This Form 10-Q contains "forward-looking statements" as defined under securities laws. Many of these statements can be identified by the use of terminology such as "believes," "expects," "anticipates," "plans," "may," "will," "projects," "continues," "estimates," "potential," "opportunity" and similar expressions. These forward-looking statements may be found in "Overview," and other sections of this Form 10-Q. Our actual results or experience could differ significantly from the forward-looking statements. Factors that could cause or contribute to these differences include those discussed in "Risk Factors," in our Form 10-K for the year ended December 31, 2008, as well as those discussed elsewhere in this Form 10-Q. You should carefully consider that information before you make an investment decision.

You should not place undue reliance on these statements, which speak only as of the date that they were made. These cautionary statements should be considered in connection with any written or oral forward-looking statements that we may issue in the future. We do not undertake any obligation to release publicly any revisions to these forward-looking statements after completion of the filing of this Form 10-Q to reflect later events or circumstances, or to reflect the occurrence of unanticipated events.

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes to those statements included elsewhere in this Quarterly Report on Form 10-Q.

Overview

We develop and commercialize innovative biopharmaceuticals for serious diseases and medical conditions. We select product candidates for diseases and conditions that represent a significant unmet medical need, have well-understood biology and provide an opportunity to be first-to-market. Our product portfolio is comprised of three approved products and multiple investigational product candidates. Approved products include Naglazyme, Aldurazyme, and Kuvan.

Naglazyme received marketing approval in the U.S. in May 2005, in the E.U. in January 2006, and subsequently in other countries. Naglazyme net product revenues for the first quarters of 2008 and 2009 were $27.7 million and $39.4 million, respectively.

Aldurazyme has been approved for marketing in the U.S., E.U., and in other countries. Prior to 2008, we developed and commercialized Aldurazyme through a joint venture with Genzyme. Effective January 2008, we restructured our relationship with Genzyme whereby Genzyme sells Aldurazyme to third parties and we recognize royalty revenue on net sales by Genzyme. We recognize a portion of the royalty as product transfer revenue when product is released to Genzyme and all obligations related to the transfer have been fulfilled. The product transfer revenue represents the fixed amount per unit of Aldurazyme that Genzyme is required to pay us if the product is unsold by Genzyme. The amount of product transfer revenue will eventually be deducted from the calculated royalties earned when the product is sold by Genzyme. Our Aldurazyme net product revenues for the first quarters of 2008 and 2009 were $24.1 million and $17.0 million, respectively.

Kuvan was granted marketing approval in the U.S. in December 2007. Kuvan net product sales for the first quarters of 2008 and 2009 were $5.8 million and $15.5 million, respectively.

We are developing PEG-PAL, an experimental enzyme substitution therapy for the treatment of PKU, for patients that are not responsive to Kuvan. In May 2008, we initiated a Phase I open label clinical trial of PEG-PAL in PKU patients. The primary objective of this study is to assess the safety and tolerability of single subcutaneous injections of PEG-PAL in subjects with PKU. We have completed the dosing of the fifth cohort of patients in the Phase I trial, and are in communications with the FDA regarding the Phase II trial design and expect to initiate the study in the second quarter of 2009. In 2007 and early 2008 we devoted substantial resources to the development of 6R-BH4, the active ingredient in Kuvan, for the treatment of certain cardiovascular indications including peripheral arterial disease and sickle cell disease. We released data from several 6R-BH4 trials in early February 2009. We expect to initiate an open label Phase I/II clinical trial of GALNS, an enzyme replacement therapy for the treatment of MPS IVA in April 2009. We expect the results form this trial in the fourth quarter of 2009. We are conducting preclinical development of several other enzyme product candidates for genetic and other diseases, and a small molecule for the treatment of Duchenne Muscular Dystrophy.

Key components of our results of operations for the three months ended March 31, 2008 and 2009 include the following:

                                                   Three Months Ended March 31,
                                                     2008               2009
  Total net product revenues                    $       57,625    $         71,914
  Collaborative agreement revenues                       2,465                 509
  Cost of sales                                         17,188              14,362
  Research and development expense                      17,628              34,358
  Selling, general and administrative expense           23,669              28,568
  Net income (loss)                                      1,686             (13,152 )
  Stock-based compensation expense                       4,464               7,796

See "Results of Operations" for discussion of the detailed components and analysis of the amounts above. Our cash, cash equivalents, short-term investments and long-term investments totaled $555.9 million as of March 31, 2009, compared to $561.4 million as of December 31, 2008.

