10-Q

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

FORM 10-Q

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2006
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                               to                              

Commission file number 0-14680

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

Massachusetts	06-1047163
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
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 ý    No o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

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

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

        The number of shares of Genzyme Stock outstanding as of July 31, 2006: 261,375,954                    

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:

•

projected timetables for the preclinical and clinical development of, regulatory submissions and approvals for, and market introduction of, our products and services in various jurisdictions;



•

our plans and our anticipated timing for pursuing additional indications and uses for our products and services;



•

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



•

estimates of the potential markets for our products and services;



•

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



•

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



•

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



•

potential use, benefit, and dissemination, as well as timing thereof, of data from the Dialysis Clinical Outcomes Revisited, or DCOR, trial;



•

expected continued adoption of Renagel by nephrologists;



•

expected future revenues, operations and expenditures;



•

projected future earnings and earnings per share;



•

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



•

the sufficiency of our cash, short-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 IRS and foreign tax disputes;



•

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



•

our assessment of the deductibility of goodwill for income tax purposes;



•

our assessment of the impact of recent accounting pronouncements, including Financial Accounting Standards Board, or FASB, Interpretation No., or FIN, 48 regarding accounting for uncertainty in income taxes;



•

sales and marketing plans;



•

expected future payments related to our acquisitions, including milestone and royalty payments to Avigen, Inc., or Avigen, milestone and contingent payments to Verigen AG, or Verigen, and contingent royalty and milestone payments to Surgi.B Chirugie et Medicine SAS, or Surgi.B and

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Wyeth, employee benefits and leased facilities acquired from Bone Care International, Inc., or Bone Care, and the expected timing of these payments; and

•

completion of a post-closing working capital assessment for our acquisition of substantially all of the pathology/oncology testing assets related to the Physician Services and Analytical Services business units of IMPATH, Inc., or IMPATH.

        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 and services and to do so on 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;



•

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 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;

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•

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



•

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 businesses we acquired from Bone Care, Equal Diagnostics, Inc., or Equal Diagnostics, ILEX Oncology, Inc., or ILEX Oncology, and IMPATH and the gene therapy manufacturing facility we acquired from Cell Genesys, Inc., or Cell Genesys;



•

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 determination of earnings per share;



•

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 have included more detailed descriptions of these and other risks and uncertainties in Item 2 of this report under the heading "Factors Affecting Future Operating Results." We encourage you to read those descriptions carefully. We caution investors not to place substantial reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report (unless another date is indicated) and we undertake no obligation to update or revise the statements.

NOTE REGARDING INCORPORATION BY REFERENCE

        The Securities and Exchange Commission, commonly referred to as the SEC, allows us to disclose important information to you by referring you to other documents we have filed with the SEC. 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®, Fabrazyme®, Thyrogen®, Myozyme®, Renagel®, Thymoglobulin®, Campath®, Clolar®, Synvisc®, Carticel®, Seprafilm®, IMPATH®, MACI®, GlucaMesh®, GlucaTex®, Epicel® and Hectorol® are registered trademarks, and Lymphoglobuline™ and Sepra™ 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.

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GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, JUNE 30, 2006
TABLE OF CONTENTS

		PAGE NO.
PART I.	FINANCIAL INFORMATION	6
ITEM 1.	Financial Statements	6
	Unaudited, Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended June 30, 2006 and 2005	6
	Unaudited, Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005	7
	Unaudited, Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005	8
	Notes to Unaudited, Consolidated Financial Statements	9
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	34
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	71
ITEM 4.	Controls and Procedures	72
PART II.	OTHER INFORMATION	73
ITEM 1.	Legal Proceedings	73
ITEM 1A.	Risk Factors	74
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	74
ITEM 4.	Submission of Matters to a Vote of Security Holders	74
ITEM 6.	Exhibits	76
Signatures		77

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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,
				2006			2005			2006			2005
Revenues:
	Net product sales			$	718,735		$	599,347		$	1,376,070		$	1,162,560
	Net service sales				71,012			64,035			139,834			124,649
	Research and development revenue				3,609			4,757			8,294			10,879
			Total revenues		793,356			668,139			1,524,198			1,298,088
Operating costs and expenses:
	Cost of products sold				133,957			102,328			254,469			207,302
	Cost of services sold				51,376			42,922			97,814			84,041
	Selling, general and administrative				273,480			196,385			504,149			378,224
	Research and development				168,941			121,726			321,264			236,471
	Amortization of intangibles				52,883			40,105			105,575			81,291
	Purchase of in-process research and development				—			—			—			9,500
			Total operating costs and expenses		680,637			503,466			1,283,271			996,829
Operating income					112,719			164,673			240,927			301,259
Other income (expenses):
	Equity in income (loss) of equity method investments				3,854			(417	)		6,100			(2,135	)
	Minority interest				2,750			3,357			5,196			5,551
	Gains on investments in equity securities, net				66,967			4,817			74,909			4,958
	Other				(319	)		253			(458	)		193
	Investment income				12,563			7,544			22,641			14,162
	Interest expense				(4,035	)		(4,466	)		(8,473	)		(8,274	)
			Total other income		81,780			11,088			99,915			14,455
Income before income taxes					194,499			175,761			340,842			315,714
Provision for income taxes					(60,002	)		(52,130	)		(105,371	)		(96,525	)
Net income				$	134,497		$	123,631		$	235,471		$	219,189
Net income per share:
	Basic			$	0.52		$	0.49		$	0.91		$	0.87
	Diluted			$	0.49		$	0.46		$	0.86		$	0.83
Weighted average shares outstanding:
	Basic				260,444			253,086			260,076			252,003
	Diluted				276,312			270,084			276,560			268,988
Comprehensive income, net of tax:
	Net income			$	134,497		$	123,631		$	235,471		$	219,189
	Other comprehensive income (loss):
		Foreign currency translation adjustments			50,091			(52,195	)		77,733			(98,848	)
		Gain on affiliate sale of stock			—			996			—			996
		Other, net of tax			(219	)		119			(277	)		312
		Unrealized gains (losses) on securities:
			Unrealized gains (losses) arising during the period		28,577			2,944			35,938			(16,415	)
			Reclassification adjustment for gains included in net income, net of tax		(42,136	)		(2,014	)		(45,732	)		(1,732	)
			Unrealized gains (losses) on securities, net		(13,559	)		930			(9,794	)		(18,147	)
	Other comprehensive income (loss)				36,313			(50,150	)		67,662			(115,687	)
Comprehensive income				$	170,810		$	73,481		$	303,133		$	103,502

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

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GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

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

			June 30, 2006			December 31, 2005
ASSETS
Current assets:
	Cash and cash equivalents		$	495,192		$	291,960
	Short-term investments			168,331			193,946
	Accounts receivable, net			678,154			608,326
	Inventories			354,331			297,652
	Prepaid expenses and other current assets			186,468			100,256
	Notes receivable—related parties			—			2,416
	Deferred tax assets			173,337			170,443
		Total current assets		2,055,813			1,664,999
Property, plant and equipment, net				1,458,222			1,320,813
Long-term investments				694,717			603,196
Notes receivable—related parties				7,174			7,206
Goodwill				1,488,668			1,487,567
Other intangible assets, net				1,540,109			1,590,894
Investments in equity securities				67,615			135,930
Other noncurrent assets				60,553			68,260
		Total assets	$	7,372,871		$	6,878,865
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable		$	77,178		$	96,835
	Accrued expenses			418,683			430,032
	Income taxes payable			96,754			2,486
	Deferred revenue and other income			17,895			15,018
	Current portion of long-term debt and capital lease obligations			6,122			5,652
		Total current liabilities		616,632			550,023
Long-term debt and capital lease obligations				123,493			125,652
Convertible notes				690,000			690,000
Deferred revenue—noncurrent				4,739			4,663
Deferred tax liabilities				268,502			335,612
Other noncurrent liabilities				24,857			23,048
		Total liabilities		1,728,223			1,728,998
Commitments and contingencies
Stockholders' equity:
	Preferred stock, $0.01 par value			—			—
	Common stock, $0.01 par value			2,608			2,593
	Additional paid-in capital			4,879,712			4,687,775
	Notes receivable from stockholders			(14,749	)		(14,445	)
	Accumulated earnings			564,927			329,456
	Accumulated other comprehensive income			212,150			144,488
		Total stockholders' equity		5,644,648			5,149,867
		Total liabilities and stockholders' equity	$	7,372,871		$	6,878,865

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

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GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited, amounts in thousands)

					Six Months Ended June 30,
					2006			2005
Cash Flows from Operating Activities:
	Net income				$	235,471		$	219,189
	Reconciliation of net income to cash flows from operating activities:
		Depreciation and amortization				165,356			133,195
		Stock-based compensation				115,550			—
		Provision for bad debts				3,893			4,449
		Purchase of in-process research and development				—			9,500
		Equity in (income) loss of equity method investments				(6,100	)		2,135
		Minority interest				(5,196	)		(5,551	)
		Gains on investments in equity securities, net				(74,909	)		(4,958	)
		Deferred income tax benefit				(65,154	)		(21,667	)
		Tax benefit from employee stock-based compensation				11,432			46,101
		Excess tax benefits from stock-based compensation				(4,659	)		—
		Other				(1,460	)		2,193
		Increase (decrease) in cash from working capital changes (excluding impact of acquired assets and assumed liabilities):
			Accounts receivable			(56,826	)		(42,491	)
			Inventories			(29,390	)		(8,815	)
			Prepaid expenses and other current assets			3,218			(7,085	)
			Income taxes payable			94,287			(28,086	)
			Accounts payable, accrued expenses and deferred revenue			(25,348	)		51,406
				Cash flows from operating activities		360,165			349,515
Cash Flows from Investing Activities:
	Purchases of investments					(464,132	)		(592,098	)
	Sales and maturities of investments					396,460			573,667
	Purchases of equity securities					(5,277	)		(5,330	)
	Proceeds from sales of investments in equity securities					38,558			5,397
	Purchases of property, plant and equipment					(156,406	)		(80,376	)
	Distributions from equity method investees					12,000			—
	Purchases of intangible assets					(6,876	)		—
	Acquisitions, net of acquired cash					—			(10,679	)
	Acquisition of sales and marketing rights					(36,233	)		(141,435	)
	Other					3,132			1,056
				Cash flows from investing activities		(218,774	)		(249,798	)
Cash Flows from Financing Activities:
	Proceeds from issuance of common stock					57,080			169,520
	Excess tax benefits from stock-based compensation					4,659			—
	Proceeds from draws on our 2003 revolving credit facility					—			350,000
	Payments of debt and capital lease obligations					(1,971	)		(101,618	)
	Bank overdraft					(7,222	)		11,785
	Minority interest contributions					5,232			7,001
	Other					1,503			821
				Cash flows from financing activities		59,281			437,509
Effect of exchange rate changes on cash						2,560			755
Increase in cash and cash equivalents						203,232			537,981
Cash and cash equivalents at beginning of period						291,960			480,198
Cash and cash equivalents at end of period					$	495,192		$	1,018,179
Supplemental disclosure of non-cash transaction: Investments in Equity Securities—Note 8.

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

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GENZYME CORPORATION AND SUBSIDIARIES

Notes To Unaudited, Consolidated Financial Statements

1. Description of Business

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

•

Renal, which develops, manufactures and distributes products that treat patients suffering from renal diseases, including chronic renal failure. The unit derives substantially all of its revenue from sales of Renagel (including sales of bulk sevelamer) and Hectorol;



•

Therapeutics, which develops, manufactures and distributes therapeutic products, with an expanding focus on products to treat patients suffering from genetic diseases and other chronic debilitating diseases, including a family of diseases known as 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 acute rejection in organ transplantation, as well as other auto-immune disorders. The unit derives substantially all of its revenue from sales of Thymoglobulin and Lymphoglobuline;



•

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



•

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

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

        Effective January 1, 2006, as a result of changes in how we review our business, certain general and administrative expenses, as well as research and development expenses related to our preclinical development programs, which were formerly allocated amongst our reporting segments and Other, are now allocated to Corporate. We have revised our 2005 segment disclosures to conform to our 2006 presentation.

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 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.

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        These financial statements include all normal and recurring adjustments that we consider necessary for the fair presentation of our financial position and operating results. Since these are interim financial statements, you should also read our audited, consolidated financial statements and notes included in our 2005 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.

Accounting for Stock-Based Compensation

        Prior to January 1, 2006, we elected to:

•

account for share-based payment awards under Accounting Principles Board Opinion No., or APB, 25, "Accounting for Stock Issued to Employees," as amended by FAS 148, "Accounting for Stock-Based Compensation—Transition and Disclosures," which we refer to collectively as APB 25; and



•

disclose the pro forma impact of expensing the fair value of our employee and director stock options and purchases made under our employee stock purchase plan, or ESPP, only in the notes to our financial statements.

        Effective January 1, 2006, we adopted the provisions of:

•

FAS 123R, "Share-Based Payment, an amendment of FASB Statement Nos. 123 and 95," which requires us to recognize stock-based compensation expense in our financial statements for all share-based payment awards made to employees and directors based upon the grant date fair value of those awards; and



•

the SEC's Staff Accounting Bulletin No. 107, "Share-Based Payment," which provides guidance to public companies related to the adoption of FAS 123R.

        FAS 123R applies to stock options granted under our employee and director stock option plans and purchases made under our ESPP, and would also apply to any restricted stock or restricted stock units we may grant in the future.

        We adopted FAS 123R using the modified prospective transition method, which requires us to apply the standard to new equity awards and to equity awards modified, repurchased or canceled after January 1, 2006, our adoption date. Additionally, compensation expense for the unvested portion of awards granted prior to our adoption date shall be:

•

recognized over the requisite service period, which is generally commensurate with the vesting term; and



•

based on the original grant date fair value of those awards, as calculated in our pro forma disclosures, prior to January 1, 2006, under FAS 123, "Accounting for Stock-Based Compensation," as amended by FAS 148, "Accounting for Stock-Based Compensation—Transition and Disclosures," which we refer to collectively as FAS 123. Changes to the grant date fair value of equity awards granted prior to our adoption date are not permitted under FAS 123R.

The modified prospective transition method does not allow for the restatement of prior periods. Accordingly, our results of operations for the three and six months ended June 30, 2006 and future

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periods will not be comparable to our results of operations prior to January 1, 2006 because our historical results prior to that date do not reflect the impact of expensing the fair value of share-based payment awards.

        Prior to January 1, 2006, in the pro forma disclosures regarding stock-based compensation included in the notes to our financial statements, we recognized forfeitures of stock options only as they occurred. Effective January 1, 2006, in accordance with the provisions of FAS 123R, we are now required to estimate an expected forfeiture rate for stock options, which is factored into the determination of our monthly stock-based compensation expense. As a result of the adoption of FAS 123R, we recorded pre-tax stock-based compensation expense totaling $82.9 million, net of estimated forfeitures, in our statement of operations for the three months ended June 30, 2006 and $115.5 million, net of estimated forfeitures, in our statement of operations for the six months ended June 30, 2006. Additional information regarding our stock-based compensation is included in Note 3, "Stock-Based Compensation," to our financial statements included in this report.

        In connection with the adoption of FAS 123R, we were also required to change the classification, in our consolidated statements of cash flows, of any tax benefits realized upon the exercise of stock options in excess of that which is associated with the expense recognized for financial reporting purposes. These amounts are presented as a financing cash inflow rather than as a reduction of income taxes paid in our consolidated statement of cash flows.

Recent Accounting Pronouncement

        FIN 48, "Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109."    In July 2006, the FASB issued FIN 48, "Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109," which seeks to reduce the significant diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes. FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. Upon adoption, the cumulative effect of any changes in net assets resulting from the application of FIN 48 will be recorded as an adjustment to retained earnings. We are currently evaluating the impact, if any, that FIN 48 will have on our financial position and results of operations.

3. Stock-Based Compensation

Equity Plans

Stock Option Plans

        The purpose of our stock option plans is to attract, retain and motivate our key employees, consultants and directors. Options granted under these plans can be either incentive stock options (ISO) or nonstatutory stock options (NSO), as specified in the individual plans. Shares issued as a

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result of stock option exercises are funded through the issuance of new shares as opposed to treasury shares. The following table contains information about our stock option plans:

			As of June 30, 2006
Plan Name	Group Eligible	Type of Option Granted	Options Reserved for Issuance	Options Outstanding	Options Available for Grant
2004 Equity Incentive Plan(1)	All key employees and consultants	ISO/NSO	23,640,668	13,623,431	10,017,237
2001 Equity Incentive Plan(1)	All key employees and consultants	ISO/NSO	10,518,903	10,445,958	72,945
1997 Equity Incentive Plan(1)	All key employees and consultants, except officers	NSO	13,491,494	13,148,662	342,832
1998 Director Stock Option Plan(2)	Non-employee board members	NSO	986,291	624,931	361,360
Assumed Options(3)			474,762	474,762	—
			49,112,118	38,317,744	10,794,374

(1)

The exercise price of option grants may not be less than the fair market value at the date of grant. Option grants have a maximum term of ten years. The compensation committee of our board of directors, or its delegates as applicable, determines the terms and conditions of each option grant, including who, among eligible persons, will receive option grants, the form of payment of the exercise price, the number of shares granted, the vesting schedule and the terms of exercise.

(2)

Options are automatically granted on the date of our annual shareholders meeting or at a director's initial appointment to the board, have an exercise price equal to the fair market value of Genzyme Stock on the date of grant, expire ten years after the initial grant date and vest on the date of the next annual shareholders meeting following the date of grant.

(3)

Consists of options we assumed through our acquisitions of Biomatrix, Inc., or Biomatrix, GelTex Pharmaceuticals, Inc., or GelTex, Focal, Inc., Novazyme Pharmaceuticals, Inc. and ILEX Oncology.

        All stock-based awards to non-employees are accounted for at their fair value in accordance with FAS 123R and Emerging Issues Task Force, or EITF, Issue No. 96-18, "Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services."

        We account for options granted to our employees and directors under the fair value method of accounting using a Black-Scholes valuation model to measure stock option expense at the date of grant. All stock option grants have an exercise price equal to the fair market value of Genzyme Stock on the date of grant and generally have a 10-year term and vest in increments, generally over four years from the date of grant, although we may grant options with different vesting terms from time to time. Excluding our directors, when an employee at or over the age of 60 with at least five years of service retires, the employee's options automatically become fully vested and will expire three years after the employee's retirement date or on the original expiration date set at the time the options were granted, whichever is earlier. Upon termination of employment, unvested options are cancelled and any unexercised vested options will expire three months after the employee's termination date. We recognize stock-based compensation expense for each grant on a straight-line basis over the employee's

12

or director's requisite service period, generally the vesting period of the award. Additionally, stock-based compensation expense related to stock options includes an estimate for pre-vesting forfeitures. Effective January 1, 2006, in connection with our adoption of FAS 123R, we now recognize stock-based compensation expense immediately for awards granted to retirement eligible employees or over the period from the grant date to the date retirement eligibility is achieved, if that is expected to occur during the nominal vesting period. For stock-based compensation expense recognition purposes only, grants to retirement eligible employees prior to January 1, 2006 are not subject to accelerated vesting and continue to vest over the nominal vesting period.

ESPP

        Our 1999 ESPP allows employees to purchase our stock at a discount. Under this plan, the purchase price per share of Genzyme Stock is 85% of the lower of the fair market value of Genzyme Stock at the beginning of an enrollment period or on the purchase date. Employees working at least 20 hours per week may elect to participate in our ESPP during specified open enrollment periods, which occur twice each year shortly before the start of each new enrollment period. New enrollment periods begin on the first trading day of January and July and each enrollment period lasts two years. Employee contributions for each enrollment period are automatically used to purchase stock on behalf of each participating employee on eight pre-determined purchase dates during the two-year enrollment period, which occur once every three months, in January, April, July and October. We place limitations on the total number of shares of stock that employees can purchase under the plan in a given year. As of June 30, 2006, 5,829,391 shares of Genzyme Stock were authorized for purchase under the plan of which 1,244,764 remain available.

