. dollar and the currencies in which we do business have caused foreign currency translation gains and losses in the past and will likely do so in the future. Because of the number of currencies involved, the variability of currency exposures and the potential volatility of currency exchange rates, we may suffer significant foreign currency translation losses in the future due to the effect of exchange rate fluctuations.

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

        We also rely upon trade secrets, proprietary know-how, and continuing technological innovation to remain competitive. We attempt to protect this information with security measures, including the use of confidentiality agreements with employees, consultants, and corporate collaborators. These individuals may breach these agreements and any remedies available to us may be insufficient to compensate for our damages. Furthermore, our trade secrets, know-how and other technology may otherwise become known or be independently discovered by our competitors.
Some of our products may face competition from lower cost generic or follow-on products in the future.
        Some of our drug products, for example Renagel, Renvela, Clolar and Hectorol, are approved under the provisions of the United States Food, Drug and Cosmetic Act that render them susceptible to potential competition from generic manufacturers via the Abbreviated New Drug Application (ANDA) procedure. Generic manufacturers pursuing ANDA approval are not required to conduct costly and time-consuming clinical trials to establish the safety and efficacy of their products; rather, they are permitted to rely on the innovators data regarding safety and efficacy. Thus, generic manufacturers can sell their products at prices much lower than those charged by the innovative pharmaceutical companies who have incurred substantial expenses associated with the research and development of the drug product.
        The ANDA procedure includes provisions allowing generic manufacturers to challenge the effectiveness of the innovator's patent protection long prior to the generic manufacturer actually commercializing their products—the so-called "Paragraph IV" certification procedure. In recent years, generic manufacturers have used Paragraph IV certifications extensively to challenge patents on a wide array of innovative pharmaceuticals, and we expect this trend to continue and to implicate drug products with even relatively small total revenues.
        Other of our products, including Cerezyme, Fabrazyme, Aldurazyme, Myozyme and Campath (so-called "biotech drugs") are not currently considered susceptible to an abbreviated approval procedure, either due to current United States law or FDA practice in approving biologic products. However, the United States Congress is expected to continue to explore, and ultimately enact,

legislation that would establish a procedure for the FDA to accept ANDA-like abbreviated applications for the approval of "follow-on," "biosimilar" or "comparable" biotech drugs. Such legislation has already been adopted in the European Union.
        A generic manufacturer has filed an ANDA seeking to market a generic version of Hectorol prior to the expiration dates of our patents covering the product. If this or any other manufacturer were to receive approval to sell a generic or follow-on version of one of our products, that product would become subject to increased competition and our revenues for that product would likely be impacted negatively.
We may be required to license technology from competitors or others in order to develop and commercialize some of our products and services, and it is uncertain whether these licenses would be available.
        Third party patents may cover some of the products or services that we or our strategic partners are developing or producing. A patent is entitled to a presumption of validity and accordingly, we face significant hurdles in any challenge to a patent. In addition, even if we are successful in challenging the validity of a patent, the challenge itself may be expensive and require significant management attention.
        To the extent valid third party patent rights cover our products or services, we or our strategic collaborators would be required to seek licenses from the holders of these patents in order to manufacture, use or sell these products and services, and payments under them would reduce our profits from these products and services. We may not be able to obtain these licenses on acceptable terms, or at all. If we fail to obtain a required license or are unable to alter the design of our technology to fall outside the scope of a third party patent, we may be unable to market some of our products and services, which would limit our profitability.
Importation of products may lower the prices we receive for our products.
        In the United States and abroad, many of our products are subject to competition from lower-priced versions of our products and competing products from other countries where government price controls or other market dynamics result in lower prices for such products. Our products that require a prescription in the United States may be available to consumers in markets such as Canada, Mexico, Taiwan and the Middle East without a prescription, which may cause consumers to further seek out these products in these lower priced markets. The ability of patients and other customers to obtain these lower priced imports has grown significantly as a result of the Internet, an expansion of pharmacies in Canada and elsewhere that target American purchasers, ~~the~~an increase in U.S.-based businesses affiliated with Canadian pharmacies marketing to American purchasers and other factors. Most of these foreign imports are illegal under current United States law. However, the volume of imports continues to rise due to the limited enforcement resources of the FDA and the United States Customs Service, and there is increased political pressure to permit such imports as a mechanism for expanding access to lower priced medicines. The importation of lower-priced versions of our products into the United States and other markets adversely affects our profitability. This impact could become more significant in the future.
Legislative or regulatory changes may adversely impact our business.
        The United States government and other governments have shown significant interest in pursuing healthcare reform. Any government-adopted reform measures could adversely impact:
•
the pricing of healthcare products in the United States or internationally; and

•
the amount of reimbursement available from governmental agencies or other third party payors.

