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

FORM 10-Q

Commission File No. 0-14680

GENZYME CORPORATION
(Exact name of registrant as specified in its charter)

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

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes oý    No o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

        Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o    No ý

        Number of shares of Genzyme Stock outstanding as of July 31, 2009: 270,308,386April 30, 2010: 266,868,620

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NOTE REGARDING REFERENCES TO GENZYME

        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.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This Form 10-Q contains forward-looking statements. These forward-looking statements include, among others, statements regarding:

•

our expectations regarding the financial impactterms of production interruption at our Allston, Massachusetts (Allston) manufacturing facility, and the expected timing of new Cerezyme and Fabrazyme production;



•

our regulatory plans and expectations for approval of alglucosidase alfa produced at the 2000 liter bioreactor, or 2000L, and the 4000 liter bioreactor, or 4000L, scale bya consent decree being negotiated with the United States Food and Drug Administration, or FDA, including the potential impact on Thyrogen supply, and the timing thereof, and our expectations regarding sales of Myozyme in Europe;when those negotiations are expected to be completed;



•

our expectations regarding the timingduration and amount of the FDA's re-inspectioncontinuing supply allocations of Cerezyme and Fabrazyme and our Allston facility;assessment of the factors that will influence those allocations;



•

our plans to increase bulk and fill-finish manufacturing capacity for Cerezyme, Fabrazyme and Myozyme and the expected timing thereof;of receipt of regulatory approvals;



•

our expectations regarding regulatory action with respect to several pending marketing applications, including a powder formassessment of Renvela in the United States and a label expansion for clofarabinepotential impact on our future revenues of healthcare reform legislation recently enacted in the United States;



•

our expectations regarding regulatory approval of alemtuzumab for the treatment of multiple sclerosis, or MS, which we refer to as alemtuzumab for MS, and the timing thereof;Myozyme/Lumizyme revenues;



•

our expectations for sales of Renagel/Renvela and Hectorol and the anticipated drivers forfactors affecting the future growth of these products;products, including the proposed rule to establish a bundled payment system to reimburse dialysis providers;



•

our expectations that production interruption at our Haverhill, England manufacturing facility will not result in a supply constraint for Renagel/Renvela, and the expected timing of new sevelamer carbonate production;



•

our expectations regarding timing of regulatory approval for a new Leukine manufacturing facility;



•

our assessment of competitors and potential competitors and the anticipated impact of potentially competitive products and services, including generic competition, on our revenues;



•

our estimates of the cost to complete our research and development programs for companies and assets that we have acquired;



•

our assessment of the financial impact of legal proceedings and claims on our financial position and results of operations;



•

the sufficiency of our cash, investments and cash flows from operations and our expected uses of cash;



•

our provision for potential tax audit exposures and our expectations regarding settlement of our 2006 to 2007 Internal Revenue Service of the United States Department of the Treasury, or IRS, audit;unrecognized tax benefits;



•

the protection afforded by our expectations regarding the impact of changes in foreign exchange rates on our revenues;



•

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



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our assessment of the impact of recent accounting pronouncements on our financial position and results of operations;patent rights; and



•

our expectations regarding the amortization of intangible assets related to our expected future contingent payments due to Bayer Schering Pharma A.G., or Bayer, Synpac (North Carolina), Inc., or Synpac, and Wyeth.

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        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:

•

the possibility that we may be unable to produce new Cerezyme and Fabrazyme at our Allston facility in the expected timeframes due to production problems, additional contamination atfinal terms of the facility, concernsconsent decree differ from the terms described in this report, that the negotiations with the FDA or other regulatory authorities or any other reason,around the consent decree take longer than anticipated, or that we experience manufacturing issues, including contamination, at another facility;are unable to reach agreement with the FDA on final terms;



•

the possibility that regulatory authorities dowe are not allow usable to finish and release Cerezyme materials that were in progress at the timerepurchase some or all of the temporary shutdown$2.0 billion of our Allston facility;common stock or complete strategic transactions involving our genetic testing, diagnostic products and pharmaceutical intermediates business units in the expected timeframes or at all, or that we are not able to complete a debt financing in the expected timeframe or in the anticipated amount, or at all, due to an unfavorable credit rating, unfavorable financing terms, unfavorable credit markets generally or any other reason;