Critical Accounting Policies and Estimates

In preparing our condensed consolidated financial statements in accordance with GAAP and pursuant to the rules and regulations of the SEC, we make assumptions, judgments and estimates that can have a significant impact on our net income
(loss) and affect the reported amounts of certain assets, liabilities, revenue and expenses, and related disclosures. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis, we evaluate our assumptions, judgments and estimates. We also discuss our critical accounting policies and estimates with the Audit Committee of the Board of Directors.

We believe that the assumptions, judgments and estimates involved in the accounting for the impairment of long-lived assets, revenue recognition and related reserves, income taxes, inventory, research and development, and stock-based compensation have the greatest impact on our consolidated financial statements, so we consider these to be our critical accounting policies. Historically, our assumptions, judgments and estimates relative to our critical accounting polices have not differed materially from actual results.

There have been no significant changes in our critical accounting policies and estimates during the three months ended March 31, 2009 as compared to the critical accounting policies and estimates disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2008.

Recent Accounting Pronouncements

See Note 2(r) of our accompanying consolidated financial statements for a full description of recent accounting pronouncements and our expectation of their impact, if any, on our results of operations and financial condition.

Results of Operations

Net Income (Loss)

Our net loss for the three months ended March 31, 2009 was $13.2 million
compared to a net income of $1.7 million for the three months ended March 31,
2008, with the change primarily due to the following (in millions).



         Net income for the period ended March 31, 2008          $   1.7
         Increased Naglazyme gross profit                            8.8
         Increased Kuvan gross profit                                8.3
         Decreased Kuvan license fee revenues                       (1.3 )
         Increased research and development expenses               (16.8 )
         Increased selling, general and administrative expense      (4.9 )
         Impairment loss on La Jolla investment                     (4.5 )
         Increased Orapred royalty income                            1.1
         Decreased interest income                                  (3.5 )
         Impairment loss on Summit investment                       (1.4 )
         Other individually insignificant fluctuations              (0.7 )

         Net loss for the period ended March 31, 2009            $  13.2

The increase in Naglazyme gross profit in the first quarter of 2009 as compared to the first quarter of 2008 is primarily a result of additional patients initiating therapy outside the U.S. and the E.U. The increase in Kuvan gross profit during the first quarter of 2009 compared to the first quarter of 2008 is primarily a result of additional patients initiating therapy in the U.S. The decrease in Kuvan license fee revenues is attributed to us fulfilling all performance obligations relating to the 2005 $25.0 million up-front license payment from Merck Serono in December 2008. The increase in selling, general and administrative expense was primarily due to the continued international expansion of Naglazyme and commercialization of Kuvan in the U.S. The increase in research and development expense was primarily due to increases in development expense for our GALNS program, the up-front costs associated with a product licensed from La Jolla for the treatment of lupus nephritis, and other early stage programs. See below for additional information related to the primary net income (loss) fluctuations presented above, including details of our operating expense fluctuations.

Net Product Revenues, Cost of Sales and Gross Profit

The following table shows a comparison of net product revenues for the three
months ended March 31, 2008 and 2009 (in millions):



                                                 Three Months Ended
                                                     March 31,
                                              2008      2009    Change
                Naglazyme                    $  27.7   $ 39.4   $  11.7
                Kuvan                            5.8     15.5       9.7
                Aldurazyme                      24.1     17.0      (7.1 )

                Total Net Product Revenues   $  57.6   $ 71.9   $  14.3

Net product revenue for Naglazyme in the first quarter of 2009 totaled $39.4 million, of which $34.5 million was earned from end-user customers based outside the U.S. The negative impact of foreign currency exchange rates on Naglazyme sales from customers based outside the U.S. was approximately $2.0 million in the first quarter of 2009. Gross profit from Naglazyme in the first quarter of 2009 was approximately $31.3 million, representing gross margins of approximately 80% as compared to $22.2 million in the first quarter of 2008, representing gross margins of approximately 80%. The decrease in gross margins is attributed to the negative foreign currency impact during the first quarter of 2009.

