10-Q 1 a2180321z10-q.htm FORM 10-Q

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

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

FORM 10-Q

(Mark One)

ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2007 or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to Commission file number 0-14680

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)

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

Indicate by check mark whether the registrant 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. (Check one):

Large accelerated filer ý Accelerated filer o Non-accelerated filer o

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

The number of shares of Genzyme Stock outstanding as of October 31, 2007: 265,975,721

NOTE REGARDING REFERENCES TO OUR COMMON STOCK

Throughout this Form 10-Q, the words "we," "us," "our" and "Genzyme" refer to Genzyme Corporation as a whole, and "our board of directors" refers to the board of directors of Genzyme Corporation. We have one outstanding series of common stock, which we refer to as "Genzyme Stock."

NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

•: our plans to seek marketing approvals for our products in additional jurisdictions, including Myozyme and Thymoglobulin;
•: our plans and our anticipated timing for pursuing additional indications and uses for our products and services, including Synvisc, Campath and Clolar and for pursuing approvals of Renvela and Synvisc-One;
•: our expectations for Renvela, including our ability to use it to expand the market for our phosphate binder to patients with chronic kidney disease, or CKD, not yet on dialysis;
•: the timing and availability of data from clinical trials;
•: the anticipated drivers for the future growth of our products, including Renvela, Hectorol and Synvisc-One;
•: our estimates of the capacity of, and the projected timetable of approvals for, manufacturing and other facilities and production methods to support our products and services, including the larger-scale manufacturing process for Myozyme;
•: our assessment of competitors and potential competitors and the anticipated impact of potentially competitive products on our revenues;
•: our estimates of the potential markets for our products and services;
•: our ability to meet the expected demand for our products, including Thymoglobulin and our ability to optimize the U.S. supply of Myozyme;
•: Cerezyme's future contribution to revenues;
•: our intention to pursue our rights with respect to insurance coverage for our settlement of a class action lawsuit under a director and officer liability insurance program;
•: our assessment of the outcome, timetables and financial impact of litigation and other governmental proceedings and the potential impact of unasserted claims;
•: the sufficiency of our cash, cash equivalents, short- and long-term investments and cash flows from operations;
•: our U.S. and foreign income tax audits, including our provision for liabilities and our assessment of the impact of settlement of the Internal Revenue Service, commonly referred to as the IRS, and foreign tax disputes;
•: our estimates of the cost to complete and estimated commercialization dates for our in-process research and development, or IPR&D, programs;
•: our expected future revenues, operations, expenditures, allocations and expenses, and the assumptions underlying those estimates;
•: our projected future earnings and earnings per share;

•: our assessment of the impact of recent accounting pronouncements, including Financial Accounting Standards Board, or FASB, Statement of Financial Accounting Standards No., or FAS, 157, regarding fair value measurements, FAS 159, regarding the fair value option for financial assets and financial liabilities and Emerging Issues Task Force, or EITF, Issue No. 07-3, regarding accounting for nonrefundable advance payments for goods or services used in future research and development activities;
•: our sales and marketing plans;
•: our assessment of certain lots of Thymoglobulin finished goods inventory to determine if they meet product specifications and the expected timing of the completion of this review;
•: our acquisition of Bioenvision, Inc., or Bioenvision, and the expected timing and payments related to the acquisition;
•: our planned acquisition of the diagnostics division of Diagnostic Chemicals Limited, or DCL, and the expected timing and payments related to the acquisition;
•: our expected future contingent payments due to Synpac (North Carolina), Inc., or Synpac; and
•: our expected future payments related to our acquisitions, including milestone and royalty payments to the former shareholders of Surgi.B Chirugie et Medicine SAS, or Surgi.B, Wyeth, and Verigen AG, or Verigen, and employee benefits and leased facilities acquired from AnorMED Inc., or AnorMED, and the expected timing of these payments.

These statements are subject to risks and uncertainties, and our actual results may differ materially from those that are described in this report. These risks and uncertainties include:

•: our ability to successfully complete preclinical and clinical development of our products and services;
•: our ability to secure regulatory approvals for our products, services and manufacturing facilities, and to do so in the anticipated timeframes;
•: 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 related to our products and the facilities and processes used to manufacture our products (including FDA approval of larger-scale manufacturing of Myozyme);
•: our ability to satisfy the post-marketing commitments made as a condition of the marketing approvals of Fabrazyme, Aldurazyme and Myozyme;
•: our ability to manufacture sufficient amounts of our products for development and commercialization activities and to do so in a timely and cost-effective manner, including our ability to manufacture Thymoglobulin that meets product specifications and in quantities to meet projected market demand;
•: our reliance on third parties to provide us with materials and services in connection with the manufacture of our products;
•: our ability to obtain and maintain adequate patent and other proprietary rights protection for our products and services and successfully enforce these proprietary rights;
•: the scope, validity and enforceability of patents and other proprietary rights held by third parties and their impact on our ability to commercialize our products and services;
•: the accuracy of our estimates of the size and characteristics of the markets to be addressed by our products and services, including growth projections;

•: market acceptance of our products and services in expanded areas of use and new markets;
•: our ability to identify new patients for our products and services;
•: our ability to increase market penetration both outside and within the United States of 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, the extent of such coverage and the accuracy of our estimates of the payor mix for our products;
•: our ability to effectively manage wholesaler inventories of our products and the levels of their compliance with our inventory management programs;
•: our ability to establish and maintain strategic license, collaboration and distribution arrangements and to successfully manage our relationships with licensors, collaborators, distributors and partners;
•: the continued funding and operation of our joint ventures by our partners;
•: our use of cash in business combinations or other strategic initiatives;
•: the resolution of the dispute with our insurance carriers regarding our claim for coverage under a director and officer liability insurance program;
•: the initiation of legal proceedings by or against us;
•: the impact of changes in the exchange rate for the Euro and other currencies on our product and service revenues in future periods;
•: our ability to successfully integrate the business we acquired from AnorMED;
•: our ability to successfully integrate the business we acquired from Bioenvision effective October 23, 2007;
•: our ability to complete the planned acquisition of the diagnostics division of DCL on the anticipated terms and timeline;
•: the number of diluted shares of our stock considered outstanding, which will depend on business combination activity, our stock price and any further changes in the accounting rules for the calculation of earnings per share;
•: the estimates and input variables used in accounting for stock options and the related stock-based compensation expense;
•: the outcome of our IRS and foreign tax audits; and
•: the possible disruption of our operations due to terrorist activities, armed conflict, severe climate change or outbreak of diseases such as severe acute respiratory syndrome (SARS) or avian influenza, including as a result of the disruption of operations of regulatory authorities, our subsidiaries, manufacturing facilities, customers, suppliers, distributors, couriers, collaborative partners, licensees and clinical trial sites.

We provide more detailed descriptions of these and other risks and uncertainties under the heading "Risk Factors," included in this report. 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 in light of future developments.

NOTE REGARDING INCORPORATION BY REFERENCE

The U.S. Securities and Exchange Commission, commonly referred to as the SEC, allows us to disclose important information to you by referring you to other documents we have filed or will file with them. The information that we refer you to is "incorporated by reference" into this Form 10-Q. Please read that information.

NOTE REGARDING TRADEMARKS

Genzyme®, Cerezyme®, Ceredase®, Fabrazyme®, Thyrogen®, Myozyme®, Renagel®, Campath®, Clolar®, Thymoglobulin®, Synvisc®, Seprafilm® and Hectorol® are registered trademarks, and Lymphoglobuline™, Sepra™, Mozobil™, Renvela™ and Synvisc-One™ are trademarks, of Genzyme or its subsidiaries. WelChol® is a registered trademark of Sankyo Pharma, Inc. Aldurazyme® is a registered trademark of BioMarin/Genzyme LLC. All rights reserved.

GENZYME CORPORATION AND SUBSIDIARIES

FORM 10-Q, SEPTEMBER 30, 2007

TABLE OF CONTENTS


PART I.		FINANCIAL INFORMATION
ITEM 1.		Financial Statements
		Unaudited, Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended September 30, 2007 and 2006
		Unaudited, Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006
		Unaudited, Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006
		Notes to Unaudited, Consolidated Financial Statements
ITEM 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations
ITEM 3.		Quantitative and Qualitative Disclosures About Market Risk
ITEM 4.		Controls and Procedures
PART II.		OTHER INFORMATION
ITEM 1.		Legal Proceedings
ITEM 1A.		Risk Factors
ITEM 2.		Unregistered Sales of Equity Securities and Use of Proceeds
ITEM 6.		Exhibits
Signatures

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Income

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

			Three Months Ended September 30,						Nine Months Ended September 30,
			2007			2006			2007			2006
Revenues:
	Net product sales		$	867,682		$	734,231		$	2,511,354		$	2,110,301
	Net service sales			83,177			71,153			241,533			210,987
	Research and development revenue			9,300			3,190			23,874			11,484

		Total revenues		960,159			808,574			2,776,761			2,332,772

Operating costs and expenses:
	Cost of products sold			190,475			134,140			508,451			388,609
	Cost of services sold			54,137			50,536			156,222			148,350
	Selling, general and administrative			270,306			239,700			878,807			743,849
	Research and development			175,800			162,293			540,362			483,557
	Amortization of intangibles			49,819			50,542			149,301			156,117
	Charge for impaired goodwill			—			219,245			—			219,245

		Total operating costs and expenses		740,537			856,456			2,233,143			2,139,727

Operating income (loss)				219,622			(47,882	)		543,618			193,045

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

		Total other income		6,123			19,318			59,391			119,233

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

Net income			$	159,313		$	15,966		$	401,294		$	251,437

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

	Diluted		$	0.58		$	0.06		$	1.45		$	0.93

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

	Diluted			279,206			278,271			279,898			277,130

Comprehensive income, net of tax:
Net income			$	159,313		$	15,966		$	401,294		$	251,437

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

	Other, net of tax			(274	)		(129	)		(540	)		(406	)

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

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

Other comprehensive income				83,021			15,093			101,515			82,755

Comprehensive income			$	242,334		$	31,059		$	502,809		$	334,192

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

GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

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

			September 30, 2007			December 31, 2006
ASSETS
Current assets:
	Cash and cash equivalents		$	849,864		$	492,170
	Short-term investments			87,503			119,894
	Accounts receivable, net			879,163			746,746
	Inventories			438,872			374,644
	Prepaid expenses and other current assets			137,793			119,122
	Deferred tax assets			131,772			136,925

		Total current assets		2,524,967			1,989,501
Property, plant and equipment, net				1,850,754			1,610,593
Long-term investments				512,181			673,540
Note receivable—related party				—			7,290
Goodwill, net				1,299,946			1,298,781
Other intangible assets, net				1,389,180			1,492,038
Deferred tax assets—noncurrent				78,243			—
Investments in equity securities				107,734			66,563
Other noncurrent assets				79,296			52,882

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

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable		$	77,823		$	98,063
	Accrued expenses			569,559			477,442
	Income taxes payable			—			54,853
	Deferred revenue and other income			39,307			14,855
	Current portion of long-term debt and capital lease obligations			6,519			6,226

		Total current liabilities		693,208			651,439
Long-term debt and capital lease obligations				115,096			119,803
Convertible notes				690,000			690,000
Deferred revenue—noncurrent				5,574			6,675
Deferred tax liabilities				—			10,909
Other noncurrent liabilities				54,652			51,651

		Total liabilities		1,558,530			1,530,477

Commitments and contingencies
Stockholders' equity:
	Preferred stock, $0.01 par value			—			—
	Common stock, $0.01 par value			2,635			2,630
	Additional paid-in capital			5,193,116			5,106,274
	Notes receivable from stockholders			(15,516	)		(15,057	)
	Accumulated earnings			747,816			312,659
	Accumulated other comprehensive income			355,720			254,205

		Total stockholders' equity		6,283,771			5,660,711

		Total liabilities and stockholders' equity	$	7,842,301		$	7,191,188

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

GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited, amounts in thousands)

					Nine Months Ended September 30,
					2007			2006
Cash Flows from Operating Activities:
	Net income				$	401,294		$	251,437
	Reconciliation of net income to cash flows from operating activities:
		Depreciation and amortization				246,556			246,651
		Stock-based compensation				146,441			160,219
		Provision for bad debts				7,045			6,329
		Charge for impaired goodwill				—			219,245
		Equity in income (loss) of equity method investments				1,091			(10,630	)
		Minority interest				(3,932	)		(7,741	)
		Gains on investments in equity securities, net				(14,036	)		(75,037	)
		Deferred income tax benefit				(81,629	)		(92,815	)
		Tax benefit from employee stock-based compensation				12,459			20,751
		Excess tax benefits from stock-based compensation				(1,229	)		(8,979	)
		Other				5,585			(2,511	)
		Increase (decrease) in cash from working capital changes (excluding impact of acquired assets and assumed liabilities):
			Accounts receivable			(103,285	)		(77,211	)
			Inventories			(32,559	)		(29,092	)
			Prepaid expenses and other current assets			(16,790	)		(1,519	)
			Income taxes payable			(17,419	)		13,545
			Accounts payable, accrued expenses and deferred revenue			61,235			4,290

				Cash flows from operating activities		610,827			616,932

Cash Flows from Investing Activities:
	Purchases of investments					(602,451	)		(750,855	)
	Sales and maturities of investments					796,612			643,594
	Purchases of equity securities					(20,362	)		(6,115	)
	Proceeds from sales of investments in equity securities					20,712			137,806
	Purchases of property, plant and equipment					(281,309	)		(236,917	)
	Acquisition of Bioenvision stock					(72,229	)		—
	Distributions from equity method investments					17,100			12,000
	Payment of note receivable from Dyax Corp.					7,771			370
	Purchases of other intangible assets					(45,821	)		(67,793	)
	Other					658			4,292

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

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

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

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

Increase in cash and cash equivalents						357,694			470,927
Cash and cash equivalents at beginning of period						492,170			291,960

Cash and cash equivalents at end of period					$	849,864		$	762,887

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

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements

1. Description of Business

We are a global biotechnology company dedicated to making a major impact on the lives of people with serious diseases. Our broad product and service portfolio is focused on rare disorders, renal diseases, orthopaedics, 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 lysosomal storage disorders, or LSDs, and other specialty therapeutics, such as Thyrogen. The unit derives substantially all of its revenue from sales of Cerezyme, Fabrazyme, Myozyme and Thyrogen;
•: Transplant, which develops, manufactures and distributes therapeutic products that address pre-transplantation, prevention and treatment of rejection in organ transplantation and other auto-immune disorders. The unit derives substantially all of its revenue from sales of Thymoglobulin;
•: Biosurgery, which develops, manufactures and distributes biotherapeutics and biomaterial-based products, with an emphasis on products that meet medical needs in the orthopaedics and broader surgical areas. The unit derives substantially all of its revenue from sales of Synvisc, the Sepra line of products, Carticel and Matrix-induced Autologous Chondrocyte Implantation, or MACI; and
•: Genetics, which provides testing services for the oncology, prenatal and reproductive markets.

We report the activities of our diagnostic products, oncology, bulk pharmaceuticals and cardiovascular business units under the caption "Other." We report our corporate, general and administrative operations and corporate science activities under the caption "Corporate."

2. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

Our unaudited, consolidated financial statements for each period include the statements of operations and comprehensive income, balance sheets and statements of cash flows for our operations taken as a whole. We have eliminated all intercompany items and transactions in consolidation. We have reclassified certain 2006 data to conform to our 2007 presentation. We prepare our unaudited, consolidated financial statements following the requirements of the SEC for interim reporting. As permitted under these rules, we condense or omit certain footnotes and other financial information that are normally required by accounting principles generally accepted in the United States.

These financial statements include all normal and recurring adjustments that we consider necessary for the fair presentation of our financial position and results of operations. Since these are interim financial statements, you should also read our audited, consolidated financial statements and notes included in our 2006 Form 10-K. Revenues, expenses, assets and liabilities can vary from quarter to quarter. Therefore, the results and trends in these interim financial statements may not be indicative of results for future periods.

