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

FORM 10-Q

Commission file number 0-14680

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

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

        Indicate by check mark whether the Registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act). Yes ý    No o

        The number of shares of Genzyme General Stock outstanding as of April 30, 2004: 226,520,086

NOTE REGARDING REFERENCES TO GENZYME DIVISIONS AND SERIES OF STOCK

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

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

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Genzyme General Division = "Genzyme General;"



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Genzyme Biosurgery Division = "Genzyme Biosurgery;" and



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Genzyme Molecular Oncology Division = "Genzyme Molecular Oncology."

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

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



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



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

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

        Effective July 1, 2003, we eliminated our tracking stock capital structure by exchanging, in accordance with the provisions of our charter, each share of Biosurgery Stock for 0.04914 of a share of Genzyme General Stock and each share of Molecular Oncology Stock for 0.05653 of a share of Genzyme General Stock. Options and warrants to purchase shares of Biosurgery Stock and options to purchase shares of Molecular Oncology Stock were converted into options and warrants to purchase shares of Genzyme General Stock. While our charter continues to designate 100,000,000 shares as Biosurgery Stock and 40,000,000 shares as Molecular Oncology Stock, no shares of either series remain outstanding, and all of our assets and liabilities that had been allocated to Genzyme Biosurgery and Genzyme Molecular Oncology are now allocated to Genzyme General. Effective July 1, 2003, we have one outstanding series of common stock, which we refer to as Genzyme General Stock.

        Effective July 1, 2003, as a result of the elimination of our tracking stock capital structure, all of our earnings or losses are now allocated to Genzyme General Stock. Earnings or losses allocated to Biosurgery Stock and Molecular Oncology Stock prior to that date remain allocated to those series of stock in the preparation of our consolidated financial statements and are not affected by the elimination of our tracking stock structure. Accordingly, earnings or losses allocated to Biosurgery Stock and Molecular Oncology Stock represent earnings allocated to those tracking stocks through June 30, 2003. Earnings or losses allocated to Genzyme General Stock through June 30, 2003 represent the earnings or losses of Genzyme General, as adjusted for the allocation of tax benefits. Earnings or losses allocated to Genzyme General Stock after June 30, 2003 represent the earnings or losses for the corporation as a whole. Accordingly, earnings allocated to Genzyme General Stock for the three months ended March 31, 2004 reflect the earnings for the corporation as a whole. Earnings allocated to Genzyme General Stock for the three months ended March 31, 2003 reflect the earnings allocated to Genzyme General and do not include the losses allocated to Biosurgery Stock and Molecular Oncology Stock for that period.

        On July 1, 2003, we reclassified the Biosurgery Stock and Molecular Oncology Stock equity accounts into the Genzyme General Stock equity accounts. The elimination of our tracking stock

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capital structure had no effect on our consolidated net income or loss. Because we now have only one series of common stock outstanding, we rescinded the management and accounting policies that governed the relationships between our former divisions. In this Quarterly Report on Form 10-Q, and future Quarterly and Annual Reports, we will not provide separate financial statements and management's discussion and analysis for each of our former divisions, but will continue to provide our consolidated financial statements and management's discussion and analysis for the corporation as a whole.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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



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merger and acquisition activity, including the anticipated timing of our merger with ILEX Oncology, Inc., or ILEX, and potential in-process research and development, or IPR&D, charges;



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intention to redeem our outstanding 3% convertible subordinated debentures;



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entries into new collaborations and licensing agreements;



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estimates of the potential markets for our products and services, including the anticipated drivers for future growth;



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sales and marketing plans;



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



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



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expected future revenues, operations and expenditures;



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



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projected cash needs;



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assessment of legal proceedings;



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IRS audit, including our provision for liabilities and potential for reduction of future tax provisions; and



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intention to seek shareholder approval of an amendment to our charter that would remove the tracking stock designations.

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

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



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our ability to manufacture sufficient amounts of our products for development and commercialization activities and to do so in a timely and cost-effective manner;



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

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the scope, validity and enforceability of patents and other proprietary rights held by third parties and their impact on our ability to commercialize our products and services;



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



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market acceptance of our products and services;



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our ability to consummate the expected merger with ILEX and our success at integrating that business;



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



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



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



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



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the content and timing of submissions to and decisions made by the United States Food and Drug Administration, commonly referred to as the FDA, and other regulatory agencies;



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



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our ability to increase market penetration in Europe for Fabrazyme, Thyrogen and Renagel;



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market acceptance of Thymoglobulin in expanded areas of use and new markets;



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our ability to optimize dosing and improve patient compliance with Renagel;



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



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



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



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



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the resolution of litigation related to the consolidation of our tracking stocks and the validity of a patent issued to Columbia University;



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the initiation of legal proceedings against us;



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decisions made by the United States District Court, arbitrators for the American Arbitrators Association, the Federal Trade Commission, which is known as the FTC, and other judicial bodies and regulatory authorities, our partners, licensees and clinical trial sites;



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



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our ability to successfully integrate the business acquired from IMPATH, Inc., or IMPATH;



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the outcome of our IRS audit; and



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the possible disruption of our operations due to terrorist activities and armed conflict, including as a result of the disruption of operations of regulatory authorities, our subsidiaries, our

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manufacturing facilities and our customers, suppliers, distributors, couriers, collaborative partners, licensees and clinical trial sites.

