0001104659-07-060886.txt : 20070809 0001104659-07-060886.hdr.sgml : 20070809 20070809160327 ACCESSION NUMBER: 0001104659-07-060886 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20070630 FILED AS OF DATE: 20070809 DATE AS OF CHANGE: 20070809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENZYME CORP CENTRAL INDEX KEY: 0000732485 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 061047163 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14680 FILM NUMBER: 071040382 BUSINESS ADDRESS: STREET 1: ONE KENDALL SQ CITY: CAMBRIDGE STATE: MA ZIP: 02139 BUSINESS PHONE: 6172527500 MAIL ADDRESS: STREET 1: ONE KENDALL SQUARE CITY: CAMBRIDGE STATE: MA ZIP: 02139 10-Q 1 a07-19267_110q.htm 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2007

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		06-1047163
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)
500 Kendall Street, Cambridge, Massachusetts		02142
(Address of principal executive offices)		(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 x 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 x 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 x

The number of shares of Genzyme Stock outstanding as of July 31, 2007: 263,122,885

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. Genzyme Corporation has 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;

· the timing and availability of data from clinical trials;

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

· 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 contributing to revenues in the future;

· our proposed settlement of the litigation related to the consolidation of our former tracking stocks filed in the U.S. District Court for the Southern District of New York and expected dismissal of similar litigation currently pending in the Massachusetts Superior Court (MSC);

· our plans to pursue our rights with respect to insurance coverage for our proposed settlement 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, including the approximately $64 million we expect to pay to settle litigation related to the consolidation of our former tracking stocks;

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

· U.S. and foreign income tax audits, including our provision for liabilities and assessment of the impact of settlement of the Internal Revenue Service, commonly referred to as the IRS, and foreign tax disputes;

· our estimates of cost to complete and estimated commercialization dates for 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, and FAS 159, regarding the fair value option for financial assets and financial liabilities and our assessment of the ongoing impact of FASB Interpretation No., or FIN, 48 regarding the accounting for income tax positions;

· our sales and marketing plans;

· our assessment of certain lots of Thymoglobulin finished goods inventory and expected timing of completion of review;

· our planned acquisition of Bioenvision, Inc., or Bioenvision, and the expected timing and payments related to the acquisition;

· our expected future contingent payments 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 Inc., 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;

· 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 our 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 for our products and services;

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

· the availability of reimbursement for our products and services from third party payors, 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 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;

· our ability to negotiate final terms of a settlement agreement for the litigation related to the consolidation of our former tracking stocks;

· our ability to obtain approval from the court, plaintiffs and plaintiffs’ counsel to pay approximately $64 million to settle the litigation related to the consolidation of our former tracking stocks;

· 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 complete the planned acquisition of Bioenvision on the anticipated terms and timeline, including receipt of sufficient votes in favor of the merger from the Bioenvision shareholders;

· the number of diluted shares 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, 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, our manufacturing facilities and our 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, JUNE 30, 2007
TABLE OF CONTENTS

		PAGE NO.
PART I.	FINANCIAL INFORMATION	7
ITEM 1.	Financial Statements	7
	Unaudited, Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended June 30, 2007 and 2006	7
	Unaudited, Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006	8
	Unaudited, Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2007 and 2006	9
	Notes to Unaudited, Consolidated Financial Statements	10
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	64
ITEM 4.	Controls and Procedures	65
PART II.	OTHER INFORMATION	66
ITEM 1.	Legal Proceedings	66
ITEM 1A.	Risk Factors	66
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	67
ITEM 4.	Submission of Matters to a Vote of Security Holders	68
ITEM 6.	Exhibits	69
Signatures		70

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 June 30,								Six Months Ended June 30,
	2007				2006				2007			2006
Revenues:
Net product sales		$	845,482			$	718,735		$	1,643,672		$	1,376,070
Net service sales		82,475				71,012			158,356			139,834
Research and development revenue		5,462				3,609			14,574			8,294
Total revenues		933,419				793,356			1,816,602			1,524,198
Operating costs and expenses:
Cost of products sold		163,252				133,957			317,976			254,469
Cost of services sold		54,346				51,376			102,085			97,814
Selling, general and administrative		339,480				273,480			608,501			504,149
Research and development		198,442				168,941			364,562			321,264
Amortization of intangibles		49,465				52,883			99,482			105,575
Total operating costs and expenses		804,985				680,637			1,492,606			1,283,271
Operating income		128,434				112,719			323,996			240,927
Other income (expenses):
Equity in income of equity method investments		5,945				3,854			11,557			6,100
Minority interest		15				2,750			3,927			5,196
Gains on investments in equity securities, net		143				66,967			12,931			74,909
Other		(278		)		(319		)	(803		)	(458		)
Investment income		17,246				12,563			33,465			22,641
Interest expense		(3,621		)		(4,035		)	(7,809		)	(8,473		)
Total other income		19,450				81,780			53,268			99,915
Income before income taxes		147,884				194,499			377,264			340,842
Provision for income taxes		(64,090		)		(60,002		)	(135,283		)	(105,371		)
Net income		$	83,794			$	134,497		$	241,981		$	235,471
Net income per share:
Basic		$	0.32			$	0.52		$	0.92		$	0.91
Diluted		$	0.31			$	0.49		$	0.88		$	0.86
Weighted average shares outstanding:
Basic		263,911				260,444			263,693			260,076
Diluted		280,564				276,312			280,244			276,560
Comprehensive income, net of tax:
Net income		$	83,794			$	134,497		$	241,981		$	235,471
Other comprehensive income (loss):
Foreign currency translation adjustments		8,636				50,091			21,246			77,733
Other, net of tax		(464		)		(219		)	(266		)	(277		)
Unrealized gains (losses) on securities, net of tax:
Unrealized gains (losses) arising during the period, net of tax		(4,516		)		28,577			5,362			35,938
Reclassification adjustment for gains (losses) included in net income, net of tax		313				(42,136		)	(7,848		)	(45,732		)
Unrealized losses on securities, net of tax		(4,203		)		(13,559		)	(2,486		)	(9,794		)
Other comprehensive income		3,969				36,313			18,494			67,662
Comprehensive income		$	87,763			$	170,810		$	260,475		$	303,133

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)

	June 30, 2007			December 31, 2006
ASSETS
Current assets:
Cash and cash equivalents	$	791,441			$	492,170
Short-term investments	89,010				119,894
Accounts receivable, net	826,516				746,746
Inventories	431,610				374,644
Prepaid expenses and other current assets	114,303				119,122
Deferred tax assets	131,305				136,925
Total current assets	2,384,185				1,989,501
Property, plant and equipment, net	1,742,651				1,610,593
Long-term investments	617,197				673,540
Note receivable—related party	—				7,290
Goodwill, net	1,299,940				1,298,781
Other intangible assets, net	1,420,481				1,492,038
Deferred tax assets—noncurrent	54,401				—
Investments in equity securities	76,975				66,563
Other noncurrent assets	59,035				52,882
Total assets	$	7,654,865			$	7,191,188
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	88,555			$	98,063
Accrued expenses	596,976				477,442
Income taxes payable	5,605				54,853
Deferred revenue and other income	12,828				14,855
Current portion of long-term debt and capital lease obligations	6,413				6,226
Total current liabilities	710,377				651,439
Long-term debt and capital lease obligations	116,388				119,803
Convertible notes	690,000				690,000
Deferred revenue—noncurrent	6,797				6,675
Deferred tax liabilities	—				10,909
Other noncurrent liabilities	52,883				51,651
Total liabilities	1,576,445				1,530,477
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value	—				—
Common stock, $0.01 par value	2,637				2,630
Additional paid-in capital	5,229,943				5,106,274
Notes receivable from stockholders	(15,362		)		(15,057		)
Accumulated earnings	588,503				312,659
Accumulated other comprehensive income	272,699				254,205
Total stockholders’ equity	6,078,420				5,660,711
Total liabilities and stockholders’ equity	$	7,654,865			$	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)

	Six Months Ended June 30,
	2007			2006
Cash Flows from Operating Activities:
Net income	$	241,981		$	235,471
Reconciliation of net income to cash flows from operating activities:
Depreciation and amortization	162,827			165,356
Stock-based compensation	102,023			115,550
Provision for bad debts	4,569			3,893
Equity in income of equity method investments	(11,557		)	(6,100		)
Minority interest	(3,927		)	(5,196		)
Gains on investments in equity securities, net	(12,931		)	(74,909		)
Deferred income tax benefit	(55,026		)	(65,154		)
Tax benefit from employee stock-based compensation	8,349			11,432
Excess tax benefits from stock-based compensation	(565		)	(4,659		)
Other	3,048			(1,460		)
Increase (decrease) in cash from working capital changes (excluding impact of acquired assets and assumed liabilities):
Accounts receivable	(71,660		)	(56,826		)
Inventories	(47,312		)	(29,390		)
Prepaid expenses and other current assets	(1,589		)	3,218
Income taxes payable	(11,496		)	94,287
Accounts payable, accrued expenses and deferred revenue	69,434			(25,348		)
Cash flows from operating activities	376,168			360,165
Cash Flows from Investing Activities:
Purchases of investments	(412,067		)	(464,132		)
Sales and maturities of investments	496,986			396,460
Purchases of equity securities	(19,945		)	(5,277		)
Proceeds from sales of investments in equity securities	19,277			38,558
Purchases of property, plant and equipment	(180,041		)	(156,406		)
Distributions from equity method investments	10,900			12,000
Purchases of other intangible assets	(27,618		)	(43,109		)
Other	891			3,132
Cash flows from investing activities	(111,617		)	(218,774		)
Cash Flows from Financing Activities:
Proceeds from issuance of common stock	68,174			57,080
Repurchase of common stock	(63,430		)	—
Excess tax benefits from stock-based compensation	565			4,659
Payments of debt and capital lease obligations	(3,356		)	(1,971		)
Increase (decrease) in bank overdrafts	15,935			(7,222		)
Minority interest contributions	4,136			5,232
Other	2,474			1,503
Cash flows from financing activities	24,498			59,281
Effect of exchange rate changes on cash	10,222			2,560
Increase in cash and cash equivalents	299,271			203,232
Cash and cash equivalents at beginning of period	492,170			291,960
Cash and cash equivalents at end of period	$	791,441		$	495,192

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.

GENZYME CORPORATION AND SUBSIDIARIES
Notes To Unaudited, Consolidated Financial Statements (Continued)

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

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 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.

GENZYME CORPORATION AND SUBSIDIARIES
Notes To Unaudited, Consolidated Financial Statements (Continued)

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. 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. In June 2007, we repurchased a total of 968,485 shares of our common stock at an average price of $65.48 per share for $63.4 million of cash, including fees. We recorded the purchases in our consolidated balance sheet as of June 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 in accordance with the provisions of the Massachusetts Business Corporation Act, or MBCA.

In July 2004, the MBCA became effective and eliminated the concept of treasury shares. Under the MBCA, shares repurchased by Massachusetts corporations constitute authorized but unissued shares.

During the period from July 1, 2007 to August 7, 2007 we repurchased 1,840,253 additional shares of our common stock at an average price of $63.98 per share for $117.8 million of cash, including fees. These additional repurchases will be reflected in our consolidated balance sheet as of September 30, 2007.

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.

GENZYME CORPORATION AND SUBSIDIARIES
Notes To Unaudited, Consolidated Financial Statements (Continued)

3. Stockholders’ Equity (Continued)

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 June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
Pre-tax stock-based compensation expense, net of estimated forfeitures charged to:
Cost of products and services sold(1)	$	(6,865	)	$	(4,927	)	$	(12,761	)	$	(7,230	)
Selling, general and administrative expense	(35,248		)	(52,692		)	(57,747		)	(72,139		)
Research and development expense	(19,143		)	(25,269		)	(31,455		)	(36,126		)
Total	(61,256		)	(82,888		)	(101,963		)	(115,495		)
Less: tax benefit from stock options	18,703			27,577			31,135			37,925
Total stock-based compensation expense, net of tax	$	(42,553	)	$	(55,311	)	$	(70,828	)	$	(77,570	)
Per basic share	$	(0.16	)	$	(0.21	)	$	(0.27	)	$	(0.30	)
Per diluted share	$	(0.15	)	$	(0.20	)	$	(0.25	)	$	(0.28	)

(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 June 30,					Six Months Ended June 30,
	2007		2006			2007	2006
Stock-based compensation expense capitalized to inventory		$4,957		$	5,533	$7,839	$	8,263

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

At June 30, 2007, there was $325.9 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 2.5 years.