•

the potential for Gaucherpossibility that current reduced supply allocations of Fabrazyme and Fabry disease patientsCerezyme need to switchlast longer than expected or need to competitors' productsbe more severe than expected because we are unable to finish work-in-process material that was in placeproduction when operations at our Allston, Massachusetts manufacturing facility, which we refer to as our Allston facility, were interrupted, third party oversight under a consent decree results in delays in product releases, our demand forecasts and estimates are inaccurate, and/or productivity of Cerezymethe new Fabrazyme working cell bank does not increase or Fabrazymewe do not receive regulatory approval;



•

the possibility that we may encounter additional manufacturing problems due to any reason, including equipment failures, viral or to continue to reduce their consumption of these products even after supply stabilizes;bacterial contamination, cell growth at lower than expected levels, fill-finish issues, power outages, human error or regulatory issues;



•

our ability to obtain and maintain regulatory approvals for our products, services and manufacturing facilities and processes, including our Allston facility, and to do soobtain approvals in the anticipated timeframes, including forFDA approval of alglucosidase alfa produced at the 2000L4000L scale and 4000L scalesapproval for new manufacturing capacity and for proposed changes to enhance our manufacturing processesprocesses;



•

our ability to testsuccessfully transition fill-finish operations out of our Allston facility and to our Waterford, Ireland plant and a contract manufacturer on the planned timelines because of delays in regulatory approval or for Vesivirus 2117, and the timing of receipt of such approvals;any other reason;



•

the possibility that we may be unable to produce new sevelamer hydrochloride and/or new sevelamer carbonate at our Haverhill, England facility in the expected time frames due to production problems or regulatory issues;



•

the extent to which Gaucher and Fabry disease patients switch to competitors' products in place of Cerezyme or Fabrazyme or continue to reduce their doses of our products even after product supply stabilizes;



•

the possibility that we may experience supply constraints for Thyrogen, and the extent of those constraints, if the FDA doesrequires us to cease fill-finishing this product at Allston and we are not re-inspect our Allston facilityable to transfer fill-finish activities to a contract manufacturer on the planned timelines because of delays in our expected timeframeregulatory approval or that the FDA identifies issues that cause a delay in approval for alglucosidase alfa produced at the 2000L or 4000L scales;any other reason;



•

our ability to manufacture sufficient amounts of our products and maintain sufficient inventories, and to do so in a timely and cost-effective manner and to receive regulatory approval for new manufacturing capacity in the expected timeframes;manner;



•

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;



•

competition from lower cost generic or biosimilar products;



•

the impact of legislative or regulatory changes, including implementation of the healthcare reform legislation recently enacted in the United States and the possibility that additional proposals to reduce healthcare costs may be adopted in the United States or elsewhere;

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•

our ability and the ability of our collaboration partners to successfully complete preclinical and clinical development of new products and services;services within the anticipated timeframes and for anticipated indications;



•

regulatory authorities' views regarding the safety, efficacy and risk-benefit profiles of our new or current products and our manufacturing processes;



•

our ability to expand the use of current and next generation products in existing and new indications;



•

regulatory authorities' views regarding the safety, efficacy and risk-benefit profiles of our products and our manufacturing processes;



•

our ability to accurately forecast the impact of regulatory delays on our financial position and results of operations;



•

potential future write offs of inventory including Cerezyme work-in-process, or product recalls;



•

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



•

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



•

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



•

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 successfully identify and market our products and services to new patients;



•

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

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•

competition from lower cost generic or biosimilar products;



•

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;



•

the impact of legislative or regulatory changes, including proposed healthcare reform in the United States;



•

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



•

our ability to continue to generate cash from operations and to effectively use our cash resources to grow our business;



•

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 impact of changes in the exchange rates for foreign currencies on our product and service revenues in future periods;



•

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



•

the outcome of legal proceedings by or against us;



•

the possibility that our ability to successfully integrateintegration of the products and development programs that we have acquired from Bayer;Bayer may be more costly or time consuming than expected;



•

the outcome of our Internal Revenue Service, or IRS, and foreign tax audits;



•

general economic conditions; and



•

the possible disruption of our operations due to terrorist activities, armed conflict, severe climate change, natural disasters or outbreak of diseases, including as a result of the disruption of operations of regulatory authorities or our subsidiaries, manufacturing facilities, customers, suppliers, distributors, couriers, collaborative partners, licensees or clinical trial sites.