Adoption of FAS 123R

        As a result of adopting FAS 123R, for the three and six months ended June 30, 2006, we recorded pre-tax stock-based compensation expense, net of estimated forfeitures, which were allocated based on the functional cost center of each employee as follows (amounts in thousands, except per share amounts):

		Three Months Ended June 30, 2006			Six Months Ended June 30, 2006
Pre-tax stock-based compensation expense, net of estimated forfeitures:
	Cost of products and services sold	$	(4,927	)	$	(7,230	)
	Selling, general and administrative		(52,692	)		(72,139	)
	Research and development		(25,269	)		(36,126	)
	Total		(82,888	)		(115,495	)
Less: tax benefit of stock options			27,577			37,925
Stock-based compensation expense, net of tax		$	(55,311	)	$	(77,570	)
Per basic share:		$	(0.21	)	$	(0.30	)
Per diluted share:		$	(0.20	)	$	(0.28	)

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In addition, we 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, 2006		Six Months Ended June 30, 2006
Stock-based compensation expense capitalized to inventory	$	5,533	$	8,263

        Total stock-based compensation, including expenses charged to our consolidated statement of operations and amounts capitalized to inventory, increased for the three months ended June 30, 2006, as compared to the three months ended March 31, 2006, primarily due to $50.5 million of charges resulting from our annual stock option grant in May 2006. At June 30, 2006, there was $336.8 million of stock-based compensation expense, net of estimated forfeitures, related to nonvested awards not yet recognized, which is expected to be recognized over a weighted average period of 2.8 years.

Pro Forma Information for the Period Prior to Adoption of FAS 123R

        Prior to the adoption of FAS 123R, we accounted for stock options granted to employees in accordance with APB 25 and provided the disclosures required under FAS 123 only in the notes to our financial statements. As a result, no stock-based compensation expense was reflected in our net income for the three and six months ended June 30, 2005 related to our ESPP or stock options, since all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant.

        The following table sets forth our historical disclosure of our pro forma net income and net income per share data for the three and six months ended June 30, 2005, as if compensation expense

14

for our stock-based compensation plans was determined in accordance with FAS 123 based on the individual grant date fair value of the awards (amounts in thousands, except per share amounts):

			Three Months Ended June 30, 2005			Six Months Ended June 30, 2005
Net income:
	As reported		$	123,631		$	219,189
	Deduct: pro forma employee stock-based compensation expense, net of tax(1)			(46,334	)		(65,592	)
Pro forma(1)			$	77,297		$	153,597
Net income per share:
	Basic:
		As reported	$	0.49		$	0.87
		Pro forma(1)	$	0.31		$	0.61
	Diluted:
		As reported	$	0.46		$	0.83
		Pro forma(1)	$	0.29		$	0.59

(1)

Under FAS 123, we did not capitalize any stock-based compensation to inventory.

Valuation Assumptions for Stock Option Plans and ESPP

        The employee stock-based compensation expense recognized under FAS 123R and presented in the pro forma disclosure required under FAS 123 was determined using the Black-Scholes option valuation model. Option valuation models require the input of subjective assumptions and these assumptions can vary over time. The weighted average assumptions used are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2005		2006		2005
Risk-free interest rate	5	%	4	%	5	%	4	%
Dividend yield	0	%	0	%	0	%	0	%
Expected option life (in years)	4		5		4		5
Volatility-stock options	44	%	49	%	44	%	50	%
Volatility-ESPP	26	%	29	%	27	%	29	%

The risk-free interest rate is based on the U.S. Treasury yield curve in effect on the date of grant. The dividend yield percentage is zero because we do not currently pay dividends and we do not intend to do so during the expected option life. We used historical data on exercises of our stock options and other factors to estimate the expected option life (in years), or term, of the share-based payments granted. We determined the volatility rate for stock options based on the historical 5-year volatility of Genzyme Stock. We determine separate volatility rates for each enrollment under our ESPP based on the period from the commencement date of each enrollment to each applicable purchase date. Stock

15

option expense in future periods will be based upon the Black-Scholes values determined at the date of each grant or the date of each purchase under our ESPP.

Stock Option Plan Activity

        The following table contains information regarding stock option plan activity for the six months ended June 30, 2006:

	Shares Under Option		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (In Years)	Aggregate Intrinsic Value
Outstanding at December 31, 2005	32,345,317		$	47.71
Granted	7,534,635			58.91
Exercised	(1,117,565	)		33.74
Forfeited and cancelled	(444,643	)		69.02
Outstanding at June 30, 2006	38,317,744		$	50.10	7.27	$	481.4 million
Exercisable at June 30, 2006	23,376,639		$	46.07	6.24	$	397.0 million

        The following table contains information regarding the pre-tax intrinsic value of our stock options, the estimated fair value of shares vested and the weighted average grant date fair value per share of stock options granted under our stock plans during the three and six months ended June 30, 2006 and 2005 (amounts in thousands, except per share amounts):

	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2005		2006		2005
Pre-tax intrinsic value of options exercised	$	15,722	$	70,046	$	36,367	$	136,604
Estimated fair value of shares vested	$	408,909	$	377,692	$	425,571	$	388,798
Weighted average grant date fair value per share of stock options granted under our stock plans	$	24.91	$	29.64	$	25.12	$	29.60

        For the six months ended June 30, 2006, we:

•

received a total of $57.1 million of cash proceeds and recognized $53.7 million of actual tax benefits from the issuance of stock under our stock option plans and ESPP; and



•

classified $4.7 million of excess tax benefits from stock-based compensation as a financing cash inflow in our statement of cash flows.

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ESPP Activity

        The following table shows our ESPP activity for the six months ended June 30, 2006:

Shares Issued	Shares Under ESPP
Available for purchase as of December 31, 2005	1,712,481
Shares purchased by employees	(467,717	)
Available for purchase as of June 30, 2006	1,244,764

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,
			2006		2005		2006		2005
Net income—basic			$	134,497	$	123,631	$	235,471	$	219,189
Effect of dilutive securities:
	Interest expense and debt fees, net of tax, related to our 1.25% convertible senior notes			1,874		1,874		3,748		3,748
Net income—diluted			$	136,371	$	125,505	$	239,219	$	222,937
Shares used in computing net income per common share—basic				260,444		253,086		260,076		252,003
Effect of dilutive securities:
	Shares issuable for the assumed conversion of our 1.25% convertible senior notes			9,686		9,686		9,686		9,686
	Stock options (1)			6,171		7,301		6,787		7,288
	Warrants and stock purchase rights			11		11		11		11
		Dilutive potential common shares		15,868		16,998		16,484		16,985
Shares used in computing net income per common share—diluted(1)				276,312		270,084		276,560		268,988
Net income per share:
	Basic		$	0.52	$	0.49	$	0.91	$	0.87
	Diluted		$	0.49	$	0.46	$	0.86	$	0.83

(1)

We did not include the securities described in the following table in the computation of diluted earnings per share for all periods presented because the effect of these securities would have been anti-dilutive (amounts in thousands):

	Three Months Ended June 30,		Six Months Ended June 30,
	2006	2005	2006	2005
Shares of Genzyme Stock issuable upon exercise of outstanding options	11,457	4,590	9,660	6,457

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5. Mergers and Acquisitions

Acquisition of Surgi.B

        In March 2006, we acquired Surgi.B, a privately-held company based in Beauzelle, France, which owned the exclusive rights to manufacture and sell GlucaMesh and GlucaTex, two beta glucan-coated mesh products for use in the surgical repair of inguinal hernias, for an up-front cash payment of $5.5 million. We allocated the entire purchase price to license fees, a component of other intangible assets on our consolidated balance sheet based on their estimated fair values as of March 30, 2006, the date of acquisition. In addition, we are obligated to make certain contingent milestone payments totaling up to approximately $6 million and contingent royalty payments based on future sales of GlucaMesh and GlucaTex. Currently, GlucaMesh is sold only in France.

Acquisition of Gene Therapy Assets from Avigen

        In connection with our December 2005 acquisition of certain gene therapy assets from Avigen, we acquired IPR&D related to Avigen's Parkinson's disease program. As of the date this transaction closed, this program had not reached technological feasibility nor had an alternative future use. Accordingly, we allocated to IPR&D and charged to expense in our consolidated statements of operations in December 2005, $7.0 million, representing the portion of the $12.0 million up-front payment to Avigen we attributed to the Parkinson's disease program.

        As of June 30, 2006, we estimated that it will take approximately ten years and an investment of approximately $74 million to complete the development of, obtain approval for and commercialize a product arising from the acquired Parkinson's disease program.

Acquisition of Bone Care

        In July 2005, we acquired Bone Care, a publicly-held specialty pharmaceutical company based in Middleton, Wisconsin with a focus on nephrology. We paid gross consideration of $712.3 million in cash. We accounted for the acquisition as a purchase and accordingly, included its results of operations in our consolidated statements of operations from July 1, 2005, the date of acquisition.

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

        The allocation of the purchase price was adjusted during the three months ended June 30, 2006 to create a $3.6 million reserve for returns of inventory sold by Bone Care prior to the date of acquisition, and to record adjustments totaling $2.5 million to revise the estimated liabilities related to exit activities and deferred taxes.

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Exit Activities

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

	Employee Related Benefits			Other Exit Activities		Total Exit Activities
Recorded at acquisition date	$	10,759		$	382	$	11,141
Revision of estimate		80			—		80
Payments in 2005		(9,099	)		—		(9,099	)
Balance at December 31, 2005		1,740			382		2,122
Revision of estimate		(86	)		—		(86	)
Payments in 2006		(1,271	)		—		(1,271	)
Balance at June 30, 2006	$	383		$	382	$	765

        We expect to pay employee related benefits to certain former employees of Bone Care through the second half of 2006.

Acquisition of Synvisc Sales and Marketing Rights from Wyeth

        In January 2005, we consummated an arrangement with Wyeth under which we reacquired the sales and marketing rights to Synvisc in the United States, as well as Germany, Poland, Greece, Portugal and the Czech Republic. In exchange for the sales and marketing rights, we paid initial payments totaling $121.0 million in cash to Wyeth and otherwise incurred $0.3 million of acquisition costs. We have also accrued contingent royalty payments to Wyeth totaling $89.0 million, of which $79.4 million had been paid as of June 30, 2006. Distribution rights (a component of other intangible assets, net) in our consolidated balance sheet as of June 30, 2006 include a total of $210.3 million for the initial and contingent royalty payments (made or 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 $293.7 million, whichever comes first.

        In April 2006, we entered into an agreement with Wyeth to reacquire the sales and marketing rights to Synvisc in Turkey and made an initial payment of $6.0 million in cash to Wyeth, which is included in distribution rights (a component of other intangible assets, net) in our consolidated balance sheet as of June 30, 2006. We will make an additional $1.0 million payment on the earlier of December 31, 2007 or the date the registration required by the Turkish Ministry of Health for the promotion, marketing, distribution and sale of Synvisc in Turkey is transferred from Wyeth to us. In addition, we are obligated to make certain contingent milestone payments to Wyeth totaling up to $1.5 million between now and December 31, 2007, and a series of additional contingent royalty

19

payments to Wyeth, both based on the volume of Synvisc sales in Turkey. These contingent royalty payments could extend out to December 31, 2007, or could total a maximum of $3.0 million, whichever comes first.

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

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

Acquisition of ILEX Oncology

        In connection with our December 2004 acquisition of ILEX Oncology, an oncology drug development company, we acquired IPR&D related to three development projects: Campath (alemtuzumab) for indications other than B-cell chronic lymphocytic leukemia, Clolar and tasidotin hydrochloride. As of the date of our acquisition of ILEX Oncology, none of these projects had reached technological feasibility nor had an alternative future use. Accordingly, we allocated to IPR&D, and charged to expense in our consolidated statements of operations in December 2004, $254.5 million, representing the portion of the purchase price attributable to these projects, of which $96.9 million is attributable to the Campath (alemtuzumab) development projects, $113.4 million is attributable to the Clolar development projects and $44.2 million is related to the tasidotin development projects. In December 2004, after the date of our acquisition of ILEX Oncology, the FDA granted marketing approval for Clolar for the treatment of children with refractory or relapsed acute lymphoblastic leukemia.

        As of June 30, 2006, we estimated that it will take approximately three to five years and an investment of approximately $114 million to complete the development of, obtain approval for and commercialize Campath (alemtuzumab) for multiple sclerosis and other cancer and noncancer indications. We estimated that it will take approximately two to five years and an investment of approximately $65 million to complete the development of, obtain approval for and commercialize Clolar for adult hematologic cancer, solid tumor and additional pediatric acute leukemia indications. We estimated that it will take approximately five to eight years and an investment of approximately $46 million to complete the development of, obtain approval for and commercialize tasidotin.

Acquisition of Physician Services and Analytical Services Business Units of IMPATH

        In May 2004, we acquired substantially all of the pathology/oncology testing assets related to the Physician Services and Analytical Services business units of IMPATH, a national medical testing provider, for total cash consideration of $215.3 million, including acquisition costs. We accounted for the acquisition as a purchase and accordingly, included the results of operations related to the acquired business units in our consolidated statements of operations from May 1, 2004, the date of acquisition. The purchase price is subject to adjustment based upon the completion of a post-closing assessment of

20

the working capital of the acquired business units as of April 30, 2004. We are pursing resolution of a dispute with IMPATH related to the amount of the purchase price adjustment permitted under the asset purchase agreement. Each side contends that it is entitled to a purchase price adjustment in its favor based on calculations of the working capital of the acquired business units as of the closing date. In July 2006, we agreed with IMPATH to appoint an independent, third-party to act as arbitrator for the dispute.

6. Inventories

		June 30, 2006		December 31, 2005
		(Amounts in thousands)
Raw materials		$	97,154	$	76,466
Work-in-process			106,054		90,629
Finished goods			151,123		130,557
	Total	$	354,331	$	297,652

        We capitalize inventory produced for commercial sale, which may result in the capitalization of inventory prior to regulatory approval. If a product is not approved for sale, it would result in the write off of the inventory and a charge to earnings. Our total inventories at December 31, 2005, included $18.8 million of Myozyme inventory, primarily consisting of finished goods, which had not been approved for sale as of that date. We received marketing authorization for Myozyme in the European Union in March 2006. We will introduce Myozyme on a country-by-country basis in the European Union, as pricing and reimbursement approvals are obtained. In April 2006, the FDA granted marketing approval for Myozyme and we subsequently launched Myozyme in the United States in May 2006.

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7. Goodwill and Other Intangible Assets

Goodwill

        The following table contains the change in our goodwill during the six months ended June 30, 2006 (amounts in thousands):

		As of December 31, 2005		Adjustments		As of June 30, 2006
Renal(1)		$	304,492	$	1,098	$	305,590
Therapeutics			354,709		—		354,709
Transplant			128,511		—		128,511
Biosurgery			7,585		—		7,585
Diagnostics/Genetics(2)			245,342		3		245,345
Other			446,928		—		446,928
	Total	$	1,487,567	$	1,101	$	1,488,668

(1)

The adjustment to goodwill includes a correction to the purchase accounting for the acquisition of Bone Care. We recorded $1.1 million of adjustments to the Bone Care goodwill in the six months ended June 30, 2006, primarily due to the creation of a $3.6 million reserve for returns of inventory sold by Bone Care prior to the date of acquisition, offset by $2.5 million of revisions to the estimates of liabilities related to exit activities and deferred taxes.

(2)

The adjustments to goodwill include foreign currency revaluation adjustments for goodwill denominated in foreign currencies.

        We are required to perform impairment tests related to our goodwill under FAS 142, "Goodwill and Other Intangible Assets," annually, which we perform in the third quarter, and whenever events or changes in circumstances suggest that the carrying value of an asset may not be recoverable. There were no such events in the six months ended June 30, 2006.

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Other Intangible Assets

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

		As of June 30, 2006							As of December 31, 2005
		Gross Other Intangible Assets		Accumulated Amortization			Net Other Intangible Assets		Gross Other Intangible Assets		Accumulated Amortization			Net Other Intangible Assets
Technology		$	1,505,091	$	(365,786	)	$	1,139,305	$	1,503,963	$	(307,503	)	$	1,196,460
Patents(1)			194,560		(78,388	)		116,172		183,360		(71,393	)		111,967
Trademarks			60,227		(28,767	)		31,460		60,227		(26,080	)		34,147
License fees(2)			51,662		(18,424	)		33,238		44,777		(16,206	)		28,571
Distribution rights(3)			230,690		(66,001	)		164,689		195,299		(43,108	)		152,191
Customer lists(4)			90,783		(36,661	)		54,122		108,083		(41,861	)		66,222
Other			2,079		(956	)		1,123		2,078		(742	)		1,336
	Total	$	2,135,092	$	(594,983	)	$	1,540,109	$	2,097,787	$	(506,893	)	$	1,590,894

(1)

Includes an additional $11.2 million of intangible assets resulting from obtaining an exclusive license to a Hectorol related patent from Wisconsin Alumni Research Foundation in June 2006, which provides us with effective control of the patent.

(2)

Includes an additional $6.5 million of intangible assets resulting from our acquisition of all of the rights to GlucaMesh and GlucaTex products used in the surgical repair of hernias, from Surgi.B in March 2006.

(3)

Includes an additional $29.4 million of intangible assets resulting from additional payments made or accrued in the first and second quarters of 2006 in connection with the reaquisition of the Synvisc sales and marketing rights from Wyeth in January 2005 and $6.0 million of intangible assets resulting from the subsequent reacquisition of the sales and marketing rights to Synvisc in Turkey from Wyeth in April 2006.

(4)

Reflects the write off of $17.3 million of fully amortized customer lists related to our acquisition of SangStat in September 2003, during the first quarter of 2006.

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

•

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



•

$40.1 million for the three months ended June 30, 2005;



•

$105.6 million for the six months ended June 30, 2006; and



•

$81.3 million for the six months ended June 30, 2005.

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        The estimated future amortization expense for other intangible assets for the remainder of fiscal year 2006, the four succeeding fiscal years and thereafter is as follows (amounts in thousands):

Year ended December 31,	Estimated Amortization Expense(1,2)
2006 (remaining six months)	$	107,329
2007		201,650
2008		203,726
2009		211,292
2010		221,976
Thereafter		804,405

(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. These contingent payments will be recorded as intangible assets when the payments are accrued.

(2)

Includes estimated future amortization expense for the license fees paid for GlucaMesh and GlucaTex based on the forecasted future sales of these products and the resulting future contingent payments we will be required to make to the former shareholders of Surgi.B. These contingent payments will be recorded as intangible assets when the payments are accrued.