Our unaudited, consolidated financial statements for each period include the accounts of our wholly-owned and majority-owned subsidiaries. As a result of our adoption of FIN 46R, "Consolidation of Variable Interest Entities," we also consolidate certain variable interest entities for which we are the primary beneficiary. For consolidated subsidiaries in which we have less than a 100% interest, we record minority interest in our consolidated statements of operations for the ownership interest of the minority owner. We use the equity method of accounting to account for our investments in entities in which we have a substantial ownership interest (20% to 50%) which do not fall in the scope of FIN 46R, or over which we exercise significant influence. Our consolidated net income includes our share of the earnings of these entities.

Income Taxes

Effective January 1, 2007, we adopted the provisions of FIN 48, "Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109," which clarifies the accounting for income tax positions by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on the derecognition of previously recognized deferred tax items, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. Under FIN 48, we recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the tax position. The tax benefits recognized in our financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. For more information regarding the impact the adoption of FIN 48 had on our results of operations, financial condition and liquidity, see Note 13., "(Provision for) Benefit from Income Taxes," included in this report.

Recent Accounting Pronouncements

FAS 157, "Fair Value Measurements." In September 2006, the FASB issued FAS 157, "Fair Value Measurements," which provides enhanced guidance for using fair value to measure assets and liabilities. FAS 157 establishes a common definition of fair value, provides a framework for measuring fair value under accounting principles generally accepted in the United States and expands disclosure requirements regarding fair value measurements. FAS 157 will be effective for us as of January 1, 2008. We are currently evaluating the impact, if any, the adoption of FAS 157 will have on our financial position and results of operations.

FAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115." In February 2007, the FASB issued FAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115," which permits, but does not require, entities to measure certain financial instruments and other assets and liabilities at fair value on an instrument-by-instrument basis. Unrealized gains and losses on items for which the fair value option has been elected should be recognized in earnings at each subsequent reporting date. FAS 159 will be effective for us as of January 1, 2008 and cannot be adopted early unless FAS 157 is also adopted. We are currently evaluating the impact, if any, the adoption of FAS 159 may have on our financial position and results of operations.

EITF Issue No. 07-3, "Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities." In June 2007, the FASB ratified the EITF consensus reached in EITF Issue No. 07-3, "Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities," which provides guidance for nonrefundable prepayments for goods or services that will be used or rendered for future research and development activities and directs that such payments should be deferred and capitalized. Such amounts should be recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered. EITF 07-3 is effective for us January 1, 2008 and will be applied prospectively to new contracts we enter into on or after that date. Earlier application is not permitted. We are currently evaluating the impact, if any, the adoption of EITF No. 07-3 will have on our financial position, results of operations or cash flows.

3. Stockholders' Equity

Stock Repurchase

In May 2007, our board of directors authorized a stock repurchase program to repurchase up to an aggregate maximum amount of $1.5 billion or 20,000,000 shares of our outstanding common stock over the next three years, beginning in June 2007. The repurchases are being made from time to time and can be effectuated through open market purchases, privately negotiated transactions, transactions structured through investment banking institutions, or by other means, subject to management's discretion and as permitted by securities laws and other legal requirements. As of September 30, 2007, we have repurchased a total of 2,808,738 shares of our common stock at an average price of $64.50 per share for a total of $181.2 million of cash, including fees. In July 2004, the Massachusetts Business Corporation Act, or MBCA, became effective and eliminated the concept of treasury shares. Under the MBCA, shares repurchased by Massachusetts corporations constitute authorized but unissued shares. As result, we recorded the repurchases in our consolidated balance sheet as of September 30, 2007, as a reduction to our common stock account for the par value of the repurchased shares and as a reduction to our additional paid-in capital account.

Equity Plans

At our annual meeting of shareholders held on May 24, 2007, which we refer to as our 2007 Annual Meeting, our shareholders approved the merger of our 1997 Equity Incentive Plan into our 2004 Equity Incentive Plan and authorized an increase of 3,500,000 shares for issuance under our 2004 Equity Incentive Plan. Our 2004 Equity Incentive Plan authorizes the issuance of stock options, restricted stock and restricted stock units, or RSUs. We began issuing RSUs under our 2004 Equity Incentive Plan in connection with a general grant to employees in May 2007.

Our 1998 Director Stock Option Plan was due to expire in March 2008. On February 28, 2007, our board of directors approved our 2007 Director Equity Plan which was created to amend, restate and replace our 1998 Director Stock Option Plan. At our 2007 Annual Meeting, our shareholders also approved the 2007 Director Equity Plan. Similar to our 2004 Equity Incentive Plan, our 2007 Director Equity Plan authorizes the issuance of stock options, restricted stock and RSUs to our directors.

Employee Stock Purchase Plan

At our 2007 Annual Meeting, our shareholders approved an increase of 1,500,000 shares authorized for issuance under our 1999 Employee Stock Purchase Plan.

Stock-Based Compensation Expense, Net of Estimated Forfeitures

We allocate pre-tax stock-based compensation expense, net of estimated forfeitures, based on the functional cost center of each employee as follows (amounts in thousands, except per share amounts):

			Three Months Ended September 30,						Nine Months Ended September 30,
			2007			2006			2007			2006
Pre-tax stock-based compensation expense, net of estimated forfeitures charged to:
	Cost of products and services sold(1)		$	(5,779	)	$	(5,663	)	$	(18,540	)	$	(12,893	)
	Selling, general and administrative expense			(25,091	)		(24,421	)		(82,838	)		(96,560	)
	Research and development expense			(13,518	)		(14,556	)		(44,973	)		(50,682	)

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

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

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

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

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

		Three Months Ended September 30,						Nine Months Ended September 30,
		2007			2006			2007			2006
Stock-based compensation expense capitalized to inventory		$	2,484		$	3,377		$	10,323		$	11,640

In July 2006, we began amortizing stock-based compensation expense capitalized to inventory based on inventory turns.

At September 30, 2007, there was $292.6 million of pre-tax stock-based compensation expense, net of estimated forfeitures, related to unvested awards not yet recognized which are expected to be recognized over a weighted average period of 2.3 years.

4. Net Income Per Share

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

			Three Months Ended September 30,				Nine Months Ended September 30,
			2007		2006		2007		2006
Net income—basic			$	159,313	$	15,966	$	401,294	$	251,437
Effect of dilutive securities:
	Interest expense and debt fee amortization, net of tax, related to our 1.25% convertible senior notes			1,886		1,874		5,658		5,622

Net income—diluted			$	161,199	$	17,840	$	406,952	$	257,059

Shares used in computing net income per common share—basic				262,775		261,541		263,387		260,565
Effect of dilutive securities:
	Shares issuable upon the assumed conversion of our 1.25% convertible senior notes			9,686		9,686		9,686		9,686
	Stock options(1)			6,584		7,033		6,747		6,868
	Restricted stock units(2)			150		—		67		—
	Warrants and stock purchase rights			11		11		11		11

		Dilutive potential common shares		16,431		16,730		16,511		16,565

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

Net income per common share:
	Basic		$	0.61	$	0.06	$	1.52	$	0.96

	Diluted		$	0.58	$	0.06	$	1.45	$	0.93

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

		Three Months Ended September 30,				Nine Months Ended September 30,
		2007		2006		2007		2006
Shares issuable upon exercise of outstanding options		17,689		14,278		15,408		11,199

(2): We began issuing RSUs under our 2004 Equity Incentive Plan in connection with a general grant to employees in May 2007.

5. Mergers and Acquisitions

Pending Acquisition of the Diagnostics Division of Diagnostic Chemicals Limited

On November 2, 2007, we entered into an agreement with DCL, a privately-held diagnostics and biopharmaceutical company based in Charlottetown, Prince Edward Island, Canada, to acquire DCL's diagnostics division, including DCL's line of over 50 formulated clinical chemistry reagents and its diagnostics operations in Prince Edward Island, Canada and Connecticut, for an aggregate purchase price of approximately $53 million Canadian dollars, or approximately $57 million U.S. dollars (based on the November 2, 2007 spot rate for the Canadian dollar), in cash. We expect to close the transaction in December 2007.

Acquisition of Bioenvision

On May 29, 2007, we entered into an agreement and plan of merger with Bioenvision, a publicly-traded biopharmaceutical company based in New York City and Edinburgh, Scotland, and Wichita Bio Corporation, one of our wholly-owned subsidiaries, to acquire Bioenvision in an all-cash transaction valued at $11.20 per outstanding share of Bioenvision Series A Preferred Stock (plus accrued but unpaid dividends) and $5.60 per outstanding share of Bioenvision Common Stock, or approximately $345 million in aggregate. Bioenvision is focused on the acquisition, development and marketing of compounds and technologies for the treatment of cancer, autoimmune disease and infection. Effective October 23, 2007, we completed the acquisition of Bioenvision. This acquisition was completed through a two step process consisting of a tender offer completed in July 2007, and a merger approved in October 2007.

The acquisition of Bioenvision provides us with the exclusive, worldwide rights to clofarabine. We currently market clofarabine in the United States and Canada under the brand name Clolar for relapsed and refractory pediatric acute lymphoblastic leukemia, or ALL, patients. In Europe, we co-developed clofarabine with Bioenvision and Bioenvision has been marketing the product under the brand name Evoltra, also for the treatment of relapsed and refractory pediatric ALL patients. We and Bioenvision have been developing clofarabine for diseases with significantly larger patient populations, including use as a first-line therapy for the treatment of adult acute myeloid leukemia, or AML. Clofarabine has been granted orphan drug status for ALL and AML in both the United States and European Union.

Tender Offer

On July 10, 2007, we completed the tender offer and purchased 2,250,000 shares of Bioenvision Series A Preferred Stock for $25.2 million, which we recorded as a component of investments in equity securities, and 8,398,098 shares of Bioenvision Common Stock for $47.0 million, which we recorded as a component of other noncurrent assets in our consolidated balance sheet. As a result of the tender offer, we acquired approximately 22% of the then outstanding shares of Bioenvision Common Stock on an as-converted basis, including 100% of the outstanding Bioenvision Series A Preferred Stock.

Significant Influence through Other Means." Our initial investments in Bioenvision Common Stock and Bioenvision Series A Preferred Stock gave us significant influence over Bioenvision and, as a result, we accounted for our investment in Bioenvision Common Stock under the equity method of accounting. Accordingly, in July 2007, we recorded our initial $47.0 million investment in Bioenvision Common Stock as a single amount in other noncurrent assets in our consolidated balance sheet. Of this amount, we attributed $7.1 million to our 15% proportional share of the assets and liabilities of Bioenvision and $39.9 million, representing the excess of the purchase price over our proportional share of the net assets of Bioenvision, to the underlying intangible assets, IPR&D and goodwill based on their fair values, including $16.8 million, net of tax, to intangible assets, $19.1 million to IPR&D and $4.0 million to goodwill. Equity in income (loss) of equity method investments for the three and nine months ended September 30, 2007 reflects a total of $20.5 million of charges related to our initial investment in Bioenvision Common Stock, including a $19.1 million charge for IPR&D and a total of $1.4 million of charges for the period from July 10, 2007 through September 30, 2007, of which $1.0 million represents our portion of the losses of Bioenvision for that period and $0.4 million represents amortization expense, net of tax, related to the value assigned to technology and other intangible assets. As of September 30, 2007, other noncurrent assets in our consolidated balance sheet includes a net balance of $26.5 million for our initial investment in Bioenvision Common Stock including $47.0 million for the cash consideration we paid, which was offset by the $20.5 million of charges described above.

Stockholder Approval of the Merger

On October 22, 2007, a special meeting of the Bioenvision stockholders was held to seek approval for the merger. Holders of a majority of the issued and outstanding shares of Bioenvision Common Stock and Bioenvision Series A Preferred Stock, voting together as a single class on an as converted basis, approved the merger. On October 23, 2007, we paid approximately $245 million in cash consideration to the former Bioenvision stockholders and Bioenvision Common Stock ceased trading and was delisted from The Nasdaq Stock Market, Inc., or NASDAQ. In the fourth quarter of 2007, we will pay approximately $11 million of cash for the outstanding options to purchase shares of Bioenvision Common Stock. The full purchase accounting for our acquisition of Bioenvision, including the impact of our merger in October 2007, will be reflected in our consolidated financial statements as of December 31, 2007 and for the year ended December 31, 2007.

In connection with the merger, holders of 2,880,000 shares of Bioenvision Common Stock, representing less than 5% of the outstanding shares of Bioenvision Common Stock on an as-converted basis immediately before the merger became effective, submitted written demands for appraisal of their shares and have, as a result, elected not to accept the $5.60 per share merger consideration. We refer to these stockholders as dissenting stockholders.

Acquisition of AnorMED

In November 2006, we acquired AnorMED, a publicly-held chemical-based biopharmaceutical company based in Langley, British Columbia, Canada, with a focus on the discovery, development and commercialization of new therapeutic products in the area of hematology, oncology and human immunodeficiency virus, or HIV. We paid gross consideration of $589.2 million in cash, including $584.2 million for the shares of AnorMED's common stock outstanding on the date of acquisition and $5.0 million for acquisition costs. Net consideration was $569.0 million as we acquired AnorMED's cash and cash equivalents totaling $20.2 million. We accounted for the acquisition as a business combination

and accordingly, included AnorMED's results of operations in our consolidated statements of operations from November 7, 2006, the date of acquisition.

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

Purchase of 43,272,085 shares of AnorMED common stock		$	584,173
Acquisition costs			5,000

Total purchase price		$	589,173

Cash and cash equivalents		$	20,220
Other current assets			6,340
Property, plant and equipment			758
Goodwill			31,703
Other intangible assets (to be amortized over 10 years)			3,500
In-process research and development			552,900
Deferred tax assets—noncurrent			27,380
Other noncurrent assets			573
Assumed liabilities:
	Deferred tax liability		(25,288	)
	Liabilities for exit activities		(7,733	)
	Other liabilities		(21,180	)

Allocated purchase price		$	589,173

The allocation of the purchase price was adjusted in 2007 to:

•: write off $2.1 million of fixed assets associated with the acquisition;
•: revise the estimated liabilities related to exit activities by $1.2 million; and
•: adjust the deferred taxes by $(0.7) million.

The purchase price, as adjusted, was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed amounted to $31.7 million, which was allocated to goodwill. We expect that substantially all of the amount allocated to goodwill will be deductible for tax purposes.

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

In-Process Research and Development

In connection with five of our acquisitions completed between January 1, 2004 and September 30, 2007, we have acquired various IPR&D projects. Substantial additional research and development costs will be required prior to any of our acquired IPR&D programs and technology platforms reaching technological feasibility. In addition, once research is completed, each product candidate acquired will need to complete a series of clinical trials and receive FDA or other regulatory approvals prior to

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

The following table sets forth IPR&D projects for companies and certain assets we have acquired between January 1, 2004 and September 30, 2007 (amounts in millions):

Company/Assets Acquired	Purchase Price		IPR&D(1)		Programs Acquired	Discount Rate Used in Estimating Cash Flows(1)	Year of Expected Launch
AnorMED (2006)	$	589.2	$	526.8	Mozobil (stem cell transplant)	15%	2009-2014
				26.1	AMD070 (HIV)(2)	15%	—

			$	552.9

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

Bone Care International, Inc. (2005)	$	712.3	$	12.7	LR-103 (secondary
					hyperparathyroidism)(3)	25%	—
Verigen (2005)	$	12.7	$	9.5	MACI (cartilage repair)	24%	2012-2014

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

			$	254.5

(1): Management assumes responsibility for determining the valuation of the acquired IPR&D projects. The fair value assigned to IPR&D for each acquisition is estimated by discounting, to present value, the cash flows expected once the acquired projects have reached technological feasibility. The cash flows are probability-adjusted to reflect the risks of advancement through the product approval process. In estimating the future cash flows, we also considered the tangible and intangible assets required for successful exploitation of the technology resulting from the purchased IPR&D projects and adjusted future cash flows for a charge reflecting the contribution to value of these assets.
(2): Year of expected launch is not provided for AMD070 at this time because we are assessing our future plans for this program.
(3): Year of expected launch is not provided for LR-103 at this time because this program is in its early stages and we are evaluating several potential applications for LR-103 to determine which application we will pursue. Therefore, the year of expected launch cannot be determined.
(4): Campath is currently marketed for the treatment of B-cell chronic lymphocytic leukemia and Clolar is marketed for the treatment of relapsed and refractory pediatric ALL. The IPR&D projects for Campath and Clolar are related to the development of these products for the treatment of other medical issues.

