10-K

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

FORM 10-K

(Mark One)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005
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 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)

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Genzyme Common Stock, $0.01 Par Value ("Genzyme Stock")
Genzyme Stock Purchase Rights

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. Large accelerated filer ý     Accelerated filer o    Non-accelerated filer o

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

Aggregate market value of voting stock held by non-affiliates of the Registrant as of June 30, 2005: $15,218,664,105

Number of shares of Genzyme Stock outstanding as of March 1, 2006: 259,790,498

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the Registrant's 2005 Annual Report are incorporated by reference into Parts I, II and IV of this Form 10-K. Portions of the Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on May 25, 2006 are incorporated by reference into Part III of this Form 10-K.

NOTE REGARDING REFERENCES TO GENZYME DIVISIONS AND SERIES OF STOCK

        Throughout this Form 10-K, 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.

        Through June 30, 2003, we had three operating divisions, which we refer to as follows:

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Genzyme General Division = "Genzyme General;"



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Genzyme Biosurgery Division = "Genzyme Biosurgery;" and



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Genzyme Molecular Oncology Division = "Genzyme Molecular Oncology."

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

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Genzyme General Division Common Stock = "Genzyme General Stock;"



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Genzyme Biosurgery Division Common Stock = "Biosurgery Stock;" and



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Genzyme Molecular Oncology Division Common Stock = "Molecular Oncology Stock."

        Through June 30, 2003, we allocated earnings or losses to each series of tracking stock based on the net income or loss attributable to the corresponding division determined in accordance with accounting principles generally accepted in the United States of America, as adjusted for the allocation of tax benefits.

        Effective July 1, 2003, we eliminated our tracking stock capital structure by exchanging, in accordance with the provisions of our charter, each share of Biosurgery Stock for 0.04914 of a share of Genzyme General Stock and each share of Molecular Oncology Stock for 0.05653 of a share of Genzyme General Stock. Options and warrants to purchase shares of Biosurgery Stock and options to purchase shares of Molecular Oncology Stock were converted into options and warrants to purchase shares of Genzyme General Stock. Effective July 1, 2003, we have one outstanding series of common stock. From July 1, 2003 through May 27, 2004, we referred to our outstanding series of common stock as Genzyme General Stock. At our annual meeting of shareholders on May 27, 2004, our shareholders approved an amendment to our charter that eliminated the designation of separate series of common stock, resulting in 690,000,000 authorized shares of a single series of common stock, which we now refer to as Genzyme Stock, and 10,000,000 authorized shares of preferred stock, of which 3,000,000 are designated Series A Junior Participating Preferred Stock and 7,000,000 are undesignated.

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

        On July 1, 2003, we reclassified the Biosurgery Stock and Molecular Oncology Stock equity accounts into the Genzyme Stock equity accounts. The elimination of our tracking stock capital structure had no effect on our consolidated net income or loss. Because we now have only one series of common stock outstanding, we rescinded the management and accounting policies that governed the relationships between our former divisions. In this Annual Report on Form 10-K, and future Quarterly

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and Annual Reports, we will not provide separate financial statements and management's discussion and analysis for each of our former divisions, but will continue to provide our consolidated financial statements and management's discussion and analysis for the corporation as a whole.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This Form 10-K contains forward-looking statements, including statements regarding:

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projected timetables for the preclinical and clinical development of, regulatory submissions and approvals for, and market introduction of, our products and services in various jurisdictions, including Myozyme, sevelamer carbonate, Thyrogen, Aldurazyme, and Synvisc;



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timing of, and availability of data from, clinical trials;



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estimates of the potential markets for our products and services;



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the anticipated drivers for future growth of our products, including Renagel, Thymoglobulin and Synvisc;



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



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estimates of the capacity of, and the projected timetable of approvals for, manufacturing and other facilities to support our products and services;



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expected future revenues, operations and expenditures;



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projected future earnings and earnings per share;



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assessment of the outcome and financial impact of litigation and other governmental proceedings and the potential impact of unasserted claims;



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sufficiency of cash, short-term investments and cash flows from operations;



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IRS audits, including our provision for liabilities and assessment of the impact on settlement of tax disputes;



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



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assessment of deductibility of goodwill;



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assessment of the impact of recent tax legislation, including the American Jobs Creation Act, and recent accounting pronouncements, including Financial Accounting Standards Board, or FASB, Statement of Financial Accounting Standards, or SFAS, No. 123R regarding expensing of stock options, SFAS No. 151 regarding inventory costs, and SFAS No. 154 regarding accounting for changes and error corrections and FASB Staff Position, or FSP, Nos. 115-1 and 124-1;



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sales and marketing plans;



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expected future payments related to employee benefits and leased facilities acquired from Bone Care International, Inc., or Bone Care, Verigen AG, or Verigen, ILEX Oncology, Inc., or ILEX Oncology, Physician Services and Analytical Services business units of IMPATH Inc., or IMPATH, and SangStat Medical Corporation, or SangStat, and the expected timing of these payments;



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replacement of our revolving credit facility; and



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completion of a post-closing working capital assessment for our acquisition of substantially all of the pathology/oncology testing assets related to IMPATH.

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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:

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our ability to successfully complete preclinical and clinical development of our products and services;



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our ability to secure regulatory approvals for our products and services, including Myozyme, and to do so on the anticipated timeframes;



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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;



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



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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;



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



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market acceptance of our products and services;



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the use of cash in business combinations or other strategic initiatives;



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



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



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



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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 EMEA, and other regulatory agencies;



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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;



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our ability to increase market penetration outside the United States for our products;



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market acceptance of Synvisc, Thymoglobulin, Campath and Clolar in expanded areas of use and new markets;



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



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



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



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



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our ability to successfully increase market penetration for Synvisc as a treatment for osteoarthritis of the knee and to expand its use in other joints;



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the resolution of litigation related to the consolidation of our tracking stocks;



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the initiation of legal proceedings by or against us;

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



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our ability to successfully integrate the manufacturing operation acquired from Cell Genesys Inc., or Cell Genesys, as well as the acquisitions of Bone Care, Equal Diagnostics, Inc., or Equal Diagnostics, ILEX Oncology and the businesses acquired from IMPATH;



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the number of diluted shares considered outstanding, which will depend on business combination activity, our stock price and potential changes in accounting rules;



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the outcome of our IRS audits; and



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the possible disruption of our operations due to terrorist activities and armed conflict, including as a result of the disruption of operations of regulatory authorities, our subsidiaries, our manufacturing facilities and our customers, suppliers, distributors, couriers, collaborative partners, licensees and clinical trial sites.

        We have included more detailed descriptions of these and other risks and uncertainties in Item 1A. of this report under the heading "Risk Factors." 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 another date is indicated) and we undertake no obligation to update or revise the statements.

NOTE REGARDING INCORPORATION BY REFERENCE

        The 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 the SEC. The information that we refer you to is "incorporated by reference" into this Form 10-K. Please read that information.

NOTE REGARDING TRADEMARKS

        Genzyme®, Cerezyme®, Ceredase®, Fabrazyme®, Thyrogen®, Aldurazyme®, Myozyme®, Renagel®, Thymoglobulin®, Campath®, Clolar®, Synvisc®, Carticel®, MACI®, Seprafilm®, Hylaform®, Hectorol® and IMPATH® are registered trademarks, and VERIGEN™, Lymphoglobuline™ and Sepra™ are trademarks of Genzyme or its subsidiaries. WelChol® is a registered trademark of Sankyo Pharma, Inc. Gengraf® is a registered trademark of Abbott Laboratories. All rights reserved.

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TABLE OF CONTENTS

		PAGE
PART I
ITEM 1.	BUSINESS	7
	Introduction	7
	Products and Development Programs	7
	Competition	12
	Patents, License Agreements and Trademarks	16
	Government Regulation	17
	Employees	22
	Financial Information Regarding Segment Reporting	22
	Research and Development Costs	22
	Sales by Geographic Area, Significant Customers and Products	22
	Available Information	22
ITEM 1A.	RISK FACTORS	22
ITEM 1B.	UNRESOLVED STAFF COMMENTS	23
ITEM 2.	PROPERTIES	23
ITEM 3.	LEGAL PROCEEDINGS	24
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	25
	EXECUTIVE OFFICERS OF THE REGISTRANT	25
PART II
ITEM 5.	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	28
ITEM 6.	SELECTED FINANCIAL DATA	28
ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	29
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	29
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	29
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	29
ITEM 9A.	CONTROLS AND PROCEDURES	29
ITEM 9B.	OTHER INFORMATION	29
PART III
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	30
ITEM 11.	EXECUTIVE COMPENSATION	30
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	30
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	30
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	30
PART IV
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K	31
	15(a)(1) Financial Statements	31
	15(a)(2) Financial Statement Schedules	32
	15(a)(3) Exhibits	32
	15(b) Exhibits	32

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PART I

ITEM 1.    BUSINESS

Introduction

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

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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 (including sales of bulk sevelamer) and Hectorol;



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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 and Thyrogen;



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Transplant, which develops, manufactures and distributes therapeutic products that address pre-transplantation, prevention and treatment of acute rejection in organ transplantation, as well as other auto-immune disorders. The unit derives its revenue primarily from sales of Thymoglobulin and Lymphoglobuline;



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



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Diagnostics/Genetics, which develops, manufactures and distributes raw materials and in vitro diagnostics products, and provides testing services for the oncology, prenatal and reproductive markets.

        We report the activities of our oncology, bulk pharmaceuticals, including sales of WelChol, and cardiovascular business units under the caption "Other."

        We have reclassified our 2004 and 2003 segment disclosures to conform to our 2005 presentation.

Products and Development Programs

Renal

Renagel (sevelamer hydrochloride).    Renagel is a non-absorbed, calcium-free, metal-free phosphate binder indicated for the control of serum phosphorus in patients with chronic kidney disease (CKD) on hemodialysis. Three formulations of the product have been approved for sale in the United States—the 403 mg. capsules were launched in the fourth quarter of 1998, and the 400 and 800 mg. tablets were launched in September 2000. We ceased marketing the 403 mg. capsules in 2004. Renagel was approved for sale in Israel in 1999, the European Union and Canada in 2000, Brazil in 2002, Japan in 2003, and Argentina and Australia in 2005. In the United States, there are an estimated 350,000 end-stage renal disease patients, approximately 95% of whom receive a phosphate control product. There are also an estimated 324,000 end-stage renal disease patients in Europe, 60,000 in Brazil, 20,000 in Canada and 200,000 in Japan. We are now marketing the product in a total of 50 countries. In 2005, we received marketing approval in Argentina, Australia, Lebanon and Saudi Arabia and we filed for marketing approval in Peru and Mexico.

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        We market Renagel tablets in the United States, the European Union and Brazil directly to nephrologists through a dedicated sales force. In the United States, approximately 80%–85% of our Renagel sales are made to three large wholesalers. These wholesalers distribute Renagel to retail pharmacies, hospitals and other providers of medication to patients. Chugai Pharmaceutical Co., Ltd. and its partner, Kirin Brewery Co., Ltd., have rights to develop and market Renagel in Japan, China and other Pacific Rim countries. Our sales of Renagel (including sales of bulk sevelamer), totaled $417.5 million or 17% of our consolidated product revenues in 2005, $363.7 million, or 18% of our consolidated product revenues in 2004, and $281.7 million, or 18% of our consolidated product revenues, in 2003.

        In October 2003, the National Kidney Foundation (NKF) published clinical practice guidelines related to bone metabolism and disease in patients with CKD. These guidelines, which are part of the NKF's Kidney Disease Outcomes Quality Initiative (K/DOQI), include Renagel among first-line options for reducing phosphorus in hemodialysis. Elevated phosphorus levels are associated with increased morbidity and mortality. The guidelines also define a broader set of patients for whom calcium-based phosphate binders are not appropriate. Renagel is the only marketed phosphate binder available to patients on hemodialysis that does not contain either calcium or metal, is not absorbed systemically and does not accumulate in the body.

        We conducted a 2,100-patient post-marketing study of Renagel to evaluate the ability of the product to improve patient morbidity and mortality. The Dialysis Clinical Outcomes Revisited (DCOR) trial compared Renagel to calcium-based phosphate binders with respect to overall morbidity and mortality. We released top-line data from this trial in July 2005 and presented the data at the American Society of Nephrology meeting in November 2005. The study did not meet its primary end point of a statistically significant reduction in all cause mortality. However, in a pre-specified sub-group analysis, Renagel demonstrated a significant reduction in all cause mortality in patients 65 years of age or older and in patients using Renagel for two years or more. We expect to receive morbidity data from the Centers for Medicare and Medicaid Services (CMS) in mid 2006 and may present such data later in the year.

        We currently have two on-going clinical trials for sevelamer carbonate. We completed enrollment in the trial of this therapy in hemodialysis patients in 2005, while the trial in those with CKD not yet on dialysis began in January 2006. In addition, we are developing a powder formulation of sevelamer carbonate, and in 2005 began a clinical trial comparing it to the tablet formulation for patients with end-stage renal disease on dialysis. We expect this formulation to allow us access to patients who have trouble swallowing tablets. In 2006, we plan to begin a trial with the powder formulation to allow once daily dosing of sevelamer carbonate.

Hectorol (doxercalciferol).    We added Hectorol to our product portfolio in July 2005 with our acquisition of Bone Care. Hectorol is a line of vitamin D₂ pro-hormone products that are indicated for the treatment of secondary hyperparathyroidism in patients with stages 3 and 4 CKD (0.5 mcg capsules) and in patients with stage 5 CKD on dialysis (2.5 mcg capsules and injection). Hectorol provides significant parathyroid hormone (PTH) reductions with minimal impact on calcium and phosphorus levels. Three formulations of the product have been approved for commercial sale in the United States—the 2.5 mcg capsules were approved in 1999, the 0.5 mcg capsules were approved in 2004 and the intravenous formulation was approved in 2000. The 2.5 mcg formulation also is approved in Canada, where it is marketed and sold by Shire BioChem, a Canadian subsidiary of Shire plc.

        We market Hectorol in the United States through a direct sales force focused on nephrologists. Approximately 85%–90% of our United States Hectorol capsule sales are made to three large wholesalers, who then sell and distribute the product to retail pharmacies, hospitals and other providers of medication to patients. For Hectorol IV, approximately 80%–85% of our sales are made to three primary wholesalers who then sell and distribute the product to dialysis chains and hospitals. We

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estimate that there are more than 2.5 million patients in the United States with stage 3 and stage 4 CKD who have elevated PTH levels, although only a much smaller number of patients are being treated for the condition.

Therapeutics

        Our Therapeutics segment currently has four therapeutic products on the market and several other therapeutic products in varying stages of development. The chart set forth below provides summary information on these four products and our most advanced product candidate as of March 1, 2006.

Product	Indication	Status
Cerezyme/Ceredase	Type 1 Gaucher disease; Type 3 Gaucher disease (Cerezyme/E.U. only)	Ceredase sold commercially since 1991; Cerezyme marketed since 1994; marketing approval received and commercial sales in 51 countries
Fabrazyme	Fabry disease	Marketed in the E.U. since 2001, the U.S. since 2003, and Japan since 2004; marketing approval received in 44 countries and commercial sales in 31 countries; several post-marketing commitments ongoing
Thyrogen	Adjunctive diagnostic agent in the follow-up of patients with well-differentiated thyroid cancer	Marketed in the U.S. since 1998, Brazil since 2000 and the E.U. since 2001; marketing approval received and commercial sales in 42 countries
	Combination therapy in ablation of remnant thyroid tissue	Marketing approval received in the E.U. in March 2005
Aldurazyme	MPS I	Marketed in the U.S. and the E.U. since 2003; marketing approval received in 37 countries and commercial sales in 30 countries; several post-marketing commitments on-going
Myozyme	Pompe disease	Two phase 3 trials in patients younger than 3 years old completed; submitted MAA for marketing approval in E.U. in late 2004 and Biologic License Application (BLA) for marketing approval in U.S. in mid-2005; initiated a pivotal study in late onset disease in 2005; expect commercial launch in U.S. and E.U. in the second quarter of 2006

Additional details on our Therapeutic products and our largest development program are set forth below.

Cerezyme (imiglucerase).    Treatment with Cerezyme enzyme replacement therapy currently represents the only safe and effective enzyme replacement therapy approved for treatment of Type 1 Gaucher disease, an LSD. In the E.U., Cerezyme is also approved for the treatment of patients who exhibit clinically significant, non-neurological manifestations of the disease (Type 3 Gaucher disease).

        We market Cerezyme directly to physicians, hospitals and treatment centers worldwide through a highly specialized sales force. Cerezyme, like all of our therapies developed for LSDs, is aimed at treating a patient population of less than 10,000 worldwide. Cerezyme has received marketing approval and we are selling Cerezyme in 51 countries to treat symptoms that include anemia, spleen and liver enlargement and bone deterioration. Our results of operations are highly dependent on sales of this product, although our dependence is lessening as we diversify our product portfolio. Sales of Cerezyme

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totaled $932.3 million, or 38% of our consolidated product revenues in 2005, $839.4 million, or 42% of our consolidated product revenues in 2004, and $733.8 million, or 47% of our consolidated product revenues in 2003.

Fabrazyme (agalsidase beta).    We have developed Fabrazyme, a recombinant form of the human enzyme alpha-galactosidase, as a treatment for Fabry disease. Fabry disease is an LSD that is caused by a deficiency of the enzyme alpha-galactosidase A, which leads to the progressive accumulation of lipids within cells of the kidneys, heart and other organs. It is estimated to affect fewer than 10,000 people worldwide. Fabrazyme received marketing approval in the European Union in 2001, in the United States in 2003 and in Japan in 2004. In agreement with the FDA, we undertook a number of post-marketing commitments, and have completed a phase 4, multi-national, multi-center, double-blind placebo-controlled study. In mid-2005, the EMEA approved new labeling for Fabrazyme based largely on the results from the phase 4 study. In total, Fabrazyme has received marketing approval in 44 countries and we are selling Fabrazyme commercially in 31 countries. Because kidney failure is associated with Fabry disease, Fabrazyme is sold by our existing LSD and Renal sales forces.

Thyrogen (thyrotropin alfa).    Thyrogen is an adjunctive diagnostic agent used in the follow-up of patients with well-differentiated thyroid cancer. We developed this product to allow patients to continue taking their thyroid hormone supplements while they are being screened for residual or recurring thyroid cancer. This helps patients avoid the debilitating effects of hypothyroidism, increasing the likelihood that they will seek follow-up treatment, and ultimately improve the likelihood of early detection of any recurrent disease. We began marketing Thyrogen in the United States in 1998, in Brazil in 2000 and in the European Union in 2001. In the United States and the European Union, physicians order over 200,000 thyroid cancer screening tests per year. Thyrogen, which has received marketing approval and is being sold commercially in 42 countries, is promoted by a dedicated sales force, and sold through distributors in the United States, Brazil and the European Union.

        We currently are pursuing additional indications for Thyrogen. In March 2005, we received European Union approval for use of Thyrogen in combination with radioiodine in ablation of thyroid tissue. We have received an approvable letter for this indication from the FDA and expect approval in the United States, Brazil and Canada in late 2006. Approximately 35,000 ablation procedures are performed annually in the United States and European Union combined, and we believe that Thyrogen has the potential to be used in up to 80% of these procedures. We are also in the process of commencing a phase 2 trial of TSH, the active ingredient in Thyrogen, for use in patients with nontoxic multinodular goiter.

Aldurazyme (laronidase).    We formed a joint venture with BioMarin Pharmaceutical Inc., or BioMarin, to develop and market Aldurazyme, a recombinant form of the human enzyme alpha-L-iduronidase, to treat a LSD known as mucopolysaccharidosis I, or MPS I. MPS I is a progressive, debilitating, and often life-threatening disease that affects fewer than 10,000 people worldwide. The disease encompasses a wide and continuous spectrum of clinical presentations, historically classified as "Hurler," "Hurler-Scheie" and "Scheie" syndromes. In 2003, the joint venture received marketing approval for Aldurazyme in both the United States and the European Union. We market Aldurazyme directly to physicians in the United States through our LSD sales force. European sales of Aldurazyme, which are undertaken by our European sales and marketing teams, are being realized on a country-by-country basis as pricing and reimbursement approvals are obtained. The joint venture's applications for marketing approval are currently pending in several countries, including Japan, Australia and several countries in Central and Eastern Europe, as well as the Asia-Pacific rim. In total, Aldurazyme has received marketing approvals in 37 countries and we are selling Aldurazyme commercially, on behalf of the joint venture, in 30 countries. We currently are conducting a clinical study to support our marketing application in Japan, which we expect to complete in 2006. We are also conducting a post-marketing clinical study investigating alternative dosing regimens that we anticipate completing in 2006.

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Aldurazyme revenues are recorded by the joint venture. We include our portion of the net income of BioMarin/Genzyme LLC in equity in income (loss) of equity method investments in our consolidated statements of operations.

Myozyme (alglucosidase alfa).    We are developing Myozyme as a therapy for Pompe disease, a progressive and often fatal muscle disease resulting from an inherited enzyme deficiency. Pompe disease ranges from a rapidly fatal infantile-onset form with severe cardiac and skeletal muscle involvement to a more slowly progressive late-onset form affecting skeletal and respiratory muscle. There is currently no therapeutic treatment available for the disease. Based on results from two trials involving patients younger than 3 years old with the infantile-onset form of Pompe disease, and from previous studies of enzyme replacement therapy for Pompe disease, we submitted a marketing application for Myozyme in the European Union in late 2004 and in the United States in mid-2005. In January 2006, European regulators issued a positive opinion on Myozyme. We expect European Union and United States approvals in the second quarter of 2006 and are preparing for commercial launch soon thereafter. We plan to submit a marketing application in Japan later in 2006. In addition, we are continuing enrollment in the clinical trials of Myozyme in patients with the late-onset form of Pompe disease that began in 2005. Myozyme currently is available to patients who are in need and are unable to participate in our trials through several special access programs.

Transplant

        This business segment includes three marketed products, as well as product candidates in the research and development stages that we acquired through our acquisition of SangStat in the third quarter of 2003. Set forth below is a discussion of the two marketed products that are the primary revenue drivers for the Transplant segment.

Thymoglobulin (anti-thymocyte globulin, rabbit).    Thymoglobulin is an immunosuppressive polyclonal antibody that suppresses certain types of immune cells responsible for acute organ rejection in transplant patients. It has been marketed in the United States since 1999 for the treatment, and in Canada since 2003 for the prevention and treatment, of acute rejection in patients with renal transplant. More kidney transplants are performed in the United States than any other organ transplant, with approximately 16,000 transplants performed each year. Of this number of renal transplants, we estimate that acute immunosuppressant therapies such as Thymoglobulin are used in approximately 75% of procedures. In the European Union, Thymoglobulin received approval for a broader label in the major European markets and is indicated for induction and treatment of rejection in solid organ transplants, for prevention and treatment of graft versus host disease, and for the treatment of aplastic anemia. This broader indication is also held in several Asian and Latin American countries. We have filed for marketing approval of Thymoglobulin in Japan. Thymoglobulin, which is commercially available in 55 countries, is sold through a direct sales force or through distributors to transplant centers for end use by transplant surgeons and nephrologists. In 2005, we completed enrollment in a phase 2 trial of Thymoglobulin to prevent rejection of transplanted kidneys from living organ donors and began a phase 2 trial in liver transplantation. We closed our trial of Thymoglobulin as a conditioning therapy for bone marrow transplant in cases of severe leukemia in order to devote our efforts to other aspects of hematological cancers.

Lymphoglobuline (anti-thymocyte-globuline, equine).    We market Lymphoglobuline, another immunosuppressive polyclonal antibody, in Latin America, the European Union, and certain Asia Pacific countries for the treatment of aplastic anemia and for the prevention and treatment of graft rejection. This product is sold through our sales force in Europe and through distributors elsewhere.

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Biosurgery

Synvisc (hylan G-F 20).    Synvisc is a biomaterial derived from hyaluronan used to treat the pain associated with osteoarthritis of the knee. An estimated 8 to 9 million of the approximately 14 million people in the United States with osteoarthritis of the knee may be candidates for treatment with Synvisc. Synvisc is sold commercially in over 60 countries, both directly and through marketing and distribution arrangements. At the beginning of 2005, we re-acquired from Wyeth the sales and marketing rights to the product in the United States and several European countries.

        We are investing in research and clinical trials to expand the use of Synvisc to additional joints and through next-generation approaches. We have completed enrollment in a phase 3 clinical trial in the United States for Synvisc in the hip, an indication that is already approved in the European Union and Canada. We anticipate filing for approval of this indication in the United States in late 2006. In the European Union, we have completed our phase 3 trials of the shoulder and ankle and anticipate launching Synvisc for these indications in the first half of 2007. At the same time, we are continuing clinical development of Synvisc II, our next-generation product that would require fewer injections. We hope to launch this product in 2007.

Sepra Products.    The Sepra family of products is aimed primarily at preventing adhesions (internal scar tissue) following various surgical procedures in areas of the body such as the abdomen and pelvis. These products are biomaterials derived from hyaluronan. We market the Sepra products primarily through a direct sales force in the United States and France, and primarily through distribution arrangements in Japan and the rest of the world.

        Seprafilm, the first marketed product and largest by sales volume of the Sepra family, is the only FDA-approved product clinically proven to reduce the incidence, extent and severity of postsurgical adhesions in both the abdomen and pelvis. There are approximately 2 million applicable abdominal and pelvic procedures performed annually in the United States, including 1.1 million Cesarean sections, a largely untapped market. During 2005, we launched Sepramesh IP, a second generation product for hernia repair to replace Sepramesh, which has been on the market since 2000.

Diagnostics/Genetics

Diagnostic Products.    We develop, market and distribute in vitro diagnostic products with an emphasis on point of care products for the in-hospital and out-of-hospital rapid test segment, and clinical chemistry reagents and raw materials focused on the clinical laboratory. Sales in Europe and the United States are made primarily to diagnostic reagent and equipment manufacturers who, in turn, distribute the products under their own brand. In Japan, sales are primarily made to distributors. We also maintain a manufacturing, research and development and sales subsidiary in Germany that sells infectious disease diagnostic products directly to hospital laboratories.

Diagnostic Services.    We develop and provide high quality, sophisticated and complex testing, and offer genetic counseling services focused on pre-natal and post-natal care, reproductive and fertility medicine, and oncology in both the United States and Japan. We offer several types of testing—the most significant are cytogenetic testing, molecular genetic (DNA) testing, immunohistochemistry testing, flow cytometry testing and biochemical testing. These services are promoted through a direct sales force in the United States, with testing performed in our nine clinical laboratories located throughout the United States. We service the Japanese market through a direct sales force and distributors, with testing primarily performed in our clinical laboratory in Santa Fe, New Mexico.

Competition

        We are engaged in segments of the human healthcare products and services industry that are extremely competitive. Our competitors in the United States and elsewhere include major

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pharmaceutical, biotechnology, diagnostic testing and medical device companies. Some of these competitors may have more extensive research and development, regulatory, manufacturing, production, and sales and marketing capabilities. Some competitors may have greater financial resources. These companies may succeed in developing products and services that are more effective than any that we have or may develop and may also prove to be more successful than we are in producing, marketing and selling products and services. In addition, technological advances or different approaches developed by one or more of our competitors may render our products and services obsolete, less effective or uneconomical. Each of our products and services faces different competitive challenges, and we describe many of them below.

Renal

        Renagel is a phosphate binder for the treatment of hyperphosphatemia. Phosphate binders, such as Renagel, are currently the only available treatment for hyperphosphatemia, or elevated serum phosphorus levels. There are several phosphate binders available or under development. PhosLo®, a prescription calcium acetate preparation sold by Nabi Biopharmaceuticals, and Fosrenol®, a prescription lanthanum carbonate sold by Shire plc, or Shire, are the only other products approved in the United States for the control of elevated phosphorus levels in patients with chronic kidney failure and on hemodialysis. Other products used as phosphate binders include over-the-counter calcium- and aluminum-based antacids and dietary calcium supplements. The doses necessary for calcium acetate and calcium carbonate, the most commonly used agents, to achieve adequate reductions in phosphate absorption can lead to constipation and patient noncompliance. In addition, calcium therapy requires frequent monitoring because its use can cause hypercalcemia and evidence suggests that increasing doses of calcium-based binders may lead to cardiac calcification. Aluminum hydroxide, another treatment option, is more effective at lower doses than calcium acetate or calcium carbonate, but it is infrequently used because aluminum absorbed from the intestinal tract accumulates in the tissues of patients with chronic kidney failure, causing aluminum-related osteomalacia, anemia and dementia. We are aware of several potential treatments under development for hyperphosphatemia in end-stage renal disease. In addition, current competitors are looking to expand into new markets. Shire has received marketing approval of Fosrenol in certain European countries and Australia, and has filed for approval in additional European countries and Canada. Nabi Biopharmaceuticals has filed for marketing approval for PhosLo in the European Union.

Hectorol.    Dialysis providers typically select which therapy a CKD patient receives to treat secondary hyperparathyroidism based on safety, efficacy and cost. Abbott Laboratories, Inc., or Abbott, markets intravenous calcitriol (brand name Calcijex®) and intravenous paricalcitol (brand name Zemplar®) for end-stage renal disease patients. Current intravenous versions of these drugs are approved to manage secondary hyperparathyroidism in end-stage renal disease patients in the United States and in European countries. A number of companies have launched or are planning to launch generic intravenous calcitriol in the United States. In 2005, Abbott received approval to market oral paricalcitol (Zemplar) in the United States for patients with stages 3 and 4 CKD. Since 2004, Amgen, Inc. has been marketing in the United States an oral calcimimetic agent for the treatment of secondary hyperparathyroidism in patients with CKD on dialysis. The majority of patients studied on this calcimimetic agent were also taking vitamin D hormone to treat secondary hyperparathyroidism. Roche Pharmaceuticals markets oral calcitriol (brand name Rocaltrol®) and Teva Pharmaceuticals, or Teva, markets generic oral calcitriol in the United States to manage secondary hyperparathyroidism in CKD patients. These two products are approved in the United States for the treatment of elevated parathyroid hormone in both end-stage renal disease and pre-dialysis CKD.

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Therapeutics

Cerezyme.    There is one marketed product aimed at treating Gaucher disease, as well as on-going development efforts. Zavesca®, a small molecule oral therapy developed by CellTech Group plc, which was acquired by UCB S.A. in 2004, and marketed by Teva in Israel and Actelion Ltd. in the United States and the European Union, has been approved for use in patients with mild to moderate Type 1 Gaucher disease for whom enzyme replacement therapy is unsuitable. To date, virtually all Gaucher disease patients who have received enzyme therapy have experienced strong clinical benefits with few side effects, so we do not expect the competition from Zavesca to have a significant impact on our sales of Cerezyme. Shire is conducting a phase 1/2 clinical trial for its gene-activated human glucocerebrosidase (GA-GCB) product. Shire did not report top-line data from this study in 2005 as expected. In addition, in November 2005, Protalix announced they had begun recruitment for a phase 1 trial with their human glucocerebrosidase (prGCB) therapy expressed and purified in a bioreactor system from transformed carrot cells. Amicus Therapeutics also has announced plans to begin a phase 1 trial using an experimental pharmacological chaperone (AT-2101) in the first half of 2006. Other competitors could develop competitive products based on protein replacement therapy, small molecule or gene therapy approaches.

Fabrazyme.    Fabrazyme has marketing exclusivity in the United States until 2010 due to its orphan drug status. Replagal®, Shire's enzyme replacement therapy for Fabry disease, competes with Fabrazyme in the European Union, Australia, Canada, Iceland, Israel, New Zealand, Norway, Romania, Switzerland and Taiwan. Transkaryotic Therapies, Inc., prior to its acquisition by Shire, publicly announced that it had abandoned its efforts to obtain marketing approval in the United States. In addition, Amicus Therapeutics is conducting a phase 2 study of a small molecule treatment for Fabry disease.

Aldurazyme.    Aldurazyme has marketing exclusivity in the United States until 2010 and in the European Union until 2013 due to its orphan drug status.

Transplant

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

Biosurgery

Synvisc.    Current competition for Synvisc includes Supartz®, a product manufactured by Seikagaku Kogyo that is sold in the United States by Smith & Nephew Orthopaedics and in Japan by Kaken Pharmaceutical Co. under the name Artz®; Hyalgan®, produced by Fidia S.p.A. and marketed in the United States by Sanofi-Aventis; Orthovisc®, produced by Anika Therapeutics, Inc., marketed in the United States by Johnson & Johnson and marketed outside the United States through distributors; Euflexxa™, a product manufactured and sold by Ferring Pharmaceuticals in the United States and Europe; and Durolane®, manufactured and marketed outside the United States by Q-Med AB. Durolane and Euflexxa, the most recently approved products in Europe and the United States, respectively, are produced by bacterial fermentation, as opposed to Synvisc, which is avian-sourced. In addition, the treatment protocol for Durolane is a single injection, as compared to Synvisc's three injection regimen (although it offers a shorter duration of pain relief). Production via bacterial fermentation and treatment with a reduced number of injections may represent competitive advantages for these products. We are aware of various viscosupplementation products on the market or in

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development, but are unaware of any products that have physical properties of viscosity, elasticity or molecular weight comparable to those of Synvisc.

Sepra Products.    The Sepra products face competition from other adhesion prevention technologies. Another competitive factor is acceptance of the product by surgeons and the performance by surgeons of procedures for which the product is indicated, which, in each case, depends not only upon product efficacy and safety, but also on proven clinical outcomes.

        Seprafilm does not have significant direct competition in the area of abdominal surgery in the United States, but does compete with other products in other indications. Outside the United States, Seprafilm competes with several adhesion prevention products. Gynecare markets Interceed®, an adhesion barrier that has properties similar to Seprafilm, but is indicated only for selected gynecological indications. Innovata plc's Adept® solution is approved in the European Union for abdominal and gynecological surgeries. Innovata has filed for approval of Adept in the United States and recently announced a global distribution agreement with Baxter. FzioMed, Inc. has received CE Mark approval in the European Union for Oxiplex®/AP Gel, an adhesion barrier for abdominal/pelvic surgery and is conducting a pivotal clinical trial in the United States. Life Medical Sciences, Inc. is developing several adhesion prevention products, including REPEL™ for gynecologic surgery and REPEL-CV™ for cardiovascular surgery. Confluent Surgical, Inc.'s Spraygel™, an adhesion barrier used in abdominopelvic procedures, is approved for sale in certain European countries. MAST Biosurgery AG's bioresorbable film product, SurgiWrap™, is CE marked with an indication for abdominal and pelvic adhesion prevention, but holds an FDA clearance as a surgical mesh in the United States. In addition, FzioMed's Oxiplex®/SP Gel, an adhesion barrier for spine surgery, is approved for sale in the European Union and in other countries outside the United States.

Diagnostics/Genetics

Diagnostic Products.    For enzymes and substrates, our primary competitors are Roche Diagnostics, Amano Enzyme Europe Ltd., Toyobo, Ltd. and OYC International, Inc. Our complete diagnostic kits are available to any main frame analyzer chemistry company for OEM use. We do not generally compete with those customers in the sale of finished reagents. The market in the diagnostic products industry is mature and competition is based on service, quality, technical support, price, and reliability and consistency of supply. In the rapid test arena at the point of care, there are several competitors, among them Acon Laboratories, Inc., Inverness Medical Innovations, Inc., Becton Dickinson & Co., Beckman Coulter, Inc. and Quidel Corp. Market success is largely dependent on product performance, sales and technical support, breadth of menu and price.

Diagnostic Services.    The United States market for genetic and complex testing is highly competitive and is divided among many laboratories, the largest of which are Quest Diagnostics and LabCorp. In addition, many hospitals provide some or all of these services through in-house laboratories. Competitive factors in the genetic and complex testing and diagnostic services business generally include reputation of the laboratory, range of services offered, pricing, managed care contracts, convenience of sample collection and pick-up, quality of analysis and reporting, timeliness of delivery of completed reports and levels of automation and information technology solutions.

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Patents, License Agreements and Trademarks

        In general, we pursue a policy of obtaining patent protection both in the United States and in selected countries outside the United States for subject matter we consider patentable and important to our business. Patents owned by us that we consider material include the following:

Renal

        Renagel is protected by U.S. Patent Nos. 5,667,775, which expires on September 16, 2014; 5,496,545 and 6,509,013 which expire August 11, 2013; 6,733,780, which expires on October 18, 2020; and corresponding international counterparts. Hectorol is protected by U.S. Patent Nos. 6,903,383 which expires on July 18, 2021; 5,602,116 which expires on February 11, 2014; 5,707,980 which expires on August 17, 2010; 5,869,473 which expires on August 2, 2008; 5,869,472 which expires on July 18, 2014, and corresponding international counterparts.

Therapeutics

        Cerezyme is protected by U.S. Patent Nos. 5,236,838 which expires August 17, 2010; 5,549,892 which expires August 27, 2013; 6,451,600 which expires September 17, 2019; and corresponding international counterparts. Myozyme is protected by U.S. Patent No. 6,118,045 which expires July 31, 2016; and corresponding international counterparts.

Biosurgery

        Synvisc is protected by U.S. Patent Nos. 5,143,724 which expires July 9, 2010; 5,399,351 which expires March 21, 2012; and corresponding international counterparts. Seprafilm is protected by U.S. Patent Nos. 5,017,229 which expires May 21, 2008; 5,527,893 which expires June 18, 2013; 6,235,726 which expires September 18, 2007; and corresponding international counterparts.

Diagnostics/Genetics

        Diagnostic dipstick products are protected by U.S. Patent Nos. 5,712,172, which expires April 18, 2015; 6,194,221 which expires November 3, 2017; and corresponding international counterparts.

        Genetic testing services, e.g. for Cystic Fibrosis, are protected by U.S. Patent Nos. 5,585,330 and 5,834,181; which expire July 28, 2014; 5,849,483; which expires December 15, 2015; 5,882,856; which expires March 16, 2016; 6,207,372; which expires June 6, 2016; and corresponding international counterparts.

        In addition, a portion of our proprietary position is based upon patents that we have licensed from others either through collaboration or traditional license agreements, including patents relating to:

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Fabrazyme;



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Thyrogen;



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Aldurazyme;



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Myozyme; and



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genetic testing.

        These collaboration and license agreements generally require us to share profits with our collaborative partners or pay royalties to our licensors upon commercialization of products covered by the licensed technology.

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        Generally, patents issued in the United States are effective for:

•

the longer of 17 years from the date of issue or 20 years from the earliest effective filing date of the corresponding patent application if filed prior to June 8, 1995; and



•

20 years from the earliest filing date for patent applications filed on or after June 8, 1995.

In some cases, the patent term can be extended to recapture a portion of the term lost during FDA regulatory review. The duration of foreign patents varies in accordance with local law.

        We also rely on trade secrets, proprietary know-how and continuing technological innovation to develop and maintain a competitive position in our product areas. We require our employees, consultants and corporate partners who have access to our proprietary information to sign confidentiality agreements.

        Our patent position and proprietary technology are subject to certain risks and uncertainties. We have included information about these risks and uncertainties under the subheading "Factors Affecting Future Operating Results" in "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations" below. We encourage you to read that discussion, which we are incorporating into this section by reference.

        Our products and services are sold around the world under brand-name trademarks and service marks. Trademark protection continues in some countries as long as the mark is used; in other countries, as long as it's registered. Registrations generally are for fixed, but renewable, terms. We consider our registered trademarks Genzyme®, Cerezyme®, Ceredase®, Fabrazyme®, Thyrogen®, Aldurazyme®, Myozyme®, Renagel®, Thymoglobulin®, Campath®, Clolar®, Synvisc®, Carticel®, MACI®, Seprafilm®, Sepragel®, Seprapack®, Sepramesh®, Hylaform®, Hylashield®, Hylasome®, Captique®, Epicel®, Contrast®, OSOM®, N-geneous®, GlyPro®, InSight®, AFP3®, AFP4®, and Hectorol®, together with our trademarks, VERIGEN™, Lymphoglobuline™, Cholestagel™, CF87™, Sepra™, Hylashield Nite™, SAGE™, LongSAGE™ and SPHERE™, in the aggregate, to be of material importance to our business.

Government Regulation

        Regulation by governmental authorities in the United States and other countries is a significant factor in the development, manufacture, commercialization and reimbursement of our products and services.

FDA Regulation

        Most of our products and services require approval from the FDA and corresponding agencies in other countries before they can be marketed. In the United States, we market products that the FDA classifies as either "drugs," "biologics" or "devices." The activities required before drugs or biologics may be marketed in the United States include:

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preclinical laboratory tests, in vitro and in vivo preclinical studies and formulation and stability studies;



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the submission to the FDA of an application for human clinical testing, which is known as an Investigational New Drug (IND) application;



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adequate and well controlled human clinical trials to demonstrate the safety and effectiveness of the drug or biologic;



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the submission of a New Drug Application (NDA) for a drug or a BLA for a biologic; and



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the approval by the FDA of the NDA or BLA.

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As part of product approval, the manufacturer of the product must undergo a pre-approval Good Manufacturing Practices inspection (for a drug or biologic) from the FDA. Since any approval granted by the FDA is both site and process specific, any material change by a company in the manufacturing process, equipment or location may necessitate additional FDA review and approval.

        In addition, the FDA may grant accelerated approval for drugs and biologics on the basis of a surrogate endpoint reasonably likely to predict clinical benefit. In such cases, we are required to conduct post-approval clinical studies to confirm the clinical benefit of the surrogate endpoint that was the basis of the accelerated approval. These clinical studies require the collection of additional data before full approval will be given and can often be long-term commitments. Although the FDA has not historically invoked its authority to withdraw an accelerated approval, it may do so. We currently have a number of products approved under the accelerated approval mechanism.

        Products that are classified as devices also require some form of FDA approval prior to marketing. Devices are classified as Class I, II or III, depending upon the information available to assure their safety and effectiveness. In general, Class I and Class II devices are devices whose safety and effectiveness can reasonably be assured through general or specific controls, respectively. Class III devices are life sustaining, life supporting, are of substantial importance in preventing impairment to health or pose an unreasonable risk of adverse effect. They are implantable devices or new devices which have been found not to be substantially equivalent to legally marketed devices. The steps required for approval of a Class III device include:

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preclinical laboratory tests and in vitro and in vivo preclinical studies;



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the submission to the FDA and approval of an Investigational Device Exemption (IDE) application to allow initiation of clinical testing;



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human clinical studies to prove safety and effectiveness of the device;



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the submission of a Pre-Marketing Approval application (PMA); and



•

the approval by the FDA of the PMA.

        Typically, clinical testing of devices involves initial testing to evaluate safety and feasibility and expanded trials to collect sufficient data to prove safety and effectiveness. In addition, the procedures and the facilities used to manufacture the device are subject to review and approval by the FDA.

        A device (other than a Class III device) that is proven to be substantially equivalent to a device marketed prior to May 28, 1976, when government regulations for devices were first introduced, can be marketed after clearance of a 510(k) application rather than the filing of an IDE application and a PMA. The 510(k) application must contain a description of the device, its methods of manufacture and quality control procedures and the results of testing to demonstrate that the device is substantially equivalent to the device already marketed.

        The time and expense required to perform the clinical testing necessary to obtain FDA approval for regulated products can frequently exceed the time and expense of the research and development initially required to create the product. Even after initial FDA approval has been obtained, we could be required to conduct further studies to provide additional data on safety or efficacy or, should we desire, to gain approval for the use of a product as a treatment for additional clinical indications. In addition, use of these products during testing and after marketing approval has been obtained could reveal side effects which, if serious, could limit uses, or in the most serious cases, result in a market withdrawal of the product or expose us to product liability claims.

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Regulation Outside of the United States

        For marketing outside the United States, we are subject to foreign regulatory requirements governing human clinical testing and marketing approval for our products. These requirements vary by jurisdiction, differ from those in the United States and may require us to perform additional pre-clinical or clinical testing regardless of whether FDA approval has been obtained. The amount of time required to obtain necessary approvals may be longer or shorter than that required for FDA approval. In many countries outside of the United States, coverage, pricing and reimbursement approvals are also required.

        Our initial focus for obtaining marketing approval outside the United States is typically the European Union. European Union regulations and directives generally classify health care products either as medicinal products, medical devices or in vitro diagnostics. For medicinal products, marketing approval may be sought using either the centralized procedure of the EMEA or the decentralized, mutual recognition process. The centralized procedure, which is mandatory for biotechnology derived products, results in a recommendation in all member states, while the European Union mutual recognition process involves country by country approval.

        European Union regulations for products classified as medical devices have been implemented. Devices, such as our Sepra products, must receive market approval through a centralized procedure, in which the device receives a CE Mark allowing distribution to all member states of the European Union. The CE Mark certification requires us to receive International Standards Organization (ISO) certification for each facility involved in the manufacture or distribution of the device. This certification comes only after the development of an all inclusive quality system, which is reviewed for compliance to International Quality Standards by a licensed "Notified Body" working within the European Union. After certification is received, a product dossier is reviewed that attests to the product's compliance with European Union directive 93/42 EEC for medical devices. Only after this point is a CE Mark granted.

Other Government Regulation

Good Manufacturing Practices.    All facilities and manufacturing techniques used for the manufacture of Genzyme's products must comply with applicable FDA regulations governing the production of pharmaceutical products known as "Good Manufacturing Practices."

Orphan Drug Act.    The Orphan Drug Act provides incentives to manufacturers to develop and market drugs for rare diseases and conditions affecting fewer than 200,000 persons in the United States at the time of application for orphan drug designation. The first developer to receive FDA marketing approval for an orphan drug is entitled to a seven year exclusive marketing period in the United States for that product. However, a drug that the FDA considers to be clinically superior to, or different from, another approved orphan drug, even though for the same indication, may also obtain approval in the United States during the seven year exclusive marketing period. We believe that the commercial success of our orphan drug products depend more significantly on the associated safety and efficacy profile and on the price relative to competitive or alternative treatments and other marketing characteristics of each product than on the exclusivity afforded by the Orphan Drug Act. Additionally, these products may be protected by patents and other means.

        Legislation similar to the Orphan Drug Act has been enacted in other countries outside of the United States, including the European Union. The orphan legislation in the European Union is available for therapies addressing conditions that affect five or fewer out of 10,000 persons. The market exclusivity period is for ten years, although that period can be reduced to six years if, at the end of the fifth year, available evidence establishes that the product is sufficiently profitable not to justify maintenance of market exclusivity.

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Regulation of Diagnostic Testing Services.    The Clinical Laboratories Improvement Act of 1967, as amended in 1988 (CLIA) provides for the regulation of clinical laboratories by the United States Department of Health and Human Services (HHS). All of our clinical laboratories are CLIA approved, licensed by the College of American Pathologists and certified by the appropriate state agencies. CLIA regulates virtually all clinical laboratories by requiring they be certified by the federal government and comply with various operational, personnel and quality requirements intended to ensure that their clinical laboratory testing services are accurate, reliable and timely. CLIA does not preempt state laws that are more stringent than federal law. For example, state laws may require additional personnel qualifications, quality control, record maintenance and/or proficiency testing.

        In the past, the FDA has claimed regulatory authority over laboratory-developed tests, but has exercised enforcement discretion in not regulating most laboratory-developed tests performed by high complexity CLIA-certified laboratories. In December 2000, the HHS's Secretary's Advisory Committee on Genetic Testing recommended that the FDA be the lead federal agency to regulate genetic testing. In late 2002, a new HHS Secretary's Advisory Committee on Genetics, Health and Society was appointed to replace the prior Advisory Committee, but it has not yet made any final recommendations. In the meantime, the FDA is considering revising its regulations on analyte specific reagents, which are used in laboratory-developed tests, including laboratory-developed genetic testing. Increased FDA regulation of the reagents used in laboratory-developed testing could lead to increased costs and delays in introducing new tests, including genetic tests. In addition, the Medicare and Medicaid programs provide a substantial portion of reimbursement for our diagnostic products. Whether these programs pay for any particular test, and the amounts that they pay, may be unilaterally changed at any time.

Regulation of Diagnostic Products.    The FDA has regulatory responsibility over instruments, test kits, reagents and other devices used to perform diagnostic testing by clinical laboratories. Like other medical devices, in vitro diagnostic (IVD) products are divided into three classes according to the level of regulatory control needed to assure safety and effectiveness. Genzyme's current IVD products are either Class I or Class II, and are either exempt from pre-market notification or require a 510(k) submission.

Regulation of Gene Therapy Products.    In addition to FDA requirements, the National Institutes of Health have established guidelines providing that transfers of recombinant DNA into human subjects at NIH laboratories or with NIH funds must be approved by the NIH Director. The NIH has established the Recombinant DNA Advisory Committee to review gene therapy protocols. We expect that many of our gene therapy protocols will be subject to review by the Recombinant DNA Advisory Committee. In the United Kingdom, our gene therapy protocols will be subject to review by the Gene Therapy Advisory Committee and in Germany, these protocols will be subject to review by the Commission for Somatic Cell Therapy. Greater government regulation of gene therapy products may lead to regulatory delays, increased development costs, and negative public perception of the gene therapy products we are developing.

Other Laws and Regulations.    Our operations are or may be subject to various federal, state and local laws, regulations and recommendations relating to the marketing of products and relationships with treating physicians, data protection, safe working conditions, laboratory and manufacturing practices, the export of products to certain countries, and the purchase, storage, movement, use and disposal of hazardous or potentially hazardous substances used in connection with our research work and manufacturing operations, including radioactive compounds and infectious disease agents. Although we believe that our safety procedures comply with the standards prescribed by federal, state and local regulations, the risk of contamination, injury or other accidental harm cannot be eliminated completely. In the event of an accident, we could be held liable for any damages that result and any liabilities could exceed our resources.

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Sales, Marketing and Product Pricing

        We are subject to various federal and state laws pertaining to health care "fraud and abuse," including anti-kickback and false claims statutes. Anti-kickback laws make it illegal for a prescription drug manufacturer to solicit, offer, receive, or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular drug. The federal government has published regulations that identify "safe harbors" or exemptions for certain payment arrangements that do not violate the anti-kickback statutes. Genzyme seeks to comply with the safe harbors where possible. Due to the breadth of the statutory provisions, and the lack of guidance in the form of regulations or court decisions addressing some industry activities, it is possible that our practices might be challenged under anti-kickback or related laws. False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented for payment to third-party payors, including Medicare and Medicaid, claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Promotion of drugs for uses outside their labeled indications, so called "off-label" promotion, recently has led to several financially significant settlement agreements under the False Claims Act.

        Our activities relating to the sale and marketing of, and price reporting for, our products are subject to scrutiny under these fraud and abuse laws. Violations of these laws may result in criminal and/or civil sanctions, including fines and civil monetary penalties, as well as possible exclusion from federal health care programs, including Medicare and Medicaid. Federal and state authorities are paying increased attention to the pharmaceutical and biotechnology industries in enforcement of these laws, and we have been named in several legal proceedings alleging violations.

        We participate in the Medicaid rebate program. Participation in this program has included extending comparable discounts under the Public Health Service (PHS) pharmaceutical pricing program. Under the Medicaid rebate program, we pay a rebate for each unit of drug product that is reimbursed by Medicaid. The amount of the rebate for each product is set by law as a minimum 15.1% of the average manufacturer price (AMP) of that product, or if it is greater, the difference between AMP and the best price available from Genzyme to any customer. The rebate amount also includes an inflation adjustment if AMP increases greater than inflation. The PHS pricing program extends discounts comparable to the Medicaid rebate to a variety of community health clinics and other entities that receive health services grants from the PHS, as well as hospitals that serve a disproportionate share of poor Medicare and Medicaid beneficiaries. The rebate amount is recomputed each quarter based on our reports of our current AMP and best price for each of our products. The terms of our participation in the Medicaid program impose an obligation to correct the prices reported in previous quarters, if necessary. Any such corrections could result in an overage or underage in our rebate liability for past quarters, depending on the nature of the correction. In addition to retroactive rebates (and interest, if any), if we were found to have knowingly submitted false information to the government, in addition to other penalties available to the government, the statute provides for civil monetary penalties for each claim containing false information.

        The Medicaid Prescription Drug, Improvement and Modernization Act of 2003 (the "MMA") has significantly changed how Medicare pays for certain of our products, most prominently Cerezyme, Fabrazyme and Synvisc. As of January 1, 2005, Medicare pays for products covered by the Part B benefit based on the average selling price (ASP) plus 6%. Medicare had previously paid for these products based on 95% of the average wholesale price (AWP). We do not anticipate the change from the AWP to the ASP system to have a material adverse impact on our ability to obtain adequate reimbursement for our products.

        Part D of the MMA also has made Medicare coverage available for the first time for a number of drugs, including Renagel and oral Hectorol beginning in 2006. Part D is administered by private vendors under contract with the United States government. Each vendor establishes it own Part D

21

formulary for prescription drug coverage and pricing, which the vendor may modify from time-to-time. Renagel and Hectorol currently are well-positioned on the majority of Medicare formularies.

Employees

        As of December 31, 2005, we, together with all of our consolidated subsidiaries, had approximately 8,200 employees worldwide.

Financial Information Regarding Segment Information

        We have provided the information required by Item 101(b) of Regulation S-K in Note R., "Segment Information," to our Consolidated Financial Statements in the 2005 Genzyme Corporation Annual Report set forth in Exhibit 13.1 to this Annual Report on Form 10-K. We are incorporating that information into this section by reference.

Research and Development Costs

        We have provided the information required by Item 101(c)(1)(xi) of Regulation S-K in Part II, Item 8, "Financial Statements and Supplementary Data," and specifically in the Genzyme Corporation and Subsidiaries Consolidated Statements of Operations and Comprehensive Income and in Note J., "Investments in Marketable Securities and Strategic Equity Investments" to our Consolidated Financial Statements in the 2005 Genzyme Corporation Annual Report set forth in Exhibit 13.1 to this Annual Report on Form 10-K. We are incorporating that information into this section by reference.

Sales by Geographic Area, Significant Customers and Products

        We have provided the information required by Items 101(c)(1)(i) and (vii) and 101(d) of Regulation S-K in the 2005 Genzyme Corporation Annual Report under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations" and in Note R., "Segment Information," to our Consolidated Financial Statements set forth in Exhibit 13.1 to this Annual Report on Form 10-K. We are incorporating that information into this section by reference.

Available Information

        We file electronically with the SEC our annual report on Form 10-K, our quarterly reports on Form 10-Q, and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. You may read or copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information about issuers that file reports electronically with the SEC. The address of that site is http://www.sec.gov.

        You may obtain a free copy of our annual report on Form 10-K, our quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after we file them with the SEC, on our website at http://www.genzyme.com or by contacting our Investor Relations department at 1-617-252-7570. The reference to our website is not intended to incorporate information on our website into this document by reference.

ITEM 1A. RISK FACTORS

        We incorporate our disclosure related to risk factors into this section by reference from the 2005 Genzyme Corporation Annual Report under the heading "Management's Discussion and Analysis of

22

Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—Factors Affecting Future Operating Results," which is included in Exhibit 13.1 to this Annual Report on Form 10-K.

ITEM 1B. UNRESOLVED STAFF COMMENTS

        None.

ITEM 2. PROPERTIES

        Our operations are conducted in manufacturing, warehousing, pilot plant, clinical laboratories, and research and office facilities that are located principally in: the United States; the United Kingdom; the Republic of Ireland; The Netherlands; Belgium; France; Canada; Switzerland; and Germany.

        We lease all of our facilities except for certain facilities in: Geel, Belgium (land subject to 99 year leasehold); Haverhill and Maidstone, England; Boston, Massachusetts (land subject to 65 year leasehold); Framingham and Waltham, Massachusetts; Ridgefield, New Jersey; Santa Fe, New Mexico; Waltham, Massachusetts; and Waterford, Ireland (land subject to 999 year leasehold).

        Our principal manufacturing facilities are used for the large-scale production of therapeutic proteins and enzymes, including Cerezyme, Fabrazyme, Myozyme and Thyrogen, renal products and immunosuppressive agents, including Renagel, Thymoglobulin and Lymphoglobuline, biomaterials, including Synvisc and the Sepra family of anti-adhesion products, bulk hyaluronic acid, cell processing services, including Carticel and Epicel, genetic testing services, and diagnostic test kits and reagents. The facilities also are used for the receipt of contract manufactured products and materials for Hectorol, WelChol, Renagel, Campath and Clolar.

        Our administrative activities are concentrated at facilities we have leased in Cambridge and Framingham, Massachusetts and San Antonio, Texas in the United States; Naarden, The Netherlands; and Tokyo, Japan. Our sales and marketing activities are principally located in Cambridge, Massachusetts and in sales offices located in major cities throughout the world. We conduct our product research and development activities primarily at our laboratory facilities in Framingham and Waltham, Massachusetts; San Antonio, Texas; and San Diego, California in the United States and at our Cambridge, U.K. facility. Leases for our facilities contain typical commercial lease provisions, including renewal options, rent escalators and tenant responsibility for operating expenses. We believe that we have, or are in the process of developing or acquiring, adequate manufacturing capacity to support our requirements for the next several years.

Renal

        We manufacture the majority of our supply requirements for sevelamer hydrochloride, the active ingredient in Renagel, at our facilities in Haverhill, England. We also operate a manufacturing facility in Waterford, Ireland for use in manufacturing the tablet formulation of Renagel. All of our Renagel manufacturing facilities are operational, and have received all European and United States approvals material to such operations. We contract out the manufacturing and fill-finish work for the capsule formulation of Hectorol. We are in the process of evaluating options to obtain regulatory approval and secure the supply of Hectorol filled in vials instead of ampules.

Therapeutics

        We manufacture Cerezyme, Fabrazyme and Myozyme at our multi-product manufacturing facility in Allston, Massachusetts. This facility, which we own and which contains extensive sterile filling capacity, is built on land that we hold under a 65-year lease, which expires in May 2057. We manufacture Thyrogen and Myozyme in our small-scale manufacturing facility in Framingham,

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Massachusetts and final drug product at our Allston facility. In 2005, we commenced the design and build-out of perfusion capacity at our Geel, Belgium facility to provide back-up and expansion to our Allston bulk capacity and purification systems.

        At our Waterford, Ireland facility, we are installing new fill-finish capabilities for therapeutic proteins. We completed the qualification batches for the first product to be manufactured at the facility and are anticipating an inspection by the FDA in the first half of 2006. We anticipate transferring and qualifying additional products during 2006 after securing approvals for supplying such products commercially.

Transplant

        We manufacture Thymoglobulin and Lymphoglobuline at a leased facility in Lyon, France, and maintain administrative offices nearby.

Biosurgery

        We produce Synvisc and other hyaluronan-based products in a manufacturing facility located in Ridgefield, New Jersey. We produce bulk hyaluronic acid and the Sepra family of products at commercial scale in our manufacturing facility in Framingham, Massachusetts.

Diagnostics/Genetics

        Our diagnostic test kits and reagents are produced in manufacturing facilities in San Diego, California, Cambridge, Massachusetts and Russelsheim, Germany.

        We produce diagnostic enzymes and other fermentation products in a multi-purpose fermentation and purification facility that we own in Maidstone, England. We conduct research and development and support sales and marketing efforts in our San Diego, California and Cambridge, Massachusetts facilities and at our leased facility in West Malling, England.

        Our genetic and oncology testing business primarily conducts operations in clinical laboratory and administrative facilities we own in Santa Fe, New Mexico and lease in Westborough, Massachusetts; New York City and Yonkers, New York; Tampa, Florida; and Los Angeles, Orange, and Monrovia, California.

ITEM 3. LEGAL PROCEEDINGS

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

        Four lawsuits have been 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 is a purported class action on behalf of holders of Biosurgery Stock. The first case, filed in Massachusetts Superior Court in May 2003, alleged a breach of the implied covenant of good faith and fair dealing in our charter and a breach of our board of directors' fiduciary duties. The plaintiff in this case sought an injunction to adjust the exchange ratio for the tracking stock exchange. The Court dismissed the complaint in November 2003, but the plaintiff has appealed this dismissal. This appeal was argued before the Massachusetts Appeals Court in March 2005 and we are awaiting the Appeals Court's ruling. Two substantially similar cases were filed in Massachusetts Superior Court in August and October 2003. These cases were consolidated in January 2004, and in July 2004, the consolidated case was stayed pending disposition of a fourth case, which was filed in the U.S. District Court for the Southern District of New York in June 2003. The complaint initially alleged violations of federal securities laws, common law fraud, and a breach of the merger agreement with Biomatrix, Inc., or Biomatrix, in addition to the state law claims contained in the other cases. The

24

plaintiffs initially sought an adjustment to the exchange ratio, the rescission of the acquisition of Biomatrix, and unspecified compensatory damages. In November 2005, the plaintiffs in this case dropped all of the claims alleged in the initial complaint relating to the initial issuance of Biosurgery Stock and the acquisition of Biomatrix, and narrowed the putative class to include only those individuals who held Biosurgery Stock on May 8, 2003. We have filed a motion to dismiss the amended complaint and to oppose the class certification. Discovery in this case has been put on hold pending resolution of these motions. We believe each of these cases is without merit and continue to defend against them vigorously.

        We are not able to predict the outcome of the pending legal proceeding listed here, or other legal proceedings, or estimate with certainty the amount or range of any possible loss we might incur if we do not prevail in the final, non-appealable determinations of such matters. Therefore, we have not accrued any amounts in connection with these potential contingencies. We cannot provide you with assurance that the legal proceeding listed here, or other legal proceedings, will not have a material adverse impact on our financial condition or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        None.

EXECUTIVE OFFICERS OF THE REGISTRANT

        Set forth below is a list of individuals that are currently serving as our executive officers, or who served in such capacity during the fiscal year ended December 31, 2005:

Name	Age	Title
Henri A. Termeer	60	Chairman of the Board of Directors; President and Chief Executive Officer
Earl M. Collier, Jr.	58	Executive Vice President, Cardiovascular and Oncology
Zoltan A. Csimma	64	Chief Human Resources Officer; Senior Vice President
Georges Gemayel, Ph.D.	45	Executive Vice President, Therapeutics
Richard A. Moscicki, M.D.	54	Chief Medical Officer; Senior Vice President, Clinical, Medical and Regulatory Affairs
Alan E. Smith, Ph.D.	60	Chief Scientific Officer; Senior Vice President, Research
Sandford D. Smith	58	Senior Vice President; President, International Group
Peter Wirth	55	Chief Legal Officer; Executive Vice President, Legal and Corporate Development; Secretary
Michael S. Wyzga	51	Chief Financial and Accounting Officer; Executive Vice President, Finance

Mr. Termeer has served as our President and a Director since October 1983, as Chief Executive Officer since December 1985 and as Chairman of the Board of Directors since May 1988. For ten years prior to joining Genzyme, Mr. Termeer worked for Baxter International Laboratories, Inc., a manufacturer of human health care products. Mr. Termeer is a director of ABIOMED, Inc. and a trustee of Hambrecht & Quist Healthcare Investors and Hambrecht & Quist Life Sciences Investors.

Mr. Collier has served as Executive Vice President since July 1997 and since August 2003 has had responsibility for our Oncology and Cardiovascular businesses. He joined Genzyme in January 1997 as Senior Vice President, Health Systems, and served as Executive Vice President, Surgical Products and

25

Health Systems from July 1997 until June 1999. He served as President of our former Genzyme Surgical Products division from June 1999 until December 2000. Mr. Collier was also responsible for our former Genzyme Tissue Repair division from December 1999 to December 2000. From December 2000 until August 2003 Mr. Collier served as President of our Genzyme Biosurgery business unit. Prior to joining us, Mr. Collier was President of Vitas HealthCare Corporation (formerly Hospice Care Incorporated), a provider of health care services, from October 1991 until August 1995. Prior to that, Mr. Collier was a partner in the Washington, D.C. law firm of Hogan & Hartson, which he joined in 1981. Mr. Collier is a director of Covalent Group, Inc., a contract research organization which provides independent clinical trial and product development services to the pharmaceutical, biotechnology and medical devices industries.

Mr. Csimma has held the title Senior Vice President and Chief Human Resources Officer since March 1, 2006. He joined us in July 2000 as Senior Vice President, Human Resources. Prior to joining Genzyme, he served as Vice President, Human Resources of Wyeth Ayerst Research, a pharmaceutical research organization, from August 1998 to July 2000. During that time, Mr. Csimma also served as Site Head, Genetics Institute, for Wyeth Ayerst. From May 1988 to August 1998, he served as Vice President, Human Resources and Operations of Genetics Institute, Inc., a biotechnology company, which was integrated into Wyeth Ayerst in March 1998.

Dr. Gemayel joined us in August 2003 as Executive Vice President with responsibility for our Renal, Therapeutics and Transplant business units. For sixteen years prior to joining Genzyme, Dr. Gemayel worked for Hoffmann-LaRoche, a leading healthcare company, where he served most recently from July 2000 until August 2003 as Vice President of the United States Specialty Care unit, and from January 1998 until July 2000 as General Manager of Hoffmann-LaRoche Portugal.

Dr. Moscicki joined us in March 1992 as Medical Director, became Vice President, Medical Affairs in early 1993 and was named Vice President, Clinical, Medical and Regulatory Affairs in December 1993. In September 1996 he became Senior Vice President, Clinical, Medical and Regulatory Affairs and Chief Medical Officer. Since 1979, he has also been a physician staff member at the Massachusetts General Hospital and a faculty member at the Harvard Medical School.

Dr. Alan Smith joined us in August 1989 as Senior Vice President, Research and became Chief Scientific Officer in September 1996. Prior to joining Genzyme, he served as Vice President—Scientific Director of Integrated Genetics, Inc., from November 1984 until its acquisition by us in August 1989. From October 1980 to October 1984, Dr. Smith was head of the Biochemistry Division of the National Institute for Medical Research, Mill Hill, London, England and from 1972 to October 1980, he was a member of the scientific staff at the Imperial Cancer Research Fund in London, England.

Mr. Sandford Smith has served as Senior Vice President since January 2003 and has served as President of our International business since January 2000. From January 1998 until January 2000 he served as President of our Therapeutics business unit. Mr. Smith joined Genzyme in April 1996 and until January 1998 was Vice President and General Manager of our International business and President of our Specialty Therapeutics business. From June 1988 until June 1996, Mr. Smith was President and Chief Executive Officer of Repligen Corporation. Before joining Repligen Corporation, Mr. Smith spent twelve years at Bristol-Myers Squibb in positions of increasing responsibility in their International group.

Mr. Wirth joined us in January 1996 and has served as Executive Vice President and Chief Legal Officer since September 1996 with responsibility for our corporate development and legal activities. From 2001 through October 2005, Mr. Wirth had responsibility for our drug discovery and development business. In addition, from September 1996 until June 2003, Mr. Wirth was responsible for our Oncology business. Mr. Wirth is also a director of EPIX Pharmaceuticals, Inc., a developer of contrast agents for magnetic resonance imaging.

26

Mr. Wyzga has served as Executive Vice President, Finance since May 2003, as Chief Accounting Officer since January 1999 and as Chief Financial Officer since July 1999. He joined us in February 1998 as Vice President and Corporate Controller and served as Senior Vice President, Corporate Controller from January 1999 until July 1999. He served as Senior Vice President, Finance from July 1999 until May 2003. From February 1997 to February 1998 Mr. Wyzga served as Chief Financial Officer of Sovereign Hill Software, Inc., a software company, and from 1991 to 1997 held various senior management positions with CACHELINK Corporation and Lotus Development Corporation. Mr. Wyzga is also director of Altus Pharmaceuticals Inc., a developer of protein therapeutics.

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

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

        The tracking stocks were intended to reflect the value and track the performance of our three former divisions. Through June 30, 2003, all three series of our common stock were traded on the over-the-counter market and prices were quoted on The NASDAQ® National Market system under the symbols "GENZ," "GZBX" and "GZMO." Since July 1, 2003, our only outstanding series of common stock has traded under the symbol "GENZ".

        As of March 1, 2006, there were 3,271 stockholders of record of Genzyme Stock.

        The following table sets forth, for the periods indicated, the high and low sale price of Genzyme Stock as reported by NASDAQ.

		High		Low
2005:
	First Quarter	$	61.40	$	55.15
	Second Quarter		65.13		55.51
	Third Quarter		76.17		58.61
	Fourth Quarter		77.82		66.62
2004:
	First Quarter	$	58.08	$	44.73
	Second Quarter		49.30		40.67
	Third Quarter		57.13		44.14
	Fourth Quarter		59.14		49.25

        We have never paid any cash dividends on any series of our common stock and we do not anticipate paying cash dividends in the foreseeable future.

        We incorporate information regarding the securities authorized for issuance under our equity compensation plans into this section by reference from the section entitled "Equity Plans" in the proxy statement for our 2006 annual meeting of shareholders.

Issuer Purchases of Equity Securities

        We did not make any purchases of our common stock during the three months ended December 31, 2005, which is the fourth quarter of our fiscal year.

ITEM 6.    SELECTED FINANCIAL DATA

        We incorporate our Selected Financial Data into this section by reference from the 2005 Genzyme Corporation Annual Report under the heading "Genzyme Corporation and Subsidiaries—Consolidated Selected Financial Data," which is included in Exhibit 13.1 to this Annual Report on Form 10-K.

28

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        We incorporate our Management's Discussion and Analysis of Financial Condition and Results of Operations into this section by reference from the 2005 Genzyme Corporation Annual Report under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations," which is included in Exhibit 13.1 to this Annual Report on Form 10-K.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We incorporate our disclosure related to market risk into this section by reference from the 2005 Genzyme Corporation Annual Report under the headings "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—Market Risk," "—Interest Rate Risk," "—Foreign Exchange Risk" and "—Equity Price Risk," which is included in Exhibit 13.1 to this Annual Report on Form 10-K.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        We incorporate the financial statements filed as part of this Annual Report on Form 10-K into this section by reference from the Genzyme Corporation and Subsidiaries Consolidated Financial Statements and notes thereto included in Exhibit 13.1 to this Annual Report on Form 10-K.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        None.

ITEM 9A.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

        At the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures and internal control over financial reporting and concluded that: (1) our disclosure controls and procedures were effective as of December 31, 2005; and (2) no change in internal control over financial reporting occurred during the quarter ended December 31, 2005 that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.

Management's Report on Internal Control Over Financial Reporting

        The full disclosure of our management's assessment of the effectiveness of our internal controls over financial reporting as of December 31, 2005 is set forth in the 2005 Genzyme Corporation Annual Report under the heading "Management's Report on Internal Controls Over Financial Reporting," which is included in Exhibit 13.1 to this Annual Report on Form 10-K.

Attestation Report of Independent Registered Public Accounting Firm

        Our management's assessment of the effectiveness of our internal controls over financial reporting as of December 31, 2005 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm. The attestation report of PricewaterhouseCoopers LLP is set forth in the 2005 Genzyme Corporation Annual Report under the heading "Report of Independent Registered Public Accounting Firm," which is included in Exhibit 13.1 to this Annual Report on Form 10-K.

ITEM 9B.    OTHER INFORMATION

        None.

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PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        We have adopted a Corporate Code of Conduct, which applies to our directors and all of our employees, including our principal executive officer, principal financial officer and accounting officer, and controller. A copy is available to you, free of charge, upon written request to the legal department at our corporate offices located at Genzyme Center, 500 Kendall Street, Cambridge, Massachusetts 02142. We intend to make all required disclosures concerning amendments to, or waivers from, this code on the governance page of our website, www.genzyme.com. Information contained on our website is not part of this document or the documents incorporated by reference into this document.

        We incorporate information regarding our directors and executive officers into this section by reference from the section entitled "Executive Officers of the Registrant" in Part I of this Annual Report on Form 10-K and the sections entitled "Election of Directors," "Board Meetings and Committees" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the proxy statement for our 2006 annual meeting of shareholders.

ITEM 11.    EXECUTIVE COMPENSATION

        We incorporate information regarding the compensation of our directors and executive officers into this section by reference from the sections entitled "Election of Directors," "Director Compensation" and "Executive Compensation" in the proxy statement for our 2006 annual meeting of shareholders.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

        We incorporate information regarding the ownership of our securities by our directors, executive officers and 5% stockholders into this section by reference from the sections entitled "Stock Ownership" and "Equity Plans" in the proxy statement for our 2006 annual meeting of shareholders.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        We incorporate information regarding transactions with related parties into this section by reference from the section entitled "Certain Relationships and Related Transactions" in the proxy statement for our 2006 annual meeting of shareholders.

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

        We incorporate information regarding our audit committee's pre-approval policies and procedures and the fees paid to our auditors from the section entitled "Independent Registered Public Accounting Firm" in the proxy statement for our 2006 annual meeting of shareholders.

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PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)(1). FINANCIAL STATEMENTS

        We are incorporating the following financial statements (and related notes) of Genzyme Corporation and Subsidiaries into this section by reference from the 2005 Genzyme Corporation Annual Report:

	Page*
Report of Independent Registered Public Accounting Firm	F-65
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2005, 2004 and 2003	F-67
Consolidated Balance Sheets as of December 31, 2005 and 2004	F-69
Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003	F-70
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2005, 2004 and 2003	F-72
Notes to Consolidated Financial Statements	F-75

*

References are to page numbers in the 2005 Genzyme Corporation Annual Report, which is included in Exhibit 13.1 to this Annual Report on Form 10-K.

31

(a)(2). FINANCIAL STATEMENT SCHEDULES

        The schedule listed below for Genzyme Corporation and Subsidiaries is filed as part of Exhibit 13.1 to this Annual Report on Form 10-K and is incorporated into this section by reference:

	Page*
Report of Independent Registered Public Accounting Firm	F-143
Schedule II—Valuation and Qualifying Accounts	F-144

*

References are to page numbers in the 2005 Genzyme Corporation Annual Report, which is included in Exhibit 13.1 to this Annual Report on Form 10-K.

        All other schedules are omitted as the information required is inapplicable or the information is presented in the Genzyme Corporation and Subsidiaries' Consolidated Financial Statements or notes thereto.

(a)(3). EXHIBITS

        The exhibits are listed below under Part IV, Item 15(b) of this Annual Report on Form 10-K.

(b). EXHIBITS

EXHIBIT NO.	DESCRIPTION
*3.1	Restated Articles of Organization of Genzyme, as amended. Filed as Exhibit 3.1 to Genzyme's Registration Statement on Form 8-A/A filed on May 28, 2004.
*3.2	By-laws of Genzyme, as amended. Filed as Exhibit 3.1 to Genzyme's Form 8-K filed July 1, 2004.
*4.1	Fourth Amended and Restated Renewed Rights Agreement dated May 28, 2004 between Genzyme and American Stock Transfer & Trust Company, as Rights Agent. Filed as Exhibit 4.1 to Genzyme's Registration Statement on Form 8-A/A filed on May 28, 2004.
*4.2	Securities Purchase Agreement, dated as of April 17, 2001 and amended on September 26, 2001, by and among Novazyme Pharmaceuticals, Inc. and several purchasers. Filed as Exhibit 4.2 to Genzyme's Form 10-Q for the quarter ended September 30, 2001.
*4.3	Indenture, dated December 9, 2003, between Genzyme and U.S. Bank National Association. Filed as Exhibit 4.1 to Genzyme's Form 8-K filed December 10, 2003.
*4.3.1	First Supplemental Indenture, dated as of May 28, 2004, to Indenture relating to our 1.25% Senior Convertible Notes, dated as of December 9, 2003, between Genzyme and U.S. Bank National Association, as Trustee. Filed as Exhibit 4.1 to Genzyme's Form 8-K filed June 18, 2004.
*4.4	Registration Rights Agreement, dated December 9, 2003, between Genzyme and UBS Securities LLC on behalf of itself and several other Initial Purchasers. Filed as Exhibit 10.1 to Genzyme's Form 8-K filed December 10, 2003.
*10.1	Lease, dated April 30, 1990, for 64 Sidney Street, Cambridge, Massachusetts between BioSurface Technology, Inc. and Forest City 64 Sidney Street, Inc. Filed as Exhibit 10.22 to BioSurface's Registration Statement on Form S-1 (File No. 33-55874).
*10.1.1	Amendment to Lease, dated September 11, 1995, to the Lease Agreement dated April 30, 1990 by and between Forest City 64 Sidney Street, Inc. and Genzyme. Filed as Exhibit 10.1.1 to Genzyme's Form 10-K for 2003.
*10.1.2	Second Amendment to Lease, dated March 1, 1996, to the Lease Agreement dated April 30, 1990 by and between Forest City 64 Sidney Street, Inc. and Genzyme. Filed as Exhibit 10.1.2 to Genzyme's Form 10-K for 2003.