8. Investments in Equity Securities

        We recorded the following gains on investments in equity securities, net of charges for impairment of investments, in the three and six months ended June 30, 2006 and 2005 (amounts in thousands):

			Three Months Ended June 30,					Six Months Ended June 30,
			2006			2005		2006			2005
Gross gains on investments:
	Cambridge Antibody Technology Group plc (CAT)		$	69,359		$	—	$	69,359		$	—
	ProQuest Investments II, L.P. (ProQuest)			35			151		1,404			151
	BioMarin Pharmaceutical Inc. (BioMarin)			—			—		6,417			—
	Theravance, Inc. (Theravance)			—			4,510		—			4,510
	Other			466			156		622			297
		Total		69,860			4,817		77,802			4,958
Less: charges for impairment of investments				(2,893	)		—		(2,893	)		—
Gains on investments in equity securities, net			$	66,967		$	4,817	$	74,909		$	4,958

Gross Gains on Investments

        In May 2006, we recorded a $7.0 million gain on the sale of a portion of our investment in CAT. In June 2006, in connection with the acquisition of CAT by AstraZeneca plc, or AstraZeneca, we recorded a $62.4 million gain on the tender of our remaining investment in CAT, which became

24

unconditional on June 21, 2006. The $99.0 million of cash proceeds due from the tender of our remaining investment in CAT are included in prepaid expenses and other current assets in our consolidated balance sheet as of June 30, 2006 because the cash proceeds were not received until July 2006.

        In March 2006, we recorded a $1.4 million gain and in June 2006 we recorded an insignificant gain related to distributions of net cash proceeds we received in connection with our limited partnership interest in ProQuest. In March and June 2006, ProQuest sold certain of its investments and distributed the net cash proceeds from these sales to its partners.

        In January 2006, we recorded a $6.4 million gain in connection with the sale of our entire investment of 2.1 million shares of the common stock of BioMarin.

        In April 2005, we sold our entire investment in the common stock of Theravance for $4.5 million in cash. Our investment in Theravance had a zero cost basis and, as a result, we recorded a gain of $4.5 million in April 2005 related to this sale.

Charges for Impairment of Investments

        We review the carrying value of each of our strategic investments in equity securities on a quarterly basis for potential impairment.

        In June 2006, we recorded a $2.2 million impairment charge in connection with our investment in ViaCell, Inc., or ViaCell, and a $0.7 million impairment charge in connection with our investment in Cortical Pty, Ltd., or Cortical, because we considered the decline in value of these investments to be other than temporary. The price of ViaCell's common stock declined between July 2005 and November 2005, primarily due to the FDA's decision to temporarily halt ViaCell's phase 1 clinical trial for CB001, which was being tested for potential use in various cancer treatments. The FDA allowed ViaCell to resume clinical testing of CB001 in December 2005. Although clinical testing has resumed, the market value of ViaCell's common stock has continued to remain below our cost and has been below our cost for the last 11 months. Given the significance and duration of the decline in market value of our investments in ViaCell and Cortical, as of June 30, 2006, we concluded that it was unclear over what period the recovery of the stock price for these investments would take place, and, accordingly, that any evidence suggesting that the investments would recover to at least our historical cost was not sufficient to overcome the presumption that the current market price was the best indicator of the value of these investments.

Unrealized Gains

        At June 30, 2006, our stockholders' equity includes $20.0 million of unrealized gains related to our investments in strategic equity securities.

9. Joint Venture with BioMarin

        We formed BioMarin/Genzyme LLC to develop and market Aldurazyme, a recombinant form of the human enzyme alpha-L-iduronidase, used to treat an LSD known as mucopolysaccharidocis I, or MPS I. We record our portion of the income of BioMarin/Genzyme LLC in equity in income (loss) of

25

equity method investments in our consolidated statements of operations. Our portion of BioMarin/Genzyme LLC's net income was:

•

$4.6 million for the three months ended June 30, 2006, as compared to $1.5 million for the same period of 2005; and



•

$8.0 million for the six months ended June 30, 2006, as compared to $1.7 million for the same period of 2005.

During the six months ended June 30, 2006, we received $12.0 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,
	2006			2005			2006			2005
Revenue	$	23,530		$	19,205		$	44,862		$	35,079
Gross margin		17,846			12,980			32,791			23,371
Operating expenses		(8,729	)		(10,002	)		(17,099	)		(20,198	)
Net income		9,261			3,049			15,994			3,304

10. Revolving Credit Facility

        In December 2003, we entered into a three-year $350.0 million revolving credit facility with Bank of America, N.A., successor-by-merger to Fleet National Bank, as administrative agent and a syndicate of lenders, maturing in December 2006, which we refer to as our 2003 revolving credit facility. As of December 31, 2005 and June 30, 2006, no amounts were outstanding under this facility. The terms of this credit facility included various covenants, including financial covenants that required us to meet minimum liquidity and interest coverage ratios and to meet maximum leverage ratios. As of June 30, 2006, we were in compliance with these covenants.

        On July 14, 2006, we terminated our 2003 revolving credit facility and replaced it with a new 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 proceeds of loans under our 2006 revolving credit facility can be used to finance working capital needs and general corporate purposes. Our 2006 revolving credit facility may be increased at any time from time to time by up to an additional $350.0 million in the aggregate, as long as no default or event of default has occurred or is continuing and certain other customary conditions are satisfied. Borrowings under our 2006 revolving credit facility will bear interest as follows:

•

revolving loans denominated in U.S. dollars or a foreign currency (other than Euros) bear interest at a variable rate equal to LIBOR for loans in U.S. dollars and a comparable index rate for foreign currency loans, plus an applicable margin;

26

•

revolving loans denominated in Euros bear interest at a variable rate equal to EURIBOR plus an applicable margin;



•

at our option, revolving loans denominated in U.S. dollars and all U.S. dollar swingline loans (which grant us access to up to $20.0 million of our 2006 revolving credit facility in order to cover possible working capital shortfalls) bear interest at the greater of the Prime Rate and the Federal Funds Effective Rate plus one half of one percent; and



•

multicurrency swingline loans bear interest at a rate equal to the average rate at which overnight deposits in the currency in which such swingline loan is denominated, and approximately equal in principal amount to such swingline loan, are obtainable by the swingline lender for such swingline loan in the interbank market plus an applicable margin.

The applicable margins for LIBOR and multicurrency revolving loans range from 0.180% to 0.675% per annum, and for multicurrency swingline loans from 0.430% to 0.925% per annum, in each case determined by our credit ratings. In addition, we are required to pay a facility fee of between 7 to 20 basis points based on the aggregate commitments under our 2006 revolving credit facility, and in certain circumstances a utilization fee of 10 basis points.

        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. We currently are in compliance with these covenants.

11. Other Commitments and Contingencies

Legal Proceedings

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

        Four lawsuits have been filed against us regarding the exchange of all of the outstanding shares of Biosurgery Stock for shares of Genzyme Stock in connection with the elimination of our tracking stocks in July 2003. Each of the lawsuits is a purported class action on behalf of holders of Biosurgery Stock. The first case, filed in Massachusetts Superior Court in May 2003, alleged a breach of the implied covenant of good faith and fair dealing in our charter and a breach of our board of directors' fiduciary duties. The plaintiff in this case sought an injunction to adjust the exchange ratio for the tracking stock exchange. The Court dismissed the complaint in its entirety in November 2003. Upon appeal, the Massachusetts Appeals Court upheld the dismissal by the Superior Court of the fiduciary duty claim, but reversed the earlier decision to dismiss the implied covenant claim. The Massachusetts Supreme Judicial Court (SJC) has granted our petition for further appellate review of the Appeals Court decision reversing the dismissal of the implied covenant claim, and we anticipate a hearing before the SJC by the end of 2006. Two substantially similar cases were filed in Massachusetts Superior Court in August and October 2003. These cases were consolidated in January 2004, and in July 2004, the consolidated case was stayed pending disposition of a fourth case, which was filed in the U.S. District Court for the Southern District of New York in June 2003. The complaint initially alleged violations of federal securities laws, common law fraud, and a breach of the merger agreement with Biomatrix, in addition to the state law claims contained in the other cases. The plaintiffs initially sought an adjustment to the exchange ratio, the rescission of the acquisition of Biomatrix, and unspecified compensatory damages. In December 2005, the plaintiffs in this case filed an amended complaint in

27

which they dropped all of the claims alleged in the initial complaint relating to the initial issuance of Biosurgery Stock and the acquisition of Biomatrix, and narrowed the putative class to include only those individuals who held Biosurgery Stock on May 8, 2003. We have filed a motion to dismiss the amended complaint and to oppose the class certification, and are awaiting a decision from the Court. Discovery in this case has been put on hold pending resolution of these motions. We believe each of these cases is without merit and continue to defend against them vigorously.

        On March 27, 2003, the Office of Fair Trading, or OFT, in the United Kingdom issued a decision against our wholly-owned subsidiary, Genzyme Limited, finding that Genzyme Limited held a dominant position and abused that dominant position with no objective justification by pricing Cerezyme in a way that excludes other delivery/homecare service providers from the market for the supply of home delivery and homecare services to Gaucher patients being treated with Cerezyme. In conjunction with this decision, the OFT imposed a fine on Genzyme Limited and required modification to its list price for Cerezyme in the United Kingdom. Genzyme Limited appealed this decision to the Competition Appeal Tribunal. On May 6, 2003, the Tribunal issued an order that stayed the OFT's decision, but required Genzyme Limited to provide a homecare distributor a discount of 3% per unit during the appeal process. The Tribunal issued its judgment on Genzyme Limited's appeal on March 11, 2004, rejecting portions of the OFT's decision and upholding others. The Tribunal found that the list price of Cerezyme should not be reduced, but that Genzyme Limited must negotiate a price for Cerezyme that will allow homecare distributors an appropriate margin. The Tribunal also reduced the fine imposed by the OFT for violation of U.K. competition laws. In response to the Tribunal's decision, we recorded an initial liability of approximately $11 million in our 2003 financial statements and additional liabilities totaling approximately $1 million during 2004 and 2005, of which approximately $6 million were paid in 2005. As of December 31, 2005 and June 30, 2006, accrued expenses in our consolidated balance sheets includes the remaining $6 million of liabilities recorded in connection with the Tribunal's decision. Genzyme Limited and the OFT were unable to negotiate a price for Cerezyme for homecare distributors and, as a result, on September 29, 2005, the Tribunal issued a ruling establishing the discount to be provided by Genzyme Limited to homecare distributors at 7.2%, which approximates the figure used to calculate the initial liability of approximately $11 million we recorded in 2003, and the additional liabilities totaling approximately $1 million we recorded in 2004 and 2005. Genzyme Limited has decided not to appeal this decision. Arising out of the OFT decision, on April 5, 2006, Genzyme Limited received a damage claim from Genzyme Limited's former distributor, Healthcare at Home. Genzyme Limited and Healthcare at Home are in negotiations to arrive at a mutually agreed upon settlement of this damage claim. We do not expect that settlement of this damage claim will have a material impact on our financial condition or results of operations.

        We are not able to predict the outcome of the pending legal proceedings listed here, or other legal proceedings, or estimate the amount or range of any reasonably possible loss we might incur if we do not prevail in the final, non-appealable determinations of such matters. Therefore, except for the liabilities recorded in connection with the Tribunal's decision regarding Cerezyme pricing in the United Kingdom, including the Healthcare at Home matter, we have no current accruals for these potential contingencies. We cannot provide you with assurance that the legal proceedings listed here, or other legal proceedings, will not have a material adverse impact on our financial condition or results of operations.

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12. Provision for Income Taxes

	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2005		2006		2005
	(Amounts in thousands)
Provision for income taxes	$	60,002	$	52,130	$	105,371	$	96,525
Effective tax rate		31%		30%		31%		31%

        Our effective tax rate for both 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; and



•

the foreign rate differential.

        Our effective tax rate for the three and six months ended June 30, 2006, was impacted by non-deductible stock option expense.

        Our effective tax rate for the three and six months ended June 30, 2005, was impacted by non-deductible charges for IPR&D of $9.5 million recorded in connection with our acquisition of Verigen.

        We are currently under IRS audits for tax years 1996 to 1999, 2002 to 2003 and in certain state and foreign jurisdictions. We believe that we have provided sufficiently for all audit exposures and assessments. Settlement of these audits or the expiration of the statute of limitations on the assessment of income taxes for any tax year may result in an increase or reduction of future tax provisions. Any such tax or tax benefit would be recorded upon final resolution of the audits or expiration of the applicable statute of limitations. The settlement of the 1996 to 1999 IRS audit is expected to result in a net tax benefit of approximately $30 million to $40 million. We do not expect the settlement of certain foreign audits covering 1997 to 2004 to have a material affect on our net tax expense. We believe settlement of both the IRS audit for 1996 to 1999 and certain foreign audits will likely occur in 2006. The effects of each audit will be recorded in our financial statements upon settlement.

13. Defined Benefit Pension Plans

        We have defined benefit pension plans for certain employees in countries outside the U.S. These plans are funded in accordance with the requirements of the appropriate regulatory bodies governing each plan.

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        The components of net pension expense for the three and six months ended June 30, 2006 and 2005 are as follows (amounts in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
Service cost	$	1,083		$	745		$	2,108		$	1,525
Interest cost		844			689			1,643			1,412
Expected return on plan assets		(1,027	)		(797	)		(1,998	)		(1,632	)
Amortization and deferral of actuarial loss		284			209			552			428
Net pension expense	$	1,184		$	846		$	2,305		$	1,733

        For the six months ended June 30, 2006, we contributed $1.5 million to our pension plan in the United Kingdom. We anticipate making approximately $1.6 million of additional contributions to this plan in 2006 to satisfy our annual funding obligation.

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 our financial statements included in this report.

        Effective January 1, 2006, as a result of changes in how we review our business, certain general and administrative expenses, as well as research and development expenses related to our preclinical development programs, which were formerly allocated amongst our reporting segments and Other, are now allocated to Corporate. We have revised our 2005 segment disclosures to conform to our 2006 presentation.

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

30

			Three Months Ended June 30,						Six Months Ended June 30,
			2006			2005			2006			2005
Revenues:
	Renal(1)		$	148,980		$	100,847		$	286,570		$	200,250
	Therapeutics(1)			373,362			332,592			718,995			647,645
	Transplant			41,212			35,041			75,478			66,196
	Biosurgery(1)			102,401			92,281			192,937			167,333
	Diagnostics/Genetics(1)			87,340			76,517			174,003			155,890
	Other(1)			40,010			30,319			76,121			59,793
	Corporate(1)			51			542			94			981
		Total	$	793,356		$	668,139		$	1,524,198		$	1,298,088
Income (loss) before income taxes:
	Renal(1)		$	42,273		$	33,150		$	74,071		$	67,252
	Therapeutics(1)			251,032			209,667			481,987			411,495
	Transplant			5,917			(1,044	)		10,351			(4,662	)
	Biosurgery(1)			13,198			17,275			17,248			9,497
	Diagnostics/Genetics(1)			(748	)		(100	)		358			379
	Other(1)			(15,163	)		(13,253	)		(28,556	)		(24,673	)
	Corporate(1,2,3)			(102,010	)		(69,934	)		(214,617	)		(143,574	)
		Total	$	194,499		$	175,761		$	340,842		$	315,714

(1)

The results of operations of acquired companies and assets and the amortization expense related to acquired intangible assets are included in segment results beginning on the date of acquisition. Charges for IPR&D related to these acquisitions are included in segment results in the year of acquisition. Acquisitions completed since January 1, 2005 are:

Acquisition	Date(s) Acquired	Business Segment(s)	IPR&D Charge
Hernia repair assets of Surgi.B	March 30, 2006	Biosurgery	None
Gene therapy assets of Avigen	December 19, 2005	Therapeutics	$7.0 million
Manufacturing operation of Cell Genesys	November 22, 2005	Therapeutics	None
Equal Diagnostics	July 15, 2005	Diagnostics/Genetics	None
Bone Care	July 1, 2005	Renal/Corporate	$12.7 million
Verigen	February 8, 2005	Biosurgery/Corporate	$9.5 million
Synvisc sales and marketing rights from Wyeth	January 6, 2005/April 25, 2006	Biosurgery	None

(2)

Loss before income taxes for Corporate includes our corporate, general and administrative and corporate science activities, as well as gains on investments in equity securities, net, interest

31

income, interest expense and other income and expense items that we do not specifically allocate to a particular reporting segment.

(3)

Effective January 1, 2006, we adopted the provisions of FAS 123R using the modified prospective transition method and, therefore, have not restated our prior period results to reflect the impact of adopting this standard. Accordingly, for the three months ended June 30, 2006, we recorded pre-tax stock-based compensation expense of $82.9 million, net of estimated forfeitures, and for the six months ended June 30, 2006, we recorded pre-tax stock-based compensation expense of $115.5 million, net of estimated forfeitures, in our results of operations, all of which is reported under the caption "Corporate."

Segment Assets

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

			June 30, 2006		December 31, 2005
Segment Assets(1):
	Renal		$	1,367,048	$	1,344,117
	Therapeutics			1,016,249		972,504
	Transplant			379,598		369,366
	Biosurgery			471,971		456,634
	Diagnostics/Genetics			469,152		474,751
	Other			732,837		728,773
	Corporate(2)			2,936,016		2,532,720
		Total	$	7,372,871	$	6,878,865

(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, deferred tax assets, net property, plant and equipment and investments in equity securities.

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

		June 30, 2006		December 31, 2005
Cash, cash equivalents, short- and long-term investments		$	1,358,240	$	1,089,102
Deferred tax assets—current			173,337		170,443
Property, plant & equipment, net			942,503		826,221
Investment in equity securities			67,615		135,930
Other(1)			394,321		311,024
	Total	$	2,936,016	$	2,532,720

(1)

As of June 30, 2006, includes net proceeds receivable of $99.0 million related to the liquidation of our remaining investment in the common stock of CAT in June 2006. The cash proceeds were received in July 2006.

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

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

INTRODUCTION

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

•

Renal, which develops, manufactures and distributes products that treat patients suffering from renal diseases, including chronic renal failure. The unit derives substantially all of its revenue from sales of Renagel (including sales of bulk sevelamer) and Hectorol;



•

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



•

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



•

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



•

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

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

        Effective January 1, 2006, as a result of changes in how we review our business, certain general and administrative expenses, as well as research and development expenses related to our preclinical development programs, which were formerly allocated amongst our reporting segments and Other, are now allocated to Corporate. We have revised our 2005 segment disclosures to conform to our 2006 presentation.

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MERGERS AND ACQUISITIONS

Acquisition of Surgi.B

        In March 2006, we acquired Surgi.B, a privately-held company based in Beauzelle, France, which owned the exclusive rights to manufacture and sell GlucaMesh and GlucaTex, two beta glucan-coated mesh products for use in the surgical repair of inguinal hernias, for an up-front cash payment of $5.5 million. We allocated the entire purchase price to license fees, a component of other intangible assets on our consolidated balance sheet, based on their estimated fair values as of March 30, 2006, the date of acquisition. In addition, we are obligated to make certain contingent milestone payments totaling up to approximately $6 million and contingent royalty payments based on future sales of GlucaMesh and GlucaTex. Currently, GlucaMesh is sold only in France.

Acquisition of Gene Therapy Assets from Avigen

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

Acquisition of Manufacturing Operation from Cell Genesys

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

Acquisition of Equal Diagnostics

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

Acquisition of Bone Care

        In July 2005, we acquired Bone Care, a publicly-held specialty pharmaceutical company based in Middleton, Wisconsin with a focus on nephrology. We paid gross consideration of $712.3 million in cash. As part of the transaction, we acquired Hectorol, a line of vitamin D2 pro-hormone products used to treat secondary hyperparathyroidism in patients on dialysis and those with earlier stage chronic kidney disease, or CKD, which we have added to our Renal business. We accounted for the acquisition

35

as a purchase and accordingly, included its results of operations in our consolidated statements of operations from July 1, 2005, the date of acquisition.

Acquisition of Verigen

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

        The purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The estimated fair value of the assets acquired and liabilities assumed exceeded the initial payments by $5.7 million resulting in negative goodwill. Pursuant to FAS 142, we recorded as a liability, contingent consideration up to the amount of the negative goodwill. As contingent payments come due, we will apply the payments against the contingent liability. Contingent payments in excess of $5.7 million, if any, will be recorded as goodwill. As of June 30, 2006, we have paid $1.0 million of contingent payments, and the remaining contingent liability is $4.7 million.

