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Genzyme (GENZ)

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Genzyme 10-Q 2010

e10vq

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended September 30, 2010
Or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission File No. 0-14680

GENZYME CORPORATION

(Exact name of registrant as specified in its charter)


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

(617) 252-7500

(Registrant’s telephone number, including area code)

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 þ No o

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

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


Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
	(Do not check if a smaller reporting company)

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

Number of shares of Genzyme Stock outstanding as of October 29, 2010: 258,991,017

NOTE REGARDING REFERENCES TO GENZYME

Throughout this Form 10-Q, the words “we,” “us,” “our” and “Genzyme” refer to Genzyme Corporation as a whole, and “our board” or “our board of directors” refers to the board of directors of Genzyme Corporation.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

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


	•	our expectations regarding the ability of patients to increase and/or return to normal dosing of Fabrazyme and Cerezyme based on anticipated availability of those products;

	•	our expectations regarding the duration and amount of the continuing supply allocations of Cerezyme and Fabrazyme and our assessment of the factors that will influence those allocations;

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

	•	our assessment of the potential impact on our future revenues of healthcare reform legislation, including, in the United States, changes to Medicaid rebates for our products, our expected exposure to fees assessed on branded prescription drug manufacturers and possible adjustments in future periods to our estimates associated with government allowances;

	•	our plans and expected timing for continued remediation efforts at our Allston, Massachusetts manufacturing facility, which we refer to as our Allston facility;

	•	our expectations for sales of Renagel/Renvela and Hectorol and the anticipated factors affecting the future growth of these products, including the delay of the bundled payment system for Renagel/Renvela until 2014 and our continued evaluation of reimbursement of Hectorol under the bundled payment system;

	•	our expectation that remediation at our Haverhill, England manufacturing facility is substantially complete and that remaining costs associated with the remediation will not be significant;

	•	our expectations related to accounts receivable for sales to government-owned or supported healthcare facilities in Greece;

	•	the anticipated sale of our genetic testing, diagnostic products and pharmaceutical intermediates business units and related timeframes for these transactions;

	•	the anticipated scope and timing of our workforce reduction plan and the amount and timing of related costs;

	•	our plans to repurchase an additional $1.0 billion of our common stock;

	•	our assessment of competitors and potential competitors and the anticipated impact of potentially competitive products and services, including the switch by our patients to competitor’s products and generic competition, on our revenues;

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

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

	•	our provision for potential tax audit exposures and our expectations regarding our unrecognized tax benefits;

	•	the protection afforded by our patent rights;


	•	our expectations regarding the application of certain accounting pronouncements and their effect on our disclosures; and

	•	our expectations regarding the amortization of intangible assets related to our expected future contingent payments due to Bayer Schering Pharma A.G., or Bayer, Synpac (North Carolina), Inc., or Synpac, and Wyeth Pharmaceuticals (which is now a part of Pfizer Inc. and referred to as Pfizer).

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


	•	the possibility that current reduced supply allocations of Fabrazyme and Cerezyme need to last longer than expected or need to be more severe than expected because third-party oversight under the consent decree we agreed to with the United States Food and Drug Administration, or FDA, results in delays in product releases, our demand forecasts and estimates are inaccurate, productivity of the new Fabrazyme working cell bank does not result in expected increased productivity as compared to the prior working cell bank and/or we experience any additional disruptions in our manufacturing processes or timeline;

	•	the possibility that we or a third-party service provider may encounter manufacturing problems due to variety of reasons, including equipment failures, viral or bacterial contamination, cell growth at lower than expected levels, fill-finish issues, disruptions in utility services to manufacturing facilities, human error or regulatory issues;

	•	our ability to maintain regulatory approvals for our products, services and manufacturing facilities and processes, including our Allston facility, and to obtain approval for proposed changes to enhance our manufacturing processes and new manufacturing capacity, including our new manufacturing facility in Framingham, Massachusetts for Fabrazyme and Cerezyme or an additional bioreactor for the production of Myozyme/Lumizyme in our Geel, Belgium facility, which we refer to as our Geel facility, all in the anticipated time frames;

	•	our ability to successfully transition fill-finish operations for Cerezyme, Fabrazyme, Myozyme and Thyrogen out of our Allston facility and to our Waterford, Ireland plant and to Hospira, Inc., or Hospira, a third-party contract manufacturer, on the planned timelines because of delays in regulatory approval, manufacturing problems experienced by us or Hospira or for any other reason;

	•	our ability to manufacture sufficient amounts of our products and maintain sufficient inventories, and to do so in a timely and cost-effective manner and the related risk that we may experience supply constraints as a result of manufacturing problems or inventory shortages;

	•	potential future product recalls, write offs of inventory or quality holds, including as a result of product inventories failing to meet quality specifications or being subject to continuing quality review;

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

	•	the possibility that we are not able to repurchase an additional $1.0 billion under our common stock repurchase plan or that the repurchase is delayed;

	•	the possibility that the sale of our genetic testing business to Laboratory Corporation of America Holdings, or Labcorp, may be delayed or may not be completed on the terms expected or at all due to the risks attendant to such transactions, including delays in obtaining regulatory approvals, the timing of which is determined by government authorities;

	•	the possibility that we will not be able to complete transactions involving our diagnostic products and pharmaceutical intermediates business units on the expected timeframes or at all, including as a result of uncertainty among potential purchasers created by acquisition efforts of Sanofi-Aventis, or Sanofi;

	•	the possibility that we are not able to achieve anticipated levels of efficiencies and cost savings or otherwise fully effect the multi-year plan to increase shareholder value that we have begun to implement;


	•	the availability of reimbursement for our products and services from third-party payors, the extent of such coverage and the accuracy of our estimates of the payor mix for our products;

	•	competition from lower cost generic or biosimilar products;

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

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

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

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

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

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

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

	•	our ability to establish and maintain strategic license, collaboration, manufacturing and distribution arrangements and to successfully manage our relationships with licensors, collaborators, manufacturers, distributors and partners;

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

	•	the outcome of legal proceedings by or against us;

	•	the possibility that our integration of the products and development programs acquired from Bayer may be more costly or time consuming than expected;

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

	•	acquisition efforts by Sanofi diverting attention of employees, requiring expenditure of substantial time and resources, and disrupting our business activities, and increasing the volatility of our stock price;

	•	general economic conditions; and

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

We refer to more detailed descriptions of these and other risks and uncertainties under the heading “Risk Factors” in Management’s Discussion and Analysis of Genzyme Corporation and Subsidiaries’ Financial Condition and Results of Operations in Part I., Item 2. of this Form 10-Q. We encourage you to read those descriptions carefully. We caution investors not to place substantial reliance on the forward-looking statements contained in this Form 10-Q. These statements, like all statements in this Form 10-Q, speak only as of the date of this report (unless another date is indicated), and we undertake no obligation to update or revise the statements in light of future developments.

NOTE REGARDING INCORPORATION BY REFERENCE

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

NOTE REGARDING TRADEMARKS

Genzyme^®, Cerezyme^®, Fabrazyme^®, Thyrogen^®, Myozyme^®, Lumizyme^®, Renagel^®, Renvela^®, Campath^®, Clolar^®, Evoltra^®, Mozobil^®, Thymoglobulin^®, Cholestagel^®, Synvisc^®, Synvisc-One^®, Sepra^®, Seprafilm^®, Carticel^®, Epicel^®, MACI^®, Hectorol^® and Jonexa^® are registered trademarks of Genzyme or its subsidiaries. Welchol^® is a registered trademark of Sankyo Pharma, Inc. Aldurazyme^® is a registered trademark of BioMarin/Genzyme LLC. Elaprase^® is a registered trademark of Shire Human Genetic Therapies, Inc. Prochymal^® and Chondrogen^® are registered trademarks of Osiris Therapeutics, Inc. Fludara^® and Leukine^® are registered trademarks licensed to Genzyme. All other trademarks referred to in this Form 10-Q are the property of their respective owners. All rights reserved.

GENZYME CORPORATION AND SUBSIDIARIES

FORM 10-Q, SEPTEMBER 30, 2010

TABLE OF CONTENTS


			Page No.

	PART I.	FINANCIAL INFORMATION		7
	ITEM 1.	Financial Statements		7
		Unaudited, Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2010 and 2009		7
		Unaudited, Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009		8
		Unaudited, Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009		9
		Notes to Unaudited, Consolidated Financial Statements		10
	ITEM 2.	Management’s Discussion and Analysis of Genzyme Corporation and Subsidiaries’ Financial Condition and Results of Operations		52
	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		104
	ITEM 4.	Controls and Procedures		104

	PART II.	OTHER INFORMATION		105
	ITEM 1.	Legal Proceedings		105
	ITEM 1A.	Risk Factors		110
	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds		110
	ITEM 6.	Exhibits		110
Signatures				111
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION


ITEM 1.	*FINANCIAL STATEMENTS*

GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009

Revenues:
Net product sales	$	991,547		$	911,894		$	2,862,179		$	2,987,428
Net service sales		9,608			10,480			32,170			32,658
Research and development revenue		645			1,392			2,506			18,912

Total revenues		1,001,800			923,766			2,896,855			3,038,998

Operating costs and expenses:
Cost of products sold		301,866			271,966			833,959			752,371
Cost of services sold		7,407			7,916			22,515			21,841
Selling, general and administrative		337,883			323,513			1,203,918			904,024
Research and development		207,051			215,925			645,187			608,935
Amortization of intangibles		61,761			68,078			194,327			183,270
Contingent consideration expense		(3,134	)		28,197			69,436			37,287

Total operating costs and expenses		912,834			915,595			2,969,342			2,507,728

Operating income (loss)		88,966			8,171			(72,487	)		531,270

Other income (expenses):
Equity in loss of equity method investments		(643	)		—			(2,210	)		—
Gains (losses) on investments in equity securities, net		4,648			(651	)		(26,750	)		(1,332	)
Gain on acquisition of business		—			—			—			24,159
Other		(385	)		614			(643	)		(2,347	)
Investment income		2,403			4,543			8,787			14,038
Interest expense		(3,358	)		—			(3,358	)		—

Total other income (expenses)		2,665			4,506			(24,174	)		34,518

Income (loss) from continuing operations before income taxes		91,631			12,677			(96,661	)		565,788
Benefit from (provision for) income taxes		(17,385	)		965			58,493			(160,305	)

Income (loss) from continuing operations, net of tax		74,246			13,642			(38,168	)		405,483
Income (loss) from discontinued operations, net of tax		(5,292	)		2,353			(11,599	)		(6,428	)

Net income (loss)	$	68,954		$	15,995		$	(49,767	)	$	399,055

Net income (loss) per share-basic:
Income (loss) from continuing operations, net of tax	$	0.29		$	0.05		$	(0.15	)	$	1.50
Income (loss) from discontinued operations, net of tax		(0.02	)		0.01			(0.04	)		(0.02	)

Net income (loss)	$	0.27		$	0.06		$	(0.19	)	$	1.48

Net income (loss) per share-diluted:
Income (loss) from continuing operations, net of tax	$	0.28		$	0.05		$	(0.15	)	$	1.47
Income (loss) from discontinued operations, net of tax		(0.02	)		0.01			(0.04	)		(0.02	)

Net income (loss)	$	0.26		$	0.06		$	(0.19	)	$	1.45

Weighted average shares outstanding:
Basic		255,359			268,957			262,293			269,923

Diluted		263,786			273,741			262,293			275,375

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

GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

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


	September 30,			December 31,
	2010			2009

ASSETS
Current assets:
Cash and cash equivalents	$	899,165		$	742,246
Short-term investments		101,961			163,630
Accounts receivable, net		935,194			793,556
Inventories		596,730			549,293
Assets held for sale		148,746			170,367
Other current assets		224,397			205,284
Deferred tax assets		184,662			178,427

Total current assets		3,090,855			2,802,803
Property, plant and equipment, net		2,866,947			2,627,231
Long-term investments		165,385			143,824
Goodwill		1,360,978			1,360,978
Other intangible assets, net		1,859,412			2,264,148
Deferred tax assets-noncurrent		590,763			376,815
Investments in equity securities		64,961			74,438
Assets held for sale-noncurrent		293,504			274,039
Other noncurrent assets		126,316			136,448

Total assets	$	10,419,121		$	10,060,724


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	172,050		$	174,880
Accrued expenses		966,603			657,833
Deferred revenue		38,867			23,930
Current portion of contingent consideration obligations		162,863			161,365
Current portion of long-term debt and capital lease obligations		7,420			6,916
Liabilities held for sale		63,593			55,206

Total current liabilities		1,411,396			1,080,130
Long-term debt and capital lease obligations		1,100,777			111,836
Deferred revenue-noncurrent		21,643			13,385
Long-term contingent consideration obligations		803,500			853,871
Liabilities held for sale-noncurrent		—			4,598
Other noncurrent liabilities		80,568			313,252

Total liabilities		3,417,884			2,377,072

Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value		—			—
Common stock, $0.01 par value		2,573			2,657
Additional paid-in capital		5,354,075			5,688,741
Share purchase contract		(200,000	)		—
Accumulated earnings		1,620,329			1,670,096
Accumulated other comprehensive income		224,260			322,158

Total stockholders’ equity		7,001,237			7,683,652

Total liabilities and stockholders’ equity	$	10,419,121		$	10,060,724

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

GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited, amounts in thousands)