        We have included more detailed descriptions of these and other risks and uncertainties under the heading "Factors Affecting Future Operating Results" in Item 2 to Part I of this Form 10-Q. We encourage you to read those descriptions carefully. We caution investors not to place undue reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report (unless another date is indicated) and we undertake no obligation to update or revise the statements.

NOTE REGARDING INCORPORATION BY REFERENCE

        The Securities and Exchange Commission allows us to disclose important information to you by referring you to other documents we have filed with the SEC. The information that we refer you to is "incorporated by reference" into this Form 10-Q. Please read that information.

NOTE REGARDING TRADEMARKS

        Genzyme®, Renagel®, Cerezyme®, Ceredase®, Fabrazyme®, Thyrogen®, Synvisc®, Carticel®, Seprafilm®, Myozyme® and Epicel® are registered trademarks of Genzyme. Sepra™ is a trademark of Genzyme. Aldurazyme® is a registered trademark of BioMarin/Genzyme LLC. Thymoglobulin® and Lymphoglobuline® are registered trademarks of SangStat Medical Corporation. WelChol® is a registered trademark of Sankyo Pharma, Inc. Gengraf® is a registered trademark of Abbott Laboratories. All rights reserved.

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GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, MARCH 31, 2004
TABLE OF CONTENTS

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GENZYME CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited, amounts in thousands)

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

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GENZYME CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations (Continued)
(Unaudited, amounts in thousands, except per share amounts)

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

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GENZYME CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited, amounts in thousands, except par value amounts)

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

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GENZYME CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited, amounts in thousands)

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

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GENZYME CORPORATION AND SUBSIDIARIES

Notes To Unaudited, Consolidated Financial Statements

1. Description of Business

        We are a global biotechnology company dedicated to making a major positive impact on the lives of people with serious diseases. Our broad product portfolio is focused on rare genetic disorders, renal disease, osteoarthritis and organ transplant, and includes an industry-leading array of diagnostic products and services. We are organized into five financial reporting units, which we also consider to be our reportable segments:

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



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



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



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Biosurgery, which develops, manufactures and distributes biotherapeutics and biomaterial products, with an emphasis on products that meet medical needs in orthopaedics and broader surgical areas. The unit derives its revenue primarily from sales of Synvisc, the Sepra line of products and, through June 30, 2003, sales of cardiac device products; and



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Diagnostics/Genetics, which develops, manufactures and distributes diagnostic products, with a focus on in vitro diagnostics, and provides genetic testing services.

        We report the activities of our bulk pharmaceuticals, oncology, cardiovascular and drug discovery and development business units under the caption "Other." We report our corporate operations, general and administrative and corporate science activities that we do not allocate to our financial reporting units, under the caption "Corporate."

2. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

        Our unaudited, consolidated financial statements for each period include the statements of operations, balance sheets and statements of cash flows for our corporate operations taken as a whole. We eliminate all significant intracompany items and transactions in consolidation. We prepare our unaudited, consolidated financial statements following the requirements of accounting principles generally accepted in the United States of America and 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. We have reclassified certain 2003 data to conform to our 2004 presentation.

        These financial statements include all normal and recurring adjustments that we consider necessary for the fair presentation of our financial position and operating results. Since these are interim financial

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statements, you should also read our audited, consolidated financial statements and notes included in our 2003 Form 10-K. Revenues, expenses, assets and liabilities can vary from quarter to quarter. Therefore, the results and trends in these interim financial statements may not be indicative of results for future periods.