32

*10.1.3	Letter Amendment, dated December 30, 1999, to the Lease Agreement dated April 30, 1990 by and between Forest City 64 Sidney Street, Inc. and Genzyme. Filed as Exhibit 10.1.3 to Genzyme's Form 10-K for 2003.
*10.1.4	Fourth Amendment to Lease, dated March 23, 2001, to the Lease Agreement dated April 30, 1990 by and between Forest City 64 Sidney Street, Inc. and Genzyme. Filed as Exhibit 10.1.4 to Genzyme's Form 10-K for 2003.
*10.2	Lease, dated June 1, 1992, for land at Allston Landing, Allston, Massachusetts between Allston Landing Limited Partnership and the Massachusetts Turnpike Authority. Filed as Exhibit 10.9 to Genzyme's Form 10-K for 1993.
*10.3	Commercial Lease, dated December 24, 1998, by and between Aventis Pasteur SA and Imtix-SangStat S.A.S. for Building C5 located at Marcy L'Etoile, Lyon, France. Filed as Exhibit 10.4 to Genzyme's Form 10-K for 2003.
*10.3.1	Amendment to Commercial Lease, dated September 30, 2000, to the Lease dated December 24, 1998, by and between Aventis Pasteur SA and Imtix-SangStat S.A.S. Filed as Exhibit 10.4.1 to Genzyme's Form 10-K for 2003.
10.4	Lease, dated August 28, 2000, for Building D, Cambridge Research Park, Cambridge, Massachusetts, between Genzyme and Kendall Square LLC. Filed herewith.
*10.4.1	First Amendment to Lease, dated August 1, 2003, to lease dated as of August 28, 2000, by and between Genzyme and Kendall Square LLC. Filed as Exhibit 10.5.1 to Genzyme's Form 10-K for 2004.
*10.5	Underlease of 50 Gibson Drive, Kings Hill Business Park, West Malling, Kent, U.K., dated January 19, 2001 by and among Genzyme Limited, Liberty Property Limited Partnership and Kings Hill Estate Management Company Limited. Filed as Exhibit 10.1 to Genzyme's Form 10-Q for the quarter ended September 30, 2005.
*10.5.1	Deed of Variation of Underlease dated January 19, 2001, and Agreement for Lease, each dated August 22, 2005 by and between Genzyme Limited and Kent City Council (successors to Liberty Property Limited Partnership). Filed as Exhibit 10.2 to Genzyme's Form 10-Q for the quarter ended September 30, 2005.
*10.6	Lease, dated September 3, 1990, for the land located at the Industrial Development Authority Industrial Park, County Waterford, Ireland (comprised in folio 4917 & 324IF County Waterford) by and between the Industrial Development Authority and Bausch & Lomb Ireland. Filed as Exhibit 10.2 to Genzyme's Form 10-Q for the quarter ended September 30, 2001.
*10.7	Contract for Sale, dated June 25, 2001, for the premises located at the Industrial Development Authority Industrial Park, County Waterford, Ireland, (comprised in folio 4141L County Waterford) by and between Luxottica Ireland Limited and Genzyme Ireland Limited (f/n/a Gosfend Limited). Filed as Exhibit 10.1 to Genzyme's Form 10-Q for the quarter ended September 30, 2001.
*10.8	Deed of Transfer, dated July 2, 2001, between Luxottica Ireland Limited and Genzyme Ireland Limited, related to the Lease dated September 3, 1990 for the premises located at the Industrial Development Authority Industrial Park, County Waterford, Ireland (comprised in folio 4141L County Waterford). Filed as Exhibit 10.3 to Genzyme's Form 10-Q for the quarter ended September 30, 2001.
*10.9	Contract for Sale, dated August 2, 2001, for the land located at the Industrial Development Authority Industrial Park, County Waterford, Ireland (comprised in folio 4917 County Waterford) by the Industrial Development Agency (Ireland) and Genzyme Ireland Limited. Filed as Exhibit 10.4 to Genzyme's Form 10-Q for the quarter ended September 30, 2001.
*10.10	Lease, dated August 24, 2001, for the land located at the Industrial Development Authority Industrial Park, County Waterford, Ireland (comprised in folio 4917 County Waterford) by the Industrial Development Agency (Ireland) and Genzyme Ireland Limited. Filed as Exhibit 10.5 to Genzyme's Form 10-Q for the quarter ended September 30, 2001.

33

*10.11	Partnership Purchase Agreement, dated as of November 20, 2000, between Genzyme, Genzyme Development Corporation II, Genzyme Development Partners, L.P. ("GDP") and each Class A Limited Partner of GDP. Filed as Exhibit 10.24 to Genzyme's Form 10-K for 2000.
*10.12	Agreement and Plan of Merger, dated as of August 6, 2001, among Genzyme, Rodeo Merger Corp. and Novazyme Pharmaceuticals, Inc. Filed as Exhibit 2.1 to Genzyme's Form 8-K filed on August 22, 2001.
*10.13	1997 Equity Incentive Plan, as amended. Filed as Exhibit 10.4 to Genzyme's Form 10-Q for the quarter ended June 30, 2005.
10.14	1998 Director Stock Option Plan, as amended. Filed herewith.
*10.14.1	Form of Nonstatutory Stock Option for grants under Genzyme's 1998 Director Stock Option Plan. Filed as Exhibit 10.5 to Genzyme's Form 10-Q for the quarter ended June 30, 2005.
*10.15	2001 Equity Incentive Plan, as amended. Filed as Exhibit 10.17 to Genzyme's Form 10-K for 2004.
*10.15.1	Form of Incentive Stock Option for grants to executive officers under Genzyme's 2001 Equity Incentive Plan. Filed as Exhibit 10.6 to Genzyme's Form 10-Q for the quarter ended June 30, 2005.
*10.15.2	Form of Nonstatutory Stock Option for grants to executive officers under Genzyme's 2001 Equity Incentive Plan. Filed as Exhibit 10.7 to Genzyme's Form 10-Q for the quarter ended June 30, 2005.
*10.16	2004 Equity Incentive Plan, as amended. Filed as Exhibit 10.8 to Genzyme's Form 10-Q for the quarter ended June 30, 2005.
*10.16.1	Form of Incentive Stock Option for grants to executive officers under Genzyme's 2004 Equity Incentive Plan. Filed as Exhibit 10.9 to Genzyme's Form 10-Q for the quarter ended June 30, 2005.
*10.16.2	Form of Nonstatutory Stock Option for grants to executive officers under Genzyme's 2004 Equity Incentive Plan. Filed as Exhibit 10.10 to Genzyme's Form 10-Q for the quarter ended June 30, 2005.
*10.17	1999 Employee Stock Purchase Plan, as amended. Filed as Exhibit 10.11 to Genzyme's Form 10-Q for the quarter ended June 30, 2005.
*10.18	1996 Directors' Deferred Compensation Plan, as amended. Filed as Exhibit 10.20 to Genzyme's Form 10-K for 2004.
*10.19	Executive Employment Agreement, dated as of January 1, 1990, between Genzyme and Henri A. Termeer. Filed as Exhibit 10.32 to Genzyme's Form 10-K for 1990.
*10.20	Executive Employment Agreement, dated as of January 1, 1996, between Genzyme and Peter Wirth. Filed as Exhibit 10.1 to Genzyme's Form 10-Q for the quarter ended March 31, 1996.
*10.21	Form of Indemnification Agreement between Genzyme and its executive officers. Filed as Exhibit 10.1 to Genzyme's Form 10-Q for the quarter ended September 30, 2004.
*10.22	Form of Severance Agreement between Genzyme and its executive officers. Filed as Exhibit 10.2 to Genzyme's Form 10-Q for the quarter ended June 30, 2002.
*10.23	Information regarding certain executive compensation matters, including 2006 salaries and incentive bonus targets for Genzyme's named executive officers. Filed with Genzyme's Form 8-K filed on December 5, 2005.
*10.23.1	Information regarding certain executive compensation matters, including actual 2005 salaries and incentive bonuses for Genzyme's named executive officers. Filed with Genzyme's Form 8-K filed on March 3, 2006.
*10.24	Collaboration Agreement, dated September 4, 1998, among Genzyme, BioMarin and BioMarin/Genzyme LLC. Filed as Exhibit 10.24 to BioMarin's Registration Statement on Form S-1 (File No. 333-77701).**

34

*10.25	Supply Agreement, dated as of November 9, 1999, by and between Cambrex Charles City, Inc. (f/k/a Salsbury Chemicals, Inc.) and GelTex Pharmaceuticals Inc., or GelTex. Filed as Exhibit 10.32 to GelTex's Form 10-K for 1999 (File No. 0-26872).**
*10.26	Contract Manufacturing Agreement dated September 14, 2001, as amended on May 15, 2002, between GelTex and The Dow Chemical Company. Filed as Exhibit 10.35 to Genzyme's Form 10-K for 2002.**
*10.26.1	Second Amendment, dated October 9, 2002, to Contract Manufacturing Agreement dated September 14, 2001, between GelTex and The Dow Chemical Company. Filed as Exhibit 10.34.1 to Genzyme's Form 10-K for 2003.**
*10.26.2	Third Amendment, dated December 8, 2003, to Contract Manufacturing Agreement dated September 14, 2001, between Genzyme and The Dow Chemical Company. Filed as Exhibit 10.34.2 to Genzyme's Form 10-K for 2003.**
*10.26.3	Fourth Amendment, dated as of July 1, 2004, to Contract Manufacturing Agreement dated September 14, 2001, between GelTex and The Dow Chemical Company. Filed as Exhibit 10.29.3 to Genzyme's Form 10-K for 2004.**
*10.27	Credit Agreement, dated December 10, 2003, among Genzyme and those of its subsidiaries party thereto, the lenders listed therein, Fleet National Bank, as Administrative Agent, ABN AMRO Bank N.V. as Syndication Agent and The Bank of Nova Scotia, Citizens Bank of Massachusetts and Wachovia Bank National Association as Co-Documentation Agents. Filed as Exhibit 10.36 to Genzyme's Form 10-K for 2003.
*10.27.1	First Amendment to Credit Agreement, dated as of June 30, 2004, to Credit Agreement dated December 10, 2003, among Genzyme, SangStat Medical Corporation, each of the financial institutions identified under the caption "Lenders" on the signature pages and Fleet National Bank as administrative agent for the Lenders. Filed as Exhibit 10.1 to Genzyme's Form 10-Q for the quarter ended June 30, 2004.
*10.28	North American Termination and Transition Agreement, dated November 3, 2004, by and between Genzyme and Wyeth. Filed as Exhibit 10.31 to Genzyme's Form 10-K for 2004.**
13.1	Portions of the 2005 Genzyme Corporation Annual Report incorporated by reference into Parts I, II and IV of this Form 10-K. Furnished herewith.
21	Subsidiaries of Genzyme. Filed herewith.
23	Consent of PricewaterhouseCoopers LLP. Filed herewith.
31.1	Certification of the Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
31.2	Certification of the Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
32.1	Certification of the Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.
32.2	Certification of the Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.
99	Financial Statements and notes thereto of BioMarin/Genzyme LLC as of December 31, 2005 and 2004 (unaudited) and for the years ended December 31, 2005, 2004 (unaudited) and 2003. Filed 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 granted for the deleted portions of Exhibits 10.24 through 10.26.3 and 10.28.

EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS

        Exhibits 10.13 through 10.23.1 above are management contracts or compensatory plans or arrangements in which our executive officers or directors participate.

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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
Dated: March 9, 2006	By:	/s/  MICHAEL S. WYZGA Michael S. Wyzga Executive Vice President, Finance, Chief Financial Officer, and Chief Accounting Officer

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

Name	Title	Date
/s/  HENRI A. TERMEER Henri A. Termeer	Director and Principal Executive Officer	March 9, 2006
/s/  MICHAEL S. WYZGA Michael S. Wyzga	Principal Financial and Accounting Officer	March 9, 2006
/s/  DOUGLAS A. BERTHIAUME Douglas A. Berthiaume	Director	March 9, 2006
Henry E. Blair	Director
/s/  GAIL K. BOUDREAUX Gail K. Boudreaux	Director	March 9, 2006
/s/  ROBERT J. CARPENTER Robert J. Carpenter	Director	March 9, 2006
/s/  CHARLES L. COONEY Charles L. Cooney	Director	March 9, 2006
/s/  VICTOR J. DZAU Victor J. Dzau	Director	March 9, 2006
/s/  CONNIE MACK III Connie Mack III	Director	March 9, 2006
Richard F. Syron	Director

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QuickLinks

TABLE OF CONTENTS
PART I

ITEM 1. BUSINESS

ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1). FINANCIAL STATEMENTS

(a)(2). FINANCIAL STATEMENT SCHEDULES
(a)(3). EXHIBITS
(b) . EXHIBITS

SIGNATURES

EX-10.4

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Exhibit 10.4

LEASE
by and between
KENDALL SQUARE, LLC
LANDLORD,
and
GENZYME CORPORATION,
TENANT

ARTICLE I

REFERENCE DATA

1.1    SUBJECTS REFERRED TO

ANNUAL FIXED RENT RATE PER RENTABLE SQUARE FOOTAGE OF PREMISES:	Subject to Sections 4.1(b), 10.11 and 10.12 hereof, an amount determined by (a) dividing (i) the Project Cost by (ii) the Rentable Square Footage of Building and (b) multiplying the result thereof by twelve percent (12%).
APPROXIMATE TERM:	Subject to Section 10.12 hereof, fifteen (15) years.
BUILDING:	The building now known as Building D, Cambridge Research Park, Cambridge, Massachusetts, to be constructed by Landlord and containing approximately 300,000 rentable square feet ("r.s.f."), of which approximately 15,000 r.s.f. shall be ground floor retail space (the "Retail Space"). Tenant shall have the right to name the Building "The Genzyme Building," "Genzyme Center" or a similar name, but in each case including the street address of the Building.
COMPLEX:	An approximately ten acre parcel of land, including the Lot and all buildings thereon and improvements thereto hereafter constructed by Landlord or by an Affiliate of Landlord (as such term is defined below in this Section 1.1), in Cambridge, Massachusetts currently owned by Landlord and shown on a plan entitled "Master Plan" dated June 1, 1999, Scale 1"=50', a reduced copy of which is attached as Exhibit A hereto, but excluding any portion of the Complex which is not hereafter owned by Landlord or an Affiliate of Landlord.
EXPANSION SPACES:	As determined and defined in Section 10.11 hereof.
INITIAL ESTIMATED ANNUAL ADDITIONAL RENT FOR BUILDING:	$2,467,500.00 based upon $10.50/r.s.f.
INITIAL ESTIMATED ANNUAL ADDITIONAL RENT FOR COMPLEX:	$352,500.00 based upon $1.50/r.s.f.
LANDLORD:	Kendall Square, LLC, formerly known as Cambridge Research Park, LLC, a Delaware limited liability company.
LANDLORD'S ARCHITECT:	As determined pursuant to Section 3.1.1 hereof.
LANDLORD'S ADDRESS:	c/o Lyme Properties, LLC 101 Main Street Cambridge, Massachusetts 02142

LANDLORD'S CONTRACTOR:	As determined pursuant to Section 3.1.1 hereof.
LANDLORD'S REPRESENTATIVE:	Each of David E. Clem and Robert L. Green
LEASE YEAR:	Each consecutive period of twelve (12) calendar months commencing on the Commencement Date if it occurs on the first day of a calendar month and otherwise commencing on the first day of the month immediately following the month in which the Commencement Date occurs, and each anniversary of such date.
LOT:	The land on which the Building is to be constructed and shown on Exhibit A as being generally bounded by Atheneum Street, Kendall Street, Easement, and land of others, the legal description of which (and a plan for which) shall be prepared by Landlord prior to the commencement of construction of the Base Building Improvements by Landlord and attached hereto as Exhibit A-1 and which plan shall be attached hereto as Exhibit A-2.
MANAGING AGENT:	To be determined by Landlord based upon a list of managing agents proposed from time to time by Landlord and approved by Tenant, such approval not to be unreasonably withheld, conditioned or delayed.
OPTIONS TO EXTEND:	Two (2) Options to Extend the Term of this Lease for successive periods of ten (10) years each, in accordance with Section 10.12 hereof.
PERMITTED USES:	General office uses and accessory uses customarily incidental to general office uses.
PREMISES:	Those portions of the Building demised to Tenant under this Lease from time to time, as such portions are determined pursuant to Section 3.1.1 hereof and subject to Sections 5.1.2 and 10.11 hereof.
PROJECT COST:	As determined pursuant to Section 3.1.1 hereof.
COMMERCIAL LIABILITY INSURANCE LIMITS:	Bodily Injury: $10,000,000 Property Damage: $10,000,000
RENTABLE SQUARE FOOTAGE OF BUILDING:	As determined pursuant to Section 2.3 hereof, but the Building is currently estimated to consist of 300,000 r.s.f. of space.

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RENTABLE SQUARE FOOTAGE OF PREMISES:	As determined pursuant to Section 2.3 hereof, but the Premises are currently estimated to consist initially of approximately 235,000 r.s.f. of space in the Building to be constructed by Landlord on the Lot; and the Rentable Square Footage of Premises shall be increased at such time as each Expansion Space is demised to Tenant; and the Expansion Spaces are currently estimated to consist of approximately 50,000 r.s.f. of space, in the aggregate, in the Building to be constructed by Landlord on the Lot, subject to Sections 5.1.2 and 10.11 hereof.
SCHEDULED SUBSTANTIAL COMPLETION DATE:	September 1, 2002
SCHEDULED TERM COMMENCEMENT DATE:	December 1, 2002
TENANT:	Genzyme Corporation, a Massachusetts corporation.
TENANT'S ADDRESS (For Notice and Billing):	One Kendall Square Building 1400 Cambridge, Massachusetts 02139
TENANT'S ARCHITECT:	To be determined by Tenant.
TENANT'S PROPORTIONATE FRACTION FOR BUILDING:	As determined and as the same may be adjusted pursuant to Sections 2.3 and 10.11 hereof.
TENANT'S PROPORTIONATE FRACTION FOR COMPLEX:	As determined and as the same may be adjusted pursuant to Sections 2.3 and 10.11 hereof.
TENANT'S CONSTRUCTION REPRESENTATIVE:	To be identified by Tenant by notice to Landlord.
TENANT'S LEASE REPRESENTATIVE:	Evan M. Lebson
TERM COMMENCEMENT DATE:	The earlier of (a) the date that is ninety-one (91) days after the Substantial Completion Date or (b) the date on which Tenant's personnel occupy all or any portion of the Premises for the conduct of any aspect of Tenant's business (as opposed to the conduct by Tenant of any of Tenant's Work or the installation in the Premises of fixtures, furnishings, equipment or personal property); provided, however, if Tenant only occupies a portion of the Premises for the conduct of its business prior to the date determined by the preceding clause (a), Tenant shall only be obligated to pay Rent calculated with respect to such portion of the Premises so occupied.
TERM EXPIRATION DATE:	The last day of the fifteenth Lease Year, subject to two (2) Options to Extend for successive periods of ten (10) years each, in accordance with Section 10.12.

3

        The following capitalized terms shall have the respective meanings set forth below or as referenced in this Lease:

ADA Requirements: The Americans with Disabilities Act (42 U.S.C. § 12101 et seq.) and the regulations and Accessibility Guidelines for Buildings and Facilities issued pursuant thereto.

Additional Rent Adjustment Date: As defined in Section 4.2.4

Additional Rent: All rent, charges and other sums, other than Fixed Rent, due Landlord pursuant to this Lease.

Affiliate of Landlord: A person or entity controlled by, controlling or under common control with Landlord.

Affiliate of Tenant: Any entity controlled by, controlling or under common control with Tenant.

Annual Building Maintenance and Operation Charge: As defined in Section 4.2.4

Annual Complex Maintenance and Operation Charge: As defined in Section 4.2.4.

Annual Maintenance Charge: The sum of the Annual Building Maintenance and Operation Charge, the Annual Complex Maintenance and Operation Charge and the Nonstandard Charge.

Annual Tax, Insurance and Utility Charge: The sum of the Initial Tax Charge, the Initial Insurance Charge and the Initial Utility Charge.

Appraiser: A commercial real estate broker having at least ten (10) years experience in the commercial leasing market in the City of Cambridge, Massachusetts.

Approved Contractor: As defined in Section 3.2.1.

Arbitrator: As defined in Section 10.13.

Architect's Contract: As defined in Section 3.1.1.

Availability Notice: As defined in Section 10.18

Base Building Improvements: As defined in Section 3.1.1.

Brokers: Trammel Crow Company and Insignia/ESG.

Building Common Areas: Interior and exterior common areas and facilities of the Building and the Lot.

Casualty Restoration Completion Date: As defined in Section 6.1.

CDD: Community Development Department of the City of Cambridge, Massachusetts.

Change Orders: As defined in Section 3.1.2.

Chapter 91 Determination: As defined in Section 3.1.4.

Commencement Date: As defined and determined pursuant to Section 2.2.

Complex Common Areas: Interior and exterior common areas and facilities of the Complex.

Confidential Information: Any and all knowledge, information, data, materials, trade secrets, and other work product of a confidential nature gained, obtained, derived, produced, generated or otherwise acquired by Landlord with respect to Tenant's business.

Construction Contract: As defined in Section 3.1.1.

Construction Documents: As defined in Section 3.2.1.

Design Development Documents: As defined in Section 3.1.1.

4

Design Process Letter: Letter dated January 17, 2000 from David Clem of Lyme Properties, LLC to Henri Termeer, President and CEO of Tenant.

Developer's Fee: As defined in Section 3.1.1.

Development Approvals: As defined in Section 3.1.4.

Early Occupancy Space: As defined in Section 10.11.

Environmental Agreement: The Environmental Agreement between Landlord and Tenant in the form of Exhibit E hereto.

Environmental Remediation: As defined in Section 3.1.3.

Estimated Annual Additional Rent: Landlord's estimate of the total amount of Additional Rent which may be due from Tenant for any particular Lease Year with respect to the Building, Lot and Complex.

Estimated Annual Maintenance Charge: Landlord's reasonable estimate of the Annual Maintenance Charge.

Estimated Annual Tax, Insurance and Utility Charge: Landlord's reasonable estimate of the Annual Tax, Insurance and Utility Charge.

Event of Default: As defined in Section 7.1.

Excluded Taxes: Any income taxes, excess profits taxes, excise taxes, franchise taxes, or any taxes or assessments with respect to the Garage and other buildings leased or available for lease (and the parcels of land upon which such buildings are situated), other than the Building, the Lot and any building or portion of a building in the Complex which is not available for lease (and the parcel(s) of land on which the same may be located), in the Complex.

Exercise Notice: As defined in Section 10.12.

Expansion Spaces: As defined in Section 10.11.

Extension Periods: As defined in Section 10.12.

Extension Rent: As defined in Section 10.12.

Fair Market Rent: As defined in Section 10.12.

Final Design Documents: As defined in Section 3.1.1.

Final Project Budget: All hard costs and soft costs incurred by Landlord in connection with the construction of the Base Building Improvements as reflected in a final project budget to be mutually approved by Landlord and Tenant, as provided in Section 3.1.1.

First Expansion Space: As defined in Section 10.11.

Fixed Rent: As defined in Section 4.1.

Garage Owner: The owner of the Garage.

Garage Parking Spaces: Tenant's Parking Spaces and the Valet Parking Spaces.

Garage: The underground parking structure to be constructed and/or owned by Landlord or an Affiliate of Landlord south of Kendall Street, as shown on Exhibit A hereto.

Holder: As defined in Section 8.1.

Impositions: As defined in Section 4.2.4(1)(a).

Indemnified Parties: As defined in Section 5.1.6.

5

Initial Estimated Annual Additional Rent for Building: As defined in Section 4.2.

Inquiry Notice: As defined in Section 10.12.

Labor Unrest: As defined in Section 3.2.1.

Landlord Milestone Date: As defined in Section 3.2.

Landlord's Statement: As defined in Section 4.2.4.

Landlord's Work: The construction of the Base Building Improvements in accordance with the Final Design Documents as affected by Change Orders.

MCP: Massachusetts Contingency Plan, 310 CMR 40.0000 et seq., as amended.

MEPA Certificate: Certificate of the Secretary of Environmental Affairs on the Final Environmental Impact Report dated April 15, 1999.

Minor Alteration: As defined in Section 3.2.1.

Mitigation Expenses: As defined in Section 3.1.1.

Mortgage: Mortgages, deeds of trust or other similar instruments evidencing other voluntary liens or encumbrances, and modifications, consolidations, extensions, renewals, replacements and substitutes thereof.

Nonstandard Charge: As defined in Section 4.2.4.

Nonstandard Costs: As defined in Section 4.2.4.

Option to Lease: The option to lease with respect to Building B executed by Landlord and Tenant simultaneously with the execution hereof.

Options to Extend: As defined in Section 10.12.

Order of Conditions: Order of Conditions issued July 12, 1999 by the City of Cambridge Conservation Commission.

Outside Completion Date: As defined in Section 3.2.

Parking Fee: As defined in Section 10.14.

Preliminary Design Concept: As defined in Section 3.1.1.

Progress Schedule: As set forth in Exhibit B hereto.

PTDM Approval: The PTDM Decision, the PTDM Letter and PTDM Plan.

PTDM Decision: PTDM Ordinance Final Decision issued April 20, 1999 by the CDD.

PTDM Letter: The Letter dated April 20, 1999 to Robert L. Green of Lyme Properties from Susanne Rasmussen of the CDD attached to the PTDM Decision.

PTDM Plan: Landlord's Parking Transportation Demand Management Plan dated April 9, 1999.

PUD Approval: The PUD Permit and the Settlement Agreement.

PUD Permit: A Special Permit issued by the City of Cambridge Planning Board, Case No. PB #141 filed April 7, 1999 (the "PUD Permit"), recorded with the Middlesex South District Registry of Deeds (the "Registry") in Book 31137, Page 89.

Punch List Items: Minor items which can be fully completed by Landlord within thirty (30) days without material interference with Tenant and other items which because of the season or weather or the

6

nature of the item are not practicable to do at the time, provided that none of said items is necessary to perform Tenant's Work.

Relevant Market: As defined in Section 10.12(b).

Remediation Documents: The documents set forth on Exhibit E-1 hereto.

Rentable Square Feet, Rentable Square Footage or r.s.f.: The rentable square footage of the space in question as measured in accordance with the standard set forth in Section 2.3.

Response Action Outcome: As such term is defined in the MCP.

ROFR Notice: As defined in Section 10.18.

ROFR Space: As defined in Section 10.18.

ROFR: As defined in Section 10.18.

Schematic Design Documents: As defined in Section 3.1.1.

Settlement Agreement: A Settlement Agreement dated May 24, 1999 among Barbara Broussard, Mary DeFreitas, the East Cambridge Planning Team and Landlord.

SNDA: Subordination, Non-disturbance and Attornment Agreement.

Subdivision: As defined in Section 9.1.6.

Sublease Costs: As defined in Section 5.2.1.

Sublease Profits: As defined in Section 5.2.1.

Subsequent Approvals: As defined in Section 3.1.4.

Substantial Completion Date: As defined in Section 3.2.

Substitute Taxes: As defined in Section 4.2.1.

Tenant Delay: As defined in Section 3.1.1.

Tenant's Property: All of the furnishings, fixtures, equipment, effects and property of every kind, nature and description owned or leased by Tenant or by any person claiming by, through or under Tenant which, during the continuance of this Lease or any occupancy of the Premises by Tenant or anyone claiming under Tenant, may be on the Premises.

Tenant's Proportionate Fraction for Building: As defined in Section 2.3

Tenant's Proportionate Fraction for Complex: As defined in Section 2.3.

Tenant's Work: As defined in Section 3.2.1.

TI Factor: As defined in Section 10.11.

Title Exceptions: Item Nos. 2 through 12, inclusive set forth in Schedule B, Part 1 of the Title Policy.

Title Policy: Owner's Policy No. 136-00-336684 dated August 19, 1998, issued by Lawyer's Title Insurance Corporation.

TMA: The Charles River Transportation Management Association or any other transportation management association of which Landlord is a member.

Transfer: As defined in Section 9.1.6.

Utilities: As defined in Section 4.2.3.

Utility Service Provider or Utility Service Providers: As defined in Section 4.2.3.

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Utility Services: As defined in Section 4.2.3.

Valet Parking Fee: As defined in Section 10.14.

Valet Parking Spaces: As defined in Section 10.14.

1.2    EXHIBITS.

        The Exhibits listed below in this section are incorporated in this Lease by reference and are to be construed as a part of this Lease:

EXHIBIT A	Plan showing Complex
EXHIBIT A-1	Legal Description
EXHIBIT A-2	Plan showing Lot
EXHIBIT A-3	Confirmation of Commencement Date and Rentable Square Footage
EXHIBIT A-4	Confirmation of Location of Expansion Spaces
EXHIBIT B	Progress Schedule
EXHIBIT B-1	Project Budget Form
EXHIBIT B-2	Annual Maintenance Charge Categories
EXHIBIT C	Rules and Regulations
EXHIBIT D	SNDA Form
EXHIBIT E	Environmental Agreement
EXHIBIT E-1	Remediation Documents

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1.3    TABLE OF CONTENTS

ARTICLE I					1
	1.1	SUBJECTS REFERRED TO			1
	1.2	EXHIBITS.			8
	1.3	TABLE OF CONTENTS			9
ARTICLE II					12
	2.1	PREMISES			12
	2.2	TERM.			13
	2.3	MODIFICATION OF CERTAIN DEFINITIONS; CERTIFICATE REGARDING			13
ARTICLE III					14
	3.1	INITIAL DESIGN AND CONSTRUCTION.			14
		3.1.1	Architect Selection Process, Development of Design Documents, Landlord's Contractor and Project Cost.		14
		3.1.2	Change Orders		20
		3.1.3	Environmental Remediation		21
		3.1.4	Development Approvals and Title Exceptions.		21
	3.2	PREPARATION OF PREMISES FOR PERFORMANCE OF TENANT'S WORK			23
		3.2.1.	Performance of Tenant's Work.		25
	3.3	GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION			29
	3.4	REPRESENTATIVES			29
	3.5	LANDLORD INDEMNITY AND CORRECTION OF LANDLORD'S WORK			29
ARTICLE IV					29
	4.1	FIXED RENT			29
	4.2	ADDITIONAL RENT			30
		4.2.1	Real Estate Taxes		30
		4.2.2	Insurance		32
			4.2.2.1	Insurance Taken Out by Tenant	32
			4.2.2.2	Insurance Taken Out by Landlord	32
			4.2.2.3	Tenant Reimbursement of Insurance Taken Out by Landlord	33
			4.2.2.4	Certain Requirements Applicable to Insurance Policies	33
			4.2.2.5	Waiver of Subrogation	33
		4.2.3	Utilities for Premises		34
		4.2.4	Common Area Maintenance and Expenses		34
		4.2.5	Payments on Account of Taxes, Insurance and Utilities		38
	4.3	LATE PAYMENT OF RENT			39

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ARTICLE V				40
	5.1	AFFIRMATIVE COVENANTS		40
		5.1.1	Perform Obligations	40
		5.1.2	Occupancy and Use	40
		5.1.3	Repair and Maintenance	41
		5.1.4	Compliance with Law	41
		5.1.5	Tenant's Work	42
		5.1.6	Indemnity	43
		5.1.7	Landlord's Right to Enter	43
		5.1.8	Personal Property at Tenant's Risk	43
		5.1.9	Payment of Landlord's Cost of Enforcement	44
		5.1.10	Yield Up	44
		5.1.11	Estoppel Certificate	44
		5.1.12	Landlord's Expenses Re: Consents	45
		5.1.13	Rules and Regulations	45
		5.1.14	Loading	45
		5.1.15	Holdover	45
	5.2	NEGATIVE COVENANTS		45
		5.2.1	Assignment and Subletting	45
		5.2.2	Nuisance	47
		5.2.3	Installation, Alterations or Additions	47
ARTICLE VI				47
	6.1	DAMAGE BY FIRE		47
	6.2	CONDEMNATION		50
	6.3	AWARD		51
ARTICLE VII				51
	7.1	EVENTS OF DEFAULT		51
	7.2	REMEDIES		52
	7.3	REMEDIES CUMULATIVE		53
	7.4	LANDLORD'S RIGHT TO CURE DEFAULTS		53
	7.5	EFFECT OF WAIVERS OF DEFAULT		53
	7.6	NO ACCORD AND SATISFACTION		53
ARTICLE VIII				53
	8.1	RIGHTS OF MORTGAGE HOLDERS		53
	8.2	SUPERIORITY OF LEASE; OPTION TO SUBORDINATE		54
	8.3	LEASE AMENDMENTS		55
ARTICLE IX				56
	9.1	AFFIRMATIVE COVENANTS		56
		9.1.1	Perform Obligations	56
		9.1.2	Repairs	56
		9.1.3	Compliance with Law	56
		9.1.4	Indemnity	56
		9.1.5	Estoppel Certificate	57
		9.1.6	Subdivision	57

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ARTICLE X			57
	10.1	NOTICES FROM ONE PARTY TO THE OTHER	57
	10.2	QUIET ENJOYMENT	57
	10.3	EASEMENTS; CHANGES TO LOT LINES	58
	10.4	LEASE NOT TO BE RECORDED	58
	10.5	BIND AND INURE; LIMITATION OF LANDLORD'S LIABILITY	58
	10.6	ACTS OF GOD	58
	10.7	LANDLORD'S DEFAULT	59
	10.8	BROKERAGE	59
	10.9	APPLICABLE LAW AND CONSTRUCTION	60
	10.10	SUBMISSION NOT AN OFFER	60
	10.11	EXPANSION OF PREMISES	60
	10.12	OPTIONS TO EXTEND	62
	10.13	ARBITRATION	63
	10.14	PARKING	64
	10.15	CONFIDENTIAL INFORMATION	65
	10.16	SIGNAGE	65
	10.17	BUILDING B LEASE	66
	10.18	RIGHT OF FIRST REFUSAL	66
	10.19	RETAIL TENANTS	67
	10.20	ACCESS	67
	10.21	COOPERATION	67

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ARTICLE II

PREMISES AND TERM

2.1    PREMISES.

        Landlord hereby leases and demises to Tenant and Tenant hereby leases from Landlord, subject to and with the benefit of the terms, covenants, conditions and provisions of this Lease, the Premises. Tenant shall have, as appurtenant to the Premises, the right to use in common with others, if any, entitled thereto (i) the common areas and common facilities, if any, included in the Building, on the Lot or in the Complex, (ii) the building service fixtures and equipment serving the Premises, and (iii) subject to Section 10.14 hereof, (a) the right to use that number of nonreserved parking spaces determined by dividing the Rentable Square Footage (as the same shall be determined pursuant to Section 2.3 hereof and as the same may be increased pursuant to Section 10.11 hereof) by 500 ("Tenant's Parking Spaces") in the underground parking garage located south of Kendall Street as shown on Exhibit A hereto (the "Garage") and (b) the right to use that number of nonreserved Valet Parking Spaces, as such term is defined and such number is determined pursuant to Section 10.14 hereof. To the extent that the Premises includes all of the rentable square footage on a particular floor of the Building, Tenant shall have exclusive use of the common areas on such floors, but Landlord shall have the rights set forth in the next paragraph hereof.

        Landlord reserves the right from time to time, without unreasonable interference with Tenant's use, (a) to install, repair, replace, use, maintain and relocate for service to the Premises and to other parts of the Building, or either, building service fixtures and equipment wherever located in the Building, including the perimeter walls of the Premises, on the roof of the Building, in mechanical penthouses and in any space in or adjacent to the Premises used for shafts, stacks, pipes, conduits, wires and appurtenant fixtures, ducts, electric or other utilities, telecommunications equipment or other Building facilities, as well as the right of access (which right of access shall be at reasonable times and upon reasonable notice, except in the case of emergency) through the Premises for the purpose of operation, maintenance and repair, provided, however, that the Annual Fixed Rent, Additional Rent (as defined in Section 4.2 hereof) and other charges payable hereunder by Tenant shall be proportionally reduced in the event that any such installation or relocation of service materially reduces the usable floor area of the Premises (other than a temporary reduction to accommodate installation, repair, replacement, maintenance and relocation of such service); notwithstanding the foregoing provisions of this clause (a), to the extent that the Premises include all of the rentable square footage on a particular floor of the Building, Landlord's right to install, repair, replace, use, maintain and relocate such building service fixtures and equipment on such floor of the Building shall be limited to placing or installing such building service fixtures and equipment in shafts, pipes, stacks, conduits, chases and risers located within the central core common area of such floor or in such other locations on such floor as may be set forth in the Final Design Documents; (b) to construct, alter or relocate any Building Common Areas and/or Complex Common Areas (provided that, except for any construction, alteration or relocation of Complex Common Areas required or permitted by the Development Approvals or Subsequent Approvals, no such construction, alteration or relocation of any such Complex Common Areas shall substantially or materially increase any payments due from Tenant under this Lease and any such construction, alteration or relocation shall be substantially similar in quality and utility to Complex Common Areas being altered or relocated or substantially similar to common areas of first-class, mixed use projects in the Relevant Market); and (c) after construction of the Building to construct, alter or relocate any Building Common Areas, subject to approval by Tenant, such approval not to be unreasonably withheld, delayed or conditioned.

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2.2    TERM.

        To have and to hold for a period (the "Term") commencing on the Term Commencement Date (as such term is defined in Section 1.1 hereof) (the "Commencement Date") and continuing until the Term Expiration Date, unless sooner terminated as provided herein, including Section 3.2 and Article VII hereof, and subject to extension in accordance with the terms of Section 10.12 hereof.

2.3    MODIFICATION OF CERTAIN DEFINITIONS; CERTIFICATE REGARDING COMMENCEMENT DATE.

        Landlord and Tenant acknowledge that the actual rentable square footage of the Premises, the Expansion Spaces (as such term is defined in Section 10.11 hereof) and the Building may, upon completion of construction of the Base Building Improvements (as hereinafter defined), be different than the estimates as set forth in Article I hereof. Accordingly, after completion of construction of the Base Building Improvements, Landlord will notify Tenant of the Rentable Square Footage of the Premises, the Expansion Spaces and the Building, all of which shall be measured by Landlord's Architect in accordance with the ANSI/BOMA Z65.1-1996 Standard Method for Measuring Building Rentable Area, approved June 7, 1996 for a single tenant building. Landlord's Architect's measurement shall be subject to review and approval by Tenant's Architect for conformity to the foregoing standard. If necessary, Landlord and Tenant will execute an amendment to this Lease modifying the definitions of Rentable Square Footage of Premises, Rentable Square Footage of Building, the location in the Building of the Premises and the Expansion Spaces, Tenant's Proportionate Fraction for Building, Tenant's Proportionate Fraction for Complex, Initial Estimated Annual Additional Rent for Building, Initial Estimated Annual Additional Rent for Complex, and such other terms and provisions, if any, of this Lease as may be necessary to reflect such actual measurements. Landlord and Tenant will also execute, upon request of either, a certificate, substantially in the form of Exhibit A-3 hereto, acknowledging, inter alia, the Commencement Date of this Lease as provided for in Section 2.2 hereof, after such Commencement Date has occurred (as described in Section 3.2 hereof), and the Rentable Square Footage of the Building, the Premises and the Expansion Spaces. After such measurement by Landlord's Architect, the Premises, the Expansion Spaces and the Building shall not be subject to remeasurement without the consent of Landlord and Tenant. Anything in this Lease to the contrary notwithstanding, the Premises, as initially demised, shall include all of the Rentable Square Footage in the Building other than the Expansion Spaces and the Retail Space. "Tenant's Proportionate Fraction for Building" shall be the ratio, expressed as a percentage, of the Rentable Square Footage of Premises, including the Expansion Spaces and any ROFR Space (from and after the dates on which each of the Expansion Spaces or any ROFR Space is demised to Tenant), to the Rentable Square Footage of Building. "Tenant's Proportionate Fraction for Complex" shall be the ratio, expressed as a percentage, of the Rentable Square Footage of the Premises, including the Expansion Spaces and any ROFR Space, when applicable, to the Rentable Square Footage of all buildings (other than any garages in the Complex and any building or portion thereof which is not available for lease such as an information kiosk), including the Building, which Landlord is permitted to develop in the Complex pursuant to the PUD Approval. Landlord shall have the right to estimate on a good faith basis, from time to time, the Rentable Square Footage of all such buildings prior to the construction thereof. From time to time after construction of each building in the Complex, Landlord shall notify Tenant of the Rentable Square Footage of such buildings and shall provide to Tenant, upon Tenant's request, such information as Tenant may reasonably request with respect to the calculation thereof. Within thirty (30) days after notice of such Rentable Square Footage, Tenant shall pay to Landlord or Landlord shall credit to Additional Rent next due from Tenant, as applicable, any underpayment owed or overpayment made, as applicable, by Tenant based upon the estimated Rentable Square Footage of such buildings, on account of Tenant's Proportionate Fraction for Complex of taxes and assessments and Tenant's Proportionate Fraction for Complex of the Annual Complex Maintenance and Operation Charge and the actual Rentable Square Footage of such buildings.

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ARTICLE III

BASE BUILDING IMPROVEMENTS

3.1    INITIAL DESIGN AND CONSTRUCTION.

3.1.1    Architect Selection Process, Development of Design Documents, Landlord's Contractor and Project Cost.

        Landlord has initiated a design competition for the Building as more fully set forth in a letter dated January 17, 2000 from David Clem of Lyme Properties, LLC to Henri Termeer, President and CEO of Tenant (the "Design Process Letter"), which is incorporated herein by reference thereto. Landlord and Tenant agree to cooperate in connection with the design competition as set forth in the Design Process Letter. Upon completion of such design competition, Landlord and Tenant shall mutually select Landlord's Architect (for purposes of this Lease the term "Landlord's Design Team" shall be deemed to refer not only to Landlord's Architect but also to the principal engineers, architects and other design consultants employed by Landlord or Landlord's Architect for the design and construction of the Building) and Landlord's Design Team (to the extent then identified). Landlord and Tenant shall also mutually establish and agree upon (i) a preliminary design concept for the Building (the "Preliminary Design Concept"), which shall be based upon Tenant's program, outline building specifications, schedule requirements, and (ii) a preliminary hard and soft cost budget for the Base Building Improvements (the "preliminary Project Cost budget"). Such selection of Tenant's Architect and Landlord's Design Team (to the extent then identified), the establishment and agreement upon the Preliminary Design Concept and the establishment and agreement upon such preliminary Project Cost budget shall be made by the respective dates for each set forth in the progress schedule attached as Exhibit B hereto (the "Progress Schedule"). Landlord and Tenant acknowledge and agree that the Progress Schedule represents a good faith estimate of the respective dates upon which the items set forth in the Progress Schedule are to occur but that the Progress Schedule is subject to finalization by Landlord and Tenant upon selection of Landlord's Architect and Landlord's Contractor. Accordingly, references in this Lease to the Progress Schedule shall mean the Progress Schedule attached hereto as Exhibit B as the same may be finalized. The Preliminary Design Concept shall describe the general scope and quality of the Building and shall identify those portions of the Building which will constitute the Premises initially leased to Tenant and the Expansion Spaces. If despite the diligent and good faith efforts of Landlord and Tenant the parties are unable to mutually select Landlord's Architect, to establish a mutually acceptable Preliminary Design Concept and/or a mutually acceptable preliminary Project Cost budget by the applicable dates set forth in the Progress Schedule, either Landlord or Tenant may terminate this Lease upon thirty (30) days' prior written notice to the other party. During such thirty (30) day period Landlord and Tenant shall use diligent and good faith efforts to select such Architect, establish such Preliminary Design Concept and/or preliminary Project Cost budget, as applicable, failing which this Lease shall terminate on the date set forth in such notice. In the event of such termination, all third party, out-of-pocket costs incurred by Landlord in connection with the design competition and design process solely for the Building shall be shared equally by Landlord and Tenant.

        Landlord and Tenant also agree to cooperate in good faith in connection with the design of the Building and the Base Building Improvements and the development of a mutually acceptable Final Project Budget (as defined below). Neither Landlord nor Tenant shall be required to approve any Design Documents unless the Building includes at least 285,000 r.s.f. of office space and at least 15,000 r.s.f. of ground floor retail space and each Expansion Space includes approximately 25,000 r.s.f. of contiguous space on a single floor of the Building. The size, layout, design and base building fit-up of the Building and Base Building Improvements and the Final Project Budget shall be mutually agreed

14

upon by Landlord and Tenant. Landlord and Tenant acknowledge and agree that during design development process contemplated hereby, Tenant, with Landlord's approval, which approval shall not be unreasonably withheld, conditioned or delayed, shall have the right to approve and/or design base building electrical, mechanical, HVAC and other systems and design specifications (such as, by way of example, entranceway and lobby design, internal stair location, elevator size and finish, location of electrical and telecom rooms and equipment, location of mechanical shaftways and equipment, structural bay spaces, window mullions spacing and sill depth and height, floor to floor heights and the like), provided that the specifications for such base building elements are equal or better than the quality of the specifications therefor in a newly constructed, first-class office tower in Cambridge.

        Each party acknowledges and agrees that it is in its best interest for the Substantial Completion Date to occur on or before the Scheduled Substantial Completion Date and that the Final Project Budget be substantially consistent with the preliminary Project Cost budget and the updates thereto. Accordingly, each party hereby agrees that it shall keep the other party informed of the progress and status of its efforts to achieve the various milestones and other scheduled completion dates set forth on the Progress Schedule; and that if either party concludes that a milestone or other scheduled completion date will not be met, such party shall use reasonable efforts to notify the other party of the occurrence of any act, event, condition, omission or circumstance which could have a substantial or material impact on: (i) the ability to achieve the various milestone and other scheduled completion dates set forth on the Progress Schedule; (ii) the cost or financial viability of the construction of the Building or Complex; or (iii) Tenant's use and occupancy of the Premises.

        After Landlord's Architect and the Landlord's Design Team have been selected and Landlord and Tenant have mutually established the Preliminary Design Concept, Landlord shall enter into a contract (the "Architect's Contract") with Landlord's Architect. The Architect's Contract shall be subject to Tenant's prior approval, which approval shall not be unreasonably withheld, conditioned or delayed. The Architect's Contract shall include provisions requiring Landlord's Architect to submit all Design Documents (as hereinafter defined) for each stage in the design process simultaneously to both Landlord and Tenant sufficiently prior to the applicable Design Document completion date for such design stage set forth in the Progress Schedule, in order to provide Landlord and Tenant with reasonably sufficient time (in any event not less than ten (10) business days for initial review of the applicable Design Document) following receipt of such submission to review, comment on and approve such submission prior to such completion date, to be responsible for the adequacy, accuracy and completeness of the Final Design Documents approved by Landlord and Tenant, and to cause the Final Design Documents to comply with all applicable laws, regulations, building codes, building design standards, the Development Approvals, Subsequent Approvals, agreed upon floor loading limits, and with respect to all materials, equipment and special designs, processes or products, that the same do not infringe any patent or other proprietary rights of others. Contemporaneously with the selection of Landlord's Architect, Landlord shall retain a construction manager or similar consultant (the "Construction Cost Estimator"), reasonably satisfactory to the Tenant, to work with and provide pre-construction services for Landlord, Tenant and Landlord's Architect to develop, and provide value engineering services to control, a preliminary Project Cost budget and updates thereto during the Schematic Design Documents phase and the Design Development Documents phase. The parties acknowledge that Landlord may, subject to Tenant's reasonable approval, elect, at any time, to hire such Construction Cost Estimator as Construction Manager/General Contractor for the Building. Subject to the limitations hereafter set forth with respect to Tenant's right to disapprove bids with respect to the Construction Contract, each of Landlord and Tenant shall have the right to approve such preliminary Project Cost budget and updates thereto, which approvals shall not be unreasonably withheld, conditioned or delayed.

        Landlord shall cause Landlord's Architect to prepare schematic architectural plans, structural and engineering plans, elevations and building sections, and site plans for the Building based upon the

15

Preliminary Design Concept ("Schematic Design Documents"), which shall mean a conceptual design of the Base Building Improvements illustrating the scale and relationship of the components of the Base Building Improvements and calculating the gross floor area and Rentable Square Footage of the Building. Additionally, the Construction Cost Estimator shall prepare an updated budget for the Base Building Improvements for approval by Landlord and Tenant. The Schematic Design Documents shall show walkways and plazas for the Building and Lot, major landscape features, hardscaping, scale and relationship of other major components of the Building and Lot, pedestrian and vehicular (including service) access and flow through the Lot, lighting, survey information such as existing elevations, benchmarks and utilities, and any known construction limits. The Schematic Design Documents shall also include models, color renderings and outline specifications indicating all basic materials and systems of the proposed Base Building Improvements. The Schematic Design Documents and all subsequent Design Documents shall be prepared and distributed by Landlord's Architect in both hard copy and electronic format.

        During the development of the Schematic Design Documents, Landlord and Tenant shall meet with representatives of the CDD (as defined in Section 3.1.4 hereof) and their respective consultants to review and refine the design of the Building and the Lot. Thereafter, Landlord shall seek approval of the Schematic Design Documents by the Planning Board (as defined in Section 3.1.4 hereof), and Tenant shall cooperate with Landlord in connection therewith. If despite the good faith efforts of Landlord and Tenant the Planning Board rejects the design reflected in the Schematic Design Documents or insists upon major changes to the Schematic Design Documents which are unacceptable to either Landlord or Tenant and if as a result thereof Landlord is unable to obtain approval of the Schematic Design Documents by the Planning Board by the date set forth in the Progress Schedule, as the same may be changed by any Tenant Delay, either Landlord or Tenant may terminate this Lease upon thirty (30) days prior written notice. If Planning Board approval of the Schematic Design Documents is not obtained by the end of such thirty-day period, this Lease shall thereupon terminate. In the event of such termination, all third party, out-of-pocket costs incurred by Landlord in connection with the design competition and design process solely for the Building and Lot shall be shared equally by Landlord and Tenant. Planning Board approval of the Schematic Design Documents shall be a Subsequent Approval (as defined in Section 3.1.4 hereof). Landlord and Tenant agree to cooperate in connection with any conditions imposed by the Planning Board in connection with the Planning Board's approval of the Schematic Design Documents, such as further review of the Design Documents by the CDD.

        At such time as the Schematic Design Documents have been approved by Landlord and Tenant (and by the Planning Board, if Landlord elects to have the Schematic Design Documents approved by the Planning Board), Landlord shall cause (i) Landlord's Architect to prepare further details and development of the Schematic Design Documents (the "Design Development Documents") for the Building and the Base Building Improvements, which shall mean plans, sections and elevations, typical construction details, and equipment layouts showing the scope, relationships, forms, size and appearance of the Base Building Improvements and calculating the gross floor area and the Rentable Square Footage of the Building and (ii) the Construction Cost Estimator, based upon such Design Development Documents, to prepare an updated budget for the Base Building Improvements, each for approval by Landlord and Tenant. Design Development Documents shall include architectural, mechanical and electrical drawings and details of the Building, exterior materials to be incorporated in the Building, walkways and other plaza areas on the Lot, a site and landscape plan for the Lot showing all site development and landscape detail for lighting, paving, landscaping, utilities, grading, drainage, access and service areas. The Design Development Documents shall also include outline specifications indicating all basic materials and mechanical and electrical systems of the proposed Base Building Improvements. As with the Schematic Development Documents, the Design Development Documents shall be prepared and distributed in both hard copy and electronic format.

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        At such time as the Design Development Documents have been approved by Landlord and Tenant, Landlord shall cause (i) Landlord's Architect to prepare detailed construction drawings and specifications ("Final Design Documents") which shall set forth in detail the requirements for construction of Landlord's Work (including all architectural, mechanical, electrical and structural drawings and detailed specifications), shall be fully coordinated with one another and with field conditions as they exist on the Lot, shall show all work necessary to complete Landlord's Work, including all cutting, fitting, and patching and all connections to the mechanical and electrical systems and components of the Base Building Improvements, and shall include calculations of the gross floor area and the Rentable Square Footage of the Base Building Improvements and (ii) the Construction Cost Estimator, based upon such Final Design Documents, to prepare an updated budget for the Base Building Improvements, each for approval by Landlord and Tenant. The Final Design Documents shall be used for the construction of the Base Building Improvements and shall be based upon the Design Development Documents and other information which is relevant to the design and construction of the Base Building Improvements. The Final Design Documents shall be prepared and stamped by Landlord's Architect. The Preliminary Design Concept, the Schematic Design Documents and the Final Design Documents (collectively, the "Design Documents") shall not include any of Tenant's Work (as hereinafter defined). As used herein, the term "Base Building Improvements" shall mean the items of work and materials to be performed and supplied by Landlord in accordance with the Final Design Documents as affected by Change Orders (as such term is hereafter defined) and the term "Landlord's Work" shall mean the construction of the Base Building Improvements in accordance with the Final Design Documents as affected by Change Orders.

        The preliminary and final Schematic Design Documents, the preliminary and final Design Development Documents, and the Final Design Documents shall be submitted to both Landlord and Tenant for review and comment in accordance with the dates and requirements included in the Progress Schedule, which shall be incorporated, to the extent applicable, in the Architect's Contract. In each instance both parties shall have until the respective completion dates set forth in the Progress Schedule to review each submission and to notify the other party of approval or disapproval. Tenant may disapprove any new items shown on a submission which are not in compliance with (i) the Preliminary Design Concept with regard to the Schematic Design Documents, (ii) the Schematic Design Documents with regard to the Design Development Documents, or (iii) the Design Development Documents with regard to the Final Design Documents, specifying and detailing in each case such objections. To the extent that any such submission is consistent with prior submissions approved by Tenant, such submission shall be approved by Tenant, provided however, that Tenant shall have the right, with Landlord's approval, to make modifications as set forth in the next sentence hereof. Tenant, with the approval of Landlord, which approval shall not be unreasonably withheld, conditioned or delayed, shall have the right to modify the design of the Base Building Improvements at any time during the design process contemplated hereby, provided that if as a result of any such design change (a) any particular Design Document submission is not approved by the applicable completion date set forth on the Progress Schedule, or (b) any such design change delays the Substantial Completion Date, such lack of approval or design change shall constitute a Tenant Delay for purposes of Section 3.2. In the event Tenant shall fail to object to any Design Documents submissions by the applicable completion date for such submission set forth in the Progress Schedule, provided that Tenant had received such submission not less than five (5) business days prior to the applicable completion date, such failure shall constitute a Tenant Delay for purposes of Section 3.2. If Tenant objects to any such submission because such submission is inconsistent with the prior submission approved by Tenant, Landlord shall cause Landlord's Architect to modify such submission to respond to Tenant's objection and submit such modified submission to Tenant within five (5) business days after receipt of Tenant's objections for approval by Tenant in the same manner as with regard to the prior submission. Rejection of new items included in any submission that are inconsistent with the approvals given for prior design phases shall not give rise to a Tenant Delay so long as the initial rejection was delivered within the dates established

17

in the Progress Schedule, as modified. Landlord and Tenant agree to cooperate with one another diligently and in good faith so as to complete the review and approval of all Design Document submission by the applicable completion dates set forth in the Progress Schedule.

        Upon approval of the Final Design Documents, Landlord shall solicit bids from general contractors or construction managers mutually identified by Landlord and Tenant by the date set forth in the Progress Schedule. Landlord and Tenant shall mutually determine whether such bids shall be submitted on the basis of a guaranteed maximum or fixed price contract basis. Upon receipt of bids from such general contractors or construction managers, Landlord and Tenant shall mutually select Landlord's Contractor from among such bidders and thereupon Landlord shall enter into a contract (the "Construction Contract") with Landlord's Contractor for construction of the Base Building Improvements. The parties acknowledge that if Landlord and Tenant have agreed to hire the Construction Cost Estimator to serve as Construction Manager/General Contractor for the Building, instead of soliciting bids from general contractors or construction managers as described above, such Construction Manager shall instead be required to solicit bids from all subcontractors, and in such case Landlord and Tenant shall be entitled to approve the subcontractors selected by the Construction Manager and require Landlord's Contractor to enter into such subcontracts. The Construction Contract shall be subject to Tenant's prior approval, which approval shall not be unreasonably withheld, conditioned or delayed. If, after such bids are received, none of such bids is acceptable to Tenant and/or Tenant seeks any change in previously approved Design Documents, and as a result thereof Tenant fails or refuses to approve the Final Project Budget (as hereinafter defined) by the date set forth in the Project Schedule, such failure or refusal shall constitute a Tenant Delay. Additionally, Tenant shall have no right to withhold approval of any general contractor bid or any subcontractor bid if the total amount of all such bids does not exceed by more than fifteen percent (15%) the estimated amount thereof set forth in the preliminary budget for Project Cost or the updated budget for Project Cost, as the case may be, then most recently approved by Landlord and Tenant.

        As used in this Lease, the term "Project Cost" shall mean (i) all hard costs and soft costs incurred by Landlord in connection with the construction of the Base Building Improvements as reflected in a final project budget (the "Final Project Budget") to be mutually approved by Landlord and Tenant based upon, inter alia, all amounts payable by Landlord pursuant to the Architect's Contract and the Construction Contract, and including all liabilities and expenses of all architectural and engineering services relating to Landlord's Work, appropriate amounts for the other line item categories set forth on the Project Budget form attached hereto as Exhibit B-1 (the "Project Budget Form"), (ii) the net amount of all Change Orders (as hereinafter defined), (iii) a pro-rata portion of all "Mitigation Expenses" (as such term is hereafter defined) incurred by Landlord or any Affiliate of Landlord pursuant to the Development Approvals and the Subsequent Approvals (as such terms are defined in Section 3.1.4 hereof), which pro-rata portion shall be equal to the ratio of the gross floor area of the Building (as such gross floor area is determined pursuant to the Cambridge Zoning Ordinance) to 1,313,000 square feet (being the maximum amount of gross floor area, determined pursuant to the Cambridge Zoning Ordinance, permitted to be developed in the Complex pursuant to the PUD Approval (as such term is defined in Section 3.1.4 hereof) except as hereinafter set forth and (iv) taxes and assessments for the Building and Lot, utility and insurance costs for the Building and Lot and all other operating and maintenance costs for the Building and Lot, in each case incurred by Landlord for the period from the Substantial Completion Date through the Term Commencement Date. The term "Mitigation Expenses" shall mean all capital expenses for housing linkage payments and public open space linkage payments required pursuant to the PUD Approval with respect to the Building, costs of traffic mitigation required by the Development Approvals and Subsequent Approvals and infrastructure improvements for the Complex required by the Development Approvals and Subsequent Approvals. Tenant's pro-rata share of capital expenses for housing linkage payments and public open space linkage payments required pursuant to the PUD Approval with respect to the Building shall be equal to the ratio of the Rentable Square Footage of Premises to the Rentable Square Footage of Building. For

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purposes of determining Project Cost, the line item amount for Land and Environmental Remediation shall be fixed at $60.00 per r.s.f. regardless of the actual cost of such line item; Project Cost shall not include any amount for construction of the Garage (as hereinafter defined) or for the leasing of (or the making of any tenant improvements to) the Expansion Spaces to tenants; the developer's fee shall be fixed at five percent (5%) of Project Cost (exclusive, however, of the line item amounts for Land and Environmental Remediation, Development Fee/Supervision (the "Developer's Fee") and Interest on Landlord's Equity (as such term is hereinafter defined)); the broker's fee shall not exceed $7.50 per r.s.f. and no amount shall be included in Project Cost for general or administrative expenses of Landlord or for improvements to the Retail Space in excess of the cost of Base Building Improvements related thereto, and no amount shall be included in Project Cost for any interest, charges or fees paid or payable by Landlord with respect to any construction loan financing for the Project. Project Cost shall include an amount determined by multiplying all components of the Project Cost (exclusive, however, of the line item for the Developer's Fee) by twelve percent (12%) per annum for the period commencing as of the date the cost of each such component is incurred through and including the Term Commencement Date (as so determined, "Interest on Landlord's Equity"), it being understood and agreed by Landlord and Tenant that Interest on Landlord's Equity with respect to any component of Project Cost that Landlord has acquired, purchased or incurred prior to the date of execution of this Lease, such as the cost of the Land & Environmental component of the Project Cost, shall be deemed to begin to accrue, not as of the date that the cost was actually incurred, but rather as of the execution date of this Lease. Landlord shall account for all Project Costs on a so-called "open book" basis. Within ninety (90) days after the Substantial Completion Date, Landlord shall deliver to Tenant a full accounting of the Project Cost incurred as of the Substantial Completion Date; Tenant, from the date hereof through the date which is twelve (12) months after receipt of such full accounting of Project Cost, may review all of Landlord's books and records relating to the incurrence and payment of the Project Cost in order to verify and confirm the accuracy thereof. If Landlord incurs any cost or expense properly includable in Project Cost after the Substantial Completion Date (including, without limitation, any Mitigation Expenses) which is not included in the full accounting, Landlord shall notify Tenant thereof and Landlord shall provide Tenant with such documentation with respect thereto as Tenant reasonably may request. Landlord and Tenant acknowledge and agree that the incurrence of additional costs and expenses by Landlord after the Substantial Completion Date which are properly includable in Project Cost will result in an increase in the Annual Fixed Rent Rate, which increase shall be effective as of the date of incurrence thereof.

        Tenant shall have the right (but not the obligation) to offer to finance up to twenty percent (20%) of the Project Cost as hereinafter provided ("Tenant Financing"). If Tenant shall desire to offer Tenant Financing, Tenant shall give Landlord written notice ("Financing Notice") of such offer not later than thirty (30) days after Landlord and Tenant have agreed upon the first preliminary Project Budget; such Financing Notice shall specify the amount (the "Tenant Financing Amount") and other financial terms of such Tenant Financing described below. Delivery by Tenant of a Financing Notice shall constitute a representation by Tenant that it has the capacity to provide such Tenant Financing.

        If Tenant offers to provide Tenant Financing and all of the terms and conditions thereof, including without limitation, all documents evidencing and securing Tenant Financing, are acceptable to Landlord and its construction and/or permanent lenders, in their respective sole discretion, Tenant shall make a loan to Landlord for an amount equal to the Tenant Financing Amount. The Financing Notice shall specify the interest rate per annum payable on such Tenant Financing loan and the repayment schedule (interest only until maturity; or payments of principal and interest based upon the amortization period specified by Tenant in the Financing Notice), which interest rate and repayment schedule shall be subject to Landlord acceptance or rejection. Such Tenant Financing loan shall be due and payable not later than the scheduled expiration date of the initial Term of the Lease, and shall be secured by a mortgage on the Lot and Building, which mortgage shall be subject and subordinate to the lien of any mortgage granted to any lender now or hereafter providing Landlord with construction and/or

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permanent financing ("Landlord's Project Financing"). The amount by which the Project Cost exceeds the Tenant Financing Amount is herein referred to as the "Landlord Project Cost Portion". Tenant agrees that upon any uncured Event of Default hereunder, Landlord shall be entitled to offset against any payments due under the Tenant Financing loan any amount owed by Tenant to Landlord pursuant to this Lease. In addition, Tenant agrees that it will enter into any intercreditor agreement (which may include typical subordinate lender standstill agreements) requested by any lender providing Landlord's Project Financing. Tenant shall disburse the proceeds of such Tenant Financing loan to Landlord on the Commencement Date, and Landlord shall apply such proceeds to pay down Landlord's Project Financing by the Tenant Financing Amount.

        If Tenant provides Tenant Financing as aforesaid, the definition of Annual Fixed Rent Rate set forth in Section 1.1 shall be deemed to be revised to read as follows:

        Subject to Sections 4.1(b), 10.11 and 10.12 thereof, an amount equal to (a) the sum of (i) the product of (x) the Landlord Project Cost Portion multiplied by (y) twelve percent (12%) plus (ii) the product of (x) the Tenant Financing Amount multiplied by (y) the Tenant Financing interest rate per annum payable on the Tenant Financing (or debt service constant if Tenant elects to have the Tenant Financing amortized), divided by (b) the Rentable Square Footage of the Building.

3.1.2    Change Orders.

        Tenant and Landlord recognize that it may be necessary or advisable to make certain changes to the Final Design Documents or the Base Building Improvements from time to time. Any changes shall be made in accordance with this Lease.

        (a)   In the event that Tenant shall request or authorize any Change Order (as hereinafter defined) or additional services from Landlord with respect to the Base Building Improvements for the purpose of upgrading or changing the scope, manner of performance, or quality of the Base Building Improvements, including any change of design, subcontractor, supplier or materials made at the request of Tenant, such Change Order when implemented by Landlord may result in a change in the Progress Schedule and/or the Project Cost. As used herein, the term "Change Order" shall mean (A) a written order from Landlord which Landlord determines is necessary to carry out the approved design and construction of the Base Building Improvements, whether due to any mistake or omission in, or clarification of, the Design Documents, or (B) a written order to Landlord from Tenant requesting or authorizing a Change in Landlord's Work or an adjustment of the Project Cost or the Progress Schedule. Landlord shall provide Tenant with copies of all proposed and final Change Orders. In addition: subject to the last sentence of this Subparagraph (a), (i) with respect to additive Change Orders, the Project Cost shall be increased by an amount equal to the change in the cost of Landlord's Work (as determined pursuant to the Construction Contract and/or the Architect's Contract) attributable to such Change Order, and (ii) with respect to deductive Change Orders, the Project Cost shall be reduced by the change in the cost of Landlord's Work (as determined pursuant to the Construction Contract and/or the Architect's Contract) attributable to such Change Order. Additive or deductive Change Orders shall result in an increase or decrease, respectively, in the Developer's Fee (but not in any change of the percentage thereof), and Landlord shall be reimbursed by Tenant, either directly or through an increase or decrease, as applicable, in the Project Cost, for the actual cost of overhead and profit, if any, which Landlord is required to pay to Landlord's Contractor on account of any additive Change Order as set forth in the Construction Contract approved by Tenant and Landlord. Anything herein to the contrary notwithstanding, Tenant's approval of a Change Order shall be

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required for each of the following, which approval shall not be unreasonably withheld, conditioned or delayed:

        (1)   A change in the rentable square footage of the Premises by more than four percent (4%) in the aggregate;

        (2)   A change in the rentable square footage of any floor included within the Premises by more than five percent (5%) in the aggregate;

        (3)   Any material change in the elevator systems or mechanical or electrical systems serving the Premises with the result that such systems would be significantly different than those shown on the Final Design Documents;

        (4)   Any material change in standard structural floor load capacities from those shown on the Final Design Documents;

        (5)   Any material change in the quality of materials and fixtures used in the lobby of the Building, passenger elevator cabs serving the Premises, or washrooms serving the Premises with the result that the same would be significantly different from to those shown on the Final Design Documents;

        (6)   Any change in the exterior design or appearance of the Building; or

        (7)   Any individual Change Order which increases the Project Cost by more than $500,000.00.

        (b)   If Tenant requests or requires any Change Order for the Base Building Improvements, Landlord shall submit all such Change Orders with plans, specifications, pricing and a schedule of values if appropriate to Tenant for its review and approval, which approval shall not be unreasonably withheld, delayed or conditioned. No Change Order for the Base Building Improvements requested by Tenant shall be effective unless approved by Landlord's Representative and Tenant's Construction Representative in writing, such approval not to be unreasonably withheld, delayed or conditioned. Tenant may withdraw any Change Order requested by Tenant at any time prior to Tenant's Construction Representative having given its approval to such Change Order. Promptly, but not later than ninety (90) days after the Term Commencement Date, Landlord shall deliver a set of as built plans and operating and maintenance manuals for the Base Building Improvements to Tenant.

3.1.3    Environmental Remediation.

        Landlord shall be responsible for undertaking and completing environmental remediation of the Lot ("Environmental Remediation") pursuant to an Environmental Agreement (the "Environmental Agreement") between Landlord and Tenant in the form of Exhibit E hereto. Landlord has delivered to Tenant the documents set forth on Exhibit E-1 hereto (the "Remediation Documents") and Landlord will provide Tenant with such additional information pertaining to Environmental Remediation and hazardous substances present on other portions of the Lot as Tenant reasonably may request, including correspondence with regulatory authorities and other governmental bodies with respect to the Environmental Remediation. Landlord will provide Tenant with notice of any circumstances relating to the Environmental Remediation which could delay the Substantial Completion Date, as affected by any Tenant Delay, by more than thirty (30) days.

3.1.4    Development Approvals and Title Exceptions.

        Reference is hereby made to (i) a Special Permit issued by the City of Cambridge Planning Board (the "Planning Board"), Case No. PB #141 filed April 7, 1999 (the "PUD Permit"), recorded with the Middlesex South District Registry of Deeds (the "Registry") in Book 31137, Page 89 as affected by a Settlement Agreement dated May 24, 1999 among Barbara Broussard, Mary DeFreitas, the East Cambridge Planning Team and Landlord (the "Settlement Agreement") (the PUD Permit and the

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Settlement Agreement are herein collectively referred to herein as the "PUD Approval"), (ii) PTDM Ordinance Final Decision issued April 20, 1999 by the Community Development Department ("CDD") of the City of Cambridge (the "PTDM Decision"), the Letter dated April 20, 1999 to Robert L. Green of Lyme Properties from Susanne Rasmussen of the CDD (the "PTDM Letter") attached to the PTDM Decision, and Landlord's Parking Transportation Demand Management Plan dated April 9, 1999 (the "PTDM Plan") (the PTDM Decision, the PTDM Letter and PTDM Plan are collectively referred to herein as the "PTDM Approval"), (iii) a Certificate of the Secretary of Environmental Affairs on the Final Environmental Impact Report dated April 15, 1999 (the "MEPA Certificate"), (iv) an Order of Conditions issued July 12, 1999 by the City of Cambridge Conservation Commission (the "Order of Conditions") and (v) a Determination for Issuance of a Waterways License Amendment dated December 8, 1999, issued by the Executive Office of Environmental Affairs of the Commonwealth of Massachusetts (the "Chapter 91 Determination"), (collectively, the "Development Approvals"). Reference is also hereby made to Item Nos. 2 through 12, inclusive (the "Title Exceptions") set forth in Schedule B, Part 1 of Owner's Policy No. 136-00-336684 dated August 19, 1998, issued by Lawyer's Title Insurance Corporation (the "Title Policy"). Tenant acknowledges that Landlord has delivered to Tenant copies of the Development Approvals, the Title Exceptions and the Title Policy. This Lease, and the development, construction and operation of the Building, the Lot and the Complex, shall be subject to the Development Approvals, the license to be issued pursuant to the Chapter 91 Determination, the Title Exceptions and all other determinations, approvals, decisions and actions of governmental authorities having jurisdiction of the Complex hereafter issued pursuant to or contemplated by the Development Approvals and delivered to Tenant ("Subsequent Approvals"). Each of Landlord and Tenant, in the exercise of their respective rights and the performance of their respective obligations pursuant to this Lease, shall observe and comply with all requirements of the Development Approvals and Subsequent Approvals. Landlord, however, shall not enter into any Subsequent Approval which will materially and adversely decrease the amount of parking spaces available at the Complex.

        Without limiting the generality of the foregoing, to the extent required for compliance with the PUD Permit and the PTDM Approval, as the same may be affected by Subsequent Approvals (but only for so long as the same remain in force and effect from time to time), Tenant shall comply with the following: (a) Tenant shall comply with the obligations of the PTDM Approval applicable to tenants, employers and/or employees in the Complex, (b) Tenant shall cooperate with Landlord in the implementation of the Additional Recommendations set forth in the PTDM Letter if the mode split goal of the PTDM Approval is not achieved, (c) Tenant shall cooperate with Landlord and/or the Charles River Transportation Management Association or any other transportation management association of which Landlord is a member (a "TMA") in implementing the PTDM Approval and TMA programs (and Tenant is hereby encouraged to participate in all TMA programs), (d) Tenant shall establish a guaranteed ride home program for Tenant's employees as provided in the PUD Approval and the PTDM Approval, as the same may be affected by Subsequent Approvals, (e) Tenant shall, either directly or through a program established by Landlord or a TMA for tenants of the Complex, complete surveys pursuant to Section III D of the PTDM Plan, (f) as required by the PUD Approval and PTDM Approval, as the same may be affected by Subsequent Approvals, Tenant shall contract with the MBTA and subsidize transit passes and commuter rail passes in an amount not less than 60% of the cost thereof or such higher percentage as Landlord may require if mode split commitments are not achieved, (g) as provided in the PTDM Approval, as the same may be affected by Subsequent Approvals, Tenant shall cooperate with Landlord in connection with surveys concerning attitudes of employees and customers of Tenant in order to refine and develop transportation demand management programs, (h) Tenant shall provide Tenant's employees with information provided to Tenant by or on behalf of Landlord pursuant to the PTDM Plan, including information on the advantages and benefits of telecommuting, flexible time, compressed work week programs, the materials to be provided pursuant to Section VII A of the PTDM Plan and other programs recommended by the City of

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Cambridge, (i) as provided in the PTDM Approval, as the same may be affected by Subsequent Approvals, Tenant is hereby encouraged to use a commuter choice program which allows qualifying employees the option of receiving the cash value of a Tenant's Parking Space, (j) Tenant shall participate in and pay a reasonable share (which shall not be less than Tenant's Proportionate Fraction for Complex) of the cost of any TMA shuttle bus service serving the Complex, as contemplated by the PTDM Approvals, and (k) Tenant shall cooperate with Landlord with respect to all other aspects of the PTDM Approval.

3.2    PREPARATION OF PREMISES FOR PERFORMANCE OF TENANT'S WORK.

        During the course of performance of Landlord's Work, Landlord and Tenant shall meet on not less than a monthly basis to review the progress of Landlord's Work. Landlord agrees to use reasonable and diligent efforts to have the Premises ready for the performance of Tenant's Work on or before the Scheduled Substantial Completion Date which Substantial Completion Date shall, however, be extended for a period equal to that of (a) any delays due to Acts of God, labor disputes or unrest, riots, fire, unusual delays in deliveries, casualties or other causes beyond Landlord's reasonable control (collectively, "Force Majeure Events") and (b) any delays due to (i) any Change Order, (ii) any act, omission or neglect of Tenant, or of any employee, agent, or separate contractor of Tenant, (iii) the concurrent performance of the Base Building Improvements and Tenant's Work, (iv) Tenant's failure to furnish information or approve any of the Design Documents, the Architect's Contract, the Construction Contract or the Project Cost by the applicable dates set forth in the Progress Schedule or to respond to any request by Landlord for information or approval within the time period required by the Progress Schedule, or if no time period is required by the Progress Schedule, within five (5) business days of Landlord's request, or (v) any breach or default by Tenant in the performance of Tenant's obligations pursuant to this Lease, even if such breach or default is cured (collectively, "Tenant Delay"). In the event of any such Force Majeure Event, Landlord shall use reasonable efforts to eliminate the cause of such delays or to secure alternate supplies. If any one or more Force Majeure Events shall delay the Substantial Completion Date by more than one hundred eighty (180) days, either Landlord or Tenant may terminate this Lease upon not less than fifteen (15) days prior written notice to the other. A Tenant Delay shall not affect the Substantial Completion Date unless Landlord has given Tenant notice thereof and Tenant fails to cure the same within two (2) business days, provided, however, that Landlord shall not be required to provide Tenant with any notice or opportunity to cure with respect to any date set forth in the Progress Schedule by which Tenant must take any action, and any failure or refusal by Tenant to take such action by any such date set forth in the Progress Schedule, which failure or refusal in fact results in a delay, shall constitute a Tenant Delay. As used herein, the term "Substantial Completion Date" shall mean and refer to the date on which: (i) the Base Building Improvements have been substantially completed in accordance with the Final Design Documents, as affected by Change Orders, without material deviation therefrom as certified by Landlord's Architect and confirmed by Tenant's Architect, which confirmation shall not be unreasonably withheld, delayed or conditioned, with the exception of minor items which can be fully completed by Landlord within thirty (30) days without material interference with Tenant and other items which because of the season or weather or the nature of the item are not practicable to do at the time, provided that none of said items is necessary to perform Tenant's Work (collectively "Punch List Items"), (ii) if Tenant's Work has not then commenced, a Certificate of Occupancy from the City of Cambridge (or a Temporary Certificate of Occupancy with conditions which can be satisfied without material interference with the performance of Tenant's Work) shall have been obtained, (iii) the Premises are broom clean and free of debris except to the extent, if any, resulting from Tenant's Work, and (iv) all utilities required for the use of the Premises have been brought by Landlord to the location(s) shown on the Final Design Documents, as the same may be affected by Change Orders; provided, however, that if the Substantial Completion Date does not occur on or before the Scheduled Substantial Completion Date due to any Tenant Delay, then solely for purposes of determining the Commencement Date under Section 2.2 and

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other applicable provisions of this Lease, the Base Building Improvements shall be deemed to be substantially completed, and the Substantial Completion Date shall be deemed to have occurred, on the date on which the Substantial Completion Date would have occurred taking into account any Force Majeure Events but without taking into account any Tenant Delay. If Landlord's Architect has certified that the Base Building Improvements are substantially complete but Tenant's Architect does not confirm the same within five (5) business days thereafter, Landlord's Architect and Tenant's Architect shall immediately select a third independent architect who shall conclusively determine whether the Base Building Improvements are substantially complete. Landlord and Tenant shall share equally the costs of such third architect. Landlord's Work shall be deemed to have been performed as of the date on which the Base Building Improvements are substantially complete (as certified by Landlord's Architect and confirmed by Tenant's Architect or such independent architect) except for latent defects, Punch List Items and items which do not conform with the requirements of the Final Design Documents, as affected by Change Orders, and as to which Tenant or Tenant's Architect shall have given written notice to Landlord prior to such date. If Tenant or Tenant's Architect does not provide such written notice prior to the date on which the Base Building Improvements are substantially complete, a certificate of substantial completion by a licensed architect or registered engineer shall be conclusive evidence that Landlord has performed all such obligations except for latent defects, Punch List Items and items stated in such certificate to be incomplete or not in conformity with such requirements. Landlord shall use reasonable and diligent efforts to complete Punch List Items within thirty (30) days after the Substantial Completion Date and in a manner which will not unreasonably interfere with the performance of Tenant's Work (as defined in Section 3.2.1 hereof). Landlord represents that Landlord has the capacity to effect financial arrangements to enable Landlord to complete Landlord's Work, and to otherwise enable Landlord to fulfill all of its obligations under this Lease. After the commencement of construction of Landlord's Work, Landlord shall furnish to Tenant, at Tenant's request, a copy of the portions of Landlord's financing commitment for construction of the Building confirming the availability of construction financing therefor. Tenant agrees to observe any reasonable limitations on dissemination thereof to others that Landlord may impose.