In addition, we account for our investment in Bioenvision Common Stock under the equity method of accounting and, accordingly, we recorded a charge of $19.1 million in equity in income (loss) of equity method investments in our consolidated statement of operations for the three and nine months ended September 2007 for the portion of the purchase price for this investment that we allocated to IPR&D. The full purchase accounting for our acquisition of Bioenvision, including the impact of our merger in October 2007, will be reflected in our consolidated financial statements as of December 31, 2007 and for the year ended December 31, 2007.

Exit Activities

In connection with several of our acquisitions, we initiated integration plans to consolidate and restructure certain functions and operations, including the relocation and termination of certain personnel of these acquired entities and the closure of certain of the acquired entities' leased facilities. These costs have been recognized as liabilities assumed in connection with the acquisition of these entities in accordance with EITF Issue No. 95-3, "Recognition of Liabilities in Connection with a Purchase or Business Combination," and are subject to potential adjustments as certain exit activities are confirmed or refined. The following table summarizes the liabilities established for exit activities related to these acquisitions (amounts in thousands):

		Employee Related Benefits			Closure of Leased Facilities			Other Exit Activities			Total Exit Activities
Balance at December 31, 2005		$	2,249		$	199		$	8,117		$	10,565
	Acquisition(1)		6,478			—			—			6,478
	Revision of estimates		(165	)		(132	)		(750	)		(1,047	)
	Payments		(2,457	)		(43	)		(7,367	)		(9,867	)

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

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

(1): We expect to pay employee related benefits related to the acquisition of AnorMED through 2008.

Pro Forma Financial Summary

The following pro forma financial summary is presented as if the acquisition of AnorMED was completed as of January 1, 2006. These pro forma combined results are not necessarily indicative of the actual results that would have occurred had the acquisition been consummated on that date, or of the future operations of the combined entities. Material nonrecurring charges related to the acquisition of AnorMED, such as IPR&D charges of $552.9 million, are included in the following pro forma financial summary as of January 1, 2006 (amounts in thousands, except per share amounts):

		Three Months Ended September 30, 2006		Nine Months Ended September 30, 2006
Total revenues		$	823,078	$	2,347,514

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

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

	Diluted	$	0.07	$	(0.65	)

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

	Diluted		278,271		260,565

6. Inventories

		September 30, 2007		December 31, 2006
		(Amounts in thousands)
Raw materials		$	125,841	$	100,698
Work-in-process			120,735		119,510
Finished goods			192,296		154,436

	Total	$	438,872	$	374,644

We capitalize inventory produced for commercial sale, which may result in the capitalization of inventory prior to regulatory approval of a product. In no event is inventory capitalized prior to the completion of a phase 3 clinical trial. If a product is not approved for sale, it would result in the write off of the inventory and a charge to earnings. Our total inventories at September 30, 2007, included $17.4 million of inventory for Renvela that had not yet been approved for sale. On October 22, 2007, the FDA granted marketing approval for Renvela.

7. Goodwill and Other Intangible Assets

Goodwill

The following table contains the change in our net goodwill during the nine months ended September 30, 2007 (amounts in thousands):

		December 31, 2006		Adjustments			September 30, 2007
Renal(1)		$	305,528	$	(1,577	)	$	303,951
Therapeutics			354,709		—			354,709
Transplant(2)			157,591		2,563			160,154
Biosurgery			7,585		—			7,585
Other			473,368		179			473,547

	Net goodwill	$	1,298,781	$	1,165		$	1,299,946

(1): The adjustments to Renal goodwill include adjustments associated with our acquisition of Bone Care International, Inc., or Bone Care, in July 2005.
(2): The adjustments to Transplant goodwill represent purchase accounting adjustments related to our November 2006 acquisition of AnorMED, including increases of $2.1 million from the write off of certain fixed assets associated with the acquisition and $1.2 million of revisions to the estimates of liabilities related to exit activities, offset by a decrease of $(0.7) million to adjust deferred taxes.

We are required to perform impairment tests related to our goodwill under FAS 142, "Goodwill and Other Intangible Assets," annually and whenever events or changes in circumstances suggest that the carrying value of an intangible asset may not be recoverable. We completed the required annual impairment tests for our $1.3 billion of net goodwill in the third quarter of 2007 and determined that no impairment charge was required.

Other Intangible Assets

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

		September 30, 2007							December 31, 2006
		Gross Other Intangible Assets		Accumulated Amortization			Net Other Intangible Assets		Gross Other Intangible Assets		Accumulated Amortization			Net Other Intangible Assets
Technology		$	1,506,998	$	(512,594	)	$	994,404	$	1,505,748	$	(424,650	)	$	1,081,098
Patents			194,561		(100,076	)		94,485		194,560		(87,063	)		107,497
Trademarks			60,227		(35,445	)		24,782		60,227		(31,439	)		28,788
License fees(1)			90,084		(26,477	)		63,607		77,807		(20,597	)		57,210
Distribution rights(2)			293,217		(117,994	)		175,223		260,073		(85,543	)		174,530
Customer lists(3)			67,082		(30,984	)		36,098		90,783		(48,760	)		42,023
Other			2,050		(1,469	)		581		2,045		(1,153	)		892

	Total	$	2,214,219	$	(825,039	)	$	1,389,180	$	2,191,243	$	(699,205	)	$	1,492,038

(1): Includes a $9.9 million payment to Sanofi Pasteur, or Sanofi, in September 2007 in connection with an amendment to an existing license agreement in which we acquired manufacturing expertise related to the production of bulk Thymoglobulin and a $2.5 million milestone payment to Synpac in June 2007 for the approval of Myozyme in Japan.
(2): Includes an additional $32.4 million of intangible assets resulting from additional payments made or accrued in 2007 in connection with our reacquisition of the Synvisc sales and marketing rights from Wyeth in January 2005.
(3): Reflects the write off, during the first quarter of 2007, of $23.7 million of fully amortized customer lists, related to our acquisition of Bone Care.

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

•: $49.8 million for the three months ended September 30, 2007;
•: $50.5 million for the three months ended September 30, 2006;
•: $149.3 million for the nine months ended September 30, 2007; and
•: $156.1 million for the nine months ended September 30, 2006.

The estimated future amortization expense for other intangible assets for the remainder of fiscal year 2007, the four succeeding fiscal years and thereafter is as follows (amounts in thousands):

Year ended December 31,	Estimated Amortization Expense(1)
2007 (remaining three months)	$	49,878
2008		209,387
2009		215,620
2010		227,665
2011		238,507
Thereafter		625,327

(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 to Wyeth, and for the Myozyme patent and technology rights pursuant to a license agreement with Synpac based on forecasted future sales of Myozyme and the milestone payments we will be required to make to Synpac related to regulatory approvals. These contingent payments will be recorded as intangible assets when the payments are accrued. Estimated future amortization expense also includes estimated amortization expense for other arrangements involving contingent payments.

8. Investments in Equity Securities

We recorded the following gains on investments in equity securities, net of charges for impairment of investments, for the three and nine months ended September 30, 2007 and 2006 (amounts in thousands):

			Three Months Ended September 30,				Nine Months Ended September 30,
			2007		2006		2007		2006
Gross gains on investments in equity securities:
	Therapeutic Human Polyclonals, Inc. (THP)		$	—	$	—	$	10,848	$	—
	Cambridge Antibody Technology Group plc (CAT)			—		—		—		69,359
	BioMarin Pharmaceutical Inc. (BioMarin)			—		—		—		6,417
	Other			1,105		128		3,188		2,154

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

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

Unrealized Gains (Losses)

At September 30, 2007, our stockholders' equity included $23.3 million of unrealized gains and $0.4 million of unrealized losses related to our investments in equity securities.

9. Payment of Note Receivable from Dyax Corp.

In 2007, we received cash payments totaling $7.8 million from Dyax Corp., or Dyax, to settle the secured promissory note receivable from Dyax, including $7.0 million to satisfy the outstanding principal balance due under the note and $0.8 million of accrued interest.

10. Joint Venture with BioMarin

We and BioMarin formed BioMarin/Genzyme LLC to develop and commercialize Aldurazyme, a recombinant form of the human enzyme alpha-L-iduronidase, used to treat an LSD known as mucopolysaccharidosis I, or MPS I. We record our portion of the income of BioMarin/Genzyme LLC in equity in income of equity method investments in our unaudited, consolidated statements of operations. Our portion of BioMarin/Genzyme LLC's net income was:

•: $8.2 million for the three months ended September 30, 2007, as compared to $5.0 million for the same period of 2006; and
•: $20.8 million for the nine months ended September 30, 2007, as compared to $13.0 million for the same period of 2006.

During the nine months ended September 30, 2007, we received $17.1 million of cash distributions from BioMarin/Genzyme LLC.

Condensed financial information for BioMarin/Genzyme LLC is summarized below (amounts in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Revenue	$	32,322		$	25,029		$	88,270		$	69,891
Gross margin		25,284			18,883			68,241			51,674
Operating expenses		(8,709	)		(9,110	)		(26,743	)		(26,209	)
Net income		16,793			9,959			42,029			25,953

11. Revolving Credit Facility

As of September 30, 2007, no amounts were outstanding under our five-year $350.0 million senior unsecured revolving credit facility with JPMorgan Chase Bank, N.A., as administrative agent, Bank of America, N.A., as syndication agent, ABN AMRO Bank N.V., Citizens Bank of Massachusetts and Wachovia Bank, National Association, as co-documentation agents, and a syndicate of lenders, which we refer to as our 2006 revolving credit facility. The terms of our 2006 revolving credit facility include various covenants, including financial covenants that require us to meet minimum interest coverage ratios and maximum leverage ratios. As of September 30, 2007, we were in compliance with these covenants.

12. Other Commitments and Contingencies

Legal Proceedings

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

Through June 30, 2003, we had three outstanding series of common stock, which we referred to as tracking stocks; Genzyme General Stock (which we now refer to as Genzyme Stock), Biosurgery Stock and Molecular Oncology Stock. Four lawsuits were filed against us regarding the exchange of all of the outstanding shares of Biosurgery Stock for shares of Genzyme Stock in connection with the elimination of our tracking stocks in July 2003. Each of the lawsuits was a purported class action on behalf of holders of Biosurgery Stock. The first case, filed in the Massachusetts Superior Court (MSC) in May 2003, alleged a breach of the implied covenant of good faith and fair dealing in our charter and a breach of our board of directors' fiduciary duties. The plaintiff in this case sought an injunction to adjust the exchange ratio for the tracking stock exchange. The MSC dismissed the complaint in its entirety in November 2003. Upon appeal, the Massachusetts Appeals Court upheld the dismissal by the MSC of the fiduciary duty claim, but reversed the earlier decision to dismiss the implied covenant claim. The Massachusetts Supreme Judicial Court (SJC) granted our petition for further appellate review. On June 4, 2007, the SJC reversed the Appeals Court's decision and affirmed dismissal of the complaint in its entirety. On July 25, 2007, the SJC denied the plaintiff's petition for rehearing. Two substantially similar cases were filed in the MSC in August and October 2003. These cases were consolidated in January 2004, and in July 2004, the consolidated case was stayed pending disposition of a fourth case, which was filed in the U.S. District Court for the Southern District of New York in June 2003. As amended, this complaint alleged violations of federal securities laws, as well as various state law claims, related to the exchange, on behalf of a certified class of holders of Biosurgery Stock as of May 8, 2003. On August 6, 2007, we reached an agreement-in-principle with counsel for the plaintiff class to settle and dismiss this case for approximately $64 million. A definitive settlement agreement was approved by the court on October 26, 2007. Because the members of the class in the New York action released all claims, the settlement has, as a practical matter, resolved the consolidated case in the MSC. We have submitted claims to our insurers for reimbursement of portions of the expenses incurred and to be incurred in connection with these cases; the insurer has purported to deny coverage. We intend to vigorously pursue our rights with respect to insurance coverage. As a result, we recorded a liability for the settlement payment of approximately $64 million as a charge to selling, general and administrative expense, or SG&A, in our consolidated statement of operations in June 2007, which we subsequently paid in August 2007.

We are not able to predict the outcome of other legal proceedings, to which we may become subject in the normal course of business or estimate the amount or range of any reasonably possible loss we might incur if we do not prevail in the final, non-appealable determinations of such matters. Therefore, we have no current accruals for these potential contingencies. We cannot provide you with assurance that other legal proceedings will not have a material adverse impact on our financial condition or results of operations.

13. (Provision for) Benefit from Income Taxes

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
	(Amounts in thousands)
(Provision for) benefit from income taxes	$	(66,432	)	$	44,530		$	(201,715	)	$	(60,841	)
Effective tax rate		29	%		(156	)%		33	%		19	%

Our effective tax rate for all periods presented varies from the U.S. statutory tax rate as a result of:

•: our provision for state income taxes;
•: the tax benefits from export sales;
•: the tax benefits from domestic production activities;
•: benefits related to tax credits;
•: income and expenses taxed at rates other than the U.S. statutory tax rate;
•: non-deductible stock-based compensation expenses; and
•: non-deductible expenses associated with the settlement of litigation related to the consolidation of our former tracking stocks.

Our effective tax rate for the three and nine months ended September 30, 2006, was also impacted by a charge for impaired goodwill of $219.2 million of which $29.5 million was not deductible for tax purposes.

Effective January 1, 2007, we adopted FIN 48 and recognized a cumulative effect adjustment of $33.9 million to increase our retained earnings balance as of January 1, 2007, which consisted of $25.8 million to record the combined effect of our gain contingency and the change in the recognition standard pursuant to the settlement criteria of FASB Staff Position, or FSP, FIN 48-1, "Definition of Settlement in FASB Interpretation No. 48," or FSP FIN 48-1, and $8.1 million resulting from our settlement of the IRS audit for tax years 2002 to 2003. After these adjustments, as of January 1, 2007, we had approximately $36.5 million of total gross unrealized tax benefits, of which approximately $26.6 million represents the amount of unrecognized tax benefits that, if recognized, would favorably affect our effective income tax rate in future periods. These gross unrealized tax benefits did not change significantly during the nine months ended September 30, 2007.

We continue to recognize interest relating to unrecognized tax benefits within our provision for income taxes but have not recorded any amounts related to potential penalties. The amount of accrued interest related to unrecognized tax benefits within our provision for income taxes for the three and nine months ended September 30, 2007, and our accrued interest related to unrecognized tax benefits as of January 1, 2007 and September 30, 2007 were not significant.

We are subject to U.S. federal income tax and various state, local and international income taxes in numerous jurisdictions, however, our only significant tax jurisdiction is the United States. We record liabilities for income tax contingencies based on our best estimate of the underlying exposures. We are currently under IRS audit for tax years 2004 to 2005, and in certain state and foreign jurisdictions from 2003 forward. 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.

14. Segment Information

In accordance with FAS 131, "Disclosures about Segments of an Enterprise and Related Information," we present segment information in a manner consistent with the method we use to report this information to our management. Applying FAS 131, we have five reporting segments as described in Note 1., "Description of Business," to these consolidated financial statements.