GENZYME CORPORATION AND SUBSIDIARIES
Notes To Unaudited, Consolidated Financial Statements (Continued)

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 June 30,				Six Months Ended June 30,
	2007		2006		2007		2006
Net income—basic	$	83,794	$	134,497	$	241,981	$	235,471
Effect of dilutive securities:
Interest expense and debt fee amortization, net of tax, related to our 1.25% convertible senior notes	1,887		1,874		3,772		3,748
Net income—diluted	$	85,681	$	136,371	$	245,753	$	239,219
Shares used in computing net income per common share—basic	263,911		260,444		263,693		260,076
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)	6,906		6,171		6,829		6,787
Restricted stock units(2)	50		—		25		—
Warrants and stock purchase rights	11		11		11		11
Dilutive potential common shares	16,653		15,868		16,551		16,484
Shares used in computing net income per common share—diluted(1,2)	280,564		276,312		280,244		276,560
Net income per common share:
Basic	$	0.32	$	0.52	$	0.92	$	0.91
Diluted	$	0.31	$	0.49	$	0.88	$	0.86

(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
June 30,

Six Months Ended
June 30,

2007

2006

2007

2006

Shares issuable upon exercise of outstanding options

15,053

11,457

14,268

9,660

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

GENZYME CORPORATION AND SUBSIDIARIES
Notes To Unaudited, Consolidated Financial Statements (Continued)

5. Mergers and Acquisitions

Pending Acquisition of Bioenvision

On May 29, 2007, we entered into an agreement and plan of merger with Bioenvision and Witchita Bio Corporation, or Witchita Bio, one of our wholly owned subsidiaries, to acquire Bioenvision in an all-cash transaction valued at $5.60 per outstanding common share and $11.20 per outstanding preferred share (plus accrued but unpaid dividends), or approximately $345 million in aggregate. Pursuant to the merger agreement, on June 4, 2007, we and Witchita Bio commenced a cash tender offer to purchase all of the outstanding shares of Bioenvision common stock, par value $0.001 per share, including associated preferred stock purchase rights of Bioenvision, which we refer to as the Common Shares, at a purchase price of $5.60 per Common Share and to purchase all of the outstanding shares of Bioenvision Series A Convertible Participating Preferred Stock, par value $0.001 per share, which we refer to as Series A Preferred Shares, at a purchase price of $11.20 per Series A Preferred Share (plus accrued but unpaid dividends). On July 10, 2007, we completed the tender offer and purchased 8,398,098 Common Shares and 2,250,000 Series A Preferred Shares, or approximately 22% of the then outstanding shares of Bioenvision common stock on an as-converted basis, including 100% of the outstanding Series A Preferred Shares. Each Series A Preferred Share can be converted into approximately two Common Shares, and also carries a separate class vote over several corporate matters, including any merger or sale of substantially all of the assets of Bioenvision and authorization of any additional shares of Bioenvision common stock, as well as other features. In accordance with the terms of the merger agreement, Bioenvision will prepare a proxy statement to be mailed to its shareholders detailing the rationale for the merger and other material disclosures and calling a shareholder meeting to seek approval of the proposed merger before the end of 2007.

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.

GENZYME CORPORATION AND SUBSIDIARIES
Notes To Unaudited, Consolidated Financial Statements (Continued)

5. Mergers and Acquisitions (Continued)

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

Acquisition of Synvisc Sales and Marketing Rights from Wyeth

In January 2005, we consummated an arrangement with Wyeth under which we reacquired the sales and marketing rights to Synvisc in the United States and certain European countries. In exchange for the sales and marketing rights, we made up-front payments totaling $127.0 million in cash to Wyeth and have also accrued contingent royalty payments to Wyeth totaling $142.1 million, of which $139.4 million had been paid as of June 30, 2007. Distribution rights (a component of other intangible assets, net) in our consolidated balance sheets as of June 30, 2007, includes a total of $270.4 million for the initial and contingent royalty payments (made or accrued) as of that date. We will make a series of additional

GENZYME CORPORATION AND SUBSIDIARIES
Notes To Unaudited, Consolidated Financial Statements (Continued)

5. Mergers and Acquisitions (Continued)

contingent royalty and milestone payments to Wyeth based on the volume of Synvisc sales in the covered territories. These contingent royalty and milestone payments could extend out to June 2012, or could total a maximum of $298.2 million, whichever comes first.

The reacquired Synvisc distribution rights qualify as an asset rather than an acquired business. As a result, we do not provide pro forma results for this transaction.

In-Process Research and Development

In connection with five of our acquisitions since 2004, we have acquired various IPR&D projects. Substantial additional research and development will be required prior to any of our acquired IPR&D programs and technology platforms reaching technological feasibility. In addition, once research is completed, each product candidate acquired 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 since 2004 (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%	2008-2013
					26.1		AMD070 (HIV)(2)		15%	—
					$	552.9
Avigen (2005)		$	12.0		$	7.0	AV201 (Parkinson’s disease)		N/A	2016
Bone Care (2005)		$	712.3		$	12.7	LR-103 (secondary hyperparathyroidism)		25%	2012
Verigen (2005)		$	12.7		$	9.5	MACI (cartilage repair)		24%	2012-2014
ILEX Oncology (2004)		$	1,080.3		$	96.9	Campath		11%	2009-2011
					113.4		Clolar		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.

GENZYME CORPORATION AND SUBSIDIARIES
Notes To Unaudited, Consolidated Financial Statements (Continued)

5. Mergers and Acquisitions (Continued)

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 Emerging Issues Task Force, or 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		(4,421		)		—				—			(4,421		)
Balance at June 30, 2007		$	1,609			$	1,331			$	—		$	2,940

(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			Six Months Ended
	June 30, 2006			June 30, 2006
Total revenues		$	793,360		$	1,524,436
Net income (loss)		$	124,308		$	(186,054	)
Net income (loss) per share:
Basic		$	0.48		$	(0.72	)
Diluted		$	0.46		$	(0.72	)
Weighted average shares outstanding:
Basic		260,444			260,076
Diluted		276,312			260,076

GENZYME CORPORATION AND SUBSIDIARIES
Notes To Unaudited, Consolidated Financial Statements (Continued)

6. Inventories

	June 30, 2007		December 31, 2006
	(Amounts in thousands)
Raw materials	$	126,613		$	100,698
Work-in-process	121,573			119,510
Finished goods	183,424			154,436
Total	$	431,610		$	374,644

We capitalize inventory produced for commercial sale, which may result in the capitalization of inventory prior to regulatory approval of a product. 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 June 30, 2007 included $13.4 million of inventory for Renvela that has not yet been approved for sale.

Currently, we have four lots of Thymoglobulin finished goods inventory, valued at approximately $12 million, which we consider to be inventory at risk. We placed these lots on hold pending investigation and resolution of out of trend assay results we observed during quality testing. We anticipate completing our assessment of these lots during the second half of 2007. If we determine that any of these four lots do not meet the specifications for saleable product, we will have to write off the inventory for that lot as a charge to earnings.

7. Goodwill and Other Intangible Assets

Goodwill

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

	December 31, 2006			Adjustments				June 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(3)		473,368			173			473,541
Net goodwill		$	1,298,781		$	1,159		$	1,299,940

(1) The adjustments to goodwill for Renal include adjustments associated with the acquisition of Bone Care International, Inc. or Bone Care.

(2) The adjustment to goodwill for Transplant includes purchase accounting adjustments from the November 2006 acquisition of AnorMED. We recorded $2.6 million of adjustments to the goodwill associated with AnorMED, primarily due to $2.1 million to write off fixed assets associated with the acquisition and $1.2 million of revisions to the estimates of liabilities related to exit activities, offset by $(0.7) million to adjust deferred taxes.

(3) The adjustments to Other goodwill primarily include contingent payments related to our acquisition of Equal Diagnostics, Inc. in July 2005 and foreign currency revaluation adjustments for goodwill denominated in foreign currencies.

GENZYME CORPORATION AND SUBSIDIARIES
Notes To Unaudited, Consolidated Financial Statements (Continued)

7. Goodwill and Other Intangible Assets (Continued)

Other Intangible Assets

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

	June 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	$	1,506,121		$	(483,169	)	$	1,022,952	$	1,505,748		$	(424,650	)	$	1,081,098
Patents	194,560			(95,738		)	98,822		194,560			(87,063		)	107,497
Trademarks	60,227			(34,109		)	26,118		60,227			(31,439		)	28,788
License fees(1)	79,928			(24,345		)	55,583		77,807			(20,597		)	57,210
Distribution rights(2)	285,548			(107,300		)	178,248		260,073			(85,543		)	174,530
Customer lists(3)	67,083			(29,010		)	38,073		90,783			(48,760		)	42,023
Other	2,048			(1,363		)	685		2,045			(1,153		)	892
Total	$	2,195,515		$	(775,034	)	$	1,420,481	$	2,191,243		$	(699,205	)	$	1,492,038

(1) Includes a $2.5 million milestone payment to Synpac in June 2007 for the approval of Myozyme in Japan.

(2) Includes an additional $24.8 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 in several countries 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 in July 2005.

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

· $49.5 million for the three months ended June 30, 2007;

· $52.9 million for the three months ended June 30, 2006;

· $99.5 million for the six months ended June 30, 2007; and

· $105.6 million for the six months ended June 30, 2006.

GENZYME CORPORATION AND SUBSIDIARIES
Notes To Unaudited, Consolidated Financial Statements (Continued)

7. Goodwill and Other Intangible Assets (Continued)

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

Year ended December 31,	Estimated Amortization Expense(1)
2007 (remaining six months)		$	98,974
2008		207,465
2009		214,921
2010		228,038
2011		236,585
Thereafter		617,284

(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 six months ended June 30, 2007 and 2006 (amounts in thousands):

	Three Months Ended June 30,						Six Months Ended June 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			—		69,359
BioMarin Pharmaceutical Inc. (BioMarin)		—		—			—		6,417
Other		143		501			2,083		2,026
Total		143		69,860			12,931		77,802
Less: charges for impairment of investments		—		(2,893		)	—		(2,893		)
Gains on investments in equity securities, net		$	143	$	66,967		$	12,931	$	74,909

GENZYME CORPORATION AND SUBSIDIARIES
Notes To Unaudited, Consolidated Financial Statements (Continued)

8. Investments in Equity Securities (Continued)

Unrealized Gains (Losses)

At June 30, 2007, our stockholders’ equity included $17.7 million of unrealized gains and $0.1 million of unrealized losses related to our investments in equity securities.

9. Agreements with and Note Receivable from Dyax Corp

Agreements with Dyax Corp

In 2003, we acquired a 49.99% interest in Dyax-Genzyme LLC, a joint venture with Dyax Corp, or Dyax, for the development of DX-88 for hereditary angioedema, or HAE, and other chronic inflammatory diseases.

In February 2007, we agreed with Dyax to terminate our participation and interest in Dyax-Genzyme LLC effective February 20, 2007. 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. Dyax now owns all of the assets of the joint venture, including worldwide rights to develop and commercialize DX-88. Pursuant to the termination agreement, we agreed to:

· a 5 year standstill period during which we will not acquire any additional shares of Dyax;

· not enter into any future licensing or collaboration arrangements for the prevention and or treatment of hereditary, acquired or drug-induced angioedema for 2 years; and

· negotiate in good faith a transitional services agreement for us to provide certain services to Dyax, which we have entered into as of February 2007.

Prior to February 20, 2007, in accordance with FIN 46R, “Consolidation of Variable Interest Entities,” 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. We also recorded Dyax’s portion of the joint venture’s losses as minority interest in our consolidated statements of operations through February 20, 2007.

Note Receivable from Dyax

In May 2002, we extended to Dyax a $7.0 million line of credit. Dyax issued a senior secured promissory note in the principal amount of $7.0 million to us under which it can request periodic advances of not less than $250,000 in principal, subject to certain conditions. Advances under this note were due, together with any accrued but unpaid interest, in May 2005. In May 2005, Dyax exercised its right to extend the maturity of the note from May 2005 to May 2007.

In August 2006, we amended our $7.0 million secured promissory note receivable from Dyax to extend the maturity date from May 2007 to May 2010, eliminate the existing financial covenants and replace the original collateral on the note with a letter of credit from a major bank for $7.2 million.

GENZYME CORPORATION AND SUBSIDIARIES
Notes To Unaudited, Consolidated Financial Statements (Continued)

9. Agreements with and Note Receivable from Dyax Corp (Continued)

consolidated balance sheet. On May 24, 2007, the term of this director expired and he decided not to stand for re-election, thus resigning from our board of directors. As a result, Dyax was no longer considered our related party and we recorded the principal and accrued interest due to us from Dyax in other noncurrent assets in our unaudited, consolidated balance sheet. As of June 30, 2007, $7.2 million of principal and accrued interest receivable remains due to us from Dyax under this note.

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:

· $6.5 million for the three months ended June 30, 2007, as compared to $4.6 million for the same period of 2006; and

· $12.6 million for the six months ended June 30, 2007, as compared to $8.0 million for the same period of 2006.

During the six months ended June 30, 2007, we received $10.9 million of cash distributions from BioMarin/Genzyme LLC.

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
Revenue	$	29,127		$	23,530		$	55,948		$	44,862
Gross margin	22,434			17,846			42,957			32,791
Operating expenses	(9,560		)	(8,729		)	(18,034		)	(17,099		)
Net income	13,016			9,261			25,237			15,994

11. Revolving Credit Facility

As of June 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 June 30, 2007, we were in compliance with these covenants.