	Nine Months Ended
	September 30,
	2010			2009

Cash Flows from Operating Activities:
Net income (loss)	$	(49,767	)	$	399,055
Reconciliation of net income (loss) to cash flows from operating activities:
Depreciation and amortization		371,010			329,359
Stock-based compensation		142,054			156,141
Provision for bad debts		16,495			14,700
Contingent consideration expense		69,436			37,287
Equity in loss of equity method investments		2,210			—
Gain on acquisition of business		—			(24,159	)
Losses on investments in equity securities, net		26,750			1,332
Deferred income tax benefit		(95,550	)		(74,949	)
Tax benefit from employee stock-based compensation		47,982			10,956
Excess tax benefit from stock-based compensation		15,481			(3,309	)
Other		4,141			8,517
Increase (decrease) in cash from working capital changes (excluding impact of acquired assets and assumed liabilities):
Accounts receivable		(162,618	)		53,044
Inventories		(61,806	)		20,539
Other current assets		(77,762	)		(12,301	)
Accounts payable, accrued expenses and deferred revenue		315,890			40,369

Cash flows from operating activities		563,946			956,581

Cash Flows from Investing Activities:
Purchases of investments		(305,784	)		(244,208	)
Sales and maturities of investments		341,089			336,918
Purchases of equity securities		(4,724	)		(7,548	)
Proceeds from sales of investments in equity securities		14,208			2,365
Purchases of property, plant and equipment		(497,932	)		(480,436	)
Investments in equity method investment		(2,915	)		—
Acquisitions		—			(57,238	)
Purchases of other intangible assets		(6,340	)		(29,838	)
Other		(9,441	)		(7,096	)

Cash flows from investing activities		(471,839	)		(487,081	)

Cash Flows from Financing Activities:
Proceeds from issuance of common stock		274,469			76,125
Repurchases of our common stock		(800,000	)		(413,874	)
Payments under share purchase contract		(200,000	)		—
Excess tax benefits from stock-based compensation		(15,481	)		3,309
Proceeds from issuance of debt, net		994,368			—
Payments of debt and capital lease obligations		(6,245	)		(5,908	)
Decrease in bank overdrafts		(43,373	)		(17,552	)
Payment of contingent consideration obligation		(100,168	)		—
Other		(2,283	)		(5,237	)

Cash flows from financing activities		101,287			(363,137	)

Effect of exchange rate changes on cash		(36,475	)		1,090

Increase (decrease) in cash and cash equivalents		156,919			107,453
Cash and cash equivalents at beginning of period		742,246			572,106

Cash and cash equivalents at end of period	$	899,165		$	679,559

Supplemental disclosures of non-cash transactions:
Strategic Transactions — Note 7
Goodwill and Other Intangible Assets — Note 9
Long-Term Debt — Note 12

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

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements


1.	Description of Business

We are a global biotechnology company dedicated to making a major impact on the lives of people with serious diseases. Our products and services are focused on rare inherited disorders, kidney disease, orthopaedics, cancer, transplant and immune disease, and diagnostic testing. Our commitment to innovation continues today with a substantial development program focused on these fields, as well as multiple sclerosis, or MS, cardiovascular disease, neurodegenerative diseases, and other areas of unmet medical need.

We are organized into five financial reporting units, which we also consider to be our reporting segments:


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

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

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

	•	Hematology and Oncology, which develops, manufactures and distributes products for the treatment of cancer, the mobilization of hematopoietic stem cells and the treatment of transplant rejection and other hematologic and auto-immune disorders. The unit derives substantially all of its revenue from sales of Mozobil, Thymoglobulin, Clolar, Campath, Fludara and Leukine; and

	•	Multiple Sclerosis, which is developing products, including alemtuzumab, for the treatment of MS and other auto-immune disorders.

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


	•	our former Genetic Diseases reporting segment is now referred to as “Personalized Genetic Health,” or “PGH,” and now includes our cardiovascular business unit, which previously was reported under the caption “Cardiometabolic and Renal,” and our Welchol product line, which previously was reported as part of our pharmaceutical intermediates business unit under the caption “Other;”

	•	our former Cardiometabolic and Renal reporting segment is now referred to as “Renal and Endocrinology” and now includes the assets that formerly comprised our immune-mediated diseases business unit, which previously was reported under the caption “Other,” but no longer includes our cardiovascular business unit; and

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

We report the activities of the following business units under the caption “Other”: our genetic testing business unit, which provides testing services for the oncology, prenatal and reproductive markets; and our

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)

diagnostic products and pharmaceutical intermediates business units. These operating segments did not meet the quantitative threshold for separate segment reporting.

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

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

In May 2010, we announced our plan to pursue strategic alternatives for our genetic testing, diagnostic products and pharmaceutical intermediates business units. On September 13, 2010, we entered into an agreement with Labcorp to sell our genetic testing business unit to Labcorp for $925.0 million in cash, subject to a working capital adjustment. Completion of the transaction is subject to customary closing conditions, including expiration or termination of an applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and is expected to occur in the fourth quarter of 2010. Transactions for our diagnostic products and pharmaceutical intermediates business units are targeted for the end of 2010.

As previously disclosed, on July 29, 2010, we received a letter from Sanofi containing an unsolicited, non-binding proposal to acquire all of our outstanding shares of common stock for $69.00 per share in cash. Our board of directors evaluated the proposal and unanimously rejected it on August 11, 2010. On August 24, 2010, our financial advisors met with Sanofi’s financial advisors and provided certain non-public information relating to our business operations and projected financial results. On August 29, 2010, we received a second letter from Sanofi that contained a proposal identical to the one in its July 29, 2010 letter. This proposal was again evaluated and unanimously rejected by our board of directors. On October 4, 2010, Sanofi commenced an unsolicited tender offer for all of our outstanding shares of common stock for $69.00 per share in cash. Also on October 4, 2010, our board of directors urged shareholders to take no action with respect to the tender offer. Our board announced that it intended to take a formal position within 10 business days of the commencement of the tender offer. On October 7, 2010, our board voted unanimously to reject the unsolicited tender offer and further recommended that our shareholders not tender their shares to Sanofi pursuant to the tender offer. The full basis for our board’s recommendation was set forth in a Solicitation/Recommendation Statement on Schedule 14D-9, which was filed with the SEC on October 7, 2010. On October 22, 2010, we announced that our board had authorized our advisors and management to explore and evaluate alternatives for us and our assets. These efforts are intended to assist our board of directors in being fully informed about our value and are not authorization of a process to sell Genzyme or any of our assets.

On November 4, 2010, we implemented the first phase of a workforce reduction plan pursuant to which we expect to eliminate a total of 1,000 positions by the end of 2011. The first phase will eliminate 392 positions, including both filled and unfilled positions, across various functions and locations. Employees whose positions are eliminated in the first phase were notified beginning on November 4, 2010. In the United States, affected employees are being offered severance packages, including severance payments, temporary healthcare coverage assistance and outplacement services. Similar packages will be offered to affected employees outside of the United States in accordance with local laws. In connection with the elimination of filled positions in the first phase of the workforce reduction plan, we estimate incurring total charges of $24 million to $27 million, primarily for one-time severance benefits and facilities-related costs. These charges are expected to occur in the fourth quarter of 2010. The 1,000 positions expected to be eliminated exclude positions within our genetic testing business unit, for which we have entered into an agreement to sell, and positions within our diagnostic products and pharmaceutical intermediates business units, for which similar transactions are targeted by the end of 2010. The workforce reduction plan is being implemented to reduce costs and increase efficiencies as part of a larger plan to increase shareholder value announced in May 2010.

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)


2.	Basis of Presentation and Significant Accounting Policies

Basis of Presentation

Our unaudited, consolidated financial statements for each period include the statements of operations, balance sheets and statements of cash flows for our operations taken as a whole. We have eliminated all intercompany items and transactions in consolidation. We have reclassified certain 2009 data to conform to our 2010 presentation. We prepare our unaudited, consolidated financial statements following the requirements of the SEC for interim reporting. As permitted under these rules, we condense or omit certain footnotes and other financial information that are normally required by accounting principles generally accepted in the United States, or U.S. GAAP.

These financial statements include all normal and recurring adjustments that we consider necessary for the fair presentation of our financial position and results of operations. Since these are interim financial statements, you should also read our audited, consolidated financial statements and notes included in Exhibit 99 to our Form 8-K filed with the SEC on June 14, 2010. Revenues, expenses, assets and liabilities can vary from quarter to quarter. Therefore, the results and trends in these interim financial statements may not be indicative of results for future periods. The balance sheet data as of December 31, 2009 that is included in this Form 10-Q was derived from our audited financial statements but does not include all disclosures required by U.S. GAAP.

Our unaudited, consolidated financial statements for each period include the accounts of our wholly owned and majority owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. We account for our investments in entities not subject to consolidation using the equity method of accounting if we have a substantial ownership interest (20% to 50%) in or exercise significant influence over the entity. Our consolidated net income (loss) includes our share of the earnings or losses of these entities. From January 1, 2008 to December 31, 2009, we consolidated the results of BioMarin/Genzyme LLC, an entity we formed with BioMarin Pharmaceutical Inc., or BioMarin, in 1998, because we determined that we were the primary beneficiary of BioMarin/Genzyme LLC. Upon consolidation of the entity, we recorded the assets and liabilities of BioMarin/Genzyme LLC in our consolidated balance sheets at fair value. Effective January 1, 2010, in accordance with new guidance we adopted for consolidating variable interest entities, we no longer consolidate the results of BioMarin/Genzyme LLC because we determined that the entity does not have a primary beneficiary under the new guidance. As a result, we deconsolidated BioMarin/Genzyme LLC and no longer record the assets and liabilities in our consolidated balance sheets. Instead, effective January 1, 2010, we began to record our portion of BioMarin/Genzyme LLC’s results in equity in loss of equity method investments in our consolidated statements of operations.

In May 2010, we announced our plan to pursue strategic alternatives for our genetic testing, diagnostic products and pharmaceutical intermediates business units. As part of this plan, on September 13, 2010, we entered into an agreement to sell our genetic testing business unit to Labcorp, as described in Note 1., “Description of Business,” to these consolidated financial statements. Our diagnostic products business unit had revenue of approximately $167 million for the year ended December 31, 2009 and approximately $112 million for the nine months ended September 30, 2010. Revenue from our pharmaceutical intermediates business unit for the same periods was significantly less in comparison.

As of September 1, 2010, the applicable assets and liabilities of all three business units have been classified as held for sale in the accompanying consolidated balance sheets and depreciation and amortization of the applicable assets ceased as of such date. In addition, as no significant involvement or continuing cash flows are expected from, or to be provided to, the genetic testing and diagnostic products businesses following the consummation of a sale transaction, both businesses have been reported as discontinued operations in our consolidated statements of operations.

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)

For all periods presented, our consolidated balance sheets have been recast to reflect the presentation of assets held for sale and our consolidated statements of operations have been recast to reflect the presentation of discontinued operations.

Revenue Recognition — Recent Healthcare Reform Legislation

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


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

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

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

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

Effective October 1, 2010, the new legislation re-defines the Medicaid average manufacturer price, or AMP, such that the AMP is calculated differently for our oral drugs and our injected/infused drugs, and such that Medicaid rebates are expected to increase for our oral drugs, Renagel, Renvela and oral Hectorol, and our product Leukine, but be insignificantly impacted for our other products.

Beginning in 2011, the new law requires that drug manufacturers provide a 50% discount to Medicare beneficiaries whose prescription drug costs cause them to be subject to the Medicare Part D coverage gap, which is known as the “donut hole.” Also beginning in 2011, we will be required to pay our share of a new fee assessed on all branded prescription drug manufacturers and importers. This fee will be calculated based upon each organization’s percentage share of total branded prescription drug sales to U.S. government programs (such as Medicare and Medicaid, the Department of Veterans Affairs, or VA, the Department of Defense, or DOD, and the TriCare retail pharmacy discount programs) made during the previous year. Sales of orphan drugs, however, are not included in the fee calculation.

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

Accounts Receivable Related to Sales in Greece

Our consolidated balance sheets include accounts receivable, net of reserves, held by our subsidiary in Greece related to sales to government-owned or supported healthcare facilities in Greece of approximately $65 million as of September 30, 2010 and approximately $57 million as of December 31, 2009. Payment of these accounts is subject to significant delays due to government funding and reimbursement practices. We believe that this is an industry-wide issue for suppliers to these facilities. In May 2010, the government of

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)

Greece announced a plan for repayment of its debt to international pharmaceutical companies, which calls for immediate payment of accounts receivable balances that were established in 2005 and 2006. For accounts receivable established between 2007 and 2009, the government of Greece will issue non-interest bearing bonds, expected to be exchange tradable, with maturities ranging from one to three years. We recorded a charge of $7.2 million to bad debt expense, a component of selling, general and administrative expenses, or SG&A, in our consolidated statements of operations for the second quarter of 2010, to write down the accounts receivable balances held by our subsidiary in Greece to present value using a 10% risk adjusted discount rate.

In conjunction with this plan, the government of Greece also instituted price decreases of between 20% and 27% for all future pharmaceutical product sales. The government of Greece has recently required financial support from both the European Union and the International Monetary Fund, or IMF, to avoid defaulting on its sovereign debt. If significant additional changes occur in the availability of government funding in Greece, we may not be able to collect on amounts due from these customers.