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

			Three Months Ended September 30,						Nine Months Ended September 30,
			2007			2006			2007			2006
Revenues:
	Renal		$	184,424		$	160,204		$	522,350		$	446,774
	Therapeutics			471,351			388,267			1,365,617			1,107,262
	Transplant			42,881			39,241			127,582			114,719
	Biosurgery			106,146			93,449			312,428			286,386
	Genetics			73,050			61,360			212,922			179,853
	Other			81,841			66,043			234,693			197,674
	Corporate			466			10			1,169			104

		Total	$	960,159		$	808,574		$	2,776,761		$	2,332,772

Income (loss) before income taxes:
	Renal		$	75,706		$	52,243		$	201,796		$	126,313
	Therapeutics(1)			304,376			259,137			870,706			741,124
	Transplant(2)			(19,902	)		4,809			(33,645	)		15,160
	Biosurgery(2)			15,526			10,773			41,577			28,021
	Genetics(3)			4,277			(220,778	)		19,909			(224,995	)
	Other(4)			(32,330	)		(11,273	)		(51,079	)		(35,253	)
	Corporate(5)			(121,908	)		(123,475	)		(446,255	)		(338,092	)

		Total	$	225,745		$	(28,564	)	$	603,009		$	312,278

(1): Includes a $25.0 million upfront payment made to Ceregene, Inc., or Ceregene, in June 2007 in connection with a collaboration agreement for the development and commercialization of CERE-120, a gene therapy product for the treatment of Parkinson's disease.
(2): The results of operations of acquired companies and assets and the amortization expense related to acquired intangible assets are included in segment results beginning on the date of acquisition.
(3): Includes a charge for impaired goodwill of $219.2 million in September 2006 to write off the goodwill related to our Genetics reporting unit in accordance with FAS 142.
(4): Includes $20.5 million of charges recorded against our initial $47.0 million investment in Bioenvision Common Stock, including a $19.1 million charge for IPR&D and a total of $1.4 million of charges for the period from July 10, 2007 through September 30, 2007, of

which $1.0 million represents our portion of the losses of Bioenvision for that period and $0.4 million represents amortization expense, net of tax, related to the value assigned to Bioenvision's technology and other intangible assets.

(5): Loss before income taxes for Corporate includes our corporate, general and administrative and corporate science activities, all of the stock-based compensation expense, as well as net gains on investments in equity securities, interest income, interest expense and other income and expense items that we do not specifically allocate to a particular reporting segment. Loss before income taxes for Corporate for the nine months ended September 30, 2007, includes a charge of $64.0 million for the settlement of the litigation related to the consolidation of our former tracking stocks.

Segment Assets

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

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

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

(1): Assets for our five reporting segments and Other include primarily accounts receivable, inventory and certain fixed and intangible assets, including goodwill.
(2): Includes the assets related to our corporate, general and administrative operations, and corporate science activities that we do not allocate to a particular segment, including cash, cash equivalents, short-and long-term investments, net property, plant and equipment and net deferred tax assets.

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

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

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

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF GENZYME CORPORATION AND SUBSIDIARIES' FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

INTRODUCTION

We are a global biotechnology company dedicated to making a major impact on the lives of people with serious diseases. Our broad product and service portfolio is focused on rare disorders, renal diseases, orthopaedics, organ transplant, and diagnostic and predictive testing. 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, Myozyme and Thyrogen;
•: Transplant, which develops, manufactures and distributes therapeutic products that address pre-transplantation, prevention and treatment of rejection in organ transplantation and other auto-immune disorders. The unit derives substantially all of its revenue from sales of Thymoglobulin;
•: Biosurgery, which develops, manufactures and distributes biotherapeutics and biomaterial-based products, with an emphasis on products that meet medical needs in the orthopaedics and broader surgical areas. The unit derives substantially all of its revenue from sales of Synvisc, the Sepra line of products, Carticel and MACI; and
•: Genetics, which provides testing services for the oncology, prenatal and reproductive markets.

MERGERS AND ACQUISITIONS

Pending Acquisition of the Diagnostics Division of Diagnostic Chemicals Limited

on the November 2, 2007 spot rate for the Canadian dollar), in cash. We expect to close the transaction in December 2007.

Acquisition of Bioenvision

The acquisition of Bioenvision provides us with the exclusive, worldwide rights to clofarabine. We currently market clofarabine in the United States and Canada under the brand name Clolar for relapsed and refractory pediatric ALL patients. In Europe, we co-developed clofarabine with Bioenvision and Bioenvision has been marketing the product under the brand name Evoltra, also for the treatment of relapsed and refractory pediatric ALL patients. We and Bioenvision have been developing clofarabine for diseases with significantly larger patient populations, including use as a first-line therapy for the treatment of adult acute myeloid leukemia, or AML. Clofarabine has been granted orphan drug status for ALL and AML in both the United States and European Union.

Tender Offer

We accounted for our investments in Bioenvision Series A Preferred Stock and Bioenvision Common Stock using two different methods. In the third quarter of 2007, we accounted for our investment in Bioenvision Series A Preferred Stock under the cost method of accounting because these shares did not qualify as similar or substantially similar to common stock (in-substance common stock) under the guidance of EITF Issue No. 02-14, "Whether the Equity Method of Accounting Applies When an Investor Does Not Have an Investment in Voting Stock of an Investee but Exercises Significant Influence through Other Means." Our initial investments in Bioenvision Common Stock and Bioenvision Series A Preferred Stock gave us significant influence over Bioenvision and, as a result, we accounted for our investment in Bioenvision Common Stock under the equity method of accounting. Accordingly, in July 2007, we recorded our initial $47.0 million investment in Bioenvision Common Stock as a single amount in other noncurrent assets in our consolidated balance sheet. Of this amount, we attributed $7.1 million to our 15% proportional share of the assets and liabilities of Bioenvision and $39.9 million, representing the excess of the purchase price over our proportional share of the net assets of Bioenvision, to the underlying intangible assets, IPR&D and goodwill based on their fair values, including $16.8 million, net of tax, to intangible assets, $19.1 million to IPR&D and $4.0 million to goodwill. Equity in income (loss) of equity method investments for the three and nine months ended September 30, 2007, reflects a total of $20.5 million of charges related to our initial investment in Bioenvision Common Stock, including a $19.1 million charge for IPR&D and a total of $1.4 million of charges for the period from July 10, 2007 through September 30, 2007, of which $1.0 million represents

our portion of the losses of Bioenvision for that period and $0.4 million represents amortization expense, net of tax, related to the value assigned to technology and other intangible assets. As of September 30, 2007, other noncurrent assets in our consolidated balance sheet includes a net balance of $26.5 million for our initial investment in Bioenvision Common Stock, consisting of the $47.0 million cash consideration we paid, which was offset by the $20.5 million of charges described above.

Stockholder Approval of the Merger

On October 22, 2007, a special meeting of the Bioenvision stockholders was held to seek approval for the merger. Holders of a majority of the issued and outstanding shares of Bioenvision Common Stock and Bioenvision Series A Preferred Stock, voting together as a single class on an as converted basis, approved the merger. On October 23, 2007, we paid approximately $245 million in cash consideration to the former Bioenvision stockholders and Bioenvision Common Stock ceased trading and was delisted from NASDAQ. In the fourth quarter of 2007, we will pay approximately $11 million of cash for the outstanding options to purchase shares of Bioenvision Common Stock. The full purchase accounting for our acquisition of Bioenvision, including the impact of our merger in October 2007, will be reflected in our consolidated financial statements as of December 31, 2007 and for the year ended December 31, 2007.

Acquisition of AnorMED

In November 2006, we acquired AnorMED, a publicly-traded chemical-based biopharmaceutical company based in Langley, British Columbia, Canada, with a focus on the discovery, development and commercialization of new therapeutic products in the area of hematology, oncology and human immunodeficiency virus, or HIV. We paid gross consideration of $589.2 million in cash, including $584.2 million for the shares of AnorMED's common stock outstanding on the date of acquisition and $5.0 million for acquisition costs. Net consideration was $569.0 million as we acquired AnorMED's cash and cash equivalents totaling $20.2 million. As part of the transaction, we acquired Mozobil, a late-stage product candidate in development for hematopoietic stem cell transplantation, which we have added to our Transplant business. Multiple early studies showed that Mozobil rapidly increases the number of stem cells that move out of the bone marrow and into a patient's blood, which is an important step in preparing a patient for a stem cell transplant. On July 19, 2007, we announced the successful completion of a phase 3 clinical trial of Mozobil in treating non-Hodgkin's lymphoma and on August 2, 2007, we announced the successful completion of a second phase 3 clinical trial of Mozobil in treating multiple myeloma. The trials met their respective primary and secondary endpoints. We accounted for the acquisition as a business combination and accordingly, we included AnorMED's results of operations in our consolidated statements of operations from November 7, 2006, the date of acquisition.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

Our critical accounting policies and significant judgments and estimates are set forth under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—Critical Accounting Policies and Significant Judgments and Estimates" in Exhibit 13 to our 2006 Form 10-K. Additional information regarding significant judgments, estimates and updates to our policies for Revenue Recognition, Income Taxes and Inventories are included below. Excluding these additional disclosures, there have been no significant changes to our other critical accounting policies or significant judgments and estimates since December 31, 2006.

Revenue Recognition

Product Sales

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

We use a variety of data sources to determine the amount of inventory in the distribution channel. For most product lines, we receive data on sales and inventory levels directly from our primary customers. For key product lines in our Renal and Therapeutics areas, our data sources also include prescription and wholesaler data purchased from external data providers. As part of our efforts to limit the amount of Renal and Therapeutics inventory held by distributors and to gain improved visibility into the distribution channel, we have executed agreements to limit the amounts of inventory they carry and to provide us ongoing reports to verify distributor inventory levels and sales data.

Product Sales Allowances

Sales of many biotechnology products in the United States are subject to increased pricing pressure from managed care groups, institutions, government agencies, and other groups seeking discounts. We and other biotechnology companies in the U.S. market are also required to provide statutorily defined rebates and discounts to various U.S. government agencies in order to participate in the Medicaid program and other government-funded programs. In most international markets, we operate in an environment where governments may and have mandated cost-containment programs, placed restrictions on physician prescription levels and patient reimbursements, emphasized greater use of generic drugs and enacted across-the-board price cuts as methods to control costs. The sensitivity of our estimates can vary by program, type of customer and geographic location. Estimates associated with Medicaid and other government allowances may become subject to adjustment in a subsequent period due to the time delay between the recording of the accrual and its ultimate settlement.

We record product sales net of the following significant categories of product sales allowances:

•: Contractual adjustments—We offer chargebacks and contractual discounts and rebates, which we collectively refer to as contractual adjustments, to certain private institutions and various

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

•: Discounts—In some countries, we offer cash discounts for certain products as an incentive for prompt payment, which are generally a stated percentage off the sales price. We account for cash discounts by reducing accounts receivable by the full amounts of the discounts. We consider payment performance and adjust the accrual to reflect actual experience; and
•: Sales returns—We record allowances for product returns at the time product sales are recorded. The product returns reserve is estimated based on the returns policies for our individual products and our experience of returns for each of our products. If the price of a product changes or if the history of product returns changes, the reserve is adjusted accordingly. We determine our estimates of the sales return accrual for new products primarily based on the historical sales returns experience of similar products, such as those within the same line of product or those within the same or similar therapeutic category.

Our provisions for product sales allowances reduced gross product sales as follows:

			Three Months Ended September 30,								Nine Months Ended September 30,
			Three Months Ended September 30,						Increase/ (Decrease) % Change		Nine Months Ended September 30,						Increase/ (Decrease) % Change
			2007			2006			Increase/ (Decrease) % Change		2007			2006			Increase/ (Decrease) % Change
			(Amounts in thousands)
Product sales allowances:
	Contractual adjustments		$	66,931		$	49,661		35	%	$	180,622		$	144,384		25	%
	Discounts			45,065			33,384		35	%		126,547			90,202		40	%
	Sales returns			1,827			2,570		(29	)%		9,248			9,458		(2	)%

		Total product sales allowances	$	113,823		$	85,615		33	%	$	316,417		$	244,044		30	%

Total gross product sales			$	981,505		$	819,846		20	%	$	2,827,771		$	2,354,345		20	%

Total product sales allowances as a percent of total gross product sales				12	%		10	%				11	%		10	%

Product sales allowances for contractual adjustments and discounts increased for the three and nine months ended September 30, 2007, as compared to the same periods of 2006, primarily due to growth in overall gross product sales.

Total estimated product sales allowance reserves and accruals in our consolidated balance sheets, increased 23% to approximately $159 million as of September 30, 2007, as compared to approximately $129 million as of December 31, 2006, primarily due to increased product sales. Historically, our actual results have not differed materially from amounts estimated. The annual variation has been less than 0.5% of total product sales for each of the last three years.

Distributor Fees

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

•: the vendor receives, or will receive, an identifiable benefit (goods or services) in exchange for the consideration; and
•: the vendor can reasonably estimate the fair value of the benefit received.

We record service fees paid to our distributors as a charge to SG&A, a component of operating expenses, only if the criteria set forth above are met. The following table sets forth the distributor fees recorded as a reduction to product sales and charged to SG&A:

			Three Months Ended September 30,				Nine Months Ended September 30,
			2007		2006		2007		2006
			(Amounts in thousands)
Distributor fees:
	Included in contractual adjustments and recorded as a reduction to product sales		$	2,948	$	2,151	$	9,238	$	6,784
	Charged to SG&A			3,210		2,826		9,644		7,860

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

Income Taxes

Effective January 1, 2007, we adopted the provisions of FIN 48, which clarifies the accounting for income tax positions by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on the derecognition of previously recognized deferred tax items, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. Under FIN 48, we recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the tax position. The tax benefits recognized in our financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.

We operate in numerous countries where our income tax returns are subject to audit and adjustment by local tax authorities. Because we operate globally, the nature of the uncertain tax positions is often very complex and subject to change and the amounts at issue can be substantial. We develop our cumulative probability assessment of the measurement of uncertain tax positions using internal expertise, experience, judgment and assistance from professional advisors. Estimates are refined as additional information becomes known. Any outcome upon settlement that differs from our current estimate may result in additional or lower tax expense in future periods.

As of January 1, 2007, we had approximately $36.5 million of total gross unrealized tax benefits, of which approximately $26.6 million represents the amount of unrecognized tax benefits that, if recognized, would favorably affect our effective income tax rate in future periods. These gross unrealized tax benefits did not change significantly during the nine months ended September 30, 2007.

We continue to recognize interest related to unrecognized tax benefits within our provision for income taxes but have not recorded any amounts related to potential penalties. The amount of accrued interest related to unrecognized tax benefits included in our provision for income taxes for the three and nine months ended September 30, 2007, and our accrued interest related to unrecognized tax benefits as of January 1, 2007 and September 30, 2007, were not significant.

Inventories

We value inventories at cost or, if lower, fair value. We determine cost using the first-in, first-out method. We analyze our inventory levels quarterly and write down inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value and inventory in excess of expected requirements. Expired inventory is disposed of and the related costs are written off. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

We capitalize inventory produced for commercial sale, which may result in the capitalization of inventory prior to regulatory approval. In no event is inventory capitalized prior to the completion of a phase 3 clinical trial. If a product is not approved for sale, it would result in the write off of the inventory and a charge to earnings. Our total inventories at September 30, 2007 included $17.4 million of inventory for Renvela that had not yet been approved for sale. On October 22, 2007, the FDA granted marketing approval for Renvela.

As of June 30, 2007, we had placed four lots of Thymoglobulin finished goods inventory, valued at $11.8 million, under review pending investigation and resolution of out of trend assay results we observed during quality testing. In September 2007, we determined that these lots did not meet our specifications for saleable product and recorded a charge of $11.8 million to cost of products sold to write off the inventory for these lots. Currently, we have three additional finished lots of Thymoglobulin, valued at approximately $8 million, which are under review to determine whether they meet product specifications. If we determine that any of those lots do not meet the specifications for saleable product, we will write off that inventory as a charge to earnings. Even with the four finished lots of Thymoglobulin that have been written off and the possibility of lots under review being written off, we currently expect to be able to meet projected market demand. We will continue to closely monitor our inventory levels and intend to manage production in order to maintain adequate supply levels in 2008.

A. RESULTS OF OPERATIONS

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

REVENUES

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

		Three Months Ended September 30,						Nine Months Ended September 30,
		Three Months Ended September 30,				Increase/ (Decrease) % Change		Nine Months Ended September 30,				Increase/ (Decrease) % Change
		2007		2006		Increase/ (Decrease) % Change		2007		2006		Increase/ (Decrease) % Change
		(Amounts in thousands)
Product revenue		$	867,682	$	734,231	18	%	$	2,511,354	$	2,110,301	19	%
Service revenue			83,177		71,153	17	%		241,533		210,987	14	%

	Total product and service revenue		950,859		805,384	18	%		2,752,887		2,321,288	19	%
Research and development revenue			9,300		3,190	>100	%		23,874		11,484	>100	%

	Total revenues	$	960,159	$	808,574	19	%	$	2,776,761	$	2,332,772	19	%

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, Hectorol for the treatment of secondary

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

•

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

•

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

•

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

•

Other products, including:

•: diagnostic products, including infectious disease and cholesterol testing products;
•: oncology products, including Campath for the treatment of B-cell chronic lymphocytic leukemia, and Clolar for the treatment of relapsed and refractory pediatric ALL after at least two prior regimens; and
•: bulk pharmaceuticals, including WelChol, which is a mono and adjunctive therapy for the reduction of LDL cholesterol in patients with primary hypercholesterolemia.