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

services, or sales, marketing or pricing may cause our revenue to decline, and we may need to revise our research and development programs.
        On September 27, 2007, the Food and Drug Administration Amendments Act of 2007 (the "FDAAA") was enacted, giving the FDA enhanced post-market authority, including the authority to require ~~post-market~~post-marketing studies and clinical trials, labeling changes based on new safety information, and compliance with risk ~~evaluation~~evaluations and mitigation strategies approved by the FDA. The FDA's exercise of its new authority could result in delays or increased costs during the period of product development, clinical trials and regulatory review and approval, increased costs to assure compliance with new post-approval regulatory requirements, and potential restrictions on the sale of approved products.
If our strategic alliances are unsuccessful, our operating results will be negatively impacted.
        Several of our strategic initiatives involve alliances with other biotechnology and pharmaceutical companies. The success of these arrangements is largely dependent on technology and other intellectual property contributed by our strategic partners or the resources, efforts, and skills of our partners. Disputes and difficulties in such relationships are common, often due to conflicting priorities or conflicts of interest. Merger and acquisition activity may exacerbate these conflicts. The benefits of these alliances are reduced or eliminated when strategic partners:
•
terminate the agreements or limit our access to the underlying intellectual property;

•
fail to devote financial or other resources to the alliances and thereby hinder or delay development, manufacturing or commercialization activities;

•
fail to successfully develop, manufacture or commercialize any products; or

•
fail to maintain the financial resources necessary to continue financing their portion of the development, manufacturing, or commercialization costs of their own operations.
        Furthermore, payments we make under these arrangements may exacerbate fluctuations in our financial results. In addition, under some of our strategic alliances, we make milestone payments well in advance of commercialization of products with no assurance that we will ever recoup these payments. We also may make equity investments in our strategic partners, as we did with RenaMed Biologics, Inc., or RenaMed, in June 2005. Our strategic equity investments are subject to market fluctuations, access to capital and other business events, such as initial public offerings, the completion of clinical trials and regulatory approvals, which can impact the value of these investments. For example, in October 2006, RenaMed suspended clinical trials of its renal assist device which was being developed to treat patients with acute renal failure, causing us to write off our entire investment in RenaMed. If any of our other strategic equity investments decline in value and remain below cost for an extended duration, we may incur additional charges.
We may require significant additional financing, which may not be available to us on favorable terms, if at all.
        As of ~~September 30, 2007,~~March 31, 2008, we had $1.4 billion in cash, cash equivalents and short- and long-term investments, excluding our investments in equity securities.
        We intend to use substantial portions of our available cash for:
•
product development and marketing;

•
payments related to the cash consideration ~~for our merger with~~due to the dissenting Bioenvision ~~including~~shareholders, the ~~approximately $245 million~~amount of ~~cash we paid in October 2007 upon completion~~which will be determined by the Delaware Court of ~~the merger, the approximately $11 million of cash we intend to pay in the fourth quarter of 2007 for the outstanding options to purchase shares of Bioenvision Common Stock;~~Chancery;

•
~~other~~ business combinations and strategic business initiatives, including the approximately $53 million in Canadian dollars, or approximately $57 million U.S. dollars (based on the November 2, 2007 spot rate for the Canadian dollar), of cash we intend to spend in December 2007 for our planned acquisition of the diagnostics division of DCL;initiatives;

•
the remaining $1.2 billion approved for our ~~$1.5 billion~~ongoing stock repurchase ~~program;~~program over approximately the next 2 years;

•
upgrading our information technology systems;

•
expanding existing and constructing ~~additional~~new manufacturing facilities;

•
contingent payments under license and other agreements, including payments related to our license of mipomersen from Isis;

•
expanding staff; and

•
working capital and satisfaction of our obligations under capital and operating leases.
        We may further reduce available cash reserves to pay principal and interest on outstanding debt, including our $690.0 million in principal of 1.25% convertible senior notes.
        To satisfy our cash requirements, we may have to obtain additional financing. We may be unable to obtain any additional financing or extend any existing financing arrangements at all or on terms that we or our investors consider favorable.
Our level of indebtedness may harm our financial condition and results of operations.
        As of ~~September 30, 2007,~~March 31, 2008, we had ~~$697.9~~$696.8 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:
•
increasing our vulnerability to adverse changes in general economic and industry conditions; and

•
limiting our ability to obtain additional financing for capital expenditures, acquisitions and general corporate and other purposes.

