(o) Reclassifications

The Company’s equity in the income of the BioMarin/Genzyme LLC joint venture has been presented as non-operating income in the consolidated statements of operations. During the first quarter of 2007, management determined that the significance of the joint ventures’ operations with respect to the Company has decreased on a relative basis compared to the Company’s other activities and that presenting the equity in the income of the joint venture as a non-operating income item was now more representative of the Company’s operations as a whole. Changes to the proportionate significance of the operating nature of the joint venture to the Company’s total operations include the continued world-wide commercialization of Naglazyme, the planned commercial launch of Kuvan pending FDA approval, and the increasing requirements of the Company’s ongoing research and development programs. Prior periods have been reclassified to conform to the current presentation for consistency.

Additionally, approximately $1.7 million was reclassified from Other Assets to Restricted Cash on the consolidated balance sheet as of December 31, 2006. Certain other items in the 2006prior years’ consolidated financial statements have been reclassified to conform to the 2007current presentation.

(3) STOCK-BASED COMPENSATION

Effective January 1, 2006, BioMarin began recordingrecords compensation expense associated with stock options and other forms of equity compensation in accordance with SFAS No. 123R, “Share Based Payment”, as interpreted by SAB No. 107. Prior toEffective January 1, 2006, the Company accounted for stock options according to the provisions of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees”,and related interpretations, and therefore no related compensation expense was recorded for awards granted with no intrinsic value. BioMarin adopted the modified prospective transition method provided for under SFAS No. 123R, and consequently has not retroactively adjusted results from prior periods. Under this transition method, compensation cost associated with stock options now includes: (1) quarterly amortization related to the remaining unvested portion of all stock option awards granted prior to January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123; and (2) quarterly amortization related to all restricted stock and stock option awards granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R. In addition, the Company records expense related to shares issued under its employee stock purchase plan over the offering period.

The compensation expense for stock-based compensation awards includes an estimate for forfeitures and is recognized over the requisite service period of the options using the straight-line method. Prior to adoption of SFAS No. 123R, benefitsBenefits of tax deductions in excess of recognized compensation costs were required to be reported as operating cash flows. SFAS No. 123R requires that they beare recorded as a financing cash inflow rather than as a reduction of taxes paid. For the ninethree months ended September 30, 2007, noMarch 31, 2008, net excess tax benefits were generatedrecognized from option exercises.exercises were insignificant due to the Company’s valuation allowance. The Company evaluated the need to record a cumulative effect adjustment

BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

(Unaudited)

for estimated forfeitures upon the adoption of SFAS No. 123R and determined the amount to be insignificant. Pursuant to the income tax provisions included in SFAS 123R, the Company has elected the long method of computing its hypothetical additional paid-in capital pool. The Company is in the process of computing the hypothetical excess tax benefits in additional paid-in capital as of the date of adoption of SFAS No. 123R. This analysis is not expected to result in a material change to BioMarin’s financial statements.

Stock-based compensation expense for the three months ended September 30, 2007March 31, 2008 totaled $5.0$4.5 million, of which $3.0$2.7 million was included in selling, general and administrative expense, $1.9$1.6 million was included in research and development expense and $0.1$0.2 million of stock-based compensation was included in cost of goods sold.sales. Stock-based compensation expense for the three months ended September 30, 2006March 31, 2007 totaled $2.7$3.6 million, of which $1.6$2.1 million was included in selling, general and administrative expense, $1.1$1.3 million was included in research and development expense and $0$0.2 million was included in cost of goods sold.sales. Stock-based compensation of $0.2$0.4 million and $0.5$0.9 million was capitalized into Naglazyme inventory for the three months ended September 30, 2006March 31, 2007 and 2007,2008, respectively, and will be recognized as cost of goods soldsales when the related product is sold.

Stock-based compensation expense for the nine months ended September 30, 2007 totaled $12.8 million, of which $7.6 million was included in selling, general and administrative expense, $4.8 million was included in research and development expense and $0.4 million of stock-based compensation was included in cost of goods sold. Stock-based compensation expense for the nine months ended September 30, 2006 totaled $6.5 million, of which, $3.6 million was included in selling, general and administrative expense, $2.9 million was included in research and development expense and $0 was included in cost of goods sold. Stock-based compensation of $0.9 million and $1.5 million was capitalized into Naglazyme inventory for the nine months ended September 30, 2006 and 2007, respectively, and will be recognized as cost of goods sold when the related product is sold.

BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2008

(Unaudited)

Share Incentive Plan

BioMarin’s 2006 Share Incentive Plan, which was approved in June 2006 and replaces the Company’s previous stock option plans for new grants, provides for grants of options to employees to purchase common stock at the fair market value of such shares on the grant date, as well as other forms of equity compensation.compensation, such as restricted stock units. As of September 30, 2007,March 31, 2008, awards issued under the 2006 Share Incentive Plan include both stock options and restricted stock units. Stock option awards generally vest over a four-year period on a cliff basis six months after the grant date and then monthly thereafter. The term of the outstanding options is generally ten years. Options assumed under past business acquisitions generally vest over periods ranging from immediately upon grant to five years from the original grant date and have terms ranging from two to ten years. Restricted stock units granted to employees generally vest in a straight-line, annually over a four-year period afterfour equal annual tranches on each anniversary of the grant date. Restricted stock units granted to directors generally vest in full one year after the grant date.

The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model and the assumptions noted in the table below. The expected life of options is based on observed historical exercise patterns. Groups of employees that have similar historical exercise patterns were considered separately for valuation purposes, but none were identified that had distinctly different exercise patterns as of September 30, 2007.March 31, 2008. The expected volatility of stock options is based upon proportionate weightings of the historical volatility of BioMarin stock and the implied volatility of traded options on the Company’s stock for fiscal periods in which there is sufficient trading volume in options on the Company’s stock. The risk free interest rate is based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term equal to the expected term of the option. The dividend yield reflects that BioMarin has not paid any cash dividends since inception and does not intend to pay any cash dividends in the foreseeable future.

The Company recorded $5.0$3.6 million and $12.8$4.5 million of compensation expense related to current period vesting of stock options for the three and nine months ended September 30,March 31, 2007 and 2008, respectively, recognized in accordance with SFAS No. 123R, and recorded $2.6 million and $6.9 million of compensation expense related to stock options for the three and nine months ended September 30, 2006.123R. As of September 30, 2007,March 31, 2008, there was $49.3$44.6 million of total unrecognized compensation cost related to unvested stock options. These costs are expected to be recognized over a weighted average period of 2.92.8 years.

BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

(Unaudited)

A summary of stock option activity under all plans, including plans that were suspended upon adoption of the 2006 Share Incentive Plan, for the ninethree months ended September 30, 2007March 31, 2008 is presented as follows:

The aggregate intrinsic value for outstanding options is calculated as the difference between the exercise price of the underlying awards and the quoted price of ourthe Company’s common stock as of the end of the period. There were 11.610.0 million options that were in-the-money at September 30, 2007.March 31, 2008. The aggregate intrinsic value of options exercised was determined as of the date of option exercise. The total intrinsic value of options exercised during the three and nine months ended September 30, 2007 was $9.3 million and $13.0 million, respectively. The total intrinsic value of options exercised during the three and nine months ended September 30, 2006 was $4.1 million and $7.6 million, respectively. The weighted-average grant-date fair value of stock options granted during the three and nine months ended September 30, 2007 was $10.64 and $8.98, respectively. The weighted-average grant-date fair value of stock options granted during the three and nine months ended September 30, 2006 was $7.44 and $6.54, respectively.

BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2008

(Unaudited)

An initial option is granted to each new outside member of BioMarin’s Board of Directors to purchase 30,000 shares of common stock at the fair value on the date of the grant. Until January 2007, on each anniversary date of becoming a director, each outside member was granted options to purchase 30,000 shares of common stock at the fair market value on such date. Effective June 7, 2007, onOn the date of each annual meeting of stockholders, other than newly elected directors, each outside director is granted options for the purchase of 15,000 shares of common stock and 2,500 restricted stock units. The options vest over one year and have a term of ten years. The restricted stock units vest on the one-year anniversary of the date of grant.