        We refer to more detailed descriptions of these and other risks and uncertainties under the heading "Risk Factors" in Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations in Part I,I., Item 22. of this 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 Form 10-Q. These statements, like all statements in this Form 10-Q, 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.

NOTE REGARDING INCORPORATION BY REFERENCE

        The 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 with them. The information that we refer you to is "incorporated by reference" into this Form 10-Q. Please read that information.

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NOTE REGARDING TRADEMARKS

        Genzyme®, Cerezyme®, Fabrazyme®, Thyrogen®, Myozyme®, Renagel®, Renvela®, Campath®, Clolar®, Evoltra®, Mozobil®, Thymoglobulin®, Cholestagel®, Synvisc®, Synvisc-One®, Sepra®,

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Seprafilm®, Carticel®, Epicel®, MACI® and Hectorol® are registered trademarks, and Lumizyme™ and Synvisc-One™Jonexa™ are trademarks, of Genzyme or its subsidiaries. WelChol®Welchol® is a registered trademark of Sankyo Pharma, Inc. Aldurazyme® is a registered trademark of BioMarin/Genzyme LLC. Elaprase® is a registered trademark of Shire Human Genetic Therapies, Inc. Prochymal® and Chondrogen® are registered trademarks of Osiris Therapeutics, Inc. Fludara® and Leukine® are registered trademarks of Bayer Schering Pharma A.G., and licensed to Genzyme. All other trademarks referred to in this Form 10-Q are the property of their respective owners. All rights reserved.

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GENZYME CORPORATION AND SUBSIDIARIES

FORM 10-Q, JUNE 30, 2009MARCH 31, 2010

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PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

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

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

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GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

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

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

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GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited, amounts in thousands)

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

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GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements

1. Description of Business

        We are a global biotechnology company dedicated to making a major impact on the lives of people with serious diseases. Our broad productproducts and service portfolio isservices are focused on rare inherited disorders, renalkidney disease, orthopaedics, cancer, transplant and immune disease, and diagnostic testing. Our commitment to innovation continues today with a substantial development program focused on these fields, as well as cardiovascular disease, neurodegenerative diseases, and predictive testing.other areas of unmet medical need.

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

•

Personalized Genetic Diseases,Health, which develops, manufactures and distributes therapeutic products with an expandinga 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.LSDs, and cardiovascular disease. The unit derives substantially all of its revenue from sales of Cerezyme, Fabrazyme, Myozyme, Aldurazyme and Aldurazyme;Elaprase and royalties earned on sales of Welchol;



•

CardiometabolicRenal and Renal,Endocrinology, which develops, manufactures and distributes products that treat patients suffering from renal diseases, including chronic renal failure, and endocrine and cardiovascularimmune-mediated diseases. The unit derives substantially all of its revenue from sales of Renagel/Renvela (including sales of bulk sevelamer), Hectorol and Thyrogen;



•

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/Synvisc-One and the Sepra line of products, Carticel and Matrix-induced Autologous Chondrocyte Implantation, or MACI; andproducts;



•

HematologicHematology and Oncology, which develops, manufactures and distributes products for the treatment of cancer. Prior to May 29, 2009,cancer, the mobilization of hematopoietic stem cells and the treatment of transplant rejection and other hematologic and auto-immune disorders. The unit derivedderives substantially all of its revenue from sales and royalties received on sales of Campath, clofarabine (which is marketed under the namesMozobil, Thymoglobulin, Clolar, and Evoltra), and Mozobil, which received marketing approval in the United States in December 2008 and in Europe in July 2009. On May 29, 2009, we acquired from Bayer the worldwide marketing and distribution rights to Campath, Fludara (fludarabine phosphate) and Leukine (sargramostim). Since that date, salesLeukine; and



•

Multiple Sclerosis, which is developing a product for the treatment of Fludara and Leukine have been included in this unit along with sales of Campath.MS.