Stock-Based Compensation

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


	•	time vesting stock options; and

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

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

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

The fair values of our:


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

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

	•	PSUs subject to the cash flow return on investment performance metric, which includes both performance and service conditions, are estimated based on the market value of our stock on the date of grant. PSUs subject to the relative total shareholder return, or R-TSR performance metric, which includes both market and service conditions, are estimated using a lattice model with a Monte Carlo simulation. Compensation expense associated with our PSUs is initially based upon the number of shares expected to vest after assessing the probability that certain performance criteria will be met and the associated targeted payout level that is forecasted will be achieved, net of estimated forfeitures.

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)


		Compensation expense for our PSUs is recognized over the applicable performance period, adjusted for the effect of estimated forfeitures.

Recent Accounting Pronouncements and Updates

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

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)


	Relevant Requirements	Issued Date/Our Effective
ASU Number	of ASU	Dates	Status

2010-06 “Improving Disclosures about Fair Value Measurements.”	Requires new disclosures and clarifies some existing disclosure requirements about fair value measurements, including significant transfers into and out of Level 1 and Level 2 investments of the fair value hierarchy. Also requires additional information in the roll forward of Level 3 investments including presentation of purchases, sales, issuances, and settlements on a gross basis. Further clarification for existing disclosure requirements provides for the disaggregation of assets and liabilities presented, and the enhancement of disclosures around inputs and valuation techniques.	Issued January 2010. Effective for the first interim or annual reporting period beginning after December 15, 2009, except for the additional information in the roll forward of Level 3 investments. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim reporting periods within those fiscal years.	We adopted the applicable provisions of this update, except for the additional information in the roll forward of Level 3 investments (as previously noted), in the first quarter of 2010. Besides a change in disclosure, the adoption of this update does not have a material impact on our consolidated financial statements. None of our instruments were reclassified between Level 1, Level 2 or Level 3 in 2010. We are currently assessing the impact the requirement to present a separate line item for each investment in the roll forward of Level 3 investments will have, if any, on our consolidated financial statements. Although this may change the appearance of our fair value reconciliations, we do not believe the adoption will have a material impact on our consolidated financial statements or disclosures.
2010-11, “Scope Exception Related to Embedded Credit Derivatives.”	Update provides amendments to Subtopic 815-15, “Derivatives and Hedging — Embedded Derivatives,” to clarify the scope exception for embedded credit derivative features related to the transfer of credit risk in the form of subordination of one financial instrument to another.	Issued March 2010. Effective at the beginning of each reporting entity’s first fiscal quarter beginning after June 15, 2010. Early adoption is permitted at the beginning of each reporting entity’s first fiscal quarter beginning after issuance of this update.	We have adopted the provisions of this update in the third quarter of 2010. The adoption of these provisions does not have a material impact on our consolidated financial statements.
2010-17, “Milestone Method of Revenue Recognition — a consensus of the FASB Emerging Issues Task Force.”	Update provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research and development transactions.	Issued April 2010. Effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted.	We will adopt the provisions of this update beginning January 1, 2011. We are currently assessing the impact the provisions of this update will have, if any, on our consolidated financial statements.

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)


	Relevant Requirements	Issued Date/Our Effective
ASU Number	of ASU	Dates	Status

2010-20, “Receivables: Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.”	Update amends existing guidance by requiring disaggregated disclosures about the credit quality of our financing receivables and our allowance for credit losses. These disclosures will provide the user with additional information about the nature of credit risks inherent in our financing receivables, how we analyze and assess credit risk in determining our allowance for credit losses, and the reasons for any changes we may make in our allowance for credit losses.	Issued July 2010. Generally effective for interim and annual reporting periods ending on or after December 15, 2010, however, certain aspects of the update pertaining to activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010.	We will adopt the provisions of this update beginning in the fourth quarter of 2010 or, for activity that occurs during a reporting period, the first quarter of 2011. Besides an increase in disclosures, we don’t believe that this update will materially impact our consolidated financial statements.
2010-23, “Health Care Entities: Measuring Charity Care for Disclosure.”	Update requires the measurement basis used in the disclosure of charity care to be cost and that cost be identified as the direct and indirect costs of providing the charity care. Disclosure of the method used to identify or determine direct and indirect costs must be disclosed. Existing guidance does not prescribe a specific measurement basis of charity care for disclosure purposes. This would improve U.S. GAAP by requiring all entities to use the same measurement basis, which will enhance comparability.	Issued August 2010. Effective for fiscal years beginning after December 15, 2010 and should be applied retrospectively to all periods presented. Early adoption is permitted.	We will adopt the provisions of this update beginning January 1, 2011. We are currently assessing the impact the provisions of this update will have, if any, on our consolidated financial statements.


3.	Held for Sale and Discontinued Operations

As described in Note 2., “Basis of Presentation and Significant Accounting Policies — Basis of Presentation,” to these consolidated financial statements, for all periods presented, our consolidated balance sheets have been recast to reflect the presentation of assets held for sale and our consolidated statements of operations

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)

have been recast to reflect the presentation of discontinued operations. The following table summarizes our income (loss) from discontinued operations, net of tax (amounts in thousands):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009

Total revenues	$	126,848		$	133,748		$	385,707		$	395,897

Income (loss) before income taxes	$	(15,279	)	$	3,840		$	(27,461	)	$	(8,456	)
Benefit from (provision for) income taxes		9,987			(1,487	)		15,862			2,028

Income (loss) from discontinued operations, net of tax	$	(5,292	)	$	2,353		$	(11,599	)	$	(6,428	)

The following table summarizes the assets held for sale and liabilities associated with assets held for sale in our consolidated balance sheets as of the dates indicated, which include assets and liabilities of our genetic testing, diagnostic products and pharmaceutical intermediates business units and are reported under the caption “Other” (amounts in thousands):


	September 30,		December 31,
	2010		2009

Assets held for sale:
Accounts receivable, net	$	84,800	$	106,175
Inventories		60,075		58,729
Other current assets		3,871		5,463

Total assets held for sale-current	$	148,746	$	170,367

Property, plant and equipment, net	$	209,146	$	182,118
Goodwill, net		42,927		42,386
Other intangible assets, net		41,090		49,113
Other noncurrent assets		341		422

Total assets held for sale-noncurrent	$	293,504	$	274,039

Liabilities held for sale:
Accounts payable	$	18,053	$	14,749
Accrued expenses		40,828		39,207
Current portion of debt and capital leases(1)		4,712		1,250

Liabilities held for sale-current	$	63,593	$	55,206

Long-term debt(1)	$	—	$	4,598

Liabilities held for sale-noncurrent	$	—	$	4,598


(1)		In July 2005, as a result of our acquisition of Equal Diagnostics, Inc., or Equal Diagnostics, we issued promissory notes to the three former shareholders of Equal Diagnostics totaling $10.0 million in principal and interest. The promissory notes were payable over eight years in equal annual installments commencing in March 2007, and ending in March 2014. We were also obligated to make additional cash payments during this period, which we refer to as contingent additional consideration, or CAC, to the three former shareholders based upon the gross margin of the acquired business, as defined by the purchase agreement.

		In October 2010, we entered an agreement with the three former shareholders of Equal Diagnostics to accelerate payment in full of the notes and estimated CAC. The total payment amount was $7.1 million, which included $4.7 million in principal and interest on the promissory notes and $2.4 million in CAC.

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)


4.	Fair Value Measurements

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


	•	fixed income investments;

	•	investments in publicly-traded equity securities;

	•	derivatives; and

	•	contingent consideration obligations.

Fair Value Measurement — Definition and Hierarchy

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, we are permitted to use various valuation approaches, including market, income and cost approaches. We are required to follow an established fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available.

The fair value hierarchy is broken down into three levels based on the reliability of inputs. We have categorized our fixed income, equity securities, derivatives and contingent consideration obligations within the hierarchy as follows:


	•	Level 1 — These valuations are based on a “market approach” using quoted prices in active markets for identical assets. Valuations of these products do not require a significant degree of judgment. Assets utilizing Level 1 inputs include money market funds, U.S. government securities, bank deposits and exchange-traded equity securities.

	•	Level 2 — These valuations are based primarily on a “market approach” using quoted prices in markets that are not very active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Fixed income assets utilizing Level 2 inputs include U.S. agency securities, including direct issuance bonds and mortgage-backed securities, asset-backed securities, corporate bonds and commercial paper. Derivative securities utilizing Level 2 inputs include foreign exchange forward contracts.

	•	Level 3 — These valuations are based on various approaches using inputs that are unobservable and significant to the overall fair value measurement. Certain assets and liabilities are classified within Level 3 of the fair value hierarchy because they have unobservable value drivers and therefore have little or no transparency. The fair value measurement of the contingent consideration obligations related to our acquisition of certain assets from Bayer, in 2009, is valued using Level 3 inputs.

Valuation Techniques

Fair value is a market-based measure considered from the perspective of a market participant who would buy the asset or assume the liability rather than our own specific measure. All of our fixed income securities are priced using a variety of daily data sources, largely readily-available market data and broker quotes. To validate these prices, we compare the fair market values of our fixed income investments using market data from observable and corroborated sources. We also perform the fair value calculations for our derivatives and equity securities using market data from observable and corroborated sources. We determine the fair value of the contingent consideration obligations based on a probability-weighted income approach. The measurement is based on significant inputs not observable in the market. In periods of market inactivity, the observability of prices and inputs may be reduced for certain instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2 or from Level 2 to Level 3. During the nine months ended September 30, 2010, none of our instruments were reclassified between Level 1, Level 2 or Level 3.

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)

The following tables set forth our assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2010 and December 31, 2009 (amounts in thousands):


			Balance as of
			September 30,
Description			2010			Level 1		Level 2		Level 3

Fixed income investments(1):	Cash equivalents:	Money market funds/other	$	814,503		$	814,503	$	—	$	—

	Short-term investments:	U.S. Treasury notes		13,374			13,374		—		—
		Non U.S. Governmental notes		6,754			—		6,754		—
		U.S. agency notes		23,926			—		23,926		—
		Corporate notes — global		36,423			—		36,423		—
		Commercial paper		21,484			—		21,484		—

		Total		101,961			13,374		88,587		—

	Long-term investments:	U.S. Treasury notes		70,391			70,391		—		—
		Non U.S. Governmental notes		1,511			—		1,511		—
		U.S. agency notes		26,490			—		26,490		—
		Corporate notes — global		66,993			—		66,993		—

		Total		165,385			70,391		94,994		—

	Total fixed income investments			1,081,849			898,268		183,581		—
Equity holdings(1):	Publicly-traded equity securities			29,385			29,385		—		—
Derivatives:	Foreign exchange forward contracts			230			—		230		—
Contingent liabilities(2):	Contingent consideration obligations			(966,363	)		—		—		(966,363	)

Total assets (liabilities) at fair value			$	145,101		$	927,653	$	183,811	$	(966,363	)


			Balance as of
			December 31,
Description			2009			Level 1		Level 2		Level 3

Fixed income investments(1):	Cash equivalents:	Money market funds/other	$	603,109		$	603,109	$	—	$	—

	Short-term investments:	U.S. Treasury notes		41,040			41,040		—		—
		Non U.S. Governmental notes		4,114			—		4,114		—
		U.S. agency notes		56,810			—		56,810		—
		Corporate notes — global		54,825			—		54,825		—
		Commercial paper		6,841			—		6,841		—

		Total		163,630			41,040		122,590		—

	Long-term investments:	U.S. Treasury notes		29,793			29,793		—		—
		Non U.S. Governmental notes		4,873			—		4,873		—
		U.S. agency notes		28,015			—		28,015		—
		Corporate notes — global		81,143			—		81,143		—

		Total		143,824			29,793		114,031		—

	Total fixed income investments			910,563			673,942		236,621		—
Equity holdings(1):	Publicly-traded equity securities			40,380			40,380		—		—
Derivatives:	Foreign exchange forward contracts			4,284			—		4,284		—
Contingent liabilities(2):	Contingent consideration obligations			(1,015,236	)		—		—		(1,015,236	)

Total assets (liabilities) at fair value			$	(60,009	)	$	714,322	$	240,905	$	(1,015,236	)


(1)		Changes in the fair value of our fixed income investments and investments in publicly-traded equity securities are recorded in accumulated other comprehensive income, a component of stockholders’ equity, in our consolidated balance sheets.

(2)		Changes in the fair value of our contingent consideration obligations are recorded as contingent consideration expense, a component of operating expenses in our consolidated statements of operations. We recorded a total of $69.4 million of contingent consideration

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)


		expense for the nine months ended September 30, 2010 in our consolidated statements of operations, of which $(11.4) million was allocated to our Hematology and Oncology reporting segment and $80.8 million was allocated to our Multiple Sclerosis reporting segment. We recorded $37.3 million of contingent consideration expense for the nine months ended September 30, 2009 in our consolidated statements of operations, including $18.5 million for our Hematology and Oncology reporting segment and $18.8 million for our Multiple Sclerosis reporting segment.