Elimination of Tracking Stock Structure

        Through June 30, 2003, we had three outstanding series of common stock—Genzyme General Division common stock, which we refer to as "Genzyme General Stock," Genzyme Biosurgery Division common stock, which we refer to as "Biosurgery Stock," and Genzyme Molecular Oncology Division common stock, which we refer to as "Molecular Oncology Stock." We also refer to our series of stock as "tracking stock." Unlike typical common stock, each of our tracking stocks was designed to reflect the value and track the financial performance of a specific subset of our business operations and its allocated assets, rather than the operations and assets of our entire company. Through June 30, 2003, we allocated earnings or losses to each series of tracking stock based on the net income or loss attributable to the corresponding division determined in accordance with accounting principles generally accepted in the United States as adjusted for the allocation of tax benefits. Effective July 1, 2003, we eliminated our tracking stock capital structure by exchanging, in accordance with the provisions of our charter, each share of Biosurgery Stock for 0.04914 of a share of Genzyme General Stock and each share of Molecular Oncology Stock for 0.05653 of a share of Genzyme General Stock. In the aggregate, 1,997,392 shares of Genzyme General Stock were exchanged for the outstanding shares of Biosurgery Stock and 959,045 shares of Genzyme General Stock were exchanged for the outstanding shares of Molecular Oncology Stock. Options and warrants to purchase shares of Biosurgery Stock were converted into options and warrants to purchase 401,257 shares of Genzyme General Stock, with exercise prices ranging from $24.27 to $2,356.12, and options to purchase shares of Molecular Oncology Stock were converted into options to purchase 198,855 shares of Genzyme General Stock, with exercise prices ranging from $26.01 to $478.27. While our charter continues to designate 100,000,000 shares as Biosurgery Stock and 40,000,000 shares as Molecular Oncology Stock, no shares of either series remain outstanding. Effective July 1, 2003, we have one outstanding series of common stock, which we refer to as Genzyme General Stock.

        Effective July 1, 2003, as a result of the elimination of our tracking stock capital structure, all of our earnings or losses are now allocated to Genzyme General Stock. Earnings or losses allocated to Biosurgery Stock and Molecular Oncology Stock prior to that date remain allocated to those series of stock in the preparation of our consolidated financial statements and are not affected by the elimination of our tracking stock structure. Accordingly, earnings or losses allocated to Biosurgery Stock and Molecular Oncology Stock represent earnings allocated to those tracking stocks through June 30, 2003. Earnings or losses allocated to Genzyme General Stock through June 30, 2003 represent the earnings or losses of Genzyme General, as adjusted for the allocation of tax benefits. Earnings or losses allocated to Genzyme General Stock after June 30, 2003 represent the earnings or losses for the corporation as a whole. Accordingly, earnings allocated to Genzyme General Stock for the three months ended March 31, 2004 reflect the earnings for the corporation as a whole. Earnings allocated to Genzyme General Stock for the three months ended March 31, 2003 reflect the earnings allocated to Genzyme General and do not include the losses allocated to Biosurgery Stock and Molecular Oncology Stock for that period.

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        The elimination of our tracking stock capital structure had no effect on our consolidated net loss. In this Form 10-Q, and future Quarterly and Annual Reports, we will not provide separate financial statements for each of our former divisions, but will continue to provide our consolidated financial statements for the corporation as a whole.

        Through June 30, 2003, the chief mechanisms intended to cause each tracking stock to "track" the financial performance of each division were provisions in our charter governing dividends and distributions. The provisions governing dividends provided that our board of directors had discretion to decide if and when to declare dividends, subject to certain limitations. To the extent that the following amount did not exceed the funds that would be legally available for dividends under Massachusetts law, the dividend limit for a stock corresponding to a division was the greater of:

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the amount that would be legally available for dividends under Massachusetts law if the division were a separate legal corporation; or



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the amount by which the greater of the fair value of the division's allocated net assets, or its allocated paid-in capital plus allocated earnings, exceeds its corresponding stock's par value, preferred stock preferences and debt obligations.

        The provisions in our charter governing dividends and distributions factored the assets and liabilities and income or losses attributable to a division into the determination of the amount available to pay dividends on the associated tracking stock. Through June 30, 2003, we calculated the income tax provision of each division as if such division were a separate taxpayer, which included assessing the realizability of deferred tax assets at the division level. Our management and accounting policies in effect at the time provided that if, at the end of any fiscal quarter, a division could not use any projected annual tax benefit attributable to it to offset or reduce its current or deferred income tax expense, we could allocate the tax benefit to other divisions in proportion to their taxable income without any compensating payments or allocation to the division generating the benefit. Through June 30, 2003, Genzyme Biosurgery and Genzyme Molecular Oncology had not generated taxable income, and thus had not had the ability to use any projected annual tax benefits. Genzyme General has generated taxable income, providing it with the ability to utilize the tax benefits generated by Genzyme Biosurgery and Genzyme Molecular Oncology. Consistent with our policy, we allocated the tax benefits generated by Genzyme Biosurgery and Genzyme Molecular Oncology through June 30, 2003 to Genzyme General without making any compensating payments or allocations to the division that generated the benefit.

        The tax benefits allocated to Genzyme General and included in earnings attributable to Genzyme General Stock for the three months ended March 31, 2003 were (amounts in thousands):

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        Deferred tax assets and liabilities can arise from purchase accounting and relate to a division that does not satisfy the realizability criteria of Statement of Financial Accounting Standards, or SFAS, No. 109, "Accounting for Income Taxes." Through June 30, 2003, such deferred tax assets and liabilities were allocated to the division to which the acquisition was allocated. As a result, the periodic changes in these deferred tax assets and liabilities did not result in a tax expense or benefit to that division. However, the change in these deferred tax assets and liabilities impacted our consolidated tax provision. These changes were added to division net income for purposes of determining net income allocated to a tracking stock.