Acquisition of Synvisc Sales and Marketing Rights from Wyeth

        In January 2005, we consummated an arrangement with Wyeth under which we reacquired the sales and marketing rights to Synvisc in the United States, as well as Germany, Poland, Greece, Portugal and the Czech Republic. In exchange for the sales and marketing rights, we paid initial payments totaling $121.0 million in cash to Wyeth and otherwise incurred $0.3 million of acquisition costs. We have also accrued contingent royalty payments to Wyeth totaling $89.0 million, of which $79.4 million had been paid as of June 30, 2006. Distribution rights (a component of other intangible assets, net) in our consolidated balance sheet as of June 30, 2006 include a total of $210.3 million for the initial and contingent royalty payments (made or 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 $293.7 million, whichever comes first.

        In April 2006, we entered into an agreement with Wyeth to reacquire the sales and marketing rights to Synvisc in Turkey and made an initial payment of $6.0 million in cash to Wyeth, which is included in distribution rights (a component of other intangible assets, net) in our consolidated balance sheet as of June 30, 2006. We will make an additional $1.0 million payment on the earlier of December 31, 2007 or the date the registration required by the Turkish Ministry of Health for the promotion, marketing, distribution and sale of Synvisc in Turkey is transferred from Wyeth to us. In addition, we are obligated to make certain contingent milestone payments to Wyeth totaling up to $1.5 million between now and December 31, 2007, and a series of additional contingent royalty payments to Wyeth, both based on the volume of Synvisc sales in Turkey. These contingent royalty payments could extend out to December 31, 2007, or could total a maximum of $3.0 million, whichever comes first.

        We determined that the contingent royalty and milestone payments to Wyeth represent contingent purchase price. Accordingly, as contingent royalty and milestone payments are made in the future, the amounts will be recorded as additional purchase price for the underlying intangible asset. We calculate

36

amortization expense for these intangible assets based on an economic use model, taking into account our forecasted future sales of Synvisc and the resulting estimated future contingent royalty and milestone payments we will be required to make. We periodically update the estimates used in this amortization calculation based on changes in forecasted sales and resulting estimated contingent royalty and milestone payments.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

        Our critical accounting policies and significant 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 13.1 to our 2005 Form 10-K. Excluding the addition of our policy for accounting for stock-based compensation, there have been no significant changes to our critical accounting policies and significant judgments and estimates since December 31, 2005.

Accounting for Stock-Based Compensation

        We estimate the fair value of each stock option grant using the Black-Scholes option pricing model. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. The key assumptions in the Black-Scholes model are the risk-free interest rate, the dividend yield, the expected option life (in years) and the expected volatility of the price of Genzyme Stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect on the date of grant. The dividend yield percentage is zero because we do not currently pay dividends nor intend to do so during the expected option life. We use historical data on exercises of our stock options and other factors to estimate the expected option life (in years) of the share-based payments granted. We estimate the expected volatility of our stock options and each enrollment under our ESPP based on the historical volatility of Genzyme Stock. Changes in these input variables would affect the amount of expense associated with stock-based compensation. The compensation expense recognized for all share-based awards is net of estimated forfeitures. We estimate forfeiture rates based on historical analysis of option forfeitures. If actual forfeitures should vary from estimated forfeitures, adjustments to stock-based compensation expense may be required in future periods.

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,						Six Months Ended- June 30,
						Increase/ (Decrease) % Change						Increase/ (Decrease) % Change
		2006		2005				2006		2005
		(Amounts in thousands)
Product revenue		$	718,735	$	599,347	20	%	$	1,376,070	$	1,162,560	18	%
Service revenue			71,012		64,035	11	%		139,834		124,649	12	%
	Total product and service revenue		789,747		663,382	19	%		1,515,904		1,287,209	18	%
Research and development revenue			3,609		4,757	(24	)%		8,294		10,879	(24	)%
	Total revenues	$	793,356	$	668,139	19	%	$	1,524,198	$	1,298,088	17	%

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Product Revenue

        We derive product revenue from sales of:

•

Renal products, including Renagel for the reduction of elevated serum phosphorus levels in end-stage renal disease patients on hemodialysis, bulk sevelamer and Hectorol for the treatment of secondary hyperparathyroidism in patients on dialysis and those with earlier stage CKD;



•

Therapeutics products, including Cerezyme for the treatment of Gaucher disease, Fabrazyme for the treatment of Fabry disease, 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 and Lymphoglobuline, each of which induce immunosuppression of certain types of immune cells responsible for acute organ rejection in transplant patients;



•

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



•

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



•

Other products, including:



•

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



•

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

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

			Three Months Ended June 30,						Six Months Ended June 30,
							Increase/ (Decrease) % Change						Increase/ (Decrease) % Change
			2006		2005				2006		2005
			(Amounts in thousands)
Renal:
	Renagel (including sales of bulk sevelamer)		$	126,599	$	100,847	26	%	$	245,254	$	200,250	22	%
	Hectorol			22,412		—	N/A			41,316		—	N/A
		Total Renal		149,011		100,847	48	%		286,570		200,250	43	%
Therapeutics:
	Cerezyme			253,989		235,953	8	%		492,998		461,904	7	%
	Fabrazyme			89,041		74,424	20	%		169,544		144,450	17	%
	Thyrogen			23,723		20,699	15	%		46,716		38,414	22	%
	Other Therapeutics			6,609		1,281	416	%		8,737		2,088	318	%
		Total Therapeutics		373,362		332,357	12	%		717,995		646,856	11	%
Transplant:
	Thymoglobulin/Lymphoglobuline			39,812		33,576	19	%		72,672		60,797	20	%
	Other Transplant			1,400		1,465	(4	)%		2,806		5,382	(48	)%
		Total Transplant		41,212		35,041	18	%		75,478		66,179	14	%
Biosurgery:
	Synvisc			63,590		58,778	8	%		116,853		102,794	14	%
	Sepra products			21,961		17,099	28	%		41,376		33,751	23	%
	Other Biosurgery			7,236		6,913	5	%		14,210		13,213	8	%
		Total Biosurgery		92,787		82,790	12	%		172,439		149,758	15	%
Diagnostics/Genetics:
	Diagnostic Products			26,299		22,121	19	%		55,510		48,987	13	%
Other product revenue				36,064		26,191	38	%		68,078		50,530	35	%
		Total product revenues	$	718,735	$	599,347	20	%	$	1,376,070	$	1,162,560	18	%

Renal

        Sales of Renagel, including sales of bulk sevelamer, increased 26% to $126.6 million for the three months ended June 30, 2006, as compared to the same period of 2005, primarily due to a $23.4 million increase in sales related to increased customer volume, of which $18.2 million is primarily attributable to increased end-user demand in the United States and Europe, and $5.2 million is attributable to a 9.5% price increase for Renagel, which became effective in December 2005. The Euro remained relatively stable against the U.S. dollar for the three months ended June 30, 2006, as compared to the same period of 2005, therefore having no significant impact on Renagel revenue. However, a 12% increase in the U.S. dollar against the Brazilian Real in the three months ended June 30, 2006, as compared to the same period in 2005, positively impacted Renagel revenue by $0.9 million. Sales of Renagel, including sales of bulk sevelamer, were 18% of our total product revenue for the three months ended June 30, 2006, compared to 17% of our total product revenue for the same period of 2005.

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        Sales of Renagel, including sales of bulk sevelamer, increased 22% to $245.3 million for the six months ended June 30, 2006, as compared to the same period of 2005, primarily due to a $42.0 million increase in the six month period in net sales related to increased customer volume, of which $31.7 million is primarily attributable to increased end-user demand in the United States and Europe, and $10.3 million is attributable to a 9.5% price increase for Renagel, which became effective in December 2005. The Euro decreased 4% against the U.S. dollar in the six months ended June 30, 2006, as compared to the same period of 2005, negatively impacting Renagel revenue by $3.0 million for the six months ended June 30, 2006, as compared to the same period of 2005. However, a 15% increase in the U.S. dollar against the Brazilian Real for the six months ended June 30, 2006, as compared to the same period of 2005, positively impacted Renagel revenue by $2.4 million. Sales of Renagel, including sales of bulk sevelamer, were 18% of our total product revenue for the six months ended June 30, 2006, compared to 17% of our total product revenue for the same period of 2005.

        Our acquisition of Bone Care on July 1, 2005 expanded our Renal product offerings with the addition of Hectorol, a complimentary product to Renagel used to treat secondary hyperparathyroidism in patients on dialysis and those with earlier stage CKD. Bone Care's operations are integrated into our Renal business, and our sales representatives have begun selling Hectorol to nephrologists in the United States. Sales of Hectorol were $22.4 million for the three months ended June 30, 2006 and $41.3 million for the six months ended June 30, 2006.

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

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

Therapeutics

        Therapeutics product revenue increased 12% to $373.4 million for the three months ended and 11% to $718.0 million for the six months ended June 30, 2006, as compared to the same periods of

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2005, due to continued growth in sales of Cerezyme, Fabrazyme and Thyrogen and the launch of Myozyme in the European Union and United States in the second quarter of 2006.

        The 8% growth in sales of Cerezyme to $254.0 million for the three months ended and 7% growth in sales to $493.0 million for the six months ended June 30, 2006, as compared to the same periods of 2005, 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 Euro remained relatively stable against the U.S. dollar during the three months ended June 30, 2006 but decreased 4% against the U.S. dollar for the six months ended June 30, 2006, as compared to the same periods of 2005. Therefore, Cerezyme revenue was not significantly impacted for the three month period and was negatively impacted by $7.1 million for the six month period.

        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 35% of our total product revenue for the three months ended June 30, 2006, as compared to 39% for the same period of 2005, and 36% of our total product revenue for the six months ended June 30, 2006, as compared to 40% for the same period of 2005. 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 "Factors Affecting Future Operating Results—Our future success will depend on our ability to effectively develop and market our products and services against those of our competitors" in this report.

        The 20% increase to $89.0 million for the three months ended and the 17% increase to $169.6 million for the six months ended June 30, 2006 in sales of Fabrazyme, as compared to the same periods of 2005, is primarily attributable to increased patient identification worldwide as Fabrazyme is introduced into new markets. The Euro remained relatively stable against the U.S. dollar during the three months ended June 30, 2006 but decreased 4% against the U.S. dollar for the six months ended June 30, 2006, as compared to the same periods of 2005. Therefore, Fabrazyme revenue was not significantly impacted for the three month period and was negatively impacted by $2.0 million for the six month period.

        Sales of Thyrogen increased 15% to $23.7 million for the three months ended and 22% to $46.7 million for the six months ended June 30, 2006, as compared to the same periods of 2005, due to worldwide volume growth which impacted sales by $2.6 million in the three month period and $7.6 million in the six month period. Additionally, a 10% increase in price impacted sales by $1.2 million in the three months ended and $2.4 million in the six months ended June 30, 2006, as compared to the same periods of 2005. The Euro remained relatively stable against the U.S. dollar during the three months ended June 30, 2006 but decreased 4% against the U.S. dollar for the six months ended June 30, 2006, as compared to the same periods of 2005. The decrease in the Euro against the U.S. dollar did not have a material impact on the sales of Thyrogen for the six months ended June 30, 2006.

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        Other Therapeutics product revenue includes sales of Myozyme, which were $6.5 million for the three months ended and $8.5 million for the six months ended June 30, 2006. Pre-approval sales of Myozyme for compassionate use were not significant in the three and six months ended June 30, 2006. We submitted marketing applications for Myozyme for the treatment of Pompe disease in the European Union in December 2004 and in the United States in July 2005. In December 2005, the European Committee for Human Services unanimously recommended full approval of Myozyme and subsequently, in March 2006, we received marketing authorization for Myozyme in the European Union. We are introducing Myozyme on a country-by-country basis in the European Union, as pricing and reimbursement approvals are obtained. In April 2006, the FDA granted marketing approval for Myozyme. We launched Myozyme in the United States in May 2006. Myozyme has received orphan drug designation in the United States, which provides seven years of market exclusivity. Myozyme sales are expected to continue to increase as patients transition from clinical trials or expanded access programs and as new patients are identified. Marketing applications for Myozyme have been submitted in Japan and Canada and we expect to file for approval in several additional countries later this year.

        We currently manufacture Myozyme in the United States. In the future, we expect to also produce Myozyme at our new protein manufacturing facility in Geel, Belgium, and our new fill/finish facility in Waterford, Ireland, to help ensure that we are able to meet the anticipated demand for the product throughout the world.

Transplant

        Transplant product revenue increased 18% to $41.2 million for the three months ended and 14% to $75.5 million for the six months ended June 30, 2006, as compared to the same periods of 2005. The increases are primarily due to a $6.5 million increase for the three month period and a $12.8 million increase for the six month period in sales of Thymoglobulin as a result of increased utilization of Thymoglobulin in transplant procedures. These increases were partially offset by a decrease in revenue for the three and six months ended June 30, 2006 from a license agreement with Proctor & Gamble Pharmaceuticals, Inc., or PGP, a subsidiary of The Proctor and Gamble Company. In November 2005, PGP exercised its option to terminate an agreement under which we had granted PGP an exclusive, worldwide license to develop and market RDP58 for the treatment of gastrointestinal and other disorders.

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

Biosurgery

        Biosurgery product revenue increased 12% to $92.8 million for the three months ended and increased 15% to $172.4 million for the six months ended June 30, 2006, as compared to the same periods of 2005. The increases were partially attributable to a $4.8 million increase for the three month period and a $14.1 million increase for the six month period, in sales of Synvisc, primarily due to an expanded sales and marketing investment. We reacquired the Synvisc sales and marketing rights in certain countries from Wyeth in January 2005. Additionally, there was a $4.9 million increase for the three month period and a $7.6 increase for the six month period, in sales of our Sepra products. In particular, sales of Seprafilm increased by $4.0 million for the three month period and $5.9 million for the six month period, primarily due to an 11% price increase in the United States in the first quarter, as compared to the same period of 2005. The increased sales of our Sepra products is also attributable to greater penetration into the U.S. market.

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        We are aware of several products that compete with Synvisc, several companies that have initiated efforts to develop competitive products and several companies that market products designed to relieve the pain of osteoarthritis. These products could have an adverse effect on future sales of Synvisc. We discuss these competitors under the heading "Factors Affecting Future Operating Results—Our future success will depend on our ability to effectively develop and market our products and services against those of our competitors" included in this report. In addition, a substantial portion of our revenue on sales of Synvisc comes from third party payors, including government health administration authorities and private health insurers who may not continue to provide adequate health insurance coverage or reimbursement for Synvisc. We discuss these risks under the heading "Factors Affecting Future Operating Results—If we fail to obtain adequate levels of reimbursement for products from third party payors, the commercial potential of our products will be significantly limited" included in this report.

Diagnostics/Genetics

        Diagnostics/Genetics product revenue increased 19% to $26.3 million for the three months ended and increased 13% to $55.5 million for the six months ended June 30, 2006, as compared to the same periods of 2005. The increases are attributable to a 28%, or $3.6 million, increase in sales for the three month period, and a 23%, or $6.5 million, increase in sales for the six month period, of clinical chemistry reagents resulting from our acquisition of Equal Diagnostics in July 2005.

Other Product Revenue

        Other product revenue increased 38% to $36.1 million for the three months ended and 35% to $68.1 million for the six months ended June 30, 2006, as compared to the same periods of 2005, primarily due to a 31%, or $5.9 million, increase for the three month period and a 33%, or $11.8 million, increase for the six month period, in sales of bulk pharmaceuticals, including WelChol. These increases are primarily due to a 50%, or $3.9 million, increase for the three month period and a 66%, or $8.2 million, increase for the six month period, of bulk sales of and royalties earned on WelChol due to an increased demand from our U.S. marketing partner, Sankyo Pharma, Inc. In addition, sales of Campath increased 55%, or $2.4 million, for the three month period and increased 41%, or $3.6 million, for the six month period due to an increase in worldwide demand for the product.

Service Revenue

        We derive service revenues primarily from the following principal 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 Diagnostics/Genetics reporting segment.

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

		Three Months Ended June 30,							Six Months Ended June 30,
							Increase/ (Decrease) % Change						Increase/ (Decrease) % Change
		2006			2005				2006		2005
		(Amounts in thousands)
Renal		$	(31	)	$	—	N/A		$	—	$	—	N/A
Biosurgery			9,613			9,482	1	%		20,493		17,432	18	%
Diagnostics/Genetics			61,041			54,396	12	%		118,493		106,903	11	%
Other and Corporate			389			157	148	%		848		314	170	%
	Total service revenue	$	71,012		$	64,035	11	%	$	139,834	$	124,649	12	%

        Service revenue attributable to our Biosurgery segment increased 1% to $9.6 million for the three months ended and 18% to $20.5 million for the six months ended June 30, 2006, as compared to the same periods of 2005. The increase for the six month period is primarily due to a full six months of MACI sales during 2006. We acquired MACI in the Verigen transaction in February 2005.

        Service revenue attributable to our Diagnostics/Genetics reporting segment increased 12% to $61.0 million in the three months ended and increased 11% to $118.5 million in the six months ended June 30, 2006, as compared to the same periods of 2005. These increases were primarily attributable to:

•

continued growth in the prenatal screening and diagnosis market;



•

increased sales of DNA testing services, primarily due to growth in the cystic fibrosis screening and diagnosis market; and



•

an increase in volume for the reproductive product line, most notably in molecular testing.

International Product and Service Revenue

        A substantial portion of our revenue was 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,						Six Months Ended June 30,
					Increase/ (Decrease) % Change						Increase/ (Decrease) % Change
	2006		2005				2006		2005
	(Amounts in thousands)
International product and service revenue	$	355,615	$	303,519	17	%	$	682,295	$	593,811	15	%
% of total product and service revenue		45%		46%				45%		46%

        The 17% increase to $355.6 million for the three months ended and the 15% increase to $682.3 million for the six months ended June 30, 2006 in international product and service revenue, as compared to the same periods of 2005, is primarily due to a $46.3 million increase for the three month period and a $79.9 million increase for the six month period, in the combined international sales of Renagel, Cerezyme, Fabrazyme, Thyrogen, Myozyme, Thymoglobulin and Synvisc, primarily due to an increase in the number of patients using these products in countries outside of the United States.

        The Euro remained relatively stable against the U.S. dollar during the three months ended June 30, 2006 but decreased 4% against the U.S. dollar for the six months ended June 30, 2006, as compared to the same periods of 2005. Therefore, total product and service revenue was not significantly impacted for the three month period and was negatively impacted by $15.4 million for the six month period.

        International product and service revenue as a percentage of total product and service revenue decreased 1% during the three and six months ended June 30, 2006, as compared to the same periods

44

of 2005. This was primarily due to the increase in total domestic revenue as a result of our acquisitions of Equal Diagnostics and Bone Care in July 2005.

Research and Development Revenue

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

		Three Months Ended June 30,						Six Months Ended June 30,
						Increase/ (Decrease) % Change						Increase/ (Decrease) % Change
		2006		2005				2006		2005
		(Amounts in thousands)
Therapeutics		$	—	$	235	(100	)%	$	1,000	$	789	27	%
Transplant			—		—	N/A			—		17	(100	)%
Biosurgery			1		9	(89	)%		5		143	(97	)%
Other			3,558		3,971	(10	)%		7,196		8,949	(20	)%
Corporate			50		542	(91	)%		93		981	(91	)%
	Total research and development revenue	$	3,609	$	4,757	(24	)%	$	8,294	$	10,879	(24	)%

        Total research and development revenue decreased $1.1 million for the three months ended and $2.6 million for the six months ended June 30, 2006, as compared to the same periods of 2005, primarily due to less revenue recognized from our collaboration with Kirin Brewery Company Ltd., or Kirin. Revenue from these projects is directly related to spending on the projects. Research and development spending related to the Kirin projects decreased in both the three and six months ended June 30, 2006, as compared to the same periods of 2005.