GENZYME CORPORATION AND SUBSIDIARIES
Notes To Unaudited, Consolidated Financial Statements (Continued)

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 have been filed against us regarding the exchange of all of the outstanding shares of Biosurgery Stock for shares of Genzyme Stock in connection with the elimination of our tracking stocks in July 2003. Each of the lawsuits is a purported class action on behalf of holders of Biosurgery Stock. The first case, filed in 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. This settlement is subject to the execution of a definitive settlement agreement and approval by the court. Because the members of the class in the New York action will release all claims, we anticipate that the settlement will, as a practical matter, resolve the consolidated case that remains pending 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 have 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 and as an increase to accrued expenses in our consolidated balance sheet as of June 30, 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.

GENZYME CORPORATION AND SUBSIDIARIES
Notes To Unaudited, Consolidated Financial Statements (Continued)

13. Provision for Income Taxes

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
	(Amounts in thousands)
Provision for income taxes	$	64,090		$	60,002		$	135,283		$	105,371
Effective tax rate	43		%	31		%	36		%	31		%

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

· our provision for state income taxes;

· the tax benefits from export sales;

· the tax benefits from domestic production 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 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 six months ended June 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 six months ended June 30, 2007, and our accrued interest related to unrecognized tax benefits as of January 1, 2007 and June 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.

GENZYME CORPORATION AND SUBSIDIARIES
Notes To Unaudited, Consolidated Financial Statements (Continued)

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 June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
Revenues:
Renal	$	172,249		$	148,980		$	337,926		$	286,570
Therapeutics	464,749			373,362			894,266			718,995
Transplant	43,424			41,212			84,701			75,478
Biosurgery	107,889			102,401			206,282			192,937
Genetics	73,714			61,041			139,872			118,493
Other	70,994			66,309			152,852			131,631
Corporate	400			51			703			94
Total	$	933,419		$	793,356		$	1,816,602		$	1,524,198
Income (loss) before income taxes:
Renal	$	66,446		$	42,273		$	126,090		$	74,071
Therapeutics(1)	278,981			251,032			566,331			481,986
Transplant(2)	(8,929		)	5,917			(13,743		)	10,351
Biosurgery(2)	16,294			13,198			26,051			17,248
Genetics	11,890			(2,445		)	15,632			(4,216		)
Other	(13,305		)	(13,466		)	(18,749		)	(23,981		)
Corporate(3)	(203,493		)	(102,010		)	(324,348		)	(214,617		)
Total	$	147,884		$	194,499		$	377,264		$	340,842

(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) 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 three and six months ended June 30, 2007 includes a charge of $64.0 million for the proposed settlement, subject to court approval, of the litigation related to the consolidation of our former tracking stocks.

GENZYME CORPORATION AND SUBSIDIARIES
Notes To Unaudited, Consolidated Financial Statements (Continued)

14. Segment Information (Continued)

Segment Assets

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

	June 30, 2007		December 31, 2006
Segment Assets(1):
Renal	$	1,423,886		$	1,380,003
Therapeutics	1,162,177			1,094,520
Transplant	418,971			410,436
Biosurgery	479,564			477,334
Genetics	134,399			133,839
Other	844,763			851,343
Corporate(2)	3,191,105			2,843,713
Total	$	7,654,865		$	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):

	June 30, 2007		December 31, 2006
Cash, cash equivalents, short- and long-term investments	$	1,497,648		$	1,285,604
Deferred tax assets, net	185,706			136,925
Property, plant & equipment, net	1,122,205			1,036,182
Investments in equity securities	76,975			66,563
Other	308,571			318,439
Total	$	3,191,105		$	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 “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:

· 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;

· Genetics, which provides testing services for the oncology, prenatal and reproductive markets.

Update to Second Quarter Earnings Release

On July 25, 2007, we issued a press release containing our results of operations and financial condition for the three month period ended June 30, 2007, which we furnished as an exhibit under Form 8-K prior to hosting a conference call to discuss our second quarter financial results. Subsequent to July 25, 2007, two events occurred which have caused us to update our second quarter financial results in this Form 10-Q. Specifically:

· in the course of preparing our financial statements for this Form 10-Q, we identified that we had overstated our stock-based compensation expense, before taxes, for the three and six months ended June 30, 2007 by a total of $10.5 million, including a $7.8 million overstatement of SG&A and a $2.7 million overstatement of research and development expenses. The overstatements were discovered during the final review of the stock-based compensation expense calculations for the second quarter and resulted specifically from an incorrect calculation of (i) the vesting period for the RSUs we began issuing to our employees for the first time in May 2007 and (ii) the retirement vesting benefit of the RSUs granted to certain of our officers in May 2007. We have corrected the overstatement of our stock-based compensation that was reported in our second quarter earnings release; and

· on August 6, 2007, we reached an agreement-in-principle to settle and dismiss litigation related to the consolidation of our former tracking stocks for approximately $64 million, subject to court approval. As a result, we have recorded a liability for the settlement payment of approximately $64 million as a charge to SG&A in our consolidated statement of operations in June 2007 and as an increase to accrued expenses in our consolidated balance sheet as of June 30, 2007.

MERGERS AND ACQUISITIONS

Pending Acquisition of Bioenvision

On May 29, 2007, we entered into an agreement and plan of merger with Bioenvision and Witchita Bio, one of our wholly owned subsidiaries, to acquire Bioenvision in an all-cash transaction valued at $5.60 per outstanding common share and $11.20 per outstanding preferred share (plus accrued but unpaid dividends), or approximately $345 million in aggregate. Pursuant to the merger agreement, on June 4, 2007, we and Witchita Bio commenced a cash tender offer to purchase all of the outstanding shares of Bioenvision common stock, par value $0.001 per share, including associated preferred stock purchase rights of Bioenvision, which we refer to as the Common Shares, at a purchase price of $5.60 per Common Share and to purchase all of the outstanding shares of Bioenvision Series A Convertible Participating Preferred Stock, par value $0.001 per share, which we refer to as Series A Preferred Shares, at a purchase price of $11.20 per Series A Preferred Share (plus accrued but unpaid dividends). On July 10, 2007, we completed the tender offer and purchased 8,398,098 Common Shares and 2,250,000 Series A Preferred Shares, or approximately 22% of the then outstanding shares of Bioenvision common stock on an as-converted basis, including 100% of the outstanding Series A Preferred Shares. Each Series A Preferred Share can be converted into approximately two Common Shares, and also carries a separate class vote over several corporate matters, including any merger or sale of substantially all the assets of Bioenvision and the authorization of any additional shares of Bioenvision common stock, as well as other features. In accordance with the terms of the merger agreement, Bioenvision will prepare a proxy statement to be mailed to its shareholders detailing the rationale for the merger and other material disclosures and calling a shareholder meeting to seek approval of the proposed merger before the end of 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 non-Hodgkin’s lymphoma and on August 2, 2007, we announced the successful completion of a second phase 3 clinical trial of Mozobil in 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.

Acquisition of Synvisc Sales and Marketing Rights from Wyeth

In January 2005, we consummated an arrangement with Wyeth under which we reacquired the sales and marketing rights to Synvisc in the United States and certain European countries. In exchange for the sales and marketing rights, we made up-front payments totaling $127.0 million in cash to Wyeth and have also accrued contingent royalty payments to Wyeth totaling $142.1 million, of which $139.4 million had been paid as of June 30, 2007. Distribution rights (a component of other intangible assets, net) in our consolidated balance sheets as of June 30, 2007, includes a total of $270.4 million for the initial and contingent royalty payments (made and accrued) as of that date. We will make a series of additional contingent royalty and milestone payments to Wyeth based on the volume of Synvisc sales in the covered territories. These contingent royalty and milestone payments could extend out to June 2012, or could total a maximum of $299.2 million, whichever comes first.

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 June 30,						Increase/ (Decrease)			Six Months Ended June 30,						Increase/ (Decrease)
	2007			2006			% Change			2007			2006			% Change
	(Amounts in thousands)
Product sales allowances:
Contractual adjustments	$	57,827		$	50,363			15	%	$	113,691		$	94,723			20	%
Discounts	48,137			32,013				50	%	81,482			56,818				43	%
Sales returns	5,704			2,495				>100	%	7,421			6,888				8	%
Total product sales allowances	$	111,668		$	84,871			32	%	$	202,594		$	158,429			28	%
Total gross product sales	$	957,150		$	803,606			19	%	$	1,846,266		$	1,534,499			20	%
Total product sales allowances as a percent of total gross product sales	12		%	11		%				11		%	10		%

Product sales allowances for contractual adjustments and discounts increased for the three and six months ended June 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 to approximately $154 million as of June 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 recorded. The annual variation has been less than 0.5% of total product sales for each of the last three years.

Distributor Fees

EITF Issue No. 01-09, “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 June 30,						Six Months Ended June 30,
	2007			2006			2007		2006
	(Amounts in thousands)
Distributor fees:
Included in contractual adjustments and recorded as a reduction to product sales		$	3,198		$	2,445	$	6,290		$	4,633
Charged to SG&A		3,459			2,488		6,434			5,034
Total distributor fees		$	6,657		$	4,933	$	12,724		$	9,667

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 unrecognized tax benefits. 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 six months ended June 30, 2007 and our accrued interest related to unrecognized tax benefits as of January 1, 2007 and June 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 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 June 30, 2007 included $13.4 million of inventory for Renvela that has not yet been approved for sale.

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 June 30,				Increase/ (Decrease)			Six Months Ended June 30,				Increase/ (Decrease)
	2007		2006		% Change			2007		2006		% Change
	(Amounts in thousands)
Product revenue	$	845,482	$	718,735		18	%	$	1,643,672	$	1,376,070		19	%
Service revenue	82,475		71,012			16	%	158,356		139,834			13	%
Total product and service revenue	927,957		789,747			18	%	1,802,028		1,515,904			19	%
Research and development revenue	5,462		3,609			51	%	14,574		8,294			76	%
Total revenues	$	933,419	$	793,356		18	%	$	1,816,602	$	1,524,198		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 in patients who have been treated with alkylating agents and who have failed fludarabine therapy, and Clolar for the treatment of children (ages 1-21) with refractory or relapsed acute lymphoblastic leukemia 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 June 30,				Increase/ (Decrease)			Six Months Ended June 30,				Increase/ (Decrease)
	2007		2006		% Change			2007		2006		% Change
	(Amounts in thousands)
Renal:
Renagel (including sales of bulk sevelamer)	$	144,954	$	126,599		14	%	$	282,338	$	245,254		15	%
Hectorol	27,295		22,412			22	%	55,588		41,316			35	%
Total Renal	172,249		149,011			16	%	337,926		286,570			18	%
Therapeutics:
Cerezyme	282,979		253,989			11	%	546,770		492,998			11	%
Fabrazyme	104,349		89,041			17	%	205,013		169,544			21	%
Thyrogen	29,540		23,723			25	%	55,878		46,716			20	%
Myozyme	46,745		6,531			>100	%	84,664		8,582			>100	%
Other Therapeutics	705		78			>100	%	872		155			>100	%
Total Therapeutics	464,318		373,362			24	%	893,197		717,995			24	%
Transplant:
Thymoglobulin/ Lymphoglobuline	41,376		39,812			4	%	80,818		72,672			11	%
Other Transplant	2,048		1,400			46	%	3,703		2,806			32	%
Total Transplant	43,424		41,212			5	%	84,521		75,478			12	%
Biosurgery:
Synvisc	64,863		63,590			2	%	118,459		116,853			1	%
Sepra products	25,076		21,961			14	%	48,191		41,376			16	%
Other Biosurgery	8,386		7,236			16	%	18,958		14,210			33	%
Total Biosurgery	98,325		92,787			6	%	185,608		172,439			8	%
Other product revenue	67,166		62,363			8	%	142,420		123,588			15	%
Total product revenues	$	845,482	$	718,735		18	%	$	1,643,672	$	1,376,070		19	%

Renal

Sales of Renagel, including sales of bulk sevelamer, increased 14% to $145.0 million for the three months ended June 30, 2007, as compared to the same period of 2006, primarily due to a $11.7 million increase attributable to a 9.5% price increase for Renagel in the United States, which became effective in December 2006 and an additional 15% price increase for Renagel in the United States, which became effective in April 2007. Sales also increased by $5.3 million primarily due to increased end-user demand worldwide. The 7% increase in the Euro against the U.S. dollar for the three months ended June 30, 2007, as compared to the same period of 2006, positively impacted Renagel revenue by $2.6 million. Sales of Renagel, including sales of bulk sevelamer, were 17% of our total product revenue for the three months ended June 30, 2007, compared to 18% of our total product revenue for the same period of 2006.