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

			Three Months Ended September 30,						Nine Months Ended September 30,
			Three Months Ended September 30,				Increase/ (Decrease) % Change		Nine Months Ended September 30,				Increase/ (Decrease) % Change
			2007		2006		Increase/ (Decrease) % Change		2007		2006		Increase/ (Decrease) % Change
			(Amounts in thousands)
Renal:
	Renagel (including sales of bulk sevelamer)		$	154,159	$	134,722	14	%	$	436,497	$	379,976	15	%
	Hectorol			30,265		25,482	19	%		85,853		66,798	29	%

		Total Renal		184,424		160,204	15	%		522,350		446,774	17	%

Therapeutics:
	Cerezyme			286,071		252,227	13	%		832,841		745,225	12	%
	Fabrazyme			104,610		93,170	12	%		309,623		262,714	18	%
	Thyrogen			26,828		22,396	20	%		82,706		69,112	20	%
	Myozyme			53,568		20,402	>100	%		138,232		28,984	>100	%
	Other Therapeutics			153		72	>100	%		1,025		227	>100	%

		Total Therapeutics		471,230		388,267	21	%		1,364,427		1,106,262	23	%

Transplant:
	Thymoglobulin/ Lymphoglobuline			41,036		37,619	9	%		121,854		110,291	10	%
	Other Transplant			1,845		1,622	14	%		5,548		4,428	25	%

		Total Transplant		42,881		39,241	9	%		127,402		114,719	11	%

Biosurgery:
	Synvisc			61,175		55,929	9	%		179,634		172,782	4	%
	Sepra products			26,381		21,054	25	%		74,572		62,430	19	%
	Other Biosurgery			7,107		7,067	1	%		26,065		21,277	23	%

		Total Biosurgery		94,663		84,050	13	%		280,271		256,489	9	%

Other product revenue				74,484		62,469	19	%		216,904		186,057	17	%

		Total product revenues	$	867,682	$	734,231	18	%	$	2,511,354	$	2,110,301	19	%

Renal

Sales of Renagel, including sales of bulk sevelamer, increased 14% to $154.2 million for the three months ended September 30, 2007, as compared to the same period of 2006. Renagel price increases in the United States in December 2006 and April 2007 accounted for $9.5 million of the additional revenue while increased end-user demand worldwide accounted for $9.9 million of additional revenue. The strengthening of foreign currencies, primarily the Euro and British pound sterling, against the U.S. dollar for the three months ended September 30, 2007, as compared to the same period of 2006, positively impacted Renagel revenue by $3.7 million. Sales of Renagel, including sales of bulk sevelamer, were 16% of our total revenue for the three months ended September 30, 2007, compared to 17% of our total revenue for the same period of 2006.

Sales of Renagel, including sales of bulk sevelamer, increased 15% to $436.5 million for the nine months ended September 30, 2007, as compared to the same period of 2006. Price increases for Renagel in the United States in December 2006 and April 2007 accounted for $25.1 million of additional revenue, while increased end-user demand worldwide accounted for $31.4 million of the additional revenue. The strengthening of foreign currencies, primarily the Euro and British pound sterling, against the U.S. dollar for the nine months ended September 30, 2007, as compared to the same period of 2006, positively impacted Renagel revenue by $10.8 million. Sales of Renagel, including sales of bulk sevelamer, were 16% of our total revenue for both the nine months ended September 30, 2007 and 2006.

Hectorol, used to treat secondary hyperparathyroidism in patients on dialysis and those with CKD, is sold to nephrologists in the United States. Sales of Hectorol increased 19% to $30.3 million for the three months ended and increased 29% to $85.9 million for the nine months ended September 30, 2007, as compared to $25.5 million for the three months ended and $66.8 million for the nine months ended September 30, 2006, primarily due to price increases for the 0.5 and 2.5 microgram tablets in July and December 2006 and a price increase for Hectorol IV in April 2006, as well as higher end-user demand during both periods.

We expect sales of Renagel and Hectorol to continue to increase, driven primarily by growing patient access to these products, including through the Medicare Part D program in the United States, and the continued adoption of the products by nephrologists worldwide. We expect adoption rates for Renagel to trend favorably as a result of our 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 and the RIND study. Renagel and Hectorol compete with several other products and our future sales may be impacted negatively by these products. We discuss some of these competitors under the heading "Risk Factors—Our future success will depend on our ability to effectively develop and market our products and services against those of our competitors," included in this report. 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 Renagel dosing, the availability of reimbursement from third-party payors and the extent of coverage, including under the Medicare Part D program. Also, the accuracy of our estimates of fluctuations in the payor mix and our ability to effectively manage wholesaler inventories and the levels of compliance with the inventory management programs we implemented for Renagel and Hectorol with our wholesalers, could impact the revenue from our Renal reporting segment that we record from period to period.

On October 22, 2007, the FDA granted marketing approval for Renvela, a second-generation buffered form of Renagel for the control of serum phosphorus in patients with CKD on dialysis. We expect to launch Renvela for dialysis patients in the United States during the first quarter of 2008 and are pursuing regulatory approvals in Europe, South America and in other markets internationally. We will continue to make Renagel available, with the long-term goal of transitioning patients to Renvela.

We expect Renvela will enable us to expand the market for our phosphate binder by reaching patients with CKD who have not progressed to dialysis. In October 2007, an FDA advisory committee voted to recommend that the agency extend the indications for phosphate binders to include pre-dialysis patients with hyperphosphatemia. During the first half of 2008, we plan to file a supplemental New Drug Application with the FDA seeking approval of Renvela for hyperphosphatemic patients with CKD who are not on dialysis. In addition, we expect to file for approval of a powder form of Renvela that may make it easier for patients to comply with their prescribed treatment program.

Therapeutics

Therapeutics product revenue increased 21% to $471.2 million for the three months ended and 23% to $1.4 billion for the nine months ended September 30, 2007, as compared to the same periods of 2006, due to continued growth in sales of Cerezyme, Fabrazyme and Thyrogen and to the launch of Myozyme in the European Union, the United States and Canada in 2006.

The 13% growth in sales of Cerezyme to $286.1 million for the three months ended and 12% growth in sales to $832.8 million for the nine months ended September 30, 2007, as compared to the same periods of 2006, is attributable to our continued identification of new Gaucher disease patients, particularly in international markets. Through October 2007, our price for Cerezyme has remained consistent from period to period. However, effective November 1, 2007, we implemented a 3% price increase for Cerezyme. Although we expect Cerezyme to continue to be a substantial contributor to revenues in the future, it is a mature product, and as a result, we do not expect that the current new patient growth trend will continue. The strengthening of foreign currencies, primarily the Euro and British pound sterling, against the U.S. dollar positively impacted Cerezyme revenue by $8.4 million for the three months ended and by $25.0 million for the nine months ended September 30, 2007, as compared to the same periods of 2006.

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 30% of our total revenue for the three months ended September 30, 2007, as compared to 31% for the same period of 2006, and 30% of our total revenue for the nine months ended September 30, 2007, as compared to 32% for the same period of 2006. Revenue from Cerezyme would be impacted negatively if competitors developed alternative treatments for Gaucher disease, and the alternative products gained commercial acceptance, if our marketing activities are restricted, or if coverage, pricing or reimbursement is limited. Although orphan drug status for Cerezyme, which provided us with exclusive marketing rights for Cerezyme in the United States for seven years, expired in May 2001, we continue to have patents protecting our method of manufacturing Cerezyme until 2010 and the composition of Cerezyme as made by that process until 2013. The expiration of market exclusivity and orphan drug status will likely subject Cerezyme to increased competition, which may decrease the amount of revenue we receive from this product or the growth of that revenue. We are aware of companies that have developed or have initiated efforts to develop competitive products, and other companies may do so in the future. We discuss these competitors under the heading "Risk Factors—Our future success will depend on our ability to effectively develop and market our products and services against those of our competitors," in this report.

The 12% increase to $104.6 million for the three months ended and the 18% increase to $309.6 million for the nine months ended September 30, 2007 in sales of Fabrazyme, as compared to the same periods of 2006, is primarily attributable to increased patient identification worldwide as Fabrazyme is introduced into new markets. The strengthening of foreign currencies, primarily the Euro and British pound sterling, against the U.S. dollar positively impacted Fabrazyme revenue by $2.9 million for the three months ended and by $8.3 million for the nine months ended September 30, 2007, as compared to the same periods of 2006.

Sales of Thyrogen increased 20% to $26.8 million for the three months ended and 20% to $82.7 million for the nine months ended September 30, 2007, as compared to the same periods of 2006, due to worldwide volume growth which impacted sales by $2.7 million in the three month period and $11.5 million in the nine month period. The strengthening of foreign currencies, primarily the Euro and British pound sterling, against the U.S. dollar did not have a material impact on Thyrogen revenue for the three months ended but positively impacted Thyrogen revenue by $2.0 million for the nine months ended September 30, 2007, as compared to the same periods of 2006. We expect to receive FDA approval for the use of Thyrogen in thyroid cancer remnant ablation procedures by the end of 2007.

Sales of Myozyme were $53.6 million for the three months ended and $138.2 million for the nine months ended September 30, 2007, as compared to $20.4 million for the three months ended and $29.0 million for the nine months ended September 30, 2006. In March 2006, we received marketing authorization for Myozyme in the European Union. In April 2006, the FDA granted marketing approval for Myozyme in the United States. We launched Myozyme in the United States in May 2006, in Europe a month later and in Canada in September 2006. We are introducing Myozyme on a country-by-country basis in the European Union, as pricing and reimbursement approvals are obtained. Myozyme has received orphan drug designation in the United States, which provides seven years of market exclusivity, and in the European Union, which provides ten years of market exclusivity. In April 2007, Myozyme was approved for commercial sale in Japan and in June 2007 we launched the product after we received reimbursement approval. We expect to file for approval in several additional countries in 2007. The 8% increase in the Euro against the U.S. dollar for the three months ended September 30, 2007, as compared to the same period of 2006, positively impacted Myozyme revenue by $1.2 million. The 8% increase in the Euro against the U.S. dollar for the nine months ended September 30, 2007, as compared to the same period of 2006, positively impacted Myozyme revenue by $1.7 million. The positive impact of the increase in the Euro against the U.S. dollar on Myozyme revenue for both the three and nine months ended September 30, 2007, is driven by the growth in sales volume of Myozyme in Europe, in each such period, as compared to the same periods of 2006.

We currently manufacture Myozyme in the United States and have begun Myozyme fill-finish at our facility in Waterford, Ireland. We expect to commence Myozyme engineering runs at our protein manufacturing facility in Geel, Belgium later this year. In addition, in October 2007, we submitted an application to the FDA seeking approval of a larger-scale manufacturing process, based in Allston, Massachusetts, to enable us to meet the expected demand for Myozyme in the U.S. market going forward. We currently anticipate a decision from the FDA on the application for our larger-scale manufacturing process in the first quarter of 2008. In the meantime, we are continuing our efforts to optimize supply for the U.S. market, including temporarily transitioning some patients to a clinical access program through which they may receive Myozyme until the FDA approves the larger-scale manufacturing process. Production at this larger scale is already approved in 33 countries. We discuss the risks involved in manufacturing Myozyme and other products under the heading "Risk Factors—Manufacturing problems may cause product launch delays, inventory shortages, recalls and unanticipated costs," in this report.

Transplant

Transplant product revenue increased 9% to $42.9 million for the three months ended and 11% to $127.4 million for the nine months ended September 30, 2007, as compared to the same periods of 2006. The increases are primarily due to a $5.6 million increase for the three month period and an $11.9 million increase for the nine month period in sales of Thymoglobulin as a result of its increased utilization in transplant procedures worldwide.

We received a warning letter from the FDA on September 19, 2007 that addresses certain of our manufacturing procedures in our Thymoglobulin production facility in Lyon, France. There is no

current impact to product supply as a result of the FDA warning letter and we are in ongoing discussions with the FDA to resolve the issues described in the letter.

Additionally, we determined that four lots of Thymoglobulin finished goods inventory did not meet our internal specifications for saleable product which caused those lots to be written off. Currently, we have three additional finished lots of Thymoglobulin, valued at approximately $8 million, which are under review to determine whether they meet product specifications. If we determine that any of those lots do not meet the specifications for saleable product, we will write off that inventory as a charge to earnings. Even with the four finished lots of Thymoglobulin that have been written off and the possibility of lots under review being written off, we currently expect to be able to meet projected market demand. We will continue to closely monitor our inventory levels and intend to manage production to maintain adequate supply levels in 2008.

We discuss the risks involved in manufacturing Thymoglobulin and our other products under the heading "Risk Factors—Manufacturing problems may cause product launch delays, inventory shortages, recalls and unanticipated costs," in this report.

Biosurgery

Biosurgery product revenue increased 13% to $94.7 million for the three months ended and increased 9% to $280.3 million for the nine months ended September 30, 2007, as compared to the same periods of 2006. There was a $5.5 million increase for the three month period and a $13.5 million increase for the nine month period, in sales of Seprafilm primarily due to greater penetration into the United States, Japanese and European markets.

Synvisc sales increased $5.2 million for the three months ended and $6.9 million for the nine months ended September 30, 2007, as compared to the same periods of 2006, primarily due to a $2.5 million adjustment recorded in September 2007 to accruals related to our reacquisition of the sales and marketing rights to Synvisc in January 2005. Currently, Synvisc is delivered through three injections administered at one-week intervals. In November 2006 we completed a pivotal trial evaluating Synvisc-One, a single-injection regimen of Synvisc, which showed that patients who received a single-injection regimen of Synvisc achieved a statistically significant improvement in the pain caused by osteoarthritis of the knee in 26 weeks compared to those using placebo. We filed for marketing approval of Synvisc-One in the United States in June 2007 and in the European Union in July 2007. We anticipate receiving U.S. and European regulatory action this year on our marketing applications. The clinical advantages of Synvisc-One have the potential to expand the market for Synvisc.

We are aware of several products that compete with Synvisc, several companies that have initiated efforts to develop competitive products and several companies that market products designed to relieve the pain of osteoarthritis. We discuss some of these competitors under the heading "Risk Factors—Our future success will depend on our ability to effectively develop and market our products and services against those of our competitors," included in this report.

Other Product Revenue

Other product revenue increased 19% to $74.5 million for the three months ended and 17% to $216.9 million for the nine months ended September 30, 2007, as compared to the same periods of 2006, primarily due to:

•: a 14% increase to $15.3 million for the three months ended and a 37% increase to $46.1 million for the nine months ended September 30, 2007, in the combined sales of Campath and Clolar;
•: a 5% increase in sales of diagnostic products to $29.4 million for the three months ended and a 7% increase to $89.1 million for the nine months ended September 30, 2007, due to increased demand; and
•: a 37% increase to $29.0 million for the three months ended and an 18% increase to $80.4 million in sales of bulk pharmaceuticals for the nine months ended September 30, 2007, due to bulk sales of and royalties earned on WelChol as a result of increased demand from our U.S. marketing partner, Sankyo Pharma, Inc., or Sankyo.

In September 2007, the FDA approved expanded labeling for Campath to include first-line treatment of patients with B-cell chronic lymphocytic leukemia, significantly increasing the number of patients eligible to receive the product. We expect to receive European approval for an expanded indication by the end of 2007, following the positive opinion issued in October 2007 by the Committee for Medicinal Products for Human Use.

In October 2007, we obtained European Union marketing approval for and subsequently launched Cholestagel in Europe. Cholestagel is a new, non-absorbed, cholesterol-lowering agent aimed at treating patients with primary hypercholesterolemia who cannot meet their targeted cholesterol levels with standard therapies alone.