MARGINS

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

	Three Months Ended June 30,						Six Months Ended June 30,
					Increase/ (Decrease) % Change						Increase/ (Decrease) % Change
	2006		2005				2006		2005
	(Amounts in thousands)
Product margin	$	584,778	$	497,019	18	%	$	1,121,601	$	955,258	17	%
% of total product revenue		81%		83%				82%		82%
Service margin	$	19,636	$	21,113	(7	)%	$	42,020	$	40,608	3	%
% of total service revenue		28%		33%				30%		33%
Total product and service margin	$	604,414	$	518,132	17	%	$	1,163,621	$	995,866	17	%
% of total product and service revenue		77%		78%				77%		77%

Product Margin

        Our overall product margin increased $87.8 million, or 18%, for the three months ended and $166.3 million, or 17%, for the six months ended June 30, 2006, as compared to the same periods of 2005. This is primarily due to:

•

a $4.8 million increase for the three month period and a $14.1 million increase for the six month period, in sales of Synvisc, primarily due to an expanded sales and marketing investment. We reacquired Synvisc sales and marketing rights in certain countries from Wyeth in January 2005;



•

improved margins for Renagel due to increased sales and increased utilization of capacity at our global manufacturing facilities;



•

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

45

•

Hectorol's margin contribution in the three and six months ended June 30, 2006, due to the acquisition of Bone Care in July 2005.

These increases in product margin were partially offset by stock-based compensation expenses associated with our adoption of FAS 123R of $1.2 million for the three months ended and $1.9 million for the six months ended June 30, 2006, for which there were no comparable amounts in 2005.

        Total product margin as a percentage of product revenue declined slightly in the three months ended June 30, 2006, as compared to the same period of 2005, due to a shift in product mix. Total product margin as a percentage of product revenue for the six months ended June 30, 2006 was consistent with the same period of 2005.

        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 decreased $1.5 million, or 7%, for the three months ended June 30, 2006. This is primarily due to $3.7 million of stock compensation expense associated with the adoption of FAS 123R recognized in the three month period of 2006 for which there was no comparable amount in the same period of 2005. Partially offsetting this decrease was an increase in the Diagnostics/Genetics service margin, primarily due to a 12% increase to $61.0 million in service revenue attributable to our Diagnostics/Genetics reporting segment in the three months ended June 30, 2006, as compared to the same period of 2005.

        Our overall service margin increased $1.4 million, or 3%, for the six months ended June 30, 2006, as compared to the same periods of 2005. This is primarily due to an 11% increase to $118.5 million, in service revenue associated with our Diagnostics/Genetics reporting segment. This increase was partially offset by additional costs of $5.3 million related to the adoption of FAS 123R in 2006 for which there was no comparable amount in 2005.

        Total service margin as a percent of total revenue decreased in the three and six months ended June 30, 2006, as compared to the same periods of 2005, primarily due to the additional costs related to the adoption of FAS 123R in 2006. This is partially offset by increased sales of higher margin Biosurgery services, such as MACI. Diagnostics/Genetics service margin as a percent of total revenue remained relatively consistent in the three and six months ended June 30, 2006, as compared to the same periods of 2005.

OPERATING EXPENSES

Selling, General and Administrative Expenses

        Effective January 1, 2006, as a result of changes in how we review our business, certain general and administrative expenses, which were formerly allocated amongst our reporting segments and Other, are now allocated to Corporate. We have revised our 2005 segment disclosures to conform to our 2006 presentation.

        The following table provides information regarding the change in selling, general and administrative expenses, or SG&A, during the periods presented:

	Three Months Ended June 30,						Six Months Ended June 30,
					Increase/ (Decrease) % Change						Increase/ (Decrease) % Change
	2006		2005				2006		2005
	(Amounts in thousands)
Selling, general and administrative expenses	$	273,480	$	196,385	39	%	$	504,149	$	378,224	33	%

46

        SG&A increased $77.1 million for the three months ended and increased $125.9 million for the six months ended June 30, 2006, as compared to the same periods of 2005, primarily due to spending of:

•

$11.3 million for the three month period and $22.3 million for the six month period for Renal products, primarily due to our acquisition of Bone Care in July 2005 and continued support of international business operations growth;



•

$4.4 million for the three month period and $11.5 million for the six month period for Biosurgery products and services, primarily due to additional expenses related to an increased number of employees and an increase in marketing efforts; and



•

$55.8 million for the three month period and $84.9 million for the six month period for Corporate SG&A primarily due to $52.7 million for the three months ended and $72.1 million for the six months ended June 30, 2006 of stock-based compensation expenses related to our adoption of FAS 123R and increased spending on legal expenses and information technology. Stock-based compensation expenses increased significantly in the three months ended June 30, 2006, as compared to the three months ended March 31, 2006, primarily due to non-recurring charges related to stock options granted to retirement eligible employees and the value of 20% of the annual stock option grant in May 2006 that vested upon award. We adopted FAS 123R using the modified prospective transition method, which does not allow for the restatement of prior periods.

        SG&A was 34% of total revenue for the three months ended June 30, 2006 and 29% for the same period of 2005. SG&A was 33% of total revenue for the six months ended June 30, 2006 and 29% for the same period of 2005. The increase in SG&A as a percentage of total revenue in both the three and six months ended June 30, 2006 is primarily due to the additional stock-based compensation expenses recorded in the second quarter of 2006 related to our annual stock option grant.

Research and Development Expenses

        Effective January 1, 2006, as a result of changes in how we review our business, certain research and development expenses related to our preclinical development portfolios, which were formerly allocated amongst our reporting segments and Other, are now allocated to Corporate. We have revised our 2005 segment disclosures to conform to our 2006 presentation.

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

	Three Months Ended June 30,						Six Months Ended June 30,
					Increase/ (Decrease) % Change						Increase/ (Decrease) % Change
	2006		2005				2006		2005
	(Amounts in thousands)
Research and development expenses	$	168,941	$	121,726	39	%	$	321,264	$	236,471	36	%

        Research and development expenses increased $47.2 million for the three months ended and $84.8 million for the six months ended June 30, 2006, as compared to the same periods of 2005, primarily due to:

•

an $11.2 million increase for the three month period and a $25.9 million increase for the six month period in spending on Renal research and development programs, primarily due to our acquisition of Bone Care in July 2005 and to a $3.8 million charge recorded in the three month period and a $8.9 million charge recorded in the six month period, representing funding paid under our collaboration with RenaMed Biologics, Inc. or RenaMed in 2006, for which there were no comparable charges in 2005;

47

•

a $5.2 million increase for the three month period and a $8.7 million increase for the six month period in spending on certain Therapeutics research and development programs, including $2.9 million for the three month period and $5.6 million for the six month period of spending for the Parkinson's disease program which commenced in 2006;



•

a $4.3 million increase for the three month period and a $7.0 million increase for the six month period in spending on Biosurgery research and development programs, primarily on next generation orthopaedics products; and



•

a $29.1 million increase for the three month period and a $46.3 million increase for the six month period in spending on Corporate research and development programs primarily due to $25.3 million of stock-based compensation expenses recorded in the three months ended June 30, 2006 and $36.1 million recorded in the six months ended June 30, 2006, related to our adoption of FAS 123R. Stock-based compensation expenses increased significantly in the three months ended June 30, 2006, as compared to the three months ended March 31, 2006, primarily due to non-recurring charges related to stock options granted to retirement eligible employees and the value of 20% of the annual stock option grant in May 2006 that vested upon award. We adopted FAS 123R using the modified prospective transition method, which does not allow for the restatement of prior periods.

        These increases were partially offset by decreases of:

•

$8.4 million in spending for the three month period and $10.9 million in spending for the six month period on certain Therapeutics research and development programs, including:



•

$2.2 million for the three month period and $2.1 million for the six month period for our Cerezyme program, as patients completed clinical studies during the second quarter of 2006, resulting in a decrease in spending on follow-up monitoring;



•

$2.0 million for the three month period and $3.6 million for the six month period for our deferitrin (iron chelator) product due to the completion of our phase 1/2 study in 2005; and



•

$1.4 million for the three month period and $1.2 million for the six month period from the consolidation of Dyax-Genzyme LLC, our joint venture with Dyax Corporation, or Dyax, for the development of DX-88 for the treatment of hereditary angioedema. Spending decreased for DX-88 in both periods due to the completion of clinical trials.

        Research and development expenses were 21% of total revenue for the three and six months ended June 30, 2006 and 18% of total revenue for the three and six months ended June 30, 2005. We are conducting more late-stage trials now than at any point in our history and therefore, our research and development expenses are expected to increase as a percentage of revenue. New products and new product indications are expected to expand and further diversify our portfolio and contribute to our long-term growth.

48

Amortization of Intangibles

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

	Three Months Ended June 30,						Six Months Ended June 30,
					Increase/ (Decrease) % Change						Increase/ (Decrease) % Change
	2006		2005				2006		2005
	(Amounts in thousands)
Amortization of intangibles	$	52,883	$	40,105	32	%	$	105,575	$	81,291	30	%

        Amortization of intangibles expense increased by $12.8 million for the three months and $24.3 million for the six months ended June 30, 2006, as compared to the same periods of 2005, primarily due to additional amortization expense attributable to the intangible assets acquired in connection with our acquisitions of Surgi.B in March 2006, Bone Care and Equal Diagnostics in July 2005 and Verigen in February 2005, as well as the reacquisition of Synvisc sales and marketing rights in certain countries from Wyeth in January 2005.

        As discussed in Note 5., "Mergers and Acquisitions," to our financial statements included in this report, we calculate amortization expense for the Synvisc sales and marketing rights we reacquired from Wyeth by taking into account forecasted future sales of Synvisc and the resulting future contingent payments we will be required to make to Wyeth, which will be recorded as intangible assets when the payments are accrued. In addition, we calculate the amortization expense for the license fees paid for GlucaMesh and GlucaTex based on forecasted future sales of these products and the resulting future contingent payments we will be required to make to the former shareholders of Surgi.B, which will be recorded as intangible assets when the payments are accrued. As a result, we expect amortization of intangibles to increase over the next five years based on these future contingent payments.

Purchase of In-Process Research and Development

        In connection with four 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 from Avigen, Bone Care, Verigen and ILEX Oncology will need to complete a series of clinical trials and receive FDA or other regulatory approvals prior to commercialization. Our current estimates of the time and investment required to develop these products and technologies may change depending on the different applications that we may choose to pursue. We cannot give assurances that these programs will ever reach feasibility or develop into products that can be marketed profitably. In addition, we cannot guarantee that we will be able to develop and commercialize products before our competitors develop and commercialize products for the same indications. If products based on our acquired IPR&D programs and technology platforms do not become commercially viable, our results of operations could be materially adversely affected.

Avigen

        In connection with our December 2005 acquisition of certain gene therapy assets from Avigen, we acquired IPR&D related to Avigen's Parkinson's disease program. As of the date this transaction closed, this program had not reached technological feasibility nor had an alternative future use. Accordingly, we allocated to IPR&D and charged to expense in our consolidated statements of operations in March 2006, $7.0 million, representing the portion of the $12.0 million up-front payment to Avigen we attributed to the Parkinson's disease program.

        As of June 30, 2006, we estimated that it will take approximately ten years and an investment of approximately $74 million to complete the development of, obtain approval for and commercialize a product arising from the acquired Parkinson's disease program.

49

Bone Care

        In connection with our July 2005 acquisition of Bone Care, we acquired IPR&D related to LR-103, a vitamin D therapeutic candidate that is an active metabolite of Hectorol. In biological models, this product candidate is readily absorbed after oral delivery and circulates through the bloodstream to tissues which respond to vitamin D hormones. Bone Care conducted early stage research of LR-103 in a variety of indications. As of the date this transaction closed, this program had not reached technological feasibility nor had an alternative future use. Accordingly, we allocated to IPR&D and charged to expense in our consolidated statements of operations in September 2005, $12.7 million, representing the portion of the purchase price attributable to this program.

        As of June 30, 2006, we estimated that it will take approximately six years and an investment of approximately $15 million to complete the development of, obtain approval for and commercialize LR-103.

Verigen

        In connection with our February 2005 acquisition of Verigen, we acquired IPR&D related to MACI, a proprietary approach to cartilage repair. As of the date of our acquisition of Verigen, MACI, which has received marketing approvals in Europe and Australia, had not reached technological feasibility in the United States due to lack of regulatory approval and did not have an alternative use. Accordingly, we allocated to IPR&D, and charged to expense in our consolidated statements of operations in March 2005, $9.5 million, representing the portion of the purchase price attributable to this project in the United States.

        As of June 30, 2006, we estimated that it will take approximately six years and an investment of approximately $33 million to complete the development of, obtain approval for and commercialize MACI in the United States.

ILEX Oncology

        In connection with our December 2004 acquisition of ILEX Oncology, an oncology drug development company, we acquired IPR&D related to three development projects: Campath (alemtuzumab) for indications other than B-cell chronic lymphocytic leukemia, Clolar and tasidotin hydrochloride. As of the date of our acquisition of ILEX Oncology, none of these projects had reached technological feasibility nor had an alternative future use. Accordingly, we allocated to IPR&D, and charged to expense in our consolidated statements of operations in December 2004, $254.5 million, representing the portion of the purchase price attributable to these projects, of which $96.9 million is attributable to the Campath (alemtuzumab) development projects, $113.4 million is attributable to the Clolar development projects and $44.2 million is related to the tasidotin development projects. In December 2004, after the date of our acquisition of ILEX Oncology, the FDA granted marketing approval for Clolar for the treatment of children with refractory or relapsed acute lymphoblastic leukemia.

        As of June 30, 2006, we estimated that it will take approximately three to five years and an investment of approximately $114 million to complete the development of, obtain approval for and commercialize Campath (alemtuzumab) for multiple sclerosis and other cancer and noncancer indications. We estimated that it will take approximately two to five years and an investment of approximately $65 million to complete the development of, obtain approval for and commercialize Clolar for adult hematologic cancer, solid tumor and additional pediatric acute leukemia indications. We estimated that it will take approximately five to eight years and an investment of approximately $46 million to complete the development of, obtain approval for and commercialize tasidotin.

50

OTHER INCOME AND EXPENSES

		Three Months Ended June 30,								Six Months Ended June 30,
								Increase/ (Decrease) % Change								Increase/ (Decrease) % Change
		2006			2005					2006			2005
		(Amounts in thousands)
Equity in income (loss) of equity method investments		$	3,854		$	(417	)	(1,024	)%	$	6,100		$	(2,135	)	(386	)%
Minority interest			2,750			3,357		(18	)%		5,196			5,551		(6	)%
Gains on investments in equity securities, net			66,967			4,817		1,290	%		74,909			4,958		1,411	%
Other			(319	)		253		(226	)%		(458	)		193		(337	)%
Investment income			12,563			7,544		67	%		22,641			14,162		60	%
Interest expense			(4,035	)		(4,466	)	(10	)%		(8,473	)		(8,274	)	2	%
	Total other income	$	81,780		$	11,088		638	%	$	99,915		$	14,455		591	%

Equity in Income (Loss) of Equity Method Investments

        Under this caption, we record our portion of the results of our joint ventures with BioMarin, Diacrin, Inc. and Medtronic, Inc., and our investments in Peptimmune, Inc. and Therapeutic Human Polyclonals, Inc., which we refer to as THP.

        Equity in income (loss) of equity method investments decreased $4.3 million, or 1,024%, due primarily to $4.6 million of income we recorded for the three months ended June 30, 2006, as compared to income of $1.5 million for the comparable period of 2005. Equity in income (loss) of equity method investments decreased $8.2 million, or 386%, due primarily to $8.0 million of income we recorded for the six months ended June 30, 2006, as compared to income of $1.7 million for the comparable period of 2005. The $4.6 million of income for the three month period and $8.0 million of income for the six month period represents our portion of the net income of BioMarin/Genzyme LLC as a result of increased sales of Aldurazyme.

Minority Interest

        As a result of our application of FIN 46, "Consolidation of Variable Interest Entities," we have consolidated the results of Dyax-Genzyme LLC and Excigen Inc. Our consolidated balance sheet as of June 30, 2006, includes assets related to Dyax-Genzyme LLC, which are not significant, and substantially all of which are lab equipment net of their associated accumulated depreciation. We have recorded Dyax's portion of this joint venture's losses as minority interest in our consolidated statements of operations. The results of Excigen were not significant.

51

Gains on Investments in Equity Securities, net

        We recorded the following gains on investments in equity securities, net of charges for impairment of investments, in the three and six months ended June 30, 2006 and 2005 (amounts in thousands):

			Three Months Ended June 30,					Six Months Ended June 30,
			2006			2005		2006			2005
Gross gains on investments:
	CAT		$	69,359		$	—	$	69,359		$	—
	ProQuest			35			151		1,404			151
	BioMarin			—			—		6,417			—
	Theravance			—			4,510		—			4,510
	Other			466			156		622			297
		Total		69,860			4,817		77,802			4,958
Less: charges for impairment of investments				(2,893	)		—		(2,893	)		—
Gain on investments in equity securities, net			$	66,967		$	4,817	$	74,909		$	4,958

Gross Gains on Investments

        In May 2006, we recorded a $7.0 million gain on the sale of a portion of our investment in CAT. In June 2006, in connection with the acquisition of CAT by AstraZeneca, we recorded a $62.4 million gain on the tender of our remaining investment in CAT, which became unconditional on June 21, 2006. The $99.0 million of cash proceeds due from the tender of our remaining investment in CAT are included in prepaid expenses and other current assets in our consolidated balance sheet as of June 30, 2006 because the cash proceeds were not received until July 2006.

        In March 2006, we recorded a $1.4 million gain and in June 2006 we recorded an insignificant gain related to distributions of net cash proceeds we received in connection with our limited partnership interest in ProQuest. In March and June 2006, ProQuest sold certain of its investments and distributed the net cash proceeds from these sales to its partners.

        In January 2006, we recorded a $6.4 million gain in connection with the sale of our entire investment of 2.1 million shares of the common stock of BioMarin.

        In April 2005, we sold our entire investment in the common stock of Theravance for $4.5 million in cash. Our investment in Theravance had a zero cost basis and, as a result, we recorded a gain of $4.5 million in April 2005 related to this sale.

Charges for Impairment of Investments

        We review the carrying value of each of our strategic investments in equity securities on a quarterly basis for potential impairment.

        In June 2006, we recorded a $2.2 million impairment charge in connection with our investment in ViaCell and a $0.7 million impairment charge in connection with our investment in Cortical because we considered the decline in value of these investments to be other than temporary. The price of ViaCell's common stock declined between July 2005 and November 2005, primarily due to the FDA's decision to temporarily halt ViaCell's phase 1 clinical trial for CB001, which was being tested for potential use in various cancer treatments. The FDA allowed ViaCell to resume clinical testing of CB001 in December 2005. Although clinical testing has resumed, the market of ViaCell's common stock has continued to remain below our cost and has been below our cost for the last 11 months. Given the significance and duration of the decline in market value of our investments in ViaCell and Cortical, as

52

of June 30, 2006, we concluded that it was unclear over what period the recovery of the stock price for these investments would take place, and, accordingly, that any evidence suggesting that the investments would recover to at least our historical cost was not sufficient to overcome the presumption that the current market price was the best indicator of the value of these investments.