Changes in the fair value of our Level 3 contingent consideration obligations during the nine months ended September 30, 2010 were as follows (amounts in thousands):


Balance as of December 31, 2009	$	(1,015,236	)
Payments		114,786
R&D reimbursement received		(14,618	)
Contingent consideration expense(1)		(69,436	)
Effect of foreign currency translation adjustments		18,141

Fair value at September 30, 2010	$	(966,363	)


(1)		For the nine months ended September 30, 2010, includes:


	•	$6.8 million of contingent consideration expense attributable to transaction gains and losses resulting from fluctuations in foreign currency exchange rates on liabilities that will be settled in a currency other than the entity’s functional currency; and

	•	a $20.9 million reduction in contingent consideration expense related to changes in estimates.

Senior Notes Payable

In June 2010, we issued $500.0 million aggregate principal amount of our 3.625% senior notes due in June 2015, which we refer to as our 2015 Notes, and $500.0 million aggregate principal amount of our 5.000% senior notes due in June 2020, which we refer to as our 2020 Notes, and, together with our 2015 Notes, as the Notes, as described in Note 12., “Long-Term Debt,” to these consolidated financial statements. As of September 30, 2010, our:


	•	2015 Notes had a fair value of $530.0 million and a carrying value of $498.4 million; and

	•	2020 Notes had a fair value of $555.8 million and a carrying value of $495.9 million.

The fair values of our 2015 Notes and 2010 Notes were determined through a market-based approach using observable and corroborated sources; within the hierarchy of fair value measurements, these are classified as Level 2 fair values.

The carrying amounts reflected in our consolidated balance sheets for cash, accounts receivable, other current assets, accounts payable, accrued expenses, current portion of contingent consideration obligations and current portion of long-term debt and capital lease obligations approximate fair value due to their short-term maturities.

Derivative Instruments

As a result of our worldwide operations, we face exposure to adverse movements in foreign currency exchange rates. Exposures to currency fluctuations that result from sales of our products in foreign markets are partially offset by the impact of currency fluctuations on our international expenses. We may also use derivatives, primarily foreign exchange forward contracts for which we do not apply hedge accounting treatment, to further reduce our exposure to changes in exchange rates, primarily to offset the earnings effect from short-term foreign currency assets and liabilities. We account for such derivatives at market value with the resulting gains and losses reflected within SG&A in our consolidated statements of operations. We do not have any derivatives designated as hedging instruments and we do not use derivative instruments for trading or speculative purposes.

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)

Foreign Exchange Forward Contracts

Generally, we enter into foreign exchange forward contracts with maturities of not more than 15 months. All foreign exchange forward contracts in effect as of September 30, 2010 and December 31, 2009 had maturities of 1 to 2 months. We report these contracts on a net basis. Net asset derivatives are included in other current assets and net liability derivatives are included in accrued expenses in our consolidated balance sheets.

The following table summarizes the balance sheet classification of the fair value of these derivatives on both a gross and net basis as of September 30, 2010 and December 31, 2009 (amounts in thousands):


	Unrealized Gain/Loss on Foreign Exchange Forward Contracts
					As Reported
	Gross				Net
	Asset		Liability		Asset		Liability
	Derivatives		Derivatives		Derivatives		Derivatives
	Other		Accrued		Other		Accrued
As of:	Current Assets		Expenses		Current Assets		Expenses

September 30, 2010	$	4,020	$	3,790	$	230	$	—
December 31, 2009	$	9,834	$	5,550	$	4,284	$	—

Total foreign exchange (gains) and losses included in SG&A in our consolidated statements of operations includes unrealized and realized (gains) and losses related to both our foreign exchange forward contracts and our foreign currency assets and liabilities. The net impact of our overall unrealized and realized foreign exchange (gains) and losses were as follows (amounts in thousands):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009

Net impact of our overall unrealized and realized foreign exchange (gains) losses	$	(14,223	)	$	(2,735	)	$	(13,732	)	$	3,386

The following table summarizes the effect of the unrealized and realized net losses related to our foreign exchange forward contracts on our consolidated statements of operations for the three and nine months ended September 30, 2010 and 2009 (amounts in thousands):

Net Loss Reported

Three Months Ended

Nine Months Ended

Statements of

September 30,

Derivative Instrument

Operations Location

2010

2009

2010

2009

Foreign exchange forward contracts

SG&A

23,623

16,275

23,242

24,173

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)


5.	Net Income (Loss) Per Share

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


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2010			2009		2010			2009

Income (loss) from continuing operations, net of tax-basic and diluted	$	74,246		$	13,642	$	(38,168	)	$	405,483
Income (loss) from discontinued operations, net of tax-basic and diluted		(5,292	)		2,353		(11,599	)		(6,428	)

Net income (loss) — basic and diluted	$	68,954		$	15,995	$	(49,767	)	$	399,055

Shares used in computing net income (loss) per common share — basic		255,359			268,957		262,293			269,923
Effect of dilutive securities(1):
Stock options		5,678			3,209		—			4,106
Restricted stock units		2,313			1,565		—			1,335
Other		436			10		—			11

Dilutive potential common shares		8,427			4,784		—			5,452

Shares used in computing net income (loss) per common share — diluted(1)		263,786			273,741		262,293			275,375

Net income (loss) per share-basic:
Income (loss) from continuing operations, net of tax	$	0.29		$	0.05	$	(0.15	)	$	1.50
Income (loss) from discontinued operations, net of tax		(0.02	)		0.01		(0.04	)		(0.02	)

Net income (loss)	$	0.27		$	0.06	$	(0.19	)	$	1.48

Net income (loss) per share-diluted:
Income (loss) from continuing operations, net of tax	$	0.28		$	0.05	$	(0.15	)	$	1.47
Income (loss) from discontinued operations, net of tax		(0.02	)		0.01		(0.04	)		(0.02	)

Net income (loss)	$	0.26		$	0.06	$	(0.19	)	$	1.45


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

Three Months Ended

Nine Months Ended

September 30,

2010

2009

2010

2009

Shares excluded from calculation of diluted loss per share

4,438

20,851

22,419

16,411

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)


6.	Comprehensive Income (Loss)

The components of comprehensive income (loss) for the periods presented are as follows (amounts in thousands):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009

Net income (loss)	$	68,954		$	15,995		$	(49,767	)	$	399,055

Other comprehensive income (loss):
Foreign currency translation adjustments		174,636			48,546			(92,731	)		82,178

Pension liability adjustments, net of tax(1)		13			—			(8	)		—

Unrealized gains (losses) on securities, net of tax:
Unrealized gains (losses) arising during the period, net of tax		247			6,358			246			(4,592	)
Reclassification adjustment of (gains) losses included in net income (loss), net of tax		(3,533	)		(378	)		(5,405	)		(538	)

Unrealized gains (losses) on securities, net of tax(2)		(3,286	)		5,980			(5,159	)		(5,130	)

Other comprehensive income (loss)		171,363			54,526			(97,898	)		77,048

Comprehensive income (loss)	$	240,317		$	70,521		$	(147,665	)	$	476,103


(1)		Tax amounts for all periods were not significant.

(2)		Net of $1.9 million of tax for the three months ended and $3.0 million of tax for the nine months ended September 30, 2010 and $(3.4) million of tax for the three months ended and $2.9 million of tax for the nine months ended September 30, 2009.


7.	Strategic Transactions

Purchase of In-Process Research and Development

The following table sets forth the significant in-process research and development, or IPR&D, projects for the companies and assets we acquired between January 1, 2006 and September 30, 2010 (amounts in millions):


							Discount Rate
							Used in			Year of
	Purchase						Estimating			Expected
Company/Assets Acquired	Price		IPR&D			Programs Acquired	Cash Flows			Launch

Bayer Assets (2009)	$	1,006.5	$	458.7		alemtuzumab for MS — US		16	%	2012
				174.2		alemtuzumab for MS — ex-US		16	%	2013

			$	632.9	(1)

Bioenvision, Inc., or Bioenvision (2007)	$	349.9	$	125.5	(2)	Clolar(3)		17	%	2010-2016(4)

AnorMED Inc., or AnorMED (2006)	$	589.2	$	526.8	(2)	Mozobil(5)		15	%	2016


(1)		Capitalized as an indefinite-lived intangible asset.

(2)		Expensed on acquisition date.

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)


(3)		Clolar is approved for the treatment of relapsed and refractory pediatric acute lymphoblastic leukemia, or ALL. The IPR&D projects for Clolar are related to the development of the product for the treatment of other indications.

(4)		Year of expected launch reflects both the ongoing launch of products for currently approved indications and the anticipated launch of products in the future for new indications.

(5)		Mozobil received marketing approval for use in stem cell transplants in the United States in December 2008 and in Europe in July 2009. Mozobil is also being developed for tumor sensitization.


8.	Inventories


	September 30,		December 31,
	2010		2009
	(Amounts in thousands)

Raw materials	$	104,314	$	103,410
Work-in-process		303,455		279,848
Finished goods		188,961		166,035

Total	$	596,730	$	549,293

Manufacturing-Related Matters

In June 2009, we interrupted production of Cerezyme and Fabrazyme at our Allston manufacturing facility after identifying a virus in a bioreactor used for Cerezyme production. We resumed Cerezyme shipments in the fourth quarter of 2009. In February 2010, we began shipping Cerezyme at a rate equal to 50% of estimated product demand in order to build a small inventory buffer to help us better manage delivery of the Cerezyme available. We continued shipping at 50% of estimated product demand through the second quarter of 2010, due in part to the impact of a second interruption in production in March 2010 resulting from a municipal electrical power failure that compounded issues with the facility’s water system. We increased supply of Cerezyme in the third quarter of 2010 and Cerezyme patients in the United States were able to begin to return to normal dosing levels in September. We expect Cerezyme patients on a global basis to be able to return to normal dosing during the fourth quarter of 2010.

Due to the June 2009 production interruption, low manufacturing productivity upon re-start of production and efforts to build a small inventory buffer, Fabrazyme shipments decreased in the fourth quarter of 2009 and we began shipping Fabrazyme at a rate equal to 30% of estimated product demand. We continued shipping at 30% of estimated product demand through the third quarter of 2010. We continue to work to increase the productivity of the Fabrazyme manufacturing process, which has performed at the low end of the historical range since the re-start of production in June 2009. We have developed a new working cell bank for Fabrazyme that has been approved by the FDA and the European Medicines Agency, or EMA. The new working cell bank has completed five runs and has had 30% to 40% greater productivity than the prior working cell bank. Fabrazyme patients are beginning to be able to double their doses, starting in the United States, and we expect Fabrazyme patients on a global basis to be able to do so in the fourth quarter of 2010. We expect to be able to fully supply global Fabrazyme demand during the first half of 2011.

We recorded $5.6 million of charges during the three months ended September 30, 2010 to costs of products sold in our consolidated statements of operations for manufacturing-related costs associated with various inventory write offs.

We recorded $29.1 million of charges during the nine months ended September 30, 2010 to costs of products sold in our consolidated statements of operations, including:


	•	$5.6 million of charges during the three months ended September 30, 2010 for manufacturing-related costs associated with various inventory write offs;

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)


	•	$16.4 million of charges during the first and second quarters of 2010 to write off Cerezyme and Fabrazyme work-in-process material that was unfinished when the interruption occurred in March 2010, based on our determination that such material could not be finished, and other inventory for these products that did not meet the necessary quality specifications; and

	•	$7.1 million of charges during the first and second quarters of 2010 to write off certain lots of Thyrogen that did not meet the necessary quality specifications.

Inventory Subject to Additional Evaluation and Release

At any particular time, in the course of manufacturing, we may have certain inventory that requires further evaluation or testing to ensure that it meets appropriate quality specifications. As of September 30, 2010, we had approximately $10 million of inventory that is being evaluated or tested. If we determine that this inventory, or any portion thereof, does not meet the necessary quality standards, it may result in a write off of the inventory and a charge to earnings.

Inventory Capitalized Prior to Regulatory Approval

We capitalize inventory produced for commercial sale, which may result in the capitalization of inventory prior to regulatory approval of the product or the manufacturing facility where it is produced. The determination for capitalization is based on our judgment of probable future approval, commercial success and realizable value. Such judgment incorporates our knowledge and assessment of the regulatory review process for the product and manufacturing process, our required investment in the product or facility, market conditions, competing products and our economic expectations for the product post-approval relative to the risk of manufacturing the product prior to approval. In no event is inventory capitalized prior to completion of a phase 3 clinical trial and the completion of a series of successful validations runs from the facility. At the completion of these events, the product and the manufacturing process have reached technological feasibility, upon which we believe the likelihood of obtaining regulatory approval is high and probable future economic benefit in the product exists. If a product is not approved for sale or a manufacturing facility does not receive approval, it would likely result in the write off of the inventory and a charge to earnings.

Sevelamer Hydrochloride and Sevelamer Carbonate

We manufacture the majority of our supply requirements for sevelamer hydrochloride (the active ingredient in Renagel) and sevelamer carbonate (the active ingredient in Renvela) at our manufacturing facility in Haverhill, England. In December 2009, equipment failure caused an explosion and fire at this facility, which damaged some of the equipment used to produce these active ingredients as well as the building in which the equipment was located. As a result, we temporarily suspended production of sevelamer hydrochloride and sevelamer carbonate at this facility so the damaged equipment could be repaired. We resumed production of sevelamer hydrochloride in May 2010 and production of sevelamer carbonate in October 2010. We recorded $9.1 million of expenses, for which there were no insurance reimbursements, for the three months ended and $22.8 million, net of $5.4 million of insurance reimbursements, for the nine months ended September 30, 2010. The noted expenses were recorded to cost of products sold in our consolidated statements of operations for Renagel and Renvela related to the remediation cost of our Haverhill, England manufacturing facility, including repairs and idle capacity expenses. Remediation of this facility is substantially complete and we anticipate that any remaining costs related to the remediation will not be significant.