        Within the general limits under our charter and Massachusetts law, the amount of any dividend payment will be at the board of directors' discretion. To date, we have never paid or declared a cash dividend on shares of any of our series of common stock, nor do we anticipate paying or declaring a cash dividend on shares of our common stock in the foreseeable future. Unless declared, no dividends will accrue on shares of our common stock.

Net Income (Loss) Per Share

        Through June 30, 2003, we calculated earnings per share for each series of stock using the two-class method. To calculate basic earnings per share for each series of stock, we divided the earnings allocated to each series of stock by the weighted average number of outstanding shares of that series of stock during the applicable period. When we calculated diluted earnings per share, we also included in the denominator all potentially dilutive securities outstanding during the applicable period if inclusion of such securities was not anti-dilutive. We allocated our earnings to each series of our common stock based on the earnings attributable to that series of stock. Through June 30, 2003, the earnings attributable to Genzyme General Stock, as defined in our charter, were equal to the net income or loss of Genzyme General determined in accordance with accounting principles generally accepted in the United States and as adjusted for tax benefits allocated to or from Genzyme General in accordance with our management and accounting policies in effect at the time. Earnings attributable to Biosurgery Stock and Molecular Oncology Stock were defined similarly and, as such, were based on the net income or loss of the corresponding division as adjusted for the allocation of tax benefits.

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

Accounting for Stock-Based Compensation

        In accounting for stock-based compensation, we do not recognize compensation expense for qualifying options granted to our employees and directors under the provisions of our stock-based compensation plans with fixed terms and an exercise price greater than or equal to the fair market value of the underlying series of our common stock on the date of grant. All stock-based awards to non-employees are accounted for at their fair value in accordance with SFAS No. 123, as amended, and Emerging Issues Task Force, or EITF, Issue No. 96-18, "Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services."

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        The following table sets forth our net income (loss) data as if compensation expense for our stock-based compensation plans was determined in accordance with SFAS No. 123, as amended, based on the fair value at the grant dates of the awards (amounts in thousands):

        The following table sets forth the impact to our historical net income (loss) per share data as if compensation expense for our stock-based compensation plans was determined in accordance with SFAS No. 123:

The effects of applying SFAS No. 123 are not necessarily representative of the effects on reported net income (loss) in future years. Additional awards in future years are anticipated.

Recent Accounting Pronouncements

        Variable Interest Entities.    In January 2003, the Financial Accounting Standards Board, or FASB, issued FASB Interpretation No., or FIN, 46, "Consolidation of Variable Interest Entities," as amended and revised in December 2003, which addresses the consolidation of variable interest entities (VIEs) by

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business enterprises that are the primary beneficiaries. A VIE is an entity that does not have sufficient equity investment to permit it to finance its activities without additional financial support from a third party, or whose equity investors lack the characteristics of a controlling financial interest. The primary beneficiary of a VIE is the enterprise with the majority of the risk or rewards associated with the VIE. Immediate application of FIN 46 was required for all potential VIEs created after January 31, 2003. For potential VIEs created prior to February 1, 2003, the consolidation requirements apply for periods ending after March 15, 2004. FIN 46 also requires enhanced disclosures related to VIEs. As a result of our adoption of FIN 46, we have consolidated the results of Kallikrein LLC, our joint venture with Dyax Corporation of which we became a member in 2003 and Excigen, Inc., a collaboration partner. See Note 6., "Agreements with Dyax Corporation," to this Form 10-Q for further information related to Kallikrein LLC. The amounts related to Excigen are not significant.

        Employers' Disclosures about Pensions and Other Postretirement Benefits.    In December 2003, the FASB issued a revision to SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," which we refer to as SFAS No. 132 (revised). This statement revises employers' disclosures about pension plans and other postretirement benefit plans. It requires additional disclosures related to the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. For U.S. defined benefit pension plans and other defined benefit postretirement plans, SFAS No. 132 (revised) is effective for fiscal years ending after December 15, 2003. Disclosure of information about foreign plans required under SFAS No. 132 (revised) is effective for fiscal years ending after June 15, 2004. The interim period disclosures required by SFAS No. 132 (revised) are effective for interim periods beginning after December 31, 2003. The adoption of SFAS No. 132 (revised) did not have a material impact on our disclosures about pensions and other postretirement benefits for the year ended December 31, 2003 because we only have one U.S. defined benefit plan, which has been frozen since December 1995 and was fully funded as of December 31, 2003. Note 12., "Defined Benefit Pension Plans," to this Form 10-Q includes the interim period disclosures required under SFAS No. 132 (revised) for our foreign defined benefit plans.