Unrealized Gains

        At June 30, 2006, our stockholders' equity includes $20.0 million of unrealized gains related to our investments in strategic equity securities.

Investment Income

        Our investment income increased 67% to $12.6 million for the three months ended June 30, 2006, as compared to the same period of 2005, primarily due to an increase in the average portfolio yield and higher average cash balances. Our investment income increased 60% to $22.6 million for the six months ended June 30, 2006, as compared to the same period of 2005, primarily due to an increase in the average portfolio yield and higher average cash balances.

Interest Expense

        Our interest expense decreased 10% to $4.0 million for the three months ended June 30, 2006, as compared to the same period of 2005, primarily due to the paydown of our GelTex capital lease in October 2005. Our interest expense increased 2% to $8.5 million for the six months ended June 30, 2006, as compared to the same period of 2005, primarily due to a $1.2 million decrease in capitalized interest due to manufacturing plant completions, partially offset by a $0.8 million decrease due to the paydown of our GelTex capital lease.

Provision for Income Taxes

	Three Months Ended June 30,						Six Months Ended June 30,
					Increase/ (Decrease) % Change						Increase/ (Decrease) % Change
	2006		2005				2006		2005
	(Amounts in thousands)
Provision for income taxes	$	60,002	$	52,130	15	%	$	105,371	$	96,525	9	%
Effective tax rate		31%		30%				31%		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; and



•

the foreign rate differential.

        Our effective tax rate for the three and six months ended June 30, 2006 was impacted by non-deductible stock option expense.

        Our effective tax rate for the three and six months ended June 30, 2005 was impacted by non-deductible charges for IPR&D of $9.5 million recorded in connection with our acquisition of Verigen.

        We are currently under IRS audits for tax years 1996 to 1999, 2002 to 2003 and in certain state and foreign jurisdictions. We believe that we have provided sufficiently for all audit exposures and

53

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. The settlement of the 1996 to 1999 IRS audit is expected to result in a net tax benefit of approximately $30 million to $40 million. We do not expect the settlement of certain foreign audits covering 1997 to 2004 to have a material affect on our net tax expense. We believe settlement of both the IRS for 1996 to 1999 audit and certain foreign audits will likely occur in 2006. The effects of each audit will be recorded in our financial statements upon settlement.

B. LIQUIDITY AND CAPITAL RESOURCES

        We continue to generate cash from operations. At June 30, 2006, we had cash, cash equivalents and short- and long-term investments of $1.4 billion, an increase of $0.3 billion from cash, cash equivalents and short- and long-term investments of $1.1 billion at December 31, 2005.

        The following is a summary of our statements of cash flows for the six months ended June 30, 2006 and 2005.

Cash Flows from Operating Activities

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

			Six Months Ended June 30,
			2006			2005
Cash flows from operating activities:
	Net cash provided by operating activities before stock-based compensation, tax benefit of employee stock compensation, excess tax benefits from stock-based compensation and working capital changes		$	251,901		$	338,485
	Stock-based compensation			115,550			—
	Tax benefit of employee stock-based compensation			11,432			46,101
	Excess tax benefits from stock-based compensation			(4,659	)		—
	Increase (decrease) in cash from working capital changes (excluding impact of acquired assets and assumed liabilities)			(14,059	)		(35,071	)
		Cash flows from operating activities	$	360,165		$	349,515

        Cash provided by operating activities increased $10.7 million for the six months ended June 30, 2006, as compared to the same period of 2005, primarily due to $21.0 million decrease in working capital changes. In connection with our adoption of FAS 123R, we were required to change the classification in our consolidated statements of cash flows of any tax benefits realized upon the exercise of stock options in excess of that which is associated with the expense recognized for financial reporting purposes. For the six months ended June 30, 2006, $4.7 million of excess tax benefits from stock-based compensation were presented as a financing cash inflow rather than as a reduction of income taxes paid in our consolidated statement of cash flows for which there were no similar amounts in the same period of 2005. We adopted FAS 123R using the modified prospective transition method and as a result, we have not restated our results for the six months ended June 30, 2005 to reflect the adoption of this standard.

54

Cash Flows from Investing Activities

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

			Six Months Ended June 30,
			2006			2005
Cash flows from investing activities:
	Net purchases of investments, including investments in equity securities		$	(34,391	)	$	(18,364	)
	Purchases of property, plant and equipment			(156,406	)		(80,376	)
	Distributions from equity method investees			12,000			—
	Purchases of intangible assets			(6,876	)		—
	Acquisitions, net of acquired cash			—			(10,679	)
	Acquisition of sales and marketing rights			(36,233	)		(141,435	)
	Other investing activities			3,132			1,056
		Cash flows from investing activities	$	(218,774	)	$	(249,798	)

        For the six months ended June 30, 2006, capital expenditures, net purchases of investments, including investments in equity securities, and acquisitions accounted for significant cash outlays for investing activities. For the six months ended June 30, 2006, we used:

•

$156.4 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;



•

$34.4 million in net cash to fund the net purchases of investments, including our investments in equity securities. Net purchases include net cash proceeds received from sales of certain of our investments in equity securities, of which $24.4 million is attributable to the sale of our entire investment of 2.1 million shares in the common stock of BioMarin in January 2006 and $11.4 million is attributable to the sale of a portion of our investment in the common stock of CAT in May 2006;



•

$30.2 million in cash for contingent payments related to our 2005 reacquisition of the Synvisc sales and marketing rights in the United States, as well as Germany, Poland, Greece, Portugal and the Czech Republic and $6.0 million in cash for the reacquisition of the Synvisc sales and marketing rights from Wyeth in Turkey in April 2006; and



•

$6.9 million in cash for purchases of intangible assets.

These decreases in cash were partially offset by $12.0 million of cash distributions from our joint venture with BioMarin.

For the six months ended June 30, 2005, we used:

•

$141.4 million in cash for our reacquisition of the Synvisc sales and marketing rights from Wyeth and $10.7 million in cash for our acquisition of Verigen, net of acquired cash;



•

$80.4 million in cash to fund the purchase of property, plant and equipment, primarily related to the ongoing expansion of our manufacturing capacity in the Republic of Ireland, the United Kingdom, Belgium and the United States; and



•

$18.4 million in cash to fund the purchase of investments, including investments in equity securities.

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Cash Flows from Financing Activities

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

			Six Months Ended June 30,
			2006			2005
Cash flows from financing activities:
	Proceeds from issuance of common stock		$	57,080		$	169,520
	Excess tax benefits from stock-based compensation			4,659			—
	Proceeds from draws on our 2003 revolving credit facility			—			350,000
	Payments of debt and capital lease obligations			(1,971	)		(101,618	)
	Bank overdraft			(7,222	)		11,785
	Minority interest contributions			5,232			7,001
	Other financing activities			1,503			821
		Cash flows from financing activities	$	59,281		$	437,509

        For the six months ended June 30, 2006, cash flows from financing activities decreased $378.2 million, as compared to the same period of 2005, primarily due to a $112.4 million decrease in cash proceeds from the issuance of common stock and $350.0 million of cash proceeds drawn under our 2003 revolving credit facility in the six months ended June 30, 2005 for which there were no similar amounts in the same period of 2006. These decreases were offset, in part, by a $99.6 million decrease in cash used for the payment of debt and capital lease obligations. Cash used for the payment of debt and capital lease obligations for the six months ended June 30, 2005 includes the repayment of $100.0 million in principal drawn under our 2003 revolving credit facility for which there are no similar repayments in the same period of 2006. As described above, in connection with our adoption of FAS 123R effective January 1, 2006, the $4.7 million of excess tax benefits from stock-based compensation are shown as a cash inflow in cash from financing activities for the six months ended June 30, 2006. Because we adopted FAS 123R using the modified prospective transition method, we have not adjusted the presentation of our statement of cash flows for the six months ended June 30, 2005, to reflect this change.

        For the six months ended June 30, 2005, financing activities generated $539.1 million of cash, primarily due to $350.0 million of proceeds drawn under our 2003 revolving credit facility and $169.5 million of proceeds from the issuance of common stock under our stock plans. This was offset by $101.6 million in cash utilized to repay debt and capital lease obligations.

Revolving Credit Facility

        In December 2003, we entered into a three-year $350.0 million revolving credit facility with Bank of America, N.A., successor-by-merger to Fleet National Bank, as administrative agent and a syndicate of lenders, maturing in December 2006. As of December 31, 2005 and June 30, 2006, no amounts were outstanding under this facility, which we refer to as our 2003 revolving credit facility. The terms of this credit facility included various covenants, including financial covenants that required us to meet minimum liquidity and interest coverage ratios and to meet maximum leverage ratios. As of June 30, 2006, we were in compliance with these covenants.

        On July 14, 2006, we terminated our 2003 revolving credit facility and replaced it with a new 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 proceeds of loans under our 2006 revolving credit facility can be used to finance working capital needs and general

56

corporate purposes. Our 2006 revolving credit facility may be increased at any time from time to time by up to an additional $350.0 million in the aggregate, as long as no default or event of default has occurred or is continuing and certain other customary conditions are satisfied. Borrowings under our 2006 revolving credit facility will bear interest as follows:

•

revolving loans denominated in U.S. dollars or a foreign currency (other than Euros) bear interest at a variable rate equal to LIBOR for loans in U.S. dollars and a comparable index rate for foreign currency loans, plus an applicable margin;



•

revolving loans denominated in Euros bear interest at a variable rate equal to EURIBOR plus an applicable margin;



•

at our option, revolving loans denominated in U.S. dollars and all U.S. dollar swingline loans (which grant us access to up to $20.0 million of our 2006 revolving credit facility in order to cover possible working capital shortfalls) bear interest at the greater of the Prime Rate and the Federal Funds Effective Rate plus one half of one percent; and



•

multicurrency swingline loans bear interest at a rate equal to the average rate at which overnight deposits in the currency in which such swingline loan is denominated, and approximately equal in principal amount to such swingline loan, are obtainable by the swingline lender for such swingline loan in the interbank market plus an applicable margin.

The applicable margins for LIBOR and multicurrency revolving loans range from 0.180% to 0.675% per annum, and for multicurrency swingline loans from 0.430% to 0.925% per annum, in each case determined by our credit ratings. In addition, we are required to pay a facility fee of between 7 to 20 basis points based on the aggregate commitments under our 2006 revolving credit facility, and in certain circumstances a utilization fee of 10 basis points.

        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. We currently are 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 13.1 to our 2005 Form 10-K. Excluding additional contingent payments to Wyeth for the reacquisition of the Synvisc sales and marketing rights, and to the former shareholders of Surgi.B related to our acquisition of the rights to GlucaMesh and GlucaTex, and the refinancing of our $350.0 million revolving credit facility, as described above, there have been no material changes to our contractual obligations since December 31, 2005.

Financial Position

        We believe that our available cash, investments and cash flows from operations will be sufficient to fund our planned operations and capital requirements for the foreseeable future. Although we currently have substantial cash resources and positive cash flow, we have used or intend to use substantial portions of our available cash and may make additional borrowings under our 2006 revolving credit facility for:

•

product development and marketing;



•

business combinations and other strategic business initiatives;



•

expanding existing and constructing new facilities;



•

expanding staff; and



•

working capital, including satisfaction of our obligations under capital and operating leases.

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        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 detail on certain pending legal proceedings in the notes to our consolidated financial statements.

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

Off-Balance Sheet Arrangements

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

Recent Accounting Pronouncement

FIN 48, "Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109." In July 2006, the FASB issued FIN 48, "Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109," which seeks to reduce the significant diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes. FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. Upon adoption, the cumulative effect of any changes in net assets resulting from the application of FIN 48 will be recorded as an adjustment to retained earnings. We are currently evaluating the impact, if any, that FIN 48 will have on our financial position and results of operations.

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FACTORS AFFECTING FUTURE OPERATING RESULTS

        Our future operating results could differ materially from the results described in this report due to the risks and uncertainties related to our business, including those discussed below and other factors that we do not currently consider significant or of which we are not aware.

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 $493.0 million for the six months ended June 30, 2006, representing approximately 32% of our consolidated total revenue for the first six months of 2006. Because our business is highly dependent on Cerezyme, negative trends in revenue from this product could have a significant adverse effect on our operations and cause the value of our securities to decline substantially. We will lose revenue if alternative treatments gain commercial acceptance, if our marketing activities are restricted, or if reimbursement is limited. In addition, the patient population with Gaucher disease is not large. Because a significant percentage of that population already uses Cerezyme, opportunities for future sales growth are constrained. Furthermore, changes in the methods for treating patients with Gaucher disease, including treatment protocols that combine Cerezyme with other therapeutic products or reduce the amount of Cerezyme prescribed, could limit growth, or result in a decline, in Cerezyme sales.

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

        Over the next few years, our success will depend substantially on our ability to increase revenue from many different products and services. The products and services include Cerezyme, Fabrazyme, Aldurazyme, Myozyme, Renagel, Hectorol, Synvisc, Thymoglobulin, Thyrogen, Clolar, Campath and diagnostic testing services. Our ability to increase sales will depend on a number of factors, including:

•

acceptance by the medical community of each product or service;



•

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



•

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



•

regulation by the U.S. Food and Drug Administration, commonly referred to as the FDA, and the European Agency for the Evaluation of Medical Products, or EMEA, and other regulatory authorities;



•

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



•

the effectiveness of our sales force;



•

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



•

the size of the patient population for each product or service 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 and pursuing marketing approval for our products in new jurisdictions. For example, we are seeking marketing approval for the use of Synvisc to treat pain associated with osteoarthritis of the hip in the United States and the shoulder and ankle in the European Union. The success of this component of our growth strategy will depend on the content and

59

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 and on hemodialysis. Nabi Biopharmaceuticals markets PhosLo®, a calcium-based phosphate binder, and Shire markets Fosrenol®, a non-calcium based phosphate binder. Nabi Biopharmaceuticals has filed for marketing approval of PhosLo in the European Union. Shire has received marketing approval for Fosrenol in certain European countries and has filed for approval in additional European countries and Canada. Renagel also competes with over-the-counter calcium carbonate products such as TUMS®.

        Both the oral and the intravenous formulations of Hectorol face competition. Abbott Laboratories markets intravenous Calcijex® and intravenous Zemplar® in the United States and Europe. More recently it has begun marketing an oral formulation of Zemplar in the United States. Hectorol faces competition from several other vitamin D hormone therapies used to treat hyperparathyroidism and hyperproliferative diseases as well.

        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 Pharmaceuticals Group plc, or Shire, is conducting a phase 1/2 clinical trial for its gene-activated glucocerebrosidase program, also to treat Gaucher disease. We are also aware of other development efforts aimed at treating Gaucher disease.

        Outside the United States, Shire is marketing Replagal™, a competitive enzyme replacement therapy for Fabry disease which is the disease addressed by Fabrazyme. In addition, while Fabrazyme has received orphan drug designation, which provides us with seven years of market exclusivity for the product in the United States, other companies may seek to overcome our market exclusivity and, if successful, compete with Fabrazyme in the United States.

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

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        Current competition for Synvisc includes Supartz, a product manufactured by Seikagaku Kogyo that is sold in the United States by Smith & Nephew Orthopaedics and in Japan by Kaken Pharmaceutical Co. under the name Artz®; Hyalgan®, produced by Fidia Farmaceutici S.p.A. and marketed in the United States by Sanofi-Aventis; Orthovisc®, produced by Anika Therapeutics, Inc., marketed in the United States by Johnson & Johnson and marketed outside the United States through distributors; Euflexxa™, a product manufactured and sold by Ferring Pharmaceuticals and marketed in the United States and Europe; and Durolane®, manufactured and distributed outside the United States by Q-Med AB. Durolane and Euflexxa, the most recently approved products in Europe and the United States, respectively, are produced by bacterial fermentation, as opposed to Synvisc, which is avian-sourced. In addition, the treatment protocol for Durolane is a single injection, as compared to Synvisc's three injection regimen (although it offers a shorter duration of pain relief). Production via bacterial fermentation and treatment with a reduced number of injections may represent competitive advantages for these products. We are aware of various viscosupplementation products on the market or in development, but are unaware of any products that have physical properties of viscosity, elasticity or molecular weight comparable to those of Synvisc. Furthermore, several companies market products that are not viscosupplementation products but which are designed to relieve the pain associated with osteoarthritis. Synvisc will have difficulty competing with any of these products to the extent the competitive products are considered more efficacious, less burdensome to administer or more cost-effective.

        The examples above are illustrative. Almost all of our products and services face competition. Furthermore, the field of biotechnology is characterized by significant and rapid technological change. Discoveries by others may make our products or services obsolete. For example, competitors may develop approaches to treating lysosomal storage disorders (LSDs) that are more effective, 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 operations. Furthermore, we are committed to expanding our oncology portfolio. Many pharmaceutical and biotechnology companies are pursuing programs in this area, and these organizations may develop approaches that are superior to ours.

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

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

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

•

challenging the prices charged for healthcare products and services;



•

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



•

reducing existing reimbursement rates for commercialized products and services;



•

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



•

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

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•

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 also attempt to make unilateral changes to reimbursement rates for our products and services. These changes could reduce our revenues by causing healthcare providers to be less willing to use our products and services. Although we actively seek to assure that any initiatives that are undertaken by regulatory agencies involving reimbursement do not have an adverse impact on us, we may not always be successful in these efforts. For example, in November 2005, CMS announced it intended to implement a change to the billing code for viscosupplement products that would have provided Medicare reimbursement for Synvisc at a rate that was lower than the price healthcare providers were paying for the product. If the CMS billing code change had been implemented, our Synvisc revenues would have been adversely affected because healthcare providers would have been less willing to use Synvisc. Although CMS decided not to implement this change for 2006, a new proposal to alter the billing code for viscosupplement products is under review for 2007. We cannot determine whether there will be similar or different changes to reimbursement codes implemented in the future.

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

        We have multiple products under development and devote considerable resources to research and development, including clinical trials. For example, we are spending considerable resources attempting to develop new treatments for Gaucher disease.

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

•

conduct substantial research and development;



•

undertake preclinical and clinical testing;



•

develop and scale-up manufacturing processes; and



•

pursue regulatory approvals and, in some jurisdictions, pricing approvals.

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

•

failure of the product candidate in preclinical studies;



•

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



•

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



•

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

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•

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



•

our failure to obtain the required regulatory approvals for the product candidate or the facilities in which it is manufactured.

        Few research and development projects result in commercial products, and success in preclinical studies or early clinical trials often is not replicated in later studies. We may decide to abandon development of a product or service candidate at any time or we may be required to expend considerable resources repeating clinical trials or conducting additional trials, either of which would increase costs of development and delay any revenue from those product candidates.

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

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

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

We may encounter substantial difficulties managing our growth.

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

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

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

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        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 also may be impacted when we attempt to grow through business combination transactions. We may encounter problems assimilating operations acquired in these transactions. Business combination transactions often entail the assumption of unknown liabilities, the loss of key employees, and the diversion of management attention. Furthermore, in any business combination, including our acquisitions of the Physician Services and Analytical Services business units of IMPATH, Inc., ILEX Oncology, Inc. and Bone Care International, Inc., there is a substantial risk that we will fail to realize the benefits we anticipate when we decide to undertake the transaction. We have in the past taken significant charges for impairment of goodwill and for impaired assets acquired in business combination transactions. We may be required to take similar charges in the future.