Sales of Renagel, including sales of bulk sevelamer, increased 15% to $282.3 million for the six months ended June 30, 2007, as compared to the same period of 2006, primarily due to a $20.0 million increase attributable to a 9.5% price increase for Renagel in the United States, which became effective in December 2006 and, to a lesser extent, an additional 15% price increase for Renagel in the United States, which became effective in April 2007. Sales also increased by $13.9 million primarily due to increased end-user demand worldwide. The 8% increase in the Euro against the U.S. dollar for the six months ended June 30, 2007, as compared to the same period of 2006, positively impacted Renagel revenue by $5.7 million. Sales of Renagel, including sales of bulk sevelamer, were 17% of our total product revenue for the six months ended June 30, 2007, compared to 18% of our total product revenue for the same period of 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 22% to $27.3 million for the three months ended June 30, 2007 as compared to $22.4 million for the same period of 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.

Sales of Hectorol increased 35% to $55.6 million for the six months ended June 30, 2007, as compared to $41.3 million for the same period of 2006, primarily due to higher end-user demand.

We expect sales of Renagel and Hectorol 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.

We expect to launch Renvela, the second-generation buffered form of Renagel, within the next year. Renvela will enable us to expand the market for our phosphate binder by reaching patients with CKD who have not progressed to dialysis. The FDA is currently reviewing our application for Renvela’s use by dialysis patients.

Therapeutics

Therapeutics product revenue increased 24% to $464.3 million for the three months ended and 24% to $893.2 million for the six months ended June 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, United States and Canada in 2006.

The 11% growth in sales of Cerezyme to $283.0 million for the three months ended and 11% growth in sales to $546.8 million for the six months ended June 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. Our price for Cerezyme has remained consistent from period to period. Although we expect

Cerezyme to continue to be a substantial contributor to revenues in the future, it is a mature product, and as a result, we do not expect that the current new patient growth trend will continue. The 7% increase in the Euro against the U.S. dollar for the three months ended June 30, 2007, as compared to the same period of 2006, positively impacted Cerezyme revenue by $6.3 million. The 8% increase in the Euro against the U.S. dollar for the six months ended June 30, 2007, as compared to the same period of 2006, positively impacted Cerezyme revenue by $13.7 million.

Our results of operations are highly dependent on sales of Cerezyme and a reduction in revenue from sales of this product would adversely affect our results of operations. Sales of Cerezyme were approximately 33% of our total product revenue for the three months ended June 30, 2007, as compared to 35% for the same period of 2006, and 33% of our total product revenue for the six months ended June 30, 2007, as compared to 36% 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 17% increase to $104.3 million for the three months ended and the 21% increase to $205.0 million for the six months ended June 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. In addition, we recognized $2.5 million of Fabrazyme revenue in the six months ended June 30, 2007 upon receiving reimbursement approval for past shipments of Fabrazyme in Canada. The 7% increase in the Euro against the U.S. dollar for the three months ended June 30, 2007, as compared to the same period of 2006, positively impacted Fabrazyme revenue by $2.0 million. The 8% increase in the Euro against the U.S. dollar for the six months ended June 30, 2007, as compared to the same period of 2006, positively impacted Fabrazyme revenue by $4.3 million.

Sales of Thyrogen increased 25% to $29.5 million for the three months ended and 20% to $55.9 million for the six months ended June 30, 2007, as compared to the same periods of 2006, due to worldwide volume growth which impacted sales by $5.0 million in the three month period and $8.8 million in the six month period. The 7% increase in the Euro against the U.S. dollar for the three months and the 8% increase in the Euro against the U.S. dollar for the six months ended June 30, 2007, as compared to the same periods of 2006, did not have a material impact on Thyrogen revenue.

Sales of Myozyme were $46.7 million for the three months ended and $84.7 million for the six months ended June 30, 2007, as compared to $6.5 million for the three months ended and $8.6 million for the six months ended June 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. 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. We expect to file for approval in several additional countries in 2007.

The 7% increase in the Euro against the U.S. dollar for the three months ended June 30, 2007, as compared to the same period of 2006, positively impacted Myozyme revenue by $1.8 million. The 8% increase in the Euro against the U.S. dollar for the six months ended June 30, 2007, as compared to the same period of 2006, positively impacted Myozyme revenue by $3.7 million. The positive impact of the increase in the Euro against the U.S. dollar on Myozyme revenue for both the three and six months ended June 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. We expect to begin Myozyme fill-finish at our facility in Waterford, Ireland in the third quarter of 2007, and to commence Myozyme engineering runs at our protein manufacturing facility in Geel, Belgium later this year. In addition, we are seeking FDA approval of our 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 receiving FDA approval of the application for our larger-scale manufacturing process in the first half of 2008. In the meantime, we are accelerating 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 produced using the larger-scale manufacturing process until the FDA approves the larger-scale manufacturing process. Production at this larger scale is already approved in 33 countries. We are aware of the risks involved in manufacturing Myozyme and all of our products. We discuss these risks 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 5% to $43.4 million for the three months ended and 12% to $84.5 million for the six months ended June 30, 2007, as compared to the same periods of 2006. The increases are primarily due to a $1.5 million increase for the three month period and a $6.3 million increase for the six month period in sales of Thymoglobulin as a result of its increased utilization in transplant procedures internationally.

We are aware of the risks involved in manufacturing Thymoglobulin and all of our products. We discuss these risks 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 6% to $98.3 million for the three months ended and increased 8% to $185.6 million for the six months ended June 30, 2007, as compared to the same periods of 2006. There was a $3.8 million increase for the three month period and an $8.0 million increase for the six month period, in sales of Seprafilm and a $1.1 million increase for the three month period and a $4.3 million increase for the six month period, in revenue related to our high grade bulk hyaluronic acid, or HA, products. The increases in Seprafilm revenue are primarily due to greater penetration into the United States and Japanese markets. The increases in revenue related to our HA products are primarily due to an increase in orders for HA powder.

Synvisc sales increased $1.3 million for the three months ended and $1.6 million for the six months ended June 30, 2007, as compared to the same periods of 2006. 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 U.S. in June 2007 and we anticipate filing for marketing approval of Synvisc-One in the European Union in the second half of 2007. We expect to launch this product in the European Union and

in the United States in the first quarter of 2008. 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 8% to $67.2 million for the three months ended and 15% to $142.4 million for the six months ended June 30, 2007, as compared to the same periods of 2006, primarily due to:

· a 30% increase to $14.6 million for the three months ended and a 49% increase to $31.3 million for the six months ended June 30, 2007, in sales of Campath and Clolar;

· a 10% increase in sales of diagnostic products to $29.0 million for the three months ended and an 8% increase to $59.8 million for the six months ended June 30, 2007, due to increased demand; and

· a 9% increase to $51.4 million in sales of bulk pharmaceuticals for the six months ended June 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.

The increases in other product revenue discussed above for the three month period were partially offset by a 5% decrease to $23.6 million in sales of bulk pharmaceuticals due to a decrease in demand from Sankyo.

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 June 30,					Increase/ (Decrease)			Six Months Ended June 30,				Increase/ (Decrease)
	2007		2006			% Change			2007		2006		% Change
	(Amounts in thousands)
Renal	$	—	$	(31	)		N/A		$	—	$	—		N/A
Biosurgery	8,338		9,613				(13	)%	17,700		20,493			(14	)%
Genetics	73,714		61,041				21	%	139,872		118,493			18	%
Other	423		389				9	%	784		848			(8	)%
Total service revenue	$	82,475	$	71,012			16	%	$	158,356	$	139,834		13	%

Service revenue attributable to our Biosurgery segment decreased 13% to $8.3 million for the three months ended and 14% to $17.7 million for the six months ended June 30, 2007, as compared to the same periods of 2006. The decreases are primarily due to a decline in sales of Epicel due to decreases in patients requesting this service.

Service revenue attributable to our Genetics reporting segment increased 21% to $73.7 million for the three months ended and 18% to $139.9 million for the six months ended June 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 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 June 30,						Increase/ (Decrease)			Six Months Ended June 30,						Increase/ (Decrease)
	2007			2006			% Change			2007			2006			% Change
	(Amounts in thousands)
International product and service revenue	$	439,897		$	355,615			24	%	$	850,916		$	682,295			25	%
% of total product and service revenue	47		%	45		%				47		%	45		%

The 24% increase to $439.9 million for the three months ended and the 25% increase to $850.9 million for the six months ended June 30, 2007 in international product and service revenue, as compared to the same periods of 2006, is primarily due to a $73.0 million increase for the three month period and a $191.8 million increase for the six 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 countries outside of the United States.

The 7% increase in the Euro against the U.S. dollar for the three months ended June 30, 2007, as compared to the same period of 2006, positively impacted total product and service revenue by $15.6 million. The 8% increase in the Euro against the U.S. dollar for the six months ended June 30, 2007, as compared to the same period of 2006, positively impacted total product and service revenue by $33.6 million.

Research and Development Revenue

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

	Three Months Ended June 30,						Increase/ (Decrease)			Six Months Ended June 30,				Increase/ (Decrease)
	2007			2006			% Change			2007		2006		% Change
	(Amounts in thousands)
Therapeutics		$	431		$	—		N/A		$	1,069	$	1,000		7	%
Transplant		—			—			N/A		180		—			N/A
Biosurgery		1,226			1			>100	%	2,974		5			>100	%
Other		3,406			3,558			(4	)%	9,649		7,196			34	%
Corporate		399			50			>100	%	702		93			>100	%
Total research and development revenue		$	5,462		$	3,609		51	%	$	14,574	$	8,294		76	%

Total research and development revenue increased $1.9 million for the three months ended and $6.3 million for the six months ended June 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. The increase in our Biosurgery research and development revenue is for work done

related to dermal filler products as a result of new contracts entered into with Mentor Corporation in September 2006, for which there were no comparable amounts in the first half of 2006. Other research and development revenue for the three and six months ended June 30, 2007 includes $1.6 million of revenue for the three months and $5.8 million for the six months for research and development work related to alemtuzumab for the treatment of multiple sclerosis that we perform on behalf of Bayer Schering Pharma AG. 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						Increase/			Six Months Ended						Increase/
	June 30,						(Decrease)			June 30,						(Decrease)
	2007			2006			% Change			2007			2006			% Change
	(Amounts in thousands)
Product margin	$	682,230		$	584,778			17	%	$	1,325,696		$	1,121,601			18	%
% of total product revenue	81		%	81		%				81		%	82		%
Service margin	$	28,129		$	19,636			43	%	$	56,271		$	42,020			34	%
% of total service revenue	34		%	28		%				36		%	30		%
Total product and service margin	$	710,359		$	604,414			18	%	$	1,381,967		$	1,163,621			19	%
% of total product and service revenue	77		%	77		%				77		%	77		%

Product Margin

Our overall product margin increased $97.5 million, or 17%, for the three months ended and $204.1 million, or 18%, for the six months ended June 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;

· an increase in product margin for Cerezyme, Fabrazyme and Thyrogen due to increased sales volume and improved unit costs;

· improved margins for Myozyme due to the launch of Myozyme in the European Union, United States and Canada in 2006;

· an increase in product margin for Seprafilm and other HA products due to increased sales; and

· an increase in product margin for our oncology business due to the increase in global sales of Campath and the increase in U.S. sales of Clolar.

These increases in product margin were partially offset by a $3.2 million increase for the three months and a $6.6 million increase for the six months ended June 30, 2007 in stock-based compensation expenses compared to the same periods of 2006.

Total product margin as a percentage of product revenue for the three months ended June 30, 2007 was consistent with the same period of 2006. Total product margin as a percentage of product revenue for the six months ended June 30, 2007 decreased slightly compared to the same period of 2006 due to an increase in sales of higher cost Thymoglobulin product that was manufactured in our Waterford, Ireland plant and was sold in 2007.

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 $8.5 million, or 43%, for the three months ended and $14.3 million, or 34%, for the six months ended June 30, 2007. This is primarily due to the increase in revenue from our DNA and cancer testing services as well as the prenatal screening and diagnosis market in 2007.

Total service margin as a percent of total service revenue increased in the three and six months ended June 30, 2007, as compared to the same periods of 2006, primarily due to a decrease in payroll costs related to Genetics services.

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						Increase/			Six Months Ended						Increase/
	June 30,						(Decrease)			June 30,						(Decrease)
	2007			2006			% Change			2007			2006			% Change
	(Amounts in thousands)
Selling, general and administrative expenses	$	339,480		$	273,480			24	%	$	608,501		$	504,149			21	%
% of total revenue	36		%	34		%				33		%	33		%

SG&A increased $66.0 million for the three months ended and increased $104.4 million for the six months ended June 30, 2007, as compared to the same periods of 2006, primarily due to spending of:

· $5.4 million for the three month period and $11.8 million for the six month period for Renal products, primarily due to continued support of Renal’s international business operations growth;

· $7.8 million for the three month period and $16.7 million for the six month period for Therapeutics products, primarily due to expenses incurred to prepare to launch Myozyme in additional countries during 2007;

· $2.6 million for the three month period and $5.5 million for the six month period for Transplant products, primarily due to expenses resulting from the acquisition of AnorMED in November 2006. Additional expenses were 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 $5.5 million for the six month period for Biosurgery, primarily due to sales force expansion; and

· $66.7 million for the three month period and $79.3 million for the six month period for Corporate SG&A primarily due to a charge of $64.0 million recorded in June 2007 related to the proposed settlement, subject to court approval and 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 by decreases of:

· $4.1 million for the three month period and $2.0 million for the six month period for Genetics products, primarily due to a $6.1 million 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

· $17.4 million for the three month period and $14.4 million for the six month period attributable to a decrease in stock-based compensation expenses.