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)


9.	Goodwill and Other Intangible Assets

The following table contains the change in our goodwill during the nine months ended September 30, 2010 (amounts in thousands):


	Personalized							Hematology
	Genetic		Renal and					and		Multiple
	Health		Endocrinology		Biosurgery			Oncology		Sclerosis		Total

Goodwill	$	339,563	$	319,882	$	110,376		$	375,889	$	318,059	$	1,463,769
Accumulated impairment losses(1)		—		—		(102,791	)		—		—		(102,791	)

Balance as of December 31, 2009		339,563		319,882		7,585			375,889		318,059		1,360,978
Changes in carrying amounts during the period		—		—		—			—		—		—

Balance as of September 30, 2010	$	339,563	$	319,882	$	7,585		$	375,889	$	318,059	$	1,360,978

Goodwill	$	339,563	$	319,882	$	110,376		$	375,889	$	318,059	$	1,463,769
Accumulated impairment losses(1)		—		—		(102,791	)		—		—		(102,791	)

Balance as of September 30, 2010	$	339,563	$	319,882	$	7,585		$	375,889	$	318,059	$	1,360,978


(1)		Accumulated impairment losses consists of a $102.8 million pre-tax charge recorded in 2003 to write off the goodwill of our Biosurgery reporting segment’s orthopaedics reporting unit.

We are required to perform impairment tests related to our goodwill annually and whenever events or changes in circumstances suggest that the carrying value of an intangible asset may not be recoverable. We completed the required annual impairment tests for our $1.36 billion of net goodwill in the third quarter of 2010 and determined that no impairment charges were required.

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)

Other Intangible Assets

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


	As of September 30, 2010							As of December 31, 2009
	Gross					Net		Gross					Net
	Other					Other		Other					Other
	Intangible		Accumulated			Intangible		Intangible		Accumulated			Intangible
	Assets		Amortization			Assets		Assets		Amortization			Assets

Finite-lived other intangible assets:
Technology(1)	$	1,901,744	$	(950,023	)	$	951,721	$	2,142,211	$	(845,047	)	$	1,297,164
Distribution rights(2)		446,584		(274,017	)		172,567		440,521		(227,726	)		212,795
Patents		187,780		(141,013	)		46,767		187,780		(131,140	)		56,640
License fees		98,698		(52,081	)		46,617		98,647		(47,052	)		51,595
Customer lists		868		(796	)		72		838		(559	)		279
Trademarks		60,227		(51,471	)		8,756		60,227		(47,464	)		12,763

Total finite-lived other intangible assets		2,695,901		(1,469,401	)		1,226,500		2,930,224		(1,298,988	)		1,631,236
Indefinite-lived other intangible assets:
IPR&D		632,912		—			632,912		632,912		—			632,912

Total other intangible assets	$	3,328,813	$	(1,469,401	)	$	1,859,412	$	3,563,136	$	(1,298,988	)	$	2,264,148


(1)		For the year ended December 31, 2009, includes a gross technology intangible asset of $240.3 million and related accumulated amortization of $(24.0) million related to the consolidated results of BioMarin/Genzyme LLC. Effective January 1, 2010, under new guidance we adopted for consolidating variable interest entities, we no longer consolidate the results of this joint venture and no longer include this gross technology asset and the related accumulated amortization or a related other noncurrent liability in our consolidated balance sheets.

(2)		Includes an additional $6.1 million for the nine months ended September 30, 2010 for additional payments made or accrued in connection with the reacquisition of the Synvisc sales and marketing rights from Pfizer in January 2005. As of September 30, 2010, the contingent royalty payments to Pfizer payable under the agreement are substantially complete. We completed the contingent royalty payments to Pfizer related to North American sales of Synvisc in the first quarter of 2010 and anticipate completing the remaining contingent royalty payments to Pfizer related to sales of the product outside of the United States by the first quarter of 2011.

All of our finite-lived other intangible assets are amortized over their estimated useful lives.

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)

As of September 30, 2010, the estimated future amortization expense for our finite-lived other intangible assets for the remainder of fiscal year 2010, the four succeeding fiscal years and thereafter is as follows (amounts in thousands):


	Estimated
	Revenue-		Estimated		Total
	Based		Other		Estimated
	Amortization		Amortization		Amortization
Year Ended December 31,	Expense(1)		Expense		Expense(1)

2010 (remaining three months)	$	36,449	$	35,223	$	71,672
2011		119,026		165,043		284,069
2012		94,173		140,355		234,528
2013		29,552		124,721		154,273
2014		26,315		106,135		132,450
Thereafter		21,667		344,062		365,729


(1)		Includes estimated future amortization expense for:


	•	the Synvisc distribution rights based on the forecasted respective future sales of Synvisc and the resulting future contingent payments we may be required to make to Pfizer and the Myozyme/Lumizyme patent and technology rights pursuant to a license agreement with Synpac (North Carolina), Inc., or Synpac, based on forecasted future net sales of Myozyme/Lumizyme and the milestone payments we may be required to make to Synpac. These contingent payments will be recorded as intangible assets when the payments are accrued; and

	•	the technology intangible assets resulting from our acquisition of the worldwide rights to Fludara, which are being amortized based on the forecasted future sales of Fludara.


10.	Investment in BioMarin/Genzyme LLC

We and BioMarin have entered into agreements to develop and commercialize Aldurazyme, a recombinant form of the human enzyme alpha-L-iduronidase, used to treat an LSD known as mucopolysaccharidosis, or MPS, I. Under the relationship, an entity we formed with BioMarin in 1998 called BioMarin/Genzyme LLC has licensed all intellectual property related to Aldurazyme and other collaboration products on a royalty-free basis to BioMarin and us. BioMarin holds the manufacturing rights and we hold the global marketing rights. We are required to pay BioMarin a tiered royalty payment ranging from 39.5% to 50% of worldwide net product sales of Aldurazyme.

Prior to January 1, 2010, we determined that we were the primary beneficiary of BioMarin/Genzyme LLC and, as a result, we:


	•	consolidated the income (losses) of BioMarin/Genzyme LLC and recorded BioMarin’s portion of BioMarin/Genzyme LLC’s income (losses) as minority interest in our consolidated statements of operations; and

	•	recorded the assets and liabilities of BioMarin/Genzyme LLC in our consolidated balance sheets at fair value.

Effective January 1, 2010, in accordance with new guidance we adopted for consolidating variable interest entities, we were required to reassess our designation as primary beneficiary of BioMarin/Genzyme LLC. Under the new guidance, the entity with the power to direct the activities that most significantly impact a variable interest entity’s economic performance is the primary beneficiary. We have concluded that BioMarin/Genzyme LLC is a variable interest entity, but does not have a primary beneficiary because the power to direct the activities of BioMarin/Genzyme LLC that most significantly impact its performance, is shared equally between us and BioMarin through our commercialization rights and BioMarin’s manufacturing rights. Effective January 1, 2010, we no longer consolidate the results of BioMarin/Genzyme LLC and instead record our

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)

portion of the results of BioMarin/Genzyme LLC in equity in loss of equity method investments in our consolidated statements of operations. For the three and nine months ended September 30, 2010, the results of BioMarin/Genzyme LLC and our portion of the results of BioMarin/Genzyme LLC were not significant.


11.	Investments in Equity Securities

We recorded the following gains (losses) on investments in equity securities, net of charges for impairment of investments, for the periods presented (amounts in thousands):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009

Gross gains (losses) on investments in equity securities	$	6,125		$	(36	)	$	8,370		$	422
Less: charges for impairment of investments		(1,477	)		(615	)		(35,120	)		(1,754	)

Gains (losses) on investments in equity securities, net	$	4,648		$	(651	)	$	(26,750	)	$	(1,332	)

Gross gains (losses) on investments in equity securities includes gains totaling $5.8 million for the three months and $7.3 million for the nine months ended September 30, 2010 resulting from the liquidation of our entire investment in the common stock of EXACT Sciences Corporation, or EXACT Sciences.

Charges for impairment of investments for all periods presented includes the write down of our investments in certain venture capital funds to fair value at the end of each period and for the nine months ended September 30, 2010 also includes a $32.3 million impairment charge recorded in June 2010 to write down our investment in the common stock of Isis Pharmaceuticals, Inc., or Isis, as described below.

At September 30, 2010, our stockholders’ equity includes $10.9 million of unrealized gains and $4.0 million of unrealized losses related to our strategic investments in equity securities.

Investment in Isis Common Stock

We review for potential impairment the carrying value of each of our strategic investments in equity securities on a quarterly basis. In June 2010, given the significance and duration of the decline in value of our investment in Isis common stock as of June 30, 2010, we considered the decline in value of this investment to be other than temporary and we recorded a $32.3 million impairment charge to gains (losses) on investment in equity securities, net in our consolidated statements of operations. As of September 30, 2010, our investment in Isis common stock had a carrying value of $47.9 million (or $9.57 per share) and a fair market value of $42.0 million (or $8.40 per share). We considered all available evidence in assessing the decline in value of our investment in Isis common stock as of that date, including investment analyst reports and Isis’s expected results and future outlook, none of which suggests that the decline would be “other than temporary.” Currently, the average 12-month price estimate for Isis common stock among analysts is approximately $15 per share. Based on our analysis, we consider the $5.9 million unrealized loss on our investment in Isis common stock to be temporary. We will continue to review the fair value of our investment in Isis common stock in comparison to our historical cost and in the future, if the decline in value has become “other than temporary,” we will write down our investment in Isis common stock to its then current market value and record an impairment charge to our consolidated statements of operations.


12.	Long-Term Debt

2015 and 2020 Senior Notes

In June 2010, we sold $500.0 million aggregate principal amount of our 2015 Notes and $500.0 million aggregate principal amount of our 2020 Notes through institutional private placements to fund the $1.0 billion payment under our accelerated share repurchase agreement, as discussed in Note 13., “Stockholders’ Equity,”

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)

to these consolidated financial statements. We received net proceeds from the sale of the Notes of approximately $986.6 million, after deducting commissions and other expenses related to the offerings. We recorded the net proceeds in our consolidated balance sheets as of June 30, 2010 as:


	•	a $7.7 million increase to other noncurrent assets for the capitalized debt offering costs, including $6.3 million for commissions and $1.4 million of other offering expenses; and

	•	a $1.0 billion increase to long-term liabilities for the principal of the Notes, offset by $5.7 million for the debt discount on the Notes.

Both the debt offering costs and debt discount will be amortized to interest expense in our consolidated statements of operations. The debt offering costs have been allocated proportionately to our 2015 Notes and our 2020 Notes and are being amortized based on the term of each such group of the Notes. The debt discount for each group of the Notes will be amortized using the effective interest method. The 2015 Notes mature in June 2015 and the 2020 Notes mature in June 2020. The 2015 Notes have an annual interest rate of 3.625% and the 2020 Notes have an annual interest rate of 5.000% Interest accrues on the Notes from June 17, 2010 and is payable semi-annually in arrears on June 15 and December 15 of each year starting on December 15, 2010.

The Notes are our senior unsecured obligations and rank equally in right of payment with all of our other senior unsecured indebtedness from time to time outstanding. The Notes are fully and unconditionally guaranteed by one of our subsidiaries that also guarantees our indebtedness under our 2006 revolving credit facility. We may redeem the Notes in whole or in part at any time at a redemption price equal to the greater of:


	•	100% of the principal amount of the Notes redeemed; or

	•	the sum of the present values of the remaining scheduled payments of interest and principal thereon discounted at the Treasury Rate plus 25 basis points in the case of our 2015 Notes and 30 basis points in the case of our 2020 Notes.

We may be required to offer to repurchase the Notes at a purchase price equal to 101% of their principal amount if we are subject to certain kinds of change of control as provided in the indenture for the Notes.

Revolving Credit Facility

In July 2006, we entered into a 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 for general corporate purposes. We may request that our 2006 revolving credit facility be increased at any time by up to an additional $350.0 million in the aggregate, subject to the agreement of the lending banks, 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 at various rates depending on the nature of the loan.

As of September 30, 2010, we had approximately $9 million of outstanding standby letters of credit issued against this facility and no borrowings, resulting in approximately $341 million of available credit under our 2006 revolving credit facility, which matures July 14, 2011. The terms of this credit facility include various covenants, including financial covenants that require us to meet minimum interest coverage ratios and maximum leverage ratios. As of September 30, 2010, we were in compliance with these covenants.

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)


13.	Stockholders’ Equity

Share Repurchase Plan

In April 2010, our board of directors authorized a $2.0 billion share repurchase plan consisting of the near-term purchase of $1.0 billion of our common stock to be financed with proceeds of newly issued debt, and the purchase of an additional $1.0 billion of our common stock by June 2011. In June 2010, we entered into an accelerated share repurchase agreement with Goldman Sachs under which we repurchased $1.0 billion of our common stock at an effective purchase price of $63.79 per share. Pursuant to the agreement, in June 2010, we paid $1.0 billion to Goldman Sachs and received 15.6 million shares, of which:


	•	$800.0 million, or 80%, represents the value, based on the closing price of our common stock on June 17, 2010, of the 15.6 million shares of our common stock that Goldman Sachs delivered to us; and

	•	$200.0 million, or 20%, represents an advance payment that covers a higher effective per share purchase price than the price on June 17, 2010 and additional shares Goldman Sachs delivered to us at the end of the program in October 2010.