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

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
        We are exposed to potential loss from exposure to market risks represented principally by changes in foreign exchange rates, interest rates and equity prices. At ~~September 30, 2007,~~March 31, 2008, we held derivative contracts in the form of foreign exchange forward contracts. We also held a number of other financial instruments, including investments in marketable securities and we had debt securities outstanding. We do not hold derivatives or other financial instruments for speculative purposes.
~~Foreign Exchange~~Equity Price Risk
        ~~As a result of our worldwide operations, we face exposure to potential adverse movements~~We hold investments in foreign currency exchange rates, primarily to the Euro, British pound and Japanese yen. Exposures to currency fluctuations that result from sales of our products in foreign markets are partially offset by the impact of currency fluctuations on our international expenses. We use forward foreign exchange contracts to further reduce our exposure to changes in exchange rates. We also hold a limited ~~amount~~number of ~~foreign cash~~U.S. and European equity securities.
        ~~As of September 30, 2007, we estimate~~ We estimated the potential loss in fair value due to a 10% decrease in the equity prices of ~~our foreign currency contracts, foreign cash, and foreign equity holdings that would result from a hypothetical 10% adverse change in exchange rates~~each marketable security held at March 31, 2008 to be ~~$18.8~~$6.3 million, as compared to ~~$34.2~~$6.5 million ~~as of~~at December 31, ~~2006. The~~2007. This estimate assumes no change ~~from the prior period is primarily due to a reduction in forward contracts and to a decrease~~ in foreign ~~currency being held.~~exchange rates from quarter-end spot rates and excludes any potential risk associated with securities that do not have a readily determinable market value.

Interest Rate Risk
        We are exposed to potential loss due to changes in interest rates. Our principal interest rate exposure is to changes in U.S. interest rates. Instruments with interest rate risk include short- and long-term investments in fixed income securities. Other exposures to interest rate risk include the fair value of fixed rate convertible debt and other fixed rate debt. To estimate the potential loss due to changes in interest rates, we performed a sensitivity analysis using the instantaneous adverse change in interest rates of 100 basis points across the yield curve.
        We used the following assumptions in preparing the sensitivity analysis for our convertible ~~notes:~~bonds:
•
convertible notes that are "in-the-money" at ~~September 30, 2007~~March 31, 2008 are considered equity securities and are excluded;

•
convertible notes that are "out-of-the-money" at ~~September 30, 2007~~March 31, 2008 are analyzed by taking into account both fixed income and equity components; and

•
convertible notes will mature on the first available put or call date.
        On this basis, we estimate the potential loss in fair value that would result from a hypothetical 1% (100 basis points) ~~decrease~~increase in interest rates to be ~~$2.6~~$3.5 million as of ~~September 30, 2007,~~March 31, 2008, as compared to ~~$4.2~~$3.3 million as of December 31, ~~2006.~~2007.
~~Equity Price~~Foreign Exchange Risk
        As a result of our worldwide operations, we may face exposure to adverse movements in foreign currency exchange rates, primarily to the Euro, British pound and Japanese yen. Exposures to currency fluctuations that result from sales of our products in foreign markets are partially offset by the impact of currency fluctuations on our international expenses. We use forward foreign exchange contracts to further reduce our exposure to changes in exchange rates. We also hold ~~investments in~~ a limited ~~number~~amount of ~~U.S.~~foreign cash and ~~European~~foreign currency denominated equity securities. ~~We estimate~~
        As of March 31, 2008, we estimated the potential loss in fair value ~~due to~~of our foreign currency contracts, foreign cash, and foreign equity holdings that would result from a hypothetical 10% ~~decrease~~adverse change in ~~equity prices of marketable securities held at September 30, 2007~~exchange rates to be ~~$6.0~~$64.1 million, as compared to ~~$4.2~~$36.2 million atas of December 31, ~~2006.~~2007. The ~~increase~~

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

ITEM 4.    CONTROLS AND PROCEDURES
        AtAs of March 31, 2008, we evaluated, with the ~~direction~~participation of our Chief Executive Officer and Chief Financial Officer, ~~we evaluated~~the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and ~~internal control over financial reporting~~15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that ~~(1)~~ our disclosure controls and procedures were effective as of ~~September 30, 2007, and (2)~~March 31, 2008.
        There were no ~~change~~changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended ~~September 30, 2007~~March 31, 2008 that ~~has~~have materially affected, or isare reasonably likely to materially affect, ~~such~~our internal control over financial reporting.