        Our transplantEffective January 1, 2010, based on changes in how we review our business, we re-allocated certain of our business units among our segments and adopted new names for certain of our reporting segments. Specifically:

•

our former Genetic Diseases reporting segment is now referred to as "Personalized Genetic Health," or "PGH," and now includes our cardiovascular business unit, which develops, manufacturespreviously was reported under the caption "Cardiometabolic and distributes therapeutic products that address pre-transplantation, prevention and treatment of graft rejection in organ transplantation and other hematologic and auto-immune disorders,Renal," and our geneticsWelchol product line, which previously was reported as part of our bulk pharmaceuticals business unit under the caption "Other;"



•

our former Cardiometabolic and Renal reporting segment is now referred to as "Renal and Endocrinology" and now includes our immune-mediated diseases business unit, which provides testing services for the oncology, prenatal and reproductive markets, were formerlypreviously was reported as separate reporting segments. Effective as of the fourth quarter of 2008, we include our transplant and genetics business units under the caption "Other."Other," We also report the activities ofbut no longer includes our MS, diagnostic products, bulk pharmaceuticalscardiovascular business unit; and immune mediated disease business units under the caption "Other." These operating segments did not meet the quantitative threshold for separate segment reporting. We have revised our 2008 segment disclosures to conform to our 2009 presentation.

        We report our corporate, general and administrative operations and corporate science activities under the caption "Corporate."

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GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements (Continued)

1. Description of Business (Continued)

•

our former Hematologic Oncology segment is now referred to as "Hematology and Oncology" and now includes our transplant business unit, which previously was reported under the caption "Other," but no longer includes our MS business unit, which is now reported as a separate reporting segment called "Multiple Sclerosis."

        We report the activities of the following business units under the caption "Other": our genetic testing business unit, which provides testing services for the oncology, prenatal and reproductive markets; and our diagnostic products and pharmaceutical intermediates business units. These operating segments did not meet the quantitative threshold for separate segment reporting.

        We report our corporate, general and administrative operations and corporate science activities under the caption "Corporate."

        We have revised our 2009 segment disclosures to conform to our 2010 presentation.

        On May 6, 2010, we announced that we plan to pursue strategic alternatives for our genetic testing, diagnostic products and pharmaceutical intermediates business units. Options could include divestiture, spin-out or management buy-out. In 2009, our genetic testing business unit had revenue of approximately $371 million and revenue for our diagnostic products business unit was approximately $167 million. We expect these transactions to be completed in 2010.

2. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

        Our unaudited, consolidated financial statements for each period include the statements of operations, 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 20082009 data to conform to our 20092010 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.States, or U.S. GAAP.

        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 Exhibit 13Part II., Item 8. to our 20082009 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. The balance sheet data as of December 31, 20082009 that is included in this Form 10-Q was derived from our audited financial statements.statements but does not include all disclosures required by U.S. GAAP.

        Our unaudited, consolidated financial statements for each period include the accounts of our wholly owned and majority owned subsidiaries. As a result of our adoption of Financial Accounting Standards Board, or FASB, Interpretation No., or FIN, 46R, "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% ownership interest, we record minority interest expense in "Other" in our consolidated statements of operations (representing the ownership interest of the minority owner) because the amount was immaterial for all periods presented. We use the equity method of accounting to account for our investments in entities in whichnot subject to consolidation using the equity method of accounting if 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.influence over the entity. Our consolidated net income (loss) includes our share of the earnings or losses of these entities.

        Any material subsequent events All intercompany accounts and transactions have been considered for disclosure through the filing date of this Form 10-Q.