On October 18, 2010, upon final settlement under the agreement, we received an additional 121,344 shares from Goldman Sachs, which together with the shares received in June equaled a total of 15.7 million shares repurchased. The shares repurchased are authorized and no longer outstanding shares.

Modification of Certain Stock Options and RSUs

On May 26, 2010, in connection with our plan to approve strategic alternatives for our genetic testing, diagnostic products and pharmaceutical intermediates business units, the compensation committee of our board of directors approved certain modifications to the stock options and RSUs previously granted to the employees of those business units, to be effective as of the date of divestiture of each business unit. The terms of these stock options were modified to extend the post-termination exercise period from 90 days to one year. We used Black-Scholes valuation models, based on the following assumptions, to determine the valuation adjustment required for the extension of the post-termination exercise period, and recorded stock-based compensation expense using an expected term of seven months:


	New			Original
	Post-Termination			Post-Termination
	Period			Period

Grant date fair value as of May 26, 2010	$	50.00		$	50.00
Term		19 months			10 months
Dividend		0			0
Volatility		38.00	%		30.00	%
Risk-free interest rate		0.63	%		0.32	%

Based on our analysis, we recorded an additional $9.1 million of stock-based compensation expense in our consolidated statements of operations for the three months ended June 30, 2010, as these options were fully vested, for the valuation adjustment related to the modification of these stock options.

On May 26, 2010, the compensation committee of our board of directors also approved the following modifications to certain RSUs granted to the employees of these three business units, to be effective as of the date of divestiture for each business unit:


	•	acceleration of the unvested portions of the RSUs granted in May 2008; and

	•	pro-ration of the vesting of the RSUs granted in May 2009 over a 19-month, instead of a three-year, period.

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)

Prior to these modifications, the RSUs granted in May 2008 had a grant date fair value of $68.48 per share and the RSUs granted in May 2009 had a grant date fair value of $58.66 per share based on the closing price of our common stock at the date of each grant. The modifications triggered a new measurement date for these RSUs and, as a result, we revalued these RSUs based on a new grant date fair value of $50.00 per share, the closing price of our common stock on the date of modification. We recorded additional stock-based compensation for these RSUs of $5.0 million in our consolidated statements of operations for the nine months ended September 30, 2010, to adjust the cumulative stock-based compensation expense recorded for these RSUs for the modifications, including:


	•	an $8.2 million reduction for the reversal of the cumulative to-date stock-based compensation expenses recorded through May 25, 2010, prior to the modifications; offset, in part, by

	•	$13.2 million of additional stock-based compensation expenses for the period from May 26, 2010 through September 30, 2010 based on the new, reduced grant date fair value of these awards.

We expect to record approximately $5 million of additional stock-based compensation expense for these RSUs during the fourth quarter of 2010 as a result of these modifications.

Long-Term Incentive Program for Senior Executives

From 2007 through 2009, our long-term incentive program for senior executives was comprised of equity awards in the form of time vesting stock options and time vesting RSUs. Beginning with 2010, the equity vehicles for our long-term incentive program for senior executives includes a combination of:


	•	time vesting stock options; and

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

Approximately half of each senior executive’s grant consists of time vesting stock options with the remainder in PSUs.

For the 2010 through 2012 performance period, the performance metrics are:


	•	cash flow return on invested capital; and

	•	R-TSR measured against the performance of a subset of biotechnology peer companies (currently 28 companies) in the S&P 500 Health Care Index.

Each metric is weighted equally. For both metrics, performance between the threshold level and the target level will be awarded in PSUs. The PSUs will be paid out in shares of our stock at the end of the three-year period if performance between the threshold level and target level is achieved. If performance above the target level is achieved, the portion of the award above the target level will be paid out in cash up to a predetermined maximum cash award. Since it is possible that the PSUs may not pay out at all, it is completely “at risk” compensation.

In January 2010, the compensation committee of our board of directors approved a range for the three-year cash flow return on invested capital metric of 85% to 115%. For performance between 85% and 100% of the cash flow return on invested capital target, the payout range is 50% to 100% of the senior executive’s target PSU award associated with this performance measure. Performance between 101% and 115% of the cash flow return on invested capital target will result in a cash payment that will be awarded based on performance achieved between target and maximum levels, up to a predetermined maximum.

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)

The committee also approved the following performance levels for R-TSR:


	Percentile
Performance Level	Rank

Threshold		40^th
Target		65^th
Maximum		75^th

For performance between the R-TSR threshold and target levels, the payout range is 35% to 100% of the senior executive’s target PSU award associated with this performance measure. R-TSR performance between the target and maximum levels will result in a cash payment that will be awarded based on performance achieved between target and maximum levels, up to a predetermined maximum.

If a participating senior executive’s employment is terminated before the end of the performance period because of death, disability or retirement, payment of the PSU will be pro-rated to the date of termination based upon the company’s actual achievement of performance levels at the end of the performance period. Upon a change in control, payment of a PSU will be paid out at the target performance level and pro-rated to the date of the change of control.

PSUs

During the nine months ended September 30, 2010, we granted a total of 223,066 PSUs with a weighted average grant date fair value of $49.86 per share to senior executives under our 2004 Equity Plan. The PSUs are subject to the attainment of certain performance criteria established at the beginning of the performance period, as described above, and cliff vest at the end of the performance period, which ends December 31, 2012. Compensation expense associated with our PSUs is initially based upon the number of shares expected to vest after assessing the probability that certain performance criteria will be met and the associated targeted payout level that is forecasted will be achieved, net of estimated forfeitures. Compensation expense for our PSUs is recognized over the applicable performance period, adjusted for the effect of estimated forfeitures.

The fair value of PSUs subject to the cash flow return on investment performance metric, which includes both performance and service conditions, is estimated based on the market value of our stock on the date of grant. We use a lattice model with a Monte Carlo simulation to determine the fair value of PSUs subject to the R-TSR performance metric, which includes both market and service conditions. The lattice model requires various highly judgmental assumptions to determine the fair value of the awards. This model samples paths of our stock price and the stock prices of a group of peer companies in the S&P 500 Health Care Index, which we refer to as the Peer Group, and calculates the resulting change in cash flow multiple at the end of the forecasted performance period. This model iterates these randomly forecasted results until the distribution of results converge on a mean or estimated fair value.

We used the following assumptions to determine the fair value of these awards:


Expected dividend yield		0%
Range of risk free rate of return		1.33% - 1.45%
Range of our expected stock price volatility		35.11% - 36.06%
Range of Peer Group expected stock price volatility		21.27% - 60.32%
Range of our average closing stock prices on the grant dates		$51.83 - $56.50
Range of Peer Group average closing stock prices on the grant dates		$7.22 - $348.13
Range of our historical total shareholder return on the grant dates		5.75% - 15.28%
Range of historical total shareholder return for the Peer Group on the grant dates		(19.78)% - 23.22%

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)

Stock-Based Compensation Expense, Net of Estimated Forfeitures

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009

Pre-tax stock-based compensation expense, net of estimated forfeitures(1)	$	(40,807	)	$	(41,089	)	$	(126,019	)	$	(140,320	)
Less: tax benefit from stock options		13,366			11,151			37,640			35,602

Total stock-based compensation expense, net of tax	$	(27,441	)	$	(29,938	)	$	(88,379	)	$	(104,718	)


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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009

Stock-based compensation expense capitalized to inventory	$	3,955	$	3,623	$	11,795	$	12,764

We amortize stock-based compensation expense capitalized to inventory based on inventory turns.

At September 30, 2010, there was $232.7 million of pre-tax stock-based compensation expense, net of estimated forfeitures, related to unvested awards not yet recognized which is expected to be recognized over a weighted average period of 2.1 years.


14.	Commitments and Contingencies

FDA Consent Decree

On May 24, 2010, we entered into a consent decree with the FDA relating to our Allston facility. Under the terms of the consent decree, we will pay an upfront disgorgement of past profits of $175.0 million. Conditioned upon our compliance with the terms of the consent decree, we may continue to ship Cerezyme and Fabrazyme, which are manufactured, filled and finished at the facility, as well as Thyrogen, which is filled and finished at the facility. In the United States, Thyrogen that is filled and finished at the facility will only be distributed based on medical necessity, in accordance with FDA criteria. The consent decree requires us to move our fill-finish operations out of the Allston facility for Thyrogen sold within the United States by November 22, 2010 and for Fabrazyme sold within the United States by November 24, 2010. We must move our fill-finish operations for all products sold outside of the United States by August 31, 2011. If we are not able to meet these deadlines, the FDA can require us to disgorge 18.5% of the revenue from the sale of any products that are filled and finished at the Allston facility after the applicable deadlines.

The consent decree also requires us to implement a plan to bring the Allston facility operations into compliance with applicable laws and regulations. The plan must address any deficiencies previously reported to us or identified as part of a comprehensive inspection conducted by a third-party expert, who we are required to retain, and who will monitor and oversee our implementation of the plan. In 2009, we began implementing a comprehensive remediation plan, prepared with assistance from our compliance consultant, The Quantic Group, Ltd., or Quantic, to improve quality and compliance at the Allston facility. We intend to revise that plan to include any additional remediation efforts required in connection with the consent decree as identified by Quantic, who we have retained to be the third-party expert under the consent decree. The plan, as revised, which will be subject to FDA approval, is expected to take approximately three to four years to complete and will include a timetable of specified compliance milestones. If the milestones are not met in

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)

accordance with the timetable, the FDA can require us to pay $15,000 per day, per affected drug, until these compliance milestones are met. Upon satisfying the compliance requirements in accordance with the terms of the consent decree, we will be required to retain an auditor to monitor and oversee ongoing compliance at the Allston facility for an additional five years. The consent decree is subject to, and effective upon, approval by the U.S. District Court for the District of Massachusetts. The consent decree was filed with the U.S. District Court on May 24, 2010 and we are awaiting the court’s approval.

Legal Proceedings

Federal Securities Litigation

In July 2009 and August 2009, two purported securities class action lawsuits were filed in the U.S. District Court for the District of Massachusetts against us and our President and Chief Executive Officer. The lawsuits were filed on behalf of those who purchased our common stock during the period from June 26, 2008 through July 21, 2009 and allege violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Each of the lawsuits is premised upon allegations that, among other things, we made materially false and misleading statements and omissions by failing to disclose instances of viral contamination at two of our manufacturing facilities and our receipt of a list of inspection observations from the FDA related to one of the facilities, which detailed observations of practices that the FDA considered to be deviations from good manufacturing practice, or GMP. The plaintiffs seek unspecified damages and reimbursement of costs, including attorneys’ and experts’ fees. In November 2009, the lawsuits were consolidated in In Re Genzyme Corp. Securities Litigation and a lead plaintiff was appointed. In March 2010, the plaintiffs filed a consolidated amended complaint that extended the class period from October 24, 2007 through November 13, 2009 and named additional individuals as defendants. In June 2010, we filed a motion to dismiss the class action. The plaintiffs filed an opposition to our motion to dismiss in August 2010 and we filed a reply in support of our motion to dismiss in September 2010. A hearing on the motion to dismiss is scheduled to be held in January 2011.

On August 11, 2010, Jerry L. & Mena M. Morelos Revocable Trust filed a lawsuit allegedly on behalf of a putative class of shareholders in the U.S. District Court for the District of Massachusetts against us, our board of directors, certain executive officers, and Sanofi (the “Morelos Action”). The suit alleges that our directors breached their fiduciary duties by attempting to sell Genzyme without regard to the effect of a potential transaction on shareholders, adopting processes and procedures that will not benefit shareholders and engaging in self-dealing in order to obtain personal benefits not shared equally by all shareholders in connection with a purported proposed merger. The suit alleges that certain of our directors are beholden to activist shareholders. The suit also alleges that we and Sanofi aided and abetted the purported breaches of fiduciary duties. The suit seeks, among other relief, (i) class action status, (ii) an order enjoining the defendants from consummating a transaction, unless and until we adopt procedures designed to obtain the best value for our shareholders, (iii) an order directing the defendants to exercise their fiduciary duties and commence a sales process that is in the best interest of shareholders, (iv) an order rescinding, to the extent already implemented, any transaction agreement, (v) an order imposing a constructive trust in favor of the plaintiff and the putative class upon any benefits improperly received by the defendants as a result of any transaction, and (vi) an award to plaintiffs of the costs of the action, including reasonable attorneys’ and experts’ fees and expenses.

On September 8, 2010, Bernard Malina filed a lawsuit allegedly on behalf of a putative class of shareholders in the U.S. District Court for the District of Massachusetts against us and our board of directors (the “Malina Action”). The suit alleges that our directors breached their fiduciary duties by attempting to sell Genzyme without regard to the effect of a potential transaction on shareholders and engaging in a plan and scheme to obtain personal benefits at the expense of shareholders in connection with a purported proposed merger. The suit seeks, among other relief, (i) class action status, (ii) an order directing the defendants to

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)

exercise their fiduciary duties and commence a sales process that is in the best interest of shareholders, (iii) compensatory damages, and (iv) an award to plaintiffs of the costs of the action, including reasonable attorneys’, accountants’ and experts’ fees and expenses.