        Notwithstanding the foregoing, (A) if Landlord has not commenced the Environmental Remediation of the Lot by the date set forth in the Progress Schedule, (B) if Landlord has not filed a Response Action Outcome Statement (as such term is defined in the Massachusetts Contingency Plan, 310 CMR 40.0000 et seq., as amended ("MCP")) for the Lot by the date set forth in the Progress Schedule, (C) if a building permit for the Base Building Improvements has not been issued by the date set forth in the Progress Schedule, (D) if construction of the Base Building Improvements has not commenced by the date set forth in the Progress Schedule (each of the foregoing being referred to as a "Landlord Milestone Date"), Tenant shall have the right to terminate this Lease as hereinafter set forth. Upon request of Tenant, Landlord shall provide such evidence as Tenant reasonably may request to evidence achievement of each Landlord Milestone Date. Each of the Landlord Milestone Dates shall be extended by one business day for each day of Tenant Delay occurring before a respective Landlord Milestone Date. If Landlord is in default with respect to any Landlord Milestone Date, as extended as aforesaid by any Tenant Delay, Tenant shall notify Landlord within five (5) business days thereof. If Landlord does not cure the default or alleged default within thirty (30) business days after receipt of such notice, Tenant, upon written notice, may thereupon terminate this Lease.

        If the Garage and the streets and roadways of the Complex necessary for access to the Building and Garage are not substantially complete by the date of substantial completion of Tenant's Work to be performed in connection with Tenant's initial occupancy of the Premises then Tenant, as Tenant's sole remedy, shall receive a credit against the initial and succeeding payments of the Parking Fee due hereunder, until such credit is fully exhausted, equal to two day's Parking Fee (for all of Tenant's Garage Parking Spaces or for such number of Tenant's Garage Parking Spaces as may be unavailable, as applicable) for each day from substantial completion of Tenant's Work until the Garage and such street and roadway work are substantially complete.

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        In the event Landlord's Work shall not be substantially completed by the Scheduled Substantial Completion Date specified in Section 1.1 (as and to the extent such Scheduled Substantial Completion Date may be extended by Tenant Delays and delays caused by Force Majeure Events), then after the Term does commence, Tenant, as Tenant's sole remedy, shall receive a credit against the initial and succeeding payments of Annual Fixed Rent due hereunder, until such credit is fully exhausted, equal to one day's Annual Fixed Rent for each day from the Scheduled Substantial Completion Date (as so extended) until the date that Landlord's Work is substantially completed.

        In the event Landlord's Work shall not be substantially completed within one hundred eighty (180) days after the Scheduled Substantial Completion Date (as and to the extent such Scheduled Substantial Completion Date may be extended by Tenant Delays and delays caused by Force Majeure Events) (such 180^th day is referred to herein as the "Outside Completion Date"), Tenant may at any time thereafter, but prior to Landlord's Work being substantially completed, notify Landlord of Tenant's election to terminate this Lease. Tenant shall give Landlord no less than thirty (30) days' prior notice of Tenant's intention to terminate this Lease before notifying Landlord of Tenant's election to terminate this Lease; it being understood and agreed, however, that Tenant may give notice of such intention as early as thirty (30) days prior to the Outside Completion Date.

3.2.1.    Performance of Tenant's Work.

        Except for the Base Building Improvements to be performed by Landlord in accordance with the Design Documents, all of Tenant's initial interior improvements, fixtures, finishes, furnishings, furniture, telephones, movable equipment and signs (collectively, "Tenant's Work"), shall be performed and provided at the sole cost and expense of Tenant. Tenant's performance of Tenant's Work shall be coordinated with any work being performed by Landlord and/or by any Affiliate of Landlord in the Building, on the Lot or in the Complex in such manner as to maintain harmonious labor relations during the performance of Landlord's Work (which Landlord expects will be performed by union contractors) and thereafter and not to damage the Building or Lot or interfere with Building or Lot operations or with any work being performed by or on behalf of Landlord or any Affiliate of Landlord in the Complex. All work described in Tenant's Work shall be performed by an Approved Contractor. For purposes of this Lease, an "Approved Contractor" shall mean a contractor or mechanic identified by Tenant in writing, who has been approved by Landlord in writing (such approval not to be unreasonably withheld, delayed or conditioned). Contractors may be approved in one of two ways. First, Tenant may submit to Landlord in writing from time to time a list (or a revised list) of contractors that Tenant anticipates using from time to time to perform Tenant's Work. If Landlord fails to object to any of the contractors identified on such list within ten (10) days after receipt of such list from Tenant, all contractors identified on such list shall be deemed "Approved Contractors". Second, Tenant may submit to Landlord from time to time requests for Landlord to approve specific contractors (not already on the list of Approved Contractors) to perform Tenant's Work. Landlord shall have the right, upon written notice to Tenant to withdraw its approval of any previously Approved Contractors at any time for any cause as determined in Landlord's reasonable judgment. A contractor's failure to provide or maintain adequate insurance levels shall be a reasonable basis for Landlord to withhold or withdraw approval unless Tenant notifies Landlord in writing that such contractor shall be covered by insurance then being maintained by Tenant and if Tenant provides documentary evidence that said Contractor is covered and of the amount of coverage. Additionally, Landlord may withhold or withdraw approval of any contractor proposed by Tenant or previously approved by Landlord to perform any Tenant's Work if Landlord determines, in Landlord's sole but reasonable discretion, that any contractor proposed or previously approved by Landlord by Tenant for the performance of any Tenant's Work does not have a sufficient bonding capacity or may cause picketing, labor unrest, strikes, protests or similar activities (collectively "Labor Unrest"). If after approval of an Approved Contractor by Landlord, any Labor Unrest shall occur or be threatened on account of any Tenant's Work, Landlord shall have the right to require cessation of Tenant's Work until resolution of such Labor Unrest. Except

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as set forth in Sections 3.2.1 and 5.1.10 hereof, all initial Tenant's Work which may constitute a fixture, part of the real estate, a part of a Building system or Building utilities shall become a part of the Premises and upon termination of this Lease shall be considered to be the property of the Landlord.

        Unless Tenant agrees to readapt the Premises for a typical general office layout prior to the expiration or termination of the Lease, Tenant shall not effect any Tenant's Work (or any alterations or additions to the Premises after performance of the initial Tenant's Work) that might require any unusual expense to reuse the Premises for any general office use.

        Tenant's Work shall be performed in accordance with complete, consistent, final construction drawings and specifications ("Construction Documents") approved by Landlord in writing, which approval shall not be unreasonably withheld, conditioned or delayed. The Construction Documents shall be prepared and stamped by Tenant's Architect. Landlord reserves the right to reject, in whole or in part, any or all of the Construction Documents which in its reasonable opinion fail to comply with Sections 3.2.1, 3.3 and 5.1.5 of this Lease within fifteen (15) business days of its receipt thereof (the "Review Period"). The Review Period shall not commence unless and until Tenant delivers a complete set of Construction Documents. If Landlord shall disapprove the Construction Documents, it shall state specifically the reasons therefor, and Tenant shall promptly revise and resubmit the Construction Documents. If Landlord fails to respond to Tenant's request for approval of the Construction Documents within the Review Period, then the Construction Documents shall be deemed approved. Upon completion of Tenant's Work to prepare the Premises for Tenant's initial occupancy, Tenant shall provide Landlord with a set of as-built plans, and operating and maintenance manuals therefor.

        Tenant shall be solely responsible for the liabilities of and expenses of all architectural and engineering services relating to Tenant's Work and for the adequacy, accuracy, and completeness of the Construction Documents approved by Landlord. The Construction Documents (i) shall set forth in detail the requirements for construction of the Tenant's Work (including all architectural, mechanical, electrical and structural drawings and detailed specifications), (ii) shall be fully coordinated with one another and with field conditions as they exist in the Premises and elsewhere in the Building, and (iii) shall show all work necessary to complete the Tenant's Work including all cutting, fitting, and patching and all connections to the mechanical and electrical systems and components of the Building. Tenant agrees to indemnify and hold Landlord harmless if any Tenant's Work described in the Construction Documents (a) fails to comply with all applicable laws, regulations, building codes, building design standards, the Development Approvals and Subsequent Approvals, (b) in any manner affects any structural component of the Building (including, without limitation, exterior walls, exterior windows, core walls, roofs or floor slabs), (c) in any respect is incompatible with the electrical and mechanical components and systems of the Building, (d) affects the exterior of the Building, (e) fails to conform to floor loading limits, and (f) with respect to all materials, equipment and special designs, processes or products, infringes any patent or other proprietary rights of others. Landlord's approval or deemed approval of the Construction Documents and the performance of Tenant's Work pursuant to the Construction Documents shall not result in any liability of Landlord, and Landlord's approval of Construction Documents shall signify only Landlord's consent to Tenant's Work shown thereon and shall not result in any responsibility of Landlord concerning compliance of Tenant's Work with laws, regulations, or codes, coordination of any aspect of Tenant's Work with any other aspect of Tenant's Work, or the feasibility of constructing Tenant's Work without material damage or harm to the Building, all of which shall be the sole responsibility of Tenant.

        If Tenant enters into a contract with Landlord's Contractor for the performance of Tenant's Work to prepare the Premises for Tenant's initial occupancy, Landlord agrees that Tenant shall have a license to enter the Premises at such time or times prior to the Term Commencement Date as Landlord, in its sole but reasonable discretion, may permit to enable Tenant to carry out Tenant's Work. Upon any such entry by Tenant prior to the Term Commencement Date, Tenant shall be subject to, and perform all of

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its obligations under this Lease except for the obligation to pay Rent, which obligation shall not arise until the Term Commencement Date occurs.

        An Approved Contractor may be used by Tenant until Landlord notifies Tenant that an Approved Contractor is no longer approved due to such Approved Contractor's failure to comply in any material respect with the requirements of the Construction Documents and/or this Lease. Tenant shall procure all necessary governmental permits, licenses and approvals before undertaking any Tenant's Work. When any Tenant's Work is in progress, Tenant shall cause to be maintained insurance as may be required by Landlord covering any additional hazards due to such Tenant Work, for the benefit of Landlord. It shall be a condition of Landlord's approval of any Tenant's Work that certificates of such insurance issued by a responsible insurance company qualified to do business in Massachusetts and having a Best's Insurance Rating of A- or better, shall have been deposited with Landlord, that Tenant has provided Tenant's certification of the insurable value of the work in question for casualty insurance purposes, and that all of the other conditions of the Lease have been satisfied. Tenant shall reimburse Landlord for up to $25,000 of the reasonable, out-of-pocket, third party costs of reviewing proposed Construction Documents and Tenant's Work and inspecting installation of the same. At all times while performing Tenant's Work, Tenant shall require each Approved Contractor performing Tenant's Work to comply with all applicable laws, regulations, permits and policies relating to such work. In performing Tenant's Work, each Approved Contractor shall comply with Landlord's requirements set forth in Section 3.2.1, Section 3.3, Section 5.1.5 and Section 5.2.3 hereof relating to the time and methods for such work, use of delivery elevators and other Building facilities and each Approved Contractor shall not interfere with or disrupt Landlord's Contractor. Each Approved Contractor shall in all events work on the Premises without causing labor disharmony, coordination difficulties, or delay or impairment of any guaranties, warranties or obligations of any contractors of Landlord and without causing unreasonable interference with the rights of other tenants in the Building. If any Approved Contractor uses any Building services or facilities prior to the Commencement Date, such Contractor, jointly and severally with Tenant, shall agree to reimburse Landlord for the cost thereof based on Landlord's schedule of charges established from time to time (and if no such charges have been established, then based on Landlord's reasonable charge established at the time). Tenant shall include a provision in each contract with each Approved Contractor whereby such Approved Contractor shall, by entry into the Building or onto the Lot or Complex, agree to indemnify and hold Landlord harmless from any claim, loss or expense arising in whole or in part out of any act or neglect committed by such person while in the Building or on the Lot or Complex, to the same extent as Tenant has so agreed in this Lease, which indemnities of Tenant and Approved Contractor shall be joint and several.

        Subject to Tenant's right to contest amounts due to any Approved Contractor, Tenant shall pay on or prior to date when any such payment is due the entire cost of all Tenant's Work so that the Premises shall always be free of liens for labor or materials. If any mechanic's lien (which term shall include all similar liens relating to the furnishing of labor and materials) is filed against the Premises, the Building, the Lot or the Complex or any part thereof (regardless of whether Tenant contests the same) which is claimed to be attributable to Tenant, its agents, employees or contractors, Tenant shall promptly discharge the same by payment or filing any necessary bond within thirty (30) days after Tenant has notice (from any source) of such mechanic's lien. Tenant shall prepare and complete not less than seventy-five percent (75%) of the Rentable Square Footage of Premises for Tenant's occupancy within nine (9) months after the Substantial Completion Date. If Tenant does not prepare and complete the entire Premises for Tenant's occupancy within nine (9) months after the Substantial Completion Date, Tenant shall deposit with Landlord on or before the end of such nine-month period a completion bond, letter of credit or similar security in the amount of Landlord's reasonable estimate of the cost to so complete the Premises. The form and substance of such bond, letter of credit or similar security shall be subject to Landlord's approval, which approval shall not be unreasonably withheld, conditioned or delayed.

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        After the performance of Tenant's Work to prepare the Premises for Tenant's initial occupancy, (i) all Tenant's Work shall be subject to all provisions of this Lease relating to Tenant's Work to prepare the Premises for Tenant's initial occupancy, except as expressly set forth herein, and (ii) Landlord and Tenant shall agree in writing, at the time Landlord approves any alteration or addition, whether Tenant will be required to, permitted to or forbidden to, at Tenant's sole cost and expense, remove any such alteration or addition and/or to readapt, repair or restore the Premises to substantially the condition the same were in prior to such alteration or addition upon the expiration or termination of this Lease. Landlord's approval of any alteration or addition which is not a Minor Alteration (as hereinafter defined in this Section 3.2) shall be deemed to have been given if Landlord fails to notify Tenant of its objection thereto within fifteen (15) business days after Tenant's request for such approval. In circumstances in which Tenant desires the right to remove additions or alterations at the expiration or termination of this Lease, Landlord shall reasonably agree, and such agreement shall not be unreasonably withheld, conditioned or delayed (and shall be deemed to have been given if Landlord fails to notify Tenant of its objection thereto within fifteen (15) business days after Tenant's request for such agreement), to permit such removal where items installed by Tenant are in the nature of equipment, but are so affixed to Building that such items may be construed as fixtures. Tenant's rights to remove additions or alterations hereunder shall not apply to replacement of items included in Tenant's Work that are replaced due to the fact that such items have worn out or become substantially obsolete. After the performance of Tenant's Work, all changes and additions shall be part of the Building except such items as by writing at the time of approval the parties agree either shall be removed or left by Tenant on termination of this Lease, or shall be removed or left at Tenant's election.

        Notwithstanding the foregoing, the parties hereby agree that for any non-structural alterations or additions to the Premises which do not involve modifications to the Building operating systems and for which the cost may be reasonably estimated to be less than $100,000 (each a "Minor Alteration"): (i) Landlord's prior written consent shall not be required unless such Minor Alteration requires a building permit from the City of Cambridge, in which case Landlord's reasonable consent shall be required, provided that such consent shall be deemed to have been given if Landlord fails to notify Tenant of its objection to such Minor Alteration within five (5) days after Tenant's request for Landlord's consent with respect thereto, and (ii) if Landlord's consent was not obtained therefor, upon the expiration or termination of this Lease, Tenant shall readapt, repair and restore the affected portion of the Premises to substantially the condition the same were in prior to such Minor Alteration. Additionally, Tenant shall give prior written notice to Landlord of any Minor Alteration for which the cost may be reasonably estimated to be less than $100,000 but greater than $25,000 and regardless of whether Landlord's consent is required.

        The parties further agree that after the performance of Tenant's Work to prepare the Premises for Tenant's initial occupancy (a) any request for Landlord's consent to any alteration or addition (including, without limitation, any Minor Alteration) shall be accompanied by drawings and specifications in reasonable detail given the size and scope of the proposed alteration or addition, and (b) Tenant shall furnish Landlord as-built drawings showing any and all alterations or additions (including, without limitation, any and all Minor Alterations) made by Tenant or any assignee, sublessee or licensee of Tenant within 30 days after completion of the same.

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3.3    GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION.

        All construction work required or permitted by this Lease, whether by Landlord or by Tenant, shall be done at the sole risk of the party performing such work, in a good and workmanlike manner employing new materials of good quality, and in compliance with all Development Approvals, Subsequent Approvals, applicable laws, codes, ordinances, regulations and orders of any governmental authority or insurer of the Building, including the Americans with Disabilities Act (42 U.S.C. § 12101 et seq.) and the regulations and Accessibility Guidelines for Buildings and Facilities issued pursuant thereto (collectively, the "ADA Requirements"). Either party may inspect the work of the other at reasonable times and shall give notice of observed defects. Landlord shall not be responsible for any loss, damage, or injury resulting from the installation of any components, fixtures, or equipment provided they were appropriately specified and installed in accordance with the manufacturer's or supplier's instructions; provided, however, that Landlord shall assign any and all contractor's, manufacturer's and supplier's warranties with respect to the Base Building Improvements, including, without limitation, Landlord's Contractor's warranty as set forth in the Construction Contract, to Tenant for the Term of this Lease, upon the expiration or sooner termination of which such warranties shall automatically revert to Landlord.

3.4    REPRESENTATIVES.

        Each party authorizes the other to rely in connection with their respective rights and obligations under this Article III upon approval and other actions on the party's behalf by Landlord's Representative in the case of Landlord and Tenant's Lease Representative in the case of Tenant lease matters and Tenant's Construction Representative, in the case of Tenant design and construction matters, or by any person hereafter designated in substitution or addition by notice to the party relying.

3.5    LANDLORD INDEMNITY AND CORRECTION OF LANDLORD'S WORK.

        Landlord agrees to indemnify and hold Tenant harmless if any of Landlord's Work described in the Final Design Documents (a) fails to comply with all applicable laws, regulations, building codes, building design standards, the Development Approvals and Subsequent Approvals and (b) with respect to all materials, equipment and special designs, processes or products, infringes any patent or other proprietary rights of others. If within one year after the Substantial Completion Date (i) any item of Base Building Improvements does not conform with the Final Design Documents or (ii) there is any latent defect or any other defect in the Base Building Improvements caused by faulty workmanship performed on behalf of Landlord or materials installed on behalf of Landlord, Landlord, upon written notice thereof from Tenant prior to the expiration of such one-year period, shall forthwith cause such nonconformity or defect to be corrected without cost or expense to Tenant.

ARTICLE IV

RENT

4.1    FIXED RENT.

        (a)    Monthly Installments; Definitions.    Commencing on the Commencement Date, Tenant covenants and agrees to pay Fixed Rent (as hereinafter defined) for the Premises to Landlord by wire transfer as Landlord may from time to time direct in writing, without any offset or reduction whatsoever (except as may be made in accordance with the express provisions of this Lease), or in the absence of wire transfer instructions from Landlord, at the Original Address of Landlord or at such other place or to such other person or entity as Landlord may by notice to Tenant from time to time direct, in the amount of (x) the Annual Fixed Rent Rate set forth in Article I multiplied by (y) the Rentable Square Footage of the Premises, and subject to adjustment as set forth in Sections 4.1(b),

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5.1.2, 10.11 and 10.12 hereof (collectively "Fixed Rent" or "Annual Fixed Rent"), in equal installments equal to 1/12th of the Fixed Rent in advance on the first day of each calendar month included in the Term; and for any portion of a calendar month at the beginning or end of the Term, at that rate payable in advance for such portion.

        (b)    Adjustment of Annual Fixed Rent.    On the tenth anniversary of the Commencement Date, each of the Annual Fixed Rent for the Premises (as initially demised to Tenant) determined pursuant to Section 1.1 hereof, and the Annual Fixed Rent for the Expansion Spaces as determined pursuant to Section 10.11 hereof, shall be increased by an amount determined by multiplying the Annual Fixed Rent for the first Lease Year by twenty-one and nine tenths percent (21.9%). For example, if for the first Lease Year the Annual Fixed Rent for the Premises (as initially demised to Tenant) is $5,877,350.00, such increase shall equal $1,287,139.65 and if the Annual Fixed Rent (including the TI Factor) for both the Expansion Spaces as determined pursuant to Section 10.11(c) is $1,520,500.00, such increase shall equal $332,989.50. The respective Annual Fixed Rent for the Premises (as initially demised to Tenant) and the Expansion Spaces, increased as aforesaid, shall be effective from the tenth anniversary of the Commencement Date through the end of the fifteenth Lease Year.

        (c)   Landlord shall send advance written notice to Tenant on a monthly basis of the amount of Fixed Rent and Additional Rent due pursuant to this Lease; such advance written notice shall be given not later than five (5) business days prior to the first day of each calendar month.

4.2    ADDITIONAL RENT.

        As used herein, the term "Additional Rent" shall mean all rent, charges and other sums, other than Fixed Rent, due Landlord pursuant to this Lease. All regularly recurring items of Additional Rent, such as the Annual Maintenance Charge, shall be paid by Tenant to Landlord by wire transfer as Landlord may from time to time direct in writing, or in the absence of wire transfer instructions from Landlord, at the Original Address of Landlord. Nonrecurring items of Additional Rent shall be paid by Tenant to Landlord by check or wire transfer as Tenant may from time to time elect. In order that the Fixed Rent shall be absolutely net to Landlord, commencing on the Commencement Date, Tenant covenants and agrees to pay, as Additional Rent, without any offset or reduction whatsoever except as expressly set forth in this Lease, taxes, municipal or state betterment assessments, insurance costs, utility charges and the Annual Maintenance Charge with respect to the Premises as provided in this Section 4.2 as follows:

        As used herein, the term "Estimated Annual Additional Rent" shall mean and refer to Landlord's estimate of the total amount of Additional Rent which may be due from Tenant for any particular Lease Year with respect to the Building, Lot and Complex. Landlord shall furnish Tenant with a statement within sixty (60) days after the commencement of each Lease Year setting forth the amount of Landlord's Estimated Annual Additional Rent for such Lease Year. Landlord's good faith estimate of the Estimated Annual Additional Rent for the first "fiscal year" (as such term is defined in Section 4.2.4 hereof) of the Term is set forth in Section 1.1 as the "Initial Estimated Annual Additional Rent for Building" and "Initial Estimated Annual Additional Rent for Complex".

4.2.1    Real Estate Taxes.

        Tenant shall pay directly to the Landlord: (i) Tenant's Proportionate Fraction for Building and Tenant's Proportionate Fraction for Complex, respectively, of all taxes, assessments (special or otherwise), levies, fees, water and sewer rents and charges, and all other government levies and charges, general and special, ordinary and extraordinary, foreseen and unforeseen, which are, at any time during the Term hereof, imposed or levied upon or assessed against the Premises, the Building, the Lot or the Complex, and (ii) the full amount of any tax or assessment imposed or levied upon or against (A) any Fixed Rent, Additional Rent or other sum payable hereunder, (B) this Lease, or the

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leasehold estate hereby created, or which arise in respect of the operation, possession or use of the Premises; (C) all gross receipts or similar taxes imposed or levied upon, assessed against or measured by any Fixed Rent, Additional Rent or other sum payable hereunder; and (D) all sales, value added, use and similar taxes at any time levied, assessed or payable on account of the acquisition, leasing or use of the Premises (and Tenant's Proportionate Fraction for Building and Tenant's Proportionate Fraction for Complex, respectively, of any such taxes if they are levied, assessed or payable on account of the acquisition, leasing or use of the entire Building Lot or the Complex) which may become a lien on the Building, the Lot, the Premises or the Complex (collectively "taxes and assessments" or if singular "tax or assessment"). For each tax or assessment period, or installment period thereof, wholly included in the Term, all such payments shall be made by Tenant not more than twenty (20) days after receipt of an invoice therefor. For any fraction of a tax or assessment period, or installment period thereof, included in the Term at the beginning or end thereof, Tenant shall pay to Landlord, within twenty 20 days after receipt of an invoice therefor, Tenant's Proportionate Fraction for Building and Tenant's Proportionate Fraction for Complex, as applicable, of taxes and assessments so levied or assessed or becoming payable which is allocable to such included period. At Landlord's option, Tenant shall pay taxes and assessments in accordance with Section 4.2.5 hereof. Subject to Tenant's payment to Landlord of taxes and assessments as and when required by this Section 4.2.1, Landlord agrees to pay such tax and assessments to the proper authorities prior to delinquency and to provide Tenant with evidence of such payment upon request therefor. Anything herein to the contrary notwithstanding, if and to the extent that the Lot is not a separately assessed parcel, Landlord shall make reasonable allocation of any taxes and assessments between the Lot and the Building and the Complex of which the Lot is a part.

        Tenant may apply for any abatement of, or otherwise contest, any tax or assessment, provided that the expenses of such proceedings, including, without limitation, any penalties, interest, late fees or charges, and attorneys' fees incurred as a result thereof, shall be paid by Tenant. Landlord and Tenant shall discuss and may mutually agree upon any other tax initiatives available for the Lot or Building.

        Nothing contained in this Lease shall, however, require Tenant to pay any income taxes, excess profits taxes, excise taxes, franchise taxes, or any taxes or assessments with respect to the Garage and other buildings leased or available for lease (and the parcels of land upon which such buildings are situated), other than the Building, the Lot and any building or portion of a building in the Complex which is not designed and available for lease to third parties (and the parcel(s) of land on which the same may be located) in the Complex ("Excluded Taxes"), estate, succession, inheritance or transfer taxes, provided, however, that if at any time during the Term the present system of ad valorem taxation of real property shall be changed so that in lieu of the whole or any part of the ad valorem tax on real property, there shall be assessed on Landlord a capital levy or other tax on the gross rents received with respect to the Building, the Lot, or the Complex or all of them, or a federal, state, county, municipal, or other local income, franchise, excise or similar tax, assessment, levy or charge (distinct from any now in effect) measured by or based, in whole or in part, upon gross rents, then any and all of such taxes, assessments, levies or charges, to the extent so measured or based ("Substitute Taxes"), Tenant's Proportionate Fraction for Building and Tenant's Proportionate Fraction for Complex, respectively, of Substitute Taxes shall be payable by Tenant; provided, however, that (i) Tenant's obligation with respect to the aforesaid Substitute Taxes shall be limited to the amount thereof as computed at the rates that would be payable if the Building and Lot and buildings not available for lease (and the parcel(s) of land on which the same may be located) were the only property of Landlord, and (ii) only that portion of the Substitute Taxes in excess of the Excluded Taxes shall be payable by Tenant. Landlord shall furnish to Tenant a copy of any notice of any public, special or betterment assessment received by Landlord concerning the Building and Lot.

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4.2.2    Insurance.

4.2.2.1    Insurance Taken Out by Tenant.

        Tenant shall take out and maintain throughout the Term of this Lease the following insurance:

        (a)   Comprehensive general liability insurance indemnifying Landlord and Tenant against all claims and demands for (i) injury to or death of any person or damage to or loss of property, on the Premises, in the Building or on the Lot or adjoining walks, streets or ways, or connected with the use, condition or occupancy of any thereof unless caused by the negligence of Landlord or its servants or agents, (ii) violation of this Lease, or (iii) any act, fault or omission, or other misconduct of Tenant or its agents, contractors, licensees, sublessees or invitees, in amounts which shall, at the beginning of the Term, be at least equal to the limits set forth in Section 1.1, and, from time to time during the Term, shall be for such higher limits, if any, as are customarily carried in the area in which the Premises, Building and Lot are located for property similar to the Premises, Building and Lot and used for similar purposes, provided, however, Landlord shall not require an increase in such limits more frequently than once every three years, and in no event shall such limits exceed the limits required for buildings in Cambridge similar to the Building, and shall be written on the "Occurrence Basis"; and

        (b)   Worker's compensation insurance with statutory limits covering all of the Tenant's employees working on the Premises.

All insurance required to be carried by Tenant pursuant to this Lease may be provided under one or more "blanket" insurance policies covering other locations and facilities operated by Tenant or any Affiliate of Tenant, provided that such blanket policies otherwise comply with the provisions of this Section. In addition, Tenant may satisfy the $10,000,000 per occurrence liability insurance coverage, as the same may be increased pursuant to Section 4.2.2.1(a) hereof, with excess liability (so-called "umbrella") coverage, so long as Tenant maintains primary liability coverage of not less than $5,000,000, as the same may be increased pursuant to Section 4.2.2.1(a) hereof.

        (c)   Landlord acknowledges that Tenant shall have the right, at its sole election, and at Tenant's sole expense, independently to obtain all risk fire and casualty and boiler/sprinkler damage insurance similar to that described in Sections 4.2.2.2(b) and (c) below for the purpose of providing Tenant with insurance proceeds to fund any Tenant's Restoration Fund described in Section 6.1(h) below. However, Tenant shall not be obligated to file any claim or use any proceeds from such insurance for the benefit of Landlord.

4.2.2.2    Insurance Taken Out by Landlord.

        Landlord shall take out and maintain throughout the Term of this Lease the following insurance:

        (a)   Comprehensive general liability insurance for the Building, the Lot and the Complex of the same nature and type as described in Section 4.2.2.1(a) of this Lease, and with the same policy limits or such higher policy limits as Landlord may reasonably determine; and

        (b)   All risk, fire and casualty insurance on a one hundred percent (100%) replacement cost basis, together with rental loss coverage and, if the Building is located in a flood zone, flood coverage to the extent the same is available, insuring the Building and its rental value, and Complex Common Areas; and

        (c)   Insurance against loss or damage from sprinklers and from leakage or explosions or cracking of boilers, pipes carrying steam or water, or both, pressure vessels or similar apparatus, in the so-called "broad form", in such amounts as are customary and commercially reasonable for

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buildings in the Cambridge, Massachusetts area which are of like kind and quality to the Building and have office uses, and insurance against such other hazards and in such amounts as may from time to time be required by any bank, insurance company or other lending institution holding a first mortgage on the Building, the Lot or the Complex.

Landlord shall have no obligation to insure Tenant's personal property or chattels, including without limitation, Tenant's trade fixtures.

4.2.2.3    Tenant Reimbursement of Insurance Taken Out by Landlord.

        Tenant shall from time to time reimburse Landlord within thirty (30) days of Landlord's invoice for Tenant's Proportionate Fraction for Building and Tenant's Proportionate Fraction for Complex of Landlord's costs incurred in providing the insurance provided pursuant to Section 4.2.2.2 of this Lease, equitably prorated in the case of blanket policies to reflect the insurance coverage reasonably attributable to the Premises, the Building, the Lot, other buildings in the Complex, and Complex Common Areas, and provided further that Tenant shall reimburse Landlord for all of Landlord's costs incurred in providing such insurance which is attributable to any special endorsement or increase in premium resulting from the business or operations of Tenant, and any special or extraordinary risks or hazards resulting therefrom. At Landlord's option, Tenant shall reimburse Landlord for insurance costs in accordance with Section 4.2.5 hereof.

4.2.2.4    Certain Requirements Applicable to Insurance Policies.

        Policies for insurance provided for under the provisions of Sections 4.2.2.2(b) and 4.2.2.2(c) shall, in case of loss, be first payable to the holders of any mortgages on the Building, the Lot or the Complex under a standard mortgagee's clause, and shall be deposited with the holder of any mortgage or with Landlord, as Landlord may elect. All policies for insurance required to be obtained by either party under the provisions of Section 4.2.2 shall be obtained from responsible companies qualified to do business in the Commonwealth of Massachusetts and in good standing therein, which companies and the amount of insurance allocated thereto shall be subject to Landlord's approval. Each party agrees to furnish the other with certificates of all such insurance which such party is obligated to obtain pursuant to Section 4.2.2 prior to the beginning of the Term hereof and with renewal certificates at least thirty (30) days prior to the expiration of the policy they renew. In addition, Tenant agrees to furnish Landlord with any policies of insurance which Tenant is obligated to obtain hereunder, including any renewal policies, upon request of any of Landlord's mortgagees (provided that Tenant may redact from such policies any Confidential Information, as defined in Section 10.15 hereof). Each such policy required to be maintained by Tenant shall name Landlord and Landlord's Managing Agent (and such mortgagees of Landlord and members or shareholders of Landlord if such mortgagees, members and/or shareholders may be named as additional insureds without additional premium charges to Tenant or, if additional premium charges are required, if Landlord reimburses Tenant for such additional premium charges) as additional insureds and shall be noncancellable with respect to the interest of Landlord, Landlord's Managing Agent and such additional insureds without at least thirty (30) days' prior written notice thereto.

4.2.2.5    Waiver of Subrogation.

        All insurance which is carried by either party with respect to the Premises, the Building, the Lot or the Complex or with respect to furniture, furnishings, fixtures or equipment therein or alterations or improvements thereto, whether or not required, shall include provisions which either designate the other party as one of the insured or deny to the insurer acquisition by subrogation of rights of recovery against the other party to the extent such rights have been waived by the insured party prior to occurrence of loss or injury, insofar as, and to the extent that such provisions may be effective without

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making it impossible to obtain insurance coverage from responsible companies qualified to do business in the state in which the Premises are located (even though extra premium may result therefrom) and without voiding the insurance coverage in force between the insurer and the insured party. In the event that extra premium is payable by either party as a result of this provision, the other party shall reimburse the party paying such premium the amount of such extra premium. If at the request of one party, this non-subrogation provision is waived, then the obligation of reimbursement shall cease for such period of time as such waiver shall be effective, but nothing contained in this Section 4.2.2.5 shall derogate from or otherwise affect releases elsewhere herein contained of either party for claims. Each party hereby waives all rights of recovery against the other for loss or injury against which the waiving party is protected by insurance containing said provisions, reserving, however, any rights with respect to any excess of loss or injury over the amount recovered from such insurance. Tenant shall not acquire as insured under any insurance carried by Landlord on the Premises, the Building, the Lot or the Complex under the provisions of this Section 4.2.2 any right to participate in the adjustment of loss or to receive insurance proceeds and agrees upon request promptly to endorse and deliver to Landlord any checks or other instruments in payment of loss in which Tenant is named as payee.

4.2.3    Utilities for Premises.

        Landlord and Tenant agree that the Design Documents shall include separate metering or submetering of all or certain Utility Services (as hereinafter defined) for the Premises and the Expansion Spaces. Accordingly, to the extent such Utility Services are separately metered or submetered, Tenant shall pay directly to the proper authorities charged with the collection thereof all charges for water, sewer, gas, electricity, telephone and other utilities or services (singularly, "Utility Service" and collectively, "Utility Services") used or consumed on the Premises, whether called charge, tax, assessment, fee or otherwise, including, without limitation, water and sewer use charges and taxes, if any, all such charges to be paid as the same from time to time become due. Landlord shall be under no obligation to furnish any utilities to the Premises except as may be shown on the Final Design Documents and Landlord shall not be liable for any interruption or failure in the supply of any such Utility Services to the Premises; provided, however, that in the event such loss or failure is due to Landlord's negligence or willful misconduct, Landlord shall be responsible for restoring the supply of such Utility Services to the Premises but otherwise shall have no liability to Tenant.

        To the extent permitted by law, Landlord shall have the right at any time and from time to time during the Term to contract for or purchase one or more Utility Services from any company or third party, including without limitation, electricity, steam, chilled water and natural gas (collectively "Utilities") providing Utilities (the "Utility Service Provider" or "Utility Service Providers"), which contracts or purchases, in Landlord's reasonable opinion, are likely to result in a reduction in costs for Utility Services to the occupants of the Building or of the Complex taken as a whole. Tenant, at no cost to Tenant, agrees to reasonably cooperate with Landlord and the Utility Service Providers and at all times and, as reasonably necessary, and on reasonable advance notice, shall allow Landlord and the Utility Service Providers reasonable access to any utility lines, equipment, feeders, risers, fixtures, wiring and any other such machinery or personal property within the Premises and associated with the delivery of Utility Services. Tenant may, but shall not be required to, purchase Utilities from respective Utility Service Providers.

4.2.4    Common Area Maintenance and Expenses.

        Landlord shall maintain the interior and exterior common areas and facilities of the Building and the Lot (collectively, "Building Common Areas") and interior and exterior common areas and facilities of the Complex (collectively, "Complex Common Areas") in the same quality and condition as other comparable first class office buildings in Cambridge, including without limitation, keeping the Building Common Areas and the Complex Common Areas clean and free of debris, keeping the sidewalks,

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driveways and parking areas reasonably clear of snow and ice, maintaining the exterior landscaping, lighting, parking areas and sidewalks of the Lot and Complex, maintaining passenger elevator service, providing Utility Services to the Premises (if any of such Utility Services are not separately metered or submetered), Building Common Areas and Complex Common Areas, including hot water for lavatory purposes and cold water (at temperatures supplied by the provider thereof) for drinking, lavatory and toilet purposes, providing cleaning and janitorial services to the Premises on Monday through Friday, excluding holidays, provided the same are kept in order by Tenant in accordance with cleaning standards from time to time agreed upon by Landlord and Tenant, and providing security services for the Building, Lot and Complex to a standard comparable to security services provided at other first class office buildings in Cambridge. Landlord's obligations with respect to the foregoing shall be subject to Tenant's right to self-manage the Building as set forth in Section 10.11(h) hereof. Tenant shall maintain the interior of the Premises, including the mechanical, electrical and plumbing systems of the Premises in good order, repair and condition (provided that if Tenant shall fail to effect such repairs or maintenance or Tenant shall elect to have Landlord perform such repairs or maintenance, Landlord may or shall, as applicable, effect such repairs or maintenance and charge the entire cost thereof to Tenant as Additional Rent). Notwithstanding the foregoing, it is expressly understood and agreed that Landlord shall have no liability or responsibility for the storage, containment or disposal of any hazardous or medical waste generated, stored or contained by Tenant, Tenant hereby agreeing to store, contain and dispose of any and all such hazardous or medical waste at Tenant's sole cost and expense in accordance with the provisions of Article V hereof.

        Tenant shall pay to Landlord as Additional Rent the Annual Maintenance Charge computed and payable as follows:

        (1)   The Annual Maintenance Charge shall be equal to the sum of the "Annual Building Maintenance and Operation Charge", the "Annual Complex Maintenance and Operation Charge" and the "Nonstandard Charge" as hereinafter defined.

        (a)   The "Annual Building Maintenance and Operation Charge" shall be equal to Tenant's Proportionate Fraction for Building on account of all costs incurred by Landlord during the then current fiscal year in operating the Building and Lot and providing maintenance, including without limitation maintenance, operation and repair of the Lot and the Building and all heating, plumbing, electrical, air conditioning and mechanical fixtures and equipment serving Building Common Areas, Utility Services for Building Common Areas, maintenance of Lot and Building signage, elevators, landscaping, snow removal, trash dumpster rental, trash removal, management fees (which management fees shall have a commercially reasonably relationship to the scope of services to be provided by such manager and which may be based upon a percentage of rent payable by tenants of the Building), amortization of equipment to the extent used for Building or Lot operation and maintenance, and all costs incurred by Landlord in order for Landlord to comply with the Development Approvals and Subsequent Approvals and which are recurring or properly categorized as operating or maintenance costs ("Impositions") and equitably attributable or allocated to the Building or Lot.

        (b)   The "Annual Complex Maintenance and Operation Charge" shall be equal to Tenant's Proportionate Fraction for Complex on account of all costs incurred by Landlord during the then current fiscal year in operating the Complex Common Areas and providing Complex Common Areas maintenance, including without limitation, maintenance, operation and repair of all heating, plumbing, electrical, air conditioning and mechanical fixtures and equipment serving Complex Common Areas, Utility Services for Complex Common Areas, maintenance of Complex Common Area signage, elevators, landscaping, snow removal, trash dumpster rental, trash removal, management fees (which management fee shall have a commercially reasonable relationship to the scope of services to be provided by such manager

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and which may be based upon a percentage of rent payable by tenants of the Complex), amortization of equipment to the extent used for Complex Common Areas operation and maintenance and all Impositions equitably attributable to or allocated to the Complex.

        (c)   Anything herein to the contrary notwithstanding, the Annual Maintenance Charge shall not include (1) leasing and sales commissions for the Building or any portion thereof or any other building in the Complex, (2) fees paid in connection with any tenant improvement costs for the Building or any other building in the Complex, (3) such other fees and commissions paid in connection with the leasing, re-leasing, extension or renewal of leases for the Building or any other building in the Complex, (4) costs incurred with respect to the operation and maintenance of any other building in the Complex which is leased or available for lease, any rentable space therein or any common areas or facilities in such buildings (except to the extent that Landlord maintains a management office therein or in the Building, in which event Tenant shall pay Tenant's Proportionate Fraction for Complex of the fair market rental value thereof as equitably determined by Landlord), (5) any cost or expense attributable to the underground garage(s) within the Complex, (6) costs and expenses which are properly attributable to a particular building (other than the Building) or a particular tenant thereof, (7) third party management fees for the Building and Complex included in the Annual Maintenance Charge to the extent such fees exceed market rate fees, (8) any management or supervisory fee of Landlord if a third party is managing the Building or Complex (but if Landlord is self-managing the Building or Complex, Landlord shall be entitled to reimbursement of its reasonable costs for managing the Building and Complex provided that in no event may Landlord's costs and fees for self-managing the Building or Complex exceed the costs and fees that a market-rate third party management company would charge for providing comparable services), (9) in the event that any capital repair, improvement or replacement to the Building Common Areas or the Complex Common Areas made by Landlord has a useful life of over one year (as determined in accordance with generally accepted accounting practices consistently applied), then only the amortized cost of such repair, improvement or replacement over said useful life shall be included in the Annual Building Maintenance and Operation Charge or Annual Complex Maintenance and Operation Charge, as applicable, provided that replacement of a capital item shall be of substantially the same quality and/or usefulness as the capital item being replaced or shall be expected to reduce the Annual Maintenance Charge or otherwise provide some other economic benefit to the operation of the Premises, Building, Lot or Complex, as applicable, such as conserving energy or environmental resources, or if such capital item is required by any law enacted after the date hereof, (10) wages, salaries, or other compensation or benefits paid to any persons above the grade of Building manager and Complex manager (or equivalent position), (11) debt service, (12) capital expenditures (except to the extent expressly permitted under this Section), (13) depreciation and amortization (except to the extent expressly permitted under this Section), (14) legal and accounting fees relating to (A) disputes with occupants of the Building or Complex, or (B) disputes with purchasers, prospective purchasers, mortgages or prospective mortgagees, (15) any rent under any ground or underlying lease, (16) any fines or penalties incurred due to violations of law by Landlord or any tenant or other occupant of the Building or Complex, (17) any amount incurred to any entity affiliated with Landlord to the extent the same exceeds the amount which would have been incurred on an arm's length basis in the absence of such affiliation, (18) any interest, fines or penalties incurred or resulting from late payment by Landlord of any operating expense, (19) costs incurred in connection with the Environmental Remediation, (20) any amounts incurred for repairs or other work occasioned by fire, windstorm or other casualty to the extent Landlord is reimbursed by insurance or would have been reimbursed by insurance had Landlord maintained the insurance it is required to maintain under this Lease, (21) costs incurred in connection with

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the permitting, financing or construction of the Building and Complex, and (22) any so-called asset management fees.

        (d)   Notwithstanding anything herein to the contrary, if Landlord furnishes or makes available any service, utility or facility to less than all of the tenants of the Building or Complex, as applicable, Landlord shall allocate all costs incurred by Landlord on account of such services, utilities or facilities to the tenants of the Building or Complex, as applicable, to whom or to which such services, utilities or facilities are furnished or made available (all such costs being herein referred to as the "Nonstandard Costs"). The "Nonstandard Charge" shall be equal to Tenant's share of Nonstandard Costs equitably allocated to Tenant by Landlord. By way of example, if Landlord furnishes trash services and/or cleaning services to office tenants of the Building, but not to retail tenants, Landlord shall allocate the cost thereof to office tenants and Tenant shall pay Tenant's share thereof as equitably allocated by Landlord. In no event shall any cost incurred by Landlord and payable by Tenant for insurance, Utility Services for the Premises which are separately metered or submetered, and taxes and assessments be included in the Annual Maintenance Charge payable by Tenant.

        Attached hereto as Exhibit B-2 is a list of the Annual Maintenance Charge categories for the Building Common Areas and the Complex Common Areas, insurance, Mitigation Expenses and taxes and assessments. Landlord shall not make any change in the categories set forth thereon without obtaining Tenant's prior consent thereto, which consent shall not be unreasonably withheld, delayed or conditioned. Tenant, however, shall have no right to approve the amount of any costs which may be incurred by Landlord with respect to such categories, except to the extent set forth in Section 10.11(h) hereof. At the beginning of every fiscal year, Landlord shall deliver to Tenant its reasonable estimate of the Annual Maintenance Charge (the "Estimated Annual Maintenance Charge") for the said fiscal year, which estimate may include a reasonable contingency of up to five percent (5%), and Tenant shall make payments on account of the Annual Maintenance Charge monthly in advance on the first day of each calendar month during the Term in the amount of one-twelfth of the Estimated Annual Maintenance Charge. Landlord reserves the right to reasonably re-estimate and modify the Estimated Annual Maintenance Charge by notice to Tenant once annually in each Lease Year (the "Additional Rent Adjustment Date"), and Tenant's payments shall thereupon be adjusted accordingly. Not later than ninety (90) days after the end of each fiscal year during the Term and after Lease termination, Landlord shall render a statement ("Landlord's Statement"), in reasonable detail and according to usual accounting practices, certified by Landlord and showing for the preceding fiscal year or fraction thereof, as the case may be, the actual Annual Maintenance Charge for the said fiscal year or fraction thereof, and thereupon any balance owed by Tenant shall be paid to Landlord within twenty (20) days after Tenant receives written notice thereof, and any excess paid by Tenant under this Section shall be paid to Landlord, or credited to Tenant, on the next rent payment date. Tenant shall have the right for a period of one (1) year following its receipt of Landlord's Statement to examine Landlord's books and records concerning the Annual Maintenance Charge. Such examination may be made only by an independent certified public accounting firm approved by Landlord, which approval shall not be unreasonably withheld, conditioned or delayed. Landlord may withhold its approval of any examiner of Tenant who or which is being paid by Tenant, in whole or in part, on a contingent fee basis. As a condition to performing any such examination, Tenant and its examiner shall be required to execute and deliver to Landlord an agreement, in form acceptable to Landlord, agreeing to keep confidential any information which it discovers about Landlord, the Building or the Complex in connection with such examination. If the Annual Maintenance Charge due was less than the Annual Maintenance Charge paid by Tenant, Landlord shall either promptly refund to Tenant the difference or credit same against rent next due from Tenant. If the Annual Maintenance Charge due was less than ninety-five percent (95%) of the Annual Maintenance Charge paid by Tenant, Landlord shall reimburse Tenant for the reasonable third-party costs of reviewing Landlord's books and records.

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        For purposes of this Lease, the first "fiscal year" shall be the annual period commencing on the Commencement Date and ending on December 31 of the year in which the Commencement Date occurs; subsequently, the term "fiscal year, shall mean each consecutive annual period thereafter, commencing on the day following the end of the preceding fiscal year. Landlord shall have the right from time to time to change the periods of accounting under this Section 4.2.4 to any annual period other than a fiscal year, and upon any such change all items referred to in this Section shall be appropriately apportioned, provided that any such change in the fiscal year shall not result in any inequitable shifting of, or increase in, amounts payable to Landlord by Tenant. In all Landlord's Statements rendered under this Section, amounts for periods partially within and partially without the accounting periods shall be appropriately apportioned, and any items which are not determinable at the time of a Landlord's Statement shall be included therein on the basis of Landlord's estimate, and with respect thereto Landlord shall render promptly after determination a supplemental Landlord's Statement, and appropriate adjustment shall be made according thereto. All of Landlord's Statements shall be prepared on an accrual basis of accounting.

        Notwithstanding any other provision of this Section 4.2.4, if the Term expires or is terminated as of a date other than the last day of a fiscal year, then for such fraction of a fiscal year at the end of the Term, Tenant's last payment to Landlord under this Section 4.2.4 shall be made on the basis of Landlord's best estimate of the items otherwise includable in Landlord's Statement and shall be made on or before twenty (20) days after Landlord delivers such estimate to Tenant. Landlord shall thereafter prepare a Landlord's Statement showing the actual Annual Maintenance Charge for such fiscal year, as hereinabove provided, and an appropriate payment or refund shall thereafter promptly be made upon submission of such Landlord's Statement to Tenant.

4.2.5    Payments on Account of Taxes, Insurance and Utilities.

        Tenant shall make payments on account of the Annual Tax, Insurance and Utility Charge (as hereinafter defined) monthly in advance on the first day of each calendar month during the Term, which payments shall initially be in the amount of the sum of the Initial Tax Charge, the Initial Insurance Charge and the Initial Utility Charge (the "Estimated Initial Tax, Insurance and Utility Charges"). At the beginning of every fiscal year, Landlord shall deliver to Tenant its reasonable estimate of the Annual Tax, Insurance and Utility Charge ("the Estimated Annual Tax, Insurance and Utility Charge") for said fiscal year, and, in lieu of payments of one twelfth of the Estimated Initial Tax, Insurance and Utility Charge, Tenant shall make payments on account of the Annual Tax, Insurance and Utility Charge monthly in advance on the first day of each calendar month during the Term in the amount of one-twelfth of the Estimated Annual Tax, Insurance and Utility Charge. Landlord reserves the right to reasonably re-estimate and modify the Estimated Annual Tax, Insurance and Utility Charge by notice to Tenant once annually on the Additional Rent Adjustment Date (as defined in Section 4.2.4 hereof), and Tenant's payments shall thereupon be adjusted accordingly.

        Not later than ninety (90) days after the end of each fiscal year during the Term and after Lease termination, Landlord shall render a statement in reasonable detail and according to usual accounting practices certified by Landlord and showing for the preceding fiscal year or fraction thereof, as the case may be, the actual Annual Tax, Insurance and Utility Charge for the said fiscal year or fraction thereof, and thereupon any balance owed by Tenant or excess paid by Tenant under this Section shall be paid to Landlord, or credited to Tenant, as the case may be, within twenty (20) days thereafter. As used herein, the term "Annual Tax, Insurance and Utility Charge" shall mean and refer to the amount of funds paid by Tenant pursuant to Section 4.2.1, 4.2.2 and 4.2.3 for the fiscal year in question for costs actually incurred by Landlord (without any mark-up for Landlord's overhead or profit). All payments under this Section shall to the extent thereof relieve Tenant of its obligations under said Sections 4.2.1, 4.2.2 and 4.2.3 hereof.

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        Landlord shall have the right from time to time to change the periods of accounting under this Section 4.2.5 to any annual period other than a fiscal year (but not more frequently than once every three years), and upon any such change all items referred to in this Section shall be appropriately apportioned, provided that any such change in accounting periods shall not result in any inequitable shifting of, or increase in, amounts payable to Landlord by Tenant. In all Landlord's annual statements rendered under this Section, amounts for periods partially within and partially without the accounting periods shall be appropriately apportioned, and any items which are not determinable at the time of such a statement shall be included therein on the basis of Landlord's estimate, and with respect thereto Landlord shall render promptly after determination a supplemental statement, and an appropriate adjustment shall be made according thereto. All of landlord's statements under this Section shall be prepared on an accrual basis of accounting.

        Notwithstanding any other provision of this Section 4.2.5, if the Term expires or is terminated as of a date other than the last day of a fiscal year, then for such fraction of a fiscal year at the end of the Term, Tenant's last payment to Landlord under this Section 4.2.5 shall be made on the basis of Landlord's best estimate of the items otherwise includable in the annual statement rendered by Landlord under this Section and shall be made on or before the later of (a) twenty (20) days after Landlord delivers such estimate to Tenant or (b) the last day of the Term, with an appropriate payment or refund to be made upon submission of Landlord's statement.

4.3    LATE PAYMENT OF RENT.

        If any installment of rent is paid after the date the same was due (or if such due date is not a business day, on the first business day after such due date), at Landlord's election it shall bear interest from the due date (or if such due date is not a business day, from the first business day after such due date) at the higher of (a)(i) the annual rate of interest payable by Landlord to its mortgagee(s) or (ii) the prime commercial rate of Fleet National Bank or its successor(s), as it may be adjusted from time to time, plus (b) four percent (4%) per annum, but in no event more than the highest rate of interest allowed by applicable law. Any amounts due under this Section 4.3 shall be Additional Rent.

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ARTICLE V

TENANT'S ADDITIONAL COVENANTS

5.1   AFFIRMATIVE COVENANTS.

        Tenant covenants at its expense at all times during the Term and for such further time as Tenant occupies the Premises or any part thereof:

5.1.1    Perform Obligations.

        To perform promptly all of the obligations of Tenant set forth in this Lease; and to pay when due the Fixed Rent and Additional Rent and all charges, rates and other sums which by the terms of this Lease are to be paid by Tenant.

5.1.2    Occupancy and Use.

        Except for (i) the period of time permitted by this Lease for Tenant to perform Tenant's Work to prepare the Premises for Tenant's initial occupancy as set forth in Section 3.2.1 and (ii) a period of six (6) months at the end of the Term, and (iii) temporary vacancies of not more than forty percent (40%) of the Premises at any one time, continuously from the Commencement Date, to use and occupy the Premises only for the Permitted Uses, and from time to time, to procure all licenses and permits necessary therefor at Tenant's sole expense, and to the extent set forth in Section 10.21 hereof, with Landlord's cooperation. Without limitation, Tenant shall comply in all material respects with all federal, state, and municipal laws, ordinances, and regulations governing, and all Development Approvals, Subsequent Approvals and Title Exceptions applicable to, Tenant's particular use or manner of use of the Premises. Tenant shall be solely responsible for procuring and complying at all times with any and all necessary permits directly relating or incident to: the conduct of its office activities on the Premises; its, transportation, storage, handling, use and disposal of any chemical or radioactive or bacteriological or pathological substances or organisms or other hazardous wastes or environmentally dangerous substances or materials or medical waste. Within thirty (30) days of a request by Landlord, which request shall be made not more than once during each period of twelve (12) consecutive months during the Term hereof, unless otherwise requested by any mortgagee of Landlord, Tenant shall furnish Landlord with copies of all such permits which Tenant possesses or has obtained together with a certificate certifying that such permits are all of the permits which Tenant possesses or has obtained with respect to the Premises. Tenant shall be entitled to redact any Confidential Information from the copies of such permits and accompanying certificates of Tenant. Tenant shall promptly give notice to Landlord of any warnings or violations relative to the matters described in this Section 5.1.2 received from any federal, state, or municipal agency or by any court of law and shall promptly cure the conditions causing any such violations. Tenant shall not be deemed to be in default of its obligations under the preceding sentence to promptly cure any condition causing any such violation in the event that, in lieu of such cure, Tenant shall contest the validity of such violation by appellate or other proceedings permitted under applicable law, provided that: (i) any such contest is made reasonably and in good faith, (ii) Tenant makes provisions, including, without limitation, posting bond(s) or giving other security, acceptable to Landlord to protect Landlord, the Building, the Lot and the Complex from any liability, costs, damages or expenses arising in connection with such violation and failure to cure, (iii) Tenant shall agree to indemnify, defend (with counsel reasonably acceptable to Landlord) and hold Landlord harmless from and against any and all liability, costs, damages, or expenses arising in connection with such condition and/or violation, (iv) Tenant shall promptly cure any violation in the event that its appeal of such violation is overruled or rejected, and (v) Tenant shall certify to Landlord's satisfaction that Tenant's decision to delay such cure shall not result in any actual or threatened bodily injury or property damage to Landlord, any tenant or occupant of the Building, the Lot or the Complex, or any other person or entity. Landlord agrees that any Confidential Information gained or

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obtained by Landlord pursuant to this Section 5.1.2 shall be kept confidential in accordance with Section 10.15 hereof.

5.1.3    Repair and Maintenance.

        Except as otherwise provided in Article VI, to keep the Premises including, without limitation, all fixtures and equipment now or hereafter on the Premises, or exclusively serving the Premises, but excluding the exterior (exclusive of glass and doors) and structural elements of the Building and the grounds of the Lot, which Landlord shall maintain and repair unless such repairs are required because of Tenant's willful misconduct or negligence, in good order, condition and repair and at least as good order, condition and repair as they are in on the Commencement Date or may be put in during the Term, reasonable use and wear, damages by fire or other insurable casualty or eminent domain, and any damage directly caused by failure of Landlord to perform any of its obligations only excepted; to keep in a safe, secure and sanitary condition all trash and rubbish temporarily stored at the Premises; and to make all repairs and replacements and to do all other work necessary for the foregoing purposes whether the same may be ordinary or extraordinary, foreseen or unforeseen. Unless otherwise agreed to by Landlord and Tenant, Tenant shall be responsible for Utility Services systems serving the Premises to the extent that such systems are not a part of Base Building Improvements, and Tenant shall secure, pay for and keep in force contracts with appropriate and reputable service companies providing for the regular maintenance of the heating, air conditioning and other utility systems exclusively serving the Premises to the extent that such systems are not a part of Base Building Improvements, and copies of such contracts shall be furnished to Landlord. It is further agreed that the exception of reasonable use and wear shall not apply so as to permit Tenant to keep the Premises in anything less than suitable, tenantlike, and efficient and usable condition considering the nature of the Premises and the use reasonably made thereof, or in less than good and tenantlike repair.

5.1.4    Compliance with Law.

        To make all repairs, alterations, additions or replacements to the Premises required by any law or ordinance or any order or regulation of any public authority other than major capital repairs, alterations, additions or replacements to the foundations and structural elements of the Building which are the responsibility of Landlord pursuant to the terms of this Lease and unless required because of Tenant's failure to comply with the provisions of Section 5.1.3 hereof; to keep the Premises equipped with all safety appliances so required; to pay all municipal, county, or state taxes assessed against the leasehold interest hereunder, or against Tenant's personal property of any kind on or about the Premises; and to comply with the orders and regulations of all governmental authorities with respect to zoning, building, fire, health and other codes, regulations, ordinances or laws applicable to the Premises. To the extent that applicable law requires Tenant to make any capital repair, alteration, addition or replacement to the Premises, Tenant may implement such capital repair, alteration, addition or replacement over the longest period provided by applicable law.

        Except for typical office operating and cleaning supplies which are stored, used and disposed of in compliance with all applicable laws, Tenant shall not use, generate, manufacture, produce, handle, store, release, discharge or dispose of in, on, under or about the Premises or transport to or from the Premises, or allow its employees, agents, contractors, invitees or any other person or entity to do so, any oil, hazardous or toxic materials or hazardous or toxic wastes or medical waste (collectively, "hazardous materials") except to the extent that the following conditions regarding the use, generation, manufacture, production, handling, storing, releasing, discharging, disposal or transport (individually or collectively, the "Use") of hazardous materials shall be satisfied: (i) the Use shall be directly related to the operation of Tenant's business as permitted herein, (ii) Tenant shall first provide Landlord with the list of the types and quantities of such proposed hazardous materials which Tenant is required to furnish to the applicable governmental authorities for purposes of compliance with the Resource

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Conservation and Recovery Act, as amended (42 U.S.C. § 9601, et seq.) (the "RCRA List") (or, in the event that the RCRA List ceases to be required to be filed under such law, a list containing the same information required to be listed on the RCRA List as of the date hereof), and shall update such list as necessary for continuing accuracy, and such other information reasonably satisfactory to Landlord as Landlord may reasonably require concerning such Use, and (iii) such Use shall be in strict compliance (at Tenant's expense) with all applicable laws, regulations, licenses and permits. Landlord hereby covenants and agrees that the information contained in any list, or update thereof, referred to in the foregoing clause (ii) shall be kept confidential in accordance with Section 10.15 hereof. Notwithstanding the foregoing, Tenant hereby agrees to consult and coordinate with Landlord prior to transporting any hazardous materials to or from the Premises whenever (i) such transportation is not of the kind regularly made during the ordinary course of business by a person or entity operating a facility for the storage or disposal of such hazardous materials or (ii) Tenant has reason to believe that such transportation may result in a public demonstration, protest or other similar disturbance at the Building, the Lot or the Complex. If the use of any hazardous materials anywhere on the Premises in connection with the Tenant's use of the Premises results in (1) contamination of the soil, surface or ground water or (2) injury, loss or damage to person(s) or property, then Tenant agrees to respond in accordance with the following paragraph:

Tenant agrees (i) to notify Landlord immediately of any contamination, claim of contamination, injury, loss or damage, (ii) after consultation and approval by Landlord, to clean up the contamination in full compliance with all applicable statutes, regulations and standards, and (iii) to indemnify, defend (with counsel acceptable to Landlord) and hold Landlord harmless from and against any claims, suits, causes of action, costs and fees, including attorneys' fees, arising from or connected with any such contamination, claim of contamination, injury, loss or damage. No consent or approval of Landlord shall in any way be construed as imposing upon Landlord any liability for the means, methods, or manner of removal, containment or other compliance with applicable law for and with respect to the foregoing.

        Tenant shall promptly notify Landlord upon Tenant's receipt of any inquiry, notice, or threat to give notice by any government authority or any other third party with respect to any hazardous materials. Notwithstanding the foregoing, Tenant shall not be liable to Landlord hereunder for any contamination, claim of contamination, injury, loss or damage arising in connection with hazardous materials to the extent the same is the result of (A) hazardous materials existing in the Building or on or under the Lot or Complex prior to the date hereof, (B) migration of hazardous materials from any site onto or under the Lot or Complex not caused by Tenant, (C) the use of any hazardous materials at the Building, the Lot or Complex by Landlord, any other tenant or occupant, or any so-called "midnight dumpers" or (D) the Use by any party other than Tenant of hazardous materials at the Building, the Lot or Complex after the date upon which Tenant has completely vacated the same, including removal of all of its property (to the extent permitted herein) and hazardous materials. Tenant's indemnification obligations under this Section shall survive the expiration or earlier termination of this Lease.

        Nothing herein contained shall be construed to limit or impair Tenant's obligation to comply with any law, code, rule or regulation which requires Tenant to notify any governmental authority or any other person concerning the Use of hazardous materials by Tenant at the Premises.

5.1.5    Tenant's Work.

        To procure at Tenant's sole expense all necessary permits and licenses (but subject to Section 10.21 hereof) before Tenant undertakes any work on the Premises; to do all such work in compliance with the applicable provisions of Sections 3.2.1, 3.3 and 5.2.3 hereof; to do all such work in a good and workmanlike manner employing new materials of good quality and so as to conform with all applicable

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zoning, environmental, building, fire, health and other codes, regulations, ordinances and laws and the ADA Requirements; to keep the Premises at all times free of liens for labor and materials; to employ for such work one or more responsible contractors whose labor will work without interference with other labor working on the Premises, in the Building, on the Lot or in the Complex; to require such contractors employed by Tenant to carry worker's compensation insurance in accordance with statutory requirements and comprehensive public liability insurance covering any general contractors on or about the Premises in amounts that at least equal the limits agreed to by Landlord for an Approved Contractor and to submit certificates evidencing such coverage to Landlord prior to the commencement of such work; and to save Landlord harmless and indemnified from all injury, loss, claims or damage to any person or property occasioned by or growing out of such work.

5.1.6    Indemnity.

        To defend, with counsel reasonably approved by Landlord, all actions against Landlord, any officer, director, member, manager or stockholder of Landlord, or a partner, trustee, stockholder, officer, director, employee, agent or beneficiary of any member of Landlord, holders of mortgages secured by the Premises, the Building or Lot and any other party having an interest in the Premises ("Indemnified Parties") with respect to, and to pay, protect, indemnify and save harmless, to the extent permitted by law, all Indemnified Parties from and against, any and all liabilities, losses, damages, costs, (including reasonable attorneys' fees and expenses), causes of action, suits, claims, demands or judgments of any nature arising from (i) injury to or death of any person, or damage to or loss of property, on the Premises, the Lot or Complex or on adjoining streets or ways connected with the use or occupancy thereof by Tenant or its agents, contractors, licensees, employees, sublessees or invitees, unless and to the extent caused by the negligence of Landlord or its servants or agents, (ii) violation of this Lease by Tenant or its agents, contractors, licensees, employees, sublessees or invitees, or (iii) any act, fault, omission, or other misconduct of Tenant or its agents, contractors, licensees, employees, sublessees or invitees.

5.1.7    Landlord's Right to Enter.

        To permit Landlord and its agents to enter into the Premises at reasonable times and upon at least twenty-four (24) hours advance notice (except in case of emergency in which event no prior notice shall be required) to examine the Premises, make such repairs and replacements as Landlord may be authorized or required to perform pursuant to this Lease, and show the Premises to prospective purchasers and lenders, and, during the last eighteen (18) months of the Term, to show the Premises to prospective tenants and to keep affixed in suitable places notices of availability of the Premises. Landlord's right to enter the Premises in accordance with the foregoing shall be subject to Landlord's obligations pursuant to Section 10.15 hereof. Notwithstanding the foregoing, Landlord agrees that in the event that Landlord shows the Premises to any prospective purchaser or tenant, Landlord shall: (i) provide at least three (3) days' notice to Tenant identifying the prospective purchaser or tenant, (ii) only show the Premises to such purchaser or tenant if Landlord believes in good faith that such person or entity is a bona fide prospective purchaser or tenant, and (iii) conduct such showing in compliance with such reasonable requests and instructions as Tenant may make for purposes of protecting Tenant's Confidential Information.

5.1.8    Personal Property at Tenant's Risk.

        All of the furnishings, fixtures, equipment, effects and property of every kind, nature and description owned or leased by Tenant or by any person claiming by, through or under Tenant which, during the continuance of this Lease or any occupancy of the Premises by Tenant or anyone claiming under Tenant, may be on the Premises (collectively, "Tenant's Property"), shall, as between the parties, be at the sole risk and hazard of Tenant and if the whole or any part thereof shall be destroyed or

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damaged by fire, water or otherwise, or by the leakage or bursting of water pipes, steam pipes, or other pipes, by theft or from any other cause, no part of said loss or damage is to be charged to or to be borne by Landlord, except that Landlord shall in no event be indemnified or held harmless or exonerated from any liability to Tenant or to any other person, for any injury, loss, damage or liability to the extent (i) such injury, loss, damage or liability is the result of the negligence or willful misconduct of Landlord, its contractors, agents or employees, or (ii) such indemnification, agreement to hold harmless or exoneration is prohibited by law.

5.1.9    Payment of Landlord's Cost of Enforcement.

        To pay on demand Landlord's expenses, including reasonable attorney's fees, incurred in enforcing any obligation of Tenant under this Lease or in curing any default by Tenant under this Lease as provided in Section 7.4.

5.1.10    Yield Up.

        Subject to Section 3.2.1 hereof, at the expiration of the Term or earlier termination of this Lease: to surrender all keys to the Premises; to remove all of its trade fixtures and personal property in the Premises; to remove such installations and improvements made by Tenant as Landlord may request at the time of Landlord's approval of such installation (but excluding any Tenant's Work performed to prepare the Premises for Tenant's initial occupancy) and all Tenant's signs wherever located; to repair all damage caused by such removal; and to yield up the Premises (including all installations and improvements made by Tenant except for trade fixtures and such of said installations or improvements as Landlord shall request Tenant to remove), broom-clean and in the same good order and repair in which Tenant is obliged to keep and maintain the Premises by the provisions of this Lease, reasonable wear and tear, damage by fire or other insured casualty or eminent domain, and damage directly caused by failure of Landlord to perform any of its obligations only excepted. Subject to Section 3.2.1 hereof, any property not so removed shall be deemed abandoned and may be removed and disposed of by Landlord in such manner as Landlord shall determine and Tenant shall pay Landlord the entire cost and expense incurred by Landlord in effecting such removal and disposition and in making any incidental repairs and replacements to the Premises and for use and occupancy during the period after the expiration of the Term and prior to Tenant's performance of its obligations under this Section 5.1.10. Tenant shall further indemnify Landlord against all loss, cost and damage resulting from Tenant's failure and delay in surrendering the Premises as above provided.

5.1.11    Estoppel Certificate.

        Upon not less than fifteen (15) days' prior notice by Landlord, to execute, acknowledge and deliver to Landlord, any prospective purchaser or mortgagee of the Premises, Building, Lot or Complex a statement in writing certifying that this Lease is unmodified and in full force and effect and that except as stated therein Tenant has no knowledge of any defenses, offsets or counterclaims against its obligations to pay the Fixed Rent and Additional Rent and any other charges and to perform its other covenants under this Lease (or, if there have been any modifications that the Lease is in full force and effect as modified and stating the modifications and, if there are any defenses, offsets or counterclaims, setting them forth in reasonable detail), the dates to which the Fixed Rent and Additional Rent and other charges have been paid and a statement that, to the best of Tenant's knowledge, Landlord is not in default hereunder (or if in default, the nature of such default, in reasonable detail) and such other matters reasonably required by Landlord or any prospective purchaser or mortgagee of the Premises, the Building, Lot or Complex. Any such statement delivered pursuant to this Section 5.1.11 may be relied upon by any such prospective purchaser or mortgagee of the Premises, or any prospective assignee of any such mortgage.

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5.1.12    Landlord's Expenses Re: Consents

        To reimburse Landlord promptly on demand for all reasonable legal expenses incurred by Landlord in connection with all requests by Tenant for consent or approval under this Lease. Notwithstanding the foregoing, except for consents or approvals pursuant to Section 5.2.1 hereof, Tenant shall not be liable for any reasonable legal expenses incurred by Landlord for the first two (2) such requests made by Tenant during each period of twelve (12) consecutive calendar months during the Term.

5.1.13    Rules and Regulations.

        To comply with the Rules and Regulations set forth in Exhibit C, as the same may be amended from time to time by Landlord to provide for the beneficial operation of the Building, Lot and or the Complex, provided that such amendments do not materially interfere with Tenant's right of use and enjoyment of the Premises, the Lot or the Complex pursuant to this Lease. So long as Tenant and Tenant's Affiliates are occupying at least sixty percent (60%) of the r.s.f. in the Building or Tenant, Tenant's Affiliates or Tenant's subtenants are occupying all of the r.s.f. in the Building, in each case excluding the Retail Space, all such amendments shall be subject to Tenant's prior approval, which shall not be unreasonably withheld, conditioned or delayed.

5.1.14    Loading.

        Not to place Tenant's Property, as defined in Section 5.1.8, upon the Premises so as to exceed the floor load limits to be set forth in the Design Documents and not to move any safe, vault or other heavy equipment in, about or out of the Premises except in such manner and at such times as Landlord shall in each instance approve; Tenant's business machines and mechanical equipment which cause vibration or noise that may be detectable outside of the Premises shall be placed or maintained by Tenant in settings of cork, rubber, spring, or other types of vibration or noise eliminators sufficient to reduce such vibration or noise to a level reasonably acceptable to Landlord.

5.1.15    Holdover.

        To pay to Landlord (i) the greater of twice (a) the then fair market rent as reasonably determined by Landlord or (b) the total of the Fixed Rent, Additional Rent, and all other payments then payable hereunder, for each month or portion thereof Tenant shall retain possession of the Premises or any part thereof after the termination of this Lease, whether by lapse of time or otherwise, and (ii) all damages sustained by Landlord on account thereof; provided, however, that any payments made by Tenant under the foregoing clause (i) in excess of the then fair market rent for the Premises as so reasonably determined by Landlord shall be applied against any damages under the foregoing clause (ii). The provisions of this subsection shall not operate as a waiver by Landlord of the right of re-entry provided in this Lease.

5.2    NEGATIVE COVENANTS.

        Tenant covenants at all times during the Term and for such further time as Tenant occupies the Premises or any part thereof:

5.2.1    Assignment and Subletting.

        Not without the prior written consent of Landlord to assign this Lease, to make any sublease, or to permit occupancy of the Premises or any part thereof by anyone other than Tenant, voluntarily or by operation of law, except as hereinafter provided; as Additional Rent, to reimburse Landlord promptly for reasonable legal and other expenses incurred by Landlord in connection with any request by Tenant for consent to assignment or subletting; no assignment or subletting (including any assignment or

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sublease not requiring Landlord's consent) shall affect the continuing primary liability of Tenant (which, following assignment, shall be joint and several with the assignee); and no consent to any of the foregoing in a specific instance shall operate as a waiver in any subsequent instance. Landlord's consent to any proposed assignment or subletting is required both as to the terms and conditions thereof and as to the consistency of the proposed assignee's or subtenant's business with other uses and tenants in the Building and Complex. Tenant shall not assign this Lease or sublease any portion of the Premises to any other tenant in the Complex (unless such assignee or subtenant is an Affiliate of Tenant) if Landlord has or expects to have (within two years of the date of the proposed assignment or sublease) vacant space in the Complex for the Permitted Uses or if the proposed assignee or subtenant (other than an Affiliate of Tenant) has been shown space in the Complex within six months prior to the date of the proposed assignment or sublease. In addition, as to any assignee or subtenant of all or substantially all of the Premises, Landlord's consent shall be required as to the creditworthiness of the proposed assignee or subtenant in view of market conditions then prevailing for leases having terms and conditions comparable to this Lease and the obligations of such assignee or subtenant pursuant to this Lease.

        If Tenant requests Landlord's consent to (i) assign this Lease or sublet any portion of the Premises to any entity which is not an Affiliate of Tenant (as herein defined) for the remainder of the Term or substantially all of the remainder of the Term or (ii) sublease more than twenty-five percent (25%) of the r.s.f. of the Premises for a sublease term of more than five years, Landlord shall have the option, exercisable by written notice to Tenant given within thirty (30) days after receipt of such request, to terminate this Lease (in the event of a proposed assignment of the Lease) or to terminate this Lease only as to the portion of the Premises proposed to be subleased (in the event of a sublease), in each case as of the date of commencement of the proposed sublease or assignment. If Landlord does not exercise such right to terminate this Lease as to, and recapture, the portion of the Premises affected by such assignment or sublease, Tenant shall have the right to consummate the assignment or sublease at such rent as Tenant may determine, provided however, that Tenant shall pay to Landlord fifty percent (50%) of Sublease Profits (as herein defined) on account thereof.

        Provided that Tenant is not then in default under this Lease beyond any applicable notice, grace or cure period, Tenant shall have the right, without Landlord's consent, to sublease up to twenty-five percent (25%) of the r.s.f of the Premises, in the aggregate, to subtenants, provided that no such sublease shall be for a term greater than the lesser of (x) five (5) years (including any extensions provided for in such sublease) and (y) the remaining term of this Lease (including any Extension Term previously exercised), and provided further that in such case Tenant shall pay to Landlord fifty percent (50%) of the Sublease Profits (as herein defined) with respect to all such subleases. All other subleases by Tenant shall require Landlord's consent.

        In the event that any assignee or subtenant pays to Tenant any amounts in excess of the Fixed Rent, Additional Rent, and all other payments then payable hereunder, or pro rata portion thereof on a square footage basis for any portion of the Premises (such excess being hereinafter referred to as "Sublease Profits"), Tenant shall promptly pay fifty percent (50%) of said Sublease Profits to Landlord as and when received by Tenant after deduction of Tenant's Sublease Costs (as hereinafter defined). The term "Sublease Costs" shall mean and refer to Tenant's reasonable legal, brokerage and construction costs and expenses incurred in good faith in view of the size and expected term of any applicable sublease or assignment and the then unamortized costs of Tenant's Work incurred by Tenant to prepare the Premises for Tenant's initial occupancy of the Premises. Sublease Costs shall be amortized on a straight line basis over the term of the applicable sublease or assignment, except that the costs of Tenant's Work incurred by Tenant to prepare the Premises for Tenant's initial occupancy of the Premises shall be amortized on a straight line basis over the initial Term of this Lease.

        Notwithstanding the foregoing provisions of this Section 5.2.1, Tenant may assign this Lease or sublet any portion of the Premises without Landlord's consent and without payment of Sublease Profits

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to Landlord to (i) any successor of Tenant resulting from an acquisition of all or substantially all of Tenant's assets or a merger or consolidation of Tenant and (ii) any Affiliate of Tenant (as hereinafter defined), provided that Tenant provides Landlord at least thirty (30) days prior notice of such assignment or subletting pursuant to either of the foregoing clauses (i) or (ii) and the assignee or sublessee executes an assignment and assumption agreement reasonably satisfactory to Landlord prior to taking occupancy. From and after any sublease or assignment, Genzyme Corporation shall continue to be primarily liable pursuant to this Lease. As used herein, the term "Affiliate of Tenant" shall mean and refer to any entity controlled by, controlling or under common control with Tenant.