        Participating Securities and the Two-Class Method Under FASB Statement No. 128, Earnings Per Share.    In April 2004, the EITF issued Statement No. 03-06, "Participating Securities and the Two-Class Method Under FASB Statement No. 128, Earnings Per Share." EITF 03-06 addresses a number of questions regarding the computation of earnings per share by a company that has issued securities other than common stock that contractually entitle the holder to the right to participate in dividends when, and if, declared. The issue also provides further guidance in applying the two-class method of calculating earnings per share, clarifying the definition of a participating security and how to apply the two-class method. EITF 03-06 is effective for fiscal periods beginning after March 31, 2004, which is our second quarter, and is required to be retroactively applied. We are currently evaluating the effect of adopting EITF 03-06 on our earnings per share.

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3. Net Income (Loss) Per Share

Genzyme General Stock:

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

(1)

We did not include the securities described in the following table in the computation of diluted earnings per share for each period because these securities had an exercise price greater than the average market price of Genzyme General Stock for each of the periods presented (amounts in thousands):

(2)

In both periods presented, we did not include the potentially dilutive effect of the assumed conversion of the $575.0 million in principal of 3% convertible subordinated debentures in the computation of dilutive earnings per share for Genzyme General Stock for each period presented, because the conditions for conversion had not been met. The debentures are contingently convertible into approximately 8.2 million shares of Genzyme General Stock at an initial conversion price of $70.30 per share.

(3)

We did not include the potentially dilutive effect of the assumed conversion of the $690.0 million in principal of 1.25% senior convertible notes, issued in December 2003, in the computation of diluted earnings per share for Genzyme General Stock for the three months ended March 31, 2004 because the conditions for conversion had not been met. The notes are contingently convertible into approximately 9.7 million shares of Genzyme General Stock at an initial conversion price of $71.24 per share.

Biosurgery Stock:

        For the three months ended March 31, 2003, basic and diluted net loss per share of Biosurgery Stock are the same. We did not include the securities described in the following table in the

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computation of Biosurgery Stock diluted net loss per share, because these securities would have an anti-dilutive effect due to the net loss allocated to Biosurgery Stock (amounts in thousands):

(1)

Biosurgery designated shares were authorized shares of Biosurgery Stock that were not issued and outstanding, but which our board of directors could have issued, sold or distributed without allocating the proceeds to Genzyme Biosurgery. Effective July 1, 2003, all Biosurgery designated shares were cancelled in connection with the elimination of our tracking stock structure.

(2)

These shares were reserved in connection with the conversion of the 6.9% convertible subordinated note we assumed upon our acquisition of Biomatrix, Inc. in 2000. We paid cash to satisfy this note in May 2003.

Molecular Oncology Stock:

        For the three months ended March 31, 2003, basic and diluted net loss per share of Molecular Oncology Stock are the same. We did not include the securities described in the following table in the computation of Molecular Oncology Stock diluted net loss per share for the three months ended March 31, 2003, because these securities would have an anti-dilutive effect due to the net loss allocated to Molecular Oncology Stock (amounts in thousands):

(1)

Molecular Oncology designated shares were authorized shares of Molecular Oncology Stock that were not issued and outstanding, but which our board of directors could have issued, sold or distributed without allocating the proceeds to Genzyme Molecular Oncology. Effective July 1, 2003, all Molecular Oncology designated shares were cancelled in connection with the elimination of our tracking stock structure.

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4. Mergers and Acquisitions

Pending Merger with ILEX Oncology, Inc.

        In February 2004, we entered into an Agreement and Plan of Merger with ILEX Oncology, Inc., an oncology drug development company. The business combination will take the form of a stock-for-stock merger and is expected to be completed in mid-2004. Under the terms of the merger agreement, ILEX shareholders will receive shares of Genzyme common stock for each ILEX share owned based on an exchange ratio. This exchange ratio will equal $26.00 divided by the average (rounded to the nearest cent) of the per share closing prices of Genzyme common stock as reported by Nasdaq during the 20 trading days ending on the fifth trading day prior to the closing of the transaction, provided that if this average is greater than $59.88, then the exchange ratio will be 0.4342, and if this average is less than $46.58, then the exchange ratio will be 0.5582. Cash will be paid for fractional shares. The transaction has a total value of approximately $1 billion, based on ILEX's 39.0 million shares outstanding on February 26, 2004, and our offer price of $26.00 per share. The transaction will be accounted for as a purchase and is expected to qualify as a tax-free reorganization. The business combination has been approved by the board of directors of both companies, and is subject to clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and approval of ILEX's shareholders. In connection with the transaction, we anticipate incurring charges related to in-process research and development that will be determined following the closing. In April 2004, the FTC requested more information from us and ILEX related to our proposed transaction. We intend to respond promptly to the information request. This "second request" extends the waiting period under the Hart-Scott-Rodino Act during which the FTC is permitted to review the transaction.