As of September 30, 2007, the options outstanding consisted of the following:

A summary of non-vested restricted stock unit activity under the plan for the ninethree months ended September 30, 2007March 31, 2008 is presented as follows:

The Company recorded $0.1 million and $0.2 million of compensation expense related to restricted stock units for the three and nine months ended September 30, 2007, respectively,March 31, 2008, recognized in accordance with SFAS No. 123R. There were no restricted stock unit grants prior to the second quarter of 2007 and therefore no compensation expense was recognized related to restricted stock units in previous periods. As of September 30, 2007,March 31, 2008, there was $1.8$1.7 million of total unrecognized compensation cost related to unvested restricted stock units. These costs are expected to be recognized over a weighted average period of 3.53.1 years.

BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

(Unaudited)

At September 30, 2007,March 31, 2008, an aggregate of approximately 11.811.3 million unissued shares were authorized for future issuance under the Company’s stock plans, which include shares issuable under the Company’s 2006 Share Incentive Plan and the Company’s Employee Stock Purchase Plan. Awards under the 2006 Share Incentive Plan that expire or are cancelled without delivery of shares generally become available for issuance under the plan. Awards that expire or are cancelled under the Company’s suspended 1997 Stock Plan or 1998 Director Option Plan may not be reissued.

Employee Stock Purchase Plan

Under BioMarin’s Employee Stock Purchase Plan, which was approved in June 2006 and replaces the Company’s previous plan, U.S. employees meeting specific employment qualifications are eligible to participate and can purchase shares on established dates semi-annually through payroll deductions at the lower of 85% of the fair market value of the stock at the commencement or each purchase date of the offering period. Each offering period will span up to two (2) years. The Employee Stock Purchase Plan permits eligible employees to purchase common stock through payroll deductions for up to 10% of qualified compensation, up to an annual limit of $25,000. The Employee Stock Purchase Plan has been treated as a compensatory plan. The Company recorded compensation expense of $0.3$0.1 million and $1.1$0.3 million related to the Employee Stock Purchase Plan in the three and nine months ended September 30,March 31, 2007 and recorded $0.3 million and $0.5 million of compensation expense in the three and nine months ended September 30, 2006.2008, respectively.

The fair value of each award is estimated on the date of grant using the Black-Scholes valuation model and the assumptions noted in the table below. The expected volatility of Employee Stock Purchase Plan shares is based on the implied volatility of traded options on the Company’s stock for periods in which there is sufficient trading volume in those options. Otherwise, historical volatility is utilized. The risk free interest rate is based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term equal to the expected term of the option. The dividend yield reflects that BioMarin has not paid any cash dividends since inception and does not intend to pay any cash dividends in the foreseeable future.

(4) SUBLICENSE OF NORTH AMERICAN ORAPRED RIGHTS

In March 2006, the Company entered into a license agreement with Sciele for the continued sale and commercialization of Orapred and other Orapred formulations then under development, including Orapred ODT. Through the agreement, Sciele acquired exclusive rights to market these products in North America, and BioMarin retained exclusive rights to market these products outside of North America. BioMarin and Sciele are individually responsible for the costs of commercializing the products within their respective territories. Sciele will also pay BioMarin royalties on its net sales of these products. BioMarin will also transfer the North American intellectual property to Sciele in August 2009, following the planned purchase of the stock of Ascent Pediatrics from Medicis.

Pursuant to the agreement, Sciele paid BioMarin $2.5 million as consideration for executing the agreement, and agreed to make additional milestone payments of $15.5 million based on the approval and successful commercial launch of Orapred ODT, of which $11.5 million was received during the nine months ended September 30, 2006, with $4.0 million received during the three months ended September 30, 2006. An additional milestone of $4.0 million was received in June 2007 related to the one-year anniversary of FDA approval of Orapred ODT. During the three and nine months ended September 30, 2007, the Company recognized $0.4 million and $1.2 million, respectively, in royalty revenues from Orapred products sold by the sublicense, and recognized $0.8 million and $0.9 million in royalty revenues during the three and nine months ended September 30, 2006, respectively.

BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007March 31, 2008

(Unaudited)

(5) ACQUIRED INTANGIBLE ASSETS AND GOODWILL

(a) Acquired Intangible Assets

Acquired intangible assets relate to the Ascent Pediatrics transaction completed during May 2004 and consist of the Orapred product technology as of September 30, 2007. The gross and net carrying value of the Orapred product technology as of September 30, 2007 were as follows (in thousands):

Upon execution of the sublicense of the North American rights of Orapred in March 2006, which was determined to be a triggering event according to SFAS No. 144, the Company performed an impairment test and determined that no impairment of intangible assets existed as of March 31, 2006. No triggering events were identified during the first nine months of 2007.

The Orapred product technology is being amortized on a straight-line basis over its revised estimated useful life of 3.5 years. The estimated useful life was revised from 15 years following the execution of the sublicense for the North American rights to Orapred, which includes an asset transfer of the underlying intangible assets in August 2009, representing the revised useful life of the asset. The estimated amortization expense associated with the revised estimated useful life of the Orapred product technology for each of the succeeding three years is as follows (in thousands):

Amortization expense for the three and nine months ended September 30, 2007 was $1.1 million and $3.3 million, respectively, and was $1.1 million and $2.6 million, respectively, for the three and nine months ended September 30, 2006.

(b) Goodwill

Goodwill as of September 30, 2007 relates to the Ascent Pediatrics transaction completed during May 2004. The aggregate amount of goodwill acquired in the transaction was approximately $21.3 million. Using the reporting unit basis required by SFAS No. 142, “Goodwill and Other Intangible Assets”, the Company completed an impairment test during March 2006, upon execution of the sublicense of North American rights, which was determined to be a triggering event according to SFAS No. 142. The Company determined that no impairment of goodwill existed as of March 2006. Following the sublicense of North American rights of Orapred in March 2006, the Company has concluded it only has one reporting unit. Whether or not goodwill will be impaired in the future is dependent upon the future estimated fair value of the Company. No triggering events were identified during the first nine months of 2007.

(6)(4) JOINT VENTURE

(a) Joint Venture Financial DataEffective January 2008, the Company and Genzyme restructured BioMarin/Genzyme LLC. Under the revised structure, the operational responsibilities for BioMarin and Genzyme did not significantly change, as Genzyme will continue to globally market and sell Aldurazyme and BioMarin will continue to manufacture Aldurazyme. As of January 1, 2008, instead of sharing all costs and profits equally through the 50/50 joint venture, Genzyme will record sales of Aldurazyme to third party customers and will pay BioMarin a tiered payment ranging from approximately 39.5 to 50 percent of worldwide net product sales depending on sales volume, which will be recorded by BioMarin as product revenue. In addition, the Company recognizes product transfer revenue when product is shipped to Genzyme. The amount of product transfer revenue will eventually be deducted from royalties earned when the product is sold by Genzyme. Certain research and development activities related to Aldurazyme and intellectual property will continue to be managed in the joint venture with the costs shared equally by BioMarin and Genzyme. Pursuant to the terms of the joint venture restructuring, the Company received distributions of $16.7 million of cash and $26.8 million of inventory from the joint venture in the first quarter of 2008.

The Company will also present the related cost of sales and its Aldurazyme-related operating expenses as operating expenses in the consolidated statements of operations. Equity in the loss of BioMarin/Genzyme LLC subsequent to the restructuring will include BioMarin’s 50% share of the net loss of BioMarin/Genzyme LLC related to intellectual property management and ongoing research and development activities. The results of the joint venture’s operations for the three and nine months ended September 30, 2006March 31, 2007 and 2007,2008, are presented in the table below (in thousands). Equity in the Income of BioMarin/Genzyme LLC represents the Company’s 50% share of the joint venture’s income. The joint venture’s results and summarized assets and liabilities as presented below give effect to the difference in inventory cost basis between the Company and the joint venture. The difference in basis primarily represents the difference in inventory capitalization policies between the joint venture and the Company. The Company began capitalizing Aldurazyme inventory costs in May 2003 after regulatory approval was obtained. The joint venture began capitalizing Aldurazyme inventory costs in January 2002 when inventory production for commercial sale began. The difference in inventory capitalization policies resulted in greater operating expense recognized by the Company prior to regulatory approval compared to the joint venture. Correspondingly, this results in less cost of goods sold recognized by the Company when the previously expensed product is sold by the joint venture and less operating expenses when this previously expensed product is used in clinical trials. The difference will be eliminated when all of the product produced prior to obtaining regulatory approval has been sold or used in clinical trials. The majority of the difference has been eliminated as of September 30, 2007.

BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

(Unaudited)

At September 30, 2007,March 31, 2008, the summarized assets and liabilities of the joint venture and the components of the Company’s investment in the joint venture are as follows (in thousands):

(b) Joint Venture Critical Accounting Policies

Revenue recognition—The critical accounting policies of BioMarin/Genzyme LLC recognizes revenue from product sales when persuasive evidence of an arrangement exists, the product has been deliveredrelevant to its operations prior to the customer, title and risk of loss have passed to the customer, the price to the buyer is fixed or determinable and collection from the customer is reasonably assured. Revenue transactionsrestructuring are evidenced by customer purchase orders, customer contracts, invoices and/or the related shipping documents.

The timing of product shipment and receipts can have a significant impact on the amount of revenue that BioMarin/Genzyme LLC recognizes in a particular period. Also, Aldurazyme is sold in part through distributors. Inventorydiscussed in the distribution channel consists of inventory held by distributors, who are BioMarin/Genzyme LLC’s customers, and inventory held by retailers, such as pharmacies and hospitals. BioMarin/Genzyme LLC’s revenue in a particular period can be impacted by increases or decreases in distributor inventories. If distributor inventories increased to excessive levels, BioMarin/Genzyme LLC could experience reduced purchases in subsequent periods. To determine the amount of Aldurazyme inventory in the joint venture’s U.S. distribution channel, BioMarin/Genzyme LLC receives dataCompany’s Annual Report on sales and inventory levels directly from its primary distributorsForm 10-K for the product.

BioMarin/Genzyme LLC records reserves for rebates payable under Medicaid and third-party payer contracts, such as managed care organizations, as a reduction of revenue at the time product sales are recorded.

Certain components of the BioMarin/Genzyme LLC rebate reserves are calculated based on the amount of inventory in the distribution channel, and are impacted by BioMarin/Genzyme LLC’s assessment of distribution channel inventory. BioMarin/Genzyme LLC’s calculation also requires other estimates, including estimates of sales mix, to determine which sales will be subject to rebates and the amount of such rebates. BioMarin/Genzyme LLC updates its estimates and assumptions each period, and records any necessary adjustments to its reserves.

BioMarin/Genzyme LLC records allowances for product returns, if appropriate, as a reduction of revenue at the time product sales are recorded. Several factors are considered in determining whether an allowance for product returns is required, including the nature of Aldurazyme and its patient population, the customers’ limited return rights, Genzyme’s experience of returns for similar products and BioMarin/Genzyme LLC’s estimate of distribution channel inventory, based on sales and inventory level information provided by the primary distributors for Aldurazyme, as described above. Based on these factors, BioMarin/Genzyme LLC has concluded that product returns will be minimal. In the future, if any of these factors and/or the history of product returns changes, an allowance for product returns may be required.

Inventory—BioMarin/Genzyme LLC values inventories at the lower of cost or fair value. BioMarin/Genzyme LLC determines the cost of raw materials using the average cost method and the cost of work in process and finished goods using the specific identification method. BioMarin/Genzyme LLC analyzes its inventory levels quarterly and writes down to its net realizable valueyear ended December 31, 2007.

BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007March 31, 2008

(Unaudited)

inventory that has expired, become obsolete, has a cost basis in excess of its expected net realizable value, or is in excess of expected requirements. If actual market conditions are less favorable than those projected by the joint venture, additional inventory write-offs may be required.

BioMarin/Genzyme LLC capitalizes inventory produced for commercial sale. Refer to Note 6(a) above for discussion of the difference in inventory cost basis between the Company and BioMarin/Genzyme LLC.