Recent Accounting Pronouncements

        Periodically, accounting pronouncements and related information on the adoption, interpretation and application of accounting principles generally acceptedeliminated in the United States are issued or amended by the various U.S. financial accounting regulatory groups. The following table provides a description of the types of accounting pronouncements that are frequently issued or amended:consolidation.

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GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements (Continued)

2. Basis of Presentation and Significant Accounting Policies (Continued)

Revenue Recognition—Recent Healthcare Reform Legislation

        In March 2010, healthcare reform legislation was enacted in the United States, which contains several provisions that impact our business. Although many provisions of the new legislation do not take effect immediately, several provisions became effective in the first quarter of 2010. These include:

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an increase in the minimum Medicaid rebate to states participating in the Medicaid program from 15.1% to 23.1% on our branded prescription drugs and an increase of 17.1% for our drugs that are approved exclusively for pediatric patients;



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the extension of the Medicaid rebate to managed care organizations that dispense drugs to Medicaid beneficiaries;



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the expansion of the 340(B) Public Health Services, or PHS, drug pricing program, which provides outpatient drugs at reduced rates, to include additional hospitals and healthcare centers (this provision, however, does not apply to orphan drugs); and



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a requirement that the Medicaid rebate for a drug that is a "line extension" of a preexisting oral solid dosage form of the drug be linked in certain respects to the Medicaid rebate for the preexisting oral solid dosage form, such that the Medicaid rebate for most line extension drugs will be higher than it would have been absent the new law, especially if the preexisting oral solid dosage form has a history of significant price increases.

These provisions did not have a significant impact on our results of operations or financial position for the first quarter of 2010.

        Effective October 1, 2010, the new legislation re-defines the Medicaid average manufacturer price, or AMP, such that the AMP and, consequently, the Medicaid rebate are expected to increase for some of our drugs, in particular those that offer discounted pricing to customers.

        Beginning in 2011, the new law requires that drug manufacturers provide a 50% discount to Medicare beneficiaries whose prescription drug costs cause them to be subject to the Medicare Part D coverage gap, which is known as the "donut hole." Also beginning in 2011, clinical laboratory fee schedule payments will be reduced by 1.75% over a period of five years and we will be required to pay our share of a new fee assessed on all branded prescription drug manufacturers and importers. This fee will be calculated based upon each organization's percentage share of total branded prescription drug sales to U.S. government programs (such as Medicare and Medicaid, the Department of Veterans Affairs, or VA, the Department of Defense, or DOD, and the TriCare retail pharmacy discount programs) made during the previous year. Sales of orphan drugs, however, are not included in the fee calculation. Final guidance relating to how we will be required to account for this fee is still pending, however, it is expected that the fee will be classified as either a reduction to net sales or an operating expense. The aggregated industry wide fee is expected to total approximately $28 billion through 2019, ranging from $2.5 billion to $4.1 billion annually. Beginning in 2013, a 2.3% excise tax will be imposed on sales of all medical devices except retail purchases by the public intended for individual use.

        Presently, uncertainty exists as many of the specific determinations necessary to implement this new legislation have yet to be decided and communicated to industry participants. We are still assessing the full extent that the U.S. healthcare reform legislation may have on our business.

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GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements (Continued)

2. Basis of Presentation and Significant Accounting Policies (Continued)

Stock-Based Compensation

        All stock-based awards to non-employees are accounted for at their fair value. We periodically grant awards, including time vesting stock options, time vesting restricted stock units, or RSUs, and performance vesting restricted stock units, or PSUs, under our employee and director equity plans. Beginning in 2010, our long-term incentive program for senior executives includes a combination of:

•

time vesting stock options; and



•

performance and market vesting awards, tied to the achievement of pre-established performance and market goals over a three-year performance period.

Approximately half of each senior executive's grant consists of time vesting stock options with the remainder in PSUs. Grants under our former long-term incentive program were comprised of time vesting stock options and time vesting RSUs.

        We record the estimated fair value of awards granted as stock-based compensation expense in our consolidated statements of operations over the requisite service period, which is generally the vesting period. Where awards are made with non-substantive vesting periods, such as where a portion of the award vests upon retirement eligibility, we estimate and recognize expense based on the period from the grant date to the date on which the employee is retirement eligible.