PART II.    OTHER INFORMATION
ITEM 1.    LEGAL PROCEEDINGS
~~Legal Proceedings~~
        We periodically become subject to legal proceedings and claims arising in connection with our business.
        ~~Through June 30, 2003,~~ Although we had three outstanding series of common stock, which we referred to as tracking stocks; Genzyme General Stock (which we now refer to as Genzyme Stock), Biosurgery Stock and Molecular Oncology Stock. Four lawsuits were filed against us regarding the exchange of all of the outstanding shares of Biosurgery Stock for shares of Genzyme Stock in connection with the elimination of our tracking stocks in July 2003. Each of the lawsuits was a purported class action on behalf of holders of Biosurgery Stock. The first case, filed in the MSC in May 2003, alleged a breach of the implied covenant of good faith and fair dealing in our charter and a breach of our board of directors' fiduciary duties. The plaintiff in this case sought an injunction to adjust the exchange ratio for the tracking stock exchange. The MSC dismissed the complaint in its entirety in November 2003. Upon appeal, the Massachusetts Appeals Court upheld the dismissal by the MSC of the fiduciary duty claim, but reversed the earlier decision to dismiss the implied covenant claim. The Massachusetts Supreme Judicial Court (SJC) granted our petition for further appellate review. On June 4, 2007, the SJC reversed the Appeals Court's decision and affirmed dismissal of the complaint in its entirety. On July 25, 2007, the SJC denied the plaintiff's petition for rehearing. Two substantially similar cases were filed in the MSC in August and October 2003. These cases were consolidated in January 2004, and in July 2004, the consolidated case was stayed pending disposition of a fourth case, which was filed in the U.S. District Court for the Southern District of New York in June 2003. As amended, this complaint alleged violations of federal securities laws, as well as various state law claims, related to the exchange, on behalf of a certified class of holders of Biosurgery Stock as of May 8, 2003. On August 6, 2007, we reached an agreement-in-principle with counsel for the plaintiff class to settle and dismiss this case for approximately $64 million. A definitive settlement agreement was approved by the court on October 26, 2007. Because the members of the class in the New York action released all claims, the settlement has, as a practical matter, resolved the consolidated case in the MSC. We have submitted claims to our insurers for reimbursement of portions of the expenses incurred and to be incurred in connection with these cases; the insurer has purported to deny coverage. We intend to vigorously pursue our rights with respect to insurance coverage. As a result, we recorded a liability for the settlement payment of approximately $64 million as a charge to SG&A in our consolidated statements of operations in June 2007, which we subsequently paid in August 2007.
        ~~We are not able to~~cannot predict the outcome of ~~other legal~~these additional proceedings ~~to which we may become subject in the normal course of business or estimate the amount or range of any reasonably possible loss we might incur if~~and claims, we do not ~~prevail in~~believe the ~~final, non-appealable determinations~~ultimate resolution of ~~such matters. Therefore, we have no current accruals for~~any of these ~~potential contingencies. We cannot provide you with assurance that other legal proceedings will not~~existing matters would have a material adverse ~~impact~~effect on our financial ~~condition and~~position or results of operations.

ITEM 1A.    RISK FACTORS
        We incorporate by reference our disclosure related to risk factors which is set forth under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—Risk Factors" in Part I., Item 2. of this Quarterly Report on Form 10-Q.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
~~Stock Repurchase Program~~
        The following table provides information about our repurchases of our equity securities during the quarter ended March 31, 2008:
Period
Total
Number
of Shares
Purchased
Average
Price
Paid
per
Share
Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs
Approximate
Dollar Value
of Shares that
May Yet Be
Purchased
Under the
Plans or
Programs
January 1, 2008-January 31, 2008 — — — $ 1,268,494,422
February 1, 2008-February 29, 2008 — — — 1,268,494,422
March 1, 2008-March 31, 2008 1,000,000 $ 73.20 1,000,000 1,195,296,813