We received marketing approval for Kuvan in the U.S. in December 2007 and began shipping product that same month. Net product revenue for Kuvan in the U.S. during the first quarter of 2009 was $15.5 million, compared to $5.8 million during the first quarter of 2008. Gross profit from Kuvan in the first quarter of 2009 was approximately $13.1 million, representing gross margins of approximately 84%. During the first quarter of 2008, gross profit from Kuvan was approximately $5.1 million, representing gross margins of 88%. Both periods reflect royalties paid to third parties of 11%. In accordance with our inventory accounting policy, we began capitalizing Kuvan inventory production costs after U.S. regulatory approval was obtained in December 2007. As a result, the product sold in 2008 had an insignificant cost basis. We expect that a significant portion of Kuvan sold during 2009 will be previously expensed product and will have a minimal cost basis. The cost of sales for Kuvan for the first quarters of 2008 and 2009 is primarily comprised of royalties paid to third parties based on Kuvan net sales.

As a result of the restructuring of the BioMarin/Genzyme LLC joint venture, we record a 39.5% to 50% royalty on worldwide net product sales of Aldurazyme. We also recognize product transfer revenue when product is released to Genzyme and all of our obligations have been fulfilled. Genzyme's return rights for Aldurazyme are limited to defective product or product. The product transfer revenue represents the fixed amount per unit of Aldurazyme that Genzyme is required to pay us if the product is unsold by Genzyme. The amount of product transfer revenue will eventually be deducted from the calculated royalty rate when the product is sold by Genzyme.

Aldurazyme net product revenue during the first quarter of 2009 was $17.0 million, compared to $24.1 million in the first quarter of 2008. Aldurazyme net product revenues in the first quarter of 2009 was comprised of $14.5 million in royalty revenues and incremental net product transfer revenue of $2.5 million. Aldurazyme net product revenue in the first quarter of 2008 was comprised of $14.6 million of royalty revenue and $9.5 million of net product transfer revenue. Royalty revenue from Genzyme is based on 39.5% of net Aldurazyme sales by Genzyme, which totaled $36.8 million in the first quarters of 2009 and 2008. Incremental Aldurazyme net product transfer revenue reflects incremental shipments of Aldurazyme to Genzyme to meet future product demand. In January 2008, we transferred existing finished goods on-hand to Genzyme under the restructured terms of the BioMarin/Genzyme LLC agreements, resulting in the recognition of significant incremental product transfer revenue during 2008. In the future, to the extent that Genzyme Aldurazyme inventory quantities on hand remain flat, we expect that our total Aldurazyme revenues will approximate the 39.5% to 50% royalties on net product sales by Genzyme. In the first quarter of 2009, Aldurazyme gross profit was $13.2 million, representing a gross margin of 77%, which reflects the profit earned on royalty revenue and net incremental product transfer revenue. For the same period in 2008, Aldurazyme gross profit was $13.2 million, representing a gross margin of 55%. The increase in gross margins is attributed to a shift in revenue mix between royalty revenue and net product transfer revenues. In the first quarter of 2009, the revenue mix was 85% royalty revenues and 15% net product transfer revenues, compared to the first quarter of 2008, where the revenue mix was 61% royalty revenues and 39% net product transfer revenues. Aldurazyme gross margins are expected to fluctuate depending on the mix of royalty revenue, from which we earn higher gross profit, and product transfer revenue, from which we earn a lower gross profit.

Total cost of sales during the first quarters of 2008 and 2009, was $17.2 million and $14.4 million, respectively. The decrease in cost of sales is primarily due to the Aldurazyme product revenue mix in the first quarter of 2009 compared to the first quarter of 2008 as cost of sales related to Aldurazyme are recorded in the period the product is shipped to Genzyme offset by the increased net product revenues discussed above.