5.2.2    Nuisance.

        Not to injure, deface or otherwise harm the Premises; nor commit any nuisance; nor permit the emission of any noise, vibration or odor which is contrary to any law or ordinance; nor make, allow or suffer any waste; nor make any use of the Premises which is improper, offensive or contrary to any law or ordinance or which will invalidate any of Landlord's insurance; nor to serve or allow the consumption of alcoholic beverages in the Premises unless Tenant maintains Host Liquor liability insurance with an insurance company and with limits of coverage satisfactory to Landlord.

5.2.3    Installation, Alterations or Additions.

        Except for Tenant's Work approved or deemed approved by Landlord pursuant to this Lease or any Minor Alteration, not to make any installations, alterations, or additions in, to or on the Premises nor to permit the making of any openings in the walls, partitions, ceilings or floors of the Premises.

ARTICLE VI

CASUALTY OR TAKING

6.1   DAMAGE BY FIRE.

        In the event of loss of, or damage to, the Premises or the Building or the Garage by fire or other casualty, the rights and obligations of the parties hereto shall be as follows:

        (a)(i) If the Premises, or any part thereof, shall be damaged by fire or other casualty, Tenant shall give prompt notice thereof to Landlord, and Landlord, upon receiving such notice, shall proceed promptly and with due diligence, subject to Force Majeure Events, to repair, or cause to be repaired, such damage except as otherwise provided herein. With respect to portions of the Building or Lot outside of the Premises that shall be damaged by fire or other casualty, Landlord shall proceed promptly and with due diligence, subject to Force Majeure Events, to repair, or to cause to be repaired, such damage after such damage occurs except as otherwise provided herein; and (ii) if the Garage, or any part thereof, shall be damaged by fire or other casualty and if the Garage is then owned by Landlord or an Affiliate of Landlord (as defined in Section 10.14 hereof) Landlord shall cause the Garage Owner to proceed promptly and with due diligence, subject to Force Majeure Events, to repair or cause to be repaired, such damage except as otherwise provided herein. If Landlord or an Affiliate of Landlord is not the Garage Owner at the time of such damage by fire or other casualty, Landlord shall use all reasonable efforts to cause the Garage Owner to proceed promptly to repair such damage.

        (b)(i) If the Premises, or any part thereof, shall be rendered untenantable by reason of such damage, whether to the Premises or to the Building or if such damage materially interferes with Tenant's access to the Premises, Annual Fixed Rent and Additional Rent shall proportionately (i.e., based on rentable square footage) abate for that portion of the Premises which is untenantable for the period from the date of such damage or from the date when material interference with Tenant's access due to such damage commences to the date when such damage shall have been

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repaired or such access shall have been restored, as applicable; and (ii) if the Garage or any part thereof shall be rendered untenantable by reason of such damage or if such damage prevents Tenant's access to the Garage then to the extent that Landlord does not provide Tenant with substitute parking spaces in the Complex or within a reasonable walking distance of the Premises ("Substitute Parking Spaces"), the Parking Fee (as defined in Section 10.14) and/or the Valet Parking Fee (as defined in Section 10.14), as applicable, shall proportionately abate (based upon the number of Tenant's Parking Spaces or Valet Parking Spaces) for each of the Garage Parking Spaces (as defined in Section 10.14) in excess of the Substitute Parking Spaces which are unavailable to Tenant for the period from the date of such damage or from the date when access to the Garage ceases due to such damage to the date when such damage shall have been repaired or such access shall have been restored, as applicable.

        (c)(i) If, as a result of fire or other casualty, the whole or a substantial part of the Building is rendered untenantable, Landlord, within ninety (90) days from the date of such fire or casualty, may terminate this Lease by notice to Tenant, specifying a date not less than twenty (20) nor more than forty (40) days after the giving of such notice on which the Term of this Lease shall terminate. If Landlord does not so elect to terminate this Lease, then Landlord shall proceed with diligence to repair the damage to the Building and Premises and all facilities serving the same, and the Annual Fixed Rent and Additional Rent shall meanwhile proportionately abate, all as provided in Paragraph (b)(i) of this Section 6.1. Landlord within one hundred twenty (120) days after the fire or other casualty shall notify Tenant in writing whether or not, in its reasonable judgment, the Building and the Premises can be restored to substantially their condition prior to such damage and Utility Services restored within twelve (12) months of the date of the casualty. If such notification shall state that such restoration cannot be so accomplished, then Tenant may terminate this Lease within thirty (30) days from Tenant's receipt of such notification. Furthermore, if Tenant does not so terminate this Lease and if such damage is not repaired, Utility Services are not restored and the Premises and the remainder of the Building are not restored to substantially the same condition as they were prior to such damage within twelve (12) months from the date of such damage, Tenant within thirty (30) days from the expiration of such twelve (12) month period or from the expiration of any extension thereof by reason of Force Majeure Events (the "Casualty Restoration Completion Date"), may terminate this Lease by notice to Landlord, specifying a date not more than forty-five (45) days after the giving of such notice on which the term of this Lease shall terminate. The period within which the required repairs may be accomplished shall be extended by the number of days lost as a result of Force Majeure Events, provided however that such period shall in no event be extended beyond six (6) months from the Casualty Restoration Completion Date. Substantial part for purposes of this Section 6.1(c)(i) and section 6.1(d) shall mean thirty-three and one-third percent (33¹/3%) or more of the Building; and (ii) if as a result of fire or other casualty, the whole or a substantial part of the Garage is rendered untenantable, Landlord, within ninety (90) days from the date of such fire or casualty, shall notify Tenant whether the Garage Owner will repair the damage to the Garage. If the Garage Owner is unwilling to repair such damage and Landlord does not provide substitute parking in the Complex or within reasonable walking distance of the Premises, then Tenant may terminate this Lease by notice to Landlord, specifying a date not less than twenty (20) nor more than forty (40) days after the giving of such notice on which the Term of this Lease shall terminate. "Substantial part" for this Section 6.1(c)(ii) shall mean thirty-three and one-third percent (33¹/3%) or more of Tenant's Parking Spaces.

If Tenant fails to terminate in accordance within the foregoing time periods set forth in this Section 6.1, Tenant shall have waived its right to terminate.

        (d)   If a substantial part of the Premises shall be rendered untenantable by fire or other casualty during the last eighteen (18) months of the then current Term of this Lease and Tenant

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has not exercised an Option to Extend (as set forth in Section 10.12 hereof), Landlord may terminate this Lease effective as of the date of such fire or other casualty upon notice to Tenant given within sixty (60) days after such fire or other casualty.

        (e)   With respect to Sections 6.1 and 6.2 hereof, Landlord shall not be required to repair or replace any of Tenant's trade fixtures, business machinery, equipment, cabinet work, furniture, personal property or other installations or improvements not originally installed by Landlord or otherwise required to be insured by Tenant under the terms of this Lease, or any damage to the Premises or Building caused by Tenant, or any damage to the Premises or Building not covered by insurance proceeds or condemnation proceeds, or any damage or destruction which Landlord is unable to restore due to Landlord's inability, after exercising reasonable and diligent efforts, to obtain final approval therefor from applicable governmental authorities, and no damages, compensation or claim shall be payable by Landlord for inconvenience, loss of business or annoyance arising from any repair or restoration of any portion of the Premises or of the Building.

        (f)    The provisions of this Section 6.1 shall be considered an express agreement governing any instance of damage or destruction of the Building, the Premises or the Garage by fire or other casualty, and any law now or hereafter in force providing for such contingency in the absence of express agreement shall have no application.

        (g)   In the event of any termination of this Lease pursuant to this Section 6.1, the Term of this Lease shall expire as of the effective termination date as fully and completely as if such date were the date herein originally scheduled as the Term Expiration Date; provided that Landlord shall within thirty (30) days thereafter refund any prepaid Rent.

        (h)   If less than fifty percent (50%) of the Building shall be rendered untenantable by fire or other casualty and Landlord reasonably determines that the net proceeds of insurance recovered for such damage are not adequate to restore the Building (or Premises or Utility Service) to substantially their condition immediate prior to the damage or Landlord's mortgagee refuses to release to Landlord sufficient insurance proceeds to restore the Building (or Premises or Utility Service) to such condition, Landlord shall so notify Tenant within ninety (90) days following such fire or other casualty (the "Insurance Shortfall Notice"). Within thirty (30) days after Tenant's receipt of an Insurance Shortfall Notice, Tenant may elect to (i) terminate this Lease or (ii) (x) to require Landlord to restore the Building (or Premises or Utility Service) to substantially their condition immediately prior to the occurrence of such fire or other casualty and (y) to pay the difference between the net proceeds of insurance recovered and the total cost of restoration (the "Tenant Deficiency Election"). If Tenant does not give Landlord notice of Tenant's Deficiency Election within such thirty (30) day period, Landlord may terminate this Lease or Landlord may elect to restore the Building, in each case pursuant to Section 6.1(c)(i) of this Lease. For purposes of this Lease, the phrase "restored to substantially their condition immediately prior to the occurrence of such fire or casualty" shall mean Landlord's Base Building Improvements without the restoration of the improvements to the Premises that constitute Tenant's Work, in respect to which Tenant acknowledges that Tenant, and not Landlord, bears the risk of loss in respect to such fire or other casualty.

If Tenant makes Tenant's Deficiency Election, Tenant shall promptly deposit with Landlord's mortgagee (or another "restoration trustee" mutually acceptable to Landlord and Tenant) the amount reasonably estimated by Landlord's architect to fund the estimated cost of the total restoration of the Building (or Premises or Utility Service) to substantially their condition immediately prior to the occurrence of the fire or other casualty after application of the net proceeds of insurance recovered (the "Reconstruction Fund"); all amounts so deposited by Tenant into the Reconstruction Fund shall be referred to herein as "Tenant's Restoration Funds". Tenant shall have the right to approve the construction cost for the restoration of the Building (or

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Premises or Utility Service), which approval shall not be unreasonably withheld, conditioned or delayed. Landlord's mortgagee (or another "restoration trustee" mutually acceptable to Landlord and Tenant) shall advance proceeds from the Reconstruction Fund, as needed, to prosecute the restoration as herein provided, and any funds remaining in the Reconstruction Fund after final completion and payment in full of all of the costs of restoration shall be repaid to Tenant. If there is a shortfall in the funding of such restoration, Tenant shall promptly deposit the required additional funds in the Reconstruction Fund after Tenant's receipt of notice from Landlord or Landlord's mortgagee (or another "restoration trustee" mutually acceptable to Landlord and Tenant) stating the amount of the required additional funds and a description of the restoration work related thereto. Landlord shall have no obligation to repay to Tenant any portion of the Reconstruction Fund. During the period of such restoration, Fixed Rent and Additional Rent shall proportionately abate as set forth in Section 6.1(b)(i) hereof.

        (i)    Landlord's architect's certificate, given in good faith, shall be deemed conclusive of the statements therein contained and binding upon Tenant with respect to the extent of the damage to the Building and the performance and completion of any repair or restoration work undertaken by Landlord pursuant to Sections 6.1 or 6.2 hereof.

6.2   CONDEMNATION.

        In the event that the whole or any substantial part of the Building shall be taken or appropriated by eminent domain or shall be condemned for any public or quasi-public use, or (by virtue of any such taking, appropriation or condemnation) shall suffer any damage (direct, indirect or consequential) for which Landlord or Tenant shall be entitled to compensation, then (and in any such event) this Lease and the Term hereof may be terminated at the election of Landlord by a notice in writing of its election so to terminate which shall be given by Landlord to Tenant within ninety (90) days following the date on which Landlord shall have received notice of such taking, appropriation or condemnation. In the event that a substantial part of the Premises or of the means of access thereto or of the Garage Parking Spaces (as such term is defined in Section 10.14 hereof) (unless replaced without undue delay by substitute facilities within a reasonable walking distance from the Building) shall be so taken, appropriated or condemned so as to substantially interfere with the Permitted Uses of the Premises, then this Lease and the Term hereof may be terminated at the election of Tenant by a notice in writing of its election so to terminate which shall be given by Tenant to Landlord within sixty (60) days following the date on which Tenant shall have received notice of such taking, appropriation or condemnation. Substantial part for purposes of this Section 6.2 shall mean thirty-three and one-third percent (33¹/3%) or more of the Premises or thirty-three and one-third percent (33¹/3%) or more of the Garage Parking Spaces, as applicable.

        Upon giving of any such notice of termination (either by Landlord or Tenant), this Lease and the Term hereof shall terminate as of the date on which Tenant shall be required to vacate any part of the Premises or shall be deprived of a substantial part of the means of access thereto. In the event of any such termination, this Lease and the Term hereof shall expire as of the effective termination date as fully and completely as if such date were the date herein originally scheduled as the Term Expiration Date. If neither party elects to terminate, Landlord will with reasonable diligence and at Landlord's expense, restore the remainder of the Premises and Building, or the remainder of the means of access and Garage Parking Spaces, to substantially the same condition as practicable as existed prior to such taking, appropriation or condemnation in which event a just proportion of the Annual Fixed Rent and Additional Rent, according to the nature and extent of the taking, appropriation or condemnation and the resultant injury sustained by the Premises and the means of access thereto, shall be abated until what remains of the Premises and the means of access thereto shall have been restored as fully as may be for permanent use and occupancy by Tenant hereunder. In the event of any taking of the Premises or any part thereof for temporary use, (i) this Lease shall be and remain unaffected thereby, and

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(ii) Tenant shall be entitled to receive for itself any award made for such use, provided, that if any taking is for a period extending beyond the Term of this Lease, such award shall be apportioned between Landlord and Tenant as of the Term Expiration Date.

6.3   AWARD.

        Irrespective of the form in which recovery may be had by law, all rights to damages or compensation payable pursuant to Section 6.2 hereof shall belong to Landlord in all cases except as set forth below in this Section 6.3 or in Section 6.2 hereof. Tenant hereby grants to Landlord all of Tenant's rights to such damages and compensation and covenants to deliver such further assignments thereof as Landlord may from time to time request. It is agreed and understood, however, that Landlord does not reserve to itself, and Tenant does not assign to Landlord, any damages payable for (i) movable trade fixtures installed by Tenant or anybody claiming under Tenant, at Tenant's cost and expense, (ii) relocation expenses or damages for loss of business (in excess of any such damages attributable to the value of this lease) and (iii) the then unamortized cost of Tenant's Work, in each case recoverable by Tenant from such authority in a separate action.

ARTICLE VII

DEFAULTS

7.1   EVENTS OF DEFAULT.

        (a)  If Tenant shall default in the performance of any of its obligations to pay the Fixed Rent or Additional Rent hereunder and, in the case of the Fixed Rent or regularly recurring items of Additional Rent, such as monthly payments of the Annual Maintenance Charge, if such default shall continue for five (5) days after written notice from Landlord to Tenant or, in the case of nonrecurring items of Additional Rent, such as self-help costs incurred by Landlord or amounts due as the result of the annual reconciliation of Annual Maintenance Charge, if such default shall continue for twenty (20) days after written notice from Landlord to Tenant (provided, however, that in all cases Landlord shall not be required to provide such notice more than two (2) times in any period of twelve (12) consecutive calendar months) or if within 30 days after written notice from Landlord to Tenant specifying any other default or defaults Tenant has not commenced diligently to correct the default or defaults so specified or has not thereafter diligently pursued such correction to completion, or (b) if any assignment for the benefit of creditors shall be made by Tenant, or by any guarantor of Tenant, or (c) if Tenant's leasehold interest shall be taken on execution or other process of law in any action against Tenant, or (d) if a lien or other involuntary encumbrance is filed against Tenant's leasehold interest, and is not discharged within thirty (30) days thereafter, or (e) if a petition is filed by Tenant or any guarantor of Tenant for liquidation, or for reorganization or an arrangement or any other relief under any provision of the Bankruptcy Code as then in force and effect, or (f) if an involuntary petition under any of the provisions of said Bankruptcy Code is filed against Tenant or any guarantor of Tenant and such involuntary petition is not dismissed within ninety (90) days thereafter, or (g) if Tenant fails to maintain the insurance required under Section 4.2.2.1 hereof, (individually, an "Event of Default" and collectively, "Events of Default") then, and in any of such cases, Landlord and the agents and servants of Landlord lawfully may, in addition to and not in derogation of any remedies for any preceding breach of covenant, immediately or at any time thereafter prior to such time, if any, as Landlord has accepted a cure of such Event of Default and without demand or notice, at Landlord's election, do any one or more of the following: (1) give Tenant written notice stating that the Lease is terminated, effective upon the giving of such notice or upon a date stated in such notice, as Landlord may elect, in which event the Lease shall be irrevocably extinguished and terminated as stated in such notice without any further action, or (2) with or without process of law, in a lawful manner and without illegal force, enter and repossess the Premises as of Landlord's former estate, and expel Tenant and those claiming through or under Tenant, and remove its and their effects, without being guilty of

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trespass, in which event the Lease shall be irrevocably extinguished and terminated at the time of such entry, or (3) pursue any other rights or remedies permitted by law. Any such termination of the Lease shall be without prejudice to any remedies which might otherwise be used for arrears of rent or prior breach of covenant, and in the event of such termination Tenant shall remain liable under this Lease as hereinafter provided. Tenant hereby waives all statutory rights of redemption and Landlord, without notice to Tenant, may store Tenant's effects, and those of any person claiming through or under Tenant, at the expense and risk of Tenant, and, if Landlord so elects, may sell such effects at public auction or private sale and apply the net proceeds to the payment of all sums due to Landlord from Tenant, if any, and pay over the balance, if any, to Tenant.

7.2   REMEDIES.

        In the event that this Lease is terminated under any of the provisions contained in Section 7.1 or shall be otherwise terminated for breach of any obligation of Tenant, Tenant covenants to pay forthwith to Landlord, as compensation, the excess of the total rent reserved for the residue of the Term over the fair market rental value of the Premises for said residue of the Term. In calculating the rent reserved there shall be included, in addition to the Fixed Rent and Additional Rent, the value of all other considerations agreed to be paid or performed by Tenant during said residue. Tenant further covenants (as additional and cumulative obligations) after any such termination to pay punctually to Landlord all the sums and to perform all the obligations which Tenant covenants in this Lease to pay and to perform in the same manner and to the same extent and at the same time as if this Lease had not been terminated. In calculating the amounts to be paid by Tenant pursuant to the next preceding sentence Tenant shall be credited with any amount paid to Landlord as compensation as in this Section 7.2 provided and also with the net proceeds of any rent obtained by Landlord by reletting the Premises, after deducting all of the Landlord's reasonable expenses in connection with such reletting, including, without limitation, all repossession costs, brokerage commissions, fees for legal services and expenses of preparing the Premises for such reletting, it being agreed by Tenant that Landlord may (i) relet the Premises or any part or parts thereof, for a term or terms which may at Landlord's option be equal to or less than or exceed the period which would otherwise have constituted the balance of the Term and may grant such concessions and free rent as Landlord in its reasonable judgment considers advisable or necessary to relet the same and (ii) make such alterations, repairs and decorations in the Premises as Landlord in its reasonable judgment considers commercially advisable or necessary to relet the same, and no action of Landlord in accordance with the foregoing or failure to relet or to collect rent under reletting shall operate or be construed to release or reduce Tenant's liability as aforesaid.

        In lieu of any other damages or indemnity and in lieu of full recovery by Landlord of all sums payable under all the foregoing provisions of this Section 7.2, Landlord may by notice to Tenant, at any time after this Lease is terminated under any of the provisions contained in Section 7.1 or is otherwise terminated for breach of any obligation of Tenant and before such full recovery, elect to recover, and Tenant shall thereupon pay, as liquidated damages, an amount equal to the aggregate of the Fixed Rent and Additional Rent for the twelve (12) months ended next prior to such termination, plus the amount of rent of any kind accrued and unpaid at the time of termination and less the amount of any recovery from Tenant by Landlord under the foregoing provisions of this Section 7.2 up to the time of payment of such liquidated damages.

        Nothing contained in this Lease shall, however, limit or prejudice the right of Landlord to prove for and obtain in proceedings for bankruptcy or insolvency by reason of the termination of this Lease, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, the damages are to be proved, whether the amount be greater than, equal to, or less than the amount of the loss or damages referred to above.

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7.3   REMEDIES CUMULATIVE.

        Any and all rights and remedies which either Landlord or Tenant may have under this Lease, and at law and equity, shall be cumulative and shall not be deemed inconsistent with each other, and any two or more of all such rights and remedies may be exercised at the same time insofar as permitted by law.

7.4   LANDLORD'S RIGHT TO CURE DEFAULTS.

        Landlord may, but shall not be obligated to, cure, at any time, following ten (10) days' prior notice to Tenant, except in cases of emergency when no notice shall be required, any default by Tenant under this Lease; and whenever Landlord so elects, all costs and expenses incurred by Landlord, including reasonable attorneys' fees, in curing a default shall be paid by Tenant to Landlord as Additional Rent within twenty (20) days after Tenant's receipt of a written demand therefor, together with interest thereon at the rate provided in Section 4.3 from the date of payment by Landlord to the date of payment by Tenant.

7.5   EFFECT OF WAIVERS OF DEFAULT.

        Any consent or permission by Landlord or Tenant to any act or omission by the other party which otherwise would be a breach of any covenant or condition herein, or any waiver by Landlord or Tenant of the breach of any covenant or condition herein by the other party, shall not in any way be held or construed (unless expressly so declared) to operate so as to impair the continuing obligation of any covenant or condition herein, or otherwise, except as to the specific instance, operate to permit similar acts or omissions.

        The failure of Landlord or Tenant to seek redress for violation of, or to insist upon the strict performance of, any covenant or condition of this Lease by the other party shall not be deemed a waiver of such violation nor prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation. The receipt by Landlord, or the payment by Tenant, as the case may be, of rent with knowledge of the breach of any covenant of this Lease shall not be deemed to have been a waiver of such breach by Landlord or Tenant, as the case may be. No consent or waiver, express or implied, by Landlord or Tenant, as the case may be, to or of any breach of any agreement or duty shall be construed as a waiver or consent to or of any other breach of the same or any other agreement or duty.

7.6   NO ACCORD AND SATISFACTION.

        No acceptance by Landlord of a lesser sum than the Fixed Rent, Additional Rent or any other charge then due shall be deemed to be other than on account of the earliest installment of such rent or charge due, unless Landlord elects by notice to Tenant to credit such sum against the most recent installment due, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent or other charge be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such installment or pursue any other remedy in this Lease provided.

ARTICLE VIII

MORTGAGES

8.1   RIGHTS OF MORTGAGE HOLDERS.

        The word "mortgage" as used herein includes mortgages, deeds of trust or other similar instruments evidencing other voluntary liens or encumbrances, and modifications, consolidations, extensions, renewals, replacements and substitutes thereof. The word "holder" shall mean a mortgagee,

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and any subsequent holder or holders of a mortgage. Until the holder of a mortgage shall enter and take possession of the Premises for the purpose of foreclosure, such holder shall have only such rights of Landlord as are necessary to preserve the integrity of this Lease as security. Upon entry and taking possession of the Premises for the purpose of foreclosure, such holder shall have all the rights of Landlord. Notwithstanding any other provision of this Lease to the contrary, including without limitation Section 10.5, no such holder of a mortgage shall be liable either as mortgagee or as assignee to perform, or be liable in damages for failure to perform, any of the obligations of Landlord unless and until such holder shall enter and take possession of the Premises for the purpose of foreclosure or is otherwise deemed to be a mortgagee-in-possession under applicable law, and such holder shall not in any event be liable to perform or for failure to perform the obligations of Landlord under Article III. Upon entry for the purpose of foreclosure, such holder shall be liable to perform all of the obligations of Landlord (except for the obligations under Article III), subject to and with the benefit of the provisions of Section 10.5, provided that a discontinuance of any foreclosure proceeding shall be deemed a conveyance under said provisions to the owner of the equity of the Premises. No Fixed Rent, Additional Rent or any other charge shall be paid more than 10 days prior to the due dates thereof and payments made in violation of this provision shall (except to the extent that such payments are actually received by a mortgagee in possession or in the process of foreclosing its mortgage) be a nullity as against such mortgagee and Tenant shall be liable for the amount of such payments to such mortgagee.

        The covenants and agreements contained in this Lease with respect to the rights, powers and benefits of a holder of a mortgage (including, without limitation, the covenants and agreements contained in this Section 8.1) constitute a continuing offer to any person, corporation or other entity, which by accepting a mortgage subject to this Lease, assumes the obligations herein set forth with respect to such holder; such holder is hereby constituted a party of this Lease as an obligee hereunder to the same extent as though its name were written hereon as such; and such holder shall be entitled to enforce such provisions in its own name. Tenant agrees on request of Landlord to execute and deliver from time to time a Subordination, Non-disturbance and Attornment Agreement ("SNDA"), substantially in the form of Exhibit D hereto or any other reasonable agreement which may be necessary to implement the provisions of this Section 8.1 and Section 8.2 hereof.

8.2   SUPERIORITY OF LEASE; OPTION TO SUBORDINATE.

        This Lease shall be superior to and shall not be subordinate to any future mortgage or other voluntary lien or other encumbrance of the Lot, the Building or the Complex; provided, however, that Landlord shall have the option to subordinate this Lease to any such mortgage of the Lot, the Building or the Complex provided that Landlord obtains from the holder of record of any existing or future mortgage an SNDA substantially in the form of Exhibit D hereto or another form of agreement with Tenant and reasonably acceptable to Tenant by the terms of which such holder will agree (a) to recognize the rights of Tenant under this Lease, (b) to perform Landlord's obligations hereunder arising after the date of such holder's acquisition of title as hereinafter described, expressly excluding, however, Landlord's obligations under Article III of this Lease, and (c) to accept Tenant as tenant of the Premises under the terms and conditions of this Lease in the event of acquisition of title by such holder through foreclosure proceedings or otherwise, provided that Tenant will agree to recognize the holder of such mortgage as Landlord in such event, which agreement shall be made expressly to bind and inure to the benefit of the successors and assigns of Tenant and of the holder and upon anyone purchasing said Premises at any foreclosure sale. Tenant and Landlord agree to execute and deliver any appropriate instruments necessary to carry out the agreements contained in this Section 8.2. Any such mortgage to which this Lease shall be subordinate may contain such terms, provisions and conditions as the holder deems usual or customary.

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8.3   LEASE AMENDMENTS.

        Tenant agrees to make such changes in this Lease as may be reasonably required by the holder of any mortgage of which the Premises are a part, or any institution which may purchase all or a substantial part of Landlord's interest in the Premises, provided that such changes may not increase the Fixed Rent or other payments due hereunder or otherwise materially affect the obligations of Tenant hereunder, and provided further that such changes do not (i) materially interfere with Tenant's right of use and enjoyment of the Premises pursuant to this Lease, (ii) limit, impair or delay Tenant's rights to sublease or assign all or portion of this Lease pursuant to Section 5.2.1 hereof, (iii) limit, impair or delay Tenant's right to obtain a reduction or abatement of rent pursuant to Section 6.2, (iv) limit, impair or delay Tenant's right to terminate this Lease pursuant to Section 3.2 or Section 6.2 or (v) otherwise unreasonably limit, impair or delay Tenant's rights hereunder. Tenant's failure or refusal to make any such changes shall not constitute an Event of Default by Tenant pursuant to this Lease.

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ARTICLE IX

LANDLORD'S ADDITIONAL COVENANTS

9.1   AFFIRMATIVE COVENANTS.

        Landlord covenants at all times during the Term:

9.1.1    Perform Obligations.

        To perform promptly all of the obligations of Landlord set forth in this Lease, including, without limitation, furnishing, through Landlord's employees or independent contractors, the services required to be furnished by Landlord pursuant to this Lease (the cost of which is to be included in the Annual Maintenance Charge).

9.1.2    Repairs.

        Except as otherwise provided in Article VI, to make such repairs (the cost of which is to be included in the Annual Maintenance Charge) to the foundations, roof, exterior walls, exterior windows and waterproofing, floor slabs, other structural columns, beams and other components, parking areas, walks, landscaping, courtyard and any other Building Common Areas and Complex Common Areas as may be necessary to keep them in the condition required by Section 4.2.4 hereof. Landlord shall be responsible for the maintenance and repair of the Utility Services systems and the components thereof serving the Building to the extent that such systems and components are included in Base Building Improvements.

9.1.3    Compliance with Law.

        To make all repairs, alterations, additions or replacements to the Building, the Lot and the Complex (the appropriate costs of which are to be included in the Annual Maintenance Charge) required by any law, ordinance or order or regulation of any public authority including repairs, alterations, additions or replacements to the foundations and structural elements of the Building, except as required because of Tenant's failure to comply with the provisions of Section 5.1.3 hereof; to keep the Building equipped with all safety appliances so required (the costs of which are to be included in the Annual Maintenance Charge); subject to Section 4.2.1, to pay all municipal, county, or state taxes assessed against the Building or the Lot, or against Landlord's personal property of any kind on or about the Building or the Lot; and to comply with the orders and regulations of all governmental authorities with respect to zoning, building, fire, health and other codes, regulations, ordinances or laws applicable to the Building or the Lot, including the ADA Requirements (as defined in Section 3.3 hereof) and any codes, regulations, ordinances or laws relating to hazardous materials (as defined in Section 5.1.4), subject to, and without limitation of, Tenant's obligations with respect to such codes, regulations, ordinances or laws. The appropriate costs incurred by Landlord in connection with the foregoing compliance obligations shall be included in the Annual Maintenance Charge. All of the foregoing covenants and obligations are subject to, and without limitation of, all of Tenant's obligations under this Lease, including, without limitation, those set forth in Sections 4.2 and 5.1.4.

9.1.4    Indemnity

        To defend, with counsel reasonably approved by Tenant, all actions against Tenant, any partner, trustee, stockholder, officer, director, employee or beneficiary of Tenant ("Tenant's Indemnified Parties") with respect to, and to pay, protect, indemnify and save harmless, to the extent permitted by law, all Tenant's Indemnified Parties from and against any and all liabilities, losses, damages, costs, expenses (including reasonable attorneys' fees and expenses), causes of action, suits, claims, demands or

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judgments of any nature to which any of Tenant's Indemnified Parties is subject arising from and to the extent of any negligent or willful act, fault, omission, or other misconduct of Landlord or its agents, contractors or employees.

9.1.5    Estoppel Certificate.

        Upon not less than fifteen (15) days' prior notice from Tenant, to execute, acknowledge and deliver to Tenant a statement in writing certifying that this Lease is unmodified and in full force and effect and that except as stated therein Landlord has no knowledge of any defenses, offsets or counterclaims against its obligations under this Lease (or, if there have been any modifications that the Lease is in full force and effect as modified and stating the modifications and, if there are any defenses, offsets or counterclaims, setting them forth in reasonable detail), the dates to which the Fixed Rent and Additional Rent and other charges have been paid and a statement that, to the best of Landlord's knowledge, Tenant is not in default hereunder (or if in default, the nature of such default, in reasonable detail) and such other matters reasonably required by Tenant or any prospective assignee of Tenant. Any such statement delivered pursuant to this Section 9.1.5 may be relied upon by any prospective assignee.

9.1.6    Subdivision.

        The Lot is currently a portion of the Complex and Landlord may subdivide the Complex so as to, inter alia, establish the Lot as a separate taxable parcel and establish easements which benefit and/or burden the Lot and remaining portions of the Complex (collectively, the "Subdivision"). Upon or after the Subdivision, Landlord may convey the Lot and assign this Lease to an Affiliate of Landlord (the "Transfer"). Tenant agrees to cooperate with Landlord in connection with such Subdivision and Transfer, including without limitation, the execution, acknowledgment and delivery of an instrument pursuant to which this Lease shall be subordinated to easements reasonably established in connection with the Subdivision and Transfer and such other documents as Landlord reasonably may request so long as such Subdivision and Transfer do not materially interfere with Tenant's use of the Premises or any of Tenant's rights under this Lease to other portions of the Complex. After the Substantial Completion Date, Landlord may convey the Lot and the Building and assign this Lease to any person or entity.

ARTICLE X

MISCELLANEOUS PROVISIONS

10.1    NOTICES FROM ONE PARTY TO THE OTHER.

        All notices required or permitted hereunder shall be in writing and addressed, if to the Tenant, at the Original Address of Tenant or such other address as Tenant shall have last designated by notice in writing to Landlord, with a copy to Genzyme Corporation, One Kendall Square, Building 1400, Cambridge, Massachusetts 02139, Attention: General Counsel, and, if to Landlord, at Landlord's Address or such other address as Landlord shall have last designated by notice in writing to Tenant, with a copy to Patrick C. Toomey, Esquire, Gadsby Hannah LLP, 225 Franklin Street, Boston, Massachusetts 02110. Any notice shall be deemed duly given if mailed to such address postage prepaid, registered or certified mail, return receipt requested, when deposited with the U.S. Postal Service, or if delivered by a recognized courier service (e.g. Federal Express) when deposited with such courier service, or if delivered to such address by hand, when so delivered.

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10.2    QUIET ENJOYMENT.

        Landlord agrees that upon Tenant's paying the rent and performing and observing the terms, covenants, conditions and provisions on its part to be performed and observed, Tenant shall and may peaceably and quietly have, hold and enjoy the Premises during the Term without any manner of hindrance or molestation from Landlord or anyone claiming under Landlord, subject, however, to the terms of this Lease.

10.3    EASEMENTS; CHANGES TO LOT LINES.

        Landlord reserves the right, from time to time, to grant easements affecting the Building, the Lot or the Complex and to change or alter existing boundaries of the Lot or Complex for purpose of developing and using the Lot and the Complex so long as such easements or such changes or alterations to existing boundaries of the Lot or the Complex do not materially interfere with Tenant's use of the Premises or any of Tenant's rights under this Lease to other portions of the Complex.

10.4    LEASE NOT TO BE RECORDED.

        Neither party shall record this Lease. Both parties shall execute and deliver a notice of this Lease in such form, as may be permitted by applicable statute. If this Lease is terminated before the Term Expiration Date the parties shall execute, deliver and record an instrument acknowledging such fact and the actual date of termination of this Lease, and Tenant hereby appoints Landlord its attorney-in-fact, coupled with an interest, with full power of substitution to execute such instrument in the event that Tenant fails to do so within five (5) days after Landlord's request therefor.

10.5    BIND AND INURE; LIMITATION OF LANDLORD'S LIABILITY.

        The obligations of this Lease shall run with the land, and this Lease shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. No owner of the Premises shall be liable under this Lease except for breaches of Landlord's obligations occurring while owner of the Premises. The obligations of Landlord shall be binding upon the assets of Landlord which comprise the Premises, Building and Lot, but not upon other assets of Landlord. Without limiting the generality of the foregoing, upon any assignment of this Lease by Kendall Square, LLC to an Affiliate of Landlord, Kendall Square, LLC shall have no further liability or obligation pursuant to this Lease. No member, partner, trustee, stockholder, officer, director, employee or beneficiary (or the members, partners, trustees, stockholders, officers, directors or employees of any such beneficiary) of Landlord shall be personally liable under this Lease and Tenant shall look solely to Landlord's interest in the Building and Lot, including insurance proceeds and eminent domain awards and the proceeds of any sale of the Building or Lot, and any rents and profits from the Building in pursuit of its remedies upon an event of default hereunder, and the general assets of the members, partners, trustees, stockholders, officers, employees or beneficiaries (and the members, partners, trustees, stockholders, officers, directors or employees of any such beneficiary) of Landlord shall not be subject to levy, execution or other enforcement procedure for the satisfaction of the remedies of Tenant; provided that the foregoing provisions of this sentence shall not constitute a waiver of any obligation evidenced by this Lease and provided further that the foregoing provisions of this sentence shall not limit the right of Tenant to name Landlord or any individual partner or trustee thereof as party defendant in any action or suit in connection with this Lease so long as no personal money judgment shall be asked for or taken against any individual partner, trustee, stockholder, officer, employee or beneficiary of Landlord.

10.6    ACTS OF GOD.

        In any case where either party hereto is required to do any act (other than the payment of money), delays caused by or resulting from the occurrence of one or more Force Majeure Events shall

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not be counted in determining the time during which work shall be completed, whether such time be designated by a fixed date, a fixed time or a "reasonable time", and such time shall be deemed to be extended by the period of such delay.

10.7    LANDLORD'S DEFAULT.

        Landlord shall not be deemed to be in default in the performance of any of its obligations hereunder unless it shall fail to perform such obligations and such failure shall continue for a period of thirty (30) days following receipt of written notice from Tenant or such additional time as is reasonably required to correct any such default, or such other time as may be set forth in Section 3.2 hereof, after written notice has been given by Tenant to Landlord specifying the nature of Landlord's alleged default. Landlord shall not be liable in any event for incidental or consequential damages to Tenant by reason of any default by Landlord hereunder, whether Landlord is notified that such damages may occur. Except as expressly set forth in Section 3.2 and Section 6.2 hereof, Tenant shall have no right to terminate this Lease for any default by Landlord hereunder and no right, for any such default, to offset or counterclaim against any rent due hereunder.

        Notwithstanding the foregoing, if any repairs to the Premises required by this Lease, or any maintenance, cleaning, or lighting of the common areas of the Building or the Lot, are not performed by Landlord within thirty (30) days after notice from Tenant (or such longer period as may be reasonably required in the event that any such repair, maintenance, cleaning or lighting cannot be completed within said thirty (30) day period), Tenant shall have the right to perform such obligation of Landlord. If Tenant performs any such obligation of Landlord, Landlord shall pay to Tenant the reasonable cost thereof within thirty (30) days after notice from Tenant, provided, however, that in no event shall Tenant have the right to offset or deduct the amount thereof against any payment of rent due hereunder.

        If an emergency occurs where a repair is required to be done immediately in order to avoid imminent danger to persons or material damage to the Premises, Tenant shall have the right to self-help consistent with the immediately preceding paragraph of this Section 10.7 after giving Landlord only such notice as is reasonable under the circumstances, provided, however, that formal notice shall be promptly given thereafter. However, the right of self-help afforded to Tenant in this Section 10.7 shall be carefully and judiciously exercised by Tenant, it being understood and agreed that except in the case of an emergency, Landlord shall be given sufficient opportunity to take the action required of Landlord to avoid such default, in order to avoid any conflict with respect to whether self-help should have been availed of by Tenant, or with respect to the reasonableness of the expenses incurred by Tenant.

        Subject to the foregoing provisions of this Section 10.7, Landlord agrees to pay on demand Tenant's expenses, including reasonable attorneys' fees, incurred by Tenant in enforcing any obligation of Landlord under this Lease or in curing any default by Landlord.

10.8    BROKERAGE.

        Each party warrants and represents to the other party that it has had no dealings with any broker or agent in connection with this Lease other than Trammel Crow Company and Insignia/ESG (the "Brokers") and covenants to defend with counsel reasonably approved by such other party, hold harmless and indemnify such other party from and against any and all cost, expense or liability arising from any breach of the foregoing warranty and representation. Landlord shall pay to the Brokers the real estate commission or fee due such Brokers with respect to the transactions contemplated herein as and when due pursuant to separate agreement(s) between Landlord and the Brokers.

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10.9    APPLICABLE LAW AND CONSTRUCTION.

        This Lease shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. If any term, covenant, condition or provision of this Lease or the application thereof to any person or circumstances shall be declared invalid, or unenforceable by the final ruling of a court of competent jurisdiction having final review, the remaining terms, covenants, conditions and provisions of this Lease and their application to persons or circumstances shall not be affected thereby and shall continue to be enforced and recognized as valid agreements of the parties, and in the place of such invalid or unenforceable provision, there shall be substituted a like, but valid and enforceable provision which comports to the findings of the aforesaid court and most nearly accomplishes the original intention of the parties.

        There are no prior oral or written agreements between Landlord and Tenant affecting this Lease. The Letter of Intent dated January 5, 2000 from Tenant to Mr. David Clem of Lyme Properties, LLC shall be of no further force or effect. This Lease may be amended, and the provisions hereof may be waived or modified, only by instruments in writing executed by Landlord and Tenant. The titles of the several Articles and Sections contained herein are for convenience only and shall not be considered in construing this Lease. Unless repugnant to the context, the words "Landlord" and "Tenant" appearing in this Lease shall be construed to mean those named in Article I above and their successors and assigns, and those claiming through or under them respectively. If there be more than one tenant the obligations imposed by this Lease upon Tenant shall be joint and several.

10.10    SUBMISSION NOT AN OFFER.

        The submission of a draft of this Lease or a summary of some or all of its provisions does not constitute an offer to lease or demise the Premises, it being understood and agreed that neither Landlord nor Tenant shall be legally bound with respect to the leasing of the Premises unless and until this Lease has been executed by both Landlord and Tenant and a fully executed copy delivered to each of them.

10.11    EXPANSION OF PREMISES.

        (a)   On the condition that this Lease is in full force and effect as of the commencement of the fourth Lease Year, then, effective as of the commencement of the fourth Lease Year, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, subject to and with the benefit of the terms, covenants, conditions and provisions of this Lease, approximately 25,000 r.s.f. in the Building (the "First Expansion Space") in its then "AS IS" condition but subject to Section 10.11(e) hereof, and on the condition that this Lease is in full force and effect as of the commencement of the sixth Lease Year, then effective as of the commencement of the sixth Lease Year, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, subject to and with the benefit of the terms, covenants, conditions and provisions of this Lease, approximately 25,000 r.s.f. in the Building (the "Second Expansion Space") in its then "AS IS" condition but subject to Section 10.11(e) hereof. Landlord and Tenant agree that the Premises initially demised to Tenant by Landlord pursuant to this Lease, together with the First Expansion Space and the Second Expansion Space, will constitute all of the Rentable Square Footage in the Building except for the Retail Space.

        (b)   On or prior to the date upon which Tenant is required to approve the Schematic Design Documents, Landlord and Tenant shall mutually agree on the location in the Building of the Premises initially demised to Tenant pursuant to this Lease and the location in the Building of the First Expansion Space and the Second Expansion Space (the "Expansion Spaces"). At such time as the parties have agreed upon the location of the Expansion Spaces, the parties shall attach hereto as Exhibit A-4 a plan showing such locations. The actual Rentable Square Footage of the Expansion Spaces shall be determined pursuant to Section 2.3 hereof.

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        (c)   The Annual Fixed Rent Rate for each of the First Expansion Space and the Second Expansion Space shall be calculated separately for each Expansion Space and shall be (i) the Annual Fixed Rent Rate for the Premises initially demised to Tenant plus (ii) the TI Factor (as hereinafter defined) and shall be payable in each instance starting on the later of the date on which possession of the First Expansion Space or the Second Expansion Space, as applicable, is delivered to Tenant or the commencement of the Term with respect thereto as set forth in Section 10.11(a) hereof. The "TI Factor" shall mean the product of (1) the lesser of (A) all hard and soft costs, determined on a Rentable Square Footage basis, incurred by Landlord for tenant improvements to the First Expansion Space or the Second Expansion Space, as applicable, or (B) $45.00 per r.s.f., multiplied by (2) twelve percent (12%). For example, if Landlord incurs $45.00 per r.s.f. for tenant improvements to the First Expansion Space, the TI Factor will be $5.40 per r.s.f. ($45.00 per r.s.f. × .12 = $5.40 per r.s.f.). Except as set forth in Section 10.11(e) hereof, Landlord shall have no obligation to make any tenant improvements to the Expansion Spaces for Tenant. Notwithstanding any other provision of this Lease, Tenant shall not be required to pay rent on either of the Expansion Spaces prior to the respective dates determined above in this Section 10.11(c).

        (d)   Commencing as of the tenth anniversary of the Commencement Date, the Annual Fixed Rent (including the TI Factor) for the First Expansion Space and the Second Expansion Space shall be increased by an amount determined by multiplying such Annual Fixed Rent by twenty-one and nine tenths percent (21.9%), as provided in Section 4.1(b) hereof.

        (e)   Tenant improvements made to the Expansion Spaces by Landlord for the initial tenants thereof shall be consistent with first class office space and not overly partitioned with small or large offices and conference/training rooms. Tenant may make alterations to the Expansion Spaces after the respective commencement of the Term with respect thereto, but only in accordance with the provisions of this Lease applicable to Tenant's Work, and Tenant shall occupy the Expansion Spaces within six (6) months after the respective commencement of the Term with respect thereto.

        (f)    The term of this Lease with respect to the Expansion Spaces shall be coterminous with the Term Expiration Date, such that the Lease of the Expansion Spaces will terminate as of the Term Expiration Date.

        (g)   Upon commencement of the Term with respect to the First Expansion Space and the Second Expansion Space, as applicable, (i) the term "Premises" as used herein shall mean the Premises initially demised to Tenant and the First Expansion Space and Second Expansion Space, as applicable, and (ii) Tenant's Proportionate Fraction for Building and Tenant's Proportionate Fraction for Complex shall be recalculated as set forth in Section 2.3 hereof.

        (h)   If upon commencement of the Term with respect to the Second Expansion Space, and so long thereafter as Genzyme Corporation, Affiliate(s) of Tenant or subtenants of Tenant occupy all of the r.s.f. of the Building, other than the Retail Space, (i) Tenant shall have line item approval rights, not to be unreasonably withheld, delayed or conditioned, with respect to major operating expense categories for the Building set forth in Exhibit B-2 hereto or (ii) Tenant may self-manage the Building, including the Retail Space, provided, however, that during any period of self-management, Tenant shall be obligated to manage, maintain and repair the Building in the same condition and to the same extent required of Landlord pursuant to Section 4.2.4 and 9.1.2 hereof and provided further, that Landlord shall have the right to approve any and all contracts and contractors to be retained by Tenant, such approval not to be unreasonably withheld, delayed or conditioned.

        (i)    Notwithstanding Section 10.11(a) hereof, Tenant shall have the option to (i) lease the First Expansion Space as of the Commencement Date or (ii) both Expansion Spaces as of the Commencement Date (as so determined, the "Early Occupancy Space") by giving Landlord written notice thereof on or prior to that date which is one (1) year prior to the Scheduled Substantial Completion Date. In such event, (a) the Annual Fixed Rent for the Early Occupancy Space shall be

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determined on the basis of the Annual Fixed Rent Rate set forth in Section 1.1 and not pursuant to Section 10.11(c) hereof and (b) Landlord shall have no obligation to make any tenant improvements to the Early Occupancy Space.

10.12    OPTIONS TO EXTEND.

        (a)   Tenant shall have two (2) options to extend the Term of this Lease (the "Options to Extend") for successive periods of ten (10) years each (the "Extension Periods"), subject to and on the terms set forth herein. Tenant may only exercise the Options to Extend with respect to the entire Premises (including the Expansion Spaces). If Tenant shall desire to exercise either Option to Extend, it shall give Landlord a notice (the "Inquiry Notice") of such desire not later than twenty-one (21) months prior to the expiration of the Initial Term of this Lease or the preceding Extension Period, as the case may be. Thereafter, the Fair Market Rent (as defined in Subsection (b) below) for the applicable Extension Period shall be determined in accordance with Subsection (e) below. After the applicable Fair Market Rent has been so determined, Tenant may exercise each Option to Extend by giving Landlord written notice (the "Exercise Notice") of its election to do so not later than (x) the date by which Fair Market Rent has been determined pursuant to this Section 10.12 or (y) eighteen (18) months prior to the expiration of the Initial Term of this Lease, or the preceding Extension Period, as the case may be, whichever is earlier. If Tenant fails to timely give either the Inquiry Notice or the Exercise Notice to Landlord with respect to any Option to Extend, at the sole election of Landlord, Tenant shall be conclusively deemed to have waived such Option to Extend hereunder.

        (b)   For purposes of this Section 10.12, "Fair Market Rent" shall mean the average of (1) ninety-five percent (95%) of the fair market rental value for unfinished, shell office space in a comparable office building in the Kendall Square, Cambridge, Massachusetts office market area (the "Relevant Market") and (2) ninety-five percent (95%) of the fair market rental value for the Premises, including the Expansion Spaces, and shall take into account all other relevant factors in the Relevant Market, including the ten (10) year term of the applicable Extension Period. In no event shall the Fair Market Rent for the first Extension Period be less than the Annual Fixed Rent for the Premises, including the Expansion Spaces, for the fifteenth Lease Year and in no event shall the Fair Market Rent for the second Extension Period be less than the Annual Fixed Rent for the Premises, including the Expansion Spaces, for the twenty-fifth Lease Year.

        (c)   Notwithstanding any contrary provision of this Lease, each Option to Extend and any exercise by Tenant thereof shall be void and of no force or effect unless on the dates Tenant gives Landlord its Inquiry Notice and Exercise Notice for each Option to Extend and on the date of commencement of each Extension Period (i) this Lease is in full force and effect, (ii) there is no uncured Event of Default of Tenant under this Lease, (iii) Tenant has not assigned this Lease (or agreed to assign this Lease) or subleased (or agreed to sublease) more than forty percent (40%) of the Rentable Floor Area of the Premises, in either case to any person or entity other than an Affiliate of Tenant.

        (d)   All of the terms, provisions, covenants, and conditions of this Lease shall continue to apply during each Extension Period, except that (i) the Annual Fixed Rent during each Extension Period (the "Extension Rent") shall be equal to the Fair Market Rent for the Premises determined in accordance with Subsection (b) above and the procedure set forth in Subsection (e) below and (ii) Tenant shall not have any other Options to Extend.

        (e)   The Fair Market Rent for each Extension Period shall be determined as follows: Within five (5) days after Tenant gives Landlord its Inquiry Notice with respect to either Option to Extend, Landlord shall give Tenant notice of Landlord's determination of the Fair Market Rent for the applicable Extension Period. Such determination shall separately identify the two factors used to calculate Fair Market Rent. Within ten (10) days after Tenant receives such notice, Tenant shall notify Landlord of its agreement with or objection to Landlord's determination of the Fair Market Rent. If

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Tenant shall notify Landlord of Tenant's objection to Landlord's determination of Fair Market Rent, the Fair Market Rent shall be determined by appraisal in the manner set forth below. If Tenant does not notify Landlord within such ten (10) day period of Tenant's agreement with or objection to Landlord's determination of the Fair Market Rent, then the Fair Market Rent for the applicable Extension Period shall be deemed to be Landlord's determination of the Fair Market Rent as set forth in the notice from Landlord described in this subsection.

        If Tenant notifies Landlord of Tenant's objection to Landlord's determination of Fair Market Rent under the preceding subsection, such notice shall also set forth a request for appraisal and Tenant's appointment of a commercial real estate broker having at least ten (10) years experience in the commercial leasing market in the City of Cambridge, Massachusetts (an "Appraiser"). Within five (5) days thereafter, Landlord shall by notice to Tenant appoint a second Appraiser. In determining the Fair Market Rent, each of the Appraisers appointed by Landlord and Tenant shall separately identify the two separate factors used to calculate Fair Market Rent. Each Appraiser shall determine the Fair Market Rent for the applicable Extension Period within thirty (30) days after Landlord's appointment of the second Appraiser. On or before the expiration of such thirty (30) day period, the two Appraisers shall confer to compare their respective determinations of the Fair Market Rent. If the difference between the amounts so determined by the two Appraisers is less than or equal to ten percent (10%) of the lower of said amounts, then the final determination of the Fair Market Rent shall be equal to the average of said amounts. If such difference between said amounts is greater than ten percent (10%), then the two Appraisers shall have ten (10) days thereafter to appoint a third Appraiser (the "Third Appraiser"), who shall be instructed to determine the Fair Market Rent for the applicable Extension Period within ten (10) days after its appointment by selecting one of the amounts determined by the other two Appraisers. If the two Appraisers are unable to agree upon the Third Appraiser within such ten (10) day period, such Third Appraiser shall be appointed by the then President of the Greater Boston Real Estate Board upon request of either Landlord or Tenant. Each party shall bear the cost of the Appraiser selected by such party. The cost for the Third Appraiser, if any, shall be shared equally by Landlord and Tenant. Each Appraiser and Landlord shall be given reasonable access to the Premises for purposes of determining Fair Market Rent.

10.13    ARBITRATION.

        All disputes arising from or related to the performance of Landlord's Work or the interpretation of the Design Documents shall be submitted to and resolved in arbitration under the Construction Industry Rules of the American Arbitration Association, before the Arbitrator (as hereinafter defined), in Boston, Massachusetts. Any award entered by the Arbitrator shall be final and binding upon the parties thereto. Judgment upon any award rendered by the Arbitrator may be entered in any court having competent jurisdiction.

        Notwithstanding the foregoing, disputes with respect to whether (i) the Schematic Design Documents are in compliance with the Preliminary Design Concept, (ii) the Design Development Documents are in compliance with the Schematic Design Development Documents, or (iii) the Final Design Documents are in compliance with the Design Development Documents, shall be summarily decided by the Arbitrator and disputes concerning the achievement of the Substantial Completion Date shall be determined by the Arbitrator, in each case without resort to formal arbitration under the Construction Industry Rules of the American Arbitration Association, and the Arbitrator's decision thereon shall be binding on the parties. Otherwise, such disputes shall be resolved in arbitration as set forth herein.

        Arbitration proceedings under this Section 10.13 shall, upon motion of any party, be consolidated with arbitration proceedings pending between other parties relating to the Landlord's Work, the same transaction, the same subject matter, and/or involving related substantive rights. All parties hereby consent to such consolidation. In addition to the foregoing, any party to any agreement, whose rights or

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performance is involved in an arbitration proceeding hereunder, may be joined as a party in any arbitration proceeding instituted hereunder. Consolidation and joinder hereunder shall be by order of the Arbitrator. If the Arbitrator shall fail, upon motion, to make such an order, any party may apply to the Superior Court for Middlesex County, Massachusetts for such an order. Neither party nor the Arbitrator may disclose the existence, content or results of any arbitration hereunder without the prior written consent of both parties. All administrative fees and expenses of the arbitration shall be borne equally by the parties. Each party shall bear the expense of its own counsel, experts, witnesses, and preparation and presentation of proofs.

        There shall be a single arbitrator, who shall be experienced as an arbitrator and who shall be either a registered engineer, architect, or general contractor engaged in business in Massachusetts, for at least ten (10) years, and familiar with issues generally similar to those in dispute, and who shall not have had any dealings with either party within the five-year period immediately preceding such dispute (the "Arbitrator"). If Landlord and Tenant are unable to agree upon the Arbitrator within ten (10) days after submission of a dispute to arbitration, then either Landlord or Tenant may request that the then President of the Boston Bar Association select the Arbitrator. Each party shall bear half the cost of the Arbitrator. The right to arbitrate shall not be deemed to be a limitation of the rights or remedies of either party in aid of arbitration under any and all applicable laws, unless expressly waived, by such party hereto. All arbitration proceedings shall be conducted in Boston, Massachusetts.

10.14    PARKING.

        Tenant shall pay monthly, in advance, as Additional Rent the then fair market value (the "Parking Fee") (adjusted no more frequently than annually) for each of Tenant's Parking Spaces to be leased to Tenant. In no event shall the Parking Fee exceed the lowest monthly rate being charged to tenants of the Complex by Landlord or any Affiliate of Landlord for parking in the Garage. After the Commencement Date, all of Tenant's Parking Spaces leased hereby may only be utilized by Tenant's employees, visitors, sublessees of the Premises or assignees of the Lease, visiting or working at the Premises. All of Tenant's Parking Spaces and Valet Parking Spaces (as hereinafter defined) shall be located in the underground parking structure to be constructed and/or owned by Landlord or an Affiliate of Landlord (as hereinafter defined) south of Kendall Street, as shown on Exhibit A hereto (the "Garage"). As used herein, the term "Affiliate of Landlord" shall mean a person or entity controlled by, controlling or under common control with Landlord. The owner of the Garage from time to time is herein referred to as the "Garage Owner", and the Tenant's Parking Spaces and the Valet Parking Spaces are herein referred to collectively as the "Garage Parking Spaces." Landlord covenants and agrees that if the Garage is conveyed by Landlord to any other person or entity, including an Affiliate of Landlord, such conveyance shall be subject to a lease, permanent easement or similar instrument by and between Landlord and the Garage Owner so that the Tenant shall have, throughout the Term, the right to use the Garage Parking Spaces, subject to the terms of this Lease.

        Landlord shall also lease to Tenant and Tenant shall lease from Landlord one valet parking space per 1,000 r.s.f. of the Rentable Square Footage as determined from time to time (the "Valet Parking Spaces") at a rate per space equal to (i) the Parking Fee plus (ii) the incremental costs associated with valet parking services for the Garage, which incremental costs shall be pro-rated if valet parking spaces are provided to other tenants of the Complex (as so determined, the "Valet Parking Fee"). Tenant shall pay monthly, in advance, as Additional Rent the Valet Parking Fee for each Valet Parking Space. Employees of Tenant visiting the Complex from other facilities may use the Garage, subject to availability, at the daily rate charged by the Garage Owner, provided, however, Landlord and Tenant agree to implement a parking ticket validation system so that employees of Tenant visiting the Complex from other facilities of Tenant may use any unused Valet Parking Spaces. The Garage Owner shall have the right, from time to time but not more often than every six (6) months, to relocate, on a temporary basis as may be necessary to effect repairs and improvements to the Garage or for other business

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reasons, parking spaces located in the Garage to another location within 1000 feet of the Lot, provided that in each instance such other location may be lawfully used for accessory parking, and provided further that the monthly rent to be paid by Tenant for each temporarily relocated parking space shall be an amount equal to the fair market value thereof but in no event more than the rent then being paid by Tenant for a parking space in the Garage. Anything herein to the contrary notwithstanding, Landlord shall have the right to relocate all or any number of the Garage Parking Spaces to a garage which may be constructed by Landlord or an Affiliate of Landlord in the northerly portion of the Complex provided that access from the Building to such other garage is substantially as convenient as access between the Building and the Garage, whereupon provisions of this Lease applicable to the Garage, the Garage Owner and the Garage Parking Spaces shall apply, mutatis mutandis, to such garage, garage owner and the Garage Parking Spaces located therein.

        Neither Landlord nor the Garage Owner shall be responsible for money, jewelry, automobiles or other personal property lost in or stolen from the Garage, regardless of whether such loss or theft occurs when the Garage or other areas therein are locked or otherwise secured against entry, or liable for any loss, injury or damage to persons using the Garage or automobiles or other property therein, it being agreed that the use of the Garage and the Garage Parking Spaces shall be at the sole risk of Tenant and its employees, visitors and guests. Landlord and the Garage Owner shall have the right from time to time to promulgate reasonable rules and regulations regarding the Garage, the Garage Parking Spaces and the use thereof, including, but not limited to, rules and regulations controlling the flow of traffic to and from various parking areas, the angle and direction of parking and the like, which rules and regulations and any additions and amendments thereto Garage Owner shall use reasonable efforts to consistently apply to all users of the Garage. Tenant shall comply with and cause its employees, visitors and guests to comply with all such rules and regulations as well as all reasonable additions and amendments thereto.

        Except for emergency repairs using authorized repair services, no person using the Garage Parking Spaces shall perform any work on any automobiles while located in the Garage. Except in connection with an approved assignment of the Lease or an approved subletting of all or a portion of the Premises in accordance with the terms hereof, Tenant shall not assign or sublease any of the Garage Parking Spaces. Landlord shall have the right to terminate this Lease with respect to any Garage Parking Spaces that Tenant sublets or assigns in violation of the foregoing sentence. Landlord or the Garage Owner may elect to provide parking cards or keys to control access to the Garage. In such event, Landlord or the Garage Owner shall provide Tenant with one card or key for each Garage Parking Space that Tenant is leasing hereunder, provided that Landlord or the Garage Owner shall have the right to require Tenant or its employees to place a reasonable deposit on such access cards or keys and to pay a reasonable fee for any lost or damaged cards or keys. Tenant, at its sole cost and expense, may obtain extra cards and keys from Landlord or the Garage Owner if any cards are lost, stolen or destroyed.

10.15    CONFIDENTIAL INFORMATION.

        Landlord hereby agrees that any and all knowledge, information, data, materials, trade secrets, and other work product of a confidential nature gained, obtained, derived, produced, generated or otherwise acquired by Landlord with respect to Tenant's business (collectively "Confidential Information") shall be kept confidential. Landlord shall use diligent efforts to ensure that no Confidential Information is revealed, divulged, communicated, related, or described to any person or entity without the written consent of Tenant, except as may be required by applicable law.

10.16    SIGNAGE.

        Landlord shall provide a standard building directory in the office lobby of the Building listing Tenant as a tenant of the Building. Tenant shall have the exclusive right, at its sole cost and expense, to

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install and maintain signs on the exterior of the Building provided that: (i) the size, location, quality, color and style of such signs shall be subject to Landlord's approval, such approval not to be unreasonably withheld or delayed, and (ii) such signs shall be subject to limitations of applicable law, including, without limitation, the Cambridge Zoning Ordinance, as amended from time to time and the PUD Permit. Tenant shall secure all permits necessary for the installation of such signs at its sole cost and expense. Upon the expiration or sooner termination of the Term of this Lease, Tenant shall remove such signs and repair any damage resulting therefrom at Tenant's sole cost and expense. Notwithstanding the foregoing, Landlord shall have the right to install, and to allow tenants of the Retail Space to install, signage on the windows and doors of the Retail Space and additional signage on the exterior of the Building at a height of up to fifteen (15) feet above ground level, subject to limitations of applicable law, including, without limitation, the Cambridge Zoning Ordinance and the Permits and Approvals.

10.17    BUILDING B LEASE.

        Simultaneously with the execution hereof, Landlord and Tenant shall enter into an option to lease approximately 150,000 r.s.f in a building to be constructed by Landlord now known as Building B in the area of the Complex approximately shown on Exhibit A hereto (the "Option to Lease") in accordance with and subject to the terms of the Option to Lease.

10.18    RIGHT OF FIRST REFUSAL.

        Provided that at the time Tenant exercises its rights under this Section 10.18: (i) this Lease remains in full force and effect, (ii) there is not then outstanding an uncured Event of Default of Tenant under this Lease, and (iii) Tenant and/or Tenant's Affiliates are occupying at least seventy-five percent (75%) of the r.s.f of the Premises, then Tenant shall have a continuing right of first refusal ("ROFR") to lease any office, research or laboratory space in the Complex then owned by Landlord or Landlord's Affiliate (collectively, the "ROFR Space"), (a) which may become available for lease after the initial term of any lease(s) for the ROFR Space, as any of such lease(s) may be extended or renewed pursuant to the terms of the initial lease(s) thereof or (b) which may become available for lease upon the expiration or termination of lease(s), including extensions and renewals thereof, entered into by Landlord after Tenant has failed or declined to enter into a lease of such ROFR Space. Landlord shall notify Tenant in writing (the "Availability Notice") at least ten (10) months in advance of the expected date upon which the ROFR Space will become available, provided however, that if ROFR Space becomes available due to a termination of a lease for ROFR Space prior to the stated termination of a lease for ROFR Space, Landlord's Availability Notice shall be sent to Tenant promptly after Landlord becomes aware of the expected date of availability of such ROFR Space. Upon receipt by Tenant of an Availability Notice, Tenant shall have ten (10) business days within which to send to Landlord notice of the exercise of Tenant's ROFR (the "ROFR Notice"), in which event Landlord and Tenant shall negotiate in good faith for a period of fifteen (15) days (the "ROFR Negotiation Period") after the date of such ROFR Notice with respect to the terms by which Tenant would lease the ROFR Space from Landlord. If Tenant fails or refuses to send the ROFR Notice or if Landlord and Tenant are unable to agree on the lease terms for the ROFR Space within such fifteen (15) day period, thereupon Landlord may, at any time during the one hundred eighty (180) day period following the expiration of the ROFR Negotiation Period, lease all or any portion of the ROFR Space which was the subject of the Availability Notice to any third party on terms and conditions no more favorable to such third party than the final terms offered by Landlord to Tenant during the ROFR Negotiation Period. If Landlord has not leased the ROFR Space to a third party within such 180-day period, or if Landlord proposes to offer the ROFR Space for lease to a third party on terms and conditions more favorable to such third party than the final terms offered to Tenant during the ROFR Negotiation Period, Landlord shall first re-offer the ROFR Space to Tenant hereunder before Landlord may offer the ROFR Space to any third party, and Tenant shall have five (5) business days within which to accept such offer. Any person

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dealing with ROFR Space may without further inquiry conclusively rely upon a representation in a certificate of Landlord or Landlord's Affiliate as to whether the provisions of this Section have been satisfied.

10.19    RETAIL TENANTS.

        Provided that Tenant or an Affiliate of Tenant is occupying at least sixty percent (60%) of the Rentable Square Footage of the Premises, Tenant shall have the right to approve tenant(s) of the Retail Space, which approval shall not be unreasonably conditioned, withheld or delayed.

10.20    ACCESS

        Commencing on the Commencement Date, Tenant shall have access to the Building twenty-four (24) hours per day, 365/366 days per year and during those hours that the Building is not accessible to the general public, via a security card system provided by Landlord. Tenant agrees to use and comply with any security systems including the security card systems employed by Landlord from time to time during the Term. Landlord may provide a manned security desk within the lobby of the Building comparable to that of other buildings in the Complex, it being understood by Tenant that the provision of a security desk and security card systems are no warranty, representation or guaranty by Landlord as to the safety or security of persons and property within the Building or the Premises. Notwithstanding the foregoing sentence, Tenant shall be solely responsible for the security of all persons and property within the Premises and for access to the Premises including any security card system serving the Premises. Landlord and Tenant agree to use good faith efforts to coordinate any security card system from time to time implemented by Landlord for the Building and/or Complex and any security card system implemented from time to time by Tenant for the Premises and other premises of Tenant outside of the Complex.

10.21    COOPERATION.

        Landlord agrees that it shall, at Tenant's expense, cooperate with, support, consult with, and provide information in its possession to Tenant in seeking, applying for and obtaining any and all consents, permits, licenses, certificates, waivers, special permits, approvals and the like required, or deemed necessary or appropriate by Tenant, in connection with (a) Tenant's use and occupancy of the Premises for the Permitted Use and/or (b) Tenant's exercise of its rights and/or performance of its obligations under this Lease. Landlord agrees that such cooperation shall include, without limitation, the co-signing of applications, the providing of support and information that can reasonably be made available by the record owner of the Premises but not by other parties; providing letters of support or other supporting information or evidence for submission to hearings or proceedings before any zoning, planning, land use, or regulatory board or authority, or any license or permit-granting or permitting office, board or authority. Notwithstanding the foregoing, Landlord shall not be required to take any action (and Landlord may oppose any action proposed by Tenant) if Landlord determines, in its sole discretion, that any action or series of actions proposed by Tenant could have an adverse impact on the Building, Lot or Complex or any of the Development Approvals, Subsequent Approvals or any rights or obligations of Landlord thereunder or under this Lease.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

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        WITNESS the execution hereof under seal as of the 28th day of August, 2000.

LANDLORD: KENDALL SQUARE, LLC
	By:	Lyme Properties LLC, a New Hampshire limited liability company, its Manager
	By:	/s/  DAVID E. CLEM David E. Clem, Member
TENANT:	GENZYME CORPORATION
	By:	/s/  HENRI TERMEER Henri Termeer, President and Chief Executive Officer

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EXHIBIT A

Plan Showing Complex
(attached)

EXHIBIT A-1

Legal Description of Lot
(to be provided by Landlord)

EXHIBIT A-2

Plan Showing Lot
(to be provided by Landlord)

EXHIBIT A-3

CONFIRMATION OF COMMENCEMENT DATE AND RENTABLE SQUARE FOOTAGE

        Reference is made to that certain Lease dated February    , 2000 (the "Lease") by and between KENDALL SQUARE, LLC ("Landlord"), a Delaware limited liability company, and GENZYME CORPORATION ("Tenant"), a Massachusetts corporation, for certain space in Building D located at Cambridge Research Park, Cambridge, Massachusetts (the "Premises").

        In accordance with the terms and provisions of the above-referenced Lease, Landlord and Tenant hereby confirm the following as of the date hereof:

        The Commencement Date of the Lease is                                    , 2001.

        A.    The rentable square footage of the Premises is            square feet.

        B.    The rentable square footage of the Building is            square feet.

        C.    The rentable square footage of the First Expansion Space is            square feet.

        D.    The rentable square footage of the Second Expansion Space is            square feet.

        E.    Tenant's Proportionate Fraction for Building is    %.

        F.     Tenant's Proportionate Fraction for Complex is    %.

        Agreed and Accepted as of the Commencement Date:

GENZYME CORPORATION

By:

Title:

Date of Execution:	, 2001
KENDALL SQUARE, LLC

By:

Title:

Date of Execution:                     , 2001

Date of Execution:                     , 2001

EXHIBIT A-4

CONFIRMATION OF LOCATION OF EXPANSION SPACES

(to be agreed upon by Landlord and Tenant as provided in Section 10.11)

EXHIBIT B

Progress Schedule

	ITEM	COMPLETION DATE
1.	Selection of Landlord's Architect and agreement upon Preliminary Design Concept	Completed prior to Lease execution
2.	Execution of Contract for Landlord's Architect and selection of Landlord's Design Team, to the extent then identified	Completed prior to Lease execution
3.	Selection of Landlord's Contractor	Completed prior to Lease Execution
4.	Execution of Construction Contract	July 14, 2000
5.	Plans
	Preliminary Schematic Design Documents delivered To Tenant and Landlord	July 17, 2000
	Tenant's Response to Preliminary Schematic Design Documents	July 21, 2000
	Final Schematic Design Documents and gross floor area and r.s.f. calculations delivered to Tenant and Landlord	August 11, 2000
	Planning Board Design Review Hearing	August 1, 2000
	Planning Board Design Review Approval	August 15, 2000
	Tenant's Approval of Final Schematic Design Documents	August 25, 2000
	Preliminary Project Cost Budget delivered to Tenant and Landlord	September 11, 2000
	Preliminary Design Development Documents and gross floor area and r.s.f. calculations delivered to Tenant and Landlord	October 16, 2000
	Tenant's Response to Preliminary Design Development Documents	October 20, 2000
	Final Design Development Documents and gross floor area and r.s.f. calculations delivered to Tenant and Landlord	November 10, 2000
	Tenant's Approval of Final Design Development Documents and gross floor area and r.s.f. calculations	November 17, 2000
	Updated Preliminary Project Budget delivered to Tenant (Proposed GMP)	December 11, 2000
	Final Design Documents delivered to Tenant and Landlord	February 19, 2001
	Tenant's Approval of Final Design Documents and gross floor area and r.s.f. calculations	February 26, 2001
	Solicitation of Bids from general contractors or construction managers	March 2, 2001
	Tenant's Approval of final GMP and Project Budget	March 9, 2001
	Building Permit Issued	March 23, 2001*
	Commencement of Construction of Base Building Improvements	March 26, 2001
	Substantial Completion of Base Building Improvements	September 1, 2002*
4.	Environmental Remediation
	Commencement of Environmental Remediation of Lot	June 26, 2000*
	File Response Action Outcome Statement for Lot pursuant to MCP	January 1, 2002*
	Indemnity Expiration Date (as defined in Release and Indemnity Agreement)	June 1, 2002
	Certification of Landlord's LSP and Estoppel Certificates of COM/Energy (as required under Paragraphs 2(b) and 3 of Environmental Agreement)	July 1, 2002

*

indicates Landlord Milestone Date

EXHIBIT B-1

Project Budget Form

			Budget	Actual Project Cost
Land & Environmental Remediation			$	$60.00 per r.s.f.
Hard Costs
	Base Building
	Tenant Improvement Allowance		-0-	-0-
	Sitework
	Contingency
		Total Hard Costs
Soft Costs
	Architecture & Engineering
	Civil Engineering
	Architectural Phase I
	MEPFP Engineering Phase I
	Structural Engineering Phase I
	Legal
	General & Administrative			-0-
	Title Insurance & Recording
	Permits & Fees (including permitting consultant)
	Impact Fees
	Interest on Landlord's Equity
	Construction Insurance & Taxes
	Operating Expenses
	Survey & Appraisal Fees
	Contingency
	Developer's Fee			not to exceed 5% of Project Cost exclusive of this line item and the Land + Environmental Remediation line item
	Brokerage Fee			not to exceed $7.50 per r.s.f.
		Total Soft Costs
Total Project Cost

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EXHIBIT B-2

Annual Maintenance Charge, Insurance, Mitigation Expenses
and Taxes and Assessments Categories

			Budget for Building Common Areas		Budget for Complex Common Areas
			$ p.s.f.	$ Total	$ p.s.f.	$ Total
Cleaning:
	Daily Cleaning Service		0.71	166,850	0.00	—
	Window Cleaning		0.02	4,700	0.00	—
	Trash Removal—Routine		0.09	21,150	0.00	—
	Trash Removal—Other		0.01	2,350	0.00	—
	Exterminating		0.01	2,350
	Other Cleaning		0.00	—	0.00	—
		Total Cleaning	0.84	197,400	0.00	—
Repairs & Maintenance:
	Maintenance Salaries		0.54	126,900	0.00	—
	Elevator Service Contracts		0.14	32,900	0.00	—
	Elevator Repairs		0.03	7,050	0.00	—
	HVAC—System Contracts		0.39	91,650	0.00	—
	HVAC—Extra Repairs		0.14	32,900	0.00	—
	Electrical Repairs		0.08	18,800	0.00	—
	Plumbing Repairs		0.05	11,750	0.00	—
	Roofing Repairs		0.03	7,050	0.00	—
	Alarm Systems Maintenance		0.05	11,750	0.00	—
	Alarm Systems Inspections		0.02	4,700	0.00	—
	Other Maintenance &		0.11	25,850	0.00	—
	Supplies (including architectural repairs, finishes, hardware, etc.)
		Total Mechanical Systems	1.58	371,300	0.00	—
Utilities:
	Electricity		0.00	—	0.00	—
	Gas		0.68	159,800	0.00	—
	Water & Sewer		0.16	37,600	0.00	—
	Steam		0.00	—	0.00	—
	Telephone		0.00	—	0.00	—
	Data		0.00	—	0.00	—
	Other		0.00	—	0.00	—
		Total Utilities net of Tenant Elec	0.84	197,400	0.00	—
Roads/Grounds/Security
	Landscaping Contracts		0.11	25,850	0.30	393,900
	Snowplowing Contracts		0.07	16,450	0.40	525,200
	Other Roads/Grounds Expenses		0.00	—	0.00	—
	Skating Rink Expenses		0.00	—	0.10	131,300
	Small Boat Ramp Expenses		0.00	—	0.05	65,650
	Security Payroll		0.00	—	0.00	—
	Security Contracts		0.24	56,400	0.00	—
	Total Roads/Grounds/Security		0.42	98,700	0.85	1,116,050
Administrative:
	Admin Salaries		0.24	56,400	0.00	—
	Management Fee		0.97	227,950	0.00	—
	Monitoring Fee		0.07	16,450	0.00	—

	Legal Expense		0.03	7,050	0.00	—
	Office Supplies		0.04	9,400	0.00	—
	Postage & Delivery		0.01	2,350	0.00	—
	Telephone Expense		0.03	7,050	0.00	—
	Office Rent		0.25	58,750	0.00	—
	Other Admin Expenses		0.01	2,350	0.00	—
		Total Admin Expenses	1.65	387,750	0.00	—
Mitigation Expenses:
	PTDM Fees		0.03	7,050	0.00	—
	Other Mitigation Expenses		0.00	—	0.00	—
		Total Mitigation Expenses	0.03	7,050	0.00	—
Insurance:
	General Liability		0.11	25,850	0.05	65,650
	Property Insurance		0.18	42,300	0.05	65,650
	Rental Interruption		0.02	4,700	0.00	—
	Other Insurance		0.00	—	0.00	—
		Total Insurance	0.31	72,850	0.10	131,300
		Total Expenses Before Taxes	5.67	1,332,450	0.95	1,247,350
Taxes and Assessments:
	Real Estate Taxes		4.83	1,135,050	0.55	722,150
	Other Taxes		0.00	—	0.00	—
		TOTAL EXPENSES	10.50	2,467,500	1.50	1,969,500

2

EXHIBIT C

Rules and Regulations

1.

The common entrances, lobbies, elevators, sidewalks, and stairways of the Building, the Lot and the Complex shall not be encumbered or obstructed by Tenant, Tenant's agents, servants, employees, licensees or visitors or used by them for any purposes other than ingress or egress to and from the Building.

2.

Landlord reserves the right to have Landlord's structural engineer review Tenant's floor loads on the Building at Tenant's expense.

3.

Tenant, or the employees, agents, servants, visitors or licensees of Tenant shall not at any time place, leave or discard any rubbish, paper, articles, or objects of any kind whatsoever outside of the Building. Bicycles shall not be permitted in the Building unless Landlord provides for the parking thereof in the Building.

4.

Tenant shall not place objects against glass partitions or doors or windows or adjacent to any common space which would be unsightly from the exterior of the Building and will promptly remove the same upon notice from Landlord.

5.