On September 9, 2010, Emanuel Resendes filed a lawsuit allegedly on behalf of a putative class of shareholders in the U.S. District Court for the District of Massachusetts against our board of directors and certain executive officers (the “Resendes Action”). The suit alleges that our directors breached their fiduciary duties by attempting to sell Genzyme without regard to the effect of a potential transaction on shareholders and engaging in self-dealing in order to obtain personal benefits not shared equally by all shareholders in connection with a purported proposed merger. The suit seeks, among other relief, (i) class action status, (ii) an order enjoining the defendants from entering into any contract which harms the class or could prohibit the defendants from maximizing shareholder value, (iii) an order enjoining the defendants from initiating any defensive measures that would make the consummation of a transaction more difficult or costly for a potential acquiror, (iv) an order directing the defendants to exercise their fiduciary duties and refrain from advancing their own interests at the expense of the class and their fiduciary duties, and (v) an award to plaintiffs of the costs of the action, including reasonable attorneys’ and experts’ fees and expenses.

On September 14, 2010, William S. Field, Trustee u/a dated October 12, 1991, by William S. Field Jr., filed a lawsuit allegedly on behalf of a putative class of shareholders in the U.S. District Court for the District of Massachusetts against us, our board of directors and certain executive officers (the “Field Action”). The suit alleges that our directors breached their fiduciary duties by failing to pursue a transaction that would provide the highest value reasonably available for shareholders and by not providing full and fair disclosure to shareholders. The suit seeks, among other relief, (i) class action status, (ii) an order appointing an independent special committee with authority to evaluate, negotiate and, if in the best interests of shareholders, accept the offer from Sanofi or other offers, (iii) an award to plaintiffs of the costs of the action, including reasonable attorneys’, accountants’ and experts’ fees and expenses and (iv) such other relief as the court deems proper.

On October 18, 2010, Warren Pinchuck filed a lawsuit allegedly on behalf of a putative class of shareholders in the U.S. District Court for the District of Massachusetts against us, our board of directors and certain executive officers (the “Pinchuck Action”). The suit alleges that the defendants violated Section 14(e) of the Exchange Act by issuing a false and misleading Schedule 14D-9 statement and breached their fiduciary duties by, among other things, refusing to negotiate in good faith with Sanofi and by failing to allow due diligence to be performed to facilitate a higher offer being made by Sanofi or others. The suit seeks, among other relief (i) class action status, (ii) a declaration that the defendants have violated Section 14(e) of the Exchange Act, (iii) a declaration that the defendants have breached their fiduciary duties, (iv) an order enjoining the defendants from breaching their fiduciary duties by refusing to consider and respond to the proposed transaction in good faith, (v) an order enjoining the defendants from initiating any anti-takeover devices that would inhibit the defendants’ ability to maximize value for their shareholders, (vi) compensatory damages, to the extent injunctive relief is not granted, and (vii) an award to plaintiffs of the costs of the action, including reasonable attorneys’ and experts’ fees and expenses.

The plaintiffs and the defendants in the Morelos Action, Malina Action, Resendes Action, Field Action and Pinchuck Action have filed a joint stipulation with the federal court seeking consolidation of the cases.

State Securities Litigation

On August 16, 2010, plaintiff Chester County Employees’ Retirement Fund filed a lawsuit allegedly on behalf of a putative class of shareholders in Massachusetts Superior Court (Middlesex County) against us and our board of directors (the “Chester Action”). An amended complaint was filed in the Chester Action on September 2, 2010. The amended complaint alleges that the defendants breached their fiduciary duties by failing to adequately inform themselves regarding the potential offer by Sanofi or any offer by any other party and failing to pursue the best available transaction for shareholders. The suit seeks, among other relief, (i) class

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)

action status, (ii) an order enjoining the defendants from initiating any defensive measures designed to prevent shareholders from receiving and accepting a value-maximizing offer, (iii) an order directing the defendants to exercise their fiduciary duties to obtain a transaction in shareholders’ best interests, (iv) compensatory damages and (v) an award to plaintiffs of the costs of the action, including reasonable attorneys’ and experts’ fees and expenses. On September 23, 2010, by joint motion of the parties, the Chester Action was transferred to the Business Litigation Session of Suffolk County Superior Court in Boston, Massachusetts.

On August 17, 2010, Alan R. Kahn filed a lawsuit allegedly on behalf of a putative class of shareholders in the Massachusetts Superior Court (Middlesex County) against us, our board of directors, certain executive officers, and Sanofi (the “Kahn Action”). The suit alleges that the defendants breached their fiduciary duties in approving a proposed transaction and failing to negotiate in good faith with Sanofi. The suit seeks, among other relief, (i) class action status, (ii) an order enjoining the defendants from initiating any defensive measures that would inhibit the defendants’ ability to maximize shareholder value, (iii) compensatory damages and (iv) an award to plaintiffs of the costs of the action, including reasonable attorneys’ and experts’ fees and expenses.

On September 1, 2010, David Shade filed a lawsuit allegedly on behalf of a putative class of shareholders in the Massachusetts Superior Court (Middlesex County) against us and our board of directors (the “Shade Action”). The suit alleges that the defendants breached their fiduciary duties in rejecting all offers and approaches by Sanofi and refusing to engage in any negotiations with Sanofi. The suit seeks, among other relief, (i) class action status, (ii) a declaration that the defendants breached their fiduciary duties, (iii) compensatory damages and (iv) an award to plaintiffs of the costs of the action, including reasonable attorneys’ fees and expenses and experts’ fees.

On September 2, 2010, the Louisiana Municipal Police Employees’ Retirement System filed a lawsuit allegedly on behalf of a putative class of shareholders in the Massachusetts Superior Court (Middlesex County) against us and our board of directors (the “Louisiana Action”). The suit alleges that the defendants breached their fiduciary duties in rejecting all offers and approaches by Sanofi and refusing to engage in any negotiations with Sanofi. The suit seeks, among other relief, (i) class action status, (ii) a declaration that the defendants breached their fiduciary duties, (iii) compensatory damages and (iv) an award to plaintiffs of the costs of the action, including reasonable attorneys’ fees and expenses and experts’ fees.

On October 5, 2010, plaintiffs and the defendants in the Chester Action, Kahn Action, Shade Action and Louisiana Action filed a joint stipulation with the Business Litigation Session of Suffolk County Superior Court in the Chester Action seeking consolidation of the state cases. On the same day, the Court signed an order approving the consolidation of these cases in In Re Genzyme Corp. Shareholder Litigation. On October 18, 2010, plaintiffs filed a consolidated amended complaint allegedly on behalf of a putative class of shareholders against us and our board of directors (the “Consolidated State Action”). The consolidated complaint alleges that the defendants breached their fiduciary duty by failing to properly inform themselves of Sanofi’s offer, by refusing to negotiate in good faith with Sanofi, and by attempting to thwart Sanofi’s proposed tender offer. The suit seeks, among other relief (i) class action status, (ii) a declaration that the defendants have breached their fiduciary duties, (iii) an order requiring the defendants to fully disclose all material information regarding the Schedule 14D-9 filed by us, (iv) compensatory damages and (v) an award to plaintiffs of the costs of the action, including reasonable attorneys’ and experts’ fees and expenses.

Shareholder Demand Letters

Since August 2009, we have received ten letters from shareholders demanding that our board of directors take action on our behalf to remedy alleged breaches of fiduciary duty by our directors and certain executive officers. The demand letters are primarily premised on allegations regarding our disclosures to shareholders with respect to manufacturing issues and compliance with GMP and our processes and decisions related to manufacturing at our Allston facility. Several of the letters also assert that certain of our executive officers and

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)

directors took advantage of their knowledge of material non-public information about Genzyme to illegally sell stock they personally held in Genzyme. Our board of directors has designated a special committee of three independent directors to oversee the investigation of the allegations made in the demand letters and to recommend to the independent directors of our board whether any action should be instituted on our behalf against any officer or director. The committee has retained independent legal counsel. If the independent members of our board of directors were to make a determination that it was in our best interest to institute an action against any officers or directors, any monetary recovery would be to our benefit. The special committee’s investigation is ongoing.

Shareholder Derivative Actions

In December 2009, two actions were filed by shareholders derivatively for our benefit in the U.S. District Court for the District of Massachusetts against our board of directors and certain of our executive officers after a ninety day period following their respective demand letters had elapsed (the “District Court Actions”). In January 2010, a derivative action was filed in Massachusetts Superior Court (Middlesex County) by a shareholder who has not issued a demand letter and in February and March 2010, two additional derivative actions were filed in Massachusetts Superior Court (Suffolk County and Middlesex County, respectively) by two separate shareholders after the lapse of a ninety day period following the shareholders’ respective demand letters (collectively, the “State Court Actions”).

The derivative actions in general are based on allegations that our board of directors and certain executive officers breached their fiduciary duties by causing us to make purportedly false and misleading or inadequate disclosures of information regarding manufacturing issues, compliance with GMP, ability to meet product demand, expected revenue growth, and approval of Lumizyme. The actions also allege that certain of our directors and executive officers took advantage of their knowledge of material non-public information about us to illegally sell stock they personally held in us. The plaintiffs generally seek, among other things, judgment in favor of us for the amount of damages sustained by us as a result of the alleged breaches of fiduciary duty, disgorgement to us of proceeds that certain of our directors and executive officers received from sales of our stock and all proceeds derived from their service as our directors or executives, and reimbursement of plaintiffs’ costs, including attorneys’ and experts’ fees. The District Court Actions have been consolidated in In Re Genzyme Derivative Litigation and the plaintiffs have agreed to a joint stipulation staying these cases until our board of directors has had sufficient time to exercise its duties and complete an appropriate investigation, which is ongoing. On July 9, 2010, one of the State Court Actions was dismissed without prejudice for plaintiffs’ failure to serve process on the defendants. The Middlesex Court also ordered transfer and consolidation of the remaining two State Court Actions in the Suffolk Superior Court Business Litigation Session. The court has indicated that discovery in that action also will be stayed for some period pending our board of director’s completion of its ongoing investigation in response to the shareholders demand.

Fabrazyme Patent Litigation

In October 2009, Shelbyzyme LLC filed a complaint against us in the U.S. District Court for the District of Delaware alleging infringement of U.S. patent 7,011,831 by “making, using, selling and promoting a method for the treatment of” Fabry disease. The ‘831 patent, which is directed to a method for treating Fabry disease, was issued in March 2006 and expired in March 2009. The plaintiffs seek damages for past infringement, including treble damages for alleged willful infringement and reimbursement of costs, including attorney’s fees.

Other Matters

We are party to a legal action brought by Kayat Trading Ltd., or Kayat, pending before the District Court in Nicosia, Cyprus. Kayat alleges that we breached a 1996 distribution agreement under which we granted

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)

Kayat the right to distribute melatonin tablets in the Ukraine, primarily by not providing products or by providing non-conforming products. Kayat further claims that due to the alleged breach, it suffered lost profits that Kayat claims it would have received under agreements it alleges it had entered into with subdistributors. Kayat also alleges common law fraud and violations of Mass. Gen. L. c. 93A and the Racketeer Influenced and Corrupt Organizations Act. Kayat filed its suit on August 8, 2002 and a trial began in Cyprus in December 2009. Kayat seeks damages for its legal claims and for expenses it claims it has incurred, including legal fees and advertising, promotion and other out-of-pocket expenses.

We are not able to predict the outcome of the lawsuits and matters described above or estimate the amount or range of any possible loss we might incur if we do not prevail in final, non-appealable determination of these matters. Therefore, we have not accrued any amounts in connection with the lawsuits and matters described above.

We also are subject to other legal proceedings and claims arising in connection with our business. Although we cannot predict the outcome of these other proceedings and claims, we do not believe the ultimate resolution of any of these other existing matters would have a material adverse effect on our consolidated financial position or results of operations.


15.	Benefit from (Provision for) Income Taxes


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
	(Amounts in thousands)

Benefit from (provision for) income taxes	$	(17,385	)	$	965		$	58,493		$	(160,305	)
Effective tax rate		19	%		(8	)%		(61	)%		28	%

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


	•	income and expenses taxed at rates other than the U.S. statutory tax rate;

	•	our provision for state income taxes;

	•	domestic manufacturing benefits;

	•	benefits related to tax credits; and

	•	non-deductible stock-based compensation expenses totaling $10.3 million for the three months ended and $30.1 million for the nine months ended September 30, 2010, as compared to $8.7 million for the three months ended and $38.3 million for the nine months ended September 30, 2009.

In addition, our tax benefit for both the three and nine months ended September 30, 2010 includes tax benefits due to the realization, for U.S. income tax purposes, of prior periods’ foreign income tax paid in the amount of $9.5 million for the three months ended September 30, 2010 and $19.5 million for the nine months ended September 30, 2010.

Our benefits from tax provisions for the nine months ended September 30, 2010 also includes tax benefits in the amount of $15.2 million as a result of the resolution of tax examinations in major tax jurisdictions and tax expenses in the amount of $20.6 million resulting from the remeasurement of the deferred tax assets related to our acquisition of certain assets from Bayer in 2009.