Collaborative Agreement Revenues

Collaborative agreement revenues include both license revenue and contract research revenue under our agreement with Merck Serono, which was executed in May 2005. License revenues are related to amortization of the $25.0 million up-front license payment received from Merck Serono and contract research revenues are related to shared development costs that are incurred by us, of which approximately 50% is reimbursed by Merck Serono. Our performance obligations related to the initial $25.0 million up-front license payment were completed in December 2008. Therefore, periods subsequent to December 31, 2008 will not include amortization amounts related to this payment. As shared development spending increases or decreases, contract research revenues will also change proportionately. Reimbursable revenues are expected to increase if PEG-PAL or 6R-BH4 successfully complete Phase II clinical trials and Merck Serono exercises its option to co-develop the program. The related costs are included in research and development expenses.

Collaborative agreement revenues in the first quarters of 2008 and 2009 were $2.5 million and $0.5 million, respectively. Collaborative agreement revenues in the first quarter of 2009 were comprised of reimbursable Kuvan development costs, compared to the first quarter of 2008 which included amortization of the $25.0 million up-front license payment received from Merck Serono and reimbursable Kuvan development of $1.5 million and $1.0 million, respectively. Kuvan development costs decreased during the first quarter of 2009 as compared to the first quarter of 2008 due to reductions in Kuvan clinical trial activities.

Royalty and License Revenues

Royalty and license revenue for the first quarter of 2009 totaled $1.6 million, compared to $0.3 million in the first quarter of 2008. Royalty and license revenues for the three months ended March 31, 2009 included royalty revenues from Orapred product sold by the sublicensee of $1.4 million and Kuvan royalty revenues for products sold in Japan and Europe of $0.2 million. Royalty and license revenues for the first quarter of 2008 included royalty revenues from Orapred product sold by the sublicensee of $0.3 million.

Research and Development Expense

Our research and development expense includes personnel, facility and external costs associated with the research and development of our product candidates and products. These research and development costs primarily include preclinical and clinical studies, manufacturing of our product candidates prior to regulatory approval, quality control and assurance and other product development expenses, such as regulatory costs.

Research and development expenses increased by $16.8 million to $34.4 million for the three months ended March 31, 2009, from $17.6 million for the three months ended March 31, 2008. The change in research and development expenses for the first quarter of 2009 is primarily as a result of the following (in millions):

Research and development expenses for period ended March 31, 2008           $ 17.6
License payment related to collaboration with La Jolla Pharmaceutical
Company                                                                        8.8
Increased GALNS for Morquio Syndrome Type A development expense                2.8
Increased Kuvan development costs                                              0.7
Increased Prodrug development expenses                                         0.8
Increased stock-based compensation expense                                     0.9
Increased Duchene Muscular Dystrophy program development expense               0.3
Decreased 6R-BH4 development costs for indications other than PKU             (0.8 )
Decreased research and development expense on early development stage
programs                                                                      (0.3 )
Increase in non-allocated research and development expense and other
net changes                                                                    3.6

Research and development expenses for the period ended March 31, 2009       $ 34.4

During the first quarter of 2009, we paid La Jolla Pharmaceutical Company an up-front license fee for the rights to develop and commercialize their investigational drug, Riquent, for the treatment of lupus nephritis. In February 2009, the results of the first interim efficacy analysis for the Phase III ASPEN Study were announced, and the Independent data Monitoring Board determined that the continuation of the trial was futile, as such we do not expect to continue incurring development costs for the licensed product. The increase in GALNS development costs is primarily attributed to an increase in pre-clinical studies and manufacturing costs in preparation for the Phase I/II clinical trial that we initiated in April 2009. The decrease in 6R-BH4 development costs for indications other than PKU is primarily due to a decline in pre-clinical studies in 2009. The increase in Kuvan research and development costs is attributed to long-term clinical activities related to post-approval regulatory commitments. We expect to continue incurring significant Kuvan research and development costs for the foreseeable future due to long-term clinical activities related to Kuvan post-approval regulatory commitments and spending on our GALNS program for the treatment of Morquio Syndrome Type A and PEG-PAL and Prodrug programs. The increase in stock-based compensation expense is a result of an increased number of options outstanding due to increased number of employees and a higher average stock price on the related grant date. The increase in non-allocated research and development primarily includes increases in facilities costs, general research costs and research and development personnel.