Tenant shall not make noises, cause disturbances, create vibrations, odors or noxious fumes or use or operate any electric or electrical devices or other devices that emit sound waves or that would interfere with the operation of any device or equipment or radio or television broadcasting or reception from or within the Building or elsewhere, or with the operation of roads or highways in the vicinity of the Building and shall not place or install any projections, antennae, receivers, transmitters, aerials, or similar devices inside or outside of the Building, without the prior written approval of Landlord.

6.

Tenant shall not: (a) use the Building for lodging, or for any immoral or illegal purposes; (b) use the Building to engage in the manufacture or sale of spirituous, fermented, intoxicating or alcoholic beverages; (c) use the Building to engage in the manufacture or sale of, or permit the use of, any illegal drugs.

7.

No awning or other projections shall be attached to the outside walls or windows. No curtains, blinds, shades, screens or signs, other than those, if any, furnished by Landlord, shall be attached to, hung in, or used in connection with any exterior window or door of the Building without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed. No sign, advertisement, object, notice or other lettering shall be exhibited, inscribed, painted or affixed on any part of the outside or inside of the Building if visible from outside of the Building without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed.

8.

Door keys, pass cards or similar devices for doors in the Building will be furnished by Landlord or Tenant, based upon the agreements reached between the parties regarding Building security systems. If Tenant shall affix additional locks on doors then Tenant shall furnish Landlord with copies of keys for pass cards or similar devices said locks.

10.

Tenant shall cooperate and participate in all reasonable security programs affecting the Building and the Complex.

11.

Tenant assumes full responsibility for protecting its space from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to its space in the Building closed and secured.

12.

The water and wash closets and other plumbing fixtures shall not be used for any purposes other than those for which they were constructed, and no sweepings, rubbish, rags, or other substances shall be thrown therein.

13.

Discharge of industrial sewage shall only be permitted if Tenant, at its sole expense, shall have obtained all necessary permits and licenses therefor, including without limitation permits from state and local authorities having jurisdiction thereof.

14.

The use of asbestos containing cement or other similar asbestos containing adhesive material is expressly prohibited.

15.

In the event of any conflict between the provisions of this Exhibit C and the provisions of the Lease, the provisions of the Lease shall govern.

2

EXHIBIT D

Form of SNDA
(attached)

SUBORDINATION, NON-DISTURBANCE AND
ATTORNMENT AGREEMENT

        THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT ("Agreement") is entered into this            day of                        , 200    , between                        ("Lender"), and Genzyme Corporation, a Massachusetts corporation ("Tenant").

R E C I T A L S:

        A.    Lender is the owner and the holder of a Promissory Note (the "Note") dated                        , 200    , in the face amount of $                        payable to the order of Lender. The Note is secured by a Mortgage, Security Agreement and Fixture Filing with Assignment of Leases and Rents (hereinafter called the "Mortgage") dated of even date with said Note, secured by the real property described in Exhibit "A" attached hereto and by reference made part hereof (the "Property").

        B.    Tenant is the tenant under that certain Lease dated                        , 2000 (the "Lease"), between Tenant, as tenant, and Kendall Square, LLC, a Delaware limited liability company, as landlord (said landlord and its successors and assigns under the Lease hereinafter called "Landlord"), covering all or part of the Property as set forth in the Lease (the "Demised Premises").

        C.    Tenant and Lender desire to confirm their understanding with respect to the Lease and the Mortgage.

        NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good valuable consideration, the receipt and sufficiency of which are hereby acknowledged by all parties, Lender and Tenant hereby agree and covenant as follows:

        1.    Subordination.    The Lease now is, and shall at all times and for all purposes continue to be, subject and subordinate, in each and every respect, to the Mortgage, with the provisions of the Mortgage (including but not limited to the provisions of the Mortgage pertaining to the application of insurance proceeds and condemnation awards) controlling in all respects over the provisions of the Lease; moreover the Lease is subordinate and subject, in each and every respect, to any and all increases, renewals, modifications, extensions, and/or consolidations of the Mortgage, and all other loan documents securing the Note, provided that any and all such increases, renewals, modifications, extensions and/or consolidations shall nevertheless be subject to the terms of this Agreement.

        2.    Non-Disturbance.    So long as Tenant is not in default (beyond any period given Tenant to cure such default in the Lease) in the payment of rent or additional rent or in the performance of any of the terms, covenants or conditions of the Lease on Tenant' s part to be performed, (i) Tenant' s possession, occupancy, use and quiet enjoyment of the Demised Premises and Tenant's other rights and options under the Lease, or any extensions or renewals thereof or acquisition of additional space, which may be effected in accordance with any option therefor in the Lease, shall not be terminated or interfered with by Lender in the exercise of any of its rights under the Mortgage, or as may otherwise be provided for at law or in equity and (ii) Lender will not join Tenant as a party defendant in any action or proceeding for the purpose of terminating Tenant' s interest and estate under the Lease because of any default under the Mortgage.

        3.    Attornment.    If any proceedings are brought for the foreclosure of the Mortgage or if the Property is sold pursuant to a power of sale under the Mortgage, or Lender shall succeed to the interest of Landlord under the Lease in any manner, Tenant shall attorn and be bound to such party (whether Lender or another party) upon any such succession in interest or foreclosure sale and shall recognize such party as the Landlord under the Lease. Such attornment shall be effective and self-operative without the execution of any further instrument on the part of any of the parties hereto. Tenant agrees, however, to execute and deliver at any time and from time to time, upon the request of Lender or of any holder(s) of any of the indebtedness or other obligations secured by the Mortgage or any purchaser of the Property at a foreclosure sale, any instrument or certificate which may be necessary or appropriate (in any such foreclosure proceeding or

otherwise) to evidence such attornment. In the event of any such attornment, Tenant further waives the provisions of any statute or rule of law, now or hereafter in effect, which may give or purport to give Tenant any right or election to terminate or otherwise adversely affect the Lease and the obligation of Tenant thereunder as a result of any such foreclosure proceeding.

        4.    Obligations of Lender.    If Lender shall succeed to the interest of the Landlord under the Lease, or if any purchaser acquires the Property, upon any foreclosure of the Mortgage, Lender or such purchaser, as the case may be, shall have the same remedies by entry, action or otherwise in the event of any default by Tenant (beyond any period given Tenant to cure such default) in the payment of rent or additional rent by Tenant or in the performance of any of the terms, covenants and conditions of the Lease on Tenant's part to be performed that the Landlord under the Lease had or would have had if Lender or such purchaser had not succeeded to the interest of Landlord. From and after any such attornment, Lender or such purchaser shall be bound to Tenant under all of the terms, covenants, and conditions of the Lease, and Tenant shall, from and after the succession to the interest of Landlord under the Lease by Lender or such purchaser, have the same remedies against Lender or such purchaser for the breach of any agreement contained in the Lease that Tenant might have had under the Lease against the Landlord if Lender or such purchaser had not succeeded to the interest of Landlord; provided further, however, that Lender or such purchaser shall not be liable or bound to Tenant as follows:

        (a)   for any act or omission of any prior landlord (including Landlord) provided, however, that nothing in this clause (a) shall release Lender or any such purchaser, after such attornment, from any obligation of a prior landlord to: (i) reconstruct or repair the Property following any fire, casualty or condemnation which may have occurred prior to such attornment, to the extent that insurance proceeds or condemnation awards are available and otherwise as required under Article VI of the Lease; or (ii) perform any on-going maintenance, repair and/or Building operation obligations of the prior landlord under the Lease even if the need for such item of repair, maintenance or Building operation arose prior to such attornment; and provided further, nothing in this clause (a) shall affect or limit Tenant's express rights to terminate the Lease under Sections 3.1.1, 3.2 and 6.1 of the Lease under the applicable circumstances set forth in each such section; or

        (b)   for any offsets or defenses which Tenant might have against any landlord (including Landlord); or

        (c)   for or by any rent or additional rent which Tenant has paid for more than the current month or the next succeeding month to any prior landlord (including Landlord) unless such rent payment is actually paid or credited to Lender or such purchaser by the prior landlord; or

        (d)   by any amendment or modification of the Lease made without Lender's written consent, which consent shall not be unreasonably withheld, conditioned or delayed if Lender determines that such amendment or modification will not materially and adversely affect the value of the Lease as collateral security for the Note; or

        (e)   for any security deposit, rental deposit or other deposit paid by Tenant to a prior landlord (including Landlord) unless such deposit is actually paid over or credited to Lender or such purchaser by the prior landlord;

        (f)    by any notice of a landlord default given by Tenant to a prior landlord (including Landlord) unless a copy thereof was also then given to Lender in accordance with this Agreement; or

        (g)   under any indemnification provisions set forth in the lease or for any damages Tenant may suffer as a result of any false representation set forth in the Lease, the breach of any warranty

2

set forth in the Lease, or any act of, or failure to act by any party other than Lender or such purchaser, as applicable.

        Further, in such event any insurance proceeds or condemnation awards relating to the Property shall be applied in accordance with the terms of the Mortgage and not the Lease.

        The person or entity to whom Tenant attorns shall be liable to Tenant under the Lease only to the extent of the interest of such person or entity in the Premises, the Building and the Lot (as such terms are defined in the Lease) and only for matters arising during such person's or entity's period of ownership, and such liability shall terminate upon the transfer by such person or entity of its interest in the Lease and the Property and the assumption of such liability by the transferee.

        Lender hereby agrees that if at the time of such attornment (x) Landlord has commenced but not substantially completed Landlord's Work and (y) Tenant has commenced Tenant's Work, then in order to complete Landlord's Work, (i) Lender may elect to complete Landlord's Work, (ii) Lender may elect to advance to Tenant, in accordance with the terms of the Mortgage or the other loan documents executed in connection therewith, the then undisbursed proceeds of Lender's loan evidenced by the Note, in which event such loan proceeds shall be included in Project Cost (as such term is defined in the Lease) for purposes of calculating Annual Fixed Rent (as such term is defined in the Lease) payable by Tenant, or (iii) if Lender does not elect to substantially complete Landlord's Work or advance such loan proceeds, Tenant may advance funds to complete Landlord's Work, in which event Tenant shall receive an abatement of Annual Fixed Rent, commencing on the Rent Commencement Date, in an amount equal to the funds so advanced from time to time by Tenant with interest thereon at the non-default rate of interest set forth in the Note on the outstanding amount of such advances and continuing until such abatement is exhausted. If Lender does not elect to complete Landlord's Work or if Lender elects to complete Landlord's Work but fails to substantially complete Landlord's Work by the Outside Completion Date, Tenant, shall have the right to terminate the Lease in accordance with the last paragraph of Section 3.2 of the Lease. If, however, Lender elects to advance to Tenant the then undisbursed proceeds of Lender's loan in accordance with clause (ii) hereof or Tenant advances funds to complete Landlord's Work in accordance with clause (iii) hereof, Tenant shall have no right to terminate this Lease pursuant to the last paragraph of Section 3.2 of the Lease if Landlord's Work is not substantially complete by the Outside Completion Date.

        5.    Rent Payment.    Tenant agrees to pay all rents directly to Lender in accordance with the Lease immediately upon receipt of written notice of Lender's succeeding to the Landlord's interest under the Lease or upon receipt of written notice that Lender is exercising its rights under the Mortgage or any other loan documents which secure the Note following a default by Landlord or other applicable party. Tenant shall be entitled to full credit under the Lease to the extent of all rents paid to Lender pursuant to this paragraph of this Agreement. By its signature to and consent to this Agreement, Landlord agrees to this paragraph and releases Tenant from any liability to Landlord to the extent of the payment of all rents delivered to Lender under this provision.

        6.    Notice of Mortgage.    To the extent that the Lease shall entitle the Tenant to notice of any mortgage or security agreement, this Agreement shall constitute such notice to the Tenant with respect to the Mortgage.

        7.    Successor of Lender.    The term "Lender" as used throughout this Agreement includes any successor, assigns or holder(s) in interest of the indebtedness secured by the Mortgage.

        8.    Landlord Defaults.    Tenant agrees with Lender that effective as of the date of this Agreement: (i) that Tenant shall not take any steps to terminate the Lease for any default by Landlord or any succeeding owner of the Property until after giving Lender written notice of such default, stating the nature of the default and giving Lender thirty (30) days from receipt of such

3

notice to effect a cure of the same, or if a cure cannot be effected within said thirty (30) days due to the nature of the default, Lender shall have a reasonable time to cure provided that it commences to cure within said thirty (30) day period of time and diligently pursues such cure to completion; and (ii) that notice to the Landlord under the Lease (oral or written) shall not constitute notice to Lender. Notwithstanding any provisions in this Section 8 to the contrary: (x) Tenant shall be entitled to exercise its express rights to terminate the Lease under Section 3.1.1 and its express rights to terminate the Lease under Section 3.2 on account of the failure of the Landlord to have achieved any of the Landlord Milestone Dates, as the same may be extended by any Tenant Delay (as such term is defined in the Lease), upon giving Lender the same notice and right to cure as Tenant is required to give to Landlord pursuant to Sections 3.1.1 and 3.2 of the Lease; and (y) with respect to Tenant's other express rights to terminate the Lease under Section 3.2, the period of time specified above in this Section during which Lender may diligently seek to cure shall in no event extend beyond the Outside Completion Date.

        9.    No Abridgment.    Nothing herein contained is intended, nor shall it be, construed to abridge or adversely affect any right or remedy of the Landlord under the Lease in the event of any default by Tenant (beyond any period given Tenant to cure such default) in the payment of rent or additional rent or in the performance of any of the terms, covenants or conditions of the Lease on Tenant's part to be performed.

        10.    No Amendment or Termination of Lease.    Lender and Tenant agree that Tenant's interest in and obligations under the Lease shall not be (i) altered or modified without the prior written consent of Lender, which consent shall not be unreasonably withheld, delayed or conditioned if Lender determines that such amendment or modification will not materially and adversely affect the value of the Lease as collateral security for the Note or (ii) terminated (other than in accordance with the express terms of the Lease and this Agreement) without the prior written consent of Lender. Lender and Tenant also agree that Tenant shall neither assign the Lease or allow it to be assigned in any manner nor sublet the Demised Premises or any part thereof without the prior written consent of Lender in any situation where Landlord' s consent to any such action is required under the Lease. Lender agrees that its consent to any such assignment or subletting shall not be unreasonably withheld, conditioned or delayed if Lender determines that such assignment or subletting will not materially and adversely affect the value of the Lease as collateral security for the Note.

        11.    Interpretation.    This Agreement may not be modified orally or in any manner other than by an agreement in writing signed by the parties hereto or their respective successors in interest. This Agreement shall inure to the benefit of and be binding upon the parties hereto, their successors and assigns, and any purchaser or purchasers at foreclosure of the Property, and their respective heirs, personal representatives, successors and assigns. This Agreement is subject to the laws of the Commonwealth of Massachusetts.

4

        IN WITNESS WHEREOF, the parties hereto have hereunto caused this Agreement to be duly executed as of the day and year first above written.

LENDER:

By

Name:

Title:

TENANT:

GENZYME CORPORATION

By

Name:

Title:

LANDLORD:

Landlord consents to this Agreement and Landlord's
obligations under Paragraph 5 hereof,
as of                        , 200    .

KENDALL SQUARE, LLC

By:	Lyme Properties LLC, a New Hampshire limited liability company, its Manager
By:	David E. Clem, Member

5

EXHIBIT A

DESCRIPTION OF PROPERTY
(to be provided)

EXHIBIT E

Environmental Agreement
(attached)

ENVIRONMENTAL AGREEMENT

        THIS ENVIRONMENTAL AGREEMENT, ("Agreement"), is entered into as of the            day of                        , 2000 by and between KENDALL SQUARE, LLC a Delaware limited liability company, having an address at 101 Main Street, 18^th Floor, Cambridge, Massachusetts 02142 ("Landlord"), and GENZYME CORPORATION, a Massachusetts corporation having an address of One Kendall Square, Building 1400, Cambridge, Massachusetts 02139 ("Tenant"), and is made in conjunction with a Lease dated the date hereof (the "Lease") by and between Landlord and Tenant, regarding the Lot, as described and defined in the Lease, located in Cambridge, Middlesex County, Massachusetts (the Lot is hereinafter referred to as the "Property").

        RECITALS

        A.    Landlord is the current owner of the Property, having acquired the right, title and interest of Com/Energy Research Park Realty ("Com/Energy") in the Property, together with certain other real property (approximately ten acres of land, including the Property, hereinafter the "Cambridge Research Park Site"). In connection with the acquisition of the Cambridge Research Park Site by Landlord, Landlord entered into a Release and Indemnity Agreement and a Remediation Agreement, both of which are by and between Com/Energy and CRP and dated August 18, 1998 (hereinafter the "Release and Indemnity Agreement"and the "Remediation Agreement"), which govern certain rights, responsibilities, releases, indemnities and remediation obligations with respect to the Cambridge Research Park Site, including the Property.

        B.    Landlord and Com/Energy have made commitments to each other pursuant to the Release and Indemnity Agreement and the Remediation Agreement, including commitments with respect to the Property. These commitments include, among others, (1) the commitment by Landlord to release and indemnify Com/Energy for certain matters relating to the environmental condition of the Cambridge Research Park Site, including the Property, and the remediation thereof, and (2) the commitment by Landlord to require its lessees to agree to be bound by certain terms of the Release and Indemnity Agreement and the Remediation Agreement.

        In consideration of the Recitals stated above and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and solely with respect to the Property (and no other properties), the parties agree as follows:

        1.     Definitions. All terms not otherwise defined herein shall have the definitions set forth in the Release and Indemnity Agreement and the Remediation Agreement, as indicated herein.

        2.     Release and Indemnity Agreement. A copy of the Release and Indemnity Agreement is attached hereto as Exhibit A.

        (a)    Release.    Tenant acknowledges that it is a Releasing Party as that term is defined in the Release and Indemnity Agreement and expressly understands and agrees that the Release and Indemnity Agreement runs with the land, which includes the Property, and is binding upon Tenant, except as otherwise provided herein.

        (b)    Indemnity.    The parties acknowledge that Paragraph 5 of the Release and Indemnity Agreement provides in part that Landlord may perform remediation and subsequent development at the Cambridge Research Park Site, including the Property, on a phased-basis and that for each such phase, the Indemnity Expiration Date (as that term is defined in the Release and Indemnity Agreement) with respect to Releasing Parties (as that term is defined in the Release and Indemnity Agreement) which are owners, successors or assigns to such remediated phases of the Cambridge Research Park Site shall occur on the later to occur of the RAO Date or the Foundation Date (as those terms are defined in the Release and Indemnity Agreement), for claims made thereafter.

        Prior to the Substantial Completion Date (as such term is defined in the Lease) Landlord will deliver to Tenant (i) the certification of Landlord's Licensed Site Professional certifying that the RAO has been completed in accordance with the MCP with respect to the Property and (ii) an estoppel

certificate of COM/Energy pursuant to Paragraph 15 of the Release and Indemnity Agreement certifying, to the best of COM/Energy's knowledge, there is no default on the part of Landlord under the Release and Indemnity Agreement and further stating that the Indemnity Expiration Date has occurred with respect to the Property.

        3.     Remediation Agreement. A copy of the Remediation Agreement is attached hereto as Exhibit B.

        The parties acknowledge that the Remediation Agreement provides in part that: The Remediation Agreement shall be binding upon Landlord, its successors, heirs, administrators and assigns and with respect to the remediation obligations set forth therein, the Remediation Agreement shall run with the land, consisting of all or any portion of the Cambridge Research Park Site, including the Property, be binding upon any and all subsequent owners, ground tenants, and mortgagees of the Cambridge Research Park Site, including the Property, or any portion thereof or interest therein. The Remediation Agreement further provides that notwithstanding the preceding sentence, that (a) Landlord may, at its election, perform its remediation and development obligations under the Remediation Agreement in phases and (b) with respect to any subsequent owner, ground tenant or mortgagee of any such phase or any portion thereof, the remediation obligation set forth in the Remediation Agreement shall not be binding upon any such subsequent owner, ground tenant or mortgagee, provided the obligations under the Remediation Agreement have been satisfied with respect to such phase. Prior to the Substantial Completion Date Landlord shall deliver to Tenant (i) the certification of Landlord's Licensed Site Professional certifying that the RAO has been completed in accordance with the MCP with respect to the Property and (ii) an estoppel certificate of COM/Energy pursuant to Paragraph 14 of the Remediation Agreement certifying, to the best of COM/Energy's knowledge, there is no default on the part of Landlord under the Remediation Agreement and further stating that COM/Energy has approved the RAO and that Landlord has satisfied Landlord's obligations under the Remediation Agreement with respect to the Property.

        4.     Landlord Indemnity of Tenant. Effective as of the date hereof, Landlord agrees to defend, hold harmless and indemnify Tenant from and against any and all claims, fees, costs, disbursements and expenses that may be imposed upon, incurred by or asserted or awarded against Tenant that relate to or arise from the presence, release or threatened release of, or the mitigation or remediation of, any Hazardous Materials (as defined herein) on, at or below the Property, including migration onto the Property from the Cambridge Research Park Site, for which Landlord is responsible or liable pursuant to the terms and provisions of the Remediation Agreement or the Release and Indemnity Agreement or for which Landlord is responsible or liable pursuant to the operation of the Massachusetts Oil and Hazardous Materials Release Prevention and Response Act, Massachusetts General Laws Chapter 21E, as amended ("Chapter 21E"). Hazardous Materials as used herein shall mean "hazardous materials" and "oils" as defined in Chapter 21E and regulations adopted pursuant to said act, including, but not limited to, the Massachusetts Contingency Plan, 310 CMR 40.0000 et seq. as amended (the "MCP") and "hazardous substances" shall mean "hazardous substances" as defined in the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, and regulations adopted pursuant to said act; and "hazardous wastes" as defined in the Resource Conservation and Recovery Act, as amended, the Massachusetts Hazardous Waste Management Act, Massachusetts General Laws Chapter 21C, as amended, and regulations adopted pursuant to said acts.

        Landlord's obligation to indemnify Tenant as set forth in this Section 4 shall not include indemnification for any claims, fees, costs, disbursements or expenses that relate to the release or threatened release of Hazardous Materials on, at or from the Property which release or threatened release first occurs on or after the date hereof.

        5.     Tenant Indemnity of Landlord. Tenant, for itself and for each of the other Transferring Parties (as hereinafter defined), jointly and severally, agrees to defend, hold harmless and indemnify Landlord

2

from and against any and all claims, fees, costs, disbursements and expenses that may be imposed upon, incurred by or asserted or awarded against Tenant that relate to or arise from the presence, release or threatened release of any Hazardous Materials on, at or from the Property which release or threatened release is due to the act, omission or neglect of Tenant.

        6.     Site Access Upon MADEP Audit of RAO. The parties acknowledge that pursuant to Chapter 21E and the MCP, the Massachusetts Department of Environmental Protection ("MADEP") may perform an audit of the RAO documentation submitted to MADEP for the Property. It is the intention of the parties that in the event that such audit occurs, Landlord shall be solely responsible for providing response to such audit and shall be solely responsible for providing response to any inquiries raised by MADEP in such audit and curing any deficiencies or defects which may be revealed during such audit. Tenant hereby agrees to cooperate with Landlord to the extent reasonably necessary to respond to any audit by MADEP.

        7.     Exhibits. The Exhibits to this Agreement are incorporated by reference as if fully set forth in this Agreement.

        8.     Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made as of the date delivered or mailed if delivered personally or mailed by registered or certified mail (postage prepaid, return receipt requested), or sent by facsimile transmission, (confirmation received) to the parties at the following addresses and facsimile transmission numbers (or at such other number for a party as shall be specified by like notice), except that notices after the giving of which there is a designated period within which to perform an act and notices of changes of address or number shall be effective only upon receipt:

i.    if to Landlord:

Kendall Square, LLC
101 Main Street, 18th Floor
Cambridge, MA 02142
Attention: Robert L. Green
Fax No. (617) 225-2133

with copies to:

Lyme Properties LLC
16 On The Common
Post Office Box 266
Lyme, NH 03678
Attention: David E. Clem
Fax No. (603) 795-4789

Gadsby Hannah LLP
225 Franklin Street
Boston, MA 02110
Attention: Leigh A. Gilligan, Esq.
                  Patrick C. Toomey, Esq.
Fax No. (617) 345-7050

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ii. if to Tenant:

Genzyme Corporation
One Kendall Square
Building 1400
Cambridge, MA 02139
Attention: General Counsel
Fax No. (617) 374-7368

with a copy to:

Palmer & Dodge LLP
One Beacon Street
Boston, MA 02108
Attention: Thomas G. Schnorr, Esquire
Fax No. (617) 227-4420

        9.     Successors and Permitted Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties to this Agreement and their successors and permitted assigns; provided, however, that this Agreement may not be assigned by Tenant without Landlord's express written consent, which shall not be unreasonably withheld if this Agreement is to be assigned in connection with an assignment of the Lease. Tenant shall further require that any party to whom Tenant assigns this Agreement acknowledge its acceptance of this Agreement (as well as said Assignee's agreement to enter into and be bound by this Agreement) in writing to Landlord. Tenant shall further require any party to whom Tenant subleases all or any portion of the Premises (as such term is defined in the Lease) to enter into and be bound by this Agreement or a similar agreement acceptable to Landlord. Tenant, its successors and assigns, and all other parties referred to in this Paragraph 9 (specifically excluding Landlord and its successors and assigns) shall be referred to herein as the "Transferring Parties".

        10.   No Third Party Beneficiaries. This Agreement is for the sole benefit of the parties hereto, and their permitted assigns and nothing herein expressed or implied shall give or be construed to give any person or entity, other than the parties hereto, and their permitted assigns, any legal or equitable rights hereunder.

        11.   Amendment or Modification. This Agreement may not be amended or modified except by an instrument in writing signed by Landlord and Tenant.

        12.   Drafting of Agreement. This Agreement is the joint product of the parties and each provision hereof has been subject to the mutual consultation, negotiation and agreement of those parties and shall not be construed for or against any party hereto.

        13.   Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts (without giving effect to its choice of law principles).

        14.   Dispute Resolution. Any dispute, controversy or claim between the parties relating to, arising out of or in connection with this Agreement (or any subsequent agreements or amendments thereto), including as to its existence, enforceability, validity, interpretation, performance, breach or damages, including claims in tort, whether arising before or after the termination of this Agreement, shall be settled only by binding arbitration pursuant to the Commercial Arbitration Rules, as then amended and in effect, of the American Arbitration Association (the "Rules"), subject to the following:

            i.  The arbitration shall take place in Boston, Massachusetts.

           ii.  There shall be three arbitrators, who shall be selected under the normal procedures prescribed in the Rules, except that one such arbitrator shall be a certified public accountant

4

and one arbitrator (who shall chair the arbitration panel) shall be a member of the American Board of Trial Advocates or the American College of Trial Lawyers. The arbitrator so designated shall not be an employee, consultant, officer, director or stockholder of any party hereto or any affiliate of any party to this Agreement.

          iii.  Subject to legal privileges, each party shall be entitled to discovery in accordance with the Federal Rules of Civil Procedure.

          iv.  At the arbitration hearing, each party may make written and oral presentations to the arbitrator, present testimony and written evidence and examine witnesses.

           v.  The arbitrators' decision shall be in writing, shall be binding and final and may be entered and enforced in any court of competent jurisdiction.

          vi.  The arbitrators shall have the authority to grant injunctive relief and order specific performance.

         vii.  No party shall be eligible to receive, and the arbitrators shall not have the authority to award, exemplary or punitive damages.

        viii.  The arbitrators shall have the authority to allocate the fees and expenses of the arbitrators and the American Arbitration Association as well as the fees and expenses of the parties based upon the arbitrators' determination as to the merits of the parties' respective position in the arbitration. If the arbitrators fail to make a specific determination as to fees and expenses, then such fees and expenses of the arbitrators and the American Arbitration Association shall be paid by the parties in equal amounts and the parties shall each bear their own fees and expenses.

          ix.  The arbitrators shall adhere to paragraph 13. Within 15 days after the designation of the arbitrators, the arbitrators (or chair of the arbitration panel), Tenant and Landlord shall meet, at which time Landlord and Tenant shall be required to set forth in writing all disputes, controversies or claims under and a proposed ruling on each such dispute, controversy or claim. The arbitrators (or chair of the arbitration panel) shall set a date for the arbitration hearing to discuss each dispute, controversy or claim identified by the Tenant and Landlord, which hearing shall commence no later than 30 days after the submittal of written proposals pursuant to the immediately preceding sentence. The arbitrators shall use best efforts to rule on each dispute, controversy or claim within 30 days after the completion of the arbitration hearing described in the immediately preceding sentence.

        15.   Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.

        16.   Integration. This Agreement, together with Exhibits hereto, and the documents and instruments and other agreements among the parties delivered pursuant hereto, constitute the entire agreement and supersede all prior agreements and undertakings, both written and oral, among Landlord and Tenant with respect to the subject matter hereof and are not intended to confer upon any other Person any rights or remedies hereunder, except as otherwise expressly provided herein. Without limiting the foregoing, the parties acknowledge that this Agreement shall survive the termination or expiration of the Lease. The terms of this Agreement may not be terminated, modified or waived except by a written agreement signed by Landlord and Tenant.

5

        IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed under seal.

KENDALL SQUARE, LLC

By:	Lyme Properties LLC, a New Hampshire limited liability company, its Manager
By:	David E. Clem, Member
GENZYME CORPORATION
By:	Name: Henri A. Termeer Title: President and Chief Executive Officer

6

EXHIBIT E-1

List of Remediation Documents

•

Draft Release Abatement Measure Plan, NAPL Stabilization, Cambridge Research Park, 364 Third Street, Cambridge, prepared by ThermoRetec Consulting Corporation ("ThermoRetec") and dated February, 2000;



•

Draft Phase II—Comprehensive Site Assessment, Buildings C and D Area, Cambridge Research Park, 364 Third Street, Cambridge, prepared by ThermoRetec and dated February, 2000;



•

Draft Phase III—Remedial Action Plan, Buildings C and D Area, Cambridge Research Park, 364 Third Street, Cambridge, prepared by ThermoRetec and dated January, 2000; and



•

Environmental Response, Compensation and Liability Insurance Policy issued by Kemper Environmental, Ltd. to Cambridge Research Park, LLC and The Lyme Timber Company (Policy No. 4LY000169).

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Exhibit 10.4

ARTICLE I REFERENCE DATA
ARTICLE II PREMISES AND TERM
ARTICLE III BASE BUILDING IMPROVEMENTS
ARTICLE IV RENT
EXHIBIT A Plan Showing Complex (attached)
EXHIBIT A-1 Legal Description of Lot (to be provided by Landlord)
EXHIBIT A-2 Plan Showing Lot (to be provided by Landlord)
EXHIBIT A-3
EXHIBIT A-4 CONFIRMATION OF LOCATION OF EXPANSION SPACES
EXHIBIT B

EX-10.14

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Exhibit 10.14

GENZYME CORPORATION

1998 Director Stock Option Plan

1.     General; Purpose.

        This 1998 Director Stock Option Plan dated March 6, 1998 (the "Plan") governs options to purchase common stock, $0.01 par value (the "Stock"), of Genzyme Corporation (the "Company") granted on or after the date hereof by the Company to members of the Board of Directors (each, a "Director") of the Company (the "Board") who are not also officers or employees of the Company. The Plan constitutes an amendment and restatement of the Company's 1988 Director Stock Option Plan (the "Prior Plan") and supersedes the Prior Plan, the separate existence of which shall terminate on the effective date of this Plan. The rights and privileges of holders of options outstanding under the Prior Plan shall not be adversely affected by the foregoing action.

        The purpose of the Plan is to attract and retain qualified persons to serve as Directors of the Company and to encourage ownership of stock of the Company by such Directors so as to provide additional incentives to promote the success of the Company.

2.     Administration of the Plan; Governing Law.

        Grants of stock options under the Plan shall be automatic as provided in Section 7. However, all questions of interpretation with respect to the Plan and options granted under it shall be determined by a committee consisting of all Directors of the Company who are not eligible to participate in the Plan, and such determination shall be final and binding upon all persons having an interest in the Plan. This Plan shall be governed by and interpreted in accordance with the laws of The Commonwealth of Massachusetts.

3.     Persons Eligible to Participate in the Plan.

        Members of the Board who are not also officers or employees of the Company shall be eligible to participate in the Plan.

4.     Shares Subject to the Plan.

        (a)   An aggregate of 1,162,491 shares of Stock may be issued upon exercise of options granted under this Plan. In the event of a stock dividend, split-up, combination or reclassification of shares, recapitalization or other similar capital change relating to the Stock, the maximum aggregate number and kind of shares or securities of the Company as to which options may be granted under this Plan and as to which options then outstanding shall be exercisable, and the option price of such options, shall be appropriately adjusted by the Board (whose determination shall be conclusive) so as to preserve the value of the option.

        (b)   In the event of a consolidation or merger of the Company with another corporation where the Company's stockholders do not own a majority in interest of the surviving or resulting corporation, or the sale or exchange of all or substantially all of the assets of the Company, or a reorganization or liquidation of the Company, any deferred exercise period shall be automatically accelerated and each holder of an outstanding option shall be entitled to receive upon exercise and payment in accordance with the terms of the option the same shares, securities or property as he or she would have been entitled to receive upon the occurrence of such event if he or she had been, immediately prior to such event, the holder of the number of shares of Stock purchasable under his or her option or, if another corporation shall be the survivor, such corporation shall substitute therefor substantially equivalent shares, securities or property of such other corporation; provided, however, that in lieu of the foregoing the Board may make such other provision as it may consider equitable to holders and in the best interests of the Company.

        (c)   Whenever options under this Plan (including options outstanding under the Prior Plan as of the effective date of this Plan) lapse or terminate or otherwise become unexercisable, the shares of Stock which were subject to such options may again be subjected to options under this Plan. The Company shall at all times while this Plan is in force reserve such number of shares of Stock as will be sufficient to satisfy the requirements of this Plan.

5.     Nonstatutory Stock Options.

        All options granted under this Plan shall be nonstatutory options not entitled to special tax treatment under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").

6.     Form of Options.

        Options granted hereunder shall be in such form as the Board may from time to time determine.

7.     Grant of Options and Option Terms.

        (a)    Automatic Grant of Options.    At each annual meeting of the stockholders of the Company, those Directors who are eligible to receive options under this Plan shall automatically be granted options to purchase 15,000 shares of Stock. In addition, upon the election of an eligible Director under this Plan other than at an annual meeting of stockholders (whether by the Board or the stockholders and whether to fill a vacancy or otherwise), such Director shall automatically be granted options to purchase the number of shares of Stock described in the preceding sentence. The "Date of Grant" for options granted under this Plan shall be the date of the annual meeting of shareholders, or the election as a Director, as the case may be. No options shall be granted hereunder after ten years from the date on which this Plan was initially approved and adopted by the Board. As used herein, "Fair Market Value" for the Stock shall mean the closing sale price of the Stock as reported by the Nasdaq National Market or the principal securities exchange or over-the-counter market on which the Stock is listed or quoted on the Date of Grant of such options or, if the Stock is not then listed on the Nasdaq National Market or any securities exchange or quoted in the over-the-counter market, the fair market value of the Stock as determined in good faith by the Board.

        (b)    Option Price.    The option price per share for each option granted under this Plan shall be equal to the Fair Market Value of the Stock with respect to which the option is exercisable.

        (c)    Term of Option.    The term of each option granted under this Plan shall be ten years from the Date of Grant.

        (d)    Period of Exercise.    Options granted under this Plan shall become exercisable on the date of the next annual meeting of shareholders following their Date of Grant, if and only if the option holder is a member of the Board at the opening of business on that date. Directors holding exercisable options under this Plan who cease to serve as members of the Board may, during their lifetime, exercise the rights they had under such options at the time they ceased being a Director for the full unexpired term of such option. Upon the death of a Director, those entitled to do so under the Director's will or the laws of descent and distribution shall have the right, at any time within twelve months after the date of death, to exercise in whole or in part any rights which were available to the Director at the time of his or her death. Options granted under this Plan shall terminate, and no rights thereunder may be exercised, after the expiration of the applicable exercise period. Notwithstanding the foregoing provisions of this section, no rights under any options may be exercised after the expiration of ten years from their Date of Grant.

        (e)    Method of Exercise and Payment.    Options may be exercised only by written notice to the Company at its head office accompanied by payment of the full option price for the shares of Stock as to which they are exercised. The option price shall be paid in cash or by check. Upon receipt of such notice and payment, the Company shall promptly issue and deliver to the optionee (or other person entitled to exercise the option) a certificate or certificates for the number of shares as to which the exercise is made.

        (f)    Transferability.    Options granted under this Plan may be transferred without consideration (or for such consideration as the committee may from time to time deem appropriate) by the holder thereof to any Family Member of such director; provided, however, that no subsequent transfer of such option shall be permitted except for transfers: (i) to a Family Member of such director; (ii) back to the director; or (iii) pursuant to the applicable laws of descent and distribution. For this purpose, "Family Member" shall mean (i) any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, including any adoptive relationships, and any other person sharing the transferor director's household (other than as a tenant or employee); (ii) any trust in which any of the persons described in clause (i) holds a greater than 50% beneficial interest; (iii) any foundation in which any of the persons described in clause (i) or the transferor director controls the management of assets; or (iv) any other entity in which any of the persons described in clause (i) or the director holds more than 50% of the voting interests.

        (g)    Amendment.    In addition to the rights set forth in Section 4(b) of this Plan, the Board may amend or modify any outstanding option in any respect, provided that the optionee's consent to such action shall be required unless the Board determines that the action, taking into account any related action, would not materially and adversely affect the optionee.

8.     Limitation of Rights.

        (a)    No Right to Continue as a Director.    Neither this Plan, nor the granting of an option or any other action taken pursuant to this Plan, shall constitute an agreement or understanding, express or implied, that the Company will retain an optionee as a Director for any period of time or at any particular rate of compensation.

        (b)    No Stockholders' Rights for Options.    Directors shall have no rights as a stockholder with respect to the shares covered by their options until the date they exercise such options and pay the option price to the Company, and no adjustment will be made for dividends or other rights for which the record date is prior to the date such option is exercised and paid for.

9.     Effective Date; Amendment or Termination.

        Subject to the approval of the stockholders of the Company, this Plan shall be effective as of March 6, 1998. Prior to such approval, options may be granted under this Plan expressly subject to such approval. The Board may amend or terminate this Plan at any time, subject to any stockholder approval that the Board determines to be necessary or advisable.

10.   Stockholder Approval.

        This Plan is subject to approval by the stockholders of the Company by the affirmative vote of the holders of a majority of the votes properly cast by holders of the shares of Stock of the Company present, or represented and entitled to vote, at a meeting duly held in accordance with the laws of The Commonwealth of Massachusetts. In the event such approval is not obtained, all options granted under this Plan shall be void and without effect.

Approved by directors on March 6, 1998
Approved by stockholders on May 28, 1998
Amended by directors on March 24, 2000
Approved by stockholders on May 26,1999
Amended by directors on December 18, 2000
Amended by directors on March 1, 2001
Approved by stockholders on May 31, 2001
Amended by directors on June 30, 2003
Amended by directors on February 26, 2004
Approved by stockholders on May 27, 2004
Amended by directors on December 6, 2005

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Exhibit 10.14

EX-13.1

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EXHIBIT 13.1

GENZYME CORPORATION AND SUBSIDIARIES
FINANCIAL STATEMENTS

	Page No.
Consolidated Selected Financial Data	F-2
Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations	F-8
Report of Independent Registered Public Accounting Firm	F-65
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2005, 2004 and 2003	F-67
Consolidated Balance Sheets as of December 31, 2005 and 2004	F-69
Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003	F-70
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2005, 2004 and 2003	F-72
Notes to Consolidated Financial Statements	F-75

F-1

GENZYME CORPORATION AND SUBSIDIARIES
Consolidated Selected Financial Data

        These selected financial data have been derived from our audited, consolidated financial statements, including the consolidated balance sheets at December 31, 2005 and 2004 and the related consolidated statements of operations and of cash flows for the three years ended December 31, 2005 and notes thereto appearing elsewhere herein. You should read the following information in conjunction with our audited, consolidated financial statements and related notes contained elsewhere in this Annual Report on Form 10-K. These selected financial data may not be indicative of our future financial condition due to the risks and uncertainties associated with operating our business, including those described under the caption "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—Factors Affecting Future Operating Results" included in this Annual Report on Form 10-K.

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

        Effective July 1, 2003, we eliminated our tracking stock capital structure by exchanging, in accordance with the provisions of our charter, each share of Biosurgery Stock for 0.04914 of a share of Genzyme General Stock and each share of Molecular Oncology Stock for 0.05653 of a share of Genzyme General Stock. Options and warrants to purchase shares of Biosurgery Stock and options to purchase shares of Molecular Oncology Stock were converted into options and warrants to purchase shares of Genzyme General Stock. Effective July 1, 2003, we have one outstanding series of common stock.

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

F-2

CONSOLIDATED STATEMENTS OF OPERATIONS DATA

			For the Years Ended December 31,
			2005			2004			2003			2002			2001
			(Amounts in thousands)
Revenues:
	Net product sales		$	2,453,303		$	1,976,191		$	1,563,509		$	1,199,617		$	1,110,254
	Net service sales			261,379			212,392			130,984			114,493			98,370
	Research and development revenue			20,160			12,562			19,378			15,362			15,006
		Total revenues		2,734,842			2,201,145			1,713,871			1,329,472			1,223,630
Operating costs and expenses:
	Cost of products sold			462,177			448,442			399,961			309,634			307,425
	Cost of services sold			170,475			140,144			75,683			66,575			56,173
	Selling, general and administrative (1)			787,839			599,388			519,977			438,035			424,640
	Research and development			502,657			391,802			335,256			308,487			264,004
	Amortization of intangibles (2)			181,632			109,473			80,257			70,278			121,124
	Purchase of in-process research and development (3)			29,200			254,520			158,000			1,879			95,568
	Charge for impaired goodwill (4)			—			—			102,792			—			—
	Charge for impaired assets (5)			—			4,463			10,894			22,944			—
		Total operating costs and expenses		2,133,980			1,948,232			1,682,820			1,217,832			1,268,934
Operating income (loss)				600,862			252,913			31,051			111,640			(45,304	)
Other income (expenses):
	Equity in income (loss) of equity method investments			151			(15,624	)		(16,743	)		(16,858	)		(35,681	)
	Gains (losses) on investments in equity securities (6)			5,698			(1,252	)		(1,201	)		(14,497	)		(25,996	)
	Minority interest			11,952			5,999			2,232			—			2,259
	Loss on sale of product lines (7)			—			—			(27,658	)		—			(24,999	)
	Other			(1,535	)		(357	)		959			40			(1,993	)
	Investment income			31,429			24,244			43,015			51,038			50,504
	Interest expense			(19,638	)		(38,227	)		(26,600	)		(27,152	)		(37,133	)
		Total other income (expenses)		28,057			(25,217	)		(25,996	)		(7,429	)		(73,039	)
Income (loss) before income taxes				628,919			227,696			5,055			104,211			(118,343	)
(Provision for) benefit from income taxes				(187,430	)		(141,169	)		(72,647	)		(19,015	)		2,020
Net income (loss) before cumulative effect of changes in accounting principles				441,489			86,527			(67,592	)		85,196			(116,323	)
Cumulative effect of changes in accounting principles (2,8)				—			—			—			(98,270	)		4,167
Net income (loss)			$	441,489		$	86,527		$	(67,592	)	$	(13,074	)	$	(112,156	)

F-3

			For the Years Ended December 31,
			2005		2004		2003			2002			2001
			(Amounts in thousands, except per share amounts)
Net income (loss) per share:
Allocated to Genzyme Stock (9):
Net income before cumulative effect of change in accounting for derivative financial instruments			$	441,489	$	86,527	$	82,143		$	150,731		$	3,879
Cumulative effect of change in accounting for derivative financial instruments, net of tax (8)				—		—		—			—			4,167
Tax benefit allocated from Genzyme Biosurgery				—		—		8,720			18,508			24,593
Tax benefit allocated from Genzyme Molecular Oncology				—		—		3,420			9,287			11,904
Net income allocated to Genzyme Stock			$	441,489	$	86,527	$	94,283		$	178,526		$	44,543
Net income per share of Genzyme Stock:
	Basic:
		Net income per share before cumulative effect of change in accounting for derivative financial instruments	$	1.73	$	0.38	$	0.43		$	0.83		$	0.20
		Per share cumulative effect of change in accounting for derivative financial instruments, net of tax (8)		—		—		—			—			0.02
		Net income per share of Genzyme Stock	$	1.73	$	0.38	$	0.43		$	0.83		$	0.22
	Diluted (10):
		Net income per share before cumulative effect of change in accounting for derivative financial instruments	$	1.65	$	0.37	$	0.42		$	0.81		$	0.19
		Per share cumulative effect of change in accounting for derivative financial instruments, net of tax (8)		—		—		—			—			0.02
		Net income per share of Genzyme Stock	$	1.65	$	0.37	$	0.42		$	0.81		$	0.21
Weighted average shares outstanding:
	Basic			254,758		228,175		219,376			214,038			202,221
	Diluted (10)			272,224		234,318		225,976			219,388			211,176
Allocated to Biosurgery Stock (9):
Genzyme Biosurgery division net loss before cumulative effect of change in accounting for goodwill							$	(166,656	)	$	(79,322	)	$	(145,170	)
Cumulative effect of change in accounting for goodwill								—			(98,270	)		—
Allocated tax benefit								14,005			9,706			18,189
Net loss allocated to Biosurgery Stock							$	(152,651	)	$	(167,886	)	$	(126,981	)
Net loss per share of Biosurgery Stock basic and diluted:
	Net loss per share before cumulative effect of change in accounting for goodwill						$	(3.76	)	$	(1.74	)	$	(3.34	)
	Per share cumulative effect of change in accounting for goodwill (2)							—			(2.46	)		—
	Net loss per share of Biosurgery Stock—basic and diluted						$	(3.76	)	$	(4.20	)	$	(3.34	)
Weighted average shares outstanding								40,630			39,965			37,982

F-4

		For the Years Ended December 31,
		2005	2004	2003			2002			2001
		(Amounts in thousands, except per share amounts)
Allocated to Molecular Oncology Stock (9):
	Net loss allocated to Molecular Oncology Stock			$	(9,224	)	$	(23,714	)	$	(29,718	)
	Net loss per share of Molecular Oncology Stock—basic and diluted			$	(0.54	)	$	(1.41	)	$	(1.82	)
	Weighted average shares outstanding				16,958			16,827			16,350

CONSOLIDATED BALANCE SHEET DATA

		December 31,
		2005		2004		2003		2002		2001
		(Amounts in thousands)
Cash and investments (11)		$	1,089,102	$	1,079,454	$	1,227,460	$	1,195,004	$	1,121,258
Working capital (12)			1,114,976		1,009,231		930,951		630,936		566,798
Total assets			6,878,865		6,069,421		5,004,528		4,093,199		3,935,745
Long-term debt, capital lease obligations and convertible debt, including current portion (12,13)			821,304		940,494		1,435,759		894,775		852,555
Stockholders' equity			5,149,867		4,380,156		2,936,412		2,697,847		2,609,189
	There were no cash dividends paid.

(1)

Selling, general and administrative expenses, or SG&A, for 2001 includes $27.0 million of charges resulting from Pharming Group N.V.'s, or Pharming Group's, decision to file for and operate under a court supervised receivership.

(2)

Effective January 1, 2002, in connection with the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets," we ceased amortizing goodwill. We recorded $52.5 million of amortization expense related to our goodwill in 2001. Also, in connection with the adoption of SFAS No. 142, we tested the goodwill of our cardiothoracic reporting unit for impairment and as a result, reduced goodwill by recording a cumulative effect impairment charge of $98.3 million in our consolidated statements of operations for the year ended December 31, 2002.

(3)

Charges for IPR&D were incurred in connection with the following investment and acquisitions:

•

2005—$7.0 million related to our acquisition of gene therapy assets from Avigen, Inc., or Avigen, $12.7 million related to our acquisition of Bone Care and $9.5 million related to our acquisition of Verigen;

•

2004—$254.5 million related to our acquisition of ILEX Oncology;

•

2003—$158.0 million related to our acquisition of SangStat;

•

2002—$1.9 million related to our investment in Myosix S.A.; and

•

2001—$86.8 million from our acquisition of Novazyme Pharmaceuticals, Inc., or Novazyme, and $8.8 million from our acquisition of Wyntek Diagnostics, Inc.

(4)

Represents the write off of the goodwill associated with our orthopaedics reporting unit in June 2003 in accordance with SFAS No. 142.

F-5

(5)

Charge for impaired assets includes:

•

2004—$4.5 million charge to write down the assets related to our manufacturing and development facility in Oklahoma City, Oklahoma;

•

2003—$10.9 million charge, including $8.0 million to write off the fixed assets related to our FocalSeal product and $2.9 million for the impairment of our manufacturing facility in Fall River, Massachusetts; and

•

2002—$14.0 million to write off engineering costs related to a proposed manufacturing facility in Framingham, Massachusetts and $9.0 million to write off the assets at our bulk hyaluronic acid manufacturing facility in Haverhill, England.

(6)

Gains (losses) on investments in equity securities includes the following gains and losses resulting from the sale of equity investments, and impairment charges because we assessed the declines in market value to be other than temporary:

•

2005—a gain of $4.5 million on the sale of our investment in the common stock of Theravance, Inc., or Theravance;

•

2004—a charge of $2.9 million to write down our investment in the common stock of MacroGenics Inc, or MacroGenics;

•

2003—a charge of $3.6 million to write down our investment in the common stock of ABIOMED;

•

2002—charges of $9.2 million to write down our investment in GTC, $3.4 million to write down our investment in Cambridge Antibody Technology Group plc, which we refer to as CAT, $2.0 million to write down our investment in Dyax Corp. and $0.8 million to write down our investment in Targeted Genetics Corporation; and

•

2001—charges of $8.5 million to write off our investment in Pharming Group, $11.8 million to write down our investment in CAT and $4.5 million to write down our investment in Targeted Genetics Corporation.

(7)

Loss on sale of product lines includes:

•

2003—a loss of $27.7 million related to the sale of substantially all of the tangible and intangible assets directly associated with our cardiac device business to Teleflex Inc.; and

•

2001—a loss of $25.0 million related to the sale of our Snowden-Pencer line of surgical instruments.

(8)

On January 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138. In accordance with the transition provisions of SFAS No. 133, we recorded and allocated to Genzyme General a cumulative effect adjustment of $4.2 million, net of tax, in our consolidated statements of operations to recognize the fair value of warrants to purchase shares of GTC common stock held on January 1, 2001.

(9)

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

(10)

Reflects the retroactive restatement of diluted earnings per share and diluted weighted average shares outstanding in accordance with Emerging Issues Task Force, or EITF, Issue No. 04-8, "The Effect of Contingently Convertible Debt on Diluted Earnings Per Share."

(11)

Includes cash, cash equivalents, short- and long-term investments.

(12)

At December 31, 2002, $284.0 million in principal drawn under our revolving credit facility and $10.0 million in principal of our 6.9% convertible subordinated note due May 2003 are included in the determination of working capital because these amounts were repaid in 2003. At December 31, 2004, $100.0 million in principal drawn under our revolving credit facility is included in the determination of working capital because we repaid the entire $100.0 million in principal outstanding under the credit facility in January 2005.

F-6

(13)

Long-term debt, capital lease obligations and convertible debt, including current portions, consists of (amounts in millions):

		December 31,
		2005		2004		2003		2002		2001
1.25% convertible senior notes		$	690.0	$	690.0	$	690.0	$	—	$	—
3% convertible subordinated debentures			—		—		575.0		575.0		575.0
Capital lease obligations			121.4		150.1		154.5		25.8		26.9
Revolving credit facility			—		100.0		—		284.0		234.0
6.5% convertible note			—		—		11.3		—		—
Notes payable			9.9		0.4		5.0		—		6.7
6.9% convertible subordinated note			—		—		—		10.0		10.0
	Total	$	821.3	$	940.5	$	1,435.8	$	894.8	$	852.6

F-7

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

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

INTRODUCTION

        We are a global biotechnology company dedicated to making a major impact on the lives of people with serious diseases. Our broad product and service portfolio is focused on rare disorders, renal disease, orthopaedics, organ transplant, and diagnostic and predictive testing. We are organized into five 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 (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 and Thyrogen;



•

Transplant, which develops, manufactures and distributes therapeutic products that address the pre-transplantation, prevention and treatment of acute rejection in organ transplantation, as well as other auto-immune disorders. The unit derives its revenue primarily from sales of Thymoglobulin and Lymphoglobuline;



•

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



•

Diagnostics/Genetics, which develops, manufactures and distributes raw materials and in vitro diagnostic products and provides testing services for the oncology, prenatal and reproductive markets.

        We report the activities of our oncology, bulk pharmaceuticals, including sales of WelChol, and cardiovascular business units under the caption "Other." We report our corporate, general and administrative operations and corporate science activities that we do not allocate to our financial reporting units, under the caption "Corporate." Effective January 1, 2005, as a result of changes in how we will review our business, we re-allocated the programs of our former drug discovery and development business unit, formerly reported under the caption "Other," amongst several of our existing reporting segments and business units as follows:

•

our tolevamer research and development program, for the treatment of C. difficile associated diarrhea, is now included in our Renal reporting segment;

F-8

•

our deferitrin (iron chelator) research and development program is now included in our Therapeutics reporting segment;



•

WelChol, an adjunctive therapy for the reduction of elevated LDL cholesterol in patients with primary hypercholesterolemia, is now included in our bulk pharmaceuticals business unit and as a result, continues to be reported under the caption "Other;" and



•

our other drug discovery research and development programs are now included in our corporate science activities under the caption "Corporate."

        We have reclassified our 2004 and 2003 segment disclosures to conform to our 2005 presentation.

MERGERS AND ACQUISITIONS

Acquisition of Gene Therapy Assets from Avigen

        In December 2005, we acquired certain gene therapy assets from Avigen, a publicly-traded, biopharmaceutical company based in Alameda, California with a focus on unique small molecule therapeutics and biologics to treat serious neurological disorders, in exchange for an up-front cash payment of $12.0 million. We allocated the purchase price to the intangible assets acquired based on their estimated fair values as of December 19, 2005, the date of acquisition. We allocated $5.0 million of the up-front cash payment to technology in other intangible assets on our consolidated balance sheet and recorded a charge of $7.0 million to IPR&D. In addition, we may be obligated to make up to approximately $38 million of potential milestone payments based on the development and approval of, and royalty payments based on the sale of, products developed between now and 2020 that rely on the intellectual property purchased from Avigen.

Acquisition of Manufacturing Operation from Cell Genesys

        In November 2005, we acquired the San Diego, California manufacturing operation of Cell Genesys, a company focused on the development and commercialization of novel biological therapies for patients with cancer, for $3.2 million in cash which was allocated to property and equipment on our consolidated balance sheet. We included the acquired manufacturing operations in our consolidated statements of operations as of November 22, 2005, the date of acquisition.

Acquisition of Equal Diagnostics

        In July 2005, we acquired Equal Diagnostics, a privately-held diagnostics company in Exton, Pennsylvania, that formerly served as a distributor for our clinical chemistry reagents. We paid $5.0 million in initial cash payments and issued promissory notes to the three former shareholders of Equal Diagnostics totaling $10.0 million in principal and interest. These notes bear interest at 3.86% and are payable over eight years in equal annual installments commencing on March 31, 2007. In addition to these guaranteed payments, we may be obligated to make additional cash payments of up to an aggregate of approximately $8 million during the period commencing March 31, 2007 and ending March 31, 2014 based upon the gross margin of the acquired business, as defined in the purchase agreement. We accounted for the acquisition as a purchase and accordingly, included its results of operations in our consolidated statements of operations from July 15, 2005, the date of acquisition.

        The purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values 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 $5.3 million, which was allocated to goodwill. We expect that substantially all of the amount allocated to goodwill will be deductible for tax purposes.

F-9

Acquisition of Bone Care

        In July 2005, we acquired Bone Care, a publicly-held specialty pharmaceutical company based in Middleton, Wisconsin with a focus on nephrology. We paid gross consideration of $712.3 million in cash, including $668.4 million for outstanding shares of Bone Care's common stock, $39.9 million to buy out options to purchase shares of Bone Care's common stock and restricted stock outstanding on the date of acquisition, and approximately $4 million for acquisition costs. Net consideration was $604.3 million as we acquired Bone Care's cash and short-term investments totaling $108.0 million. As part of the transaction, we acquired Hectorol, a line of vitamin D2 pro-hormone products used to treat secondary hyperparathyroidism in patients on dialysis and those with earlier stage CKD, which we have added to our Renal business. We accounted for the acquisition as a purchase and accordingly, included its results of operations in our consolidated statements of operations from July 1, 2005, the date of acquisition.

        In October 2004, Bone Care was one of seven companies, all of which market treatments, therapies or diagnostics for kidney disease patients, that received a subpoena from the office of the United States Attorney for the Eastern District of New York. The subpoena required Bone Care to provide a wide range of documents related to numerous aspects of its business and operations. The subpoena included specific requests for documents related to testing for parathyroid hormone levels and vitamin D therapies. Bone Care has cooperated, and we continue to cooperate, with the government's investigation. To our knowledge, no civil or criminal proceedings have been initiated against Bone Care or Genzyme at this time, although we cannot predict when or if any proceedings might be initiated. As a result, we have not recorded any contingent liabilities related to this investigation. Any such liabilities that may arise out of this investigation will be recorded in our financial statements, if they become probable and estimable prior to July 2006, as an increase to both the goodwill resulting from, and the liabilities assumed in connection with, our acquisition of Bone Care.

        The purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed amounted to $227.7 million, which was allocated to goodwill. We expect that substantially all of the amount allocated to goodwill will not be deductible for tax purposes.

        The allocation of the purchase price remains subject to potential adjustments, including adjustments for liabilities associated with certain exit activities, tax restructuring activities and liabilities that may arise from the government's investigation of Bone Care.

Acquisition of Verigen

        In February 2005, we acquired Verigen, a private company based in Leverkusen, Germany with a proprietary cell therapy product for cartilage repair (referred to as MACI) that is currently sold in Europe and Australia. We paid $11.8 million in initial cash payments and may be obligated to make additional cash payments of up to an aggregate of approximately $38 million over the next six years, based upon the achievement of development and commercial milestones relating to regulatory approval and commercialization of MACI in the United States, as well as contingent payments on worldwide sales of that product. We acquired approximately 96% of Verigen's outstanding shares in February 2005 and acquired the remaining outstanding shares in August 2005. We accounted for the acquisition as a purchase and accordingly, included its results of operations in our consolidated statements of operations from February 8, 2005, the date of acquisition.

        The purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The estimated fair value of the assets acquired and liabilities assumed exceeded the initial payments by $5.7 million resulting in

F-10

negative goodwill. Pursuant to SFAS No. 142, we recorded as a liability, contingent consideration up to the amount of the negative goodwill. If and when contingent payments come due, we will apply the payments against the contingent liability. Contingent payments in excess of $5.7 million, if any, will be recorded as goodwill. During 2005, we paid $0.6 million of contingent payments. As of December 31, 2005, the remaining contingent liability is $5.1 million. The allocation of the purchase price remains subject to potential adjustments, including the valuation of acquired tax assets and restructuring liabilities.

Acquisition of Synvisc Sales and Marketing Rights from Wyeth

        In January 2005, we consummated an arrangement with Wyeth under which we reacquired the sales and marketing rights to Synvisc in the United States, as well as Germany, Poland, Greece, Portugal and the Czech Republic. Upon closing this transaction, we began to record revenue from sales of Synvisc to end-users in all of these territories except Greece. We began selling Synvisc directly to end-users in Greece effective July 1, 2005. In exchange for the sales and marketing rights, we paid a total of $121.0 million in cash to Wyeth in 2005 and $0.3 million of acquisition costs, of which $0.2 million was paid in 2005. We also accrued contingent payments to Wyeth totaling $59.6 million during 2005, of which $50.9 million had been paid as of December 31, 2005. Distribution rights (a component of other intangible assets, net) in our consolidated balance sheet as of December 31, 2005 includes a total of $180.9 million for the initial and contingent payments (made and accrued) as of that date. We will make a series of additional contingent payments to Wyeth based on the volume of Synvisc sales in the covered territories. These contingent payments could extend out to June 2012, or could total a maximum of $293.7 million, whichever comes first.

        We determined that the contingent payments to Wyeth represent contingent purchase price. Accordingly, as contingent payments are made in the future, the amounts will be recorded as additional purchase price for the underlying intangible asset. We calculate amortization expense for this intangible asset based on an economic use model, taking into account our forecasted future sales of Synvisc and the resulting estimated future contingent payments we will be required to make. We periodically update the estimates used in this amortization calculation based on changes in forecasted sales and resulting estimated contingent payments.

        We record SG&A expenses related to the additional Synvisc sales force we assumed from Wyeth in January 2005, and we continue to record all of the research and development expenses related to Synvisc.

Acquisition of ILEX Oncology

        In December 2004, we acquired ILEX Oncology, an oncology drug development company, for approximately $1 billion. We accounted for the acquisition as a purchase and accordingly, included its results of operations in our consolidated statements of operations from December 20, 2004, the date of acquisition.

        The purchase price was allocated to the intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. We also recorded an estimated tax liability of $47.5 million related to the integration of ILEX Oncology. The excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed amounted to $445.6 million, which was allocated to goodwill. We expect that substantially all of the amount allocated to goodwill will not be deductible for tax purposes.

Acquisition of Physician Services and Analytical Services Business Units of IMPATH

        In May 2004, we acquired substantially all of the pathology/oncology testing assets related to the Physician Services and Analytical Services business units of IMPATH, a national medical testing

F-11

provider, for total cash consideration of $215.3 million, including acquisition costs. We accounted for the acquisition as a purchase and accordingly, included the results of operations related to the acquired business units in our consolidated statements of operations from May 1, 2004, the date of acquisition. The purchase price is subject to adjustment based upon the completion of a post-closing assessment of the working capital of the acquired business units as of April 30, 2004.

        The purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed amounted to $157.5 million, which was allocated to goodwill. We expect that substantially all of the amount allocated to goodwill will be deductible for tax purposes.

Acquisition of SangStat Medical Corporation

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

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

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

•

Revenue Recognition;



•

Income Taxes;



•

Inventories;



•

Long-Lived and Intangible Assets;



•

Asset Impairments;



•

Strategic Equity Investments; and



•

Other Reserve Estimates.

Revenue Recognition

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

F-12

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

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

        The timing of product shipments and receipts by the customer can have a significant impact on the amount of revenue recognized in a particular period. Also, most of our products, including Cerezyme, Renagel, Synvisc and Fabrazyme, are sold at least in part through wholesalers. Inventory in the distribution channel consists of inventory held by wholesalers, who are our customers, and inventory held by retailers, such as pharmacies and hospitals. Our revenue in a particular period can be impacted by increases or decreases in distributor inventories. If wholesaler or retail inventories increased to excessive levels, we could experience reduced purchases in subsequent periods, or product returns from the distribution channel due to overstocking, low end-user demand or product expiration.

        We use a variety of data sources to determine the amount of inventory in our United States distribution channel. For Cerezyme and Fabrazyme, we receive data on sales and inventory levels directly from our primary distributors. For Renagel, our data sources include prescription and wholesaler data purchased from external data providers and, in some cases, sales and inventory data received directly from distributors. As part of our efforts to limit inventory held by distributors and to gain improved visibility into the distribution channel, we executed inventory management agreements with our primary Renagel distributors during 2002 and have renewed those agreements through 2009. We have also put in place inventory management agreements with our primary Hectorol distributors through 2009. These agreements provide incentives for the distributors to limit the amount of inventory that they carry, and to provide us with specific inventory and sales data. They can be terminated at will by either party upon sixty days notice.

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

•

an estimate of outstanding claims for end-user sales that have occurred, but for which related claim submissions have not been received; and



•

an estimate of future claims that will be made when inventory in the distribution channel is sold to end-users.

        Because the second component is calculated based on the estimated amount of inventory in the distribution channel, our assessment of distribution channel inventory levels impacts our estimated reserve requirements. Our calculation also requires other estimates, including estimates of sales mix, to determine which sales will be subject to rebates and the amount of such rebates. As of December 31, 2005, our reserve for Medicaid and payor rebates was $49.7 million.

        We record allowances for product returns as a reduction of revenue at the time product sales are recorded. The product returns reserve is estimated based on our experience of returns for each of our products, or for similar products. If the history of product returns changes, the reserve is adjusted appropriately. Our estimate of distribution channel inventory is also used to assess the reasonableness of our product returns reserve.

        We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to

F-13

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

        EITF Issue No. 01-09, "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. 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 fees paid to our distributors for services as operating expense where the criteria set forth above are met. Such fees incurred for these services were $14.5 million in 2005, $12.4 million in 2004 and $13.8 million in 2003.

Income Taxes

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

        Our calculation of the income tax provision includes significant estimates, including estimates of income from foreign sales, research and development credits, orphan drug credits, state and foreign income taxes and other permanent items. On a quarterly basis throughout the fiscal year, we make our best estimate of the full year impact of these items on our tax rate.

        We record liabilities for income tax contingencies based on our best estimate of the underlying exposures. We are currently under IRS audits for tax years 1996 to 1999, 2002 to 2003 and in certain state and foreign jurisdictions. We believe that we have provided sufficiently for all audit exposures and assessments. 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 reduction of future tax provisions. Any such tax or tax benefit would be recorded upon final resolution of the audits or expiration of the applicable statute of limitations. We believe the settlement of these tax disputes may have a material effect on our financial statements.

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. If a product is not approved for sale, it would likely result in the write-off of the inventory and a charge to earnings. Our total inventories included $18.8 million at December 31, 2005 and $5.6 million at December 31, 2004, of Myozyme inventory, primarily consisting of finished goods, which has not yet been approved for sale. We submitted marketing applications for Myozyme in the European Union in December 2004 and in the United States in July 2005. We expect European Union and United States approvals in the second quarter of 2006 and are preparing for commercial launch thereafter.

F-14

Long-Lived and Intangible Assets

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

        For products we expect to be commercialized, we capitalize the cost of validating new equipment for the underlying manufacturing process. We begin capitalization when we consider the product to have demonstrated technological feasibility, and end capitalization when the asset is substantially complete and ready for its intended use. Costs capitalized include incremental labor and direct material, and incremental fixed overhead and interest. Determining whether to capitalize validation costs requires judgment, and can have a significant impact on our reported results. Also, if we were unable to successfully validate the manufacturing process for any future product, we would have to write off to current operating expense any validation costs that had been capitalized during the unsuccessful validation process. To date, all of our manufacturing process validation efforts have been successful. As of December 31, 2005, capitalized validation costs, net of accumulated depreciation, were $15.8 million.

        We generally depreciate plant and equipment using the straight-line method over its estimated economic life, which ranges from 3 to 15 years. Determining the economic lives of plant and equipment requires us to make significant judgments that can materially impact our operating results. There can be no assurance that our estimates are accurate. If our estimates require adjustment, it could have a material impact on our reported results.

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

•

the time and investment that will be required to develop products and technologies;



•

our ability to develop and commercialize products before our competitors develop and commercialize products for the same indications;



•

the amount of revenues that will be derived from the products; and



•

appropriate discount rates to use in the analysis.

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

        As of December 31, 2005, there was approximately $1.5 billion of net goodwill and $1.6 billion of net other intangible assets on our consolidated balance sheet. We amortize intangible assets using the straight-line method over their estimated economic lives, which range from 1 and 15 years, or using the economic use method if that method results in significantly greater amortization than the straight-line method. Determining the economic lives of acquired intangible assets requires us to make significant judgment and estimates, and can materially impact our operating results.

F-15

Asset Impairments

Impairment of Tangible and Intangible Assets, Other Than Goodwill

        We periodically evaluate long-lived assets for potential impairment under SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." We perform these evaluations whenever events or changes in circumstances suggest that the carrying value of an asset or group of assets is not recoverable. If we believe an indicator of potential impairment exists, we test to determine whether the impairment recognition criteria in SFAS No. 144 have been met. In evaluating long-lived assets for potential impairment, we make several significant estimates and judgments, including:

•

determining the appropriate grouping of assets at the lowest level for which cash flows are available;



•

estimating future cash flows associated with the asset or group of assets; and



•

determining an appropriate discount rate to use in the analysis.

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

        As a result of our evaluations of long-lived assets, we recorded an impairment charge in 2004 of $4.5 million to write down assets related to a manufacturing facility in Oklahoma. We recorded an impairment charge in 2003 of $8.0 million to write off tangible and intangible assets associated with our decision to discontinue the active marketing, and ultimately, the sale of our FocalSeal product.

Impairment of Goodwill

        SFAS No. 142 requires periodic tests of goodwill for impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. SFAS No. 142 requires goodwill be tested using a two-step process. The first step compares the fair value of the reporting unit with the unit's carrying value, including goodwill. When the carrying value of the reporting unit is greater than fair value, the unit's goodwill may be impaired, and the second step must be completed to measure the amount of the goodwill impairment charge, if any. In the second step, the implied fair value of the reporting unit's goodwill is compared with the carrying amount of the unit's goodwill. If the carrying amount is greater than the implied fair value, the carrying value of the goodwill must be written down to its implied fair value. We determine the implied fair value by discounting, to present value, the estimated future cash flow of the reporting unit, which includes various analyses, assumptions and estimates including discount rates, projected results and estimated cash flows.

        We are required to perform impairment tests under SFAS No. 142 annually and whenever events or changes in circumstances suggest that the carrying value of an asset may not be recoverable. For all of our acquisitions, various analyses, assumptions and estimates were made at the time of each acquisition specifically regarding product development, market conditions and cash flows that were used to determine the valuation of goodwill and intangibles. We completed the annual impairment tests for the $1.5 billion of net goodwill related to our reporting units during 2005, and determined that impairment charges were not required. When we perform impairment tests in future years, the possibility exists that changes in forecasts and estimates from those used at the acquisition date could result in impairment charges.

Strategic Equity Investments

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

F-16

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

•

continued positive progress in the issuer's scientific programs;



•

ongoing activity in our collaborations with the issuer;



•

a lack of any other substantial company-specific adverse events causing declines in value; and



•

overall financial condition and liquidity of the issuer of the securities.

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

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

        At December 31, 2005, our stockholders' equity includes $32.5 million of unrealized gains and $1.5 million of unrealized losses related to our investments in strategic equity securities. The fair market value of the investment generating the unrealized losses has been below our cost basis for the investment for less than a year and based on our review, we believe such losses are temporary.

Other Reserve Estimates

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

F-17

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:

		2005		2004		2003		05/04 Increase/ (Decrease) % Change		04/03 Increase/ (Decrease) % Change
		(Amounts in thousands, except percentage data)
Product revenue		$	2,453,303	$	1,976,191	$	1,563,509	24	%	26	%
Service revenue			261,379		212,392		130,984	23	%	62	%
	Total product and service revenue		2,714,682		2,188,583		1,694,493	24	%	29	%
Research and development revenue			20,160		12,562		19,378	60	%	(35	)%
	Total revenues	$	2,734,842	$	2,201,145	$	1,713,871	24	%	28	%

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, bulk sevelamer and Hectorol for the treatment of secondary hyperparathyroidism in patients on dialysis and those with earlier stage CKD;



•

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



•

Transplant's therapeutic products for the treatment of immune-mediated diseases, primarily Thymoglobulin and Lymphoglobuline, each of which induce immunosuppression of certain types of immune cells responsible for acute organ rejection in transplant patients;



•

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



•

Diagnostic products, including infectious disease and cholesterol testing products; and



•

Other products, including:



•

oncology products, including Campath for the treatment of B-cell chronic lymphocytic leukemia in patients who have been treated with alkylating agents and who have failed fludarabine therapy, and Clolar for the treatment of children with refractory or relapsed acute lymphoblastic leukemia; and



•

bulk pharmaceuticals and WelChol, which is a mono and adjunctive therapy for the reduction of LDL cholesterol in patients with primary hypercholesterolemia.

F-18

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

			2005		2004		2003		05/04 Increase/ (Decrease) % Change		04/03 Increase/ (Decrease) % Change
			(Amounts in thousands, except percentage data)
Renal:
	Renagel (including sales of bulk sevelamer)		$	417,485	$	363,720	$	281,701	15	%	29	%
	Hectorol			34,515		—		—	N/A		N/A
		Total Renal		452,000		363,720		281,701	24	%	29	%
Therapeutics:
	Cerezyme			932,322		839,366		733,817	11	%	14	%
	Fabrazyme			305,064		209,637		80,617	46	%	160	%
	Thyrogen			77,740		63,454		43,438	23	%	46	%
	Other Therapeutics			6,119		2,462		1,802	149	%	37	%
		Total Therapeutics		1,321,245		1,114,919		859,674	19	%	30	%
Transplant:
	Thymoglobulin/Lymphoglobuline			127,739		108,928		29,953	17	%	264	%
	Other Transplant			18,143		42,125		14,367	(57	)%	193	%
		Total Transplant		145,882		151,053		44,320	(3	)%	241	%
Biosurgery:
	Synvisc			218,906		88,296		108,498	148	%	(19	)%
	Sepra products			68,171		61,647		47,731	11	%	29	%
	Other Biosurgery			27,402		30,415		60,700	(10	)%	(50	)%
		Total Biosurgery		314,479		180,358		216,929	74	%	(17	)%
Diagnostics/Genetics:
	Diagnostic Products			104,202		90,955		88,588	15	%	3	%
	Other Diagnostics/Genetics			—		753		607	(100	)%	24	%
		Total Diagnostics/Genetics		104,202		91,708		89,195	14	%	3	%
Other product revenue				115,495		74,433		71,690	55	%	4	%
		Total product revenue	$	2,453,303	$	1,976,191	$	1,563,509	24	%	26	%

2005 As Compared to 2004

Renal

        Sales of Renagel, including sales of bulk sevelamer, increased 15% to $417.5 million for 2005, as compared to 2004, primarily due to a $49.9 million increase in 2005 in sales related to increased customer volume, driven primarily by increased end-user demand in the United States and Europe. The 1% increase in net sales price in 2005, as compared to 2004, did not have a significant impact on sales of Renagel. The average exchange rate for the Euro remained relatively stable against the U.S. dollar for 2005, as compared to 2004, therefore having no significant impact on Renagel revenue. However, a 17% decrease in the average exchange rate for the Brazilian Real against the U.S. dollar for 2005, as compared to 2004, positively impacted Renagel revenue by $3.0 million in 2005. Sales of Renagel, including sales of bulk sevelamer, were 17% of our total product revenue for 2005, as compared to 18% for 2004.

F-19

        Our acquisition of Bone Care on July 1, 2005 expanded our Renal product offerings with the addition of Hectorol, a complimentary product to Renagel used to treat secondary hyperparathyroidism in patients on dialysis and those with earlier stage CKD. Bone Care's operations are integrated into our Renal business, and our sales representatives have begun selling Hectorol to nephrologists in the United States. Sales of Hectorol were $34.5 million for 2005, reflecting sales beginning on July 1, 2005.

        We conducted a 2,100-patient post-marketing study of Renagel to evaluate the ability of the product to improve patient morbidity and mortality. The DCOR trial compared Renagel to calcium-based phosphate binders with respect to overall morbidity and mortality. We released top-line data from this trial in July 2005 and presented the data at the American Society of Nephrology meeting in November 2005. The study did not meet its primary end point of a statistically significant reduction in all cause mortality. However, in a pre-specified sub-group analysis, Renagel demonstrated a significant reduction in all cause mortality in patients 65 years of age or older and in patients using Renagel for two years or more. We expect to receive morbidity data from the CMS in mid 2006 and may present such data later in the year.

        We expect sales of Renagel and Hectorol to increase, driven primarily by growing patient access to our products and the continued adoption of the products by nephrologists worldwide. We expect adoption rates for Renagel to trend favorably as a result of the DCOR trial and the growing acceptance of the National Kidney Foundation's 2003 Kidney Disease Outcome Quality Initiative, or K/DOQI, guidelines for Bone Metabolism and Disease in CKD. Renagel and Hectorol compete with several other products and our future sales may be impacted negatively by these products. We discuss these competitors under the heading "Factors Affecting Future Operating Results—Our future success will depend on our ability to effectively develop and market our products and services against those of our competitors" in this report. In addition, our ability to continue to increase sales of Renagel and Hectorol will depend on many other factors, including our ability to optimize dosing and improve patient compliance with dosing of Renagel, the availability of reimbursement from third-party payors and the extent of coverage, including under the Medicare Prescription Drug Improvement and Modernization Act, and the accuracy of our estimates of fluctuations in the payor mix. Also 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.

Therapeutics

        Therapeutics product revenue increased 19% to $1.3 billion for 2005, as compared to 2004, primarily due to continued growth in sales of Cerezyme, Fabrazyme and Thyrogen.

        The 11% growth in sales of Cerezyme to $932.3 million for 2005, as compared to 2004, is attributable to our continued identification of new Gaucher disease patients, particularly in international markets. Our price for Cerezyme has remained consistent from period to period. Although we expect Cerezyme to continue to be a substantial contributor to revenue 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 average exchange rate for the Euro against the U.S. dollar remained relatively stable in 2005, as compared to 2004, resulting in very little impact on the sales of Cerezyme.