Completed Mergers and Acquisitions

Acquisition of Physician Services and Analytical Services Business Units of IMPATH, Inc.

        On May 1, 2004, we acquired from IMPATH, the assets related to its Physician Services and Analytical Services business units for approximately $215 million in cash. We will account for the acquisition as a purchase and include its results of operations in our consolidated statements of operations beginning on May 1, 2004, the date of acquisition.

Alfigen, Inc.

        In February 2004, we acquired substantially all of the assets of Alfigen, Inc., or Alfigen, a national genetic testing provider based in Pasadena, California, for an aggregate purchase price of $47.6 million in cash. We accounted for the acquisition as a purchase and accordingly, the results of operations of Alfigen are included in our consolidated financial statements from February 21, 2004, the date of acquisition.

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        The purchase price and the allocation of the purchase price to the fair value of the acquired tangible and intangible assets and liabilities is as follows (amounts in thousands):

The purchase price was allocated to the intangible assets acquired and liabilites assumed based on their estimated fair values at the date of acquisition. The allocation of the purchase price to the estimated fair values remains subject to the final valuation. Pro forma results are not presented for the acquisition of Alfigen because the acquisition did not materially affect our results of operations.

SangStat Medical Corporation

        In September 2003, we completed an all cash tender offer for the outstanding common stock (and associated preferred stock purchase rights) of SangStat Medical Corporation, or SangStat, for $22.50 per outstanding SangStat share. The aggregate consideration paid was $636.6 million in cash. We accounted for the acquisition as a purchase. Accordingly, the results of operations of SangStat are included in our consolidated financial statements from September 11, 2003, the day after the expiration of the successful tender offer.

        In connection with the acquisition of SangStat, we initiated an integration plan to consolidate and restructure certain functions and operations of SangStat, including the relocation and termination of certain SangStat personnel and the closure of SangStat's leased facilities. These costs have been recognized as liabilities assumed in connection with the purchase of SangStat in accordance with EITF Issue No. 95-3, "Recognition of Liabilities in Connection with a Purchase Business Combination." The

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following table summarizes the liabilities established for exit activities related to the acquisition of SangStat (amounts in thousands):

(1)

Includes costs associated with the closure of leased facilities in the United States, Germany, Spain and Canada.

        We expect to pay employee related benefits through the end of 2004 and payments related to leased facilities through the first half of 2005.

Pro Forma Financial Summary

        The following pro forma financial summary is presented as if the acquisition of SangStat was completed as of January 1, 2003. The pro forma combined results are not necessarily indicative of the actual results that would have occurred had the acquisition been consummated on that date, or of the future operations of the combined entities. Material nonrecurring charges related to this acquisition, such as acquired IPR&D charges of $158.0 million are included in the following pro forma financial summary.

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5. Inventories

        We capitalize inventory produced for commercial sale, which may result in the capitalization of inventory that has not been approved for sale. If a product is not approved for sale, it would likely result in the write-off of the inventory and a charge to earnings. At March 31, 2004 and December 31, 2003, all of our inventories are for products that have been approved for sale.

6. Agreements with Dyax Corporation

        In October 1998, we entered into a collaboration agreement with Dyax to develop and commercialize one of Dyax's proprietary compounds for the treatment of chronic inflammatory diseases. In May 2002, we restructured our collaboration agreement with Dyax for the development of the kallikrein inhibitor DX-88. In 2003, we acquired a 49.99% interest in Kallikrein LLC, our joint venture with Dyax for the development of DX-88 for the potential treatment of hereditary angioedema, or HAE, and other chronic inflammatory diseases. As a result of our adoption of FIN 46, we have consolidated the results of Kallikrein LLC. Our consolidated balance sheet as of March 31, 2004 includes assets of $2.7 million related to Kallikrein LLC, substantially all of which are included in other current assets. We have recorded Dyax's portion of the joint venture's losses as minority interest in our consolidated statements of operations for the three months ended March 31, 2004.

        Under the terms of the collaboration agreement, both companies will share future development costs of DX-88 for HAE. In addition, Dyax will receive milestone payments from us upon dosing the first HAE patient in a pivotal clinical trial of DX-88 and upon regulatory approvals for the first indication. Dyax will also receive milestone payments from us if DX-88 is approved in additional indications. Contingent upon successful development and receipt of regulatory approvals, we will market the product worldwide. Both companies will share equally in profits from sales of DX-88 for HAE and/or other chronic inflammatory diseases. In March 2003, Dyax exercised an option to acquire from us all rights to DX-88 for surgical indications.