The decrease in SG&A as a percentage of total revenue for both the three and six months ended June 30, 2007 is primarily due to the reduction in stock-based compensation expenses recorded.

Research and Development Expenses

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

	Three Months Ended						Increase/			Six Months Ended						Increase/
	June 30,						(Decrease)			June 30,						(Decrease)
	2007			2006			% Change			2007			2006			% Change
	(Amounts in thousands)
Research and development expenses	$	198,442		$	168,941			17	%	$	364,562		$	321,264			13	%
% of total revenue	21		%	21		%				20		%	21		%

Research and development expenses increased $29.5 million for the three months ended and $43.3 million for the six months ended June 30, 2007, as compared to the same periods of 2006, primarily due to:

· a $37.5 million increase for the three month period and a $42.2 million increase for the six 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 a collaboration agreement for the development and commercialization of CERE-120, a gene therapy product for the treatment of Parkinson’s disease;

· a $9.3 million increase for the three month period and a $16.7 million increase for the six month period in spending on Transplant research and development programs, primarily due to our acquisition of AnorMED in November 2006; and

· a $3.9 million increase for the three month period and a $8.8 million increase for the six 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:

· $4.6 million for the three month period and $10.7 million for the six month period in spending on our Renal programs due to the termination of our collaboration with RenaMed Biologics, Inc., or RenaMed, in February 2007;

· $5.1 million in spending for the three month period and $3.6 million in spending for the six month period on certain Therapeutics research and development programs, including a $4.7 million decrease in spending for the three month period and a $1.5 million decrease in spending for the six 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

· $9.8 million for the three month period and $8.8 million for the six month period for our Corporate research and development programs, primarily due to decreases of $6.1 million for the three months ended and $4.7 million for the six months ended June 30, 2007 in stock-based compensation expenses.

Amortization of Intangibles

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

	Three Months Ended						Increase/			Six Months Ended						Increase/
	June 30,						(Decrease)			June 30,						(Decrease)
	2007			2006			% Change			2007			2006			% Change
	(Amounts in thousands)
Amortization of intangibles	$	49,465		$	52,883			(6	)%	$	99,482		$	105,575			(6	)%
% of total revenue	5		%	7		%				5		%	7		%

Amortization of intangibles expense decreased by $3.4 million for the three months ended and $6.1 million for the six months ended June 30, 2007, as compared to the same periods of 2006, primarily due to the write off in the first quarter of 2007 of $23.7 million of fully amortized customer lists related to our acquisition of Bone Care in July 2005.

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.

Purchase of In-Process Research and Development

The following table sets forth IPR&D projects for companies and certain assets acquired since 2004 (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	%	2008-2013		$	125
					26.1		AMD070 (HIV)(2)		15	%	—		—
					$	552.9
Avigen (2005)		$	12.0		$	7.0	AV201 (Parkinson’s disease)		N/A		2016		$	100
Bone Care (2005)		$	712.3		$	12.7	LR-103 (secondary hyperparathyroidism)		25	%	2012		$	15
Verigen (2005)		$	12.7		$	9.5	MACI (cartilage repair)		24	%	2012-2014		$	20-$35
ILEX Oncology (2004)		$	1,080.3		$	96.9	Campath		11	%	2009-2011		$	194
					113.4		Clolar		12	%	2008-2011		$	99
					44.2		Tasidotin		16	%	2011-2014		$	44
					$	254.5

(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.

OTHER INCOME AND EXPENSES

	Three Months Ended						Increase/			Six Months Ended						Increase/
	June 30,						(Decrease)			June 30,						(Decrease)
	2007			2006			% Change			2007			2006			% Change
	(Amounts in thousands)
Equity in income of equity method investments	$	5,945		$	3,854			54	%	$	11,557		$	6,100			89	%
Minority interest	15			2,750				(99	)%	3,927			5,196				(24	)%
Gains on investments in equity securities, net	143			66,967				(100	)%	12,931			74,909				(83	)%
Other	(278		)	(319		)		(13	)%	(803		)	(458		)		75	%
Investment income	17,246			12,563				37	%	33,465			22,641				48	%
Interest expense	(3,621		)	(4,035		)		(10	)%	(7,809		)	(8,473		)		(8	)%
Total other income	$	19,450		$	81,780			(76	)%	$	53,268		$	99,915			(47	)%

Equity in Income 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 investment in Peptimmune, Inc., or Peptimmune.

Equity in income of equity method investments increased $2.1 million, or 54%, for the three months ended and $5.5 million, or 89%, for the six months ended June 30, 2007, as compared to the same periods of 2006, primarily due to an increase of $1.9 million for the three months ended and $4.6 million for the six months ended June 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 effective February 20, 2007. 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 three and six months ended June 30, 2007 and 2006:

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007		2006
	(Amounts in thousands)
Gross gains on investments in equity securities:
THP		$	—	$	—		$	10,848	$	—
CAT		—		69,359			—		69,359
BioMarin		—		—			—		6,417
Other		143		501			2,083		2,026
Total		143		69,860			12,931		77,802
Less: charges for impairment of investments		—		(2,893		)	—		(2,893		)
Gains on investments in equity securities, net		$	143	$	66,967		$	12,931	$	74,909

Unrealized Gains (Losses)

At June 30, 2007, our stockholders’ equity included $17.7 million of unrealized gains and $0.1 million of unrealized losses related to our investments in equity securities.

Investment Income

Our investment income increased 37% to $17.2 million for the three months ended and 48% to $33.5 million for the six months ended June 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 10% to $3.6 million for the three months ended June 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, and a $0.2 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 $1.2 million increase in interest expense related to asset retirement obligations, for which there was no similar amount in 2006. Our interest expense decreased 8% to $7.8 million for the six months ended June 30, 2007, as compared to the same period of 2006, primarily due to a $2.9 million increase in capitalized interest, which resulted in a decrease in interest expense, and a $0.4 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 $2.6 million increase in interest expense related to asset retirement obligations, for which there was no similar amount in 2006.

Provision for Income Taxes

	Three Months Ended						Increase/			Six Months Ended						Increase/
	June 30,						(Decrease)			June 30,						(Decrease)
	2007			2006			% Change			2007			2006			% Change
	(Amounts in thousands)
Provision for income taxes	$	64,090		$	60,002			7	%	$	135,283		$	105,371			28	%
Effective tax rate	43		%	31		%				36		%	31		%

Our effective tax rate for all periods 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 six months ended June 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 six months ended June 30, 2007 and our accrued interest related to unrecognized tax benefits as of January 1, 2007 and June 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 12 months of the reporting date.

B. LIQUIDITY AND CAPITAL RESOURCES

We continue to generate cash from operations. At June 30, 2007, we had cash, cash equivalents and short- and long-term investments of $1.5 billion, an increase of $0.2 billion from $1.3 billion at December 31, 2006.

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

Cash Flows from Operating Activities

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

	Six Months Ended June 30,
	2007			2006
Cash flows from operating activities:
Net income	$	241,981		$	235,471
Non-cash charges	196,810			138,753
Decrease in cash from working capital changes (excluding impact of acquired assets and assumed liabilities)	(62,623		)	(14,059		)
Cash flows from operating activities	$	376,168		$	360,165

Cash provided by operating activities increased $16.0 million for the six months ended June 30, 2007, as compared to the same period of 2006, primarily due to a $58.1 million increase in non-cash charges and a $6.5 million increase in earnings, excluding non-cash charges, offset by a $48.6 million increase in cash used for working capital.

Cash Flows from Investing Activities

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

	Six Months Ended June 30,
	2007			2006
Cash flows from investing activities:
Net sales (purchases) of investments, excluding investments in equity securities	$	84,919		$	(67,672	)
Net sales (purchases) of investments in equity securities	(668		)	33,281
Purchases of property, plant and equipment	(180,041		)	(156,406		)
Distributions from equity method investments	10,900			12,000
Purchases of other intangible assets	(27,618		)	(43,109		)
Other investing activities	891			3,132
Cash flows from investing activities	$	(111,617	)	$	(218,774	)

For the six months ended June 30, 2007, capital expenditures and acquisitions accounted for significant cash outlays for investing activities. For the six months ended June 30, 2007, we used:

· approximately $17 million for a capital contribution in connection with the termination of our participation and interest in Dyax-Genzyme LLC:

· $180.0 million in cash to fund the purchase of property, plant and equipment, primarily related to the ongoing expansion of our manufacturing capacity in the Republic of Ireland, the

United Kingdom and Belgium, and the construction of a new research and development facility in Framingham, Massachusetts; and

· $27.6 million in 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 cash provided by:

· $84.9 million in cash from the net sales of investments; and

· $10.9 million of cash distributions from our joint venture with BioMarin.

Cash Flows from Financing Activities

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

	Six Months Ended June 30,
	2007			2006
Cash flows from financing activities:
Proceeds from issuance of common stock	$	68,174		$	57,080
Repurchase of common stock	(63,430		)	—
Excess tax benefits from stock-based compensation	565			4,659
Payments of debt and capital lease obligations	(3,356		)	(1,971		)
Increase (decrease) in bank overdrafts	15,935			(7,222		)
Minority interest contributions	4,136			5,232
Other financing activities	2,474			1,503
Cash flows from financing activities	$	24,498		$	59,281

In May 2007, our board of directors authorized a stock repurchase program to repurchase up to an aggregate maximum amount of $1.5 billion or 20,000,000 shares of our outstanding common stock over the next three years. The repurchases are being made from time to time and can be effectuated through open market purchases, privately negotiated transactions, transactions structured through investment banking institutions, or by other means, subject to management’s discretion and as permitted by securities laws and other legal requirements. In June 2007, we repurchased a total of 968,485 shares of our common stock at an average price of $65.48 per share for $63.4 million of cash, including fees. We recorded the purchases in our consolidated balance sheet as of June 30, 2007, as a reduction to our common stock account for the par value of the repurchased shares and as a reduction in additional paid-in capital in accordance with the provisions of the MBCA. During the period from July 1, 2007 through August 7, 2007, we repurchased 1,840,253 additional shares of our common stock at an average price of $63.98 per share for $117.8 million of cash, including fees. These additional repurchases will be reflected in our consolidated balance sheet as of September 30, 2007.

Dyax

Agreements with Dyax

· a 5 year standstill period during which we will not acquire any additional shares of Dyax;

· not enter into any future licensing or collaboration arrangements for the prevention and or treatment of hereditary, acquired or drug-induced angioedema for 2 years; and

· negotiate in good faith a transitional services agreement for us to provide certain services to Dyax.

Note Receivable from Dyax

Prior to May 24, 2007, we considered Dyax to be a related party because the chairman and chief executive officer of Dyax was a member of our board of directors. We recorded the principal and accrued interest due to us from Dyax prior to May 24, 2007 as a note receivable—related party in our unaudited, consolidated balance sheet. On May 24, 2007, the term of this director expired and he decided not to stand for re-election, thus resigning from our board of directors. As a result, Dyax was no longer considered our related party and we recorded the principal and accrued interest due to us from Dyax in other noncurrent assets in our unaudited, consolidated balance sheet. As of June 30, 2007, $7.2 million of principal and accrued interest receivable remains due to us from Dyax under this note.

Revolving Credit Facility

As of June 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 June 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 June 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;

· business combinations and other strategic business initiatives, including the approximately $345 million in cash we intend to spend on acquiring Bioenvision;

· 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, including the approximately $64 million we expect to pay, subject to court approval, for the proposed settlement of the litigation related to the consolidation of our former tracking stocks, 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 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 $546.8 million for the six months ended June 30, 2007, representing approximately 33% of our consolidated total product 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, Synvisc, Fabrazyme, Aldurazyme, 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. announced plans for initiation in the third quarter of 2007 of a phase 3 trial for plant-derived enzyme replacement therapy to treat Gaucher disease. 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®, 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 is lower than the price healthcare providers are currently 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 in treating 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 acquisition of AnorMED Inc., 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 receiving that approval in the first half 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.

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 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.

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 and to be incurred with the litigation related to the consolidation of our tracking stock. 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 six months ended June 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;

· fluctuations in currency exchange rates;

· 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.

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.