        The fair values of our:

•

stock option grants are estimated as of the date of grant using a Black-Scholes option valuation model. The estimated fair values of the stock options, including the effect of estimated forfeitures, are then expensed over the options' vesting periods;



•

time vesting RSUs are based on the market value of our stock on the date of grant. Compensation expense for time vesting RSUs is recognized over the applicable service period, adjusted for the effect of estimated forfeitures; and



•

PSUs with both performance and service conditions are estimated based on the market value of our stock on the date of grant. The fair values of our PSUs with both market and service conditions are estimated as of the date of grant using a lattice model with a Monte Carlo simulation. Compensation expense associated with our PSUs is initially based upon the number of shares expected to vest after assessing the probability that certain performance criteria will be met and the associated targeted payout level that is forecasted will be achieved, net of estimated forfeitures. Compensation expense for our PSUs is recognized over the applicable performance period, adjusted for the effect of estimated forfeitures.

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GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements (Continued)

2. Basis of Presentation and Significant Accounting Policies (Continued)

Recent Accounting Pronouncements

        Periodically, accounting pronouncements and related information on the adoption, interpretation and application of U.S. GAAP are issued or amended by the Financial Accounting Standards Board, or FASB, or other standard setting bodies. Changes to the FASB Accounting Standards Codification™, or ASC, are communicated through Accounting Standards Updates, or ASUs. The following table shows FASB ASUs recently issued accounting pronouncementsthat could affect our disclosures and our position for adoption:

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GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements (Continued)

2. Basis of Presentation and Significant Accounting Policies (Continued)

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GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements (Continued)

3. Fair Value Measurements

        A significant number of our financial instrumentsassets and liabilities are carried at fair value. These assets and liabilities include:

•

fixed income investments;



•

investments in publicly-traded equity securities;



•

derivatives; and



•

contingent consideration obligations.

Fair Value Measurement—Definition and Hierarchy

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

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GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements (Continued)

3.    Fair Value Measurements (Continued)

various valuation approaches, including market, income and cost approaches. FAS 157 establishes aWe are required to follow an established fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available.

        The fair value hierarchy is broken down into three levels based on the reliability of inputs. We have categorized our fixed income, equity securities, derivatives and contingent consideration obligations 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 these products do not require a significant degree of judgment. Assets utilizing Level 1 inputs include money market funds, U.S. government securities, bank deposits and exchange-traded equity securities;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 securities, corporate bonds and commercial paper. Derivative securities utilizing Level 2 inputs include forward foreign-exchange contracts; andcontracts.



•

Level 3—These valuations are based on various approaches using inputs that are unobservable and significant to the overall fair value measurement. Certain assets and liabilities are classified within Level 3 of the fair value hierarchy because they trade infrequentlyhave unobservable value drivers and therefore have little or no transparency. The fair value measurement of the contingent consideration obligations related to the acquisition from Bayer is valued using Level 3 inputs.

Valuation Techniques

        Fair value is a market-based measure considered from the perspective of a market participant who would buy the asset or assume the liability rather than our own specific measure. All of our fixed income securities are priced using a variety of daily data sources, largely readily-available market data and broker quotes. To validate these prices, we compare the fair market values of our fixed income investments using market data from observable and corroborated sources. We also perform the fair value calculations for our derivatives and equity securities using market data from observable and corroborated sources. We determine the fair value of the contingent consideration obligations based on

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a probability-weighted income approach. The measurement is based on significant inputs not observable in the market. In periods of market inactivity, the observability of prices and inputs may be reduced for certain instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2 or from Level 2 to Level 3. During the three months ended March 31, 2010, none of our instruments were reclassified between Level 1, Level 2 or Level 3.

        The following tables set forth our assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2010 and December 31, 2009 (amounts in thousands):

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 The following tables set forth our assets and liabilities that were accounted for at

        Changes in the fair value of our Level 3 contingent consideration obligations during the three months ended March 31, 20082010 were as follows (amounts in thousands):

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