Selling, General and Administrative Expense

Our selling, general and administrative expense includes commercial and administrative personnel, corporate facility and external costs required to support our commercialized products and product development programs. These selling, general and administrative costs include: corporate facility operating expenses and depreciation; marketing and sales operations; human resources; finance, legal and support personnel expenses; and other external corporate costs such as insurance, audit and legal fees.

Selling, general and administrative expenses increased by $4.9 million, to $28.6 million for the three months ended March 31, 2009, from $23.7 million for the three months ended March 31, 2008. The components of the change for first quarter of 2009 primarily include the following (in millions):

Selling, general and administrative expense for the period ended
March 31, 2008                                                              $ 23.7
Increased Naglazyme sales and marketing expenses                               1.2
Increased stock-based compensation expense                                     2.0
Increased Kuvan commercialization expenses                                     1.7
Increased foreign exchange losses on un-hedged transactions                   (0.2 )
Net increase in corporate overhead and other administrative costs              0.2

Selling, general and administrative expenses for the period ended
March 31, 2009                                                              $ 28.6

Naglazyme sales and marketing expenses increased in the first quarter of 2009, primarily due to the expansion of our international commercial activities. We also incurred increased commercialization expenses related to the Kuvan commercial launch. The increase in stock-based compensation expense was the result of an increased number of outstanding stock options and a higher average stock price on the related grant date. We expect selling, general and administrative expenses to increase in future periods as a result of the international expansion of Naglazyme and the U.S. commercialization activities for Kuvan.

Amortization of Intangible Assets

Amortization of acquired intangible assets includes the current amortization expense of the intangible assets acquired in the Ascent Pediatrics transaction in May 2004, including the Orapred developed and core technology. The Orapred intangible asset is being amortized over approximately 3.5 years, and is expected to total approximately $1.8 million through the end of its expected useful life in August 2009.

Kuvan license payments, recorded as intangible assets, made to third parties as a result of the Food and Drug Administration (FDA) approval of Kuvan in December 2007 and the European Medicines Agency (EMEA) approval of Kuvan in December 2008 are being amortized over approximately 7.0 years and 10.0 years, respectively. Amortization of the Kuvan intangible assets is recorded as a component of cost of goods sold and is expected to approximate $0.6 million annually through 2014 and $0.3 million annually through 2018. Amortization expense related to the Kuvan intangible assets for the three months ended March 31, 2008 and 2009 was $0.1 million and $0.2 million, respectively. The increase in Kuvan related amortization expense is attributed to the EMEA approval milestone paid in December 2008.

Equity in the Loss of BioMarin/Genzyme LLC

Equity in the loss of BioMarin/Genzyme LLC includes our 50% share of the joint venture's loss for the period. Effective January 2008, we and Genzyme restructured BioMarin/Genzyme LLC regarding the manufacturing, marketing and sale of Aldurazyme. As of January 1, 2008, BioMarin/Genzyme LLC's operations consist primarily of certain research and development activities and the intellectual property which continues to be managed by the joint venture with costs shared equally by BioMarin and Genzyme.

Equity in the loss of the joint venture remained materially consistent for the first quarter of 2009, compared to the first quarter of 2008 at approximately $0.5 million.

Interest Income

We invest our cash, short-term and long-term investments in government and other high credit quality securities in order to limit default and market risk. Interest income decreased to $2.2 million for the first quarter of 2009, from $5.6 million for the same period in 2008. The reduced interest yields during the first quarter of 2009 were due to lower market interest rates and decreased levels of cash and investments. We expect that interest income will decline in future quarters in 2009 as compared to 2008 due to reduced interest yields and lower cash and investment balances.

Interest Expense

We incur interest expense on our convertible debt. Interest expense also includes imputed interest expense on the discounted acquisition obligation for the Ascent Pediatrics transaction. Interest expense in each of the first quarters of 2008 and 2009 was $4.1 million and included $1.1 million of imputed interest. Imputed interest on the outstanding balance will be incurred through August 2009 when payment is due on the Medicis obligation.

Changes in Financial Position

March 31, 2009 Compared to December 31, 2008

From December 31, 2008 to March 31, 2009, our inventory increased by approximately $3.3 million. Our accounts receivable increased by $7.1 million due to increased sales of Naglazyme and Kuvan and receivables from Genzyme for . . .