        Our results of operations are highly dependent on sales of Cerezyme and a reduction in revenue from sales of this product would adversely affect our results of operations. Sales of Cerezyme were approximately 38% of our total product revenue in 2005 and 42% in 2004. Revenue from Cerezyme would be impacted negatively if competitors developed additional 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,

F-20

expired in May 2001, we continue to have patents protecting our method of manufacturing Cerezyme until 2010 and the composition of Cerezyme as made by that process until 2013. The expiration of market exclusivity and orphan drug status will likely subject Cerezyme to increased competition, which may decrease the amount of revenue we receive from this product or the growth of that revenue. We are aware of companies that have initiated efforts to develop competitive products, and other companies may do so in the future. We discuss these competitors under the heading "Factors Affecting Future Operating Results—Our future success will depend on our ability to effectively develop and market our products and services against those of our competitors" in this report.

        The 46% increase to $305.1 million for 2005 in sales of Fabrazyme, as compared to 2004, was primarily attributable to increased patient identification worldwide as Fabrazyme is introduced into new markets.

        The sales of Thyrogen increased 23% to $77.7 million for 2005, as compared to 2004, primarily due to worldwide volume growth.

        We submitted marketing applications for Myozyme in the European Union in December 2004 and in the United States in July 2005. In January 2006, the FDA extended by 90 days the review period for the biological license application for Myozyme to provide sufficient time to review the additional data we submitted in December 2005 at the FDA's request. In December 2005, the European Committee for Human Services unanimously recommended full approval of Myozyme. We expect commercial launch in the United States and Europe in the second quarter of 2006.

Transplant

        Transplant product revenue decreased 3% to $145.9 million for 2005, as compared to 2004. The decrease is primarily due to a $32.5 million decrease in sales of Gengraf, which we formerly co-promoted with Abbott Laboratories under an agreement that expired on December 31, 2004. The decrease is partially offset by a $16.0 million increase in sales of Thymoglobulin as a result of increased utilization of Thymoglobulin in transplant procedures and $9.0 million of previously deferred revenue related to an upfront license fee we had received from Proctor & Gamble Pharmaceuticals, Inc., or PGP, a subsidiary of The Proctor and Gamble Company. In December 2005, PGP exercised its option to terminate an agreement under which we had granted PGP an exclusive, worldwide license to develop and market RDP58 for the treatment of gastrointestinal and other disorders.

        We expect sales of Thymoglobulin to increase, driven primarily by our continued entry into new geographical markets, together with an overall growth in solid organ and living donor renal transplants. Thymoglobulin competes with several other products and our future sales may be impacted negatively by these products. We discuss these competitors under the heading "Factors Affecting Future Operating Results—Our future success will depend on our ability to effectively develop and market our products and services against those of our competitors" in this report.

Biosurgery

        Biosurgery product revenue increased 74% to $314.5 million for 2005, as compared to 2004. The increase was largely attributable to a $130.6 million increase in sales of Synvisc, primarily due to our reacquisition of the Synvisc sales and marketing rights from Wyeth in January 2005 in certain countries. Upon closing this transaction, we began to record revenue from sales of Synvisc to end-users in the United States, as well as Germany, Poland, Portugal and the Czech Republic. We began selling Synvisc directly to end-users in Greece effective July 1, 2005. We are aware of several products that compete with Synvisc, several companies that have initiated efforts to develop competitive products and several companies that market products designed to relieve the pain of osteoarthritis. These products could have an adverse effect on future sales of Synvisc. We discuss these competitors under the heading "Factors Affecting Future Operating Results—Our future success will depend on our ability to

F-21

effectively develop and market our products and services against those of our competitors" included in this report.

Diagnostics/Genetics

        Diagnostics/Genetics product revenue increased 14% to $104.2 million for 2005, as compared to 2004. The increase was attributable to a 21%, or $10.3 million, increase in clinical chemistry revenue due to additional sales resulting from our acquisition of Equal Diagnostics in July 2005 and as a result of higher order volume by several large customers.

Other Product Revenue

        Other product revenue increased 55% to $115.5 million for 2005, as compared to 2004, primarily due to an 18% increase, to $81.3 million, in sales of bulk pharmaceuticals, including WelChol. This increase is primarily due to an increased demand for liquid crystals. Additionally, bulk sales of and royalties earned on WelChol increased 33% to $33.0 million due to an increased demand from our U.S. marketing partner, Sankyo Pharma, Inc. Other product revenue includes a $28.8 million increase in oncology revenue primarily due to the addition of sales from two oncology products, Campath and Clolar, that we acquired in the ILEX Oncology transaction in December 2004.

2004 As Compared to 2003

Renal

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

•

a $56.0 million increase in net sales related to increased customer volume, driven primarily by increased end-user demand in the United States and Europe;



•

a $23.3 million increase in revenue due to an 8% price increase that became effective in January 2004; and



•

a 10% increase in the average exchange rate for the Euro which positively impacted Renagel revenue by $8.4 million.

Sales of Renagel, including sales of bulk sevelamer, were approximately 18% of our total product revenue for 2004 and 2003.

Therapeutics

        Therapeutics product revenue increased 30% to $1.1 billion for 2004, as compared to 2003, primarily due to continued growth in sales of Cerezyme, Fabrazyme and Thyrogen.

        The 14% growth in sales of Cerezyme to $839.4 million for 2004, as compared to 2003, was attributable to our continued identification of new Gaucher disease patients, particularly internationally. Our price for Cerezyme remained consistent from period to period. The growth in sales of Cerezyme was also impacted by a 10% increase in the average exchange rate, which positively impacted sales of Cerezyme by $25.5 million.

        Our results of operations are highly dependent on sales of Cerezyme and a reduction in revenue from sales of this product would adversely affect our results of operations. Sales of Cerezyme were approximately 42% of our total product revenue for 2004, as compared to approximately 47% for 2003.

F-22

        The 160% increase to $209.6 million in sales of Fabrazyme for 2004, as compared to 2003, was primarily attributable to:

•

a $38.5 million increase in European sales of Fabrazyme resulting from our continued identification of Fabry patients in Europe;



•

a $22.8 million increase due to the launch of Fabrazyme in Japan during the second quarter of 2004;



•

a $61.7 million increase resulting from the inclusion of a full year of Fabrazyme sales in 2004; and



•

an increase in the average exchange rate of the Euro of 10%, which positively impacted sales by $6.2 million.

        The 46% increase to $63.5 million in sales of Thyrogen for 2004, as compared to 2003, was primarily attributable to worldwide volume growth.

Transplant

        We began recording product revenue for our Transplant business unit on September 11, 2003, the day that we completed the acquisition of SangStat and began including its results of operations in our consolidated financial statements. Other Transplant revenues for 2004 include $33.6 million in sales of Gengraf, which we co-promoted with Abbott Laboratories under an agreement that expired on December 31, 2004.

Biosurgery

        Biosurgery product revenue decreased 17% to $180.4 million for 2004, as compared to 2003. The decrease was primarily due to the absence of revenues from our line of cardiac device products following our sale of this product line in June 2003. Revenues from sales of cardiac device products were $40.2 million in 2003. Additionally, sales of Synvisc decreased 19% to $88.3 million for 2004 as compared to 2003. The decrease was primarily due to inventory reductions in the first half of 2004, as well as competitive pricing pressures and price discounts by Wyeth, our then U.S. marketing partner, in response to Medicare pricing rate changes. In addition, Wyeth reduced its inventory of Synvisc in the fourth quarter of 2004 in anticipation of our reacquisition of sales and marketing rights. These decreases were partially offset by a $13.9 million increase in sales of Sepra products, primarily due to increased market penetration in the U.S. and Japan. Additionally, we recognized a one-time, $5.0 million royalty payment in September 2004 under an agreement with Q-Med AB, for which there was no comparable amount in 2003.

Diagnostics/Genetics

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

Other Product Revenue

        The increase in Other product revenue for 2004, as compared to 2003, was primarily attributable to a $5.0 million milestone payment received in October 2004 from Schering AG in accordance with the terms of a license agreement related to p53 gene therapy. Additionally, sales of bulk pharmaceuticals increased 25% to $44.2 million primarily due to increased demand for liquid crystals. These increases were partially offset by a decrease in bulk sales of and royalties earned on sales of WelChol. Bulk sales of and royalties earned on WelChol decreased 31% to $24.9 million as a result of a decrease in demand from our U.S. marketing partner, Sankyo Pharma, Inc.

F-23

Service Revenue

        We derive service revenues primarily from the following principal sources:

•

sales of MACI, a proprietary cell therapy product for cartilage repair, 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 and pathology/oncology testing services, which are included in our Diagnostics/Genetics reporting segment.

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

		2005		2004		2003		05/04 Increase/ (Decrease) % Change		04/03 Increase/ (Decrease) % Change
		(Amounts in thousands, except percentage data)
Biosurgery		$	38,553	$	24,917	$	29,317	55	%	(15	)%
Diagnostics/Genetics			222,328		187,413		101,540	19	%	85	%
Other service revenue			498		62		127	703	%	(51	)%
	Total service revenue	$	261,379	$	212,392	$	130,984	23	%	62	%

2005 As Compared to 2004

        Service revenue attributable to our Biosurgery reporting segment increased 55% to $38.6 million for 2005, as compared to 2004. The increase is primarily due to the addition of sales of MACI, which we acquired in the Verigen transaction in February 2005.

        Service revenue attributable to our Diagnostics/Genetics reporting segment increased 19% to $222.3 million for 2005, as compared to 2004. The increase was primarily attributable to:

•

additional service revenue resulting from our acquisition of substantially all of the pathology/oncology testing assets of IMPATH in May 2004;



•

continued growth in the prenatal screening and diagnosis market; and



•

increased sales of DNA testing services, primarily due to growth in the cystic fibrosis screening and diagnosis market.

2004 As Compared to 2003

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

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

•

$65.8 million of additional service revenue resulting from our acquisition of substantially all of the pathology/oncology testing assets of IMPATH in May 2004;



•

additional service revenue resulting from our acquisition of substantially all of the assets of Alfigen in February 2004;



•

continued growth in the prenatal screening and diagnosis market; and

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•

increased sales of DNA testing services, primarily due to growth in the cystic fibrosis screening and diagnosis market.

International Product and Service Revenue

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

		2005			2004			2003			05/04 Increase/ (Decrease) % Change		04/03 Increase/ (Decrease) % Change
		(Amounts in thousands, except percentage data)
International product and service revenue		$	1,215,621		$	992,643		$	741,757		22	%	34	%
	% of total product and service revenue		45	%		45	%		44	%

2005 As Compared to 2004

        The 22% increase to $1.2 billion for 2005 in international product and service revenue, as compared to 2004, is primarily due to:

•

a $180.1 million increase in the combined international sales of Renagel, Cerezyme, Fabrazyme and Thyrogen primarily due to an increase in the number of patients using these products in countries outside of the United States; and



•

a $7.7 million increase in international sales of Thymoglobulin and Lymphoglobuline due to an increase in volume and price.

2004 As Compared to 2003

        The 34% increase, to $992.6 million, for 2004 in international product and service revenue, as compared to 2003, was primarily due to:

•

a $201.5 million increase in the combined international sales of Renagel, Cerezyme and Fabrazyme;



•

a $29.7 million increase in international sales of Thymoglobulin and Lymphoglobuline due to the acquisition of SangStat on September 11, 2003; and



•

an increase in the average exchange rate for the Euro of 10%, which positively impacted sales by $48.7 million.

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Research and Development Revenue

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

		2005		2004		2003		05/04 Increase/ (Decrease) % Change		04/03 Increase/ (Decrease) % Change
		(Amounts in thousands, except percentage data)
Therapeutics		$	789	$	—	$	1	N/A		(100	)%
Transplant			30		310		—	(90	)%	N/A
Biosurgery			144		4,241		7,046	(97	)%	(40	)%
Other			17,478		5,109		9,245	242	%	(45	)%
Corporate			1,719		2,902		3,086	(41	)%	(6	)%
	Total research and development revenue	$	20,160	$	12,562	$	19,378	60	%	(35	)%

2005 As Compared to 2004

        Other research and development revenue increased $12.4 million for 2005, as compared to 2004, primarily due to $7.0 million of additional revenue in 2005 resulting from research and development work related to Campath that we performed on behalf of Schering AG, under agreements we assumed in connection with our acquisition of ILEX Oncology in December 2004. This increase was partially offset by a decrease in Biosurgery research and development revenue, primarily due to the completion, in 2004, of a development program for Hylaform and reimbursements received from Wyeth in 2004 for development projects associated with Synvisc. There were no comparable amounts for the reimbursements from Wyeth in 2005.

2004 As Compared to 2003

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

•

a $2.3 million milestone payment received in 2003 from our Hylaform distribution partner in connection with filing for marketing approval in the United States for which there was no comparable amount in 2004; and



•

$2.7 million of revenue recorded in 2003 related to milestone payments received from our Hylaform distribution partner for which there was no comparable amount in 2004.

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

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MARGINS

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

		2005			2004			2003			05/04 Increase/ (Decrease) % Change		04/03 Increase/ (Decrease) % Change
		(Amounts in thousands, except percentage data)
Product margin		$	1,991,126		$	1,527,749		$	1,163,548		30	%	31	%
	% of total product revenue		81	%		77	%		74	%
Service margin		$	90,904		$	72,248		$	55,301		26	%	31	%
	% of total service revenue		35	%		34	%		42	%
Total product and service gross margin		$	2,082,030		$	1,599,997		$	1,218,849		30	%	31	%
	% of total product and service revenue		77	%		73	%		72	%

2005 As Compared to 2004

Product Margin

        Our overall product margin increased $463.4 million, or 30%, for 2005, as compared to 2004. This is primarily due to:

•

a $130.6 million, or 148%, increase in sales of Synvisc resulting from our reacquisition of Synvisc sales and marketing rights from Wyeth in January 2005. Upon closing this transaction with Wyeth, we began to record revenue from sales of Synvisc to end-users in the United States, as well as in Germany, Poland, Portugal, the Czech Republic and, as of July 1, 2005, Greece;



•

improved margins for Renagel, Cerezyme, Fabrazyme and Thymoglobulin due to increased sales and increased utilization of capacity at our global manufacturing facilities;



•

Hectorol's margin contribution in the second half of 2005 due to the acquisition of Bone Care in July 2005; and



•

$9.0 million of previously deferred revenue related to an upfront license fee received from PGP was recognized in our results of operations in December 2005 for which there was no comparable amount recorded in 2004.

These increases in product margin were partially offset by the write off of $28.1 million of Cerezyme, Myozyme and Clolar inventory to cost of sales. The write off of Cerezyme and Myozyme inventory was due to unsuccessful production runs of these products that occurred at our Allston Landing manufacturing plant. The write off of Clolar inventory was due to expired inventory acquired in connection with our acquisition of ILEX Oncology.

        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 $18.7 million, or 26%, for 2005, as compared to 2004. This is primarily due to a $13.6 million, or 55%, increase in sales of Biosurgery services as well as a $34.9 million, or 19%, increase in sales of Diagnostics/Genetics services. Total service margin as a percent of total service revenue increased in 2005, as compared to 2004, primarily due to increased sales of higher margin Biosurgery services such as Carticel and MACI, which offset increased sales of lower margin testing services attributable to our acquisition of substantially all of the pathology/oncology testing assets related to the Physician Services and Analytical Services business units of IMPATH in May 2004.

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2004 As Compared to 2003

Product Margin

        Our overall product margin increased $364.2 million, or 31% for 2004, as compared to 2003. This was primarily due to improved margins for Renagel, Cerezyme, Fabrazyme, Thyrogen and the Sepra products due to increased sales. In addition, product margin for our Therapeutics reporting segment in 2003 included the write off of $2.3 million of Cerezyme finished goods due to production issues, for which there is no similar write off in 2004. These increases were offset by a decrease in the margins for cardiac devices due to the sale of our cardiac device business in June 2003, and Diagnostics/Genetics products resulting from a one-time royalty payment of $1.2 million and manufacturing capacity variances attributable to a decline in the demand for certain diagnostic rapid test kits. Additionally, the expiration of our royalty agreement with Techne Corporation in June 2003 resulted in no royalty revenue being recorded in 2004 and therefore no product margin related to this royalty.

Service Margin

        Our overall service margin increased $16.9 million, or 31%, for 2004, as compared to 2003. This was primarily due to a $85.9 million, or 85%, increase in service revenue related to our Diagnostics/Genetics services offset by a $4.4 million, or 15%, decrease for 2004, as compared to 2003, in the sales of Biosurgery services. Additionally, costs associated with our Diagnostic/Genetics services, including a one-time royalty payment of $3.3 million, increased 106%. Total service margin as a percent of total service revenue decreased for 2004, as compared to 2003, primarily due to an increase in sales of lower margin testing services attributable to our acquisition of substantially all of the pathology/oncology testing assets related to the Physician Services and Analytical Services business units of IMPATH in May 2004, as well as the absence of services revenue related to Synvisc in 2004. This decrease was a result of $6.2 million of reimbursed expenses, classified as revenue, received from Wyeth in 2003, for which there were no comparable amounts in 2004.

OPERATING EXPENSES

Selling, General and Administrative Expenses

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

	2005		2004		2003		05/04 Increase/ (Decrease) % Change		04/03 Increase/ (Decrease) % Change
	(Amounts in thousands, except percentage data)
Selling, general and administrative expenses	$	787,839	$	599,388	$	519,977	31	%	15	%

2005 As Compared to 2004

        SG&A increased $188.5 million for 2005, as compared to 2004, primarily due to increases in sales and marketing expenses of:

•

$23.1 million for Renal products, primarily due to our acquisition of Bone Care in July 2005;



•

$49.5 million for Therapeutics products, primarily due to increased spending on additional resources to support volume growth and new country launches for Cerezyme, Fabrazyme, Thyrogen and Myozyme;



•

$58.0 million for Biosurgery products and services, primarily due to the additional expenses related to the Synvisc sales force we assumed from Wyeth, and because we now perform all

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marketing for Synvisc in the United States, as well as Germany, Poland, Portugal, the Czech Republic and, as of July 1, 2005, Greece;

•

$10.0 million for Diagnostics/Genetics, primarily due to our acquisitions of Equal Diagnostics in July 2005 and substantially all of the pathology/oncology testing assets of IMPATH in May 2004;



•

$20.3 million in Other sales and marketing expenses, primarily due to the increase in expenses for our oncology business as a result of our acquisition of ILEX Oncology in December 2004; and



•

$20.9 million of Corporate SG&A, primarily due to increased spending on legal, information technology, recruiting and advertising expenses.

These increases were partially offset by an approximately $2 million decrease in Corporate SG&A resulting from lower professional fees associated with compliance with the Sarbanes-Oxley Act of 2002.

        SG&A was 29% of total revenue in 2005, 27% in 2004 and 30% in 2003. In 2006, we expect SG&A as a percentage of total revenue to be consistent with 2005, primarily due to the anticipated launch of Myozyme in Europe and the United States in the second quarter of 2006 and increased marketing support for Synvisc.

2004 As Compared to 2003

        SG&A increased $79.4 million for 2004, as compared to 2003, primarily due to increases in sales and marketing expenses of:

•

$11.9 million for Renal products aimed at increasing market penetration in Europe;



•

$17.0 million for Therapeutics products, primarily due to increased spending for Fabrazyme, Thyrogen and Myozyme;



•

$17.8 million for Transplant products resulting from a full year of selling activities after our acquisition of SangStat in September 2003; and



•

$9.8 million for Diagnostics/Genetics products, primarily due to the acquisition of substantially all of the assets of Alfigen in February 2004 and our acquisition of certain of the pathology/oncology testing assets of IMPATH in May 2004.

These increases were offset by a $13.2 million decrease in SG&A for Biosurgery products primarily driven by the sale of our cardiac device business in June 2003.

Research and Development Expenses

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

	2005		2004		2003		05/04 Increase/ (Decrease) % Change		04/03 Increase/ (Decrease) % Change
	(Amounts in thousands, except percentage data)
Research and development expenses	$	502,657	$	391,802	$	335,256	28	%	17	%

2005 As Compared to 2004

        Research and development expenses increased $110.9 million for 2005, as compared to 2004, primarily due to:

•

a $37.3 million increase in spending on Renal research and development programs primarily due to our acquisition of Bone Care in July 2005 and to a $10.0 million charge recorded in 2005,

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representing a portion of the approximately $23 million of funding we are obligated to provide under our collaboration with RenaMed Biologics, Inc., or RenaMed, for which there was no comparable charge in 2004;

•

a $22.9 million increase in spending on Therapeutics research and development programs including spending on the DX-88 program due to full enrollment in a clinical trial and additional manufacturing runs in 2005; and



•

a $47.4 million increase in spending on Other research and development programs primarily due to Campath and Clolar clinical trial activity.

        As a result of our increased focus on oncology research and development, costs related to our Other research and development programs, which include costs for our oncology business, are likely to represent an increased percentage of our overall research and development expenses in the future.

2004 As Compared to 2003

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

•

a $9.4 million increase in spending on Renal research and development programs;



•

a $9.6 million increase in spending on Therapeutics research and development programs;



•

an $11.4 million increase in spending on Transplant research and development programs; and



•

a $27.7 million increase in spending for Corporate research and development efforts related to our corporate science activities that we do not allocate to our reporting segments.

Amortization of Intangibles

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

	2005		2004		2003		05/04 Increase/ (Decrease) % Change		04/03 Increase/ (Decrease) % Change
	(Amounts in thousands, except percentage data)
Amortization of intangibles	$	181,632	$	109,473	$	80,257	66	%	36	%

        Amortization of intangibles expense increased by $72.2 million for 2005, as compared to 2004, primarily due to additional amortization expense attributable to the intangible assets acquired in connection with our acquisitions of Bone Care and Equal Diagnostics in July 2005, Verigen in February 2005, as well as the reacquisition of the Synvisc sales and marketing rights from Wyeth in January 2005 and our acquisition of ILEX Oncology in December 2004. In addition, the 2005 amortization of intangibles expense includes a full year of expense related to the intangible assets attributable to our acquisition of substantially all of the pathology/oncology testing assets of IMPATH in May 2004, as compared to seven months in 2004.

        As discussed in Note C., "Mergers and Acquisitions," to our financial statements in this report, we calculate amortization expense for the Synvisc sales and marketing rights reacquired from Wyeth by taking into account forecasted future sales of Synvisc and the resulting future contingent payments which will be recorded as intangible assets when the payments are accrued. As a result, we expect amortization of intangibles to increase over the next five years based on these future contingent payments.

        Amortization expense increased by $29.2 million for 2004, as compared to 2003, primarily due to additional amortization expense attributable to the intangible assets acquired in connection with our

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acquisition of SangStat in September 2003, our acquisition of substantially all of the assets of Alfigen in February 2004 and our acquisition of certain of the pathology/oncology testing assets of IMPATH in May 2004.

Purchase of In-Process Research and Development

        In connection with nine of our acquisitions since 2000, we have acquired various IPR&D projects. Substantial additional research and development will be required prior to any of our acquired IPR&D programs and technology platforms reaching technological feasibility. In addition, once research is completed, each product candidate acquired from Avigen, Bone Care, Verigen, ILEX Oncology, SangStat, Novazyme, Wyntek, GelTex and Biomatrix will need to complete a series of clinical trials and receive FDA or other regulatory approvals prior to commercialization. Our current estimates of the time and investment required to develop these products and technologies may change depending on the different applications that we may choose to pursue. We cannot give assurances that these programs will ever reach feasibility or develop into products that can be marketed profitably. In addition, we cannot guarantee that we will be able to develop and commercialize products before our competitors develop and commercialize products for the same indications. If products based on our acquired IPR&D programs and technology platforms do not become commercially viable, our results of operations could be materially adversely affected.

Avigen

        In connection with our acquisition of certain gene therapy assets from Avigen, we acquired IPR&D related to Avigen's Parkinson's disease program.

        As of the date this transaction closed, this program had not reached technological feasibility nor had an alternative future use. Accordingly, we allocated to IPR&D and charged to expense in our consolidated statements of operations in December 2005, $7.0 million, representing the portion of the $12.0 million up-front payment to Avigen attributable to the Parkinson's disease program.

        Management assumes responsibility for determining the IPR&D valuation. The fair value assigned to purchased IPR&D was 59% of the $12.0 million up-front payment to Avigen. This percentage represents management's assessment of the value of the Parkinson's disease program as compared to the combined total value of the acquired core technology and IPR&D.

        As of December 31, 2005, we estimated that it will take approximately six years and an investment of approximately $74 million to complete the development of, obtain approval for and commercialize a product arising from the acquired Parkinson's disease program.

Bone Care

        In connection with our acquisition of Bone Care, we acquired IPR&D related to LR-103, a vitamin D therapeutic candidate that is an active metabolite of Hectorol. In biological models, this product candidate is readily absorbed after oral delivery and circulates through the bloodstream to tissues which respond to vitamin D hormones. Bone Care conducted early stage research of LR-103 in a variety of indications.

        As of the date this transaction closed, this project had not reached technological feasibility nor had an alternative future use. Accordingly, we allocated to IPR&D and charged to expense in our consolidated statements of operations in September 2005, $12.7 million, representing the portion of the purchase price attributable to this project.

        Management assumes responsibility for determining the IPR&D valuation. The fair value assigned to purchased IPR&D was estimated by discounting, to present value, the cash flows expected to result from the project once it has reached technological feasibility. We used a discount rate of 24.5% and

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cash flows that have been probability-adjusted to reflect the risks of advancement through the product approval process. In estimating future cash flows, we also considered other tangible and intangible assets required for successful exploitation of the technology resulting from the purchased IPR&D project and adjusted future cash flows for a charge reflecting the contribution to value of these assets.

        As of December 31, 2005, we estimated that it will take approximately six years and an investment of approximately $15 million to complete the development of, obtain approval for and commercialize LR-103.

Verigen

        In connection with our acquisition of Verigen, we acquired IPR&D related to MACI, a proprietary approach to cartilage repair. As of the date of our acquisition of Verigen, MACI, which has received marketing approvals in Europe and Australia, had not reached technological feasibility in the United States due to lack of regulatory approval and did not have an alternative use. Accordingly, we allocated to IPR&D, and charged to expense in our consolidated statements of operations in March 2005, $9.5 million, representing the portion of the purchase price attributable to this project in the United States.

        Management assumes responsibility for determining the IPR&D valuation. The fair value assigned to purchased IPR&D was estimated by discounting, to present value, the cash flows expected to result from the project once it has reached technological feasibility in the United States. We used a discount rate of 24% and cash flows that have been probability-adjusted to reflect the risks of advancement through the product approval process. In estimating future cash flows, we also considered other tangible and intangible assets required for successful exploitation of the technology resulting from the purchased IPR&D project and adjusted future cash flows for a charge reflecting the contribution to value of these assets.

        As of December 31, 2005, we estimated that it will take approximately six years and an investment of approximately $33 million to complete the development of, obtain approval for and commercialize MACI in the United States.

ILEX Oncology

        In connection with our December 2004 acquisition of ILEX Oncology, we have acquired IPR&D related to three development projects, Campath (for indications other than B-cell chronic lymphocytic leukemia), Clolar and tasidotin hydrochloride. As of the date of our acquisition of ILEX Oncology, none of these projects had reached technological feasibility nor had an alternative future use. Accordingly, we allocated to IPR&D, and charged to expense in our consolidated statements of operations in December 2004, $254.5 million, representing the portion of the purchase price attributable to these projects, of which $96.9 million is attributable to the Campath development projects, $113.4 million is attributable to the Clolar development projects and $44.2 million is related to the tasidotin development projects. In December 2004, after the date of our acquisition of ILEX Oncology, the FDA granted marketing approval for Clolar for the treatment of children with refractory or relapsed acute lymphoblastic leukemia.

        As of December 31, 2005, we estimated that it will take approximately two to five years and an investment of approximately $119 million to complete the development of, obtain approval for and commercialize Campath for non-Hodgkin's lymphoma, multiple sclerosis and other cancer and noncancer indications. We estimated that it will take approximately two to five years and an investment of approximately $66 million to complete the development of, obtain approval for and commercialize Clolar for hematologic cancer, solid tumor and additional pediatric acute leukemia indications. We estimated that it will take approximately four years and an investment of approximately $24 million to complete the development of, obtain approval for and commercialize tasidotin.

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SangStat

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

        In March 2004, we entered into an agreement with PGP, a subsidiary of The Proctor & Gamble Company, under which we granted to PGP an exclusive, worldwide license to develop and market RDP58 for the treatment of gastrointestinal and other disorders. We retained development and commercialization rights to RDP58 in pulmonary and other disorders that were not specifically licensed to PGP and also retained co-promotion rights with PGP in oncology-related disorders, such as chemotherapy-induced diarrhea. In exchange for the grant of the license, PGP paid us an upfront fee, and agreed to make milestone payments and pay royalties on product sales. In December 2005, PGP exercised its option to terminate the agreement and discontinue development. As a result, we recognized $9.0 million of previously deferred revenue in our consolidated statements of operations. We are not currently pursuing any internal development of RDP58, and no further internal development is planned for this program.

        Although we received marketing authorization for both the 25mg and 100mg cyclosporine capsules in a European country in March 2004, we terminated our license for cyclosporine capsules effective April 2005.

Charge for Impairment of Goodwill

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

Charge for Impaired Assets

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

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

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

OTHER INCOME AND EXPENSES

	2005			2004			2003			05/04 Increase/ (Decrease) % Change		04/03 Increase/ (Decrease) % Change
	(Amounts in thousands, except percentage data)
Equity in income (loss) of equity method investments	$	151		$	(15,624	)	$	(16,743	)	(101	)%	(7	)%
Minority interest		11,952			5,999			2,232		99	%	169	%
Gains (losses) on investments in equity securities		5,698			(1,252	)		(1,201	)	(555	)%	4	%
Loss on sale of product line		—			—			(27,658	)	N/A		(100	)%
Other		(1,535	)		(357	)		959		330	%	(137	)%
Investment income		31,429			24,244			43,015		30	%	(44	)%
Interest expense		(19,638	)		(38,227	)		(26,600	)	(49	)%	44	%
Total other income (expenses)	$	28,057		$	(25,217	)	$	(25,996	)	(211	)%	(3	)%

2005 As Compared to 2004

Equity in Income (Loss) of Equity Method Investments

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

        Previously, our equity in income (loss) of equity method investments was a net loss, of which the largest component was our portion of the net losses from our joint venture with BioMarin. However, this joint venture became profitable in the first quarter of 2005 due to increased sales of Aldurazyme. As a result, we recorded income of $7.1 million in 2005, representing our portion of the net income of the joint venture for those periods, as compared to a charge of $9.7 million in 2004, representing our portion of the net losses of the joint venture for 2004.

Minority Interest

        As a result of our application of FASB Interpretation No., or FIN, 46, "Consolidation of Variable Interest Entities," we have consolidated the results of Dyax-Genzyme LLC, and Excigen Inc. Our consolidated balance sheet as of December 31, 2005 includes assets related to Dyax-Genzyme LLC, which are not significant, and substantially all of which are lab equipment net of their associated accumulated depreciation. We have recorded Dyax's portion of this joint venture's losses as minority interest in our consolidated statements of operations. The results of Excigen were not significant.

F-34

Gains (Losses) on Investments in Equity Securities

        We review for potential impairment the carrying value of each of our strategic investments in equity securities on a quarterly basis. Gains (losses) on investments in equity securities for 2005 includes a $4.5 million gain on the sale of our investment in the common stock of Theravance, which we recorded in our consolidated statement of operations in April 2005 and for which there was no comparable amount in 2004. A $2.9 million impairment charge was recorded in 2004 in connection with our investment in MacroGenics for which there is no comparable amount in 2005.

        In January 2006, we sold our entire investment of 2.1 million shares in the common stock of BioMarin for net cash proceeds of $24.4 million and recorded a realized gain of $6.5 million in connection with this sale in the first quarter of 2006.

Investment Income

        Our investment income increased 30% to $31.4 million for 2005, as compared to 2004, primarily due to an increase in the average portfolio yield. This increase was offset, in part, by lower average cash and investment balances in interest-bearing accounts and an increase in the realized losses on our U.S. investment portfolio.

Interest Expense

        Our interest expense decreased 49% to $19.6 million for 2005, as compared to 2004, primarily due to $17.9 million of interest expense and charges related to the redemption of our $575.0 million in principal of 3% convertible subordinated debentures for cash in June 2004 for which there are no similar amounts in the same period of 2005, including $8.3 million of interest expense, a charge of $4.3 million for the premium paid upon redemption and a charge of $5.3 million to write off the unamortized debt fees associated with these debentures. This decrease was offset, in part, by $0.5 million of additional interest expense for 2005 related to the $350.0 million in principal drawn under our revolving credit facility to fund the acquisition of Bone Care.

2004 As Compared to 2003

Equity in Income (Loss) of Equity Method Investments

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

Minority Interest

        Our consolidated balance sheet as of December 31, 2004 includes assets related to Dyax-Genzyme LLC, which are not significant, and substantially all of which are included in other current assets. We have recorded Dyax's portion of this joint venture's losses as minority interest in our consolidated statements of operations. The results of Excigen are not significant.

Loss on Investment in Equity Securities

        In September 2004, we recorded a $2.9 million impairment charge in connection with our investment in MacroGenics and in June 2003, we recorded a $3.6 million impairment charge in connection with our investment in the common stock of ABIOMED because we considered the decline

F-35

in value of these investments to be other than temporary. Given the significance and duration of the decline, as of September 30, 2004, with respect to our investment in MacroGenics, and as of June 30, 2003, with respect to our investment in ABIOMED, we concluded that it was unclear over what period the recovery of the stock price for these investments would take place, and, accordingly, that any evidence suggesting that the investments would recover to at least our historical cost was not sufficient to overcome the presumption that the current market price was the best indicator of the value of these investments.

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

Investment Income

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

Interest Expense

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

•

$690.0 million in principal of our 1.25% convertible senior notes issued in December 2003 and due December 2023; and



•

$130.2 million capital lease obligation related to our corporate headquarters in Cambridge, Massachusetts recorded in November 2003.

        In addition, in June 2004, we completed the redemption of our 3% convertible subordinated debentures for cash. This included charges of $4.3 million for premium paid upon redemption and $5.3 million to write off the unamortized debt fees associated with these debentures. These charges were recorded as interest expense on our consolidated statements of operations in 2004. There were no similar charges in 2003.

        The increases were offset, in part, by:

•

lower interest expense associated with our revolving credit facility due to a decrease in the average amount outstanding under this facility in 2004 as compared to 2003;



•

lower interest rates on our outstanding $690.0 million convertible senior notes as compared to the interest rate on our $575.0 million convertible subordinated debentures, which were redeemed in June 2004; and



•

lower interest expense associated with the 6.9% convertible subordinated note that we assumed in connection with our acquisition of Biomatrix and paid off in May 2003.

F-36

Provision for Income Taxes

	2005			2004			2003			05/04 Increase/ (Decrease) % Change		04/03 Increase/ (Decrease) % Change
	(Amounts in thousands, except percentage data)
Provision for income taxes	$	(187,430	)	$	(141,169	)	$	(72,647	)	33	%	94	%
Effective tax rate		30	%		62	%		1,437	%

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

	For the Years Ended December 31,
	2005		2004		2003
Tax provision at U.S. statutory rate	35.0	%	35.0	%	35.0	%
State taxes, net	1.6		2.8		114.0
Extra-territorial income	(2.8	)	(7.1	)	(221.0	)
Domestic manufacturing deduction	(1.2	)	—		—
Goodwill impairment	—		—		711.7
Charges for purchased research and development	1.2		39.1		1,094.0
Benefit of tax credits	(4.1	)	(4.7	)	(343.3	)
Foreign rate differential	0.1		(4.4	)	(13.4	)
Other	—		1.3		60.1
Effective tax rate	29.8	%	62.0	%	1,437.1	%

        Our effective tax rates for 2005, 2004 and 2003 varied from the U.S. statutory rate as a result of:

•

our provision for state income taxes;



•

the tax benefits from export sales;



•

the tax benefits from domestic production activities;



•

the impact of the write off of nondeductible goodwill in 2003;



•

benefits related to tax credits; and



•

the foreign rate differential.

        Our effective tax rate in each period was impacted by non-deductible charges for IPR&D of:

•

$22.2 million in 2005, of which $9.5 million was recorded in the first quarter of 2005 in connection with our acquisition of Verigen and $12.7 million was recorded in the third quarter of 2005 related to our acquisition of Bone Care;



•

$254.5 million in 2004, all of which was recorded in December 2004 in connection with our acquisition of ILEX Oncology; and



•

$158.0 million in 2003, all of which was recorded in September 2003 in connection with our acquisition of SangStat.

        In addition, our overall tax rate has changed significantly due to fluctuations in our income before taxes, which was $628.9 million in 2005, $227.7 million in 2004 and $5.1 million in 2003.

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

F-37

        Our calculation of the income tax provision includes significant estimates, including estimates of income from foreign sales, research and development credits, orphan drug credits, state and foreign income taxes and other permanent items. On a quarterly basis throughout the fiscal year, we make our best estimate of the full year impact of these items on our tax rate.

        We record liabilities for income tax contingencies based on our best estimate of the underlying exposures. We are currently under IRS audits for tax years 1996 to 1999, 2002 to 2003 and in certain state and foreign jurisdictions. We believe that we have provided sufficiently for all audit exposures and assessments. 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 reduction of future tax provisions. Any such tax or tax benefit would be recorded upon final resolution of the audits or expiration of the applicable statute of limitations. We believe the settlement of these tax disputes may have a material effect on our financial statements.

Research and Development Programs

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

•

conduct substantial research and development;



•

undertake pre-clinical and clinical testing;



•

develop and scale-up manufacturing processes and validate facilities; and



•

pursue regulatory approvals and, in some countries, pricing approvals.

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

F-38

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

Program	Program Description or Indication	Development Status at December 31, 2005	Year of Expected Product Launch
Sevelamer carbonate	Next-generation phosphate binder	Completed enrollment in trial for hemodialysis patients in 2005. Enrollment for patients with CKD not yet on hemodialysis began in January 2006. Began open-label study to compare powder to tablet formulation in patients with end-stage renal disease. Anticipate commencement of trial for powder formulation to allow once daily dosing in 2006	2008
Tolevamer(1)	C. difficile associated diarrhea	Phase 2 trials completed in 2004; enrollment of patients in a Phase 3 trial ongoing.	2008
Fabrazyme	Fabry disease	Marketed in the E.U. since 2001, the U.S. since 2003, and Japan since 2004; marketing approval received in 44 countries and commercial sales in 31 countries; several post-marketing commitments ongoing	Product was launched in 2001
Aldurazyme	MPS I	Marketed in the U.S. and the E.U. since 2003; marketing approval received in 37 countries and commercial sales in 30 countries; several post-marketing commitments ongoing	Product was launched in 2003
Myozyme	Pompe disease	Two phase 3 trials in patients younger than 3 years old completed; submitted MAA for marketing approval in E.U. in late 2004 and BLA for marketing approval in U.S. in mid-2005; initiated a pivotal study in late onset disease in 2005; expect commercial launch in U.S. and E.U. in the second quarter of 2006	2006
TGF-beta antagonists	I.P.F.	Phase 1-2 trial commenced in 2005; Preliminary results anticipated in 2006. We record 55% of the research and development costs incurred under our collaboration with CAT	2011

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Viscosupplementation for osteoarthritis(2)	Viscosupplementation products to treat osteoarthritis of the knee, hip and other joints	Completed enrollment in a Phase 3 trial in the U.S. for Synvisc in the hip, an indication already approved in the E.U. and Canada; anticipate filing for marketing approval for Synvisc in the hip in the U.S. in late 2006; completed Phase 3 trials in E.U. for Synvisc in the shoulder and ankle; anticipate launching Synvisc for those indications in Europe in the 1st half of 2007; clinical development of Synvisc II ongoing; anticipate launching Synvisc II in 2007	2007 through 2008
Sepra products(2)	Next stage products to prevent surgical adhesions for various indications	Preclinical; currently working on preventing adhesions following various surgical procedures and the development of a new anti-adhesion product	2008 through 2010
Campath(3)	B-cell chronic lymphocytic leukemia, non-Hodgkins lymphoma and multiple sclerosis	Phase 3 clinical trial in earlier-line CLL ongoing; Phase 1-2 clinical trial in NHL ongoing; dosing to resume in Phase 2 clinical trial in MS in first half of 2006; Phase 3 clinical trial in MS expected to begin in second half of 2006	2007 through 2010
Clolar(3)	Pediatric and adult leukemias and solid tumors	Phase 2 trial in pediatric acute leukemias fully enrolled; Phase 1-2 trial in adult hematologic cancers ongoing; Phase 1 trial in solid tumors ongoing	2007 through 2010
Tasidotin(3)	Solid tumors	Phase 2 clinical trial ongoing	2009
DENSPM(1)	Liver cancer	Phase 1-2 clinical trial ongoing	2011
HIF-1a	Angiogenic gene therapy toand treat coronary and peripheral artery disease	Phase 2 clinical trial ongoing	2013
Cardiac cell therapy product	Tissue regeneration to treat congestive heart failure	Phase 2 clinical trial terminated.	2013

(1)

Program acquired in connection with the December 2000 acquisition of GelTex.

(2)

Program acquired in connection with the December 2000 acquisition of Biomatrix.

(3)

Program acquired in connection with the December 2004 acquisition of ILEX Oncology.

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

Costs incurred for the year ended December 31, 2004	$165.4
Costs incurred for the year ended December 31, 2005	$205.0
Cumulative costs incurred as of December 31, 2005	$856.7
Estimated costs to complete as of December 31, 2005	$800 to $990

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

Liquidity and Capital Resources

        We continue to generate cash from operations. At December 31, 2005 and 2004, we had cash, cash equivalents and short- and long-term investments of $1.1 billion.

        The following is a summary of our statements of cash flows for 2005 and 2004.

Cash Flows from Operating Activities

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

			2005			2004
Cash flows from operating activities:
	Net cash provided by operating activities before tax benefit from employee stock options and working capital changes		$	766,563		$	628,094
	Tax benefit from employee stock options			102,561			49,974
	Decrease in cash from working capital changes (excluding impact of acquired assets and assumed liabilities)			(137,347	)		(100,556	)
		Cash flows from operating activities	$	731,777		$	577,512

        Cash provided by operating activities increased $154.3 million, or 27%, for 2005, as compared to 2004, primarily due to strong earnings. In addition, the tax benefit from employee stock options increased $52.6 million, or 105%, for 2005, as compared to 2004.

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

F-41

Cash Flows from Investing Activities

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

			2005			2004
Cash flows from investing activities:
	Net sales (purchases) of investments, including investments in equity securities		$	(132,038	)	$	318,453
	Purchases of property, plant and equipment			(192,461	)		(187,400	)
	Distributions from (investments in) equity method investments			3,000			(24,107	)
	Acquisitions, net of acquired cash			(703,074	)		(152,377	)
	Acquisition of sales and marketing rights			(172,092	)		—
	Other investing activities			5,682			(265	)
		Cash flows from investing activities	$	(1,190,983	)	$	(45,696	)

        In 2005, net purchases of investments, including investments in equity securities, acquisitions and capital expenditures accounted for significant cash outlays for investing activities. In 2005, we used:

•

$703.1 million in cash for the acquisitions of Bone Care, Equal Diagnostics, Verigen and gene therapy assets of Avigen, net of acquired cash;



•

$192.5 million in 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 the United States;



•

$172.1 million in cash for our reacquisition of the Synvisc sales and marketing rights from Wyeth; and



•

$132.0 million in cash for net purchases of investments, including equity investments.

These decreases were offset in part by a $3.0 million cash distribution from our joint venture with BioMarin.

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

•

$187.4 million in cash to fund purchases of property, plant and equipment, primarily related to the ongoing expansion of our manufacturing capacity in Ireland, the United Kingdom, Belgium and the United States, ongoing tenant improvements at our corporate headquarters facility in Cambridge, Massachusetts and expenditures related to other manufacturing expansions and relocations; and



•

$152.4 million in cash for acquisitions, including $47.5 million to acquire substantially all of the assets of Alfigen in February 2004 and $215.3 million to acquire certain of the pathology/oncology testing assets of IMPATH in May 2004, offset in part by $110.4 million of net cash acquired in connection with our acquisition of ILEX Oncology in December 2004.

F-42

Cash Flows from Financing Activities

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

			2005			2004
Cash flows from financing activities:
	Proceeds from issuance of common stock		$	354,708		$	140,311
	Proceeds from draw on credit facility			350,000			135,000
	Payment of debt and capital lease obligations			(478,770	)		(650,818	)
	Bank overdraft			17,951			15,434
	Minority interest payable			11,423			5,424
	Other financing activities			3,261			922
		Cash flows from financing activities	$	258,573		$	(353,727	)

        In 2005, financing activities generated $258.6 million of cash, primarily due to $350.0 million of proceeds drawn under our revolving credit facility that matures in 2006 and $354.7 million of proceeds from the issuance of common stock under our stock plans, offset in part by $478.8 million in cash utilized to repay debt including $350.0 million drawn under our revolving credit facility and capital lease obligations.

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

•

$575.0 million of cash used to redeem our 3% convertible subordinated debentures in June 2004;



•

$35.0 million of cash used to repay a portion of the principal balance drawn under our revolving credit facility;



•

$20.0 million to repay a note payable assumed in December 2004 in connection with our acquisition of ILEX Oncology; and



•

$11.3 million to repay a 6.5% convertible note and $5.0 million to repay other notes payable assumed in September 2003 in connection with our acquisition of SangStat.

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

Revolving Credit Facility

        In December 2003, we entered into a three year $350.0 million revolving credit facility, maturing in December 2006. As of December 31, 2004, $100.0 million in principal remained outstanding under this facility. In January 2005, we repaid the entire $100.0 million in principal outstanding under the credit facility. In June 2005, we drew down $350.0 million under this facility, to finance a portion of the cash consideration for the acquisition of Bone Care. In August 2005, we repaid $290.0 million in principal and in September 2005, we repaid the remaining $60.0 million in principal drawn under our revolving credit facility. As of December 31, 2005, no amounts remained outstanding under our revolving credit facility. Borrowings under this credit facility bear interest at LIBOR plus an applicable margin. The terms of our revolving credit facility include various covenants, including financial covenants that require us to meet minimum liquidity and interest coverage ratios and to meet maximum leverage ratios. We currently are in compliance with these covenants. We intend to replace this facility before it matures in December 2006

F-43

Capital Lease

        We had a capital lease obligation related to our administrative offices in Waltham, Massachusetts that required us to make interest-only lease payments of approximately $2 million per year through October 31, 2005, the end of the lease term. On October 31, 2005, we exercised our option to purchase the building and improvements for a purchase price equal to the total amount funded by the lessor of $25.0 million, plus $0.5 million of accrued interest and an insignificant amount of other closing costs.

3% Convertible Subordinated Debentures

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

Contractual Obligations

        As of December 31, 2005, we had committed to make the following payments under contractual obligations (amounts in millions):

	Payments Due by Period
Contractual Obligations
	Total		2006		2007		2008			2009		2010		After 2010
Long-term debt obligations (1)	$	699.9	$	1.2	$	0.7	$	691.0	(1)	$	1.1	$	1.1	$	4.8
Capital lease obligations (1)		210.7		15.4		15.5		15.4			15.4		15.4		133.6
Operating leases (1)		299.2		48.2		39.1		34.9			26.8		22.0		128.2
Contingent payments (2)		—		—		—		—			—		—		—
Interest obligations (3)		26.5		8.9		8.9		8.1			0.2		0.1		0.3
Defined pension benefit plans payments		14.6		1.0		1.1		1.1			1.2		1.3		8.9
Unconditional purchase obligations		14.3		3.9		3.6		3.6			3.2		—		—
Capital commitments (4)		575.4		317.3		174.7		72.7			10.7		—		—
Research and development agreements (5)		199.4		60.3		29.3		29.3			29.3		17.1		34.1
Total contractual obligations	$	2,040.0	$	456.2	$	272.9	$	856.1		$	87.9	$	57.0	$	309.9

(1)

See Note M., "Long-term Debt and Leases" to our consolidated financial statements for additional information on long-term debt and lease obligations.

(2)

From time to time, as a result of mergers and acquisitions, we may enter into agreements under which we may be obligated to make contingent payments upon the occurrence of certain events, and/or royalties on sales of acquired products or distribution rights. The actual amounts for and the timing of contingent payments may depend on numerous factors outside of our control, including the success of our preclinical and clinical development efforts with respect to the products being developed under these agreements, the content and timing of decisions made by the United States Patent and Trademark Office, or USPTO, the FDA and other regulatory authorities, the existence and scope of third party intellectual property, the reimbursement and competitive landscape around these products, the volume of sales or gross margin of a product in a specified territory and other factors described under the heading "Factors Affecting Future Operating Results" below. Because we cannot predict with certainty the amount or specific timing of contingent payments, we have not included any amounts for contingent payments in our contractual obligations table. See Note C., "Mergers and Acquisitions" to our consolidated financial statements for additional information on contingent payments resulting from our acquisitions of Verigen, Equal Diagnostics and the sales and marketing rights to Synvisc from Wyeth.

(3)

Represents interest payment obligations related to our 1.25% convertible senior notes due December 2023 and the promissory notes to three former shareholders of Equal Diagnostics.

F-44

(4)

Consists of contractual commitments to vendors that we have entered into as of December 31, 2005 for construction on our outstanding capital projects. Our estimated cost of completion for assets under construction as of December 31, 2005 is $575.4 million, as follows (amounts in millions):

Location		Cost to Complete at December 31, 2005
Framingham, Massachusetts, U.S.		$	98,298
Lyon, France			78,956
Geel, Belgium			77,609
Waterford, Ireland			77,213
Allston, Massachusetts, U.S.			64,025
Haverhill, United Kingdom			42,356
Waltham, Massachusetts, U.S.			22,080
Other			114,835
	Total estimated cost to complete	$	575,372

(5)

From time to time, we enter into agreements with third parties to obtain access to scientific expertise or technology that we do not already have. These agreements frequently require that we pay our licensor or collaborator a technology access fee, milestone payments upon the occurrence of certain events, and/or royalties on sales of products that utilize the licensed technology or arise out of the collaborative research. In addition, these agreements may call for us to fund research activities not being performed by us. The amounts indicated on the research and development agreements line of the contractual obligations table above represent committed funding obligations to our key collaborators under our significant development programs. Should we terminate any of our license or collaboration agreements, the funding commitments contained within them would expire. In addition, the actual amounts that we pay our licensors and collaborators will depend on numerous factors outside of our control, including the success of our preclinical and clinical development efforts with respect to the products being developed under these agreements, the content and timing of decisions made by the USPTO, the FDA and other regulatory authorities, the existence and scope of third party intellectual property, the reimbursement and competitive landscape around these products, and other factors described under the heading "Factors Affecting Future Operating Results" below.

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 under our revolving credit facility for:

•

product development and marketing;



•

business combinations and other strategic business initiatives;



•

expanding existing and constructing new facilities;



•

expanding staff; and



•

working capital, including 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. On or after December 1, 2008, we may redeem for cash at 100% of the principal amount of the

F-45

notes plus accrued interest, all or part of the notes that have not been previously converted or repurchased.

        In addition, we have several outstanding legal proceedings. Involvement in investigations and litigation can be expensive and a court may ultimately require that we pay expenses and damages. As a result of legal proceedings, we also may be required to pay fees to a holder of proprietary rights in order to continue certain operations. We have provided you detail on certain 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 46 are included in our consolidated statements of operations if we qualify as the primary beneficiary. Entities not subject to consolidation under FIN 46 are accounted for under the equity method of accounting if our ownership percent exceeds 20% or if we exercise significant influence over the entity. We account for our portion of the income/losses of these entities in the line item "Equity in income (loss) of equity method investments" in our statements of operations. We also acquire companies in which we agree to pay contingent consideration based on attaining certain thresholds.

Significant Relationships

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

Entity	Affiliation with Genzyme	Officers & Directors Relationship	Officer & Director Ownership in and Compensation from the Entity
			Stock Shares	Stock Options	2005 Cash Compensation
ABIOMED, Inc.	-Cost method investment	Henri A. Termeer, Genzyme Chairman, President and Chief Executive Officer, is a director of ABIOMED.	29,551	61,000	$	25,400
Biogen IDEC Inc.	-Distribution arrangement for Avonex	Mark R. Bamforth, Genzyme officer, is a passive investor in Biogen IDEC Inc.	110	—		—
		C. Ann Merrifield, Genzyme officer, is a passive investor in Biogen IDEC Inc.	1,150	—		—
Dyax Corp.	-Cost method investment - -Joint venture partner with Genzyme in Dyax-Genzyme LLC	Henri A. Termeer, Genzyme Chairman, President and Chief Executive Officer, is a former strategic advisory committee member.	2,649	—		—

F-46

		Henry E. Blair, Genzyme director and co-founder, is the Chairman and Chief Executive Officer of Dyax(1).	555,320	667,300	—
		Charles L. Cooney, Genzyme director, is a former strategic advisory committee member.	7,857	2,000	—
		Mark R. Bamforth, Genzyme officer, is a passive investor in Dyax.	1,000	—	—
		Peter Wirth, Genzyme officer, is a former strategic advisory committee member.	9,780	—	—
		The wife of Donald E. Pogorzelski, Genzyme officer, is a passive investor in Dyax.	5,000	—	—
Excigen, Inc.	-Collaboration partner	Earl M. Collier, Jr. and James A. Geraghty, both Genzyme officers, are directors of Excigen.	—	—	—
GTC Biotherapeutics, Inc.	-Cost method investment	Henri A. Termeer, Genzyme Chairman, President and Chief Executive Officer is a former director of GTC.	9,500	40,500	—
		Henry E. Blair, Genzyme director and co-founder, is a former director of GTC.	—	29,500	—
		Charles L. Cooney, Genzyme director, is a member of the strategic advisory board for GTC	—	3,000	—
		Mark R. Bamforth, Genzyme officer, is a passive investor in GTC.	2,400	—	—
		James A. Geraghty, Genzyme officer, is a director of GTC.	62,791	179,603	—
		Earl M. Collier, Jr., Genzyme officer, is a passive investor in GTC.	1,000	—	—
		Richard H. Douglas, Genzyme officer, is a passive investor in GTC.	180	—	—
		Peter Wirth, Genzyme officer(2).	—	2,000	—

F-47

Medtronic, Inc.	-Joint venture partner with Genzyme in MG Biotherapeutics LLC	Gail K. Boudreaux, Genzyme director, is a passive investor in Medtronic.	67	—		—
		Earl M. Collier, Jr., Genzyme officer, is a passive investor in Medtronic.	1,000	—		—
		Elliott D. Hillback, Genzyme officer, is a passive investor in Medtronic.	2,800	—		—
		Evan M. Lebson, Genzyme officer, is a passive investor in Medtronic (managed investment account).	100	—		—
		Senator Connie Mack III, Genzyme director, is a passive investor in Medtronic.	70	—		—
		Mary McGrane, Genzyme officer, is a passive investor in Medtronic. Husband has IRA (215 shares). Amount of shares owned and income does not include spouse's shares.	110	—	$	42
		Donald E. Pogorzelski, Genzyme officer, is a passive investor in Medtronic. 400 shares held jointly with spouse.	500	—		—
		The wife of Donald E. Pogorzelski, Genzyme officer, is a passive investor in Medtronic.	1,000	—		—
MPM BioVentures III, Q.P., L.P.	-Cost method investment - -Collaboration partner	MPM had invested in Peptimmune, Inc.	—	—		—
Myosix S.A.	-Consolidated investment - -Collaboration partner	Earl M. Collier, Jr. and James A. Geraghty, both Genzyme officers, are directors of Myosix.	—	—		—
Oxford Bioscience Partners IV, L.P.	-Cost method investment	Peter Wirth, Genzyme officer, is a limited partner in the MRNA Fund II, L.P. and has a made a $100,000 capital commitment to the partnership.	—	—		—
		Alison Lawton, Genzyme officer, is a limited partner and has made a $50,000 capital commitment to the partnership.	—	—		—

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Peptimmune, Inc.	-Equity method investment - -Service agreements	Robert J. Carpenter, Genzyme director, is the Executive Chairman of Peptimmune.	595,238 2,018,750	* **	31,250 —	$	75,000 —
		* Series B preferred stock. ** Common stock.
Therapeutic Human Polyclonals, Inc.	-Equity method investment	James A. Geraghty, Genzyme officer, is a director of THP.	—		—		—
ViaCell, Inc.	-Cost method investment - -Research agreement	Donald E. Pogorzelski, Genzyme officer, is a passive investor in ViaCell.	2,950		—		—
Wyeth Laboratories, Inc.	-Distribution arrangement for Synvisc through 2004	Gail K. Boudreaux, Genzyme director, is a passive investor in Wyeth.	80		—		—
		Zoltan A. Csimma, Genzyme officer, is a former employee of Wyeth. His spouse is a current employee of Wyeth. Totals exclude options and compensation of spouse.	1,442		60,000		—

(1)

Mr. Blair's 2005 compensation from Dyax can be found in Dyax's 2006 proxy statement.

(2)

Mr. Wirth received these stock options in 1998 when Genzyme was affiliated with GTC.

Recent Accounting Pronouncements

        SFAS No. 123R, "Share-Based Payment, an amendment of FASB Statement Nos. 123 and 95."    In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment, an amendment of FASB Statement Nos. 123 and 95," which replaces SFAS No. 123, "Accounting for Stock-Based Compensation," or SFAS 123, and supersedes Accounting Principles Board, or APB, Opinion No. 25, "Accounting for Stock Issued to Employees," or APB 25. SFAS No. 123R will require all share-based payments to employees, including grants of employee stock options, to be recognized in the statements of operations based on their fair values. SFAS No. 123R allows alternative methods for determining the fair value of share based payments to employees and alternative methods of implementation. In April 2005, the SEC issued a rule that allows companies to implement SFAS No. 123R at the beginning of the next fiscal year, instead of the next reporting period, that begins after June 15, 2005. We have adopted SFAS No. 123R using the modified prospective basis effective January 1, 2006. Our adoption of SFAS No. 123R is expected to result in compensation expense that will reduce diluted net income per share. However, our estimate of future stock-based compensation expense is affected by our stock price, the number of stock-based awards we may grant in 2006, as well as a number of complex and subjective valuation assumptions and the related tax impact.

        SFAS No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4."    In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment of Accounting Research Bulletin, or ARB, No. 43, Chapter 4." SFAS No. 151, which clarifies that abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) should be recognized as current period charges in all circumstances. We have adopted SFAS No. 151 effective January 1, 2006. We do not believe that the adoption of SFAS No. 151 will have a material impact on our financial position or results of operations.

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        SFAS No. 154, "Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3."    In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3." SFAS No. 154 applies to all voluntary changes in accounting for and reporting of changes in accounting principles and requires retrospective application to prior periods' financial statements of a voluntary change in accounting principles unless it is not practical to do so. APB Opinion No. 20, "Accounting Changes," previously required that most voluntary changes in accounting principles be recognized by including in net income (loss) of the period of the change, the cumulative effect of changing to the new accounting principle. SFAS No. 154 also requires that a change in depreciation, amortization, or depletion method for long-lived non-financial assets be accounted for as a change in accounting estimate affected by a change in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We have adopted SFAS No. 154 effective January 1, 2006. We do not expect the adoption of SFAS No. 154 to have a material impact on our financial position or results of operations.

        FIN 47, "Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No, 143."    In March 2005, the FASB issued FIN 47, "Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143." A conditional asset retirement obligation refers to a legal obligation to retire assets where the timing and/or method of settlement are conditioned on future events. FIN 47 requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability's fair value can be reasonably estimated. We adopted the provisions of FIN 47 in 2005. The adoption of this Interpretation did not have a material impact on our consolidated financial position, results of operations or cash flows.

        FASB Staff Position Nos. FAS 115-1 and FAS 124-1, "The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments."    In November 2005, the FASB issued FSP Nos. FAS 115-1 and FAS 124-1, "The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments." FSP Nos. 115-1 and FAS 124-1 address the determination as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment. The FSPs also include accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in the FSPs clarify SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," SFAS No. 124, "Accounting for Certain Investments Held by Not-for-Profit Organizations," and APB Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock." We have reviewed the guidance of FSP Nos. FAS 115-1 and FAS 124-1 and have determined that our practices are consistent with the FSPs; therefore, we do not expect the adoption of the FSPs on January 1, 2006 to have any impact on our consolidated financial statements.

Market Risk

        We are exposed to potential loss from exposure to market risks represented principally by changes in equity prices, interest rates and foreign exchange rates. At December 31, 2005, we held various derivative contracts in the form of foreign exchange forward contracts. The derivatives contain no leverage or option features. We also held a number of other financial instruments, including investments in marketable securities, and have issued various debt securities.

Equity Price Risk

        We hold investments in a limited number of U.S. and European equity securities. We estimated the potential loss in fair value due to a 10% decrease in equity prices of each security held at December 31, 2005 to be $11.6 million. This estimate assumes no change in foreign exchange rates

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from quarter-end spot rates and excludes any potential risk associated with securities that do not have readily determinable market value.

Interest Rate Risk

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

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

•

convertible notes that are "in-the-money" at year end are considered equity securities and are excluded;



•

convertible notes that are "out-of-the-money" at year end are analyzed by taking into account both fixed income and equity components; and



•

notes will mature on the first available date.

        On this basis, we estimate the potential loss in fair value that would result from a hypothetical 1% (100 basis point) increase in interest rates to be $5.2 million as of December 31, 2005, as compared to $17.6 million as of December 31, 2004. The decrease is primarily due to decreases in interest rate sensitivity on our fixed income investment portfolio, our $690.0 million in principal of 1.25% convertible notes, and the capital lease for our corporate headquarters in Cambridge, Massachusetts, which has a remaining principal balance of $121.3 million at December 31, 2005.

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. These exposures are reflected in market risk sensitive instruments, including foreign currency receivables and payables, foreign exchange forward contracts and foreign equity holdings.

        As of December 31, 2005, we estimate the potential loss in fair value of our foreign currency contracts that would result from a hypothetical 10% adverse change in exchange rates to be $2.9 million, as compared to $2.6 million as of December 31, 2004. For the first three quarters of 2005, we had approximately $100 million of foreign exchange hedge contracts in place on long-term intercompany loans. These contracts expired in November 2005.

Factors Affecting Future Operating Results

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

Our financial results are highly dependent on sales of Cerezyme.

        We generate a significant portion of our revenue from sales of Cerezyme, our enzyme-replacement product for patients with Gaucher disease. Sales of Cerezyme totaled $932.3 million for the year ended December 31, 2005, representing approximately 34% of our consolidated total revenue for the year. Because our business is highly dependent on Cerezyme, negative trends in revenue from this product could have a significant adverse effect on our operations and cause the value of our securities to decline substantially. We will lose revenue if alternative treatments gain commercial acceptance, if our marketing activities are restricted, or if reimbursement is limited. In addition, the patient population

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with Gaucher disease is not large. Because a significant percentage of that population already uses Cerezyme, opportunities for future sales growth are constrained. Furthermore, changes in the methods for treating patients with Gaucher disease, including treatment protocols that combine Cerezyme with other therapeutic products or reduce the amount of Cerezyme prescribed, could limit growth, or result in a decline, in Cerezyme sales.

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

        Over the next few years, our success will depend substantially on our ability to increase revenue from many different products and services. The products and services include Cerezyme, Fabrazyme, Aldurazyme, Renagel, Hectorol, Synvisc, Thymoglobulin, Thyrogen, Clolar, Campath 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 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 EMEA and other regulatory authorities;



•

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



•

the effectiveness of our sales force;



•

the 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.

        Part of our growth strategy involves conducting additional clinical trials to support approval of expanded uses of some of our products and pursuing marketing approval for our products in new jurisdictions. For example, we are seeking marketing approval for the use of Synvisc to treat pain associated with osteoarthritis of the hip in the United States and the shoulder and ankle in the European Union. The success of this component of our growth strategy will depend on the content and timing of our submissions to regulatory authorities and whether and when those authorities determine to grant approvals.

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

Our future success will depend on our ability to effectively develop and market our products 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.

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        UCB S.A. has developed Zavesca®, a small molecule drug candidate for the treatment of Gaucher disease, the disease addressed by Cerezyme. Zavesca has been approved in the United States, European Union and Israel as an oral therapy for use in patients with mild to moderate Type 1 Gaucher disease for whom enzyme replacement is unsuitable. In addition, Shire Pharmaceuticals Group plc, or Shire, is conducting a phase 1/2 clinical trial for its gene-activated glucocerebrosidase program, also to treat Gaucher disease. We are also aware of other development efforts aimed at treating Gaucher disease.

        Two other products are approved in the United States for the control of elevated phosphorus levels in patients with chronic kidney failure and on hemodialysis. Nabi Biopharmaceuticals markets PhosLo®, a calcium-based phosphate binder, and Shire markets Fosrenol®, a non-calcium based phosphate binder. Nabi Biopharmaceuticals has filed for marketing approval of PhosLo in the European Union. Shire has received marketing approval for Fosrenol in certain European countries and has filed for approval in additional European countries and Canada. Renagel also competes with over-the-counter calcium carbonate products such as TUMS®.

        Both the oral and the intravenous formulations of Hectorol face competition. Abbott Laboratories markets intravenous Calcijex® and intravenous Zemplar® in the United States and Europe. More recently it has begun marketing an oral formulation of Zemplar in the United States. Hectorol faces competition from several other vitamin D hormone therapies used to treat hyperparathyroidism and hyperproliferative diseases as well.

        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.

        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®, Pfizer Inc.'s ATGAM®, Ortho Biotech's Orthoclone OKT®3, Fresenius Biotech GmbH's ATG-Fresenius S® and the Roche Group's Zenapax®. Competition in the acute transplant rejection market largely is driven by product efficacy due to the potential loss of transplanted organs as the result of an acute organ rejection episode.

        Current competition for Synvisc includes Supartz, a product manufactured by Seikagaku Kogyo that is sold in the United States by Smith & Nephew Orthopaedics and in Japan by Kaken Pharmaceutical Co. under the name Artz®; Hyalgan®, produced by Fidia Farmaceutici S.p.A. and marketed in the United States by Sanofi-Aventis; Orthovisc®, produced by Anika Therapeutics, Inc., marketed in the United States by Johnson & Johnson 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 and distributed outside the United States by Q-Med AB. Durolane and Euflexxa, the most recently approved products in Europe and the United States, respectively, are produced by bacterial fermentation, as opposed to Synvisc, which is avian-sourced. In addition, the treatment protocol for Durolane is a single injection, as compared to Synvisc's three injection regimen (although it offers a shorter duration of pain relief). Production via bacterial fermentation and treatment with a reduced number of injections may represent competitive advantages for these products. 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. Furthermore, several companies market products that are not viscosupplementation products but which are designed to relieve the pain associated with osteoarthritis. Synvisc will have difficulty competing with any of these products to the extent the

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competitive products are considered more efficacious, less burdensome to administer or more cost-effective.

        The examples above are illustrative. 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 lysosomal storage disorders (LSDs) that are more effective or less expensive than our products and product candidates. Because a significant portion of our revenue is derived from products that address this class of diseases and a substantial portion of our expenditures is devoted to developing new therapies for this class of diseases, such a development would have a material negative impact on our operations. Furthermore, our recent acquisitions of ILEX Oncology and certain of the pathology/oncology testing assets of IMPATH, reflect our commitment to the oncology area. Many pharmaceutical and biotechnology companies are pursuing programs in this area, and these organizations may develop approaches that are superior to ours.

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

        A substantial portion of our domestic and international revenue comes from payments by third party payors, including government health administration authorities and private health insurers. Governments and other third party payors may not provide adequate insurance coverage or reimbursement for our products and services, which 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 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 are 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 also attempt to 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 do not have an

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adverse impact on us, we may not always be successful in these efforts. For example, in November 2005, CMS announced it intended to implement a change to the billing code for viscosupplement products that would have provided Medicare reimbursement for Synvisc at a rate that was lower than the price healthcare providers were paying for the product. If the CMS billing code change had been implemented, our Synvisc revenues would have been adversely affected because healthcare providers would have been less willing to use Synvisc. Although CMS decided not to implement this change for 2006, we cannot determine whether there will be similar or different changes to reimbursement codes implemented in the future.

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

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

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

•

conduct substantial research and development;



•

undertake preclinical and clinical testing;



•

develop and scale-up manufacturing processes; and



•

pursue regulatory approvals and, in some jurisdictions, pricing 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 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; or



•

our failure to obtain the required regulatory approvals for the product candidate or the facilities in which it is manufactured.

        Few research and development projects result in commercial products, and success in preclinical studies or early clinical trials often is not replicated in later studies. We may decide to abandon development of a product or service candidate at any time or we may be required to expend considerable resources repeating clinical trials or conducting additional trials, either of which would 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 also may fail. These expansion efforts are subject to many of the risks associated with completely new products, and, accordingly, we may fail to recoup the investments we make pursuing these expansions.

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

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

We may encounter substantial difficulties managing our growth.

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

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

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

•

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

F-56

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

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

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

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

        In addition, we may only be able to produce certain of our products at a very limited number of facilities and, in some cases, we rely on third parties to formulate and manufacture our products. For example, we manufacture all of our Cerezyme and a portion of our Fabrazyme 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. 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. In addition, facilities are subject to ongoing inspections and minor changes in manufacturing processes may require additional regulatory approvals, either of which could cause us to incur significant additional costs and lose revenue.

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

        Certain materials necessary for commercial production of our products, including specialty chemicals and components necessary for manufacture, fill-finish and packaging, are provided by unaffiliated third-party suppliers. In some cases, such materials are specifically cited in our marketing

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

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

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

        Several of our strategic initiatives involve alliances with other biotechnology and pharmaceutical companies, including a joint venture with BioMarin Pharmaceutical Inc. with respect to Aldurazyme. The success of this and similar arrangements is largely dependent on technology and other intellectual 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 or 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 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. As a result, if any of our strategic equity investments decline in value and remain below cost for an extended duration, we may incur financial statement charges related to the decline in value of that investment.

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

F-58

FDA and comparable agencies in foreign jurisdictions must approve human therapeutic and diagnostic products before they are marketed, as well as the facilities in which they are made. This approval process can involve lengthy and detailed laboratory and clinical testing, sampling activities and other costly and time-consuming procedures. Several biotechnology companies have failed to obtain regulatory approvals because regulatory agencies were not satisfied with the structure or conduct of clinical trials. Similar problems could delay or prevent us from obtaining approvals. Furthermore, regulatory authorities, including the FDA, may not agree with our interpretations of our clinical trial data, which could delay, limit or prevent regulatory approvals.

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

•

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 in the United States and/or exports from the United States;



•

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 and Aldurazyme. In addition, regulatory agencies subject a marketed therapy, its manufacturer and the manufacturer's facilities to continual review and periodic inspections. The discovery of previously unknown problems with a therapy or the facility used to produce the therapy could prompt a regulatory authority to impose restrictions on us, or could cause us to voluntarily adopt such restrictions, including withdrawal of one or more of our products or services from the market.

        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 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;

F-59

•

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, we are currently defending several lawsuits brought in connection with the elimination of our tracking stock in June 2003, some of which claim considerable damages. Also, the federal government, state governments and private payors are investigating and have begun to file actions against numerous pharmaceutical and biotechnology companies, including Genzyme, alleging that the companies have overstated prices in order to inflate reimbursement rates. Domestic and international enforcement authorities also have instituted actions under health care "fraud and abuse" laws, including anti-kickback and false claims statutes. Moreover, individuals who use our products or services, including our diagnostic products and genetic testing services, sometimes bring product and professional liability claims against us or our subsidiaries.

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

        We 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. 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:

•

diversion of management's time and attention;



•

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

        Our international operations accounted for approximately 45% of our consolidated product and service revenues for the year ended December 31, 2005. We expect that international product and service sales will continue to account for a significant percentage of our revenues for the foreseeable future. In addition, we have direct investments in a number of subsidiaries outside of the United States, primarily in the European Union, Latin America and Japan. Our international sales and operations could be limited or disrupted, and the value of our direct investments may be diminished, by any of the following:

•

economic problems that disrupt foreign healthcare payment systems;



•

fluctuations in currency exchange rates;



•

the imposition of governmental controls;

F-60

•

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;



•

import and export license requirements;



•

political instability;



•

terrorist activities and armed conflict;



•

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 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 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.

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

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

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

F-61

        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.

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

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

        The importation of lower-priced versions of our products into the United States and other markets adversely affects our profitability. This impact could become more significant in the future.

Legislative or regulatory changes may adversely impact our business.

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

•

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

F-62

services, or sales, marketing or pricing may cause our revenue to decline, and we may need to revise our research and development programs.

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

        As of December 31, 2005, we had $1.1 billion in cash, cash equivalents and short- and long-term investments, excluding investments in equity securities.

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

•

product development and marketing;



•

business combinations and other strategic business initiatives;



•

expanding existing and constructing additional facilities;



•

expanding staff; and



•

working capital, including 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.

        At December 31, 2005, we had $699.9 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 and financial performance.

F-63

Management's Report on Internal Control Over Financial Reporting

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

(1)

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets;



(2)

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with the authorizations of management and directors; and



(3)

provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.

        Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework provided in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2005.

        We have excluded the acquisition of Bone Care from our assessment of internal controls over financial reporting as of December 31, 2005 because we acquired Bone Care in purchase business combinations during 2005. Bone Care is a component of our Renal reporting segment and represents less than 1% of our consolidated assets as of December 31, 2005 and 1% revenues for the year ended December 31, 2005.

        Our management's assessment of the effectiveness of our internal controls over financial reporting as of December 31, 2005 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included below.

F-64

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Genzyme Corporation:

        We have completed integrated audits of Genzyme Corporation's 2005 and 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2005 and an audit of its 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements

        In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive income, of cash flows and of stockholders' equity present fairly, in all material respects, the financial position of Genzyme Corporation and its subsidiaries at December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting

        Also, in our opinion, management's assessment, included in the accompanying "Management's Report on Internal Control Over Financial Reporting," that the Company maintained effective internal control over financial reporting as of December 31, 2005 based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the COSO. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management's assessment and on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

        A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and

F-65

dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        As described in "Management's Report on Internal Control Over Financial Reporting," management has excluded the acquisition of Bone Care International, Inc. from its assessment of internal control over financial reporting as of December 31, 2005 because it was acquired by the Company in a purchase business combination during 2005. We have also excluded Bone Care International from our audit of internal control over financial reporting. Bone Care International is a component of the Company's Renal reporting segment whose total assets and total revenues represent less than 1% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2005.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Boston, Massachusetts
March 9, 2006

F-66

GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Income

(Amounts in thousands)

				For the Years Ended December 31,
				2005			2004			2003
Revenues:
	Net product sales			$	2,453,303		$	1,976,191		$	1,563,509
	Net service sales				261,379			212,392			130,984
	Research and development revenue				20,160			12,562			19,378
		Total revenues			2,734,842			2,201,145			1,713,871
Operating costs and expenses:
	Cost of products sold				462,177			448,442			399,961
	Cost of services sold				170,475			140,144			75,683
	Selling, general and administrative				787,839			599,388			519,977
	Research and development				502,657			391,802			335,256
	Amortization of intangibles				181,632			109,473			80,257
	Purchase of in-process research and development				29,200			254,520			158,000
	Charge for impaired goodwill				—			—			102,792
	Charge for impaired assets				—			4,463			10,894
		Total operating costs and expenses			2,133,980			1,948,232			1,682,820
Operating income					600,862			252,913			31,051
Other income (expenses):
	Equity in income (loss) of equity method investments				151			(15,624	)		(16,743	)
	Gains (losses) on investments in equity securities				5,698			(1,252	)		(1,201	)
	Minority interest				11,952			5,999			2,232
	Loss on sale of product line				—			—			(27,658	)
	Other				(1,535	)		(357	)		959
	Investment income				31,429			24,244			43,015
	Interest expense				(19,638	)		(38,227	)		(26,600	)
		Total other income (expenses)			28,057			(25,217	)		(25,996	)
	Income before income taxes				628,919			227,696			5,055
	Provision for income taxes				(187,430	)		(141,169	)		(72,647	)
	Net income (loss)			$	441,489		$	86,527		$	(67,592	)
Comprehensive income, net of tax:
	Net income (loss)			$	441,489		$	86,527		$	(67,592	)
	Other comprehensive income (loss):
		Foreign currency translation adjustments			(122,568	)		80,371			133,317
		Gain on affiliate sale of stock, net of tax			996			—			2,856
		Additional minimum pension liability, net of tax			(4,627	)		—			2,529
		Other, net of tax			561			959			459
		Unrealized gains (losses) on securities:
			Unrealized gains (losses) arising during the period		(15,182	)		16,243			(3,878	)
			Reclassification adjustment for (gains) losses included in net income (loss), net of tax		(898	)		201			(3,129	)
			Unrealized gains (losses) on securities, net		(16,080	)		16,444			(7,007	)
		Other comprehensive income (loss)			(141,718	)		97,774			132,154
Comprehensive income				$	299,771		$	184,301		$	64,562

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

F-67

		For the Years Ended December 31,
		2005		2004		2003
Net income (loss) per share:
Allocated to Genzyme Stock (1):
	Genzyme General net income	$	441,489	$	86,527	$	82,143
	Tax benefit allocated from Genzyme Biosurgery		—		—		8,720
	Tax benefit allocated from Genzyme Molecular Oncology		—		—		3,420
	Net income allocated to Genzyme Stock	$	441,489	$	86,527	$	94,283

Net income per share of Genzyme Stock:
	Basic	$	1.73	$	0.38	$	0.43
	Diluted	$	1.65	$	0.37	$	0.42

Weighted average shares outstanding:
	Basic	254,758	228,175		219,376
	Diluted	272,224	234,318		225,976
Allocated to Biosurgery Stock (1):
	Genzyme Biosurgery net loss			$	(166,656	)
	Allocated tax benefit				14,005
	Net loss allocated to Biosurgery Stock			$	(152,651	)
	Net loss per share of Biosurgery Stock—basic and diluted			$	(3.76	)
	Weighted average shares outstanding				40,630
Allocated to Molecular Oncology Stock (1):
	Net loss allocated to Molecular Oncology Stock			$	(9,224	)
	Net loss per share of Molecular Oncology Stock—basic and diluted			$	(0.54	)
	Weighted average shares outstanding				16,958

(1)

Effective July 1, 2003, in connection with the elimination of our tracking stock structure, we ceased allocating earnings to Genzyme Biosurgery and Genzyme Molecular Oncology.