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

As of June 30, 2007, we had $1.5 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;

· business combinations and other strategic business initiatives, including the approximately $345 million in cash we intend to spend in acquiring Bioenvision;

· our $1.5 billion stock repurchase program;

· upgrading our systems;

· expanding existing and constructing additional manufacturing facilities;

· expanding staff; and

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 June 30, 2007, we had $697.8 million of outstanding indebtedness, excluding capital leases. We may incur additional indebtedness in the future. Our level of indebtedness will have several important effects on our future operations, including:

· increasing our vulnerability to adverse changes in general economic and industry conditions; and

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

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

We are exposed to potential loss from market risks represented principally by changes in foreign exchange rates, interest rates and equity prices. At June 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 June 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 $18.2 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 June 30, 2007 are considered equity securities and are excluded;

· notes that are “out-of-the-money” at June 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 $2.3 million as of June 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 June 30, 2007 to be $5.5 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 June 30, 2007, and (2) no change in internal control over financial reporting occurred during the quarter ended June 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 have been filed against us regarding the exchange of all of the outstanding shares of Biosurgery Stock for shares of Genzyme Stock in connection with the elimination of our tracking stocks in July 2003. Each of the lawsuits is a purported class action on behalf of holders of Biosurgery Stock. The first case, filed in 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. This settlement is subject to the execution of a definitive settlement agreement and approval by the court. Because the members of the class in the New York action will release all claims, we anticipate that the settlement will, as a practical matter, resolve the consolidated case that remains pending 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 have 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 and as an increase to accrued expenses in our consolidated balance sheets as of June 30, 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 June 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
April 1, 2007-April 30, 2007		—		—				—	—
May 1, 2007-May 31, 2007		639	(1)	$	65.57			—	$	1,500,000,000
June 1, 2007-June 30, 2007		968,485	(2)	$	65.48	(3)		968,485	1,436,588,153
Total		969,124		$	65.48			968,485

(1) Represents shares from stock option exercises where employees use shares of Genzyme Stock to pay the exercise price of stock options, commonly referred to as a stock swap transaction. Shares repurchased in stock swap transactions are retired.

(2) During the second quarter of fiscal 2007, we repurchased 968,485 shares of our common stock under the stock repurchase program for $63.4 million of net cash.

(3) Represents the weighted average price paid per share for stock repurchases made during the second quarter of fiscal 2007.

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

We held our annual meeting of shareholders on May 24, 2007. We have set forth below the results of the voting on proposals submitted to the shareholders for a vote at the annual meeting. Adoption of the proposals, other than the election of directors required that the number of votes cast in favor of the proposals exceed the number of votes cast against the proposals. Each director was elected by a plurality of the votes properly cast at the meeting. Abstentions and broker non-votes were counted for determining a quorum, but were not treated as votes cast on the proposals.

a. Proposal to re-elect two directors, each for a one-year term:

	Number of Votes
Nominee	For	Withheld
Douglas A. Berthiaume	201,275,095	26,004,600

	Number of Votes
Nominee	For	Withheld
Gail K. Boudreaux	223,979,015	3,300,680

Each nominee received a plurality of the votes cast, and therefore has been duly reelected as a director of Genzyme. The terms of office for Robert J. Carpenter, Charles L. Cooney, PhD, Victor J. Dzau, M.D., Senator Connie Mack III, Richard F. Syron and Henri A. Termeer continued as directors of Genzyme after the annual meeting.

b. Proposal to amend the 2004 Equity Incentive Plan by increasing the number of shares of common stock covered by the plan by 3,500,000 shares and to merge our 1997 Equity Incentive Plan into the 2004 plan;

Number of	Number of	Number of	Number of
Votes for	Votes Against	Votes Abstaining	Broker Non-Votes
172,145,357	26,115,618	1,720,715	27,298,007

The number of votes cast in favor of the proposal exceeded the number of votes cast against it, and therefore the proposal was adopted.

c. Proposal to approve the 2007 Director Equity Plan;

Number of	Number of	Number of	Number of
Votes for	Votes Against	Votes Abstaining	Broker Non-Votes
146,146,185	52,042,893	1,792,612	27,298,007

The number of votes cast in favor of the proposal exceeded the number of votes cast against it, and therefore the proposal was adopted.

d. Proposal to amend the 1999 Employee Stock Purchase Plan by increasing the number of shares of common stock covered by the plan by 1,500,000 shares;

Number of	Number of	Number of	Number of
Votes for	Votes Against	Votes Abstaining	Broker Non-Votes
192,020,073	6,502,334	1,459,283	27,298,007

The number of votes cast in favor of the proposal exceeded the number of votes cast against it, and therefore the proposal was adopted.

e. Proposal to approve an amendment to our bylaws to provide for majority voting for the election of directors in uncontested elections;

Number of	Number of	Number of	Number of
Votes for	Votes Against	Votes Abstaining	Broker Non-Votes
192,601,240	5,865,189	1,515,260	27,298,008

The number of votes cast in favor of the proposal exceeded the number of votes cast against it, and therefore the proposal was adopted.

f. Proposal to ratify the audit committee’s selection of PricewaterhouseCoopers, LLP as independent auditors for 2007;

Number of	Number of	Number of	Number of
Votes for	Votes Against	Votes Abstaining	Broker Non-Votes
222,734,443	3,057,910	1,487,344	—

The number of votes cast in favor of the proposal exceeded the number of votes cast against it, and therefore the proposal was adopted.

g. Shareholder sponsored proposal that executive severance agreements be approved by shareholders;

Number of	Number of	Number of	Number of
Votes for	Votes Against	Votes Abstaining	Broker Non-Votes
73,055,854	121,807,254	5,118,581	27,298,008

The number of votes cast against the proposal exceeded the number of votes cast for the proposal. The proposal was not adopted.

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, JUNE 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: August 9, 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, JUNE 30, 2007

EXHIBIT INDEX

EXHIBIT NO.		DESCRIPTION
*2.1		Agreement and Plan of Merger, by and among Genzyme Corporation, Bioenvision, Inc. and Witchita Bio Corporation, dated May 29, 2007. Filed as Exhibit 2.1 to Genzyme’s 8-K filed May 29, 2007.
*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		Amendment effective as of January 1, 2007 to Purchase and Supply Agreement, effective as of January 1, 2005, by and between Genzyme and Invitrogen Corporation. Filed herewith.
10.2		2004 Equity Incentive Plan, as amended. Filed herewith.
10.3		1999 Employee Stock Purchase Plan, as amended. Filed herewith.
*10.4		Form of Restricted Stock Unit for grants to executive officers under Genzyme’s 2004 Equity Incentive Plan. Filed as Exhibit 10.1 to Genzyme’s 8-K filed May 30, 2007.
*10.5		2007 Director Equity Plan. Filed as Exhibit 10.2 to Genzyme’s 8-K filed May 30, 2007.
*10.6		Form of Nonstatutory Stock Option for grants under Genzyme’s 2007 Director Equity Plan. Filed as Exhibit 10.3 to Genzyme’s 8-K filed May 30, 2007.
*10.7		Form of Restricted Stock Unit for grants under Genzyme’s 2007 Director Equity Plan. Filed as Exhibit 10.4 to Genzyme’s 8-K filed May 30, 2007.
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.

EX-10.1 2 a07-19267_1ex10d1.htm EX-10.1

Exhibit 10.1

AMENDMENT No. 2 TO SUPPLY AGREEMENT No. SPM 254

This Amendment (“Amendment”), effective as of January 1, 2007 is made by and between Genzyme Corporation (including certain of its Subsidiaries and Affiliates as listed on Attachment A of the Agreement) with a principal place of business at Genzyme Center, 500 Kendall Street, Cambridge, Massachusetts 02142 (“GENZYME”), and Invitrogen Corporation with a principal place of business at 1600 Faraday Avenue, Carlsbad, California 92008 (“SUPPLIER”).

WHEREAS, the parties entered into an Supply Agreement dated January 1, 2005 and attached hereto as Exhibit A (the “Purchase and Supply Agreement”), and

WHEREAS, the parties now wish to amend the Agreement in order to modify certain provisions thereof;

NOW, THEREFORE, the parties agree as follows:

Section 1 shall be amended to add the following definition:

1.9 “Hot List” means a list of up to 50 high usage Research Products to be mutually determined by the Parties.

Section 5.7 will be deleted in its entirety and replaced by the following;

5.7 Pricing for Research Products.

5.7.1 Current US prices for SUPPLIER Research Products are set forth in SUPPLIER’s current catalog (“List Price”). Each Selling Entity has a different catalog and the List Prices may vary by country. [**]

5.7.2 Effective January 1, 2007, price increases for all Research Products other than Research Products on the Hot List shall be determined as follows: [**]

5.7.3 [**]

5.7.4 [**]

5.7.5 [**]

Except as stated above, the existing terms of the Supply Agreement shall not be affected by this Amendment and shall remain in full force and effect between the parties. In the event that this Amendment is deemed unenforceable by a court of law, the Supply Agreement shall remain valid and enforceable as an agreement between the parties.

Invitrogen Corporation			Genzyme Corporation


/s/ Bernd Brust			/s/ Mark Bamforth
By: Bernd Brust			Mark Bamforth
Title: Senior VP, Global Sales			Sr. Vice-Operation and Pharmaceuticals
Date: June 25, 2007			Genzyme Corporate
			Date: June 14, 2007

[**] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission

EX-10.2 3 a07-19267_1ex10d2.htm EX-10.2

Exhibit 10.2

GENZYME CORPORATION

2004 EQUITY INCENTIVE PLAN

1. PURPOSE

The 2004 Equity Incentive Plan (the “Plan”) has been established to promote the interests of the Company and its shareholders by strengthening the Company’s ability to attract, motivate, and retain key employees and consultants of the Company and its Affiliates upon whose judgment, initiative, and efforts the financial success and growth of the business of the Company largely depend. The Plan is intended to provide an additional incentive for such individuals through stock ownership and other rights that promote and recognize the financial success and growth of the Company and create value for shareholders. Certain capitalized terms used herein and certain operating rules related thereto are defined and set forth in Section 10 below.

The Plan provides for the grant of Stock Options, including ISOs and NSOs, Restricted Stock, and Restricted Stock Units (each an “Award”).

The Plan shall become effective upon shareholder approval (the “Effective Date”) and unless earlier terminated pursuant to Section 8, shall terminate ten years from the Effective Date. After the Plan is terminated, no new Awards may be granted, but Awards previously granted shall remain outstanding in accordance with their terms and conditions and the Plan’s terms and conditions applicable thereto.

The Plan constitutes a merger and restatement of the Company’s 1997 Equity Incentive Plan (the “Prior Plan”) and supersedes the Prior Plan, the separate existence of which shall terminate on the Effective Date. The rights and privileges of holders of Awards outstanding under the Prior Plan shall not be adversely affected by the foregoing action.

2. ADMINISTRATION

The Compensation Committee shall be the Administrator of the Plan except as hereinafter provided. The Compensation Committee may delegate to one or more of its members such of its duties, powers and responsibilities as it may determine. To the extent determined by the Compensation Committee and permitted by applicable law, the Compensation Committee may also (i) delegate to one or more executive officers of the Company the power to grant Awards to, or allocate Awards among, Participants who are not Reporting Persons or Covered Employees and to make such determinations under the Plan with respect thereto as the Compensation Committee determines; and (ii) authorize any such executive officer to further delegate to an Employee or another executive officer temporary authority to grant or allocate Awards when the executive officer is unavailable. The Compensation Committee may also delegate to such Employees or other persons as it determines such ministerial tasks as it deems appropriate. In the event of any delegation described in this paragraph, the term “Administrator” shall include the person or persons so delegated to the extent of such delegation.

The Administrator has discretionary authority, subject only to the express provisions of the Plan, to interpret the Plan; determine eligibility for and grant Awards; select the Participants to receive Awards and determine, modify or waive the terms and conditions of any Award; prescribe forms, rules and procedures; and otherwise do all things necessary to carry out the purposes of the Plan. The terms of each Award grant need not be identical, and the Administrator need not treat Participants uniformly. Except as otherwise provided by the Plan or a particular Award, any determination with respect to an Award may be made by the Administrator at the time of grant or at any time thereafter. In the case of any Award intended to be eligible for the performance-based compensation exception under Section 162(m), the Administrator will exercise its discretion consistent with qualifying the Award for that exception. Determinations made by the

Administrator shall be final and binding upon Participants, the Company, and all other interested parties.

3. STOCK AVAILABLE FOR GRANT; LIMITS

(a) Number of Shares. Subject to adjustment as provided under Section 6, the maximum number of shares available for issuance to Participants under the Plan shall be 39,600,000 shares. Subject to such overall maximum, up to 39,600,000 shares of Stock may be issued upon the exercise of ISOs; up to 39,600,000 shares of Stock may be issued upon exercise of NSOs; and up to 3,200,000 shares of Stock may be issued for grants of Restricted Stock or Restricted Stock Units. Stock delivered by the Company under the Plan may be authorized but unissued Stock or previously issued Stock acquired by the Company. No fractional shares of Stock will be delivered under the Plan. To the extent consistent with the requirements of Section 422 of the Code, and with other applicable legal requirements (including applicable NASDAQ or stock exchange requirements), Stock issued under option grants, restricted stock grants, or restricted stock unit grants of an acquired company that are assumed in connection with the acquisition, or under Stock Options, Restricted Stock, or Restricted Stock Units issued in substitution for options, restricted stock, or restricted stock units of an acquired-company, shall not reduce the number of shares available for issuance under the Plan.