Service Revenue

We derive service revenue primarily from the following sources:

•: sales of MACI, a proprietary cell therapy product for cartilage repair, in Europe and Australia, Carticel for the treatment of cartilage damage, and Epicel for the treatment of severe burns, all of which are included in our Biosurgery reporting segment; and
•: genetic and pathology/oncology testing services, which are included in our Genetics reporting segment.

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

		Three Months Ended September 30,						Nine Months Ended September 30,
		Three Months Ended September 30,				Increase/ (Decrease) % Change		Nine Months Ended September 30,				Increase/ (Decrease) % Change
		2007		2006		Increase/ (Decrease) % Change		2007		2006		Increase/ (Decrease) % Change
		(Amounts in thousands)
Biosurgery		$	9,786	$	9,399	4	%	$	27,486	$	29,892	(8	)%
Genetics			73,050		61,360	19	%		212,922		179,853	18	%
Other			341		394	(13	)%		1,125		1,242	(9	)%

	Total service revenue	$	83,177	$	71,153	17	%	$	241,533	$	210,987	14	%

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

Service revenue attributable to our Biosurgery segment decreased 8% to $27.5 million for the nine months ended September 30, 2007, as compared to the same period of 2006 as a result of a decline in the sales of Epicel due to a decrease in patients requesting this service.

Service revenue attributable to our Genetics reporting segment increased 19% to $73.1 million for the three months ended and 18% to $212.9 million for the nine months ended September 30, 2007, as compared to the same periods of 2006. These increases were primarily attributable to continued growth in sales of DNA and cancer testing services as well as growth in the prenatal 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:

	Three Months Ended September 30,					Nine Months Ended September 30,
	Three Months Ended September 30,				Increase/ (Decrease) % Change	Nine Months Ended September 30,				Increase/ (Decrease) % Change
	2007		2006		Increase/ (Decrease) % Change	2007		2006		Increase/ (Decrease) % Change
	(Amounts in thousands)
International product and service revenue	$	451,881	$	375,211	20%	$	1,302,797	$	1,057,507	23%
% of total product and service revenue		48%		47%			47%		46%

The 20% increase to $451.9 million for the three months ended and the 23% increase to $1.3 billion for the nine months ended September 30, 2007, in international product and service revenue, as compared to the same periods of 2006, is primarily due to a $71.5 million increase for the three month period and a $284.7 million increase for the nine month period, in the combined international sales of Renagel, Cerezyme, Fabrazyme and Myozyme primarily due to an increase in the number of patients using these products in the European Union and the Asia-Pacific rim.

The strengthening of foreign currencies, primarily the Euro and British pound sterling, against the U.S. dollar positively impacted total product and service revenue by $19.8 million for the three months ended and $57.5 million for the nine months ended September 30, 2007, as compared to the same periods of 2006.

Research and Development Revenue

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

		Three Months Ended September 30,						Nine Months Ended September 30,
		Three Months Ended September 30,				Increase/ (Decrease) % Change		Nine Months Ended September 30,				Increase/ (Decrease) % Change
		2007		2006		Increase/ (Decrease) % Change		2007		2006		Increase/ (Decrease) % Change
		(Amounts in thousands)
Therapeutics		$	121	$	—	N/A		$	1,190	$	1,000	19	%
Transplant			—		—	N/A			180		—	N/A
Biosurgery			1,697		—	N/A			4,671		5	>100	%
Other			7,016		3,180	>100	%		16,665		10,376	61	%
Corporate			466		10	>100	%		1,168		103	>100	%

	Total research and development revenue	$	9,300	$	3,190	>100	%	$	23,874	$	11,484	>100	%

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

MARGINS

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

	Three Months Ended September 30,							Nine Months Ended September 30,
	Three Months Ended September 30,						Increase/ (Decrease) % Change	Nine Months Ended September 30,						Increase/ (Decrease) % Change
	2007			2006			Increase/ (Decrease) % Change	2007			2006			Increase/ (Decrease) % Change
	(Amounts in thousands)
Product margin	$	677,207		$	600,091		13%	$	2,002,903		$	1,721,692		16%
% of total product revenue		78	%		82	%			80	%		82	%
Service margin	$	29,040		$	20,617		41%	$	85,311		$	62,637		36%
% of total service revenue		35	%		29	%			35	%		30	%
Total product and service margin	$	706,247		$	620,708		14%	$	2,088,214		$	1,784,329		17%
% of total product and service revenue		74	%		77	%			76	%		77	%

Product Margin

Our overall product margin increased $77.1 million, or 13%, for the three months ended and $281.2 million, or 16%, for the nine months ended September 30, 2007, as compared to the same periods of 2006. This is primarily due to:

•: improved margins for Hectorol and Renagel due to price increases, increased customer volume and increased efficiency at our global manufacturing facilities as well as the favorable foreign exchange rate for the Euro against the U.S. dollar;
•: improved margins for Cerezyme, Fabrazyme and Thyrogen due to increased sales volume and improved unit costs;
•: improved margins for Myozyme due to increased sales volume. We launched Myozyme in the European Union, the United States and Canada in 2006;
•: an increase in product margin for Seprafilm due to increased sales; and
•: an increase in product margin for our oncology business due to increased global sales of Campath and increased U.S. sales of Clolar.

These increases in product margin were partially offset by a $5.6 million increase in stock-based compensation expenses charged to cost of goods sold for the nine months ended September 30, 2007, as compared to the same period of 2006. In July 2006, we began amortizing stock-based compensation expense capitalized to inventory based on margin turns.

Total product margin as a percentage of total product revenue for the three and nine months ended September 30, 2007, decreased as compared to the same periods of 2006, due to the change in product mix of the lower margin Myozyme and an $11.8 million manufacturing-related charge recorded in September 2007 to write off four finished lots of Thymoglobulin that did not meet product specifications for saleable product. Three additional finished lots of Thymoglobulin are currently under review to determine whether they meet product specifications.

The amortization of product related intangible assets is included in amortization expense and, as a result, is excluded from cost of products sold and the determination of product margins.

Service Margin

Our overall service margin increased $8.4 million, or 41%, for the three months ended and $22.7 million, or 36%, for the nine months ended September 30, 2007. This is primarily due to the increases in revenue recorded from our DNA and cancer testing services as well as the prenatal screening and diagnosis market for the three and nine months ended September 30, 2007.

Total service margin as a percent of total service revenue increased for the three and nine months ended September 30, 2007, as compared to the same periods of 2006, primarily due to increased productivity and efficiencies in lab operations for our Genetics reporting segment.

OPERATING EXPENSES

Selling, General and Administrative Expenses

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

	Three Months Ended September 30,								Nine Months Ended September 30,
	Three Months Ended September 30,						Increase/ (Decrease) % Change		Nine Months Ended September 30,						Increase/ (Decrease) % Change
	2007			2006			Increase/ (Decrease) % Change		2007			2006			Increase/ (Decrease) % Change
	(Amounts in thousands)
Selling, general and administrative expenses	$	270,306		$	239,700		13	%	$	878,807		$	743,849		18	%
% of total revenue		28	%		30	%				32	%		32	%

SG&A increased $30.6 million for the three months ended and $135.0 million for the nine months ended September 30, 2007, as compared to the same periods of 2006, primarily due to spending increases of:

•: $4.1 million for the three month period and $15.7 million for the nine month period for Renal, primarily due to continued support of the growth in Renal's international business operations;
•: $6.6 million for the three month period and $23.3 million for the nine month period for Therapeutics, primarily due to costs incurred related to Myozyme's launch in additional countries during 2007;
•: $2.7 million for the three month period and $8.2 million for the nine month period for Transplant, primarily due to expenses incurred for pre-launch activities for Mozobil. Also contributing to this increase is spending on additional personnel to support the expansion of Thymoglobulin into new markets;
•: $4.3 million for the three month period and $9.8 million for the nine month period for Biosurgery, primarily due to sales force expansion;
•: $4.1 million for the three month period and $8.2 million for the nine month period for Genetics, primarily due to headcount additions; and

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

These increases were partially offset in the nine month period by decreases of:

•: $6.1 million for Genetics due to an adjustment in June 2007 to accruals related to our acquisition of the Physician Services and Analytical Services business units of IMPATH Inc. in May 2004; and
•: $13.7 million attributable to a decrease in stock-based compensation expenses charged to SG&A. In May 2007, in connection with a general grant to employees, we issued a combination of stock options and RSUs, whereas in prior years we had only issued stock options for the general grant to employees.

Research and Development Expenses

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

	Three Months Ended September 30,								Nine Months Ended September 30,
	Three Months Ended September 30,						Increase/ (Decrease) % Change		Nine Months Ended September 30,						Increase/ (Decrease) % Change
	2007			2006			Increase/ (Decrease) % Change		2007			2006			Increase/ (Decrease) % Change
	(Amounts in thousands)
Research and development expenses	$	175,800		$	162,293		8	%	$	540,362		$	483,557		12	%
% of total revenue		18	%		20	%				19	%		21	%

Research and development expenses increased $13.5 million for the three months ended and $56.8 million for the nine months ended September 30, 2007, as compared to the same periods of 2006, primarily due to:

•: increases of $7.3 million for the three month period and $47.0 million for the nine month period in spending on certain Therapeutics research and development programs, including a $25.0 million up-front payment paid to Ceregene in June 2007 in connection with our entry into a collaboration agreement for the development and commercialization of CERE-120, a gene therapy product for the treatment of Parkinson's disease;
•: increases of $11.9 million for the three month period and $28.6 million for the nine month period in spending on Transplant research and development programs, primarily due to our acquisition of AnorMED in November 2006; and
•: increases of $9.8 million for the three month period and $18.5 million for the nine month period in spending on Other research and development programs, primarily on alemtuzumab for the treatment of multiple sclerosis.

These increases were partially offset by decreases of:

•: $3.3 million for the three month period and $13.9 million for the nine month period in spending on our Renal programs due to the termination of our collaboration with RenaMed Biologics, Inc., or RenaMed, in February 2007;
•: $6.5 million in spending for the three month period and $7.6 million in spending for the nine month period on certain Therapeutics research and development programs, including a $4.6 million decrease in spending for the three month period and a $6.2 million decrease in

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

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

Amortization of Intangibles

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

	Three Months Ended September 30,								Nine Months Ended September 30,
	Three Months Ended September 30,						Increase/ (Decrease) % Change		Nine Months Ended September 30,						Increase/ (Decrease) % Change
	2007			2006			Increase/ (Decrease) % Change		2007			2006			Increase/ (Decrease) % Change
	(Amounts in thousands)
Amortization of intangibles	$	49,819		$	50,542		(1	)%	$	149,301		$	156,117		(4	)%
% of total revenue		5	%		6	%				5	%		7	%

Amortization of intangibles expense decreased by $0.7 million for the three months ended and $6.8 million for the nine months ended September 30, 2007, as compared to the same periods of 2006, primarily due to $23.7 million of customer lists related to our acquisition of Bone Care in July 2005, which became fully amortized in the first quarter of 2007.

As discussed in Note 7., "Goodwill and Other Intangible Assets," to our financial statements included in this report, we calculate amortization expense for the Synvisc sales and marketing rights we reacquired from Wyeth and the Myozyme patent and technology rights acquired pursuant to a licensing agreement with Synpac by taking into account forecasted future sales of Synvisc and Myozyme, respectively, and the resulting future contingent payments we will be required to make to Wyeth and Synpac. As a result, we expect amortization of intangibles to fluctuate over the next five years based on these future contingent payments.

Charge for Impaired Goodwill

We are required to perform impairment tests related to our goodwill under FAS 142 annually and whenever events or changes in circumstances suggest that the carrying value of an asset may not be recoverable. We completed the required annual impairment tests for our $1.3 billion of net goodwill in the third quarter of 2007 and determined that no impairment charges were required.

As a result of the required annual impairment tests we performed on our $1.5 billion of net goodwill in the third quarter of 2006, we determined that the $219.2 million of goodwill assigned to our Genetics reporting unit was fully impaired and we recorded a pre-tax impairment charge of $219.2 million and $69.8 million of related tax benefits in September 2006.

Purchase of In-Process Research and Development

products and technologies may change depending on the different applications that we may choose to pursue. We cannot give assurances that these programs will ever reach technological feasibility or develop into products that can be marketed profitably. In addition, we cannot guarantee that we will be able to develop and commercialize products before our competitors develop and commercialize products for the same indications. If products based on our acquired IPR&D programs and technology platforms do not become commercially viable, our results of operations could be materially adversely affected.

The following table sets forth IPR&D projects for companies and certain assets we have acquired between January 1, 2004 and September 30, 2007 (amounts in millions):

Company/Assets Acquired	Purchase Price		IPR&D(1)		Programs Acquired	Discount Rate Used in Estimating Cash Flows(1)	Year of Expected Launch	Estimated Cost to Complete
AnorMED (2006)	$	589.2	$	526.8	Mozobil (stem cell transplant)	15%	2009-2014	$125
				26.1	AMD070 (HIV)(2)	15%	—	$—

			$	552.9

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

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

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

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

			$	254.5

(1): Management assumes responsibility for determining the valuation of the acquired IPR&D projects. The fair value assigned to IPR&D for each acquisition is estimated by discounting, to present value, the cash flows expected once the acquired projects have reached technological feasibility. The cash flows are probability-adjusted to reflect the risks of advancement through the product approval process. In estimating the future cash flows, we also considered the tangible and intangible assets required for successful exploitation of the technology resulting from the purchased IPR&D projects and adjusted future cash flows for a charge reflecting the contribution to value of these assets.
(2): Year of expected launch and estimated cost to complete data is not provided for AMD070 at this time because we are assessing our future plans for this program.
(3): Year of expected launch and estimated cost to complete data is not provided for LR-103 at this time because this program is in its early stages and we are evaluating several potential applications for LR-103 to determine which application we will pursue. Therefore, the year of expected launch and cost to complete cannot be determined.
(4): Campath is currently marketed for the treatment of B-cell chronic lymphoeytic leukemia and Clolar is marketed for the treatment of relapsed and refractory pediatric ALL. The IPR&D projects for Campath and Clolar are related to the development of these products for the treatment of other medical issues.

OTHER INCOME AND EXPENSES

		Three Months Ended September 30,								Nine Months Ended September 30,
		Three Months Ended September 30,						Increase/ (Decrease) % Change		Nine Months Ended September 30,						Increase/ (Decrease) % Change
		2007			2006			Increase/ (Decrease) % Change		2007			2006			Increase/ (Decrease) % Change
		(Amounts in thousands)
Equity in income (loss) of equity method investments		$	(12,648	)	$	4,530		>(100	)%	$	(1,091	)	$	10,630		>(100	)%
Minority interest			5			2,545		(100	)%		3,932			7,741		(49	)%
Gains on investments in equity securities, net			1,105			128		>100	%		14,036			75,037		(81	)%
Other			913			(873	)	>100	%		110			(1,331	)	>100	%
Investment income			18,222			16,760		9	%		51,687			39,401		31	%
Interest expense			(1,474	)		(3,772	)	(61	)%		(9,283	)		(12,245	)	(24	)%

	Total other income	$	6,123		$	19,318		(68	)%	$	59,391		$	119,233		(50	)%

Equity in Income (Loss) of Equity Method Investments

Under this caption, we record our portion of the results of our joint ventures with BioMarin and Medtronic, Inc., or Medtronic, and our investments in Peptimmune, Inc., or Peptimmune and, for the period from July 10, 2007 through September 30, 2007, Bioenvision, which we subsequently acquired in October 2007.

Equity in income (loss) of equity method investments decreased $17.2 million, or more than 100%, for the three months ended and $11.7 million, or more than 100%, for the nine months ended September 30, 2007, as compared to the same periods of 2006, primarily due to $20.5 million of charges related to our investment in Bioenvision Common Stock, including a $19.1 million charge for IPR&D, representing our proportionate share of the fair value of IPR&D programs of Bioenvision. These decreases were offset in part by an increase of $3.2 million for the three months ended and $7.8 million for the nine months ended September 30, 2007 in our portion of the net income of BioMarin/Genzyme LLC attributable to increased sales of Aldurazyme.