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

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

        Certain of the raw materials required in the commercial manufacturing and the formulation of our products are derived from biological sources, including mammalian sources and human plasma. Such raw materials may be subject to contamination or recall. Also, some countries in which we market our products may restrict the use of certain biologically derived substances in the manufacture of drugs. A material shortage, contamination, recall, or restriction of the use of certain biologically derived substances in the manufacture of our products could adversely impact or disrupt our commercial manufacturing of our products or could result in a mandated withdrawal of our products from the market. This too, in turn, could adversely affect our ability to satisfy demand for our products, which could materially and adversely affect our operating results.

        In addition, we may only be able to produce certain of our products at a very limited number of facilities and, in some cases, we rely on third parties to formulate and manufacture our products. For example, we manufacture all of our Cerezyme and a portion of our Fabrazyme products at our facility in Allston, Massachusetts. A number of factors could cause production interruptions at our facilities or

64

the facilities of our third party providers, including equipment malfunctions, labor problems, natural disasters, power outages, terrorist activities, or disruptions in the operations of our suppliers.

        Manufacturing is also subject to extensive government regulation. Regulatory authorities must approve the facilities in which human healthcare products are produced. Any third party we use to manufacture, fill/finish or package our products to be sold must also be licensed by the applicable regulatory authorities. As a result, alternative third party providers may not be readily available on a timely basis. In addition, facilities are subject to ongoing inspections and minor changes in manufacturing processes may require additional regulatory approvals, either of which could cause us to incur significant additional costs and lose revenue.

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

        Certain materials necessary for commercial production of our products, including specialty chemicals and components necessary for manufacture, fill/finish and packaging, are provided by unaffiliated third-party suppliers. In some cases, such materials are specifically cited in our marketing 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, Schering AG with respect to Campath, and Bioenvision Inc. with respect to Clolar. 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 or their own operations.

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        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 in June 2005. Our strategic equity investments are subject to market fluctuations, access to capital and other business events, such as initial public offerings, the completion of clinical trials and regulatory approvals, which can impact the value of these investments. As a result, if any of our strategic equity investments decline in value and remain below cost for an extended duration, we may incur financial statement charges related to the decline in value of that investment.

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

        Our success will depend on our ability to satisfy regulatory requirements. We may not receive required regulatory approvals on a timely basis or at all. Government agencies heavily regulate the production and sale of healthcare products and the provision of healthcare services. In particular, the 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 in the United States and/or exports from the United States;



•

mandating product recalls; and



•

seizing products.

        Furthermore, the FDA and comparable foreign regulatory agencies may require post-marketing clinical trials or patient outcome studies. We have agreed with the FDA, for example, to a number of post-marketing commitments as a condition to U.S. marketing approval for Fabrazyme, 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 used to produce the therapy could prompt a regulatory authority to impose restrictions on us, or could cause us to voluntarily adopt such restrictions, including withdrawal of one or more of our products or services from the market.

        We believe some of our products are prescribed by physicians for uses not approved by the FDA or comparable regulatory agencies outside the United States. Although physicians may lawfully prescribe our products for off-label uses, any promotion by us of off-label uses would be unlawful. Some of our practices intended to make physicians aware of off-label uses of our products without

66

engaging in off-label promotion could nonetheless be construed as off-label promotion. Although we have policies and procedures in place designed to help assure ongoing compliance with regulatory requirements regarding off-label promotion, some non-compliant actions may nonetheless occur. Regulatory authorities could take enforcement action against us if they believe we are promoting, or have promoted, our products for off-label use.

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

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

•

pay monetary damages;



•

stop commercial activities relating to the affected products or services;



•

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



•

compete in the market with a different product.

        We are also currently involved in litigation matters and investigations that do not involve intellectual property claims and may be subject to additional actions in the future. For example, we are currently defending several lawsuits brought in connection with the elimination of our tracking stock in June 2003, some of which claim considerable damages. Also, the federal government, state governments and private payors are investigating and have begun to file actions against numerous pharmaceutical and biotechnology companies, including Genzyme, alleging that the companies have overstated prices in order to inflate reimbursement rates. Domestic and international enforcement authorities also have instituted actions under 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 have only limited amounts of insurance, which may not provide coverage to offset a negative judgment or a settlement payment. We may be unable to obtain additional insurance in the future, or we may be unable to do so on acceptable terms. Any additional insurance we do obtain may not provide adequate coverage against any asserted claims.

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

•

diversion of management's time and attention;



•

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



•

limitations on our ability to continue some of our operations;



•

decreased demand for our products and services; and



•

injury to our reputation.

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

        Our international operations accounted for approximately 45% of our consolidated product and service revenues for the six months ended June 30, 2006. 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;



•

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 Foreign Corrupt Practices Act prohibits U.S. companies and their representatives from offering, promising, authorizing or making payments to foreign officials for the purpose of obtaining or retaining business abroad. Failure to comply with domestic or foreign laws could result in various adverse consequences, including possible delay in approval or refusal to approve a product, recalls, seizures, withdrawal of an approved product from the market, and/or the imposition of civil or criminal sanctions.

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

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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 from Canada and other countries into the United States may lower the prices we receive for our products.

        In the United States and abroad, many of our products are subject to competition from lower-priced versions of our products and competing products from other countries where government price controls or other market dynamics result in lower prices for such products. Our products that require a prescription in the United States may be available to consumers in markets such as Canada, Mexico,

69

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, 2006, we had $1.4 billion in cash, cash equivalents and short- and long-term investments, excluding investments in equity securities.

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

•

product development and marketing;



•

business combinations and other strategic business initiatives;



•

expanding existing and constructing additional facilities;



•

expanding staff; and



•

working capital, including satisfaction of our obligations under capital and operating leases.

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

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

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

        At June 30, 2006, we had $700.1 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

70

•

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

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

ITEM 3. QUANTITATIVE AND QUALITATIVE ANALYSIS OF MARKET RISK

Market Risk

        We are exposed to potential loss from exposure to market risks represented principally by changes in equity prices, interest rates and foreign exchange rates. At June 30, 2006, we held various derivative contracts in the form of foreign exchange forward contracts. The derivatives contain no leverage or option features. We also held a number of other financial instruments, including investments in marketable securities, and have issued various debt securities.

Equity Price Risk

        We hold investments in a limited number of U.S. and European equity securities. We estimated the potential loss in fair value due to a 10% decrease in equity prices of each security held at June 30, 2006 to be $4.3 million, as compared to $11.6 million at December 31, 2005. 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 readily determinable market value.

Interest Rate Risk

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

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

•

convertible notes that are "in-the-money" at year end are considered equity securities and are excluded;



•

convertible notes that are "out-of-the-money" at year end are analyzed by taking into account both fixed income and equity components; and



•

notes will mature on the first available date.

        On this basis, we estimate the potential loss in fair value that would result from a hypothetical 1% (100 basis point) increase in interest rates to be $3.6 million as of June 30, 2006, as compared to $5.9 million as of December 31, 2005. The decrease is primarily due to decreases in interest rate sensitivity on our fixed income investment portfolio, our $690.0 million in principal of 1.25% convertible notes, and the capital lease for our corporate headquarters in Cambridge, Massachusetts, which has a remaining principal balance of $119.1 million at June 30, 2006.

Foreign Exchange Risk

        As a result of our worldwide operations, we may face exposure to adverse movements in foreign currency exchange rates, primarily to the Euro, British pound and Japanese yen. These exposures are reflected in market risk sensitive instruments, including foreign currency receivables and payables, foreign exchange forward contracts and foreign equity holdings.

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        As of June 30, 2006, we estimate the potential loss in fair value of our foreign currency contracts that would result from a hypothetical 10% adverse change in exchange rates to be $9.5 million, as compared to $2.9 million as of December 31, 2005.

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

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, 2006, and (2) no change in internal control over financial reporting occurred during the quarter ended June 30, 2006 that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.

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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.

        Four lawsuits have been filed against us regarding the exchange of all of the outstanding shares of Biosurgery Stock for shares of Genzyme Stock in connection with the elimination of our tracking stocks in July 2003. Each of the lawsuits is a purported class action on behalf of holders of Biosurgery Stock. The first case, filed in Massachusetts Superior Court in May 2003, alleged a breach of the implied covenant of good faith and fair dealing in our charter and a breach of our board of directors' fiduciary duties. The plaintiff in this case sought an injunction to adjust the exchange ratio for the tracking stock exchange. The Court dismissed the complaint in its entirety in November 2003. Upon appeal, the Massachusetts Appeals Court upheld the dismissal by the Superior Court of the fiduciary duty claim, but reversed the earlier decision to dismiss the implied covenant claim. The SJC has granted our petition for further appellate review of the Appeals Court decision reversing the dismissal of the implied covenant claim, and we anticipate a hearing before the SJC by the end of 2006. Two substantially similar cases were filed in Massachusetts Superior Court in August and October 2003. These cases were consolidated in January 2004, and in July 2004, the consolidated case was stayed pending disposition of a fourth case, which was filed in the U.S. District Court for the Southern District of New York in June 2003. The complaint initially alleged violations of federal securities laws, common law fraud, and a breach of the merger agreement with Biomatrix, in addition to the state law claims contained in the other cases. The plaintiffs initially sought an adjustment to the exchange ratio, the rescission of the acquisition of Biomatrix, and unspecified compensatory damages. In December 2005, the plaintiffs in this case filed an amended complaint in which they dropped all of the claims alleged in the initial complaint relating to the initial issuance of Biosurgery Stock and the acquisition of Biomatrix, and narrowed the putative class to include only those individuals who held Biosurgery Stock on May 8, 2003. We have filed a motion to dismiss the amended complaint and to oppose the class certification, and are awaiting a decision from the Court. Discovery in this case has been put on hold pending resolution of these motions. We believe each of these cases is without merit and continue to defend against them vigorously.

        On March 27, 2003, the OFT, in the United Kingdom issued a decision against our wholly-owned subsidiary, Genzyme Limited, finding that Genzyme Limited held a dominant position and abused that dominant position with no objective justification by pricing Cerezyme in a way that excludes other delivery/homecare service providers from the market for the supply of home delivery and homecare services to Gaucher patients being treated with Cerezyme. In conjunction with this decision, the OFT imposed a fine on Genzyme Limited and required modification to its list price for Cerezyme in the United Kingdom. Genzyme Limited appealed this decision to the Competition Appeal Tribunal. On May 6, 2003, the Tribunal issued an order that stayed the OFT's decision, but required Genzyme Limited to provide a homecare distributor a discount of 3% per unit during the appeal process. The Tribunal issued its judgment on Genzyme Limited's appeal on March 11, 2004, rejecting portions of the OFT's decision and upholding others. The Tribunal found that the list price of Cerezyme should not be reduced, but that Genzyme Limited must negotiate a price for Cerezyme that will allow homecare distributors an appropriate margin. The Tribunal also reduced the fine imposed by the OFT for violation of U.K. competition laws. In response to the Tribunal's decision, we recorded an initial liability of approximately $11 million in our 2003 financial statements and additional liabilities totaling approximately $1 million during 2004 and 2005, of which approximately $6 million were paid in 2005. As of December 31, 2005 and June 30, 2006, accrued expenses in our consolidated balance sheets includes the remaining $6 million of liabilities recorded in connection with the Tribunal's decision.

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Genzyme Limited and the OFT were unable to negotiate a price for Cerezyme for homecare distributors and, as a result, on September 29, 2005, the Tribunal issued a ruling establishing the discount to be provided by Genzyme Limited to homecare distributors at 7.2%, which approximates the figure used to calculate the initial liability of approximately $11 million we recorded in 2003, and the additional liabilities totaling approximately $1 million we recorded in 2004 and 2005. Genzyme Limited has decided not to appeal this decision. Arising out of the OFT decision, on April 5, 2006, Genzyme Limited received a damage claim from Genzyme Limited's former distributor, Healthcare at Home. Genzyme Limited and Healthcare at Home are in negotiations to arrive at a mutually agreed upon settlement of this damage claim. We do not expect that settlement of this damage claim will have a material impact on our financial condition or results of operations.

        We are not able to predict the outcome of the pending legal proceedings listed here, or other legal proceedings, or estimate the amount or range of any reasonably possible loss we might incur if we do not prevail in the final, non-appealable determinations of such matters. Therefore, except for the liabilities recorded in connection with the Tribunal's decision regarding Cerezyme pricing in the United Kingdom, including the Healthcare at Home matter, we have no current accruals for these potential contigencies. We cannot provide you with assurance that the legal proceedings listed here, or other legal proceedings, will not have a material adverse impact on our financial condition or results of operations.

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—Factors Affecting Future Operating Results" in Part I., Item 2. of this Quarterly Report on Form 10-Q.

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

        We did not purchase any shares of our common stock during the second quarter of our 2006 fiscal year.

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

        We held our annual meeting of shareholders on May 25, 2006. The following represents the results of the voting on proposals submitted to the shareholders for a vote at the annual meeting. Adoption of the proposals set forth below, except for the election of directors and amendment of our charter, required the affirmative vote of the majority of the shares of Genzyme Stock properly cast at the meeting. Each director was elected by a plurality of the votes properly cast at the meeting. Adoption of the charter amendment required the affirmative vote of the majority of all shares of Genzyme Stock outstanding and entitled to vote. Abstentions and broker non-votes were counted for determining a quorum, but were not treated as votes cast.

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a.

Proposal to elect three directors for a term of office expiring in 2009:

	Number of Votes
Nominee
	For	Withheld
Henri A. Termeer	218,332,891	7,131,971

	Number of Votes
Nominee
	For	Withheld
Victor J. Dzau, M.D	201,793,079	23,671,783

	Number of Votes
Nominee
	For	Withheld
Senator Connie Mack III	221,282,272	4,182,590

Each nominee received a plurality of the votes cast, and therefore has been duly elected as a director of Genzyme. The terms of office for Douglas A. Berthiaume, Henry E. Blair, Gail Koziara Boudreaux, Robert J. Carpenter, Charles L. Cooney and Richard F. Syron as directors of Genzyme continued after the annual meeting.

b.

Proposal to amend our 2004 Equity Incentive Plan to provide for the grant of restricted stock and restricted stock units and to increase the number of shares of common stock covered by the plan by 7,000,000 shares.

Number of Votes for	Number of Votes Against	Number of Votes Abstaining	Number of Broker Non-Votes
163,052,568	38,175,655	1,410,734	22,825,844

The proposal received a majority of the votes cast, and was adopted.*

c.

Proposal to amend our 1998 Director Stock Option Plan to increase the number of shares of common stock covered by the plan by 300,000 shares.

Number of Votes for	Number of Votes Against	Number of Votes Abstaining	Number of Broker Non-Votes
144,728,244	56,496,836	1,413,924	22,825,855

The proposal received a majority of the votes cast, and was adopted.*

d.

Proposal to amend and restate our Restated Articles of Organization to declassify our board so that, beginning in 2007, all directors are elected for one-year terms.

Number of Votes for	Number of Votes Against	Number of Votes Abstaining	Number of Broker Non-Votes
222,985,672	1,203,495	1,275,680	—

The proposal received the affirmative vote of the majority of shares outstanding, and therefore has passed.

e.

Proposal to ratify the audit committee's selection of PricewaterhouseCoopers, LLP as independent auditors for 2006.

Number of Votes for	Number of Votes Against	Number of Votes Abstaining	Number of Broker Non-Votes
218,459,819	5,719,359	1,285,678	—

The proposal received a majority of the votes cast, and was adopted.*

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f.

Shareholder sponsored proposal that executive severance arrangements be approved by shareholders.

Number of Votes for	Number of Votes Against	Number of Votes Abstaining	Number of Broker Non-Votes
116,552,688	84,603,422	1,481,939	22,826,810

The proposal received a majority of the votes cast.*

*

For this purpose, abstentions and broker non-votes are not counted.

ITEM 6. EXHIBITS

(a)

Exhibits

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

76

GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, JUNE 30, 2006

SIGNATURES

        Pursuant to the requirements 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
	By:	/s/  MICHAEL S. WYZGA Michael S. Wyzga Executive Vice President, Finance, Chief Financial Officer, and Chief Accounting Officer (Duly Authorized Officer and Chief Accounting Officer)
DATE: August 4, 2006

77

GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, JUNE 30, 2006

EXHIBIT INDEX

Exhibit No.	Description
3.1	Restated Articles of Organization of Genzyme, as amended. Filed herewith.
*3.2	By-laws of Genzyme, as amended. Filed as Exhibit 3.1 to Genzyme's Form 8-K filed July 1, 2004.
10.1	2004 Equity Incentive Plan, as amended. Filed herewith.
10.2	1998 Director Stock Option, as amended. Filed herewith.
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
32.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.
32.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.

*

Indicates exhibit previously filed with the SEC and incorporated herein by reference. Exhibits filed with Forms 8-K of Genzyme Corporation were filed under Commission File No. 0-14680.

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GENZYME CORPORATION AND SUBSIDIARIES FORM 10-Q, JUNE 30, 2006 TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

GENZYME CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations and Comprehensive Income (Unaudited, amounts in thousands, except per share amounts)
GENZYME CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited, amounts in thousands, except par value amounts)
GENZYME CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited, amounts in thousands)
GENZYME CORPORATION AND SUBSIDIARIES Notes To Unaudited, Consolidated Financial Statements

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

FACTORS AFFECTING FUTURE OPERATING RESULTS

ITEM 3. QUANTITATIVE AND QUALITATIVE ANALYSIS OF MARKET RISK

ITEM 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 1A. RISK FACTORS
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 6. EXHIBITS

GENZYME CORPORATION AND SUBSIDIARIES FORM 10-Q, JUNE 30, 2006 SIGNATURES
GENZYME CORPORATION AND SUBSIDIARIES FORM 10-Q, JUNE 30, 2006 EXHIBIT INDEX

EX-3.1

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Exhibit 3.1

The Commonwealth of Massachusetts
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512

Restated Articles of Organization

(General Laws Chapter 156D, Section 10.07; 950 CMR 113.35)

(1) Exact name of corporation:                Genzyme Corporation 061047163

(2) Registered office address:                500 Kendall Street, Cambridge, MA 02142
	(number, street, city or town, state, zip code)

(3) Date adopted:                May 25, 2006
	(month, day, year)

(4)

Approved by:
(check appropriate box)

o

the directors without shareholder approval and shareholder approval was not required;

OR

ý

the board of directors and the shareholders in the manner required by G.L. Chapter 156D and the corporation's articles of organization.

(5)

The following information is required to be included in the articles of organization pursuant to G.L. Chapter 156D, Section 2.02 except that the supplemental information provided for in Article VIII is not required:*

ARTICLE I
The exact name of the corporation is:

Genzyme Corporation

ARTICLE II

Unless the articles of organization otherwise provide, all corporations formed pursuant to G.L. Chapter 156D have the purpose of engaging in any lawful business. Please specify if you want a more limited purpose:**

*

Changes to Article VIII must be made by filing a statement of change of supplemental information form.

**

Professional corporations governed by G.L. Chapter 156A and must specify the professional activities of the corporation.

ARTICLE III

State the total number of shares and par value, *if any, of each class of stock that the corporation is authorized to issue. All corporations must authorize stock. If only one class or series is authorized, it is not necessary to specify any particular designation.

Without Par Value		With Par Value
Type	Number of Shares	Type	Number of Shares	Par Value
		Common	690,000,000	$	0.01
		Preferred	10,000,000	$	0.01

ARTICLE IV

Prior to the issuance of shares of any class or series, the articles of organization must set forth the preferences, limitations and relative rights of that class or series. The articles may also limit the type or specify the minimum amount of consideration for which shares of any class or series may be issued. Please set forth the preferences, limitations and relative rights of each class or series and, if desired, the required type and minimum amount of consideration to be received.