Total 1,000,000 (1) $ 73.20 (2) 1,000,000

(1)
In May 2007, our board of directors authorized a stock repurchase program to repurchase up to an aggregate maximum amount of $1.5 billion or 20,000,000 shares of our outstanding common stock over ~~the next~~ three years. The repurchases are being made from time to time and can be effectuated through open market purchases, privately negotiated transactions, transactions structured through investment banking institutions, or by other means, subject to management's discretion and as permitted by securities laws and other legal requirements. The manner of the purchase, the amount that we spend and the number of shares we ultimately purchase will vary based on a range of factors, including share price. The program does not obligate us to acquire any particular amount of common stock and the program may be suspended at any time at our discretion.
        ~~The following table provides information about certain repurchases of equity securities that are registered under Section 12 of the Exchange Act during the quarter ended September 30, 2007:~~
Period
Total
Number
of Shares
Purchased
Average
Price
Paid
per
Share
Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs
Approximate
Dollar Value
of Shares that
May Yet Be
Purchased
Under the
Plans or
Programs
July 1, 2007-July 31, 2007 803,300 $ 63.72 803,300 $ 1,385,400,672
August 1, 2007-August 31, 2007 1,036,953 $ 64.18 1,036,953 1,318,846,790
September 1, 2007-September 30, 2007 — — — 1,318,846,790

Total 1,840,253 (1) $ 63.98 (2) 1,840,253

~~(1)~~
During the ~~third~~first quarter of fiscal ~~2007,~~2008, we repurchased ~~1,840,253~~1,000,000 shares of our common stock under ~~the~~our stock repurchase program for ~~$117.8~~$73.2 million of cash, including fees.

(2)
Represents the weighted average price paid per share for stock repurchases made during the ~~third~~first quarter of fiscal ~~2007.~~2008.

ITEM 6.    EXHIBITS
(a)
Exhibits
        See the Exhibit Index following the signature page to this report on Form 10-Q.

~~GENZYME CORPORATION AND SUBSIDIARIES~~
~~FORM 10-Q, SEPTEMBER 30, 2007~~
SIGNATURES
        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GENZYME CORPORATION

~~Date: November 8, 2007~~Dated: May 9, 2008

By:

/s/  MICHAEL S. WYZGA
Michael S. Wyzga
Executive Vice President, Finance, Chief
Financial Officer, and Chief Accounting Officer

GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, ~~SEPTEMBER 30, 2007~~
MARCH 31, 2008
EXHIBIT INDEX
EXHIBIT NO.
DESCRIPTION
*3.1 Restated Articles of Organization of Genzyme, as amended. Filed as Exhibit 3.1 to Genzyme's Form 10-Q for the quarter ended June 30, 2006.

*3.2

By-laws of Genzyme, as amended. Filed as Exhibit 3.1 to Genzyme's Form 8-K filed May ~~24,~~25, 2007.

**10.1

Amended and Restated ~~Contract Purchase~~Collaboration Agreement, effective as of January 1, 2008, among Genzyme, BioMarin Pharmaceutical, Inc. and ~~Supply Agreement between Invitrogen Corporation and~~ BioMarin/Genzyme ~~Corporation effective December 31, 2007.~~LLC. Filed herewith.

**10.2

~~Form~~Manufacturing, Marketing and Sales Agreement, effective as of ~~Severance Agreement between~~January 1, 2008, among Genzyme, BioMarin Pharmaceutical, Inc. and ~~its executive officers.~~BioMarin/Genzyme LLC. Filed herewith.

10.3 Forms of Restricted Stock Unit Award Agreements for grants to executive officers under Genzyme's 2004 Equity Incentive Plan. Filed herewith.
31.1

Certification of the Chief Executive Officer pursuant to ~~Section~~section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

31.2

Certification of the Chief Financial Officer pursuant to ~~Section~~section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

32.1

Certification of the Chief Executive Officer pursuant to ~~Section~~section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.

32.2

Certification of the Chief Financial Officer pursuant to ~~Section~~section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.
*
Indicates exhibit previously filed with the SEC and incorporated herein by reference. Exhibits filed with Forms 10-K, 10-Q, 8-K, 8-A, 8-B or Schedule 14A of Genzyme Corporation were filed under Commission File No. 0-14680.

**
Confidential treatment has been requested for the ~~deleted~~redacted portions of ~~Exhibit 10.1.~~Exhibits 10.1 and 10.2.

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GENZYME CORPORATION AND SUBSIDIARIES FORM 10-Q, MARCH 31, 2008 TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENZYME CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations and Comprehensive Income (Unaudited, amounts in thousands, except per share amounts)
GENZYME CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited, amounts in thousands, except par value amounts)
GENZYME CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited, amounts in thousands)
GENZYME CORPORATION AND SUBSIDIARIES Notes to Unaudited, Consolidated Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF GENZYME CORPORATION AND SUBSIDIARIES' FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RISK FACTORS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 1A. RISK FACTORS
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 6. EXHIBITS
SIGNATURES
EXHIBIT INDEX