(b) Section 162(m) Limits. The maximum number of shares of Stock for which Stock Options may be granted to any person in any calendar year will be 2,000,000.

4. ELIGIBILITY AND PARTICIPATION

All employees and consultants of the Company or any Affiliate capable of contributing significantly to the successful performance of the Company, other than a person who has irrevocably elected not be eligible, are eligible to be Participants in the Plan. Eligibility for ISOs is limited to employees of the Company or of a “parent corporation” or “subsidiary corporation” of the Company as those terms are defined in Section 424 of the Code. The Administrator, in its sole discretion, shall determine from the group of eligible persons whether an individual shall be a Participant under the Plan. Any grant made under the Plan shall be made in the sole discretion of the Administrator and no prior grant shall entitle a person to any future grant.

5. RULES APPLICABLE TO AWARDS

(a) Documentation. Each Award granted under the Plan shall be evidenced by a writing specifying the terms and conditions thereof and containing such other terms and conditions not inconsistent with the provisions of the Plan as the Administrator considers necessary or advisable to achieve the purposes of the Plan or to comply with applicable tax and regulatory laws and accounting principles.

(b) Transferability. In the discretion of the Administrator, any Award may be made transferable upon such terms and conditions and to such extent as the Administrator determines, provided that ISOs may not be transferred other than by will or by the laws of descent and distribution. Any non-transferable Stock Option requiring exercise, including any ISO, may be exercised only by the Participant during the Participant’s lifetime. The Administrator may in its discretion, other than in the case of Stock Options intended to continue to qualify as ISOs, waive any restriction on transferability.

(c) Vesting; Exercisability. The Administrator shall determine the time or times at which an Award will vest or become exercisable and the terms on which a Stock Option will remain exercisable during or following termination of Employment and the payment terms of any Restricted Stock Unit. Without limiting the foregoing, the Administrator may at any time

accelerate the vesting or exercisability of, or payment under, an Award, regardless of any adverse or potentially adverse tax consequences resulting from such acceleration; provided, that the Administrator’s discretion shall not be exercised, in the case of an Award providing for “nonqualified deferred compensation” subject to Section 409A, in a manner inconsistent with the requirements of Section 409A.

(d) Taxes. The Participant shall pay to the Company, or make provision satisfactory to the Administrator for payment of, any taxes required by law to be withheld in respect of the grant, vesting or exercise of any Award or the delivery of stock or other property under any Award, in each case no later than the date of the event creating the tax liability. The Company and its Affiliates may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind due to the Participant hereunder or otherwise.

(e) Dividend Equivalents, Etc. The Administrator may provide for the payment of amounts in lieu of cash dividends or other cash distributions with respect to Restricted Stock, Restricted Stock Units, or Stock subject to a Stock Option. Any such arrangement for the payment of amounts in lieu of dividends or other distributions shall be established and administered consistent with exemption from, or compliance with, the requirements of Section 409A.

(f) Rights Limited. Nothing in the Plan will be construed as giving any person the right to continued employment or service with the Company or its Affiliates, or any rights as a shareholder except as to shares of Stock actually issued under the Plan. In no event shall the Plan, or any grant made under the Plan, form a part of an employee’s or consultant’s contract of employment or service, if any. The loss of existing or potential profit in any Award will not constitute an element of damages in the event of termination of employment or service for any reason, even if the termination is in violation of an obligation of the Company or Affiliate to the Participant.

(g) Non-U.S. Awards. Awards may be granted under the Plan to any eligible person regardless of the jurisdiction in which he or she works or resides. In order to comply with the laws in other countries in which the Company operates, the Administrator, in its sole discretion, shall have the power and authority to:

(i) Establish one or more separate sub-plans or programs under the Plan for the grant of Awards to eligible persons in a specified jurisdiction or jurisdictions;

(ii) Include in any such sub-plan or program such special rules as it determines to be necessary or advisable; and

(iii) Take any action, before or after an Award grant is made, that it deems advisable to obtain approval or comply with any necessary local government regulatory exemptions or approvals.

Notwithstanding the above, the Administrator may not take any actions hereunder, and no Award shall be granted, that would violate applicable law.

(h) Exercise Price of Stock Option. The exercise price of a Stock Option will not be less than 100% of the Fair Market Value of the Stock on the date of grant. Once granted, no Stock Option may be repriced (as that term is used under applicable NASDAQ or stock exchange rules) without shareholder approval.

(i) Time and Manner of Exercise of Stock Option. Unless the Administrator expressly provides otherwise, a Stock Option will not be deemed to have been exercised until the Company receives a notice of exercise (in a form acceptable to the Administrator) signed by the appropriate person and accompanied by payment of the exercise price. If the Stock Option is exercised by any person other than the Participant, the Administrator may require satisfactory evidence that

the person exercising the Stock Option has the right to do so. All Stock Options granted pursuant to the Plan shall terminate if not exercised within ten years of the date of grant, or such earlier date as the Administrator may determine.

(j) Payment of Stock Option. No shares shall be delivered pursuant to any exercise of a Stock Option until payment in full of the exercise price therefor is received by the Company. Such payment may be made in whole or in part in cash or, to the extent permitted by the Administrator at or after the grant of the Stock Option, in shares of Stock owned by the Participant (which shares must be owned for at least six months) valued at their Fair Market Value on the date of delivery, or such other lawful consideration, including use of a broker-assisted exercise program or similar program, as the Administrator may determine. The delivery of shares in payment of the exercise price may be accomplished either by actual delivery or by constructive delivery through attestation of ownership, subject to such rules as the Administrator may prescribe.

(k) Grants of Restricted Stock and Restricted Stock Units. Grants of Restricted Stock and Restricted Stock Units may be made in exchange for such lawful consideration, including services, as the Administrator determines.

(l) Compliance with Section 409A. Awards under the Plan shall be construed and administered consistent with exemption from, or compliance with, the requirements of Section 409A. Notwithstanding any provision of Section 8 to the contrary, the Administrator may amend the Plan and/or any Award to satisfy the requirements of Section 409A, including the requirements for exemption from Section 409A.

6. EFFECT OF CERTAIN TRANSACTIONS

(a) Covered Transactions. Except as otherwise provided under the terms of an Award grant, in the event of a Covered Transaction in which there is an acquiring or surviving entity, the Administrator may provide for the assumption of some or all outstanding Awards, or for the grant of new awards in substitution therefor, by the acquiror or survivor or an affiliate of the acquiror or survivor, in each case on such terms and subject to such conditions as the Administrator determines. In the absence of such an assumption or if there is no substitution, except as otherwise provided in the Award, each Stock Option will become fully exercisable, and the delivery of shares of Stock issuable under each outstanding Restricted Stock Unit will be accelerated and such shares will be issued, prior to the Covered Transaction, in each case on a basis that gives the holder of the Stock Option or the Restricted Stock Unit a reasonable opportunity, as determined by the Administrator, following exercise of the Stock Option or the issuance of shares, as the case may be, to participate as a shareholder in the Covered Transaction, and the Stock Option will terminate upon consummation of the Covered Transaction. Any shares of Stock issued pursuant to the preceding sentence in satisfaction of a grant of Restricted Stock Units may, in the discretion of the Administrator, contain such restrictions, if any, as the Administrator deems appropriate to reflect any performance or other vesting condition to which the grant of Restricted Stock Units was subject. In the case of Restricted Stock, the Administrator may require that any amounts delivered, exchanged or otherwise paid in respect of such Stock in connection with the Covered Transaction be placed in escrow or otherwise made subject to such restrictions as the Administrator deems appropriate to carry out the intent of the Plan.

Without limiting the general scope of the Administrator’s discretionary authority under the Plan, the Administrator may provide, as to some or all Awards, if any, that in the event of a Change in Control of the Company, whether or not such Change in Control is also a Covered Transaction, the vesting and exercisability, if applicable, of, or the payment of benefits under, such Award will be accelerated on such terms as the Administrator determines.

(b) Distributions; Changes in Capital Stock; Basic Adjustment Provisions. In the event of a stock dividend, stock split (including reverse stock split) or combination of shares, recapitalization or other change in the Company’s capital structure, the Administrator will make appropriate adjustments to the maximum number of shares specified in Section 3(a) that may be delivered under the Plan, to the maximum number of shares specified in Section 3(a) that may be issued upon the exercise of ISOs, to the maximum number of shares specified in Section 3(a) that may be issued upon exercise of NSOs, and to the maximum share limits described in Section 3(b). The Administrator will also make appropriate adjustments to the number and kind of shares of stock or securities subject to Awards then outstanding or subsequently granted, any exercise prices relating to Stock Options and any other provision of Awards affected by such change.

(c) Certain Other Adjustments. To the extent consistent with qualification of ISOs under Section 422 of the Code, with the performance-based compensation rules of Section 162(m), where applicable, and with the requirements of (including the requirements for exemption under) Section 409A, the Administrator may also make adjustments of the type above to take into account distributions to shareholders other than those provided for in Section 6(a), or any other event, if the Administrator determines that adjustments are appropriate to avoid distortion in the operation of the Plan and to preserve the value of Award grants made hereunder.

(d) Continuing Application of Plan Terms. References in the Plan to shares of Stock will be construed to include any stock or securities resulting from an adjustment pursuant to this Section 6.

7. LEGAL CONDITIONS ON DELIVERY OF STOCK

The Company will not be obligated to deliver any shares of Stock pursuant to the Plan or to remove any restriction from shares of Stock previously delivered under the Plan until: (i) the Company is satisfied that all legal matters in connection with the issuance and delivery of such shares have been addressed and resolved; (ii) if the outstanding Stock is at the time of delivery listed on any stock exchange or national market system, the shares to be delivered have been listed or authorized to be listed on such exchange or system upon official notice of issuance; and (iii) all conditions of the grant have been satisfied or waived. If the sale of Stock has not been registered under the Securities Act of 1933, as amended, the Company may require, as a condition to exercise of the Stock Option or receipt of the Restricted Stock or Restricted Stock Unit, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of such Act. The Company may require that certificates evidencing Stock issued under the Plan bear an appropriate legend reflecting any restriction on transfer applicable to such Stock.

8. AMENDMENT AND TERMINATION

The Administrator may at any time or times amend the Plan or any outstanding Award for any purpose which may at the time be permitted by law, and may at any time terminate the Plan as to any future grants of Awards; provided, that except as otherwise expressly provided in the Plan the Administrator may not, without the Participant’s consent, alter the terms of an Award so as to affect adversely a Participant’s rights under the Award, unless the Administrator expressly reserved the right to do so at the time of grant. Amendments to the Plan shall be conditioned upon shareholder approval only to the extent, if any, such approval is required by law (including the Code and applicable NASDAQ or stock exchange requirements), as determined by the Administrator. Notwithstanding the foregoing, the Company shall submit for shareholder approval any amendment to the Plan (other than an amendment or adjustment pursuant to Section 6) that would: (a) increase the maximum number of shares for which Stock Options, Restricted Stock, or Restricted Stock Units may be granted under the Plan; (b) reduce the price at which a Stock Option may be granted below the price provided for in Section 5(h); (c) reduce the exercise price of outstanding Stock Options; or (d) increase the limits set forth in Section 3.

9. OTHER COMPENSATION ARRANGEMENTS

The existence of the Plan or the grant of any Award will not in any way affect the Company’s right to award a person bonuses or other compensation in addition to grants made under the Plan.

10. DEFINITIONS

The following terms, when used in the Plan, will have the meanings and be subject to the provisions set forth below:

“Administrator”: has the meaning set forth in Section 2.

“Affiliate”: Any corporation or other entity owning, directly or indirectly, 50% or more of the outstanding Stock of the Company, or in which the Company or any such corporation or other entity owns, directly or indirectly, 50% of the outstanding capital stock (determined by aggregate voting rights) or other voting interests.

“Award”: a Stock Option, Restricted Stock Unit, or award of Restricted Stock.

“Board”: The Board of Directors of the Company.

“Change in Control”: A change in ownership or control of the Company or a change in the ownership of a substantial portion of the Company’s assets, determined in accordance with such rules, if any, as may be established by the Administrator.

“Code”: The U.S. Internal Revenue Code of 1986 as from time to time amended and in effect, or any successor statute as from time to time in effect.

“Compensation Committee”: The Compensation Committee of the Board.

“Company”: Genzyme Corporation.

“Covered Employees”: A “covered employee” within the meaning of Section 162(m).

“Covered Transaction”: Any of (i) a consolidation, merger, or similar transaction or series of related transactions in which the Company is not the surviving corporation or which results in the acquisition of all or substantially all of the Company’s then outstanding common stock by a single person or entity or by a group of persons and/or entities acting in concert, (ii) a sale or transfer of all or substantially all the Company’s assets, or (iii) a dissolution or liquidation of the Company. Where a Covered Transaction involves a tender offer that is reasonably

expected to be followed by a merger described in clause (i) (as determined by the Administrator), the Covered Transaction shall be deemed to have occurred upon consummation of the tender offer.