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

F-68

GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(Amounts in thousands, except par value amounts)

			December 31,
			2005			2004
ASSETS
Current assets:
	Cash and cash equivalents		$	291,960		$	480,198
	Short-term investments			193,946			70,994
	Accounts receivable, net			608,326			546,613
	Inventories			297,652			293,658
	Prepaid expenses and other current assets			100,256			79,329
	Notes receivable—related parties			2,416			2,399
	Deferred tax assets			170,443			160,438
		Total current assets		1,664,999			1,633,629
Property, plant and equipment, net				1,320,813			1,310,256
Long-term investments				603,196			528,262
Notes receivable—related parties				7,206			9,491
Goodwill				1,487,567			1,290,916
Other intangible assets, net				1,590,894			1,069,399
Investments in equity securities				135,930			150,253
Other noncurrent assets				68,260			77,215
		Total assets	$	6,878,865		$	6,069,421
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable		$	96,835		$	88,140
	Accrued expenses			430,032			344,063
	Income taxes payable			2,486			50,080
	Deferred revenue			15,018			12,612
	Current portion of long-term debt and capital lease obligations			5,652			129,503
		Total current liabilities		550,023			624,398
Long-term debt and capital lease obligations				125,652			120,991
Convertible notes				690,000			690,000
Deferred revenue—noncurrent				4,663			7,716
Deferred tax liabilities				335,612			225,850
Other noncurrent liabilities				23,048			20,310
		Total liabilities		1,728,998			1,689,265
Commitments and contingencies (See Notes C, I, J, K, M, O, P, and R)
Stockholders' equity:
	Preferred stock, $0.01 par value			—			—
	Common stock, $0.01 par value			2,593			2,491
	Additional paid-in capital			4,687,775			4,217,357
	Notes receivable from stockholders			(14,445	)		(13,865	)
	Accumulated earnings (deficit)			329,456			(112,033	)
	Accumulated other comprehensive income			144,488			286,206
		Total stockholders' equity		5,149,867			4,380,156
		Total liabilities and stockholders' equity	$	6,878,865		$	6,069,421

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

F-69

GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Amounts in thousands)

					For the Years Ended December 31,
					2005			2004			2003
Cash Flows from Operating Activities:
	Net income (loss)				$	441,489		$	86,527		$	(67,592	)
	Reconciliation of net income (loss) to cash flows from operating activities:
		Depreciation and amortization				284,620			205,114			160,459
		Stock based compensation				444			10			592
		Provision for bad debts				9,444			12,249			2,865
		Purchase of in-process research and development				29,200			254,520			158,000
		Charge for impairment of goodwill				—			—			102,792
		Charge for impaired assets				—			4,463			10,894
		Minority interest				(11,952	)		(5,999	)		(2,232	)
		Equity in (income) loss of equity method investments				(151	)		15,624			16,743
		(Gains) losses on investments in equity securities				(5,698	)		1,252			1,201
		Loss on sale of product line				—			—			27,658
		Write off of unamortized debt fees				—			5,329			—
		Deferred income tax provision				15,300			45,047			7,001
		Tax benefit from employee stock options				102,561			49,974			57,536
		Other				3,867			3,958			3,892
		Increase (decrease) in cash from working capital changes (excluding impact of acquired assets and assumed liabilities):
			Accounts receivable			(93,931	)		(111,345	)		(65,608	)
			Inventories			(17,241	)		18,751			11,844
			Prepaid expenses and other current assets			(20,230	)		5,920			(45,082	)
			Income taxes payable			(28,650	)		(12,588	)		(40,983	)
			Accounts payable, accrued expenses and deferred revenue			22,705			(1,294	)		47,878
				Cash flows from operating activities		731,777			577,512			387,858
Cash Flows from Investing Activities:
	Purchases of investments					(1,094,576	)		(653,478	)		(1,059,407	)
	Sales and maturities of investments					962,948			976,085			920,592
	Purchases of equity securities					(7,477	)		(4,154	)		(52,547	)
	Proceeds from sales of investments in equity securities					7,067			—			2,672
	Purchases of property, plant and equipment					(192,461	)		(187,400	)		(259,598	)
	Proceeds from sale of product line					—			—			34,513
	Distributions from (investments in) equity investees					3,000			(24,107	)		(28,056	)
	Purchases of intangible assets					—			(5,110	)		(8,413	)
	Milestone payment to BioMarin					—			—			(12,100	)
	Acquisitions, net of acquired cash					(703,074	)		(152,377	)		(565,306	)
	Acquisition of sales and marketing rights					(172,092	)		—			—
	Other					5,682			4,845			(542	)
				Cash flows from investing activities		(1,190,983	)		(45,696	)		(1,028,192	)

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

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			For the Years Ended December 31,
			2005			2004			2003
Cash Flows from Financing Activities:
	Proceeds from issuance of common stock			354,708			140,311			116,459
	Proceeds from draws on credit facility			350,000			135,000			616,000
	Proceeds from issuance of debt, net of issuance costs			—			—			672,975
	Payments of debt and capital lease obligations			(478,770	)		(650,818	)		(914,128	)
	Bank overdraft			17,951			15,434			(2,543	)
	Minority interest contributions			11,423			5,424			3,060
	Other			3,261			922			2,233
		Cash flows from financing activities		258,573			(353,727	)		494,056
Effect of exchange rate changes on cash				12,395			9,335			32,241
Increase (decrease) in cash and cash equivalents				(188,238	)		187,424			(114,037	)
Cash and cash equivalents at beginning of period				480,198			292,774			406,811
Cash and cash equivalents at end of period			$	291,960		$	480,198		$	292,774
Supplemental disclosures of cash flows:
Cash paid during the year for:
	Interest, net of capitalized interest		$	5,081		$	14,736		$	19,135
	Income taxes		$	105,173		$	73,734		$	95,180
Supplemental disclosures of non-cash transactions:
	Mergers and Acquisitions—Note C.
	Property, Plant and Equipment—Note H.
	Capital lease obligation for Genzyme Center—Note M.

        In conjunction with acquisitions completed since January 1, 2003, as described in Note C., "Mergers and Acquisitions," we assumed the following liabilities (amounts in thousands):

		For the Years Ended December 31,
		2005			2004			2003
Net cash paid for acquisitions and acquisition costs		$	(875,166	)	$	(152,377	)	$	(565,306	)
Issuance of common stock and options			—			(1,069,925	)		—
Fair value of assets acquired			821,064			350,623			361,598
Net deferred tax assets—current and noncurrent			92,955			53,718			—
Acquired in-process research and development			29,200			254,520			158,000
Goodwill			200,184			669,290			132,550
Liabilities for exit activities and integration			(14,635	)		(10,813	)		(11,067	)
Income taxes payable			(6,683	)		(40,852	)		—
Net deferred tax liability assumed			(189,266	)		—			(17,371	)
	Net liabilities assumed	$	57,653		$	54,184		$	58,404

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

F-71

GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity

(Amounts in thousands)

		Shares				Dollars
		2005	2004	2003		2005		2004		2003
COMMON STOCK:
GENZYME STOCK:
	Balance at beginning of year	249,125	224,717	214,814		$	2,491	$	2,247	$	2,148
	Issuance of Genzyme Stock under stock plans	10,133	5,950	6,947			102		59		69
	Exercise of warrants and stock purchase rights	—	—	3			—		—		—
	Shares issued for the conversion of Biosurgery Stock to Genzyme Stock	—	—	1,997			—		—		20
	Shares issued for the conversion of Molecular Oncology Stock to Genzyme Stock	—	—	959			—		—		10
	Shares issued for the acquisition of ILEX Oncology	—	18,458	—			—		185		—
	Cancellation of shares	—	—	(3	)		—		—
	Balance at end of year	259,258	249,125	224,717		$	2,593	$	2,491	$	2,247
BIOSURGERY STOCK:
	Balance at beginning of year			40,482						$	405
	Issuance of Biosurgery Stock under stock plans			207							2
	Shares converted into Genzyme Stock from the consolidation of the tracking stocks			(40,689	)						(407	)
	Balance at end of year			—						$	—
MOLECULAR ONCOLOGY STOCK:
	Balance at beginning of year			16,899						$	169
	Issuance of Molecular Oncology Stock under stock plans			90							1
	Cancellation of shares			(11	)						—
	Shares converted into Genzyme Stock from the consolidation of the tracking stocks			(16,978	)						(170	)
	Balance at end of year			—						$	—

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

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		2005			2004			2003
ADDITIONAL PAID-IN CAPITAL:
GENZYME STOCK:
	Balance at beginning of year	$	4,217,357		$	2,957,578		$	1,810,358
	Issuance of Genzyme Stock under stock plans		354,606			140,251			115,938
	Conversion of Biosurgery Stock to Genzyme Stock		—			—			814,982
	Conversion of Molecular Oncology Stock to Genzyme Stock		—			—			149,103
	Acquisition of ILEX Oncology		—			1,069,732			—
	Tax benefit from stock option exercises		102,561			49,974			57,536
	Stock based compensation		444			10			592
	Other		12,807			(188	)		9,069
	Balance at end of year	$	4,687,775		$	4,217,357		$	2,957,578
BIOSURGERY STOCK:
	Balance at beginning of year							$	823,364
	Issuance of Biosurgery Stock under stock plans								308
	Other								(9,077	)
	Conversion of Biosurgery Stock to Genzyme Stock								(814,595	)
	Balance at end of year							$	—
MOLECULAR ONCOLOGY STOCK:
	Balance at beginning of year							$	148,799
	Issuance of Molecular Oncology Stock under stock plans								141
	Other								3
	Conversion of Molecular Oncology Stock to Genzyme Stock								(148,943	)
	Balance at end of year							$	—
NOTES RECEIVABLE FROM STOCKHOLDERS:
	Balance at beginning of year	$	(13,865	)	$	(13,285	)	$	(12,706	)
	Accrued interest receivable on notes		(614	)		(614	)		(613	)
	Payments or write-off of notes receivable		34			34			34
	Balance at end of year	$	(14,445	)	$	(13,865	)	$	(13,285	)
ACCUMULATED EARNINGS (DEFICIT):
	Balance at beginning of year	$	(112,033	)	$	(198,560	)	$	(130,968	)
	Net income (loss)		441,489			86,527			(67,592	)
	Balance at end of year	$	329,456		$	(112,033	)	$	(198,560	)

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

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		2005			2004		2003
ACCUMULATED OTHER COMPREHENSIVE INCOME:
	Balance at beginning of year	$	286,206		$	188,432	$	56,278
	Foreign currency translation adjustments		(122,568	)		80,371		133,317
	Gain on affiliate sale of stock, net of tax (1)		996			—		2,856
	Additional minimum pension liability, net of tax (2)		(4,627	)		—		2,529
	Change in unrealized gains and losses on investments and derivatives, net of tax (3)		(15,519	)		17,403		(6,548	)
	Accumulated other comprehensive income	$	144,488		$	286,206	$	188,432

(1)

Net of $(0.6) million of tax in 2005 and $(1.7) million of tax in 2003.

(2)

Net of $1.9 million of tax in 2005 and $(1.1) million of tax in 2003.

(3)

Net of $9.0 million of tax in 2005, $(10.4) million of tax in 2004 and $(11.6) million of tax in 2003.

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

F-74

GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements

NOTE A.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

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

•

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 (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 and Thyrogen;



•

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



•

Biosurgery, which develops, manufactures and distributes biotherapeutics and biomaterial products, with an emphasis on products that meet medical needs in 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



•

Diagnostics/Genetics, which develops, manufactures and distributes raw materials and in vitro diagnostics products, and provides testing services for the oncology, prenatal and reproductive markets.

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

        We have reclassified our 2004 and 2003 segment disclosures to conform to our 2005 presentation.

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

Elimination of Tracking Stock Structure

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

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        Effective July 1, 2003, we eliminated our tracking stock capital structure by exchanging, in accordance with the provisions of our charter, each share of Biosurgery Stock for 0.04914 of a share of Genzyme General Stock and each share of Molecular Oncology Stock for 0.05653 of a share of Genzyme General Stock. Options and warrants to purchase shares of Biosurgery Stock, and options to purchase shares of Molecular Oncology Stock, were converted into options and warrants to purchase shares of Genzyme General Stock. Effective July 1, 2003, we have one outstanding series of common stock. From July 1, 2003 through May 27, 2004, we referred to our outstanding series of common stock as Genzyme General Stock. At our annual meeting of shareholders on May 27, 2004, our shareholders approved an amendment to our charter that eliminated the designation of separate series of common stock, resulting in 690,000,000 authorized shares of a single series of common stock, which we now refer to as Genzyme Stock, and 10,000,000 authorized shares of preferred stock, of which 3,000,000 are designated Series A Junior Participating Preferred Stock and 7,000,000 are undesignated.

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

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

•

the amount that would be legally available for dividends under Massachusetts law if the division were a separate legal corporation; or



•

the amount by which the greater of the fair value of the division's allocated net assets, or its allocated paid-in capital plus allocated earnings, exceeded its corresponding stock's par value, preferred stock preferences and debt obligations.

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

F-76

had generated taxable income, providing it with the ability to utilize the tax benefits generated by Genzyme Biosurgery and Genzyme Molecular Oncology. Consistent with our policy, we allocated the tax benefits generated by Genzyme Biosurgery and Genzyme Molecular Oncology through June 30, 2003 to Genzyme General without making any compensating payments or allocations to the division that generated the benefit.

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

		For the Years Ended December 31,
		2005	2004	2003
Tax benefits allocated from:
Genzyme Biosurgery		N/A	N/A	$	8,720
Genzyme Molecular Oncology		N/A	N/A		3,420
	Total	N/A	N/A	$	12,140

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

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

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

Allocation Policy Related to Tracking Stocks

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

F-77

considerable discretion in determining the types, magnitude and extent of allocations to each series of common stock. Allocations to our divisions were based on one of the following methodologies:

•

specific identification—assets that were dedicated to the production of goods of a division or which solely benefit a division were allocated to that division. Liabilities incurred as a result of the performance of services for the benefit of a division or in connection with the expenses incurred in activities which directly benefit a division were allocated to that division. Such specifically identified assets and liabilities included cash, investments, accounts receivable, inventories, property and equipment, intangible assets, accounts payable, accrued expenses and deferred revenue. Revenues from the licensing of a division's products or services to third parties and the related costs were allocated to that division;



•

actual usage—expenses were charged to the division for whose benefit such expenses were incurred. Research and development, sales and marketing and direct general and administrative services were charged to the divisions for which the service was performed on a cost basis. Such charges were generally based on direct labor hours;



•

proportionate usage—costs incurred which benefited more than one division were allocated based on management's estimate of the proportionate benefit each division received. Such costs included facilities, legal, finance, human resources, executive and investor relations; or



•

board directed—programs and products, both internally developed and acquired, were allocated to divisions by the board of directors. The board of directors also allocated long-term debt and strategic investments.

Risks and Uncertainties

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

•

our ability to successfully complete preclinical and clinical development of our products and services;



•

the content and timing of submissions to and decisions made by the FDA and other comparable regulatory agencies outside the United States.;



•

our ability to manufacture sufficient amounts of our products for development and commercialization activities and to do so in a timely and cost-efficient manner;



•

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



•

the scope, validity and enforceability of patents and other proprietary rights held by third parties and their 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;



•

our ability to successfully grow our business through mergers, acquisitions, collaborations and internal development;

F-78

•

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



•

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, and the extent of such coverage and the accuracy of our estimates of the payor mix for our products;



•

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



•

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



•

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

Basis of Presentation and Principles of Consolidation

        Our consolidated financial statements include the accounts of our wholly owned and majority owned subsidiaries. As a result of the adoption of FIN 46, "Consolidation of Variable Interest Entities," we also consolidate certain variable interest entities for which we are the primary beneficiary. For consolidated subsidiaries in which we own less than 100% interest, we record minority interest in our statements of operations for the ownership interest of the minority owner. We use the equity method to account for investments in entities in which we have a substantial ownership interest (20% to 50%) which do not fall in the scope of FIN 46, or over which we exercise significant influence. Our consolidated net income includes our share of the earnings of these entities. All intercompany accounts and transactions have been eliminated in consolidation. We have reclassified certain 2004 and 2003 data to conform to our 2005 presentation.

Dividend Policy

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

Use of Estimates

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

Cash and Cash Equivalents

        We value our cash and cash equivalents at cost plus accrued interest, which we believe approximates their market value. Our cash equivalents consist principally of money market funds, corporate notes and municipal notes with original maturities of three months or less. We generally invest our cash in investment-grade securities to mitigate risk.

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Investments

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

        We classify our auction rate municipal bonds and variable rate municipal demand notes as current investments. We did not have any of these securities as of December 31, 2005. The carrying value of these securities as of December 31, 2004 was approximately $33 million.

        We consolidated the results of Peptimmune through February 2003 because during that period we owned 100% of its outstanding stock. In March 2003, our investment in Peptimmune decreased to approximately 12% as a result of the sale by Peptimmune of shares of its Series B voting preferred stock to third-party investors. Although our ownership interest in Peptimmune has declined below 20%, we account for the investment in Peptimmune under the equity method of accounting because we have significant influence over Peptimmune.

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

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

Inventories

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

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

•

inventory that has become obsolete;



•

inventory that has a cost basis in excess of its expected net realizable value;



•

inventory in excess of expected requirements; and



•

expired inventory.

F-80

        We capitalize inventory produced for commercial sale, which may result in the capitalization of inventory prior to regulatory approval. If a product is not approved for sale, it would likely result in the write-off of the inventory and a charge to earnings.

Property, Plant and Equipment

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

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

•

plant and equipment—three to fifteen years;



•

furniture and fixtures—five to seven years; and



•

buildings—twenty to forty years.

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

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

        We capitalize certain computer software and software development costs incurred in connection with developing or obtaining computer software for internal use. Capitalized software costs are included in property, plant and equipment, net on our consolidated balance sheet and amortized on a straight-line basis over the estimated useful lives of the software, which generally do not exceed 5 years. Net capitalized software and development costs were $19.1 million at December 31, 2005 and $11.8 million at December 31, 2004.

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

Goodwill and Other Intangible Assets

        Our intangible assets consist of:

•

goodwill;



•

purchased technology rights;



•

patents, trademarks and trade names;



•

distribution rights;



•

customer lists; and

F-81

•

covenants not to compete.

        We are required to perform impairment tests related to our goodwill under SFAS No. 142 annually, which we perform in the third quarter, and whenever events or changes in circumstances suggest that the carrying value of an asset may not be recoverable. We completed the annual impairment tests for our $1.5 billion of net goodwill in the third quarter of 2005, as provided by SFAS No. 142 and determined that none of the goodwill allocated to our reporting units was impaired and, therefore, no impairment charges were required.

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

Accounting for the Impairment of Long-Lived Assets

        We periodically evaluate our long-lived assets for potential impairment under SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." We perform these evaluations whenever events or changes in circumstances suggest that the carrying amount of an asset or group of assets is not recoverable. Indicators of potential impairment include:

•

a significant change in the manner in which an asset is used;



•

a significant decrease in the market value of an asset;



•

a significant adverse change in its business or the industry in which it is sold; and



•

a current period operating cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the asset.

        If we believe an indicator of potential impairment exists, we test to determine whether impairment recognition criteria in SFAS No. 144 have been met. We charge impairments of the long-lived assets to operations if our evaluations indicate that the carrying value of these assets is not recoverable.

Translation of Foreign Currencies

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

•

the current exchange rate at each balance sheet date for assets and liabilities;



•

the average exchange rate prevailing during each period for revenues and expenses; and



•

the historical exchange rate for our investments in our foreign subsidiaries.

        We consider the local currency for all of our foreign subsidiaries to be the functional currency for that subsidiary. As a result, we included translation adjustments for these subsidiaries in stockholders' equity. We also record as a charge or credit to stockholders' equity exchange gains and losses on intercompany balances that are of a long-term investment nature. Our stockholders' equity includes net cumulative foreign currency translation gains of $131.1 million at December 31, 2005 and $253.7 million at December 31, 2004. Gains and losses on all other foreign currency transactions, including gains and losses attributable to foreign currency forward contracts, are included in SG&A in our results of

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operations and were a net loss of $3.8 million at December 31, 2005, a net gain of $7.1 million at December 31, 2004 and a net loss of $4.1 million at December 31, 2003.

Derivative Instruments

        SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that we recognize all derivative instruments as either assets or liabilities in our consolidated balance sheet and measure those instruments at fair value. Subsequent changes in fair value are reflected in current earnings or other comprehensive income, depending on whether a derivative instrument is designated as part of a hedge relationship and, if it is, the type of hedge relationship.

Revenue Recognition

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

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

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

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

        We receive royalties related to the manufacture, sale or use of our products or technologies under license arrangements with third parties. For those arrangements where royalties are reasonably estimable, we recognize revenue based on estimates of royalties earned during the applicable period and adjust for differences between the estimated and actual royalties in the following quarter.

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Historically, these adjustments have not been material. For those arrangements where royalties are not reasonably estimable, we recognize revenue upon receipt of royalty statements from the licensee.

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

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

Research and Development

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

Issuance of Stock By a Subsidiary or an Affiliate

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

Income Taxes

        We use the asset and liability method of accounting for deferred income taxes. Our provision for income taxes includes income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities. We record liabilities for income tax contingencies based on our best estimate of the underlying exposures.

        We have not provided for possible U.S. taxes on the undistributed earnings of foreign subsidiaries. We do not believe it is practicable to determine the tax liability associated with the repatriation of our foreign earnings because it is our policy to indefinitely reinvest these earnings in non-U.S. operations. These undistributed foreign earnings totaled $164.5 million at December 31, 2005 and $133.4 million at December 31, 2004.

Comprehensive Income (Loss)

        Comprehensive income (loss) consists of net income or loss and all changes in equity from non-shareholder sources, including changes in unrealized gains and losses on investments and on

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derivative instruments designated as hedges, foreign currency translation adjustments and minimum liabilities for accumulated benefit obligations, net of taxes.

Net Income (Loss) Per Share

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

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

        In September 2004, the EITF reached a consensus on Issue No. 04-8, "The Effect of Contingently Convertible Debt on Diluted Earnings Per Share," or EITF 04-8, which requires that all contingently convertible debt instruments be included in diluted earnings per share using the if-converted method, regardless of whether the market price trigger (or other contingent feature) has been met. We adopted the provisions of EITF 04-8 in the fourth quarter of 2004 and under its provisions, the $690.0 million in principal under our 1.25% convertible senior notes, which represent 9.7 million potential shares of common stock, are included in the calculation of diluted earnings per share using the if-converted method regardless of whether or not the contingent requirements have been met for conversion to common stock, unless the effect would be anti-dilutive. We did not retroactively include the potentially dilutive effect of our 1.25% convertible senior notes in the computation of earnings per share for the year ended December 31, 2004 because the effect would have been anti-dilutive. Diluted earnings per share for the year ended December 31, 2003 was not impacted by the adoption of EITF 04-8 because our convertible senior notes were only outstanding for a portion of the month in December 2003. We did not retroactively include the potentially dilutive effect of the assumed conversion of our $575.0 million in principal of 3% convertible subordinated debentures in the computation of dilutive earnings per share for the year ended December 31, 2004, because we redeemed these debentures for cash in June 2004.

Accounting for Stock Based Compensation

        In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment, an amendment of FASB Statement Nos. 123 and 95," which replaces SFAS No. 123, "Accounting for Stock-Based

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Compensation,", or SFAS 123, and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees," or APB 25. SFAS No. 123R will require all share-based payments to employees, including grants of employee stock options, to be recognized in the statements of operations based on their fair values. SFAS No. 123R allows alternative methods for determining the fair value of share based payments to employees and alternative methods of implementation. In April 2005, the SEC issued a rule that allows companies to implement SFAS No. 123R at the beginning of the next fiscal year, instead of the next reporting period, that begins after June 15, 2005. We have adopted SFAS No. 123R using the modified prospective basis effective January 1, 2006. Our adoption of SFAS No. 123R is expected to result in compensation expense that will reduce diluted net income per share for 2006. Our estimate of future stock-based compensation expense is affected by our stock price, the number of stock-based awards our board of directors may grant in 2006, as well as a number of complex and subjective valuation assumptions and the related tax impact. These valuation assumptions include, but are not limited to, the volatility of our stock price and employee stock option exercise behaviors.

        Through December 31, 2005, we have followed APB 25 to account for employee stock options. In accounting for stock-based compensation, we do not recognize compensation expense for qualifying options granted to our employees and directors under the provisions of our stock-based compensation plans with fixed terms and an exercise price greater than or equal to the fair market value of the underlying Genzyme Stock on the date of grant. All stock-based awards to non-employees are accounted for at their fair value in accordance with SFAS No. 123, as amended, and EITF Issue No. 96-18, "Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services." The following table sets forth our net income (loss) data as if compensation expense for our stock-based compensation plans was determined in accordance with SFAS No. 123, as amended, based on the fair value at the grant dates of the awards:

		For the Years Ended December 31,
		2005			2004			2003
		(Amounts in thousands, except per share amounts)
Net income (loss):
	As reported	$	441,489		$	86,527		$	(67,592	)
	Add: employee stock-based compensation included in as reported, net of tax		280			6			375
	Deduct: pro forma employee stock-based compensation expense, net of tax		(112,808	)		(94,078	)		(80,035	)
	Pro forma	$	328,961		$	(7,545	)	$	(147,252	)

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

			For the Years Ended December 31,
			2005		2004			2003
			(Amounts in thousands, except per share amounts)
Net income (loss) per share allocated to Genzyme Stock – basic and diluted (1):
	Basic:
		As reported	$	1.73	$	0.38		$	0.43
		Pro forma	$	1.29	$	(0.03	)	$	0.08
	Diluted:
		As reported	$	1.65	$	0.37		$	0.42
		Pro forma	$	1.24	$	(0.03	)	$	0.08
Net loss per share allocated to Biosurgery Stock – basic and diluted(1):
		As reported						$	(3.76	)
		Pro forma						$	(3.82	)
Net loss per share allocated to Molecular Oncology Stock – basic and diluted(1):
		As reported						$	(0.54	)
		Pro forma						$	(0.63	)

(1)

Effective July 1, 2003, in connection with the elimination of our tracking stock structure, we ceased allocating earnings or losses to Genzyme Biosurgery and Genzyme Molecular Oncology.

The effects of applying SFAS No. 123 are not necessarily representative of the effects on reported net income (loss) in future years. We anticipate making additional awards of stock-based compensation in future years.

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

	Risk-Free Interest Rate	Volatility	Dividend Yield	Expected Option Life (In Years)	Average Fair Value
GENZYME STOCK:
2005	4.37%	46%	0%	5	$	29.73
2004	3.47%	54%	0%	5	$	21.92
2003	3.26%	54%	0%	5	$	22.37
BIOSURGERY STOCK:
Through June 30, 2003	2.16%	91%	0%	5	$	1.49
MOLECULAR ONCOLOGY STOCK:
Through June 30, 2003	2.16%	105%	0%	5	$	1.93

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Recent Accounting Pronouncements

SFAS No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4." In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4." SFAS No. 151, which clarifies that abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) should be recognized as current period charges in all circumstances. We have adopted SFAS No. 151 effective January 1, 2006. We do not believe that the adoption of SFAS No. 151 will have a material impact on our financial position or results of operations.

SFAS No. 154, "Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3." In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3." SFAS No. 154 applies to all voluntary changes in accounting for and reporting of changes in accounting principles and requires retrospective application to prior periods' financial statements of a voluntary change in accounting principles unless it is not practical to do so. APB Opinion No. 20, "Accounting Changes," previously required that most voluntary changes in accounting principles be recognized by including in net income (loss) of the period of the change, the cumulative effect of changing to the new accounting principle. SFAS No. 154 also requires that a change in depreciation, amortization, or depletion method for long-lived non-financial assets be accounted for as a change in accounting estimate affected by a change in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We have adopted SFAS No. 154 effective January 1, 2006. We do not expect the adoption of SFAS No. 154 to have a material impact on our financial position or results of operations.

FIN 47, "Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No, 143." In March 2005, the FASB issued FIN 47, "Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143." A conditional asset retirement obligation refers to a legal obligation to retire assets where the timing and/or method of settlement are conditioned on future events. FIN 47 requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability's fair value can be reasonably estimated. We adopted the provisions of FIN 47 in 2005. The adoption of this Interpretation did not have a material impact on our consolidated financial position, results of operations or cash flows.

FSP Nos. FAS 115-1 and FAS 124-1, "The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments." In November 2005, the FASB issued FSP Nos. FAS 115-1 and FAS 124-1, "The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments." FSP Nos. 115-1 and FAS 124-1 address the determination as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment. The FSPs also include accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in the FSPs clarify SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," SFAS No. 124, "Accounting for Certain Investments Held by Not-for-Profit Organizations," and APB Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock." We have reviewed the guidance of FSP Nos. FAS 115-1 and FAS 124-1 and have determined that our practices are consistent with the FSPs; therefore, the adoption of the FSPs on January 1, 2006 is not expected to have an impact on our consolidated financial statements.

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NOTE B.    NET INCOME PER SHARE

Genzyme Stock (1):

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

				For the Years Ended December 31,
				2005		2004		2003
Net income				$	441,489	$	86,527	$	82,143
Tax benefit allocated from Genzyme Biosurgery					—		—		8,720
Tax benefit allocated from Genzyme Molecular Oncology					—		—		3,420
Net income allocated to Genzyme Stock – basic					441,489		86,527		94,283
Effect of dilutive securities:
		Interest expense and debt fee amortization, net of tax, related to our 1.25% convertible senior notes (2)			7,496		—		497
Net income allocated to Genzyme Stock – diluted				$	448,985	$	86,527	$	94,780
Shares used in computing net income per common share—basic					254,758		228,175		219,376
Effect of dilutive securities:
		Shares issuable upon the assumed conversion of our 1.25% convertible senior notes (2)			9,686		—		557
		Stock options (3)			7,769		6,133		6,033
		Warrants and stock purchase rights			11		10		10
			Dilutive potential common shares		17,466		6,143		6,600
Shares used in computing net income per common share – diluted (2,3,4)					272,224		234,318		225,976
Net income per share:
	Basic			$	1.73	$	0.38	$	0.43
	Diluted			$	1.65	$	0.37	$	0.42

(1)

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

(2)

Reflects the retroactive application of the provisions of EITF Issue No. 04-8, "The Effect of Contingently Convertible Debt on Diluted Earnings Per Share." The potentially dilutive effect of the 9.7 million shares of Genzyme Stock issuable upon conversion of our $690.0 million in principal of 1.25% convertible senior notes is excluded from the calculation of diluted earnings per share for the year ended December 31, 2004 because the effect would be anti-dilutive.

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(3)

We did not include the securities described in the following table in the computation of diluted earnings per share because these securities had an exercise price greater than the average market price of Genzyme Stock during each such period (amounts in thousands):

	For the Years Ended December 31,
	2005	2004	2003
Shares of Genzyme Stock issuable upon exercise of outstanding options	1,265	6,078	8,974

(4)

We did not retroactively include the potentially dilutive effect of the assumed conversion of our $575.0 million in principal of 3% convertible subordinated debentures in the computation of dilutive earnings per share for Genzyme Stock for the year ended December 31, 2003, because we redeemed these debentures for cash in June 2004. The debentures were contingently convertible into approximately 8.2 million shares of Genzyme Stock at an initial conversion price of $70.30 per share.

Biosurgery Stock (1):

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

	For the Year Ended December 31, 2003
Shares of Biosurgery Stock issuable upon exercise of outstanding options	7,796
Warrants to purchase Biosurgery Stock	7
Biosurgery designated shares (2)	3,128
Biosurgery designated shares reserved for options (2)	62
Total shares excluded from the calculation of diluted net loss per share of Biosurgery Stock	10,993

(1)

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

(2)

Biosurgery designated shares were authorized shares of Biosurgery Stock that were not issued and outstanding, but which our board of directors could have issued, sold or distributed without allocating the proceeds to Genzyme Biosurgery. Effective July 1, 2003, all shares of Biosurgery Stock were cancelled in connection with the elimination of our tracking stock structure.

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Molecular Oncology Stock (1):

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

	For the Year Ended December 31, 2003
Shares of Molecular Oncology Stock issuable upon exercise of outstanding options	3,465
Molecular Oncology designated shares (2)	1,651
Total shares excluded from the calculation of diluted net loss per share of Molecular Oncology Stock	5,116

(1)

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

(2)

Molecular Oncology designated shares were authorized shares of Molecular Oncology Stock that were not issued and outstanding, but which our board of directors could have issued, sold or distributed without allocating the proceeds to Genzyme Molecular Oncology. Effective July 1, 2003, all shares of Molecular Oncology Stock were cancelled in connection with the elimination of our tracking stock structure.

NOTE C. MERGERS AND ACQUISITIONS

Acquisition of Gene Therapy Assets from Avigen

        In December 2005, we acquired certain gene therapy assets from Avigen, a publicly-traded, biopharmaceutical company focused on unique small molecule therapeutics and biologics to treat serious neurological disorders, in exchange for an up-front cash payment of $12.0 million. We allocated the purchase price to the intangible assets acquired based on their estimated fair values as of December 19, 2005, the date of acquisition. We allocated $5.0 million of the up-front cash payment to technology in other intangible assets on our consolidated balance sheet and recorded a charge of $7.0 million to IPR&D. In addition, we may be obligated to make up to approximately $38 million of potential milestone payments based on the development and approval of, and royalty payments based on the sale of, products developed between now and 2020 that rely on the intellectual property purchased from Avigen.

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In-Process Research and Development

        In connection with our acquisition of certain gene therapy assets from Avigen, we acquired IPR&D related to Avigen's Parkinson's disease program.

        As of the date this transaction closed, this program had not reached technological feasibility nor had an alternative future use. Accordingly, we allocated to IPR&D and charged to expense in our consolidated statements of operations in December 2005, $7.0 million, representing the portion of the $12.0 million up-front payment to Avigen attributable to the Parkinson's disease program.

        Management assumes responsibility for determining the IPR&D valuation. The fair value assigned to purchased IPR&D was 59% of the $12.0 million up-front payment to Avigen. This percentage represents management's assessment of the value of the Parkinson's disease program as compared to the combined total value of the acquired core technology and IPR&D.

        As of December 31, 2005, we estimated that it will take approximately six years and an investment of approximately $74 million to complete the development of, obtain approval for and commercialize a product arising from the acquired Parkinson's disease program.

Acquisition of Manufacturing Operation from Cell Genesys

        In November 2005, we acquired the San Diego, California manufacturing operation of Cell Genesys, a company focused on the development and commercialization of novel biological therapies for patients with cancer, for $3.2 million in cash, which was allocated to property, plant and equipment on our consolidated balance sheet. We included the acquired manufacturing operations in our consolidated statements of operations as of November 22, 2005, the date of acquisition.

Acquisition of Equal Diagnostics

        In July 2005, we acquired Equal Diagnostics, a privately-held diagnostics company in Exton, Pennsylvania, that formerly served as a distributor for our clinical chemistry reagents. We paid $5.0 million in initial cash payments and issued promissory notes to the three former shareholders of Equal Diagnostics totaling $10.0 million in principal and interest. These notes bear interest at 3.86% and are payable over eight years in equal annual installments commencing on March 31, 2007. In addition to these guaranteed payments, we may be obligated to make additional cash payments of up to an aggregate of approximately $8 million during the period commencing March 31, 2007 and ending March 31, 2014 based upon the gross margin of the acquired business, as defined in the purchase agreement. We accounted for the acquisition as a purchase and accordingly, included its results of operations in our consolidated statements of operations from July 15, 2005, the date of acquisition.

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

Initial cash payments		$	5,000
Present value of notes payable			8,586
Acquisition costs			250
	Total purchase price	$	13,836
Cash and cash equivalents		$	500
Other current assets			3,119
Property, plant and equipment			58
Goodwill			5,344
Other intangible assets (to be amortized over 7 years)			4,850
Other noncurrent assets			14
Assumed liabilities			(49	)
	Allocated purchase price	$	13,836

The purchase price was allocated to the intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed amounted to $5.3 million, which was allocated to goodwill. We expect that substantially all of the amount allocated to goodwill will be deductible for tax purposes. Pro forma results are not presented for the acquisition of Equal Diagnostics because the acquisition did not have a material effect on our results of operations.

Acquisition of Bone Care

        In July 2005, we acquired Bone Care, a publicly-held specialty pharmaceutical company based in Middleton, Wisconsin with a focus on nephrology. We paid gross consideration of $712.3 million in cash, including $668.4 million for the outstanding shares of Bone Care's common stock, $39.9 million to buy out options to purchase shares of Bone Care's common stock and restricted stock outstanding on the date of acquisition and approximately $4 million for acquisition costs. Net consideration was $604.3 million as we acquired Bone Care's cash and short-term investments totaling $108.0 million. As part of the transaction, we acquired Hectorol, a line of vitamin D2 pro-hormone products used to treat secondary hyperparathyroidism in patients on dialysis and those with earlier stage CKD which we have added to our renal business. We accounted for the acquisition as a purchase and accordingly, included its results of operations in our consolidated statements of operations from July 1, 2005, the date of acquisition.

        In October 2004, Bone Care was one of seven companies, all of which market treatments, therapies or diagnostics for kidney patients, that received a subpoena from the office of the United States Attorney for the Eastern District of New York. The subpoena required Bone Care to provide a wide range of documents related to numerous aspects of its business and operations. The subpoena included specific requests for documents related to testing for parathyroid hormone levels and vitamin D therapies. Bone Care has cooperated, and we continue to cooperate, with the government's investigation. To our knowledge, no civil or criminal proceedings have been initiated against Bone Care or Genzyme at this time, although we cannot predict when or if any proceedings might be initiated. As

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a result, we have not recorded any contingent liabilities related to this investigation as of the acquisition date. Any such liabilities that may arise out of this investigation will be recorded in our consolidated financial statements, if they become probable and estimable prior to July 2006, as an increase to both the goodwill resulting from, and the liabilities assumed in connection with, our acquisition of Bone Care.

        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 20,254,600 shares of Bone Care common stock		$	668,402
Buy out of options to purchase shares of Bone Care common stock and restricted stock			39,943
Acquisition costs			4,000
	Total purchase price	$	712,345
Cash and cash equivalents		$	41,012
Short-term investments			67,015
Accounts receivable			10,499
Inventories			17,500
Deferred tax assets—current			28,623
Other current assets			2,278
Property, plant and equipment			2,895
Goodwill			227,739
Other intangible assets (to be amortized over 16 years)			504,200
In-process research and development			12,700
Deferred tax assets—noncurrent			13,454
Assumed liabilities:
	Deferred tax liability		(185,546	)
	Liabilities for exit activities		(11,220	)
	Other		(18,804	)
	Allocated purchase price	$	712,345

        The purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed amounted to $227.7 million, which was allocated to goodwill. We expect that substantially all of the amount allocated to goodwill will not be deductible for tax purposes.

        The allocation of purchase price remains subject to potential adjustments, including adjustments for liabilities associated with certain exit activities, tax restructuring activities and liabilities that may arise from the government's investigation of Bone Care. Pro forma results are not presented for the acquisition of Bone Care because the acquisition did not have a material effect on our results of operations.

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In-Process Research and Development

        In connection with our acquisition of Bone Care, we acquired IPR&D related to LR-103, a vitamin D therapeutic candidate that is an active metabolite of Hectorol. In biological models, this product candidate is readily absorbed after oral delivery and circulates through the bloodstream to tissues which respond to vitamin D hormones. Bone Care conducted early stage research of LR-103 in a variety of indications.

        As of the date this transaction closed, this project had not reached technological feasibility nor had an alternative future use. Accordingly, we allocated to IPR&D and charged to expense in our consolidated statements of operations in September 2005, $12.7 million, representing the portion of the purchase price attributable to this project.

        Management assumes responsibility for determining the IPR&D valuation. The fair value assigned to purchased IPR&D was estimated by discounting, to present value, the cash flows expected to result from the project once it has reached technological feasibility. We used a discount rate of 24.5% and cash flows that have been probability-adjusted to reflect the risks of advancement through the product approval process. In estimating future cash flows, we also considered other tangible and intangible assets required for successful exploitation of the technology resulting from the purchased IPR&D project and adjusted future cash flows for a charge reflecting the contribution to value of these assets.

        As of December 31, 2005, we estimated that it will take approximately six years and an investment of approximately $15 million to complete the development of, obtain approval for and commercialize LR-103.

Exit Activities

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

	Employee Related Benefits			Other Exit Activities		Total Exit Activities
Recorded at acquisition date	$	10,759		$	382	$	11,141
Revision of estimate		80			—		80
Payments in 2005		(9,099	)		—		(9,099	)
Balance at December 31, 2005	$	1,740		$	382	$	2,122

        We expect to pay employee related benefits to the former employees of Bone Care through the second half of 2006.

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Acquisition of Verigen

        In February 2005, we acquired Verigen, a private company based in Leverkusen, Germany with a proprietary cell therapy product for cartilage repair (referred to as MACI) that is currently sold in Europe and Australia. We paid $11.8 million in initial cash payments and may be obligated to make additional cash payments of up to an aggregate of approximately $38 million over the next six years, based upon the achievement of development and commercial milestones relating to regulatory approval and commercialization of MACI in the United States, as well as contingent payments on worldwide sales of that product. We acquired approximately 96% of Verigen's outstanding shares in February 2005 and acquired the remaining outstanding shares in August 2005. We accounted for the acquisition as a purchase and accordingly, included its results of operations in our consolidated statements of operations from February 8, 2005, the date of acquisition.

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

Initial cash payments		$	11,803
Contingent purchase price liabilities			5,660
Acquisition costs			912
	Total purchase price	$	18,375
Cash and cash equivalents		$	924
Other current assets			4,478
Property, plant and equipment			2,673
Other intangible assets (to be amortized over 10 years)			11,964
In-process research and development			9,500
Other noncurrent assets			1,023
Assumed liabilities:
	Deferred tax liabilities		(4,641	)
	Liabilities for exit activities		(2,475	)
	Other		(5,071	)
	Allocated purchase price	$	18,375

The purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The estimated fair value of the assets acquired and liabilities assumed exceeded the initial payments by $5.7 million resulting in negative goodwill. We recorded as a liability, pursuant to SFAS No. 142, contingent consideration up to the amount of the negative goodwill. If and when contingent payments come due, we will apply the payments against the contingent liability. Contingent payments in excess of $5.7 million, if any, will be recorded as goodwill. During 2005, we paid $0.6 million of contingent payments. As of December 31, 2005, the remaining contingent liability is $5.1 million.

        The allocation of the purchase price remains subject to potential adjustments, including the valuation of acquired tax assets and restructuring liabilities. Pro forma results are not presented for the acquisition of Verigen because the acquisition did not have a material effect on our results of operations.

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In-Process Research and Development

        In connection with our acquisition of Verigen, we acquired IPR&D related to MACI, a proprietary approach to cartilage repair. As of the date of our acquisition of Verigen, MACI, which has received marketing approvals in Europe and Australia, had not reached technological feasibility in the United States due to lack of regulatory approval and did not have an alternative use. Accordingly, we allocated to IPR&D, and charged to expense in our consolidated statements of operations in March 2005, $9.5 million, representing the portion of the purchase price attributable to this project in the United States.

        Management assumes responsibility for determining the IPR&D valuation. The fair value assigned to purchased IPR&D was estimated by discounting, to present value, the cash flows expected to result from the project once it has reached technological feasibility in the United States. We used a discount rate of 24% and cash flows that have been probability-adjusted to reflect the risks of advancement through the product approval process. In estimating future cash flows, we also considered other tangible and intangible assets required for successful exploitation of the technology resulting from the purchased IPR&D project and adjusted future cash flows for a charge reflecting the contribution to value of these assets.

        As of December 31, 2005, we estimated that it will take approximately six years and an investment of approximately $33 million to complete the development of, obtain approval for and commercialize MACI in the United States.

Exit Activities

        In connection with our acquisition of Verigen, we initiated an integration plan to consolidate and restructure certain functions and operations, including the relocation or termination of certain Verigen personnel and the closure of certain of Verigen's leased facilities. These costs have been recognized as liabilities assumed in connection with the acquisition of Verigen in accordance with EITF Issue No. 95-3 and are subject to potential adjustments as certain exit activities are confirmed or refined. The following table summarizes the liabilities established for exit activities related to the acquisition of Verigen (amounts in thousands):

	Employee Related Benefits			Closure of Leased Facilities			Other Exit Activities			Total Exit Activities
Recorded at acquisition date	$	975		$	1,327		$	126		$	2,428
Revision of estimate		17			(24	)		50			43
Payments in 2005		(899	)		(1,041	)		(169	)		(2,109	)
Adjustments (1)		(65	)		(87	)		(7	)		(159	)
Balance at December 31, 2005	$	28		$	175		$	—		$	203

(1)

Represents foreign currency revaluation adjustments because the liabilities for exit activities are denominated in Euros.

        We expect to pay employee related benefits to the former employees of Verigen and make payments related to leased facilities of Verigen through the first half of 2006.

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Acquisition of Synvisc Sales and Marketing Rights from Wyeth

        In January 2005, we consummated an arrangement with Wyeth under which we reacquired the sales and marketing rights to Synvisc in the United States, as well as Germany, Poland, Greece, Portugal and the Czech Republic. Upon closing this transaction, we began to record revenue from sales of Synvisc to end-users in all of these territories except Greece. We began selling Synvisc directly to end-users in Greece effective July 1, 2005. In exchange for the sales and marketing rights, we paid a total of $121.0 million in cash to Wyeth in 2005 and $0.3 million of acquisition costs, of which $0.2 million were paid in 2005. We also accrued contingent payments to Wyeth totaling $59.6 million during 2005, of which $50.9 million had been paid as of December 31, 2005. Distribution rights (a component of other intangible assets, net) in our consolidated balance sheet as of December 31, 2005 include a total of $180.9 million for the initial and contingent payments (made or accrued) as of that date. We will make a series of additional contingent payments to Wyeth based on the volume of Synvisc sales in the covered territories. These contingent payments could extend out to June 2012, or could total a maximum of $293.7 million, whichever comes first.

        We determined that the contingent payments to Wyeth represent contingent purchase price. Accordingly, as contingent payments are made in the future, the amounts will be recorded as additional purchase price for the underlying intangible asset. We calculate amortization expense for this intangible asset based on an economic use model, taking into account our forecasted future sales of Synvisc and the resulting estimated future contingent payments we will be required to make. We periodically update the estimates used in this amortization calculation based on changes in forecasted sales and resulting estimated contingent payments.

        We record SG&A expenses related to the additional Synvisc sales force we assumed from Wyeth in January 2005, and we continue to record all of the research and development expenses related to Synvisc.

        The reacquired Synvisc distribution rights qualify as an asset rather than an acquired business. As a result, we do not provide pro forma results for our reacquisition of the Synvisc distribution rights.

Acquisition of ILEX Oncology

        In December 2004, we completed our acquisition of ILEX Oncology, an oncology drug development company. The transaction had a total value of approximately $1 billion, based on the $55.88 per share value of the 18.5 million shares of our common stock exchanged in the acquisition. We accounted for the acquisition as a purchase and accordingly, included its results of operations in our consolidated statements of operations from December 20, 2004, the date of acquisition.

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        The purchase price was allocated to the acquired tangible and intangible assets and assumed liabilities based on their estimated fair values at the date of acquisition as follows (amounts in thousands, except share data):

Issuance of 18,457,679 shares of Genzyme Stock		$	1,031,485
Issuance of options to purchase 1,736,654 shares of Genzyme Stock			38,440
Acquisition costs			10,349
	Total purchase price	$	1,080,274
Cash and cash equivalents		$	121,128
Restricted cash			604
Accounts receivable			12,501
Inventories			16,984
Deferred tax assets—current			36,766
Other current assets			3,168
Property, plant and equipment			2,162
Restricted long-term investments			1,691
Goodwill			445,640
Other intangible assets (to be amortized over 11 to 12 years)			228,627
In-process research and development			254,520
Deferred tax assets—noncurrent			66,402
Other noncurrent assets			1,648
Assumed liabilities:
	Notes payable—short-term		(19,968	)
	Unfavorable lease liability		(1,610	)
	Liabilities for exit activities		(6,270	)
	Income tax payable		(47,535	)
	Other		(36,184	)
	Allocated purchase price	$	1,080,274

        We also recorded an estimated tax liability of $47.5 million related to the integration of ILEX Oncology. The excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed amounted to $445.6 million, which was allocated to goodwill. We expect that substantially all of the amount allocated to goodwill will not be deductible for tax purposes.

In-Process Research and Development

        In connection with our December 2004 acquisition of ILEX Oncology, we acquired IPR&D related to three development projects, Campath (for indications other than B-cell chronic lymphocytic leukemia), Clolar and tasidotin hydrochloride. As of the date of our acquisition of ILEX Oncology, none of these projects had reached technological feasibility nor had an alternative future use. Accordingly, we allocated to IPR&D, and charged to expense in our consolidated statements of operations in December 2004, $254.5 million, representing the portion of the purchase price attributable to these projects, of which $96.9 million is attributable to the Campath development projects, $113.4 million is attributable to the Clolar development projects and $44.2 million is related to

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the tasidotin development projects. In December 2004, after the date of our acquisition of ILEX Oncology, the FDA granted marketing approval for Clolar for the treatment of children with refractory or relapsed acute lymphoblastic leukemia.

        As of December 31, 2005, we estimated that it will take approximately two to five years and an investment of approximately $119 million to complete the development of, obtain approval for and commercialize Campath for non-Hodgkin's lymphoma, multiple sclerosis and other cancer and noncancer indications. We estimated that it will take approximately two to five years and an investment of approximately $66 million to complete the development of, obtain approval for and commercialize Clolar for hematologic cancer, solid tumor and additional pediatric acute leukemia indications. We estimated that it will take approximately four years and an investment of approximately $24 million to complete the development of, obtain approval for and commercialize tasidotin.

Exit Activities

        In connection with our acquisition of ILEX Oncology, we initiated an integration plan to consolidate and restructure certain functions and operations, including the relocation or termination of certain ILEX Oncology personnel and the closure of certain of ILEX Oncology's leased facilities. These costs have been recognized as liabilities assumed in connection with the acquisition of ILEX Oncology in accordance with EITF Issue No. 95-3 and are subject to potential adjustments as certain exit activities are confirmed or refined.

        The following table summarizes the liabilities established for exit activities related to our acquisition of ILEX Oncology (amounts in thousands):

	Employee Related Benefits			Closure of Leased Facilities			Other Exit Activities			Total Exit Activities
Recorded at acquisition date	$	4,900		$	216		$	214		$	5,330
Payments in 2004		—			(140	)		(5	)		(145	)
Balance at December 31, 2004		4,900			76			209			5,185
Revision of estimate		939			—			10,808			11,747
Payments in 2005		(5,383	)		(52	)		(3,282	)		(8,717	)
Balance at December 31, 2005	$	456		$	24		$	7,735		$	8,215

        In June 2005, we accrued a $9.8 million liability related to the termination of a development contract we assumed in connection with the acquisition of ILEX Oncology. The payment was recorded as a $6.9 million increase to goodwill, net of tax, and a $9.8 million increase to accrued expenses. In November 2005, we paid $2.1 million of this liability and in January 2006, we paid the remaining $7.7 million.

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

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Acquisition of Physician Services and Analytical Services Business Units of IMPATH

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

        The purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed amounted to $157.5 million, which was allocated to goodwill. We expect that substantially all of the amount allocated to goodwill will be deductible for tax purposes. Pro forma results are not presented for our acquisition of the pathology/oncology testing assets of IMPATH because the acquisition did not have a material effect on our results of operations.

Acquisition of SangStat

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

In-Process Research and Development

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

        In March 2004, we entered into an agreement with PGP, a subsidiary of The Proctor & Gamble Company, under which we granted to PGP an exclusive, worldwide license to develop and market RDP58 for the treatment of gastrointestinal and other disorders. We retained development and commercialization rights to RDP58 in pulmonary and other disorders that were not specifically licensed to PGP and also retained co-promotion rights with PGP in oncology-related disorders, such as chemotherapy-induced diarrhea. In exchange for the grant of the license, PGP paid us an upfront fee, and agreed to make milestone payments and pay royalties on product sales. In December 2005, PGP exercised its option to terminate the agreement and discontinue development. As a result, we recognized $9.0 million of previously deferred revenue in our consolidated statements of operations.

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We are not currently pursuing any internal development of RDP58, and no further internal development is planned for this program.

        Although we received marketing authorization for both the 25mg and 100mg cyclosporine capsules in a European country in March 2004, we terminated our license for cyclosporine capsules effective April 2005.

Exit Activities

        In connection with the acquisition of SangStat, we initiated an integration plan to consolidate and restructure certain functions and operations of SangStat, including the relocation or termination of certain SangStat personnel and the closure of certain of SangStat's leased facilities. These costs have been recognized as liabilities assumed in connection with the purchase of SangStat in accordance with EITF Issue No. 95-3. The following table summarizes the liabilities established for exit activities related to the acquisition of SangStat (amounts in thousands):

	Employee Related Benefits			Closure of Leased Facilities(1)			Other Exit Activities			Total Exit Activities
Recorded at acquisition date	$	7,118		$	2,561		$	49		$	9,728
Revision of estimate		1,315			(233	)		257			1,339
Payments in 2003		(831	)		—			—			(831	)
Balance at December 31, 2003		7,602			2,328			306			10,236
Revision of estimate		(455	)		(320	)		(184	)		(959	)
Payments in 2004		(5,454	)		(1,408	)		(122	)		(6,984	)
Balance at December 31, 2004		1,693			600			—			2,293
Revision of estimate		(589	)		(408	)		—			(997	)
Payments in 2005		(1,079	)		(192	)		—			(1,271	)
Balance at December 31, 2005	$	25		$	—		$	—		$	25

(1)

Includes costs associated with the closure of leased facilities in California, Germany, Spain and Canada.

        We expect to pay employee related benefits and make payments related to leased facilities through the first quarter of 2006.

Pro Forma Financial Summary (Unaudited)

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

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

		For the Years Ended December 31,
		2004		2003
Total revenues		$	2,235,274	$	1,834,907
Net income (loss)		$	43,805	$	(398,708	)
Net income (loss) allocated to Genzyme Stock		$	43,805	$	(236,833	)
Net income (loss) per share allocated to Genzyme Stock:
	Basic	$	0.18	$	(1.00	)
	Diluted	$	0.17	$	(1.00	)
Weighted average shares outstanding:
	Basic		246,028		237,834
	Diluted		252,499		237,834
Net loss allocated to Biosurgery Stock:
	Net loss allocated to Biosurgery Stock			$	(152,651	)
	Net loss per share allocated to Biosurgery Stock—basic and diluted			$	(3.76	)
	Weighted average shares outstanding—basic and diluted				40,630
Net loss allocated to Molecular Oncology Stock:
	Net loss allocated to Molecular Oncology Stock			$	(9,224	)
	Net loss per share allocated to Molecular Oncology Stock			$	(0.54	)
	Weighted average shares outstanding—basic and diluted				16,958

Pro forma results are not presented for the acquisitions of Equal Diagnostics, Bone Care or Verigen for the years ended December 31, 2005 or 2004 because those acquisitions individually, and in the aggregate, did not have a material effect on our results of operations in those periods.

NOTE D.    DISPOSITION OF ASSETS

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

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NOTE E.    DERIVATIVE FINANCIAL INSTRUMENTS

        We had a floating rate capital lease obligation related to our administrative offices in Waltham, Massachusetts that required us to make interest-only lease payments of approximately $2 million per year through October 31, 2005, the end of the lease term. Through October 2005, we used an interest rate swap to mitigate the risk associated with this floating rate lease obligation and designated the swap as a cash flow hedge. Because the critical terms of the swap agreement corresponded to the related lease obligation, there were no amounts of hedge ineffectiveness for any period presented. No gains or losses were excluded from the assessment of hedge effectiveness. Through October 2005, we recorded the differential to be paid or received on the swap as incremental interest expense. On October 31, 2005, we exercised our option to purchase the building and improvements for a purchase price equal to the total amount funded by the lessor of $25.0 million, plus $0.5 million of accrued interest and an insignificant amount of other closing costs. In connection with exercising this option, the interest rate swap was settled. The notional amount of this swap prior to settlement was $25.0 million.

        We periodically enter into foreign currency forward contracts, all of which have a maturity of less than three years. These contracts have not been designated as hedges and accordingly, unrealized gains or losses on these contracts are reported in current earnings. The notional settlement value of foreign currency forward contracts outstanding at December 31, 2005 is $85.9 million. At December 31, 2005, these contracts had a fair value of $0.9 million, representing an unrealized gain, which has been recorded in SG&A in our consolidated statement of operations for the year ended December 31, 2005 and in prepaid expenses and other current assets in our consolidated balance sheet as of December 31, 2005. At December 31, 2004, these contracts had a fair value of $4.1 million, repesenting an unrealized loss, which has been recorded in SG&A in our consolidated statements of operations for the year ended December 31, 2004 and in accrued expenses and in our consolidated balance sheet as of December 31, 2004.

NOTE F.    ACCOUNTS RECEIVABLE

        Our trade receivables primarily represent amounts due from distributors, healthcare service providers, and companies and institutions engaged in research, development or production of pharmaceutical and biopharmaceutical products. We perform credit evaluations of our customers on an ongoing basis and generally do not require collateral. We state accounts receivable at fair value after reflecting certain allowances. The allowances were $46.1 million at December 31, 2005 and $42.4 million at December 31, 2004.

NOTE G.    INVENTORIES

		December 31,
		2005		2004
		(Amounts in thousands)
Raw materials		$	76,466	$	65,000
Work-in-process			90,629		79,747
Finished goods			130,557		148,911
	Total	$	297,652	$	293,658

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        In December 2005, we recorded $16.9 million in charges to write off the cost of unsuccessful production runs of Cerezyme and Myozyme that occurred at our Allston Landing manufacturing plant.

        In connection with our acquisition of Bone Care in July 2005, we acquired $17.5 million of inventory, including $1.9 million of raw materials, $7.4 million of work-in-process and $8.2 million of finished goods.

        In connection with our acquisition of ILEX Oncology in December 2004, we acquired $17.0 million of inventory, including $0.8 million of raw materials and $16.2 million of finished goods. In December 2005, we recorded a charge of $11.2 million to write off expiring Clolar inventory acquired in connection with the acquisition of ILEX Oncology.

        We capitalize inventory produced for commercial sale, which may result in the capitalization of inventory prior to regulatory approval. If a product is not approved for sale, it would likely result in the write off of the inventory and a charge to earnings. Our total inventories included $18.8 million at December 31, 2005 and $5.6 million at December 31, 2004, of Myozyme inventory, primarily consisting of finished goods, which has not yet been approved for sale. We submitted marketing applications for Myozyme in the European Union in December 2004 and in the United States in July 2005.

NOTE H.    PROPERTY, PLANT AND EQUIPMENT

	December 31,
	2005			2004
	(Amounts in thousands)
Plant and equipment	$	771,971		$	657,697
Land and buildings		547,082			473,400
Leasehold improvements		206,242			203,204
Furniture and fixtures		41,503			44,029
Construction-in-progress		308,411			429,474
		1,875,209			1,807,804
Less accumulated depreciation		(554,396	)		(497,548	)
Property, plant and equipment, net	$	1,320,813		$	1,310,256

        Our total depreciation expense was $103.0 million in 2005, $95.6 million in 2004 and $80.2 million in 2003.

        We capitalize certain computer software and software development costs incurred in connection with developing or obtaining computer software for internal use. Capitalized software costs are included in property, plant and equipment, net on our consolidated balance sheet and amortized on a straight-line basis over the estimated useful lives of the software, which generally do not exceed 5 years. Net capitalized software and development costs were $19.1 million at December 31, 2005 and $11.8 million at December 31, 2004.

        We have non-cancelable capital lease obligations related to our new corporate headquarters, certain administrative offices and certain machinery and equipment. We had a capital lease obligation related to our administrative offices in Waltham, Massachusetts that required us to make interest-only lease payments of approximately $2 million per year through October 31, 2005, the end of the lease

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term. On October 31, 2005, we exercised our option to purchase the building and improvements for a purchase price equal to the total amount funded by the lessor of $25.0 million, plus $0.5 million of accrued interest and an insignificant amount of other closing costs.

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

	December 31, 2005
Building – Corporate headquarters in Cambridge, Massachusetts	$	130,689
Less accumulated depreciation		(19,412	)
Assets subject to capital leases, net	$	111,277

        We capitalize costs we have incurred in validating the manufacturing process for products which have reached technological feasibility. As of December 31, 2005, capitalized validation costs, net of accumulated depreciation, were $15.8 million. We have capitalized the following amounts of interest costs incurred in financing the construction of our manufacturing facilities (amounts in millions):

For the Years Ended December 31,
2005		2004		2003
$	8.9	$	8.7	$	6.2

        The estimated cost of completion for assets under construction as of December 31, 2005 is $575.4 million.

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

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NOTE I.    GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

        The following tables contains the changes in our net goodwill during the years ended December 31, 2005 and 2004 (amounts in thousands):

	As of December 31, 2004		Acquisitions		Adjustments			As of December 31, 2005
Renal (1)	$	76,753	$	227,739	$	—		$	304,492
Therapeutics		354,709		—		—			354,709
Transplant (2)		132,111		—		(3,600	)		128,511
Biosurgery		7,585		—		—			7,585
Diagnostics/Genetics (3,4)		240,005		5,344		(7	)		245,342
Other (4,5)		479,753		—		(32,825	)		446,928
Goodwill	$	1,290,916	$	233,083	$	(36,432	)	$	1,487,567

	As of December 31, 2003		Acquisitions		Adjustments			As of December 31, 2004
Renal	$	76,753	$	—	$	—		$	76,753
Therapeutics		354,709		—		—			354,709
Transplant (2)		132,550		—		(439	)		132,111
Biosurgery		7,585		—		—			7,585
Diagnostics/Genetics (3,4,6)		49,249		190,751		5			240,005
Other (4,5)		1,101		478,539		113			479,753
Goodwill	$	621,947	$	669,290	$	(321	)	$	1,290,916

(1)

Includes the goodwill resulting from the acquisition of Bone Care in July 2005.

(2)

In 2005, includes $3.6 million of adjustments to SangStat's goodwill related to the reversal of a tax accrual. In 2004, includes adjustments related to the finalization of the purchase price allocation and revisions of estimates of liabilities established to exit activities as a result of our acquisition of SangStat in September 2003.

(3)

Includes the goodwill resulting from the acquisition of Equal Diagnostics in July 2005.

(4)

The adjustments to goodwill include foreign currency revaluation adjustments for goodwill denominated in foreign currencies.

(5)

Includes the goodwill resulting from the acquisition of ILEX Oncology in December 2004. We recorded $32.9 million of adjustments to the ILEX Oncology goodwill in 2005, mainly consisting of a decrease of $40.9 million related to a revision of estimate of deferred taxes, offset by an increase of $8.0 million primarily related to revisions of estimates of liabilities related to exit activities, of which $6.9 million, net of tax, represents a charge to terminate a development contract.

(6)

Includes $157.5 million of goodwill resulting from our acquisition of certain of the pathology/oncology testing assets of IMPATH in May 2004 and $33.2 million of goodwill resulting from our acquisition of substantially all of the assets of Alfigen in February 2004.

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        We are required to perform impairment tests related to our goodwill under SFAS No. 142 annually, which we perform in the third quarter, and whenever events or changes in circumstances suggest that the carrying value of an asset may not be recoverable. We completed the annual impairment tests for our $1.5 billion of net goodwill in the third quarter of 2005, as provided by SFAS No. 142, and determined that none of the goodwill allocated to our reporting units was impaired and, therefore, no impairment charges were required.

Other Intangible Assets

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

		As of December 31, 2005							As of December 31, 2004
		Gross Other Intangible Assets		Accumulated Amortization			Net Other Intangible Assets		Gross Other Intangible Assets		Accumulated Amortization			Net Other Intangible Assets
Technology (1)		$	1,503,963	$	(307,503	)	$	1,196,460	$	1,011,068	$	(206,194	)	$	804,874
Patents			183,360		(71,393	)		111,967		183,360		(57,403	)		125,957
Trademarks			60,227		(26,080	)		34,147		60,227		(20,754	)		39,473
License fees			44,777		(16,206	)		28,571		44,789		(12,592	)		32,197
Distribution rights (2)			195,299		(43,108	)		152,191		14,075		(7,038	)		7,037
Customer lists (3)			108,083		(41,861	)		66,222		83,578		(25,444	)		58,134
Other			2,078		(742	)		1,336		11,420		(9,693	)		1,727
	Total	$	2,097,787	$	(506,893	)	$	1,590,894	$	1,408,517	$	(339,118	)	$	1,069,399

(1)

Includes additions in 2005 to technology valued at:

•

$11.9 million resulting from the acquisition of Verigen in February 2005. The value assigned to this technology will be amortized over its estimated useful life of 10 years;



•

$480.5 million resulting from the acquisition of Bone Care in July 2005. The value assigned to this technology will be amortized over its estimated useful life of 16 years; and



•

$5.0 million resulting from the acquisition of Avigen's gene therapy technology in December 2005. The value assigned to this technology will be amortized over its estimated useful life of 15 years.

(2)

Includes an additional $180.9 million in intangible assets resulting from our reaquisition of the Synvisc sales and marketing rights from Wyeth in January 2005.

(3)

Includes additions in 2005 to customer lists valued at:

•

$23.7 million resulting from the acquisition of Bone Care. The value assigned to this customer list will be amortized over its estimated useful life of 1.5 years; and



•

$4.9 million resulting from the acquisition of Equal Diagnostics in July 2005. The values assigned to the acquired customer list and customer database will be amortized over their estimated useful lives, both of which are 7 years.

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

•

$181.6 million for the year ended December 31, 2005;



•

$109.5 million for the year ended December 31, 2004; and



•

$80.3 million for the year ended December 31, 2003.

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

Year Ended December 31,	Estimated Amortization Expense(1)
2006	$	195,757
2007		179,776
2008		180,614
2009		188,914
2010		202,223
Thereafter		643,610

(1)

Includes estimated future amortization expense for the Synvisc distribution rights based on the forecasted future sales of Synvisc and the resulting future contingent payments we will be required to make. These contingent payments will be recorded as intangible assets when the payments are accrued.

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NOTE J.    INVESTMENTS IN MARKETABLE SECURITIES AND STRATEGIC EQUITY INVESTMENTS

Marketable Securities (amounts in thousands):

		December 31,
		2005				2004
		Cost		Market Value		Cost		Market Value
Cash equivalents(1):
	Corporate notes	$	45,816	$	45,816	$	71,339	$	71,345
	Money market funds		34,069		34,069		257,412		257,412
			79,885		79,885		328,751		328,757
Short-term investments:
	Corporate notes		108,539		108,121		18,674		18,866
	U.S. Government agencies		41,256		40,856		38,179		38,134
	Non U.S. Government agencies		8,011		7,864		—		—
	U.S. Treasury notes		37,519		37,105		14,108		13,994
			195,325		193,946		70,961		70,994
Long-term investments:
	Corporate notes		294,738		291,090		234,501		232,992
	U.S. Government agencies		187,713		185,256		143,756		142,593
	Non U.S. Government agencies		—		—		11,912		11,929
	Fixed income fund		254		244		253		253
	U.S. Treasury notes		127,569		126,606		141,378		140,495
			610,274		603,196		531,800		528,262
Total cash equivalents, short- and long-term investments		$	885,484	$	877,027	$	931,512	$	928,013
Investments in equity securities		$	104,934	$	135,930	$	98,836	$	150,253

(1)

Cash equivalents are included as part of cash and cash equivalents on our consolidated balance sheets.

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

	December 31,
	2005				2004
	Cost		Market Value		Cost		Market Value
Within 1 year	$	275,210	$	273,831	$	399,712	$	399,751
1-2 years		211,832		209,918		236,312		235,433
2-10 years		398,442		393,278		295,488		292,829
	$	885,484	$	877,027	$	931,512	$	928,013

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

        In April 2005, we sold our entire investment in the common stock of Theravance for $4.5 million in cash. Our investment in Theravance had a zero cost basis and, as a result, we recorded a gain of $4.5 million in gains (losses) on investments in equity securities in our consolidated statements of operations in April 2005 related to this sale.

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

        At December 31, 2005, our stockholders' equity includes $32.5 million of unrealized gains and $1.5 million of unrealized losses related to our investments in strategic equity securities. None of these unrealized losses have been below our cost basis for more than a year.

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

	December 31,
	2005		2004
Unrealized holding gains	$	32.7 million	$	57.1 million
Unrealized holding losses	$	10.1 million	$	9.2 million

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        The following table shows the strategic investments in equity securities of unconsolidated entities that we hold as of December 31, 2005 (amounts in thousands):

	December 31, 2005
	Adjusted Cost		Market Value		Unrealized Gain/(Loss)
ABIOMED, Inc. (1)	$	12,185	$	21,323	$	9,138
BioMarin Pharmaceutical Inc. (1,2)		18,000		22,666		4,666
Cambridge Antibody Technology Group plc (1,4)		41,012		55,519		14,507
Cortical Pty Ltd. (3,5)		736		736		—
Dyax Corp. (1)		1,096		3,003		1,907
GTC Biotherapeutics, Inc. (1)		5,811		8,077		2,266
MacroGenics, Inc. (3)		2,138		2,138		—
ProQuest Investments II, L.P. (3)		3,436		3,436		—
RenaMed Biologics, Inc. (3)		2,500		2,500		—
ViaCell, Inc. (1)		5,000		3,512		(1,488	)
Private Equity Funds (6)		13,020		13,020		—
Total at December 31, 2005	$	104,934	$	135,930	$	30,996

	December 31, 2004
	Adjusted Cost		Market Value		Unrealized Gain/(Loss)
	(Amounts in thousands)
Total at December 31, 2004	$	98,836	$	150,253	$	51,417

(1)

Marketable equity securities that have readily determinable market values are stated at market value. We record temporary unrealized gains and losses related to these investments in other comprehensive income.

(2)

In January 2006, we sold our entire investment of 2.1 million shares in the common stock of BioMarin for net cash proceeds of $24.4 million and recorded a realized gain of $6.5 million in January 2006 in connection with this sale.

(3)

Equity securities without readily determinable market values and for which we do not exercise significant influence are stated at cost and are periodically reviewed for impairment.

(4)

Our investment in Cambridge Antibody Technology Group plc, or CAT, is denominated in British pounds sterling. We translated this investment into U.S. dollars at the current exchange rate on December 31, 2005.

(5)

Our investment in Cortical Pty Ltd. is denominated in Australian dollars. We translated this investment into U.S. dollars at the current exchange rate on December 31, 2005.

(6)

Our investments in private equity funds are stated at cost, which approximates market value.

        In addition to holding strategic equity investments in BioMarin, CAT, Dyax, GTC, MacroGenics and RenaMed, we also collaborate with or provide services to these companies. Our relationships with

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CAT, Dyax, GTC and RenaMed are described below. Our relationships with BioMarin and MacroGenics are described in Note K., "Equity Method Investments."

CAT

        We have a strategic alliance with CAT, a UK-based biotechnology company for the development and commercialization of human monoclonal antibodies directed against transforming growth factor (TGF)-beta. Prior to September 2003, we owned 307,982 ordinary shares of CAT, which were purchased upon entering into the initial collaboration in September 2000. We purchased an additional 1.8 million ordinary shares of CAT in September 2003 for $15.8 million and an additional 2.5 million ordinary shares in October 2003 for $22.3 million. Following these purchases and as of December 31, 2005, we hold approximately 11% of the outstanding shares of CAT.

Dyax Corp.

        In October 1998, we entered into a collaboration agreement with Dyax to develop and commercialize DX-88, one of Dyax's proprietary compounds for the treatment of chronic inflammatory diseases. In May 2002, we restructured our collaboration agreement with Dyax. In 2003, we acquired a 49.99% interest in Dyax-Genzyme LLC, formerly known as Kallikrein LLC, a joint venture with Dyax for the development of DX-88 for hereditary angioedema, or HAE, and other chronic inflammatory diseases. As a result of our application of FIN 46, we have consolidated the results of Dyax-Genzyme LLC. Our consolidated balance sheet as of December 31, 2005 includes assets related to Dyax-Genzyme LLC, which are not significant and substantially all of which are lab equipment net of their associated accumulated depreciation. We have recorded Dyax's portion of this joint venture's losses as minority interest in our consolidated statements of operations.

        Under the terms of the collaboration agreement, both companies will share development costs of DX-88 for HAE going forward. In December 2005, we paid Dyax a $3.0 million milestone payment after dosing the first patient in a pivotal clinical trial of DX-88 for HAE. In addition, we will also be obligated to pay Dyax potential milestone payments of $10.0 million for the first product derived from DX-88 that is approved by the FDA.

        Dyax will also receive milestone payments from us of up to $15.0 million if DX-88 is approved in additional indications. Contingent upon successful development and receipt of regulatory approvals, Dyax-Genzyme LLC will market the product worldwide. We and Dyax will share equally in profits from sales of DX-88 for HAE and/or other chronic inflammatory diseases. In March 2003, we declined to exercise our option to acquire rights to DX-88 for surgical indications.

        In May 2002, we extended to Dyax a $7.0 million line of credit. Dyax issued a senior secured promissory note in the principal amount of $7.0 million to us under which it can request periodic advances of not less than $250,000 in principal, subject to certain conditions. Advances under this note were due, together with any accrued but unpaid interest, in May 2005. Dyax exercised its right to extend the maturity of the note from May 2005 to May 2007. As of December 31, 2005, Dyax had drawn $7.0 million under the note, which we have recorded as a note receivable-related party in our consolidated balance sheets. Advances under this note bear interest at the prime rate plus 2%, which was 9.25% at December 31, 2005. We consider Dyax to be a related party because the chairman and

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chief executive officer of Dyax is a member of our board of directors. As of December 31, 2005, we hold approximately 1% of the outstanding shares of Dyax common stock.

GTC

        On April 4, 2002, GTC purchased approximately 2.8 million shares of GTC common stock held by us for an aggregate consideration of $9.6 million. We received $4.8 million in cash and a promissory note for the remaining amount. In April 2005 we received $2.4 million in cash from GTC in partial payment of this note and in January 2006 GTC paid us the remaining $2.4 million. We accounted for our investment in GTC under the equity method of accounting until May 2002, at which point our ownership interest and board representation was reduced below 20% and we ceased to have the ability to exercise significant influence over GTC and accordingly, we began accounting for our investment in GTC under the cost method of accounting.

        The fair market value of our investment in GTC common stock was $8.1 million at December 31, 2005 and $7.5 million at December 31, 2004. As of December 31, 2005, we hold approximately 10% of the outstanding shares of GTC common stock.

        We provide GTC with certain research and development and administrative services and sublease to GTC laboratory and research space. We recognized revenue under the research and development agreement of $2.9 million in 2003. During 2005, we received approximately $1.1 million from GTC under our other agreements. At December 31, 2005, GTC owed us $3.2 million under these agreements, $1.5 million of which they paid in January 2006.

RenaMed

        In June 2005, we made a $2.5 million equity investment in a private financing completed by RenaMed, formerly Nephros Therapeutics, Inc. In September 2005, we entered into a strategic collaboration with RenaMed to develop and commercialize RenaMed's Bio-Replacement Therapy™ for the treatment of acute renal failure. The joint development and commercialization agreement calls for us to share costs and profits of the collaboration equally. We will contribute approximately $23 million of funding through the third quarter of 2006 to support the next stage of clinical development. As of December 31, 2005 we have made payments of $10.0 million towards this funding commitment. We may make additional payments to RenaMed upon completion of certain developmental milestones. These additional payments could total approximately $20 million. Thereafter, the agreement calls for shared program funding, and for us to make potential additional milestone payments to RenaMed upon product approval.