See Attachment IV for Description of Capital Stock

ARTICLE V

        The restrictions, if any, imposed by the articles or organization upon the transfer of shares of any class or series of stock are:

None

ARTICLE VI

        Other lawful provisions, and if there are no such provisions, this article may be left blank.

See Attachment VI for Other Lawful Provisions

Note: The preceding six (6) articles are considered to be permanent and may be changed only by filing appropriate articles of amendment.

*

G.L. Chapter 156D eliminates the concept of par value, however a corporation may specify par value in Article III. See G.L. Chapter 156D, Section 6.21, and the comments relative thereto.

2

ARTICLE VII

The effective date of organization of the corporation is the date and time the articles were received for filing if the articles are not rejected within the time prescribed by law. If a later effective date is desired, specify such date, which may not be later than the 90th day after the articles are received for filing:

It is hereby certified that these restated articles of organization consolidate all amendments into a single document. If a new amendment authorizes an exchange, or effects a reclassification or cancellation, of issued shares, provisions for implementing that action are set forth in these restated articles unless contained in the text of the amendment.

Specify the number(s) of the article(s) being amended: Articles II, IV, VI

Signed by:
/s/ Peter Wirth (signature of authorized individual)

o Chairman of the board of directors,

o President,

ý Other officer,

o Court-appointed fiduciary,

on this 25th day of May, 2006.

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Attachment IV to Restated Articles of Organization

DESCRIPTION OF CAPITAL STOCK

A. AUTHORIZED CAPITAL STOCK

        The total number of shares of all classes of capital stock which the Corporation shall be authorized to issue is seven hundred million (700,000,000) shares, consisting of six hundred ninety million (690,000,000) shares of Common Stock, $.01 par value per share (the "Common Stock") and ten million (10,000,000) shares of Preferred Stock, $.01 par value per share (the "Preferred Stock"). The board of directors, at any time or from time to time may reclassify any unissued shares of any class or series of capital stock into one or more existing or new classes or series.

B. DESCRIPTION OF COMMON STOCK

        The holders of outstanding shares of Common Stock shall have the exclusive right to vote for the election of directors and on all other matters requiring action by the shareholders or submitted to the shareholders for action, except as may be provided herein, as may be associated with any series of Preferred Stock, or as may be otherwise required by law. Each share of Common Stock shall entitle the holder thereof to one vote.

        Subject to the terms of any outstanding series of Preferred Stock, the holders of outstanding shares of Common Stock shall be entitled to receive, to the extent permitted by law, such dividends as may from time to time be declared by the Board of Directors.

        Upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of the Common Stock shall be entitled to receive the net assets of the Corporation, after the Corporation shall have satisfied or made provision for its debts and obligations and for payment to the holders of shares of any series of Preferred Stock having preferential rights to receive distributions of the net assets of the Corporation.

C. DESCRIPTION OF THE PREFERRED STOCK

        1.     Undesignated Preferred Stock. Shares of Preferred Stock may be issued from time to time in one or more series. The Board of Directors may determine, in whole or in part, the number, preferences, limitations or relative rights of any such series before the issuance of any shares of that series.

        2.     Terms of The Series A Junior Participating Preferred Stock.

        (a)   Authorized Amounts and Designations. Three million (3,000,000) shares of Preferred Stock of the Corporation are designated as Series A Junior Participating Preferred Stock (the "Series A Preferred Stock"). To the extent legally permitted, such number of shares may be increased or decreased by vote of the Board of Directors, provided that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares of such series then outstanding plus the number of shares of such series reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series A Preferred Stock.

        (b)   Series A Preferred Stock. A description of the Series A Preferred Stock and a statement of its preferences, voting powers, qualifications and special or relative rights or privileges is as follows:

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        (1)   Dividends and Distributions.

        (A)  Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of all shares of Common Stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend on shares of Common Stock payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall declare or pay any dividend on shares of Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

        (B)  The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in Section IV.C.2(b)(1)(A) immediately after it declares a dividend or distribution on any shares of Common Stock (other than a dividend payable in shares of Common Stock), provided that, in the event no dividend or distribution shall have been declared on Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.

        (C)  Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board

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of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof.

        (2)   Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights:

        (A)  Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the shareholders of the Corporation. In the event the Corporation shall declare or pay any dividend on any shares of Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

        (B)  Except as otherwise provided herein, in any vote of the Board of Directors of the Corporation creating a series of Preferred Stock, or by law, the holders of shares of Series A Preferred Stock and the holders of all shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one series on all matters submitted to a vote of shareholders of the Corporation.

        (C)  Except as set forth herein or as otherwise provided by law, holders of Series A Preferred Stock shall have no voting rights.

        (3)   Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all other such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall declare or pay any dividend on shares of Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

6

        (4)   Consolidation, Merger, Etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall declare or pay any dividend on any shares of Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

        (5)   Certain Restrictions.

        (A)  Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not:

        (i)    declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock;

        (ii)   declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;

        (iii)  redeem, purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or

        (iv)  redeem, purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.

        (B)  The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the

7

Corporation could, under Section 1V.C.2(c)(1)(A) purchase or otherwise acquire such shares at such time and in such manner.

        (6)   Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as shares of the same series of Preferred Stock or as part of a new series of Preferred Stock, subject to the conditions and restrictions on issuance set forth herein, in any vote of the Board of Directors of the Corporation creating a series of Preferred Stock, or as otherwise required by law.

        (7)   Redemption. The shares of Series A Preferred Stock shall not be redeemable.

        (8)   Rank. The Series A Preferred Stock shall rank equally with respect to the payment of dividends and the distribution of assets together with any other series of the Corporation's Preferred Stock that specifically provide that they shall rank equally with Series A Preferred Stock. The Series A Preferred Stock shall rank junior with respect to the payment of dividends and the distribution of assets to all series of the Corporation's Preferred Stock that specifically provide that they shall rank prior to the Series A Preferred Stock. Nothing herein shall preclude the Board from creating any series of Preferred Stock ranking on a parity with or prior to the Series A Preferred Stock as to the payment of dividends or the distribution of assets.

        (9)   Amendment. The Articles of Organization of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the holders of Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the Series A Preferred Stock, voting together as a single series.

        (10) Fractional Shares. The Series A Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of the Series A Preferred Stock.

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Attachment VI to Restated Articles of Organization

OTHER LAWFUL PROVISIONS

A. BOARD OF DIRECTORS

        1.     Election. The directors currently are divided into three classes, as nearly equal in number as the total number of directors constituting the entire Board permits. Directors shall serve until their respective successors shall be elected and qualified, subject to prior death, resignation, retirement or removal. At the 2006 annual meeting of shareholders, the successors of the directors whose terms expire at that meeting shall be elected for terms expiring at the 2009 annual meeting of shareholders; at the 2007 annual meeting of shareholders, the successors of the directors whose terms expire at that meeting shall be elected for terms expiring at the 2008 annual meeting of shareholders; and at the 2008 annual meeting of shareholders, the successors of the directors whose terms expire at that meeting shall be elected for terms expiring at the 2009 annual meeting of shareholders. Thereafter all directors shall be elected for terms expiring at the next annual meeting of shareholders and until their successors shall be elected and qualified, subject to prior death, resignation, retirement or removal. In no event will a decrease in the number of directors shorten the term of any incumbent director. Notwithstanding the foregoing, and except as otherwise required by law, whenever the holders of any one or more series of Preferred Stock shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the election, terms of office and other features of such directorships shall be governed by the terms of the vote establishing such series.

        2.     Vacancies. Except as otherwise determined by the Board of Directors in establishing a series of Preferred Stock as to directors elected by holders of such series, any vacancies in the Board of Directors, including a vacancy resulting from the enlargement of the Board of Directors, shall be filled by the directors then in office, though less than a quorum. Each director chosen to fill a vacancy not resulting from an enlargement of the Board of Directors shall be elected to complete the term of office of the director who is being succeeded and until a successor shall be elected and qualified, subject to prior death, resignation, retirement or removal. In the case of a vacancy resulting from the enlargement of the Board of Directors, the director shall be elected for a term expiring at the next annual meeting of shareholders and until a successor shall be elected and qualified, subject to prior death, resignation, retirement or removal.

        3.     Removal. Except as otherwise determined by the Board of Directors in establishing a series of Preferred Stock as to directors elected by holders of such series, at any special meeting of the shareholders called at least in part for the purpose, any director or directors may, by the affirmative vote of the holders of at least a majority of the stock entitled to vote for the election of directors, be removed from office for cause. The provisions of this subsection shall be the exclusive method for the removal of directors.

B. SHAREHOLDER VOTE REQUIRED FOR CERTAIN ACTIONS

        The Corporation, by vote of a majority in interest of the stock outstanding and entitled to vote thereon may approve (i) any amendment to these Articles of Organization, (ii) the sale, lease, exchange, or other disposal of all or substantially all of the Corporation's property, (iii) a merger or consolidation of the Corporation with or into any other entity; or (iv) a share exchange with any other entity, in each case, so long as such amendment, sale, lease, exchange, disposal, merger, consolidation, or share exchange shall have been approved by the Board of Directors. This provision is not intended to, and shall not, create a requirement to obtain shareholder approval for transactions that do not require shareholder approval under applicable Massachusetts corporation law.

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C. ADDITIONAL PROVISIONS

        1.     No contract or other transaction of this Corporation with any other person or entity shall be affected or invalidated by the fact that (i) this Corporation is a shareholder or partner in such other corporation, association, or partnership, or (ii) any one or more of the officers or directors of this Corporation is an officer, director or partner of such other corporation, association or partnership, or (iii) any officer or director of this Corporation, individually or jointly with others, is a party to or is interested in such contract or transaction. Any director of this Corporation may be counted in determining the existence of a quorum at any meeting of the board of directors for the purpose of authorizing or ratifying any such contract or transaction, and may vote thereon, with like force and effect as if he were not so interested or were not an officer, director, or partner of such other corporation, association, or partnership.

        2.     The bylaws may provide that the directors may make, amend, or repeal the bylaws in whole or in part, except with respect to any provision thereof which by law, these Articles of Organization, or the bylaws requires action by the shareholders.

        3.     A director shall not be liable to the Corporation or its shareholders for monetary damages for any breach of fiduciary duty as a director, except to the extent that the elimination or limitation of liability is not permitted under Massachusetts corporation law, as in effect when such liability is determined. No amendment or repeal of this provision shall deprive a director of the benefits hereof with respect to any act or omission occurring prior to such amendment or repeal.

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COMMONWEALTH OF MASSACHUSETTS

William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512

Restated Articles of Organization
(General Laws Chapter 156D, Section 10.07; 950 CMR 113.35)

I hereby certify that upon examination of these restated articles of organization, duly submitted to me, it appears that the provisions of the General Laws relative to the organization of corporations have been complied with, and I hereby approve said articles; and the filing fee in the amount of $500 having been paid, said articles are deemed to have been filed with me this 25th day of May, 2006, at 2:48 p.m.

Effective date:____________________________________________________________

(must be within 90 days of date submitted)

/s/ WILLIAM FRANCIS GALVIN
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth

Filing fee: Minimum filing fee $200, plus $100 per article amended, stock increases $100 per 100,000 shares, plus $100 for each additional 100,000 shares or any fraction thereof.

TO BE FILLED IN BY CORPORATION
Contact Information:

Genzyme Corporation
500 Kendall Street, Cambridge, MA 02142
Attn: Peter Wirth, Secretary
Telephone: 617-252-7500
Email:

        Upon filing, a copy of this filing will be available at www.sec.state.ma.us/com. If the document is rejected, a copy of the rejection sheet and rejected document will be available in the rejected queue.

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Exhibit 3.1

EX-10.1

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Exhibit 10.1

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.

        The Plan shall become effective upon shareholder approval (the "Effective Date") and unless sooner terminated, shall terminate ten years from the Effective Date. After the Plan is terminated, no Stock Options, Restricted Stock, or Restricted Stock Units may be granted, but Stock Options, Restricted Stock, and Restricted Stock Units previously granted shall remain outstanding in accordance with their applicable terms and conditions and the Plan's terms and conditions.

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 Stock Options, Restricted Stock, and Restricted Stock Units to, or allocate Stock Options, Restricted Stock, and Restricted Stock Units 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 Stock Options, Restricted Stock, and Restricted Stock Units 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 Stock Options, Restricted Stock, and Restricted Stock Units; select the Participants to receive Stock Options, Restricted Stock, and/or Restricted Stock Units and determine, modify or waive the terms and conditions of any Stock Option, Restricted Stock, or Restricted Stock Unit; prescribe forms, rules and procedures; and otherwise do all things necessary to carry out the purposes of the Plan. The terms of each Stock Option grant, Restricted Stock grant, or Restricted Stock Unit grant need not be identical, and the Administrator need not treat Participants uniformly. Except as otherwise provided by the Plan or a particular Stock Option, Restricted Stock, or Restricted Stock Unit, any determination with respect to a Stock Option, Restricted Stock, or Restricted Stock Unit may be made by the Administrator at the time of grant or at any time thereafter. In the case of any Stock Option, Restricted Stock, or Restricted Stock Unit intended to be eligible for the performance-based compensation exception under Section 162(m), the Administrator will exercise its discretion consistent with qualifying the Stock Option, Restricted Stock, or Restricted Stock Unit 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 23,800,000 shares. Subject to such overall maximum, up to 23,800,000 shares of Stock may be issued upon the exercise of ISOs; up to 23,800,000 shares of Stock may be issued upon exercise of NSOs; and up to 2,000,000 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 STOCK OPTIONS, RESTRICTED STOCK, AND RESTRICTED STOCK UNITS

        (a)    Documentation.    Each Stock Option, Restricted Stock, and Restricted Stock Unit 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 Stock Option, Restricted Stock, or Restricted Stock Unit 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 a Stock Option, Restricted Stock, or Restricted Stock Unit will vest or become exercisable and the terms on which a Stock Option will remain exercisable during or following termination of Employment. Without limiting the foregoing, the Administrator may at any time accelerate the vesting or exercisability of a Stock Option, Restricted Stock, or Restricted Stock Unit, regardless of any adverse or potentially adverse tax consequences resulting from such acceleration.

        (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 Stock Options, Restricted Stock, and Restricted Stock Units granted under the Plan 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.

        (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 Stock Options, Restricted Stock, or Restricted Stock Units 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. Stock Options, Restricted Stock, and Restricted Stock Units.    Stock Options, Restricted Stock, and Restricted Stock Units 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 Stock Options, Restricted Stock, and Restricted Stock Units 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 a Stock Option grant, Restricted Stock grant, or Restricted Stock Unit 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 Stock Options, Restricted Stock, or Restricted Stock Units 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. Notwithstanding the foregoing sentence, a NSO may be granted to a new employee or consultant in connection with the hiring of such person at a lower exercise price, provided that it is not less than the lower of (i) 100% of the Fair Market Value on the date the person accepts the Company's offer of employment or (ii) the date employment commences. 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 therefore 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.

6.     EFFECT OF CERTAIN TRANSACTIONS

        (a)    Covered Transactions.    Except as otherwise provided under the terms of a Stock Option grant, a Restricted Stock grant, or a Restricted Stock Unit 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 Stock Options, Restricted Stock, and/or Restricted Stock Units, or for the grant of new Stock Options, Restricted Stock, and/or Restricted Stock Units 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 Stock Option, 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 Stock Options, Restricted Stock, and/or Restricted Stock Units, 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, any Stock Option, Restricted Stock, or Restricted Stock Units 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 Stock Options, Restricted Stock grants, and Restricted Stock Unit grants then outstanding or subsequently granted, any exercise prices relating to Stock Options and any other provision of the Stock Options, Restricted Stock, and Restricted Stock Units affected by such change.

        (c)    Certain Other Adjustments.    To the extent consistent with qualification of ISOs under Section 422 of the Code and with the performance-based compensation rules of Section 162(m), where

applicable, 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 Stock Option grants, Restricted Stock grants, or Restricted Stock Unit 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 Stock Option, Restricted Stock, or Restricted Stock Unit 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 Stock Options, Restricted Stock, or Restricted Stock Units; provided, that except as otherwise expressly provided in the Plan the Administrator may not, without the Participant's consent, alter the terms of a Stock Option, Restricted Stock, or Restricted Stock Unit so as to affect adversely a Participant's rights under the Stock Option, Restricted Stock, or Restricted Stock Unit, 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 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 Stock Option, Restricted Stock, or Restricted Stock Unit 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.

"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 a Stock Option, Restricted Stock or Restricted Stock Unit 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.

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

"Stock Options": Options 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

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Exhibit 10.1

GENZYME CORPORATION 2004 EQUITY INCENTIVE PLAN

EX-10.2

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Exhibit 10.2

GENZYME CORPORATION

1998 Director Stock Option Plan

1.    General; Purpose.

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

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

2.    Administration of the Plan; Governing Law.

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

3.    Persons Eligible to Participate in the Plan.

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

4.    Shares Subject to the Plan.

        (a)    An aggregate of 1,462,491 shares of Stock may be issued upon exercise of options granted under this Plan. In the event of a stock dividend, split-up, combination or reclassification of shares, recapitalization or other similar capital change relating to the Stock, the maximum aggregate number and kind of shares or securities of the Company as to which options may be granted under this Plan and as to which options then outstanding shall be exercisable, and the option price of such options, shall be appropriately adjusted by the Board (whose determination shall be conclusive) so as to preserve the value of the option.

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

the Board may make such other provision as it may consider equitable to holders and in the best interests of the Company.

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

5.    Nonstatutory Stock Options.

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

6.    Form of Options.

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

7.    Grant of Options and Option Terms.

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

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

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

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

        (e)    Method of Exercise and Payment.    Options may be exercised only by written notice to the Company at its head office accompanied by payment of the full option price for the shares of Stock as to which they are exercised. The option price shall be paid in cash or by check. Upon receipt of such

notice and payment, the Company shall promptly issue and deliver to the optionee (or other person entitled to exercise the option) a certificate or certificates for the number of shares as to which the exercise is made.

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

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

8.    Limitation of Rights.

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

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

9.    Effective Date; Amendment or Termination.

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

10.    Stockholder Approval.

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

Approved by directors on March 6, 1998
Approved by stockholders on May 28, 1998
Amended by directors on March 24, 2000
Approved by stockholders on May 26,1999
Amended by directors on December 18, 2000
Amended by directors on March 1, 2001
Approved by stockholders on May 31, 2001

Amended by directors on June 30, 2003
Amended by directors on February 26, 2004
Approved by stockholders on May 27, 2004
Amended by directors on December 6, 2005
Amended by directors on March 1, 2006
Approved by stockholders on May 25, 2006

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Exhibit 10.2

1998 Director Stock Option Plan

EX-31.1

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Exhibit 31.1

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

I, Henri A. Termeer, certify that:

1.

I have reviewed this 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 4, 2006

/s/  HENRI A. TERMEER Henri A. Termeer
Chief Executive Officer

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Exhibit 31.1

EX-31.2

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Exhibit 31.2

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

I, Michael S. Wyzga, certify that:

1.

I have reviewed this 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 4, 2006

/s/  MICHAEL S. WYZGA Michael S. Wyzga
Chief Financial Officer

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Exhibit 31.2

EX-32.1

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EXHIBIT 32.1

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

        Pursuant to 18 U.S.C. Section 1350, I, the undersigned Chief Executive Officer of Genzyme Corporation (the "Company"), hereby certify that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2006 (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 4, 2006

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EXHIBIT 32.1

EX-32.2

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EXHIBIT 32.2

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

        Pursuant to 18 U.S.C. Section 1350, I, the undersigned Chief Financial Officer of Genzyme Corporation (the "Company"), hereby certify that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2006 (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 4, 2006

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EXHIBIT 32.2