“Employee”: Any person who is employed by the Company or an Affiliate.

“Employment”: A Participant’s employment or other service relationship with the Company and its Affiliates. Employment will be deemed to continue, unless the Administrator expressly provides otherwise, so long as the Participant is employed by, or otherwise is providing services in a capacity described in Section 4 to the Company or its Affiliates. If a Participant’s employment or other service relationship is with an Affiliate and that entity ceases to be an Affiliate, the Participant’s Employment will be deemed to have terminated when the entity ceases to be an Affiliate unless the Participant transfers Employment to the Company or its remaining Affiliates.

“Exchange Act”: The Securities Exchange Act of 1934, as amended, as from time to time further amended and in effect, or any successor statute as from time to time in effect.

“Fair Market Value”: The fair market value as determined by the Compensation Committee in good faith, or in the manner established by the Compensation Committee in good faith, from time to time.

“ISO”: A Stock Option intended to be an “incentive stock option” within the meaning of Section 422 of the Code. Each option granted pursuant to the Plan will be treated as providing by its terms that it is to be a non-incentive option unless, as of the date of grant, it is expressly designated as an ISO.

“NSO”: A Stock Option that is not an ISO.

“Participant”: A person who is granted an Award under the Plan.

“Plan”: The Genzyme Corporation 2004 Equity Incentive Plan as from time to time amended and in effect.

“Reporting Person”: A person subject to the reporting requirements of Section 16 of the Exchange Act.

“Restricted Stock”: An award of Stock for so long as the Stock remains subject to restrictions requiring that it be redelivered or offered for sale to the Company if specified performance or other vesting conditions are not satisfied.

“Restricted Stock Unit”: An unfunded and unsecured promise to deliver Stock in the future, subject to the satisfaction of specified performance or other vesting conditions.

“Section 162(m)”: Section 162(m) of the Code.

“Section 409A”: Section 409A of the Code.

“Stock”: Common Stock of the Company, par value $.01 per share.

“Stock Option”: An option entitling the recipient to acquire shares of Stock upon payment of the exercise price.

Adopted by Board of Directors February 26, 2004

Approved by Shareholders May 27, 2004

Amended by Board of Directors May 27, 2004

Amended by Board of Directors October 7, 2004

Amended by Board of Directors March 14, 2005

Amended by Board of Directors May 26, 2005

Approved by Shareholders May 26, 2005

Amended by Board of Directors March 1, 2006

Approved by Shareholders May 25, 2006

Adopted by Board of Directors February 28, 2007

Approved by Shareholders May 24, 2007

EX-10.3 4 a07-19267_1ex10d3.htm EX-10.3

Exhibit 10.3

GENZYME CORPORATION

1999 Employee Stock Purchase Plan

1. Purpose.

The purpose of this 1999 Employee Stock Purchase Plan (the “Plan”) is to provide employees of Genzyme Corporation (the “Company”) and its subsidiaries who wish to become shareholders of the Company an opportunity to purchase shares of the Company’s common stock, $0.01 par value (the “Shares”). The Plan is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”).

The Plan constitutes an amendment and restatement of the Company’s 1990 Employee Stock Purchase Plan (the “1990 Plan”), which is hereby merged with and into the Plan, and the separate existence of the 1990 Plan shall terminate on the effective date of the Plan. The rights and privileges of the holders of outstanding rights under the 1990 Plan shall not be adversely affected by the foregoing action.

2. Eligible Employees.

Subject to the provisions of Sections 7, 8 and 9 below, any individual who is in the full-time employment (as defined below) of the Company, or any of its subsidiaries (as defined in Section 425(f) of the Code), the employees of which are designated by the Board of Directors as eligible to participate in the Plan, is eligible to participate in any Offering of Shares (as defined in Section 3 below) made by the Company hereunder. Full-time employment shall include all employees whose customary employment is:

(a) 20 hours or more per week; and

(b) more than five months

in the calendar year during which said Offering Date (as defined in Section 3 below) occurs or in the calendar year immediately preceding such year.

3. Offering Dates.

From time to time, the Company, by action of the Board of Directors, will grant rights to purchase the Shares to employees eligible to participate in the Plan pursuant to one or more offerings (each of which is an “Offering”) on a date or series of dates (each of which is an “Offering Date”) designated for this purpose by the Board of Directors.

4. Prices.

The price per share for each grant of rights hereunder shall be the lesser of:

(a) eighty-five percent (85%) of the fair market value of a Share on the Offering Date on which such right was granted; or

(b) eighty-five percent (85%) of the fair market value of a Share on the date such right is exercised. At its discretion, the Board of Directors may determine a higher price for a grant of rights.

5. Exercise of Rights and Method of Payment.

(a) Rights granted under the Plan will be exercisable periodically on specified dates as determined by the Board of Directors.

(b) The method of payment for Shares purchased upon exercise of rights granted shall be through regular payroll deductions or by lump sum cash payment or both, as determined by the Board of Directors. No interest shall be paid upon payroll deductions unless specifically provided for by the Board of Directors.

(c) Any payments received by the Company from a participating employee and not utilized for the purchase of Shares upon exercise of a right granted hereunder shall be promptly returned to such employee by the Company after termination of the right to which the payment relates.

6. Term of Rights.

The total period from an Offering Date to the last date on which rights granted on that Offering Date are exercisable (the “Offering Period”) shall in no event be longer than twenty-seven (27) months. The Board of Directors when it authorizes an Offering may designate one or more exercise periods during the Offering Period. Rights granted on an Offering Date shall be exercisable in full on the Offering Date or in such proportion on the last day of each exercise period as the Board of Directors determines.

7. Shares Subject to the Plan.

The aggregate number of shares that may be issued upon exercise of options granted under this Plan is 7,329,391. Appropriate adjustments in the number of Shares subject to the Plan, in the number of Shares covered by outstanding rights granted hereunder, in the exercise price of the rights and in the maximum number of Shares which an employee may purchase (pursuant to Section 8 below) shall be made to give effect to any mergers, consolidations, reorganizations, recapitalizations, stock splits, stock dividends or other relevant changes in the capitalization of the Company occurring after the effective date of the Plan, provided that no fractional Shares shall be subject to a right and each right shall be adjusted downward to the nearest full Share. Any agreement of merger or consolidation shall include provisions for protection of the then existing rights of participating employees under the Plan. Either authorized and unissued Shares or issued Shares heretofore or hereafter reacquired by the Company may be subject to rights under the Plan. If for any reason any right under the Plan terminates in whole or in part, Shares subject to such terminated right may be subject to a right under the Plan.

8. Limitations on Grants.

(a) No employee shall be granted a right hereunder if such employee, immediately after the right is granted would own stock or rights to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all series of common stock of the Company, or of any subsidiary, computed in accordance with Section 423(b)(3) of the Code.

(b) No employee shall be granted a right which permits the employee’s rights to purchase shares under all employee stock purchase plans of the Company and its subsidiaries to accrue at a rate which exceeds twenty-five thousand dollars ($25,000) (or such other maximum as may be prescribed from time to time by the Code) of the fair market value of such shares (determined at the time such right is granted) for each calendar year in which such right is outstanding at any time in accordance with the provisions of Section 423(b)(8) of the Code.

(c) No right granted to any participating employee under an Offering, when aggregated with rights granted under any other Offering still exercisable by the participating employee, shall cover more shares than may be purchased at an exercise price not to exceed fifteen percent (15%) of the employee’s

annual rate of compensation on the date the employee elects to participate in the Offering or such lesser percentage as the Board of Directors may determine.

9. Limit on Participation.

Participation in an Offering shall be limited to eligible employees who elect to participate in such Offering in the manner, and within the time limitations, established by the Board of Directors when it authorizes the Offering.

10. Cancellation of Election to Participate.

An employee who has elected to participate in an Offering may cancel such election as to all (but not part) of the unexercised rights granted under such Offering by giving written notice of such cancellation to the Company before the expiration of any exercise period. Any amounts paid by the employee for the Shares or withheld for the purchase of Shares from the employee’s compensation through payroll deductions shall be paid to the employee, without interest unless otherwise determined by the Board of Directors, upon such cancellation.

11. Termination of Employment.

Upon the termination of employment for any reason, including the death of the employee, before the date on which any rights granted under the Plan are exercisable, all such rights shall immediately terminate and amounts paid by the employee for the Shares or withheld for the purchase of Shares from the employee’s compensation through payroll deductions shall be paid to the employee or to the employee’s estate, without interest unless otherwise determined by the Board of Directors.

12. Employee’s Rights as Shareholder.

No participating employee shall have any rights as a shareholder in the Shares covered by a right granted hereunder until such right has been exercised, full payment has been made for the corresponding Share and the Share certificate is actually issued.

13. Rights Not Transferable.

Rights under the Plan are not assignable or transferable by a participating employee and are exercisable only by the employee.

14. Amendments to or Discontinuation of the Plan.

The Board of Directors of the Company shall have the right to amend, modify or terminate the Plan at any time without notice; provided, however, that the then existing rights of all participating employees shall not be adversely affected thereby, and provided further that, subject to the provisions of Section 7 above, no such amendment to the Plan shall, without the approval of the shareholders of the Company, increase the total number of Shares which may be offered under the Plan.

15. Effective Date and Approvals.

Subject to the approval of the shareholders of the Company, this Plan shall be effective on March 24, 1999, the date it was adopted by the Board of Directors.

The Company’s obligation to offer, sell and deliver its Shares under the Plan is subject to (i) the approval of any governmental authority required in connection with the authorization, issuance or sale of such Shares, (ii) satisfaction of the listing requirements of any national securities exchange on which the

Shares are then listed and (iii) compliance, in the opinion of the Company’s counsel, with all applicable federal and state securities and other laws.

16. Term of Plan.

No rights shall be granted under the Plan after March 24, 2009.

17. Administration of the Plan.

The Board of Directors or any committee or person(s) to whom it delegates its authority (the “Administrator”) shall administer, interpret and apply all provisions of the Plan as it deems necessary. Nothing contained in this Section shall be deemed to authorize the Administrator to alter or administer the provisions of the Plan in a manner inconsistent with the provisions of Section 423 of the Code.

18. Rights Limited.

In no event shall the Plan form a part of an employee’s contract of employment or service, if any. The Plan shall not confer upon any employee of the Company or its subsidiaries any right with respect to the continuance of his or her employment by, or other service with, the Company or its subsidiary, nor shall it limit the right of the Company or its subsidiaries to terminate the employee or otherwise change the terms of employment. The loss of existing or potential profit in any Offering of Shares shall not constitute an element of damages in the event of termination of employment for any reason, even if the termination is in violation of an obligation of the Company or its subsidiary to the employee.

Approved by directors on March 24, 1999

Approved by shareholders on May 26, 1999

Amended by directors on December 18, 2000

Amended by directors on March 1, 2001

Approved by shareholders on May 31, 2001

Amended by directors on February 28, 2002

Approved by shareholders on May 30, 2002

Amended by directors on February 27, 2003

Amended by directors on April 8, 2003

Amended by directors on May 8, 2003

Approved by shareholders on May 29, 2003

Amended by directors on June 30, 2003

Amended by directors on February 26, 2004

Approved by shareholders on May 27, 2004

Amended by directors on March 14, 2005

Approved by shareholders on May 26, 2005

Amended by directors on February 28, 2007

Approved by shareholders on May 24, 2007

EX-31.1 5 a07-19267_1ex31d1.htm EX-31.1

Exhibit 31.1

Certification Pursuant To
Rules 13a-14(a) and 15d-14(a) Under The Securities Exchange Act of 1934, as Amended

I, Henri A. Termeer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Genzyme Corporation (the “Registrant”);

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

(d) disclosed in this quarterly report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: August 9, 2007	/s/ HENRI A. TERMEER
	Henri A. Termeer
	Chief Executive Officer

EX-31.2 6 a07-19267_1ex31d2.htm EX-31.2

Exhibit 31.2

Certification Pursuant To
Rules 13a-14(a) and 15d-14(a) Under The Securities Exchange Act of 1934, as Amended

I, Michael S. Wyzga, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Genzyme Corporation (the “Registrant”);

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: August 9, 2007	/s/ MICHAEL S. WYZGA
	Michael S. Wyzga
	Chief Financial Officer

EX-32.1 7 a07-19267_1ex32d1.htm EX-32.1

EXHIBIT 32.1

Certification by the Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. Section 1350, I, the undersigned Chief Executive Officer of Genzyme Corporation (the “Company”), hereby certify that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2007 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ HENRI A. TERMEER
Henri A. Termeer
Chief Executive Officer
August 9, 2007

EX-32.2 8 a07-19267_1ex32d2.htm EX-32.2

EXHIBIT 32.2

Certification by the Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. Section 1350, I, the undersigned Chief Financial Officer of Genzyme Corporation (the “Company”), hereby certify that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2007 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ MICHAEL S. WYZGA
Michael S. Wyzga
Chief Financial Officer
August 9, 2007