NOTE K.    EQUITY METHOD INVESTMENTS

        Our equity method investments are included in other noncurrent assets in our consolidated balance sheet and totaled $39.2 million at December 31, 2005 and $39.8 million at December 31, 2004.

        The following tables describe:

•

our portion of the net income (losses) of each equity method investment for the periods presented, which we have recorded as income (charges) to equity in income (loss) of equity method investments in our consolidated statements of operations; and

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•

total net income (losses) of each equity method investment for the periods presented.

		Our Portion of the Net Income (Loss) of Our Equity Method Investments									Total Income (Losses) of Our Equity Method Investments
Equity Method Investment
		2005			2004			2003			2005			2004			2003
		(Amounts in millions)									(Amounts in millions)
BioMarin/Genzyme LLC		$	7.1		$	(9.7	)	$	(15.2	)	$	14.0		$	(19.3	)	$	(29.7	)
Peptimmune, Inc			(2.0	)		(1.8	)		(0.8	)		(18.9	)		(14.6	)		(7.5	)
Therapeutic Human Polyclonals, Inc.			(0.9	)		(1.5	)		(0.4	)		(3.4	)		(3.9	)		(3.4	)
MG Biotherapeutics LLC			(4.0	)		(2.5	)		—			(7.9	)		(5.0	)		—
Other			—			(0.1	)		(0.3	)		—			(0.2	)		(0.3	)
	Totals	$	0.2		$	(15.6	)	$	(16.7	)	$	(16.2	)	$	(43.0	)	$	(40.9	)

        Condensed financial information for our equity method investees is summarized below:

	For the Years Ended December 31,
	2005			2004			2003
	(Amounts in thousands)
Revenue	$	76,698		$	42,583		$	11,540
Gross profit		52,185			27,630			6,816
Operating expenses		(62,361	)		(71,321	)		(47,903	)
Net loss		(16,251	)		(43,016	)		(40,907	)

	December 31,
	2005		2004
	(Amounts in thousands)
Current assets	$	103,793	$	109,097
Noncurrent assets		3,779		6,184
Current liabilities		12,441		19,351
Noncurrent liabilities		647		1,292

        The following describes our investments in BioMarin/Genzyme LLC and MG Biotherapeutics LLC. Our investments in Peptimmune and Therapeutic Human Polyclonals, Inc. are not significant.

BioMarin/Genzyme LLC

        In September 1998, we and BioMarin formed a joint venture, BioMarin/Genzyme LLC, to develop and commercialize Aldurazyme, a recombinant form of the human enzyme alpha-L-iduronidase, used to treat an LSD known as MPS I. BioMarin/Genzyme LLC is owned 50% by BioMarin and one of its wholly owned subsidiaries, which we refer to collectively as the BioMarin Companies, and 50% by us. In connection with the formation of BioMarin/Genzyme LLC, we, the BioMarin Companies and BioMarin/Genzyme LLC entered into a collaboration agreement under which we and the BioMarin Companies granted to BioMarin/Genzyme LLC a worldwide, exclusive, irrevocable, royalty-free right and license or sublicense to develop, manufacture and market Aldurazyme for the treatment of MPS I and other alpha-L-iduronidase deficiencies. All program-related costs for BioMarin/Genzyme LLC are

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equally funded by BioMarin, on behalf of the BioMarin Companies, and us. We and BioMarin are required to make monthly capital contributions to BioMarin/Genzyme LLC to fund budgeted operating costs. If either BioMarin or Genzyme fails to make all or two or more of the monthly capital contributions, and the other party does not exercise its right to terminate the collaboration agreement or compel performance of the funding obligation, the defaulting party's (or, in the case of default by BioMarin, the BioMarin Companies') percentage interest in BioMarin/Genzyme LLC and future funding responsibility will be adjusted proportionately. BioMarin and Genzyme did not make any capital contributions to BioMarin/Genzyme LLC in 2005 because BioMarin/Genzyme LLC had sufficient cash to meet its financial obligations.

        On April 30, 2003, the FDA granted marketing approval for Aldurazyme as an enzyme replacement therapy for patients with the Hurler and Hurler-Scheie forms of MPS I, and Scheie patients with moderate to severe symptoms. Aldurazyme has been granted orphan drug status in the United States, which generally provides seven years of market exclusivity. On June 11, 2003, the European Commission granted marketing approval for Aldurazyme to treat the non-neurological manifestations of MPS I in patients with a confirmed diagnosis of the disease. Aldurazyme has been granted orphan drug status in the European Union, which generally provides ten years of market exclusivity.

        We are commercializing Aldurazyme on behalf of BioMarin/Genzyme LLC in the United States, Canada, the European Union, Latin America and the Asia Pacific regions. We continue to launch Aldurazyme in additional countries in the European Union, Latin America and the Asia Pacific regions on a country-by-country basis as pricing and reimbursement approvals are obtained. Aldurazyme is manufactured at BioMarin's facility in Novato, California and is sent to either our manufacturing facility in Allston, Massachusetts or to a third-party facility for the final fill-finish process.

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

MG Biotherapeutics LLC

        In June 2004, we entered into a collaboration with Medtronic, Inc. for the development of new treatments for heart disease. One aspect of this collaboration involved the formation of MG Biotherapeutics LLC. In June 2004, we made an initial capital contribution of $10.0 million to MG Biotherapeutics LLC, which is included in other noncurrent assets in our consolidated balance sheets as of December 31, 2005 and 2004.

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NOTE L.    ACCRUED EXPENSES

		December 31,
		2005		2004
		(Amounts in thousands)
Compensation		$	147,089	$	116,328
Rebates			50,304		33,464
Bank overdraft			49,035		31,085
Other			183,604		163,186
	Total	$	430,032	$	344,063

NOTE M.    LONG-TERM DEBT AND LEASES

Long-Term Debt and Capital Lease Obligations

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

	December 31,
	2005			2004
1.25% convertible senior notes due December 2023	$	690,000		$	690,000
Revolving credit facility maturing in December 2006		—			100,000
Notes payable		9,884			369
Capital lease obligations		121,420			150,125
	$	821,304		$	940,494
Less current portion		(5,652	)		(129,503	)
Noncurrent portion	$	815,652		$	810,991

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

2006		2007		2008		2009		2010		After 2010
$	1.2	$	0.7	$	691.0	$	1.1	$	1.1	$	4.8

1.25% Convertible Senior Notes

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

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

•

if the closing sale price of Genzyme Stock for at least 20 consecutive trading days in the 30 consecutive trading day period ending on the trading day immediately preceding the day the

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notes are surrendered for conversion exceeds 120% of the conversion price in effect on that 30^th trading day;

•

during the five consecutive trading day period immediately following any 10 consecutive trading day period (the "Note Measurement Period"), if the trading price per $1,000 principal amount of notes on each trading day during the Note Measurement Period was less than 95% of the conversion value of the notes on such trading day, unless the notes are surrendered after December 1, 2018 and the closing sale price of Genzyme Stock on the trading day immediately preceding the day the notes are surrendered is greater than 100% but equal to or less than 120% of the conversion price then in effect;



•

if specified corporate transactions have occurred, as provided in the indenture and terms of the note; or



•

if we redeem the notes. We have the right to redeem the notes for cash, in whole or in part, at our sole option on and after December 1, 2008.

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

        Interest expense related to these notes was $11.9 million in 2005 and $12.0 million in 2004. These amounts include $3.2 million in 2005 and $3.3 million in 2004 for amortization of debt offering costs. The fair value of these notes was $781.0 million at December 31, 2005 and $729.7 million at December 31, 2004.

Revolving Credit Facility

        In December 2003, we entered into a three year $350.0 million revolving credit facility, maturing in December 2006. As of December 31, 2004, $100.0 million in principal remained outstanding under this facility. In January 2005, we repaid the entire $100.0 million in principal outstanding under the credit facility. In June 2005, we drew down $350.0 million under this facility to finance a portion of the cash consideration for our acquisition of Bone Care. In August 2005, we repaid $290.0 million in principal and in September 2005, we repaid the remaining $60.0 million in principal drawn under our revolving credit facility. As of December 31, 2005, no amounts were outstanding under our revolving credit facility. Borrowings under this credit facility bear interest at LIBOR plus an applicable margin. The terms of our revolving credit facility include various covenants, including financial covenants that require us to meet minimum liquidity and interest coverage ratios and to meet maximum leverage ratios. We currently are in compliance with these covenants.

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Notes Payable

        Notes payable were assumed as follows:

•

$10.0 million in connection with our acquisition of Equal Diagnostics in July 2005 which bear interest at 3.86% and are payable over eight years in equal annual installments commencing on March 31, 2007;



•

$20.0 million in connection with our acquisition of ILEX Oncology in December 2004 which was subsequently paid in December 2004; and



•

an aggregate $7.0 million in connection with our acquisition of SangStat in September 2003. We paid $2.0 million in September 2003 and $5.0 million in December 2004 to satisfy these notes.

Capital Leases

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

        We had a capital lease obligation related to our administrative offices in Waltham, Massachusetts that required us to make interest-only lease payments of approximately $2.0 million per year through October 31, 2005, the end of the lease term. On October 31, 2005, we exercised our option to purchase the building and improvements for a purchase price equal to the total amount funded by the lessor of $25.0 million, plus $0.5 million of accrued interest and an insignificant amount of other closing costs.

        Our capital lease obligation related to our corporate headquarters, which we began to occupy in November 2003, requires us to make monthly payments of $1.3 million, which will be adjusted to $1.6 million in 2013. We have recorded the value of the building and related obligations of $130.7 million in our consolidated balance sheet. The term of the lease is for fifteen years and may be extended at our option for two successive ten-year periods.

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

2006		$	15.4
2007			15.5
2008			15.4
2009			15.4
2010			15.4
Thereafter			133.6
	Total lease payments		210.7
Less: interest			(89.3	)
	Total principal payments		121.4
Less current portion			(4.5	)
	Total	$	116.9

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NOTE M.    LONG-TERM DEBT AND LEASES

Operating Leases

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

For the Years Ended December 31,
2005		2004		2003
$	47.0	$	45.7	$	45.7

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

2006		2007		2008		2009		2010		After 2010		Total
$	48.2	$	39.1	$	34.9	$	26.8	$	22.0	$	128.2	$	299.2

NOTE N.    STOCKHOLDER'S EQUITY

Common Stock

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

•

Genzyme General Division Common Stock = "Genzyme General Stock;"



•

Genzyme Biosurgery Division Common Stock = "Biosurgery Stock;" and



•

Genzyme Molecular Oncology Division Common Stock = "Molecular Oncology Stock."

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

        The following table describes the number of authorized and outstanding shares of our common stock at December 31, 2005 and 2004:

		Outstanding at December 31,
Series
	Authorized	2005	2004
Genzyme Stock, $0.01 par value	690,000,000	259,151,461	249,018,176

Directors' Deferred Compensation Plan

        Each member of our board of directors who is not also one of our employees may defer receipt of all or a portion of the cash compensation payable to him or her as a director and receive either cash or

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stock in the future. Under this plan, the director may defer his or her compensation until his or her services as a director cease or until another date specified by the director.

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

        Distributions are paid in a lump sum or in annual installments for up to five years. Payments begin the year following a director's termination of service or, subject to certain restrictions, in a year elected by the participant. As of December 31, 2005, three of the seven eligible directors had established accounts under this plan, and two of these three directors are currently participating in this plan. We have reserved 105,962 shares of Genzyme Stock to cover distributions credited to stock accounts under the plan. We had not made any stock distributions under this plan as of December 31, 2005. As of December 31, 2005, we have made cash distributions totaling $51,234 to one director under the terms of his deferral agreement.

Preferred Stock

	At December 31, 2005			At December 31, 2004
Series
	Authorized	Issued	Outstanding	Authorized	Issued	Outstanding
Series A Junior Participating, $0.01 par value	3,000,000	—	—	3,000,000	—	—
Undesignated	7,000,000	—	—	7,000,000	—	—
	10,000,000	—	—	10,000,000	—	—

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

•

eliminated the Series B and Series C designations of Genzyme preferred stock; and



•

increased the authorized amount of our Series A Junior Participating Preferred Stock, or Series A Preferred Stock, from 2,000,000 to 3,000,000 shares.

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

Stock Rights

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

        Each share of Series A Preferred Stock will be entitled to a minimum preferential quarterly dividend payment of $1 per share, but will be entitled to an aggregate dividend of 100 times the cash

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dividend declared per share of Genzyme Stock. Each share of Series A Preferred Stock will have 100 votes and will vote together with the Genzyme Stock. In the event of any merger, consolidation or other transaction in which Genzyme Stock is exchanged, each share of Series A Preferred Stock will be entitled to receive 100 times the amount received per share of Genzyme Stock.

        A stock purchase right becomes exercisable either:

•

ten days after our board of directors announces that a third party has become the owner of 15% or more of the total voting power of our outstanding common stock combined; or



•

ten business days after a third party announces or initiates a tender or exchange offer that would result in that party owning 15% or more of the total voting power of our outstanding common stock combined.

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

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Equity Plans

Stock Option Plans

        The purpose of our stock option plans is to attract, retain and motivate our key employees, consultants and directors, upon whose judgment, initiative and efforts the financial success and growth of our business largely depends. Options granted under these plans can be either incentive stock options (ISO) or nonstatutory stock options (NSO), as specified in the plan. The following table contains information about our stock option plans.

			As of December 31, 2005
Plan Name	Group Eligible	Type of Option Granted	Options Reserved for Issuance	Options Outstanding	Options Available for Grant
2004 Equity Incentive Plan (1)	All key employees and consultants	ISO/NSO	16,662,300	6,655,624	10,006,676
2001 Equity Incentive Plan (1)	All key employees and consultants	ISO/NSO	10,949,795	10,851,459	98,336
1997 Equity Incentive Plan (1)	All key employees and consultants, except officers	NSO	14,091,394	13,804,614	286,780
1998 Director Stock Option Plan (2)	Non-employee board members	NSO	686,291	490,297	195,994
Assumed Options (3)			—	543,323	—
			42,389,780	32,345,317	10,587,786

(1)

The exercise price of option grants may not be less than the fair market value at the date of grant. Option grants have a maximum term of ten years. The compensation committee of our board of directors, or its delegate as applicable, determines the terms and conditions of each option grant, including who among eligible persons will receive option grants, the form of payment of the exercise price, the number of shares granted, the vesting schedule and the terms of exercise.

(2)

These options are granted on the date of our annual shareholders meeting or at a director's initial appointment to the board, have an exercise price at fair market value on the date of grant, expire ten years after the initial grant date and vest on the date of the next annual shareholders meeting following the date of grant.

(3)

Consists of options we assumed through the acquisitions of Biomatrix, GelTex, Focal, Inc., Novazyme and ILEX Oncology.

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        The following tables contain information regarding our stock option activity for the years ended December 31, 2003, 2004 and 2005:

		Shares Under Option		Weighted Average Exercise Price		Number Exercisable
GENZYME STOCK:
Outstanding at December 31, 2002		29,862,724		$	29.23	16,002,081
	Granted	7,529,838			45.74
	Exercised	(5,998,204	)		16.84
	Forfeited and cancelled	(1,260,842	)		52.30
	Converted from Biosurgery Stock(1)	401,257			214.76
	Converted from Molecular Oncology Stock(1)	198,855			141.97
Outstanding at December 31, 2003		30,733,628			37.95	17,779,047
	Granted	9,051,690			43.66
	Exercised	(4,663,495	)		25.41
	Forfeited and cancelled	(977,102	)		55.99
Outstanding at December 31, 2004		34,144,721			40.66	20,616,197
	Granted	8,213,024			63.08
	Exercised	(9,283,230	)		33.89
	Forfeited and cancelled	(729,198	)		61.81
Outstanding at December 31, 2005		32,345,317		$	47.71	17,842,706

		Shares Under Option		Weighted Average Exercise Price		Number Exercisable
BIOSURGERY STOCK:
Outstanding at December 31, 2002		8,142,030		$	10.65	4,734,922
	Granted	58,550			2.10
	Exercised	—			—
	Forfeited and cancelled	(500,364	)		10.27
	Converted to Genzyme Stock	(7,700,216	)		10.62
Outstanding at December 31, 2003, 2004 and 2005		—

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		Shares Under Option		Weighted Average Exercise Price		Number Exercisable
MOLECULAR ONCOLOGY STOCK:
Outstanding at December 31, 2002		3,551,039		$	7.97	1,990,842
	Granted	39,000			2.49
	Exercised	(5,680	)		2.33
	Forfeited and cancelled	(153,583	)		7.24
	Converted to Genzyme Stock	(3,430,776	)		7.97
Outstanding at December 31, 2003, 2004 and 2005		—

(1)

In connection with the elimination of our tracking stock structure, we converted options and warrants to purchase shares of Biosurgery Stock and options to purchase shares of Molecular Oncology Stock into options and warrants to purchase shares of Genzyme Stock. While the issuance of the replacement options caused a new measurement date, the resulting intrinsic value was not significant.

        The following table contains information regarding the range of option prices for Genzyme Stock as of December 31, 2005:

		Weighted Average Remaining Contractual Life			Exercisable
Range Of Exercise Prices	Number Outstanding as of 12/31/05		Weighted Average Exercise Price		Number Exercisable as of 12/31/05	Weighted Average Exercise Price
$1.75 – $29.44	4,468,456	3.31	$	23.21	4,401,229	$	23.22
29.49 – 43.48	4,164,502	6.39		33.49	2,903,282		33.38
43.49 – 46.24	10,706,764	7.89		45.01	4,691,288		45.25
46.25 – 53.47	4,319,182	5.71		52.26	3,869,497		52.68
53.57 – 74.86	8,252,683	9.19		62.61	1,608,722		61.59
74.89 – 2,356.12	433,730	4.90		172.16	368,688		183.83
$1.75 – $2,356.12	32,345,317	7.07	$	47.71	17,842,706	$	43.88

Employee Stock Purchase Plan

        Our 1999 Employee Stock Purchase Plan allows employees to purchase our stock at a discount. Under this plan, the purchase price per share of Genzyme Stock is 85% of the lower of the fair market value of Genzyme Stock at the beginning of an enrollment period or on the purchase date. There are 5,829,391 shares of Genzyme Stock authorized for purchase under the plan as of December 31, 2005, of which 1,712,481 remain available. We place limitations on the number of shares of stock that can be purchased under the plan in a given year.

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

Shares Issued	Genzyme Stock	Biosurgery Stock	Molecular Oncology Stock
2003	970,496	202,151	84,143

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2004	1,288,424	—	—
2005	852,712	—	—
Available for purchase as of December 31, 2005	1,712,481	—	—

Stock Compensation Plans

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

Designated Shares

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

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

Notes Receivable from Shareholders

        In connection with our acquisition of Biomatrix, we assumed notes receivable from certain former employees, directors, and consultants of Biomatrix. The notes are full-recourse promissory notes that accrue interest at rates ranging from 5.30% to 7.18% and mature at various dates from May 2007 through September 2009, at which point the outstanding principal and accrued interest for each note will become payable. As of December 31, 2005, there is a total of $14.4 million of outstanding principal and accrued interest for these notes, which we recorded in shareholders' equity because the notes were originally received in exchange for the issuance of stock.

NOTE O.    COMMITMENTS AND CONTINGENCIES

Legal Proceedings

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

        Four lawsuits have been 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 is a purported class action on behalf of holders of Biosurgery Stock.

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The first case, filed in Massachusetts Superior Court in May 2003, alleged a breach of the implied covenant of good faith and fair dealing in our charter and a breach of our board of directors' fiduciary duties. The plaintiff in this case sought an injunction to adjust the exchange ratio for the tracking stock exchange. The Court dismissed the complaint in November 2003, but the plaintiff has appealed this dismissal. This appeal was argued before the Massachusetts Appeals Court in March 2005 and we are awaiting the Appeals Court's ruling. Two substantially similar cases were filed in Massachusetts Superior Court in August and October 2003. These cases were consolidated in January 2004, and in July 2004, the consolidated case was stayed pending disposition of a fourth case, which was filed in the United States District Court for the Southern District of New York in June 2003. The complaint initially alleged violations of federal securities laws, common law fraud, and a breach of the merger agreement with Biomatrix in addition to the state law claims contained in the other cases. The plaintiffs initially sought an adjustment to the exchange ratio, the rescission of the acquisition of Biomatrix, and unspecified compensatory damages. In November 2005, the plaintiffs in this case dropped all of the claims alleged in the initial complaint relating to the initial issuance of Biosurgery Stock and the acquisition of Biomatrix, and narrowed the putative class to include only those individuals who held Biosurgery Stock on May 8, 2003. We have filed a motion to dismiss the amended complaint and to oppose the class certification. Discovery in this case has been put on hold pending resolution of these motions. We believe each of these cases is without merit and continue to defend against them vigorously.

        On March 27, 2003, the Office of Fair Trading, or OFT, in the United Kingdom issued a decision against our wholly-owned subsidiary, Genzyme Limited, finding that Genzyme Limited held a dominant position and abused that dominant position with no objective justification by pricing Cerezyme in a way that excludes other delivery/homecare service providers from the market for the supply of home delivery and homecare services to Gaucher patients being treated with Cerezyme. In conjunction with this decision, the OFT imposed a fine on Genzyme Limited and required modification to its list price for Cerezyme in the United Kingdom. Genzyme Limited appealed this decision to the Competition Appeal Tribunal. On May 6, 2003, the Tribunal issued an order that stayed the OFT's decision, but required Genzyme Limited to provide a homecare distributor a discount of 3% per unit during the appeal process. The Tribunal issued its judgment on Genzyme Limited's appeal on March 11, 2004, rejecting portions of the OFT's decision and upholding others. The Tribunal found that the list price of Cerezyme should not be reduced, but that Genzyme Limited must negotiate a price for Cerezyme that will allow homecare distributors an appropriate margin. The Tribunal also reduced the fine imposed by the OFT for violation of U.K. competition laws. In response to the Tribunal's decision, we recorded an initial liability of approximately $11 million in our 2003 financial statements and additional liabilities totaling approximately $2 million during 2004 and 2005. Genzyme Limited and the OFT were unable to negotiate a price for Cerezyme for homecare distributors and, as a result, on September 29, 2005, the Tribunal issued a ruling establishing the discount to be provided by Genzyme Limited to homecare distributors at 7.2%, which approximates the figure used to calculate the initial liability of approximately $11 million we recorded in 2003, and the additional liabilities of approximately $2 million we recorded in 2004 and 2005. Genzyme Limited has decided not to appeal this decision.

        We are not able to predict the outcome of the pending legal proceedings listed here, or other legal proceedings, or estimate the amount or range of any reasonably possible loss we might incur if we do not prevail in the final, non-appealable determinations of such matters. Therefore, except for the liabilities recorded in connection with the Tribunal's decision regarding Cerezyme pricing in the United Kingdom, we have no current accruals for these potential contingencies. We cannot provide you with assurance that the legal proceedings listed here, or other legal proceedings, will not have a material adverse impact on our financial condition or results of operations.

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NOTE P.    INCOME TAXES

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

		For the Years Ended December 31,
		2005			2004			2003
		(Amounts in thousands)
Domestic		$	558,434		$	103,470		$	(41,764	)
Foreign			70,485			124,226			46,819
Total		$	628,919		$	227,696		$	5,055
Currently payable:
	Federal	$	105,542		$	51,742		$	42,928
	State		33,804			11,769			8,107
	Foreign		32,784			32,611			14,611
Total			172,130			96,122			65,646
Deferred:
	Federal		32,591			44,423			5,738
	State		(19,282	)		(2,255	)		118
	Foreign		1,991			2,879			1,145
Total			15,300			45,047			7,001
Provision for income taxes		$	187,430		$	141,169		$	72,647

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

	For the Years Ended December 31,
	2005		2004		2003
	(Amounts in thousands)
Tax provision at U.S. statutory rate	35.0	%	35.0	%	35.0	%
State taxes, net	1.6		2.8		114.0
Extra-territorial income	(2.8	)	(7.1	)	(221.0	)
Domestic manufacturing deduction	(1.2	)	—		—
Goodwill impairment	—		—		711.7
Charge for purchased research and development	1.2		39.1		1,094.0
Benefit of tax credits	(4.1	)	(4.7	)	(343.3	)
Foreign rate differential	0.1		(4.4	)	(13.4	)
Other	—		1.3		60.1
Effective tax rate	29.8	%	62.0	%	1,437.1	%

        Our effective tax rates for 2005, 2004 and 2003 varied from the U.S. statutory rate as a result of:

•

our provision for state income taxes;



•

the tax benefits from export sales;



•

the tax benefits from domestic production activities;

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•

the impact of the write off of nondeductible goodwill in 2003;



•

benefits related to tax credits; and



•

the foreign rate differential.

Our effective tax rate in each period was impacted by non-deductible charges for IPR&D of:

•

$22.2 million in 2005, of which $9.5 million was recorded in the first quarter of 2005 in connection with our acquisition of Verigen and $12.7 million was recorded in the third quarter of 2005 related to our acquisition of Bone Care;



•

$254.5 million in 2004, all of which was recorded in December 2004 in connection with our acquisition of ILEX Oncology; and



•

$158.0 million in 2003, all of which was recorded in September 2003 in connection with our acquisition of SangStat.

        In addition, our overall tax rate has changed significantly due to fluctuations in our income before taxes, which was $628.9 million in 2005, $227.7 million in 2004 and $5.1 million in 2003.

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

		December 31,
		2005			2004
		(Amounts in thousands)
Deferred tax assets:
	Net operating loss carryforwards	$	94,774		$	149,106
	Tax credits		12,665			30,245
	Realized and unrealized capital (gains) losses		4,984			(3,575	)
	Inventory		12,448			4,730
	Intercompany profit in inventory eliminations		56,269			42,559
	Reserves, accruals and other		37,493			52,883
	Gross deferred tax assets		218,633			275,948
	Valuation allowance		—			(10,268	)
	Net deferred tax assets		218,633			265,680
Deferred tax liabilities:
	Depreciable assets		1,600			(22,045	)
	Deferred gain		(898	)		(898	)
	Intangible assets		(384,504	)		(308,149	)
	Net deferred tax liabilities	$	(165,169	)	$	(65,412	)

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

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        At December 31, 2005, we had for U.S. income tax purposes, net operating loss carryforwards of $268.7 million and tax credit carryforwards of $12.7 million. Our net operating loss carryforwards expire between 2009 and 2023 and the tax credits expire between 2011 and 2025. Ownership changes, as defined under the Internal Revenue Code, may have limited the amount of net operating loss carryforwards which may be utilized annually to offset future taxable income. For foreign purposes, we had net operating loss carryforwards of $10.8 million in 2005, which carry forward indefinitely.

        At December 31, 2004, we had a valuation allowance of $10.2 million. In 2005, we wrote off the corresponding deferred tax asset and reversed the valuation allowance.

        We are currently under IRS audits for tax years 1996 to 1999, 2002 to 2003 and in certain state and foreign jurisdictions. We believe that we have provided sufficiently for all audit exposures and assessments. 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 reduction of future tax provisions. Any such tax or tax benefit would be recorded upon final resolution of the audits or expiration of the applicable statute of limitations. We believe the settlement of these tax disputes may have a material effect on our financial statements.

NOTE Q.    BENEFIT PLANS

Defined Contribution Plans

        We have four defined contribution plans:

•

the Genzyme Corporation 401(k) Plan, which we refer to as the 401(k) Plan;



•

the Genzyme Surgical Products Corporation Savings and Investment Plan, which we refer to as the GSP Plan;



•

the SangStat Medical Corporation 401(k) Plan, which we refer to as the SangStat Plan; and



•

the Biomatrix, Inc. Retirement Plan, which we refer to as the Biomatrix Plan.

        The 401(k) Plan was established effective January 1, 1988 to provide a long-range program of systematic savings for eligible employees. Employees of Genzyme Corporation as well as our wholly-owned subsidiaries in the United States are eligible to participate in the 401(k) Plan, including employees of the former Deknatel Snowden Pencer, Inc., which we acquired in 1996, who also participate in the GSP Plan, employees of the former Biomatrix, which we acquired in December 2000, who also participate in the Biomatrix Plan and employees of the former SangStat, which we acquired in 2003, who also participate in the SangStat Plan. For 2005, eligible employees could elect, through salary reduction agreements, to have up to 18% or a maximum of $14,000 of their eligible compensation contributed on a pre-tax basis to the 401(k) Plan. We made bi-weekly matching contributions to the 401(k) Plan equal to:

•

100% of the elective contributions made to the 401(k) Plan by each participant to the extent that such elective contributions do not exceed 2% of the participant's eligible compensation for such pay period; and



•

50% of the amount of elective contributions made to the 401(k) Plan by the participant to the extent such elective contributions exceed 2% but do not exceed 4% of the participant's eligible compensation for such pay period.

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

•

$16.0 million in 2005;



•

$13.7 million in 2004; and



•

$10.8 million in 2003.

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

        In September 2003, in connection with the acquisition of SangStat, we terminated the SangStat Plan. In November 2004, we received approval for the termination from the IRS, at which time all participants in the SangStat Plan became fully vested in their account balances and had the option of receiving a ditribution, less applicable taxes and penalties, or transferring their balance to another qualified fund. As of December 31, 2005, the SangStat Plan had not been fully liquidated.

Defined Benefit Plans

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

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

	December 31,
	2005			2004
Change in benefit obligation:
Projected benefit obligation, beginning of year	$	53,889		$	40,630
Service cost		2,983			2,477
Interest cost		2,761			2,316
Plan participants' contributions		1,209			1,030
Actuarial loss		11,707			4,176
Foreign currency exchange rate changes		(6,477	)		3,715
Benefits paid		(1,287	)		(455	)
Projected benefit obligation, end of year	$	64,785		$	53,889
Change in plan assets:
Fair value of plan assets, beginning of year	$	40,573		$	31,826
Return on plan assets		8,148			3,010
Employer contribution		2,659			2,266
Plan participants' contributions		1,209			1,030
Foreign currency exchange rate changes		(4,667	)		2,793
Benefits paid		(1,170	)		(352	)
Fair value of plan assets, end of year	$	46,752		$	40,573
Benefit obligation in excess of plan assets	$	(18,033	)	$	(13,316	)
Unrecognized net actuarial loss		22,050			18,298
Net amount recognized	$	4,017		$	4,982

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

	December 31,
	2005			2004
Prepaid benefit cost	$	7,809		$	9,153
Accrued benefit liability		(10,265	)		(4,171	)
Accumulated other comprehensive income		6,473			—
Net amount recognized	$	4,017		$	4,982

F-132

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

		December 31,
		2005	2004
Weighted average assumptions:
	Discount rate	4.74%	5.24%
	Rate of compensation increase	3.94%	3.92%

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

		December 31,
		2005	2004	2003
Weighted average assumptions:
	Discount rate	5.23%	5.56%	5.75%
	Rate of return on assets	7.32%	7.09%	6.36%
	Rate of compensation increase	3.92%	3.89%	3.94%

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

	December 31,
	2005			2004			2003
Service cost	$	2,983		$	2,477		$	1,805
Interest cost		2,761			2,316			1,762
Expected return on plan assets		(8,149	)		(3,010	)		(1,326	)
Amortization and deferral of actuarial loss		5,793			876			550
Net pension expense	$	3,388		$	2,659		$	2,791

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

	December 31,
	2005 (1)		2004 (2)
Projected benefit obligation	$	64,785	$	4,269
Accumulated benefit obligation		56,715		3,927
Fair value of plan assets		46,751		—

(1)

As of December 31, 2004, includes our defined pension benefit plan in Germany, which we refer to as our German Pension Plan, and our defined pension benefit plan in the United Kingdom, which we refer to as our U.K. Pension Plan.

(2)

As of December 31, 2004, includes only our German Pension Plan.

F-133

        At December 31, 2005 and 2004, plan assets for our foreign defined pension benefit plans consist primarily of the assets of our U.K. Pension Plan. Defined pension benefit plan assets for our other foreign subsidiaries as of December 31, 2005 and 2004 were not significant.

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

		December 31,
		2005		2004
United Kingdom equity securities		55	%	57	%
Other overseas equity securities		25	%	22	%
Bonds		11	%	10	%
Real estate		5	%	6	%
Other		4	%	5	%
	Total	100	%	100	%

        Our U.K. Pension Plan's benchmark asset allocation strategy is to invest plan assets 60% in U.K. equity securities, 20% in other overseas equity securities, 15% in bonds and 5% in property. The assumption made for the expected return on assets is based on the benchmark allocation strategy for our U.K. Pension Plan. Returns for individual asset categories are derived from market yields at the effective date, together with, in the case of equity-type assets, allowance for the additional future return expected from such assets compared to fixed interest investments.

Contributions

        We expect to contribute approximately $2 million to our U.K. Pension Plan in 2006.

Estimated Future Benefit Payments

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

	Estimated Future Benefit Payments
2006	$	1,028
2007		1,069
2008		1,139
2009		1,200
2010		1,336
2011-2015		8,867

F-134

NOTE R.    SEGMENT INFORMATION

        In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," we present segment information in a manner consistent with the method we use to report this information to our management. Applying SFAS No. 131, we have five reporting segments as described in Note A. under the heading "Summary of Significant Accounting Policies—Business," to these financial statements. As described in Note A. above, effective January 1, 2005, as a result of changes in how we review our business, we reallocated the programs of our former drug discovery and development business unit, formerly reported under the caption "Other," amongst several of our existing reporting segments and business units as follows:

•

our tolevamer research and development program is now included in our Renal reporting segment;



•

our deferitrin (iron chelator) research and development program is now included in our Therapeutics reporting segment;



•

WelChol is now included in our bulk pharmaceuticals business unit and as a result, continues to be reported under the caption "Other;" and



•

our other drug discovery research and development programs are now included in our corporate science activities under the caption "Corporate."

        We have reclassified our 2004 and 2003 segment disclosures to conform to our 2005 presentation.

F-135

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

			For the Years Ended December 31,
			2005			2004			2003
Revenues:
	Renal (1)		$	452,000		$	363,720		$	281,701
	Therapeutics (1)			1,322,034			1,114,919			859,675
	Transplant (1,2)			145,912			151,363			44,320
	Biosurgery (1)			353,176			209,516			253,292
	Diagnostics/Genetics (1)			326,530			279,121			190,735
	Other (1)			133,471			79,537			81,059
	Corporate (1)			1,719			2,969			3,089
		Total	$	2,734,842		$	2,201,145		$	1,713,871
Depreciation and amortization expense:
	Renal (1)		$	66,626		$	28,547		$	27,418
	Therapeutics (1)			14,602			12,394			11,798
	Transplant (1)			30,199			36,199			11,276
	Biosurgery (1)			69,200			32,785			35,481
	Diagnostics/Genetics (1)			26,987			22,094			13,334
	Other (1)			23,455			3,633			2,825
	Corporate (1)			53,551			69,462			58,327
		Total	$	284,620		$	205,114		$	160,459
Equity in income (loss) of equity method investments:
	Renal		$	—		$	—		$	—
	Therapeutics			7,076			(9,853	)		(15,497	)
	Transplant			(893	)		(1,486	)		(449	)
	Biosurgery			—			—			—
	Diagnostics/Genetics			—			—			—
	Other			(3,988	)		(2,485	)		—
	Corporate (3)			(2,044	)		(1,800	)		(797	)
		Total	$	151		$	(15,624	)	$	(16,743	)
Income (loss) before income taxes:
	Renal (1)		$	75,212		$	97,807		$	42,426
	Therapeutics (1)			711,838			586,717			401,098
	Transplant (1)			8,297			(27,093	)		(166,204	)
	Biosurgery (1,4)			11,687			(3,699	)		(160,907	)
	Diagnostics/Genetics (1)			(10,989	)		(15,465	)		8,626
	Other (1)			(90,518	)		(284,153	)		(29,126	)
	Corporate (1,5)			(76,608	)		(126,418	)		(90,858	)
		Total	$	628,919		$	227,696		$	5,055

(1)

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.

F-136

Charges for IPR&D related to these acquisitions are included in segment results in the year of acquisition. Acquisitions completed since January 1, 2003 are:

Acquisition	Date Acquired	Business Segment(s)	IPR&D Charge
Gene therapy assets of Avigen	December 19, 2005	Therapeutics	$7.0 million
Manufacturing operation of Cell Genesys	November 22, 2005	Therapeutics	None
Equal Diagnostics	July 15, 2005	Diagnostics/Genetics	None
Bone Care	July 1, 2005	Renal/Corporate	$12.7 million
Verigen	February 8, 2005	Biosurgery/Corporate	$9.5 million
Synvisc sales and marketing rights from Wyeth	January 6, 2005	Biosurgery	None
ILEX Oncology	December 20, 2004	Other	$254.5 million
Pathology/oncology testing assets of IMPATH	May 1, 2004	Diagnostics/Genetics	None
Alfigen	February 21, 2004	Diagnostics/Genetics	None
SangStat	September 11, 2003	Transplant	$158.0 million

(2)

Transplant revenue for 2005 includes $9.0 million of previously deferred license revenue related to an upfront license fee received from PGP.

(3)

In all periods presented, represents our portion of the losses of Peptimmune, an equity method investment, effective April 1, 2003.

(4)

Includes:

•

a $102.8 million charge for the impairment of goodwill recorded in June 2003 to write off the goodwill allocated to Biosurgery's orthopaedics reporting unit;

•

a $27.7 million charge recorded in connection with the sale of substantially all of the tangible and intangible assets of our cardiac device business to Teleflex in June 2003;

•

a charge of $8.0 million in September 2003 to write off the tangible and intangible assets related to our FocalSeal product, which we stopped selling in December 2003; and

•

a $2.9 million charge for the impairment of our manufacturing facility in Fall River, Massachusetts recorded in June 2003.

(5)

Loss before income taxes for Corporate includes our corporate, general and administrative and corporate science activities, as well as, interest income, interest expense and other income and expense items that we do not specifically allocate to a particular reporting segment.

F-137

Segment Assets

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

			December 31,
			2005		2004		2003
Segment Assets (1):
	Renal (2)		$	1,343,795	$	616,979	$	598,164
	Therapeutics			972,504		949,168		866,676
	Transplant (3)			369,366		408,090		441,948
	Biosurgery (4)			456,634		294,715		324,254
	Diagnostics/Genetics (5)			474,751		464,870		177,740
	Other (6)			728,773		797,352		59,329
	Corporate (2,3,5,6,7)			2,533,042		2,538,247		2,536,417
		Total	$	6,878,865	$	6,069,421	$	5,004,528

(1)

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

(2)

In July 2005, we acquired Bone Care for net consideration paid of $604.3 million. Total assets for this acquisition as of July 1, 2005 include (amounts in millions):

		Amount		Business Segment
Cash and marketable securities		$	108.0	Corporate
Accounts receivable			10.5	Renal
Inventory			17.5	Renal
Property, plant and equipment			2.9	Renal
Goodwill			227.7	Renal
Other intangible assets			504.2	Renal
Other assets			44.4	Renal
	Total	$	915.2

F-138

(3)

In September 2003, we acquired SangStat for net consideration of $537.1 million. Total assets for SangStat as of September 11, 2003, the date of acquisition, include (amounts in millions):

		Amount		Business Segment
Cash and short-term investments		$	99.4	Corporate
Accounts receivable			25.7	Transplant
Inventory			33.1	Transplant
Deferred tax assets-current			68.0	Corporate
Other current assets			4.4	Transplant
Property, plant and equipment			2.8	Transplant
Goodwill			132.6	Transplant
Other intangible assets			256.0	Transplant
Other assets			11.4	Corporate
	Total	$	633.4

(4)

In January 2005, we reacquired from Wyeth the sales and marketing rights to Synvisc in certain countries. Upon closing this transaction, we began to record revenue from sales of Synvisc to end-users in the United States, as well as Germany, Poland, Greece, Portugal and the Czech Republic. We began selling Synvisc directly to end-users in Greece effective July 1, 2005. In exchange for the sales and marketing rights, we paid a total of $121.0 million in cash to Wyeth in 2005 and $0.3 million of acquisition costs, of which $0.2 million were paid in 2005. We also accrued contingent payments to Wyeth totaling $59.6 million during 2005, of which $50.9 million had been paid as of December 31, 2005. The $121.3 million purchase price, including acquisition costs, and the $59.6 million of contingent payments accrued at December 31, 2005, were recorded as intangible assets in our consolidated balance sheet as of December 31, 2005.

(5)

In July 2005, we acquired Equal Diagnostics for net consideration of $13.3 million. In February 2004, we acquired substantially all of the assets of Alfigen for net consideration of $47.5 million. In May 2004, we acquired substantially all of the pathology/oncology testing assets of IMPATH for net consideration of $215.3 million. Total assets for these acquisitions as of their dates of acquisition include (amounts in millions):

	Equal Diagnostics		Alfigen		IMPATH		Total		Business Segment
Cash and cash equivalents	$	0.5	$	—	$	—	$	0.5	Diagnostics/Genetics
Accounts receivable		1.5		—		14.5		16.0	Diagnostics/Genetics
Inventories		1.5		—		2.0		3.5	Diagnostics/Genetics
Property, plant and equipment		0.1		1.2		15.0		16.3	Diagnostics/Genetics
Goodwill		5.3		33.2		157.5		196.0	Diagnostics/Genetics
Other intangible assets		4.9		13.0		34.8		52.7	Diagnostics/Genetics
Other assets		0.1		0.1		4.0		4.2	Diagnostics/Genetics
Total	$	13.9	$	47.5	$	227.8	$	289.2

F-139

(6)

In December 2004, we acquired ILEX Oncology for net consideration of $959.1 million. Total assets for ILEX Oncology as of December 20, 2004, the date of acquisition, include (amounts in millions):

	Amount		Business Segment
Cash and cash equivalents	$	121.1	Corporate
Accounts receivable		12.5	Other
Inventories		17.0	Other
Property, plant and equipment		2.2	Other
Goodwill		445.6	Other
Other intangible assets		228.6	Other
Other assets		110.3	Other/Corporate
Total	$	937.3

(7)

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 deferred tax assets. Includes $108.0 million of cash and investments resulting from our acquisition of Bone Care in July 2005.

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

	December 31,
	2005		2004		2003
Cash, cash equivalents, short- and long-term investments	$	1,089,102	$	1,081,749	$	1,227,460
Deferred tax assets-current		170,443		160,438		133,707
Property, plant & equipment, net		826,221		838,516		719,401
Investments in equity securities		135,930		150,253		110,620
Other		311,346		307,291		345,229
Total	$	2,533,042	$	2,538,247	$	2,536,417

F-140

Geographic Segments

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

			For the Years Ended December 31,
			2005		2004		2003
Revenues:
	United States		$	1,517,000	$	1,208,184	$	971,821
	Europe			858,913		723,102		544,646
	Other			358,929		269,859		197,404
		Total	$	2,734,842	$	2,201,145	$	1,713,871

			December 31,
			2005		2004		2003
Long-lived assets:
	United States		$	915,107	$	768,540	$	787,249
	Europe			611,657		621,951		449,949
	Other			5,444		4,780		1,969
		Total	$	1,532,208	$	1,395,271	$	1,239,167

        Our results of operations are highly dependent on sales of Cerezyme. Sales of this product represented approximately 38% of our product revenue in 2005, approximately 42% of our product revenue in 2004 and approximately 47% of our product revenue in 2003. We manufacture Cerezyme at a single manufacturing facility in Allston, Massachusetts. We sell this product directly to physicians, hospitals and treatment centers as well as through an unaffiliated distributor. Distributor sales of Cerezyme represented 23% of Cerezyme revenue in 2005, 25% in 2004 and 27% in 2003. We believe that our credit risk associated with trade receivables is mitigated as a result of the fact that this product is sold to a large number of customers over a broad geographic area.

        Sales of Renagel represented 17% of our product revenue in 2005, and 18% of our product revenue in both 2004 and 2003. A majority of the sales of Renagel are to wholesale distributors.

F-141

NOTE S.    QUARTERLY RESULTS

		1st Quarter 2005		2nd Quarter 2005		3rd Quarter 2005		4th Quarter 2005
		(Amounts in thousands, except per share amounts)
Total revenues		$	629,949	$	668,139	$	708,063	$	728,691
Operating income (1)			136,586		164,673		161,806		137,797
Net income (1)			95,558		123,631		115,654		106,646
Net income per share:
	Basic	$	0.38	$	0.49	$	0.45	$	0.41
	Diluted	$	0.36	$	0.46	$	0.43	$	0.39

		1st Quarter 2004		2nd Quarter 2004		3rd Quarter 2004		4th Quarter 2004
		(Amounts in thousands, except per share amounts)
Total revenues		$	491,251	$	549,588	$	569,229	$	591,077
Operating income (loss) (2)			102,008		127,255		146,639		(122,989	)
Net income (loss) (2)			67,894		78,176		97,799		(157,342	)
Net income (loss) per share:
	Basic	$	0.30	$	0.35	$	0.43	$	(0.68	)
	Diluted	$	0.29	$	0.33	$	0.41	$	(0.68	)

(1)

For the three months ended December 31, 2005, includes:

•

$16.9 million of pre-tax charges to write off the cost of unsuccessful production runs of Cerezyme and Myozyme that occurred at our Allston Landing manufacturing plant;



•

$11.2 million to write off expiring Clolar inventory; and



•

a $7.0 million charge for IPR&D related to the acquisition of certain gene therapy assets from Avigen in December 2005.

(2)

For the three months ended December 31, 2004, includes:

•

a $254.5 million charge for IPR&D related to the acquisition of ILEX Oncology in December 2004;



•

a pre-tax charge of $8.1 million to write off our remaining cyclosporine inventory; and



•

$4.5 million of pre-tax impairment charges to write down the assets of our manufacturing plant in Oklahoma.

F-142

Report of Independent Registered Public Accounting Firm on
Financial Statement Schedule

To the Board of Directors and Shareholders
of Genzyme Corporation:

        Our audits of the consolidated financial statements, of management's assessment of the effectiveness of internal control over financial reporting and of the effectiveness of internal control over financial reporting referred to in our report dated March 9, 2006 appearing in the 2005 Annual Report of Genzyme Corporation (which report, consolidated financial statements and assessment are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Boston, Massachusetts
March 9, 2006

F-143

GENZYME CORPORATION

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

Column A		Column B		Column C				Column D		Column E
				Additions
Description		Balance at Beginning of Period		Charged to Costs and Expenses		Charged to Other Accounts		Deductions		Balance at End of Period
Year ended December 31, 2005:
	Accounts receivable allowances	$	42,397,000	$	9,444,000	$	6,702,000	$	12,416,000	$	46,127,000
	Rebates	$	33,464,000	$	—	$	89,713,000	$	72,873,000	$	50,304,000
Year ended December 31, 2004:
	Accounts receivable allowances	$	26,638,000	$	12,616,000	$	34,393,000	$	31,250,000	$	42,397,000
	Rebates	$	20,187,000	$	—	$	52,640,000	$	39,363,000	$	33,464,000
Year ended December 31, 2003:
	Accounts receivable allowances	$	18,869,000	$	2,838,000	$	13,433,000	$	8,502,000	$	26,638,000
	Rebates	$	13,142,000	$	—	$	46,584,000	$	39,539,000	$	20,187,000

F-144

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EXHIBIT 13.1

Report of Independent Registered Public Accounting Firm on Financial Statement Schedule

EX-21

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EXHIBIT 21

SUBSIDIARIES OF THE REGISTRANT

Name	Direct Parent(s)	Ownership		Jurisdiction of Incorporation
BioMarin/Genzyme LLC	Genzyme Corporation	50	%	Delaware
Genzyme Europe B.V.	Imtix SangStat (Switzerland) GmbH	100	%	The Netherlands
Genzyme Flanders N.V.	Genzyme International Holdings	100	%	Belgium
Genzyme GmbH	Genzyme Europe B.V.	100	%	Germany
Genzyme International Holdings Limited	SangStat Luxembourg S.à.r.l.	100	%	Ireland
Genzyme Ireland Limited	Genzyme International Holdings Limited	100	%	Republic of Ireland
Genzyme Limited	Genzyme Corporation	100	%	United Kingdom
Genzyme Securities Corporation	Genzyme Corporation	100	%	Masssachusetts
Genzyme Pharmaceuticals AG	SangStat Luxembourg S.à.r.l.	100	%	Switzerland
Genzyme Polyclonals S.A.S.	SangStat Medical, LLC SangStat Atlantique S.A.S.	1 99	% %	France
Imtix SangStat (Switzerland) GmbH	SangStat Luxembourg S.à.r.l.	100	%	Switzerland
SangStat Atlantique S.A.S.	SangStat Medical, LLC	100	%	France
SangStat Luxembourg S.à.r.l.	Genzyme Luxembourg S.à.r.l.	100	%	Luxembourg

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EXHIBIT 21

EX-23

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Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

        We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (File Nos. 33-61853, 333-51790, 333-31548, 333-63802, 333-100727, 333-109179) and in the Registration Statements on Form S-8 (File Nos. 33-58359, 33-60437, 333-10003, 333-33249, 333-83677, 333-51906, 33-30007, 33-68208, 333-33265, 333-10005, 333-33251, 333-83669, 333-33291, 33-21241, 333-55126, 333-42371, 333-81275, 333-87967, 333-81277, 333-83673, 333-64103, 333-83681, 333-51872, 333-52202, 333-66130, 333-70310, 333-76762, 333-76766, 333-76768, 333-76770, 333-100722, 333-90514, 333-90512, 333-90510, 333-64095, 333-106691, 333-106692, 333-111314, 333-116650, 333-116651, 333-116653, 333-114184, 333-125723, 333-125724, 333-125726) of Genzyme Corporation of our report dated March 9, 2006 relating to the consolidated financial statements, management's assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated March 9, 2006 relating to the financial statement schedule, which appears in this Form 10-K and of our report dated March 6, 2006 relating to the financial statements of BioMarin/Genzyme LLC which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 9, 2006

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Exhibit 23

EX-31.1

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Exhibit 31.1

Certification Pursuant To
Rules 13a-14(a) And 15d-14(a) Under The Securities Exchange Act Of 1934, As Amended

I, Henri A. Termeer, certify that:

1.

I have reviewed this annual report on Form 10-K of Genzyme Corporation (the "Registrant");

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.

The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)

Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and

5.

The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls over financial reporting.

Date: March 9, 2006. /s/  HENRI A. TERMEER Henri A. Termeer
Chief Executive Officer

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Exhibit 31.1

EX-31.2

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Exhibit 31.2

Certification Pursuant To
Rules 13a-14(a) And 15d-14(a) Under The Securities Exchange Act Of 1934, As Amended

I, Michael S. Wyzga, certify that:

1.

I have reviewed this annual report on Form 10-K of Genzyme Corporation (the "Registrant");

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.

The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)

Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and

5.

The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls over financial reporting.

Date: March 9, 2006. /s/  MICHAEL S. WYZGA Michael S. Wyzga
Chief Financial Officer

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Exhibit 31.2

EX-32.1

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Exhibit 32.1

Certification by the Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

        Pursuant to 18 U.S.C. Section 1350, I, the undersigned Chief Executive Officer of Genzyme Corporation (the "Company"), hereby certify that the Annual Report on Form 10-K of the Company for the year ended December 31, 2005 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/  HENRI A. TERMEER Henri A. Termeer
Chief Executive Officer
March 9, 2006

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Exhibit 32.1

EX-32.2

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Exhibit 32.2

Certification by the Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

        Pursuant to 18 U.S.C. Section 1350, I, the undersigned Chief Financial Officer of Genzyme Corporation (the "Company"), hereby certify that the Annual Report on Form 10-K of the Company for the year ended December 31, 2005 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/  MICHAEL S. WYZGA Michael S. Wyzga
Chief Financial Officer
March 9, 2006

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Exhibit 32.2

EX-99

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Exhibit 99

BioMarin/Genzyme LLC
Index to Consolidated Financial Statements

	Page(s)
Report of Independent Registered Public Accounting Firm	1
Consolidated Balance Sheets as of December 31, 2005 and 2004 (Unaudited)	2
Consolidated Statements of Operations for the Years Ended December 31, 2005, 2004 (Unaudited) and 2003	3
Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 (Unaudited) and 2003	4
Consolidated Statements of Changes in Venturers' Capital for each of the Years Ended December 31, 2003, 2004 (Unaudited) and 2005	5
Notes to Consolidated Financial Statements	6-14

Report of Independent Registered Public Accounting Firm

To the Steering Committee of BioMarin/Genzyme LLC:

        In our opinion, the accompanying consolidated balance sheet as of December 31, 2005, and the related consolidated statements of operations, of cash flows and of changes in Venturers' capital present fairly, in all material respects, the financial position of BioMarin/Genzyme LLC (the "LLC") at December 31, 2005, and the results of its operations and its cash flows for the years ended December 31, 2005 and 2003 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the LLC's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by the LLC's management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
March 6, 2006

1

BioMarin/Genzyme LLC
Consolidated Balance Sheets
(Amounts in thousands)

			December 31,
			2005		2004
					(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	8,127	$	14,351
	Accounts receivable, net			20,725		16,710
	Due from Genzyme Corporation			12,746		—
	Inventories			30,286		38,626
	Prepaid expenses and other current assets			220		—
		Total current assets		72,104		69,687
Technology license fees, net				285		—
Total assets			$	72,389	$	69,687
LIABILITIES AND VENTURERS' CAPITAL
Current liabilities:
	Due to BioMarin Companies		$	1,070	$	2,160
	Due to Genzyme Corporation			—		6,212
	Accrued expenses			4,827		2,921
	Deferred revenue			573		458
		Total liabilities		6,470		11,751
Commitments and contingencies (Note I)				—		—
Venturers' capital:
	Venturers' capital—BioMarin Companies			32,960		28,968
	Venturers' capital—Genzyme Corporation			32,959		28,968
		Total Venturers' capital		65,919		57,936
		Total liabilities and Venturers' capital	$	72,389	$	69,687

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

2

BioMarin/Genzyme LLC
Consolidated Statements of Operations
(Amounts in thousands)

			For the Years Ended December 31,
			2005		2004			2003
			(Unaudited)
Revenues:
	Net product sales		$	76,417	$	42,583		$	11,540
Operating costs and expenses:
	Cost of products sold			24,513		14,954			4,723
	Selling, general and administrative			22,019		26,872			21,829
	Research and development			16,156		20,191			14,738
		Total operating costs and expenses		62,688		62,017			41,290
Income (loss) from operations				13,729		(19,434	)		(29,750	)
Interest income				254		151			71
Net income (loss)			$	13,983	$	(19,283	)	$	(29,679	)
Net income (loss) attributable to each Venturer:
	BioMarin Companies		$	6,992	$	(9,641	)	$	(14,840	)
	Genzyme Corporation		$	6,991	$	(9,642	)	$	(14,839	)

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

3

BioMarin/Genzyme LLC
Consolidated Statements of Cash Flows
(Amounts in thousands)

					For the Years Ended December 31,
					2005			2004			2003
					(Unaudited)
Cash Flows from Operating Activities:
	Net income (loss)				$	13,983		$	(19,283	)	$	(29,679	)
	Reconciliation of net income (loss) to net cash provided by (used in) operating activities:
		Amortization expense				73			—			—
		Noncash charge for inventory write down				—			—			2,800
		Increase (decrease) in cash from working capital changes:
			Accounts receivable			(4,015	)		(11,287	)		(5,423	)
			Inventories			8,340			(1,349	)		(22,792	)
			Prepaid expenses and other current assets			(220	)		—			—
			Due from (to) BioMarin Companies.			(1,090	)		(1,891	)		1,914
			Due from (to) Genzyme Corporation			(18,958	)		(652	)		4,094
			Accrued expenses			1,906			1,745			1,076
			Deferred revenue			115			391			67
				Cash flows from operating activities		134			(32,326	)		(47,943	)
Cash Flows from Investing Activities:
	Purchase of technology licenses					(358	)		—			—
				Cash flows from investing activities		(358	)		—			—
Cash Flows from Financing Activities:
	Capital distribution to BioMarin Companies					(3,000	)		—			—
	Capital distribution to Genzyme Corporation					(3,000	)		—			—
	Capital contributed by BioMarin Companies					—			16,045			25,943
	Capital contributed by Genzyme Corporation					—			16,046			25,942
				Cash flows from financing activities		(6,000	)		32,091			51,885
(Decrease) increase in cash and cash equivalents						(6,224	)		(235	)		3,942
Cash and cash equivalents at beginning of period						14,351			14,586			10,644
Cash and cash equivalents at end of period					$	8,127		$	14,351		$	14,586
Supplemental disclosure of noncash transaction:
	Funding Receivable—Note D.

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

4

BioMarin/Genzyme LLC
Consolidated Statements of Changes in Venturers' Capital
(Amounts in thousands)

	Venturers' Capital
	BioMarin Companies			Genzyme Corporation			Total Venturers' Capital
Balance at December 31, 2002	$	11,461		$	11,461		$	22,922
2003 capital contributions		27,881			27,880			55,761
2003 net loss		(14,840	)		(14,839	)		(29,679	)
Balance at December 31, 2003		24,502			24,502			49,004
2004 capital contributions (unaudited)		14,107			14,108			28,215
2004 net loss (unaudited)		(9,641	)		(9,642	)		(19,283	)
Balance at December 31, 2004 (unaudited)		28,968			28,968			57,936
2005 capital distributions		(3,000	)		(3,000	)		(6,000	)
2005 net income		6,992			6,991			13,983
Balance at December 31, 2005	$	32,960		$	32,959		$	65,919

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

5

BioMarin/Genzyme LLC

Notes to Consolidated Financial Statements

A.    Nature of Business and Organization

        BioMarin/Genzyme LLC, or the Joint Venture, is a limited liability company organized under the laws of the State of Delaware. The Joint Venture is owned:

•

50% by BioMarin Pharmaceutical Inc., which is referred to as BioMarin, and BioMarin Genetics, Inc., a wholly-owned subsidiary of BioMarin. BioMarin and its subsidiary are referred to as the BioMarin Companies; and



•

50% by Genzyme Corporation, which is referred to as Genzyme.

        The BioMarin Companies and Genzyme are collectively referred to as the Venturers and individually as a Venturer. The Joint Venture was organized in September 1998 to develop and commercialize Aldurazyme®, a recombinant form of the human enzyme alpha-L-iduronidase, used to treat a lysosomal storage disorder known as mucopolysaccharidosis I, or MPS I. The Joint Venture commenced operations as of September 4, 1998.

        The Joint Venture, BioMarin Companies and Genzyme entered into a Collaboration Agreement dated as of September 4, 1998. Under the terms of the Collaboration Agreement, Genzyme and the BioMarin Companies granted to the Joint Venture a world-wide, exclusive, irrevocable, royalty-free right and license or sublicense to develop, manufacture and market Aldurazyme for the treatment of MPS I and other alpha-L-iduronidase deficiencies. All program-related costs are equally funded by BioMarin, on behalf of the BioMarin Companies, and Genzyme. BioMarin and Genzyme are required to make monthly capital contributions to the Joint Venture to fund budgeted operating costs. If either BioMarin or Genzyme fails to make all or two or more of the monthly capital contributions, and the other party does not exercise its right to terminate the Collaboration Agreement or compel performance of the funding obligation, the defaulting party's (or, in the case of default by BioMarin, the BioMarin Companies') percentage interest in the Joint Venture and future funding responsibility will be adjusted proportionately. No contributions were made in 2005 because the Joint Venture was profitable.

        The Steering Committee of the Joint Venture serves as the governing body of the Joint Venture and is responsible for determining the overall strategy for the program, coordinating activities of the Venturers as well as performing other such functions as appropriate. The Steering Committee is comprised of an equal number of representatives of each Venturer.

        On April 30, 2003, the United States Food and Drug Administration, commonly referred to as the FDA, granted marketing approval for Aldurazyme as an enzyme replacement therapy for patients with the Hurler and Hurler-Scheie forms of MPS I, and Scheie patients with moderate to severe symptoms. Aldurazyme has been granted orphan drug status in the United States, which generally provides seven years of market exclusivity. On June 11, 2003, the European Commission granted marketing approval for Aldurazyme to treat the non-neurological manifestations of MPS I in patients with a confirmed diagnosis of the disease. Aldurazyme has been granted orphan drug status in the European Union, which generally provides ten years of market exclusivity.

        On behalf of the Joint Venture, Genzyme is commercializing Aldurazyme in the United States, Canada, the European Union, Latin America and the Asia Pacific regions. Genzyme continues to launch Aldurazyme in additional countries in the European Union, Latin America and the Asia Pacific regions on a country-by-country basis as pricing and reimbursement approvals are obtained. Aldurazyme is manufactured at BioMarin's facility in Novato, California and is sent to either

6

Genzyme's manufacturing facility in Allston, Massachusetts or to a third-party facility for the final fill-finish process.

B.    Summary of Significant Accounting Policies

Basis of Presentation

        The Joint Venture is considered a partnership for federal and state income tax purposes. As such, items of income, loss, deductions and credits flow through to the Venturers. The Venturers have responsibility for the payment of any income taxes on their proportionate share of the taxable income of the Joint Venture. The Joint Venture has reclassified certain 2004 data to conform to its 2005 presentation.

        For the year ended December 31, 2003, the Joint Venture qualified as a significant subsidiary to both BioMarin and Genzyme and, as a result, audited financial statements are presented for that period. As of December 31, 2004 and for the year ended December 31, 2004, the Joint Venture does not meet the criteria of a significant subsidiary to either BioMarin or Genzyme and, as a result, the financial statements for those periods have not been audited. As of December 31, 2005 and for the year ended December 31, 2005, the Joint Venture does not meet the criteria of a significant subsidiary to either BioMarin or Genzyme. However, the books and records for the Joint Venture are maintained by Genzyme and because KPMG LLP, as auditors to BioMarin, will rely on the opinion of PricewaterhouseCoopers LLP, as auditors to the Joint Venture and Genzyme, the financial statements for those periods have been audited.

Accounting Method

        The financial statements have been prepared under the accrual method of accounting in conformity with accounting principles generally accepted in the United States of America.

Fiscal Year End

        The Venturers have determined that the fiscal year end of the Joint Venture is December 31.

Uncertainties

        The Joint Venture is subject to risks common to companies in the biotechnology industry, including:

•

the ability of the Joint Venture to manufacture sufficient amounts of its products for development and commercialization activities;



•

the accuracy of the Joint Venture's estimates of the size and characteristics of markets to be addressed by the Joint Venture's products;



•

market acceptance of the Joint Venture's products;



•

the Joint Venture's ability to obtain reimbursement for its products from third-party payors, where appropriate;



•

the accuracy of the Joint Venture's information concerning the products and resources of competitors and potential competitors;

7

•

the Joint Venture's ability to successfully obtain timely additional regulatory approvals and adequate patent and other proprietary rights protection for its products; and



•

the content and timing of decisions made by the FDA and other regulatory agencies regarding the Joint Venture's products and manufacturing facilities.

Use of Estimates

        Under accounting principles generally accepted in the United States of America, the Joint Venture is required to make certain estimates and assumptions that affect reported amounts of assets, liabilities, revenues, expenses, and disclosure of contingent assets and liabilities in its financial statements. The Joint Venture's actual results could differ from these estimates.

Cash and Cash Equivalents

        Cash and cash equivalents, consisting principally of money market funds with initial maturities of three months or less, are valued at cost plus accrued interest, which approximates fair market value. All of the Joint Venture's cash is held on deposit at one financial institution.

Inventories

        Inventories are valued at cost or, if lower, fair value. The Venturers determine the cost of raw materials using the average cost method and the cost of work in process and finished goods using the specific identification method. The Venturers analyze the Joint Venture's inventory levels quarterly and write down to its net realizable value:

•

inventory that has become obsolete;



•

inventory that has a cost basis in excess of its expected net realizable value;



•

inventory in excess of expected requirements; and



•

expired inventory.

        The Joint Venture capitalizes inventory produced for commercial sale, which may result in the capitalization of inventory that has not yet been approved for sale. If a product is not approved for sale, it would likely result in the write off of the inventory and a charge to earnings. At December 31, 2005 and 2004 (unaudited), all of the Joint Venture's inventories are related to Aldurazyme, a product approved for sale.

Comprehensive Loss

        The Joint Venture reports comprehensive income (loss) in accordance with Financial Accounting Standards Board, or FASB, Statement of Financial Accounting Standards, or SFAS, No. 130, "Reporting Comprehensive Income." Comprehensive income (loss) for the years ended December 31, 2005, 2004 (unaudited) and 2003 does not differ from the reported net income (loss).

Transactions with Affiliates

        Genzyme is commercializing Aldurazyme in the United States, Canada, the European Union, Latin America and the Asia Pacific regions and, as a result, conducts sales and collects cash from product

8

sales in those territories on behalf of the Joint Venture. The majority of the Joint Venture's operating expenses consist of project expenses incurred by the Venturers, either for internal operating costs or for third-party obligations incurred by the Venturers on behalf of the Joint Venture which are then charged to the Joint Venture. All charges to the Joint Venture are subject to approval by the Steering Committee. The determination of the amount of internal operating costs incurred by each Venturer on behalf of the Joint Venture requires significant judgment by each Venturer. As a result, the financial statements for the Joint Venture may not be indicative of the results that would have occurred had the Joint Venture obtained all of its manufacturing, commercialization and research and development services from third-party entities. Genzyme Corporation owed the Joint Venture $12.7 million at December 31, 2005 consisting of cash received on behalf of the Joint Venture for net product sales, net of project expenses incurred on behalf of the Joint Venture. The Joint Venture owed BioMarin Companies a total of $1.1 million at December 31, 2005 for project expenses incurred on behalf of the Joint Venture. The Joint Venture owed a total of $8.4 million at December 31, 2004 (unaudited) to the Venturers primarily for project expenses incurred on behalf of the Joint Venture.

Translation of Foreign Currencies

        The Joint Venture translates the financial transactions performed by Genzyme's foreign subsidiaries on behalf of the Joint Venture from local currency into U.S. dollars using the average exchange rate prevailing during each period. The Joint Venture includes any gains and losses on these transactions in selling, general and administrative expenses in its results of operations. Selling, general and administrative expenses includes foreign currency transaction net losses of approximately $2.5 million in 2005 and net gains of approximately $341,000 in 2004 (unaudited) and $16,500 in 2003.

Revenue Recognition

        The Joint Venture recognizes revenue from product sales when persuasive evidence of an arrangement exists, the product has been delivered to the customer, title and risk of loss have passed to the customer, the price to the buyer is fixed or determinable and collection from the customer is reasonably assured. Revenue transactions are evidenced by customer purchase orders, customer contracts in certain instances, invoices and related shipping documents.

        The timing of product shipments and receipts can have a significant impact on the amount of revenue that the Joint Venture recognizes in a particular period. Also, Aldurazyme is sold in part through distributors. Inventory in the distribution channel consists of inventory held by distributors, who are the Joint Venture's customers, and inventory held by retailers, such as pharmacies and hospitals. The Joint Venture's revenue in a particular period can be impacted by increases or decreases in distributor inventories. If distributor inventories increased to excessive levels, the Joint Venture could experience reduced purchases in subsequent periods. To determine the amount of Aldurazyme inventory in the Joint Venture's U.S. distribution channel, the Joint Venture receives data on sales and inventory levels directly from its primary distributors for the product. As of December 31, 2005, the Joint Venture believes the amount of Aldurazyme inventory held by U.S. distributors is sufficient to meet the current forecast of demand for the product in the United States.

9

        The Joint Venture records reserves for rebates payable under Medicaid and payor contracts, such as managed care organizations, as a reduction of revenue at the time product sales are recorded. The Joint Venture's Medicaid and payor rebate reserves have two components:

•

an estimate of outstanding claims for end-user sales that have occurred, but for which related claim submissions have not been received; and



•

an estimate of future claims that will be made when inventory in the distribution channel is sold to end-users.

        Because the second component is calculated based on the amount of inventory in the distribution channel, the Joint Venture's assessment of distribution channel inventory levels impacts its estimated reserve requirements. The Joint Venture's calculation also requires other estimates, including estimates of sales mix, to determine which sales will be subject to rebates and the amount of such rebates. The Joint Venture updates its estimates and assumptions each period and records any necessary adjustments to its reserves. Accrued expenses for the Joint Venture includes a reserve for Medicaid and payor rebates payable of $1.6 million at December 31, 2005 and $0.5 million at December 31, 2004 (unaudited).

        The Joint Venture records allowances for product returns, if appropriate, as a reduction of revenue at the time product sales are recorded. Several factors are considered in determining whether an allowance for product returns is required, including:

•

the nature of Aldurazyme. Aldurazyme serves as a treatment, rather than a cure, for MPS I and, therefore, must be administered/infused to the patient on a weekly basis. Aldurazyme treats a small patient population, and the Joint Venture has insight into the patients receiving treatment. In addition, Aldurazyme has been granted Orphan Drug status in the United States and European Union. As a result, Aldurazyme is not currently subject to significant external risk factors such as technological obsolescence or competition;



•

the customers' limited return rights. Due to the nature, purpose and means of use of Aldurazyme, customers do not have the right to return the product in the ordinary course of business, other than for defects. Aldurazyme, like all biotechnology products, must meet stringent FDA regulations and therefore is subjected to strict quality testing before it is sold. As a result, the Joint Venture expects the incidence of defects to be de minimus. Coupled with the inability to return the product, there is a high cost to the product which deters Aldurazyme customers from carrying significant amounts of inventory;



•

the Joint Venture and Genzyme's experience of returns for similar products. Genzyme has extensive experience with other lysosomal storage disorder products in the market, similar to Aldurazyme. These products are marketed and distributed through similar means and to similar customers. Genzyme's experience with these products is directly applicable to Aldurazyme and supports the Joint Venture's conclusions related to returns; and



•

the Joint Venture's estimate of distribution channel inventory, based on sales and inventory level information provided by the primary distributors for Aldurazyme, as described above.

        Based on these factors, the Joint Venture has concluded that product returns will be minimal and therefore, an allowance for product returns for Aldurazyme is not necessary at December 31, 2005 or

10

2004 (unaudited). In the future, if any of these factors and/or the history of product returns changes, an allowance for product returns may be required.

        Emerging Issues Task Force Issue No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the 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. 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.

        The Joint Venture records fees paid to its distributors for services as operating expense where the criteria set forth above are met. The fees incurred for these services were approximately $822,000 in 2005, $960,000 in 2004 (unaudited) and $497,000 in 2003.

Research and development

        Research and development costs are expensed in the period incurred. These costs are primarily comprised of development efforts performed by the Venturers or payments to third parties made by the Venturers, both on behalf of the Joint Venture, during the respective periods.

Income Taxes

        The Joint Venture is organized as a pass-through entity and accordingly, the consolidated financial statements do not include a provision for income taxes. Taxes, if any, are the liability of the BioMarin Companies and Genzyme, as Venturers.

Recent Accounting Pronouncements

        In October 2005, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 151, "Inventory Costs, and Amendment of ARB No. 43, Chapter 4." SFAS No. 151 which clarifies that abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) should be recognized as current period changes in all circumstances. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Joint Venture adopted SFAS No. 151 effective January 1, 2006, and does not believe the adoption of SFAS No. 151 will have a material impact on its financial position or results of operations.

        In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3." SFAS No. 154 applies to all voluntary changes in accounting for and reporting of changes in accounting principles, and requires retrospective application to prior periods' financial statements of a voluntary change in accounting principles unless it is not practical to do so. Accounting Principles Board, or APB, Opinion No. 20, "Accounting Changes," previously required that most voluntary changes in accounting principles be recognized by including in net income (loss) of the period of the change, the cumulative effect of

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changing to the new accounting principle. SFAS No. 154 also requires that a change in depreciation, amortization, or depletion method for long-lived non-financial assets be accounted for as a change in accounting estimate affected by a change in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Joint Venture does not expect the adoption of SFAS No. 154 to have a material impact on its financial position or results of operations.

C.    Accounts Receivable

        The Joint Venture's trade receivables primarily represent amounts due from distributors and healthcare service providers. The Joint Venture states accounts receivable at fair value, after reflecting an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make payments. The Joint Venture believes that its credit risk associated with trade receivables is mitigated by the following factors:

•

the product is sold to a number of customers over a broad geographic range;



•

the Joint Venture performs credit evaluations of its customers on an ongoing basis; and



•

the Joint Venture performs a detailed, monthly review of the receivable aging and specific customer balances.

        The Joint Venture did not record an allowance for doubtful accounts at either December 31, 2005 or 2004 (unaudited). To-date, due to the customers' credit worthiness, the monthly review of the receivable balances and the customers' need to maintain a supply of Aldurazyme and Genzyme's similar products, the Joint Venture has not written-off any receivables and no allowance for doubtful accounts has been necessary. In the future, if the financial condition of any of the Joint Venture's customers were to deteriorate and result in an impairment of the customer's ability to make payments, an allowance for doubtful accounts may be required.

D.    Funding Receivable

        At December 31, 2003, both Venturers had not provided their funding commitments for December 2003 and, as a result, the Joint Venture recorded funding receivable from each Venturer of $1.9 million. Both Venturers paid their December 2003 funding commitments in January 2004 (unaudited). There were no funding amounts receivable from the Venturers at December 31, 2004 (unaudited) or December 31, 2005.

E.    Inventories (amounts in thousands)

		December 31,
		2005		2004
				(Unaudited)
Raw materials		$	1,082	$	2,155
Work in process—bulk material			10,424		15,451
Finished products			18,780		21,020
	Total	$	30,286	$	38,626

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        The Joint Venture capitalizes inventory produced for commercial sale, which may result in the capitalization of inventory that has not yet been approved for sale. If a product is not approved for sale, it would likely result in the write off of the inventory and a charge to earnings. At December 31, 2005 and 2004 (unaudited), all of the Joint Venture's inventories are related to Aldurazyme, a product approved for sale.

F.    Technology License Fees

        In 2005, the Joint Venture paid approximately $358,000 for technology license fees, which will be amortized over their estimated useful lives, which range from approximately four to five years. Total amortization expense for the Joint Venture's technology license fees was approximately $73,000 for the year ended December 31, 2005.

        The estimated future amortization expense for the Joint Venture's technology license fees for the four succeeding fiscal years is as follows:

Year Ended December 31,	Estimated Amortization Expense
2006	$	73,575
2007	$	73,575
2008	$	73,575
2009	$	63,906

G.    Accrued Expenses:

        Accrued expenses consist of the following (amounts in thousands):

		December 31,
		2005		2004
				(Unaudited)
Royalties		$	3,032	$	2,095
Rebates			1,597		544
Other			198		282
	Total accrued expenses	$	4,827	$	2,921

H.    Venturers' Capital

        In 2005, the Joint Venture distributed a total of $3.0 million of cash to each Venturer in accordance with the terms of the Collaboration Agreement.

        As of December 31, 2005, Venturers' capital is comprised of capital contributions made by the Venturers to fund budgeted costs and expenses of the Joint Venture in accordance with the Collaboration Agreement and income (losses) allocated to the Venturers, net of cash distributions to the Venturers. All funding is shared equally by the two Venturers. As of December 31, 2005, the BioMarin Companies and Genzyme have each provided a total of $104.2 million of funding to the Joint Venture, net of $3.0 million of cash distributed by the Joint Venture to each Venturer. The Venturers

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did not make any capital contributions to the Joint Venture in 2005 because the Joint Venture had sufficient cash to meet its financial obligations.

I.    Commitments and Contingencies

        The Joint Venture may become subject to legal proceedings and claims arising in connection with its business. There were no asserted claims against the Joint Venture as of December 31, 2005.

J.    Segment Information

        The Joint Venture operates in one business segment—human therapeutics. Disclosures about revenues by geographic area and revenues from major customers are presented below.

        The following table contains revenue information by geographic area (amounts in thousands):

			For the Years Ended December 31,
			2005		2004		2003
			(Unaudited)
Revenues:
	US		$	20,408	$	12,568	$	4,499
	Europe			49,189		27,468		6,881
	Other			6,820		2,547		160
		Total	$	76,417	$	42,583	$	11,540

        The Joint Venture's results of operations are solely dependent on sales of Aldurazyme. BioMarin manufactures Aldurazyme at a single manufacturing facility in Novato, California. The fill-finish process is completed at either Genzyme's manufacturing facility in Allston, Massachusetts or at a third party. The percentage of sales of Aldurazyme to distributors, as compared to total revenues in 2005, 2004 (unaudited) and 2003, were as follows:

	% of Total Revenues
	2005		2004		2003
	(Unaudited)
Sales to U.S. distributors	11	%	12	%	19	%
Sales to European distributors	6	%	6	%	9	%
Sales to Other distributors	3	%	0	%	0	%
Total sales to distributors	20	%	18	%	28	%

        Sales of Aldurazyme to a single U.S. distributor were 6% in 2005, 7% in 2004 (unaudited) and 12% in 2003 of total revenues.

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Exhibit 99