We are currently under audit by various states and foreign jurisdictions for various years. We believe that we have provided sufficiently for all audit exposures. Settlement of these audits or the expiration of the statute of limitations on the assessment of income taxes for any tax year will likely result in a reduction of future tax provisions. Any such benefit would be recorded upon final resolution of the audit or expiration of the applicable statute of limitations.

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)


16.	Segment Information

We present segment information in a manner consistent with the method we use to report this information to our management. Effective January 1, 2010, based on changes in how we review our business, we re-allocated certain of our business units amongst our segments and adopted new names for certain of our reporting segments. Under the new reporting structure, we are organized into five reporting segments as described above in Note 1., “Description of Business,” to these consolidated financial statements. We have revised our 2009 segment disclosures to conform to our 2010 presentation.

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009

Revenues:
Personalized Genetic Health(1)	$	404,183		$	369,878		$	1,147,227		$	1,501,566
Renal and Endocrinology		270,431			260,418			781,233			750,163
Biosurgery		156,732			145,647			458,080			404,496
Hematology and Oncology(2)		167,296			143,593			500,103			344,156
Multiple Sclerosis(2)		—			—			—			12,357
Other		3,082			3,737			9,835			24,759
Corporate		76			493			377			1,501

Total	$	1,001,800		$	923,766		$	2,896,855		$	3,038,998

Income (loss) before income taxes:
Personalized Genetic Health(1,3)	$	135,274		$	124,758		$	176,283		$	806,664
Renal and Endocrinology		138,398			119,193			366,358			336,361
Biosurgery		47,369			40,277			137,972			102,360
Hematology and Oncology(2)		19,719			(24,155	)		59,915			(44,170	)
Multiple Sclerosis(2)		(28,203	)		(45,423	)		(170,483	)		(64,030	)
Other(4)		(1,429	)		(153	)		(5,123	)		190
Corporate(5)		(219,497	)		(201,820	)		(661,583	)		(571,587	)

Total	$	91,631		$	12,677		$	(96,661	)	$	565,788


(1)		Includes the impact of:

		• increased shipments of Cerezyme for the three months ended September 30, 2010; and

		• supply constraints for Cerezyme and Fabrazyme for the nine months ended September 30, 2010 and the three and nine months ended September 30, 2009.

(2)		On May 29, 2009, we acquired the worldwide rights to the oncology products Campath, Fludara and Leukine and alemtuzumab for MS from Bayer. As of that date, we ceased recognizing research and development revenue for Bayer’s reimbursement of a portion of the development costs for alemtuzumab for MS. The fair value of the research and development costs for alemtuzumab for MS that will be reimbursed by Bayer is accounted for as an offset to the contingent consideration obligations for alemtuzumab for MS.

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)

Income (loss) before income taxes for our Hematology and Oncology and Multiple Sclerosis reporting segments includes the following contingent consideration expenses (amounts in thousands):


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2010			2009		2010			2009

Contingent consideration expenses:
Hematology and Oncology	$	1,661		$	14,157	$	(11,413	)	$	18,487
Multiple Sclerosis		(4,795	)		14,040		80,849			18,800

Total contingent consideration expenses	$	(3,134	)	$	28,197	$	69,436		$	37,287


		In addition, income (loss) before income taxes for our Multiple Sclerosis reporting segment includes a gain on acquisition of business of $24.2 million for the nine months ended September 30, 2009 for which there were no comparable amounts in 2010. The fair value of the identifiable assets acquired of $1.03 billion exceeded the fair value of the purchase price for the transaction of $1.01 billion.

(3)		Includes a charge of $175.0 million recorded to SG&A for the nine months ended September 30, 2010 for the upfront disgorgement of past profits provided for in the consent decree we entered into with the FDA. For more information about the consent decree, see Note 14., “Commitments and Contingencies,” to these consolidated financial statements.

(4)		Excludes the results for our genetic testing and diagnostic products business units which have met the criteria for discontinued operations and, accordingly, are included in discontinued operations for all periods presented.

(5)		Loss before income taxes for Corporate includes our corporate, general and administrative and corporate science activities, our stock-based compensation expenses for our continuing operations, as well as net gains (losses) on our investments in equity securities, investment income, interest expense and other income and expense items that we do not specifically allocate to a particular reporting segment.

Segment Assets

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


	September 30,		December 31,
	2010		2009

Segment Assets(1):
Personalized Genetic Health(2,3)	$	1,856,507	$	1,987,916
Renal and Endocrinology		1,282,564		1,283,731
Biosurgery		522,029		509,064
Hematology and Oncology		1,398,140		1,406,684
Multiple Sclerosis		951,372		956,448
Other(1)		442,250		444,406
Corporate(3,4)		3,966,259		3,472,475

Total	$	10,419,121	$	10,060,724


(1)		Assets for our five reporting segments and Other include primarily accounts receivable, inventory and certain fixed and intangible assets, including goodwill. Assets for Other includes the assets of our genetic testing, diagnostic products and pharmaceutical intermediates business units, all of which have met the held for sale criteria. As a result, we now report the assets for these three business units under the captions “assets held for sale” and “assets held for sale-noncurrent” in our consolidated balance sheets.

(2)		For the year ended December 31, 2009, includes a gross technology intangible asset of $240.3 million and related accumulated amortization of $(24.0) million related to our consolidation of the results of BioMarin/Genzyme LLC. Effective January 1, 2010, under new guidance we adopted for consolidating variable interest entities, we no longer consolidate the results of this joint venture and no longer include this gross technology asset and the related accumulated amortization or a related other noncurrent liability in our consolidated balance sheet.

(3)		As of September 30, 2010, reflects the re-allocation of plant and equipment (and associated accumulated depreciation) from Corporate to PGH based on changes in how we review our business.

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)


(4)		Includes the assets related to our corporate, general and administrative operations, and corporate science activities that we do not allocate to a particular segment. Segment assets for Corporate consist of the following (amounts in thousands):


	September 30,		December 31,
	2010		2009

Cash, cash equivalents, short- and long-term investments in debt securities	$	1,166,511	$	1,049,700
Deferred tax assets, net		775,425		555,242
Property, plant & equipment, net		1,560,813		1,344,664
Investments in equity securities		64,961		74,438
Other		398,549		448,431

Total	$	3,966,259	$	3,472,475


17.	Supplemental Guarantor Information

Our payment obligations under our 2015 and 2020 Senior Notes (see Note 12., “Long-Term Debt” to these consolidated financial statements) are guaranteed by our wholly-owned subsidiary, Genzyme Therapeutic Products Limited Partnership, which we refer to as our Guarantor Subsidiary. Such guarantees are full, unconditional and joint and several. The following supplemental financial information sets forth, on a combined basis, balance sheets, statements of operations and statements of cash flows for Genzyme Corporation (Parent), our Guarantor Subsidiary (which is 100% owned by the Parent) and our Non-Guarantor Subsidiaries.

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)

Consolidating Statements of Operations for the Three Months Ended September 30, 2010

(Unaudited, amounts in thousands)


	Genzyme			Guarantor			Non-Guarantor
	Corporation			Subsidiary			Subsidiaries			Eliminations			Total

Revenues:
Net product sales	$	604,776		$	14		$	386,757		$	—		$	991,547
Net service sales		7,734			—			1,874			—			9,608
Research and development revenue		335			—			310			—			645

Total revenues		612,845			14			388,941			—			1,001,800

Operating costs and expenses:
Cost of products sold		226,569			22,147			53,150			—			301,866
Cost of services sold		5,591			—			1,816			—			7,407
Selling, general and administrative		54,687			151,206			131,990			—			337,883
Research and development		129,973			28,587			48,491			—			207,051
Amortization of intangibles		48,159			—			13,602			—			61,761
Contingent consideration expense		12,838			—			(15,972	)		—			(3,134	)

Total operating costs and expenses		477,817			201,940			233,077			—			912,834

Operating income (loss)		135,028			(201,926	)		155,864			—			88,966

Other income (expenses):
Equity in loss of equity method investments		(643	)		—			—			—			(643	)
Gains on investments in equity securities, net		4,648			—			—			—			4,648
Other		(906	)		—			521			—			(385	)
Inter-subsidiary income (expense)		(30,232	)		77,366			(47,134	)		—			—
Investment income		261			1,670			472			—			2,403
Interest expense		(4,808	)		—			1,450			—			(3,358	)

Total other income (expenses)		(31,680	)		79,036			(44,691	)		—			2,665

Income (loss) from continuing operations before income taxes		103,348			(122,890	)		111,173			—			91,631
Benefit from (provision for) income taxes		(31,735	)		44,151			(29,801	)		—			(17,385	)

Income (loss) from continuing operations, net of tax		71,613			(78,739	)		81,372			—			74,246
Income (loss) from discontinued operations, net of tax		(7,190	)		(6	)		1,904			—			(5,292	)
Income from subsidiaries		4,531			—			—			(4,531	)		—

Net income (loss)	$	68,954		$	(78,745	)	$	83,276		$	(4,531	)	$	68,954

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)

Consolidating Statements of Operations for the Three Months Ended September 30, 2009
(Unaudited, amounts in thousands)


	Genzyme			Guarantor			Non-Guarantor
	Corporation			Subsidiary			Subsidiaries			Eliminations			Total

Revenues:
Net product sales	$	489,115		$	9		$	422,770		$	—		$	911,894
Net service sales		8,774			—			1,706			—			10,480
Research and development revenue		1,302			—			90			—			1,392

Total revenues		499,191			9			424,566			—			923,766

Operating costs and expenses:
Cost of products sold		215,939			5,613			50,414			—			271,966
Cost of services sold		3,337			—			4,579			—			7,916
Selling, general and administrative		205,058			363			118,092			—			323,513
Research and development		137,376			28,632			49,917			—			215,925
Amortization of intangibles		49,787			—			18,291			—			68,078
Contingent consideration expense		17,633			—			10,564			—			28,197

Total operating costs and expenses		629,130			34,608			251,857			—			915,595

Operating income (loss)		(129,939	)		(34,599	)		172,709			—			8,171

Other income (expenses):
Gains (losses) on investments in equity securities, net		(651	)		—			—			—			(651	)
Other		805			—			(191	)		—			614
Inter-subsidiary income (expense)		(21,000	)		135,046			(114,046	)		—			—
Investment income		524			3,579			440			—			4,543
Interest expense		(2,479	)		—			2,479			—			—

Total other income (expenses)		(22,801	)		138,625			(111,318	)		—			4,506

Income (loss) from continuing operations before income taxes		(152,740	)		104,026			61,391			—			12,677
Benefit from (provision for) income taxes		60,259			(37,197	)		(22,097	)		—			965

Income (loss) from continuing operations, net of tax		(92,481	)		66,829			39,294			—			13,642
Income from discontinued operations, net of tax		1,038			—			1,315			—			2,353
Income from subsidiaries		107,438			—			—			(107,438	)		—

Net income (loss)	$	15,995		$	66,829		$	40,609		$	(107,438	)	$	15,995

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements — (Continued)

Consolidating Statements of Operations for the Nine Months Ended September 30, 2010
(Unaudited, amounts in thousands)


	Genzyme			Guarantor			Non-Guarantor
	Corporation			Subsidiary			Subsidiaries			Eliminations		Total

Revenues:
Net product sales	$	1,648,428		$	53		$	1,213,698		$	—	$	2,862,179
Net service sales		26,560			—			5,610			—		32,170
Research and development revenue		1,940			—			566			—		2,506

Total revenues		1,676,928			53			1,219,874			—		2,896,855

Operating costs and expenses:
Cost of products sold		573,241			3,895			256,823			—		833,959
Cost of services sold		15,501			—			7,014			—		22,515
Selling, general and administrative		636,247			153,317			414,354			—		1,203,918
Research and development		429,786			73,759			141,642			—		645,187
Amortization of intangibles		149,426			—			44,901			—		194,327
Contingent consideration expense		(79,893	)		—			149,329			—		69,436

Total operating costs and expenses		1,724,308			230,971			1,014,063			—		2,969,342

Operating income (loss)		(47,380	)		(230,918	)		205,811			—		(72,487	)

Other income (expenses):
Equity in loss of equity method investments		(2,210	)		—			—			—		(2,210	)
Losses on investments in equity securities, net		(26,750	)		—			—					(26,750	)
Other		(2,725	)		—			2,082			—		(643	)
Inter-subsidiary income (expense)		(24,954	)		300,475			(275,521	)		—		—
Investment income		595			6,987			1,205			—		8,787
Interest expense		(7,336	)		—			3,978			—		(3,358	)

Total other income (expenses)		(63,380	)		307,462			(268,256	)		—		(24,174	)

Income (loss) from continuing operations before income taxes		(110,760	)		76,544			(62,445	)		—		(96,661	)
Benefit from (provision for) income taxes		70,179			(41,456	)		29,770			—		58,493

Relevant Requirements

Issued Date/Our Effective

ASU Number

of ASU

Status

2009-13 “Multiple-Deliverable Revenue Arrangements — a consensus of the FASB Emerging Issues Task Force.”

Establishes the accounting and reporting guidance for arrangements under which a vendor will perform multiple revenue-generating activities. Specifically, the provisions of this update address how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting.

Issued October 2009. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted.

We will adopt the provisions of this update for the first quarter of 2011. We are currently assessing the impact the provisions of this update will have, if any, on our consolidated financial statements.