        In May 2002, we extended to Dyax a $7.0 million line of credit. Dyax issued a senior secured promissory note in the principal amount of $7.0 million to us under which it can request periodic advances of not less than $250,000 in principal, subject to certain conditions. Advances under this note bear interest at the prime rate plus 2%, which was 6% at March 31, 2004, and are due, together with any accrued but unpaid interest, in May 2005. Dyax may extend maturity of the note to May 2007 if the collaboration is in effect, no defaults or events of default exist and Dyax satisfies the financial covenants in the note as of the initial maturity date. As of March 31, 2004, Dyax had drawn $7.0 million under the note, which we have recorded as a note receivable-related party in our consolidated balance sheet. We consider Dyax a related party because the chairman and chief executive officer of Dyax is a member of our board of directors.

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7. Goodwill and Other Intangible Assets

Goodwill

        Effective July 1, 2003, in connection with the elimination of our tracking stock structure and associated changes in how we will review our business going forward, we revised our reportable segments. Diagnostics/Genetics now includes the goodwill related to our genetic testing business, formerly included in Other. The following tables contain the changes in our net goodwill during the three months ended March 31, 2004 and the year ended December 31, 2003 (amounts in thousands):

(1)

Represents the goodwill resulting from our acquisition of SangStat in September 2003. Additional adjustments to the goodwill were recorded in the first quarter of 2004.

(2)

Includes $33.3 million of goodwill resulting from our acquisition of Alfigen in February 2004.

(3)

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

        We are required to perform impairment tests under SFAS No. 142 annually, which we normally perform in July, and whenever events or changes in circumstances suggest that the carrying value of an asset may not be recoverable. There were no such events in the first quarter of 2004.

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Other Intangible Assets

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

(1)

Includes $11.0 million of customer lists and $2.0 million for non-compete agreements resulting from our acquisition of Alfigen in February 2004.

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

•

$26.2 million for the three months ended March 31, 2004; and



•

$17.5 million for the three months ended March 31, 2003.

        The estimated future amortization expense for other intangible assets as of March 31, 2004 for the remainder of fiscal year 2004 and the five succeeding fiscal years is as follows (amounts in thousands):

8. Investments in Equity Securities

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

        At March 31, 2004, our stockholders' equity includes $16.4 million of unrealized gains and $4.6 million of unrealized losses related to our investments in strategic equity securities. We believe the unrealized losses related to our other investments in equity securities are temporary.

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9. Joint Venture with BioMarin Pharmaceutical Inc.

        We formed BioMarin/Genzyme LLC, a joint venture with BioMarin Pharmaceutical Inc., to develop and market Aldurazyme, a recombinant form of the human enzyme alpha-L-iduronidase, to treat an LSD known as mucopolysaccharidosis I, or MPS I. We record our portion of the losses of BioMarin/Genzyme LLC in equity in loss of equity method investments in our consolidated statements of operations, which was $3.1 million for the three months ended March 31, 2004, as compared to $3.7 million for the same period of 2003. Condensed financial information for BioMarin/Genzyme LLC is summarized below (amounts in thousands):

10. Other Commitments and Contingencies

Legal Proceedings

        We periodically become subject to legal proceedings and claims arising in connection with our business. We do not believe that there were any asserted claims against us as of March 31, 2004, which, if adversely decided, would have a material adverse effect on our results of operations, financial condition or liquidity.

        Four lawsuits have been filed against us regarding the exchange of all of the outstanding shares of Biosurgery Stock and Molecular Oncology Stock for shares of Genzyme General Stock. The first case, filed in Massachusetts Superior Court in May 2003, was a purported class action on behalf of holders of Biosurgery Stock alleging a breach of the implied covenant of good faith and fair dealing in our charter and a breach of our board of directors' fiduciary duties. The plaintiff in this case was seeking an injunction to adjust the exchange ratio for the tracking stock exchange. The Court dismissed the complaint for failure to state a claim on November 12, 2003. The plaintiff in this case has appealed the dismissal of the complaint. Two substantially similar cases were filed in Massachusetts Superior Court in August and October 2003. These cases were consolidated in January 2004. The fourth case, filed in the U.S. District Court for the Southern District of New York in June 2003, was brought by two holders of Biosurgery Stock alleging, in addition to the state law claims contained in the other cases, violations of federal securities laws, common law fraud, and a breach of the merger agreement with Biomatrix. The plaintiffs are seeking an adjustment to the exchange ratio, the rescission of the acquisition of Biomatrix, and unspecified compensatory damages. We believe each of these cases is without merit and plan to defend against them vigorously.