Minority Interest

Prior to February 20, 2007, as a result of our application of FIN 46R, "Consolidation of Variable Interest Entities," we consolidated the results of Dyax-Genzyme LLC and Excigen Inc. Effective February 20, 2007, we agreed with Dyax to terminate our participation and interest in Dyax-Genzyme LLC. In connection with this termination, we made a capital contribution of approximately $17 million in cash to Dyax-Genzyme LLC, and Dyax purchased our interest in the joint venture for 4.4 million shares of Dyax common stock, valued at $16.9 million, based on the closing price of Dyax common stock on February 23, 2007. Prior to February 20, 2007, in accordance with FIN 46R, we consolidated the assets related to Dyax-Genzyme LLC, which were not significant and consisted primarily of lab equipment net of their associated accumulated depreciation, and recorded Dyax's portion of this joint venture's losses as minority interest in our consolidated statements of operations through February 20, 2007. The results of Excigen Inc. were not significant.

Gains on Investments in Equity Securities, net

We recorded the following gains on investments in equity securities, net of charges for impairment of investments, for the periods presented:

			Three Months Ended September 30,				Nine Months Ended September 30,
			2007		2006		2007		2006
			(Amounts in thousands)
Gross gains on investments in equity securities:
	THP		$	—	$	—	$	10,848	$	—
	CAT			—		—		—		69,359
	BioMarin			—		—		—		6,417
	Other			1,105		128		3,188		2,154

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

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

Unrealized Gains (Losses)

At September 30, 2007, our stockholders' equity included $23.3 million of unrealized gains and $0.4 million of unrealized losses related to our investments in equity securities.

Investment Income

Our investment income increased 9% to $18.2 million for the three months ended and 31% to $51.7 million for the nine months ended September 30, 2007, as compared to the same periods of 2006, primarily due to an increase in the average portfolio yield and higher average cash balances.

Interest Expense

Our interest expense decreased 61% to $1.5 million for the three months ended September 30, 2007, as compared to the same period of 2006, primarily due to a $1.4 million increase in capitalized interest, which resulted in a decrease in interest expense, a $0.2 million decrease in interest related to our 2003 revolving credit facility, which was replaced in July 2006, and a $0.5 million decrease in interest expense related to asset retirement obligations, for which there was no similar amount in 2006.

Our interest expense decreased 24% to $9.3 million for the nine months ended September 30, 2007, as compared to the same period of 2006, primarily due to a $4.3 million increase in capitalized interest, which resulted in a decrease in interest expense, and a $0.6 million decrease in interest related to our 2003 revolving credit facility, which was replaced in July 2006. These overall decreases were offset in part by a $2.3 million increase in interest expense related to asset retirement obligations, for which there was no similar amount in 2006.

(Provision for) Benefit from Income Taxes

	Three Months Ended September 30,								Nine Months Ended September 30,
	Three Months Ended September 30,						Increase/ (Decrease) % Change		Nine Months Ended September 30,						Increase/ (Decrease) % Change
	2007			2006			Increase/ (Decrease) % Change		2007			2006			Increase/ (Decrease) % Change
	(Amounts in thousands)
(Provision for) benefit from income taxes	$	(66,432	)	$	44,530		>(100	)%	$	(201,715	)	$	(60,841	)	>100	%
Effective tax rate		29	%		(156	)%				33	%		19	%

Our effective tax rate for all periods presented varies from the U.S. statutory tax rate as a result of:

•: our provision for state income taxes;
•: the tax benefits from export sales;
•: the tax benefits from domestic production activities;
•: benefits related to tax credits;
•: income and expenses taxed at rates other than the U.S. statutory tax rate;
•: non-deductible stock-based compensation expenses; and
•: non-deductible expenses associated with the settlement of litigation related to the consolidation of our former tracking stocks.

Effective January 1, 2007, we adopted FIN 48 and recognized a cumulative effect adjustment of $33.9 million to increase our retained earnings balance as of January 1, 2007, which consisted of $25.8 million to record the combined effect of our gain contingency and the change in the recognition standard pursuant to the settlement criteria of FSP FIN 48-1 and $8.1 million resulting from our settlement of the IRS audit for tax years 2002 to 2003. After these adjustments, as of January 1, 2007, we had approximately $36.5 million of total gross unrealized tax benefits, of which approximately $26.6 million represents the amount of unrecognized tax benefits that, if recognized, would favorably affect our effective income tax rate in future periods. These gross unrealized tax benefits did not change significantly during the nine months ended September 30, 2007.

We continue to recognize interest relating to unrecognized tax benefits within our provision for income taxes but have not recorded any amounts related to potential penalties. The amount of accrued interest related to unrecognized tax benefits within our provision for income taxes for the three and nine months ended September 30, 2007 and our accrued interest related to unrecognized tax benefits as of January 1, 2007 and September 30, 2007 were not significant.

Management has concluded that it is not reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next 12 months.

B. LIQUIDITY AND CAPITAL RESOURCES

We continue to generate cash from operations. At September 30, 2007, we had cash, cash equivalents and short- and long-term investments of $1.4 billion, an increase of $0.1 billion from $1.3 billion at December 31, 2006.

The following is a summary of our statements of cash flows for the nine months ended September 30, 2007 and 2006.

Cash Flows from Operating Activities

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

			Nine Months Ended September 30,
			2007			2006
Cash flows from operating activities:
	Net income		$	401,294		$	251,437
	Non-cash charges			318,351			455,482
	Decrease in cash from working capital changes (excluding impact of acquired assets and assumed liabilities)			(108,818	)		(89,987	)

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

Cash provided by operating activities decreased $6.1 million for the nine months ended September 30, 2007, as compared to the same period of 2006, primarily due to a $149.9 million increase in earnings, excluding non-cash charges, offset by an $18.8 million increase in cash used for working capital.

Cash Flows from Investing Activities

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

			Nine Months Ended September 30,
			2007			2006
Cash flows from investing activities:
	Net sales (purchases) of investments, excluding investments in equity securities		$	194,161		$	(107,261	)
	Net sales of investments in equity securities			350			131,691
	Purchases of property, plant and equipment			(281,309	)		(236,917	)
	Acquisition of Bioenvision stock			(72,229	)		—
	Distributions from equity method investments			17,100			12,000
	Payment of note receivable from Dyax			7,771			370
	Purchases of other intangible assets			(45,821	)		(67,793	)
	Other investing activities			658			4,292

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

For the nine months ended September 30, 2007, we used a total of $416.3 million of cash to fund capital expenditures and acquisitions including:

•: approximately $17 million of cash for a capital contribution in connection with the termination of our participation and interest in Dyax-Genzyme LLC:
•: $281.3 million of 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 and Belgium, the construction of a new research and development facility in Framingham, Massachusetts and internally developed capitalized software costs related to our Genetics business, which is based at our facility in Westborough, Massachusetts;
•: $72.2 million of cash to fund the acquisition of 22% of the outstanding shares of Bioenvision Common Stock on an as-converted basis. Effective October 23, 2007, we completed the acquisition of Bioenvision; and

•: $45.8 million of cash for our reacquisition of the Synvisc sales and marketing rights from Wyeth and a milestone payment to Synpac.

These decreases in cash were partially offset by:

•: $194.2 million of cash received from the net sales of investments;
•: $17.1 million of cash distributions from our joint venture with BioMarin; and
•: $7.8 million of cash received from Dyax, including $7.0 million to satisfy the outstanding principal balance due under the note receivable from Dyax and $0.8 million of accrued interest due under the note.

Cash Flows from Financing Activities

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

			Nine Months Ended September 30,
			2007			2006
Cash flows from financing activities:
	Proceeds from issuance of common stock		$	100,276		$	112,012
	Repurchases of common stock			(181,210	)		—
	Excess tax benefits from stock-based compensation			1,229			8,979
	Payments of debt and capital lease obligations			(4,606	)		(3,155	)
	Increase (decrease) in bank overdrafts			19,259			(16,285	)
	Minority interest contributions			4,136			8,265
	Other financing activities			3,525			2,610

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

Payment of Note Receivable from Dyax

In 2007, we received cash payments totaling $7.8 million from Dyax to settle the secured promissory note receivable from Dyax, including $7.0 million to satisfy the outstanding principal balance due under the note and $0.8 million of accrued interest.

Revolving Credit Facility

As of September 30, 2007, no amounts were outstanding under our 2006 revolving credit facility. The terms of our 2006 revolving credit facility include various covenants, including financial covenants that require us to meet minimum interest coverage ratios and maximum leverage ratios. As of September 30, 2007, we were in compliance with these covenants.

Contractual Obligations

The disclosure of payments we have committed to make under our contractual obligations is set forth under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—Liquidity and Capital Resources" in Exhibit 13 to our 2006 Form 10-K. Excluding additional contingent payments to Wyeth for the reacquisition of the Synvisc sales and marketing rights as of September 30, 2007 there have been no material changes to our contractual obligations since December 31, 2006.

Financial Position

We believe that our available cash, investments and cash flows from operations will be sufficient to fund our planned operations and capital requirements for the foreseeable future. Although we currently have substantial cash resources and positive cash flow, we have used or intend to use substantial portions of our available cash and may make additional borrowings for:

•: product development and marketing;
•: payments related to the cash consideration for our merger with Bioenvision, including the approximately $245 million of cash we paid in October 2007 upon completion of the merger, the approximately $11 million of cash we intend to pay in the fourth quarter of 2007 for the outstanding options to purchase shares of Bioenvision Common Stock;
•: other business combinations and strategic business initiatives, including the approximately $53 million in Canadian dollars, or approximately $57 million in U.S. dollars (based on the November 2, 2007 spot rate for the Canadian dollar), of cash we intend to spend in December 2007 for our planned acquisition of the diagnostics division of DCL;
•: our $1.5 billion stock repurchase program;
•: expanding existing and constructing additional manufacturing facilities;
•: upgrading our systems;
•: contingent payments under license and other agreements;
•: expanding staff; and
•: working capital and satisfaction of our obligations under capital and operating leases.

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

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

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

Off-Balance Sheet Arrangements

We do not use special purpose entities or other off-balance sheet financing arrangements. We enter into guarantees in the ordinary course of business related to the guarantee of our own performance and the performance of our subsidiaries. In addition, we have joint ventures and certain other arrangements that are focused on research, development, and the commercialization of products. Entities falling within the scope of FIN 46R are included in our consolidated statements of operations if we qualify as the primary beneficiary. Entities not subject to consolidation under FIN 46R are accounted for under the equity method of accounting if our ownership percent exceeds 20% or if we exercise significant influence over the entity. We account for our portion of the income/losses of these entities in the line item "Equity in income (loss) of equity method investments" in our consolidated statements of operations. We also acquire companies in which we agree to pay contingent consideration based on attaining certain thresholds.

Recent Accounting Pronouncements

FAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115." In February 2007, the FASB issued FAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115," which permits, but does not require, entities to measure certain financial instruments and other assets and liabilities at fair value on an instrument-by-instrument basis. Unrealized gains and losses on items for which the fair value option has been elected should be recognized in earnings at each subsequent reporting date. FAS 159 will be effective for us as of January 1, 2008 and cannot be adopted early unless FAS 157 is also adopted. We are currently evaluating the impact, if any, the adoption of FAS 159 will have on our financial position and results of operations.

RISK FACTORS

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

Our financial results are highly dependent on sales of Cerezyme.

We generate a significant portion of our revenue from sales of Cerezyme, our enzyme-replacement product for patients with Gaucher disease. Sales of Cerezyme totaled $832.8 million for the nine months ended September 30, 2007, representing approximately 30% of our consolidated total revenue. Because our business is highly dependent on Cerezyme, negative trends in revenue from this product could have a significant adverse effect on our results of operations and cause the value of our securities to decline substantially. We will lose revenue if alternative treatments gain commercial acceptance, if our marketing activities are restricted, or if reimbursement is limited. In addition, the patient population with Gaucher disease is not large. Because a significant percentage of that population already uses Cerezyme, opportunities for future sales growth are constrained. Furthermore, changes in the methods for treating patients with Gaucher disease, including treatment protocols that combine Cerezyme with other therapeutic products or reduce the amount of Cerezyme prescribed, could limit growth, or result in a decline, in Cerezyme sales.

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

Over the next few years, our success will depend substantially on our ability to increase revenue from our existing products and services. These products and services include Renagel, Renvela, Synvisc, Fabrazyme, Myozyme, Hectorol, 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 European Agency for the Evaluation of Medicinal Products, or EMEA, and other regulatory authorities of these products and the facilities and processes used to manufacture these products;
•: the scope of the labeling approved by regulatory authorities for each product and competitive products;
•: the effectiveness of our sales force;
•: the availability and extent of coverage, pricing and level of reimbursement from governmental agencies and third party payors; and
•: the size of the patient population for each product or service and our ability to identify new patients.

Part of our growth strategy involves conducting additional clinical trials to support approval of expanded uses of some of our products, including Clolar and alemtuzumab, pursuing marketing approval for our products in new jurisdictions and developing next generation products such as Renvela and Synvisc-One. The success of this component of our growth strategy will depend on the outcome of

these additional clinical trials, the content and timing of our submissions to regulatory authorities and whether and when those authorities determine to grant approvals.

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

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

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

Renagel competes with two other products approved in the United States for the control of elevated phosphorus levels in patients with chronic kidney failure on hemodialysis. Fresenius Medical Care markets PhosLo®, a calcium-based phosphate binder. Shire Pharmaceuticals Group plc, or Shire, markets Fosrenol®, a non-calcium based phosphate binder. Amgen, Inc. recently acquired Ilypsa and its product candidate, ILY101, a polymeric phosphate binder that completed a phase 2 trial in CKD patients on dialysis. Renagel also competes with over-the-counter calcium carbonate products such as TUMS® and metal-based options such as aluminum and magnesium.

UCB S.A. has developed Zavesca®, a small molecule drug for the treatment of Gaucher disease, the disease addressed by Cerezyme. Zavesca has been approved in the United States, European Union and Israel as an oral therapy for use in patients with mild to moderate Type 1 Gaucher disease for whom enzyme replacement therapy is unsuitable. In addition, Shire reported top-line data from a phase 1/2 clinical trial for its gene-activated glucocerebrosidase program, also to treat Gaucher disease, and initiated phase 3 studies in July 2007. Protalix Biotherapeutics Ltd. initiated a phase 3 trial for plant-derived enzyme replacement therapy to treat Gaucher disease in the third quarter of 2007. Amicus Therapeutics, Inc., or Amicus, is conducting phase 2 trials for oral chaperone medication to treat Gaucher disease. We are also aware of other development efforts aimed at treating Gaucher disease.

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

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., and 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 by Q-Med AB and distributed outside the United States by Smith & Nephew Orthopedics. 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 competitive products are considered more efficacious, less burdensome to administer or more cost-effective.

Several companies market products that, like Thymoglobulin and Lymphoglobuline, are used for the prevention and treatment of acute rejection in renal transplant. These products include Novartis' Simulect® and Pfizer Inc.'s ATGAM®. Competition in the acute transplant rejection market is driven largely by product efficacy due to the potential decreased long-term survival of transplanted organs as the result of an acute organ rejection episode.

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

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

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

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

•: challenging the prices charged for healthcare products and services;
•: limiting both the coverage and the amount of reimbursement for new therapeutic products;
•: reducing existing reimbursement rates for commercialized products and services;
•: limiting coverage for the treatment of a particular patient to a maximum dollar amount or specified period of time;
•: denying or limiting coverage for products that are approved by the FDA or other governmental regulatory bodies but are considered experimental or investigational by third party payors; and
•: refusing in some cases to provide coverage when an approved product is used for disease indications in a way that has not received FDA or other applicable marketing approval.

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

Furthermore, governmental regulatory bodies, such as the Centers for Medicare and Medicaid Services (CMS), may from time-to-time make unilateral changes to reimbursement rates for our products and services. These changes could reduce our revenues by causing healthcare providers to be less willing to use our products and services. Although we actively seek to assure that any initiatives that are undertaken by regulatory agencies involving reimbursement for our products and services do not have an adverse impact on us, we may not always be successful in these efforts. For example, in October 2006, the CMS announced a change to the billing code for viscosupplementation products effective January 2007 that, if unchanged, would have resulted in Medicare reimbursement for Synvisc at a rate that was lower than the price healthcare providers were paying for the product. In December 2006, the CMS reversed its decision. If the CMS billing code decision had been left unchanged, our Synvisc revenues would have been adversely affected because healthcare providers likely would have been less willing to use Synvisc. Although the CMS ultimately reversed its decision and left the mechanism for calculating Synvisc reimbursement in 2007 substantially similar to the reimbursement mechanism for 2006, we have no way of knowing whether, at some point in the future, the CMS will change the method for reimbursing Synvisc or any of our other products and services in a way that could have an adverse effect on our revenues.