        On March 27, 2003, the Office of Fair Trading (OFT) in the United Kingdom issued a decision against our wholly-owned subsidiary, Genzyme Limited, finding that Genzyme Limited held a dominant position and abused that dominant position with no objective justification by pricing Cerezyme in a way that excludes other delivery/homecare service providers from the market for the supply of home delivery and homecare services to Gaucher patients being treated with Cerezyme. In conjunction with this decision, the OFT imposed a fine on Genzyme Limited and required modification to its list price

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for Cerezyme in the United Kingdom. Genzyme Limited appealed this decision to the Competition Appeal Tribunal (Tribunal). On May 6, 2003, the Tribunal issued an order that stayed the OFT's decision, but required Genzyme Limited to provide a homecare distributor a discount of three percent (3%) per unit during the appeal process. The Tribunal issued its judgment on Genzyme Limited's appeal on March 11, 2004, rejecting portions of the OFT's decision and upholding others. The Tribunal found that the list price of Cerezyme should not be reduced, but that Genzyme Limited must negotiate a price for Cerezyme that will allow homecare distributors an appropriate margin. The Tribunal also reduced the fine imposed by the OFT for violation of U.K. competition laws. In response to the Tribunal's decision, we recorded a liability of approximately $11 million in our 2003 financial statements. This liability remains in accrued expenses in our consolidated balance sheet as of March 31, 2004. We are considering whether to appeal the Tribunal's judgment.

        In June 2003, we filed suit in U.S. District Court for the District of Massachusetts, as co-plaintiff with Biogen IDEC and Abbott Laboratories against Columbia University seeking a declaration that Columbia's U.S. Patent 6,455,275 is invalid. The patent relates to the manufacture of recombinant proteins in Chinese hamster ovary, or CHO, cells, which are the cells we use to manufacture Cerezyme, Fabrazyme and Thyrogen, and which our joint venture partner BioMarin uses to manufacture Aldurazyme. This new patent was issued by the United States Patent and Trademark Office, or USPTO, in September 2002 from a family of patents and patent applications originally filed in 1980. We are licensed under the patent family for a royalty of 1.5% of sales but, because we are confident that the new patent was mistakenly issued by the USPTO and is invalid, we have not paid the royalty pending the outcome of the litigation. We have received notice from Columbia that we are in breach of our license agreement. In the event we were to lose our lawsuit, we estimate our royalty obligation to Columbia would be between $10 million and $20 million per year through 2019, the precise amount depending on sales levels of the affected products and the level of third party royalty offsets available as provided for in our license agreement with Columbia. Columbia University has filed a motion to consolidate this case, with three other similar cases filed against it, into one case to be handled by the Judicial Panel on Multidistrict Litigation (MDL) process. A hearing on the MDL process was held in March 2004, resulting in a transfer of the case to the U.S. District Court for the district of Massachusetts. We expect discovery to commence in the second half of 2004.

        On August 7, 2003, a purported shareholder class action was filed in California Superior Court, County of Alameda, under the caption Pignone v. SangStat Medical Corp., et al., (Case No. RG 03110801). The plaintiff alleged that he was a stockholder of SangStat and purported to bring the action on behalf of the holders of SangStat common stock. The plaintiff named as defendants in the action are SangStat and each of SangStat's former directors. The plaintiff's complaint asserts that SangStat and each of its former directors breached fiduciary duties to SangStat stockholders by consenting to the acquisition by Genzyme. The plaintiff's complaint did not seek monetary damages but instead sought only equitable relief, including an order rescinding the transaction to the extent already implemented. The plaintiff also sought costs of suit, including attorneys' fees. The plaintiff filed an amended complaint in November 2003. On April 5, 2004, the Court granted SangStat's motion to dismiss with prejudice.

        We are not able to predict the outcome of these cases or estimate with certainty the amount or range of any possible loss we might incur if we do not prevail in the final, non-appealable determinations of these matters. Therefore, except for additional liabilities arising from the Tribunal's

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decision regarding Cerezyme pricing in the United Kingdom, we have not accrued any amounts in connection with these potential contingencies.

11. Tax Provision

        Our tax rates for both periods vary from the U.S. statutory tax rate as a result of our:

•

provision for state income taxes;



•

tax benefits from export sales; and



•

use of tax credits.

        We are currently under IRS Audit for tax years 1996 to 1999. We believe that we have provided sufficiently for all audit exposures. A favorable settlement of this audit may result in a reduction of future tax provisions, which could be significant. Any such benefit would be recorded upon final resolution of the exam.

12. Defined Benefit Pension Plans

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

Components of Net Periodic Benefit Costs

        The components of net pension expense for the three months ended March 31, 2004 and 2003 are as follows (amounts in thousands):

Employer Contributions

        At December 31, 2003, we recorded net prepaid benefit costs of $4.9 million related to our defined benefit pension plans. For the three months ended March 31, 2004, we contributed $0.5 million to our

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pension plan in the United Kingdom. We anticipate making $1.4 million of additional contributions to this plan in 2004 to satisfy our annual funding obligation.

13. Segment Information

        In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," we present segment information in a manner consistent with the method we use to report this information to our management. Applying SFAS No. 131, we have five reportable segments as described in Note 1., "Description of Business" to this Form 10-Q.

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