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

We have numerous products under development and devote considerable resources to research and development, including clinical trials.

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

•: conduct substantial research and development;
•: undertake preclinical and clinical testing;
•: develop and scale-up manufacturing processes; and
•: pursue marketing approvals and, in some jurisdictions, pricing and reimbursement approvals.

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

•: failure of the product candidate in preclinical studies;
•: difficulty enrolling patients in clinical trials, particularly for disease indications with small patient populations;
•: patients exhibiting adverse reactions to the product candidate or indications of other safety concerns;
•: insufficient clinical trial data to support the effectiveness of the product candidate;
•: our inability to manufacture sufficient quantities of the product candidate for development or commercialization activities in a timely and cost-efficient manner;
•: our failure to obtain the required regulatory approvals for the product candidate, the facilities or the process used to manufacture the product candidate; or
•: changes in the regulatory environment, including pricing and reimbursement, that make development of a new product or indication no longer desirable.

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

primary endpoint. In our pivotal study of hylastan for treatment of patients with osteoarthritis of the knee, hylastan did not meet its primary endpoint. We may decide to abandon development of a product or service candidate at any time or we may be required to expend considerable resources repeating clinical trials or conducting additional trials, either of which would increase costs of development and delay any revenue from those product candidates.

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

We may encounter substantial difficulties managing our growth.

Several risks are inherent to our plans to grow our business. Achieving our goals will require substantial investments in research and development, sales and marketing, and facilities. For example, we have spent considerable resources building and seeking regulatory approvals for our manufacturing plants. We cannot assure you that these facilities will prove sufficient to meet demand for our products or that we will not have excess capacity at these facilities. In addition, building our facilities is expensive, and our ability to recover these costs will depend on increased revenue from the products produced at the facilities.

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

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

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

•: wholesaler buying patterns;
•: reimbursement rates;
•: physician prescribing habits;
•: the availability or pricing of competitive products; and
•: currency exchange rates.

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

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

We may encounter problems assimilating operations acquired in business combination transactions. These transactions often entail the assumption of unknown liabilities, the loss of key employees, and the diversion of management attention. Furthermore, in any business combination, including our acquisitions of AnorMED Inc. and Bioenvision, there is a substantial risk that we will fail to realize the benefits we anticipated when we decided to undertake the transaction. We have in the past taken significant charges for impaired goodwill and for impaired assets acquired in business combination transactions. We may be required to take similar charges in the future.

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

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

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 and Myozyme products at our facility in Allston, Massachusetts. A number of factors could cause production interruptions at our facilities or the facilities of our third party providers, including equipment malfunctions, labor problems, natural disasters, power outages, terrorist activities, or disruptions in the operations of our suppliers.

Manufacturing is also subject to extensive government regulation. Regulatory authorities must approve the facilities in which human healthcare products are produced and those facilities are subject to ongoing inspections. In addition, changes in manufacturing processes may require additional regulatory approvals. Obtaining and maintaining these regulatory approvals could cause us to incur significant additional costs and lose revenue. For example, we are currently working with the FDA to obtain approval of a larger-scale Myozyme manufacturing process. We anticipate a decision from the FDA in the first quarter of 2008 and, until that time, are taking actions to optimize our U.S. Myozyme supply, including making Myozyme available to some patients through a clinical access program. Furthermore, any third party we use to manufacture, fill-finish or package our products to be sold must also be licensed by the applicable regulatory authorities. As a result, alternative third party providers may not be readily available on a timely basis.

have three additional finished lots of Thymoglobulin, valued at approximately $8 million, which are under review to determine whether they meet product specifications. If we determine that any of those lots do not meet the specifications for saleable product, we will write off that inventory as a charge to earnings. Even with the four finished lots of Thymoglobulin that have been written off and the possibility of lots under review being written off, we currently expect to be able to meet projected market demand. We will continue to closely monitor our inventory levels and intend to manage production to maintain adequate supply levels in 2008.

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

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

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

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

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

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

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

•: terminate the agreements or limit our access to the underlying intellectual property;
•: fail to devote financial or other resources to the alliances and thereby hinder or delay development, manufacturing or commercialization activities;
•: fail to successfully develop, manufacture or commercialize any products; or
•: fail to maintain the financial resources necessary to continue financing their portion of the development, manufacturing, or commercialization costs of their own operations.

Furthermore, payments we make under these arrangements may exacerbate fluctuations in our financial results. In addition, under some of our strategic alliances, we make milestone payments well in advance of commercialization of products with no assurance that we will ever recoup these payments. We also may make equity investments in our strategic partners, as we did with RenaMed Biologics, Inc., or RenaMed, in June 2005. Our strategic equity investments are subject to market fluctuations, access to capital and other business events, such as initial public offerings, the completion of clinical trials and regulatory approvals, which can impact the value of these investments. For example, in October 2006, RenaMed suspended clinical trials of its renal assist device which was being developed to treat patients with acute renal failure, causing us to write off our entire investment in RenaMed. If any of our other strategic equity investments decline in value and remain below cost for an extended duration, we may incur additional financial statement charges.

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

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

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

•: issuing warning letters;
•: issuing fines and other civil penalties;
•: suspending regulatory approvals;

•: refusing to approve pending applications or supplements to approved applications;
•: suspending product sales, imports and/or exports;
•: requiring us to communicate with physicians and other customers about concerns related to potential safety, efficacy, and other issues involving Genzyme products;
•: mandating product recalls; and
•: seizing products.

Furthermore, the FDA and comparable foreign regulatory agencies may require post-marketing clinical trials or patient outcome studies. We have agreed with the FDA, for example, to a number of post-marketing commitments as a condition to U.S. marketing approval for Fabrazyme, Aldurazyme and Myozyme. In addition, regulatory agencies subject a marketed therapy, its manufacturer and the manufacturer's facilities to continual review and periodic inspections. The discovery of previously unknown problems with a therapy or the facility or process used to produce the therapy could prompt a regulatory authority to impose restrictions on us, or could cause us to voluntarily adopt such restrictions, including withdrawal of one or more of our products or services from the market. For example, we received a warning letter from the FDA on September 19, 2007 that addresses certain of our manufacturing procedures in our Thymoglobulin production facility in Lyon, France. There is no current impact to product supply as a result of the FDA warning letter and we are in ongoing discussions with the FDA to resolve the issues described in the letter.

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

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

•: pay monetary damages;
•: stop commercial activities relating to the affected products or services;
•: obtain a license in order to continue manufacturing or marketing the affected products or services; or
•: compete in the market with a different product.

We are also currently involved in litigation matters and investigations that do not involve intellectual property claims and may be subject to additional actions in the future. For example, the federal government, state governments and private payors are investigating and have begun to file actions against numerous pharmaceutical and biotechnology companies, including Genzyme, alleging that the companies have overstated prices in order to inflate reimbursement rates. Domestic and international enforcement authorities also have instituted actions under healthcare "fraud and abuse" laws, including anti-kickback and false claims statutes. Moreover, individuals who use our products or services, including our diagnostic products and genetic testing services, sometimes bring product and professional liability claims against us or our subsidiaries.

We may also become subject to investigations by government authorities in connection with our business activities. For example, we are currently cooperating with an investigation of Bone Care by the United States Attorney for the Eastern District of New York which was initiated in October 2004, when Bone Care received a subpoena requiring it to provide a wide range of documents related to numerous aspects of its business.

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

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

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

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

Our international operations accounted for approximately 47% of our consolidated product and service revenues for the nine months ended September 30, 2007. 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;
•: the imposition of governmental controls;
•: less favorable intellectual property or other applicable laws;
•: the inability to obtain any necessary foreign regulatory or pricing approvals of products in a timely manner;
•: the inability to obtain third party reimbursement support for products;
•: product counterfeiting and intellectual property piracy;
•: parallel imports;
•: anti-competitive trade practices;

•: import and export license requirements;
•: political instability;
•: terrorist activities, armed conflict, or outbreak of diseases such as severe acute respiratory syndrome (SARS) or avian influenza;
•: restrictions on direct investments by foreign entities and trade restrictions;
•: changes in tax laws and tariffs;
•: difficulties in staffing and managing international operations; and
•: longer payment cycles.

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

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

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

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

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

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

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

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

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

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

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

Legislative or regulatory changes may adversely impact our business.

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

•: the pricing of healthcare products in the United States or internationally; and
•: the amount of reimbursement available from governmental agencies or other third party payors.

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

services, or sales, marketing or pricing may cause our revenue to decline, and we may need to revise our research and development programs.

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

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

As of September 30, 2007, we had $1.4 billion in cash, cash equivalents and short- and long-term investments, excluding our investments in equity securities.

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

•: product development and marketing;
•: payments related to the cash consideration for our merger with Bioenvision, including the approximately $245 million of cash we paid in October 2007 upon completion of the merger, the approximately $11 million of cash we intend to pay in the fourth quarter of 2007 for the outstanding options to purchase shares of Bioenvision Common Stock;
•: other business combinations and strategic business initiatives, including the approximately $53 million in Canadian dollars, or approximately $57 million U.S. dollars (based on the November 2, 2007 spot rate for the Canadian dollar), of cash we intend to spend in December 2007 for our planned acquisition of the diagnostics division of DCL;
•: our $1.5 billion stock repurchase program;
•: upgrading our systems;
•: expanding existing and constructing additional manufacturing facilities;
•: expanding staff; and
•: working capital and satisfaction of our obligations under capital and operating leases.

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

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

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

As of September 30, 2007, we had $697.9 million of outstanding indebtedness, excluding capital leases. We may incur additional indebtedness in the future. Our level of indebtedness will have several important effects on our future operations, including:

•: increasing our vulnerability to adverse changes in general economic and industry conditions; and
•: limiting our ability to obtain additional financing for capital expenditures, acquisitions and general corporate and other purposes.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

We are exposed to potential loss from market risks represented principally by changes in foreign exchange rates, interest rates and equity prices. At September 30, 2007, we held derivative contracts in the form of foreign exchange forward contracts. We also held a number of other financial instruments, including investments in marketable securities and debt securities outstanding. We do not hold derivatives or other financial instruments for speculative purposes.

Foreign Exchange Risk

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

As of September 30, 2007, we estimate the potential loss in fair value of our foreign currency contracts, foreign cash, and foreign equity holdings that would result from a hypothetical 10% adverse change in exchange rates to be $18.8 million, as compared to $34.2 million as of December 31, 2006. The change from the prior period is primarily due to a reduction in forward contracts and to a decrease in foreign currency being held.

Interest Rate Risk

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

We used the following assumptions in preparing the sensitivity analysis for our convertible notes:

•: notes that are "in-the-money" at September 30, 2007 are considered equity securities and are excluded;
•: notes that are "out-of-the-money" at September 30, 2007 are analyzed by taking into account both fixed income and equity components; and
•: notes will mature on the first available put or call date.

On this basis, we estimate the potential loss in fair value that would result from a hypothetical 1% (100 basis points) decrease in interest rates to be $2.6 million as of September 30, 2007, as compared to $4.2 million as of December 31, 2006.

Equity Price Risk

We hold investments in a limited number of U.S. and European equity securities. We estimate the potential loss in fair value due to a 10% decrease in equity prices of marketable securities held at September 30, 2007 to be $6.0 million, as compared to $4.2 million at December 31, 2006. The increase

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

ITEM 4. 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 September 30, 2007, and (2) no change in internal control over financial reporting occurred during the quarter ended September 30, 2007 that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Legal Proceedings

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

Through June 30, 2003, we had three outstanding series of common stock, which we referred to as tracking stocks; Genzyme General Stock (which we now refer to as Genzyme Stock), Biosurgery Stock and Molecular Oncology Stock. Four lawsuits were filed against us regarding the exchange of all of the outstanding shares of Biosurgery Stock for shares of Genzyme Stock in connection with the elimination of our tracking stocks in July 2003. Each of the lawsuits was a purported class action on behalf of holders of Biosurgery Stock. The first case, filed in the MSC in May 2003, alleged a breach of the implied covenant of good faith and fair dealing in our charter and a breach of our board of directors' fiduciary duties. The plaintiff in this case sought an injunction to adjust the exchange ratio for the tracking stock exchange. The MSC dismissed the complaint in its entirety in November 2003. Upon appeal, the Massachusetts Appeals Court upheld the dismissal by the MSC of the fiduciary duty claim, but reversed the earlier decision to dismiss the implied covenant claim. The Massachusetts Supreme Judicial Court (SJC) granted our petition for further appellate review. On June 4, 2007, the SJC reversed the Appeals Court's decision and affirmed dismissal of the complaint in its entirety. On July 25, 2007, the SJC denied the plaintiff's petition for rehearing. Two substantially similar cases were filed in the MSC in August and October 2003. These cases were consolidated in January 2004, and in July 2004, the consolidated case was stayed pending disposition of a fourth case, which was filed in the U.S. District Court for the Southern District of New York in June 2003. As amended, this complaint alleged violations of federal securities laws, as well as various state law claims, related to the exchange, on behalf of a certified class of holders of Biosurgery Stock as of May 8, 2003. On August 6, 2007, we reached an agreement-in-principle with counsel for the plaintiff class to settle and dismiss this case for approximately $64 million. A definitive settlement agreement was approved by the court on October 26, 2007. Because the members of the class in the New York action released all claims, the settlement has, as a practical matter, resolved the consolidated case in the MSC. We have submitted claims to our insurers for reimbursement of portions of the expenses incurred and to be incurred in connection with these cases; the insurer has purported to deny coverage. We intend to vigorously pursue our rights with respect to insurance coverage. As a result, we recorded a liability for the settlement payment of approximately $64 million as a charge to SG&A in our consolidated statements of operations in June 2007, which we subsequently paid in August 2007.

ITEM 1A. RISK FACTORS

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

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Stock Repurchase Program

The following table provides information about certain repurchases of equity securities that are registered under Section 12 of the Exchange Act during the quarter ended September 30, 2007:

Period		Total Number of Shares Purchased		Average Price Paid per Share			Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2007-July 31, 2007		803,300		$	63.72		803,300	$	1,385,400,672
August 1, 2007-August 31, 2007		1,036,953		$	64.18		1,036,953		1,318,846,790
September 1, 2007-September 30, 2007		—			—		—		1,318,846,790

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

(1): During the third quarter of fiscal 2007, we repurchased 1,840,253 shares of our common stock under the stock repurchase program for $117.8 million of cash, including fees.
(2): Represents the weighted average price paid per share for stock repurchases made during the third quarter of fiscal 2007.

ITEM 6. EXHIBITS

(a): Exhibits

See the Exhibit Index following the signature page to this report on Form 10-Q.

GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, SEPTEMBER 30, 2007
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		GENZYME CORPORATION
Date: November 8, 2007		By:	/s/ MICHAEL S. WYZGA Michael S. Wyzga Executive Vice President, Finance, Chief Financial Officer, and Chief Accounting Officer

GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, SEPTEMBER 30, 2007
EXHIBIT INDEX

EXHIBIT NO.		DESCRIPTION
*3.1		Restated Articles of Organization of Genzyme, as amended. Filed as Exhibit 3.1 to Genzyme's Form 10-Q for the quarter ended June 30, 2006.
*3.2		By-laws of Genzyme, as amended. Filed as Exhibit 3.1 to Genzyme's Form 8-K filed May 24, 2007.
**10.1		Amended and Restated Contract Purchase and Supply Agreement between Invitrogen Corporation and Genzyme Corporation effective December 31, 2007.
10.2		Form of Severance Agreement between Genzyme and its executive officers.
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.

*: Indicates exhibit previously filed with the SEC and incorporated herein by reference. Exhibits filed with Forms 10-K, 10-Q, 8-K, 8-A, 8-B or Schedule 14A of Genzyme Corporation were filed under Commission File No. 0-14680.
**: Confidential treatment has been requested for the deleted portions of Exhibit 10.1.