(7)(5) SUPPLEMENTAL BALANCE SHEET INFORMATION

As of December 31, 20062007 and September 30, 2007,March 31, 2008, accounts payable and accrued liabilities consisted of the following (in thousands):

As of December 31, 20062007 and September 30, 2007,March 31, 2008, other long-term liabilities consisted of the following (in thousands):

As of December 31, 20062007 and September 30, 2007,March 31, 2008, inventory consisted of the following (in thousands):

As of December 31, 20062007 and September 30, 2007,March 31, 2008, short-term investments consisted of the following (in thousands):

(6) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at December 31, 2007 and March 31, 2008, consisted of (in thousands):

BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007March 31, 2008

(Unaudited)

(8) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at December 31, 2006 and September 30, 2007, consisted of (in thousands):

Depreciation for the three and nine months ended September 30,March 31, 2007 and 2008 was, $2.0$1.7 million and $5.6$2.4 million, respectively, of which $0.2$0.4 and $1.0 million was capitalized into inventory, respectively. Depreciation for the three and nine months ended September 30, 2006 was $1.6 million and $5.1 million, respectively, of which $0.2 and $1.4$0.6 million was capitalized into inventory, respectively.

Capitalized interest related to the Company’s fixed asset purchases during the three months ended March 31, 2007 and 2008 was insignificant.

In January 2008, the Company purchased its previously leased office building located at 300 Bel Marin Keys Drive and retained ownership of all leasehold improvements made to the property. The purchase price of the facility was approximately $12.0 million, of which $11.5 million was paid in cash in January 2008 and a $0.5 million deposit was paid in 2007. As a result of the purchase, the Company capitalized certain pre-existing deferred rent liabilities of approximately $0.5 million as a reduction to the acquisition cost of the building.

(9)(7) CONVERTIBLE DEBT

In April 2007, the Company sold approximately $324.9 million of senior subordinated convertible notes due on April 23, 2017. The debt was issued at face value and bears interest at the rate of 1.875% per annum, payable semi-annually in cash. The debt is convertible, at the option of the holder, at any time prior to maturity or redemption, into shares of Company common stock at a conversion price of approximately $20.36 per share, subject to adjustment in certain circumstances. There is no call provision included and the Company is unable to unilaterally redeem the debt prior to maturity on April 23, 2017. The Company also must repay the debt if there is a qualifying change in control or termination of trading of theits common stock.

In connection with the placement of the April 2007 debt, the Company paid approximately $8.5 million in offering costs, which have been deferred and are included in other assets. They are being amortized as interest expense over the life of the debt, and the Company recognized $0.2 million and $0.4 million of amortization expense during the three and nine months ended September 30, 2007, respectively.March 31, 2008.

In March 2006, the Company sold $172.5 million of senior subordinated convertible notesdebt due on March 29, 2013. The debt was issued at face value and bears interest at the rate of 2.5% per annum, payable semi-annually in cash. The debt is convertible, at the option of the holder, at any time prior to maturity or redemption, into shares of Company common stock at a conversion price of approximately $16.58 per share, subject to adjustment in certain circumstances. There is no call provision included and the Company is unable to unilaterally redeem the debt prior to maturity in 2013. The Company also must repay the debt if there is a qualifying change in control or termination of trading of its common stock. During the first quarter of 2008, certain note holders voluntarily exchanged $0.1 million of convertible notes for shares of the Company’s common stock.

In connection with the placement of the 2006 debt, the Company paid approximately $5.5 million in offering costs, which have been deferred and are included in other assets. They are being amortized as interest expense over the life of the debt, and the Company recognized $0.2 million and $0.6 million of amortization expense during each of the three and nine months ended September 30,March 31, 2007 respectively. Amortization expense was $0.2 million and $0.4 million for the three and nine months ended September 30, 2006, respectively.

In June 2003, the Company sold $125 million of convertible notes due on June 15, 2008. In September 2006, certain holders of the Company’s 3.50% Convertible Senior Subordinated Notes due in 2008 agreed to convert $73.6 million in aggregate principal amount of the notes to approximately 5.25 million shares of common stock. The Company agreed to make a cash payment to the holders, comprised of accrued interest through the date of conversion of $0.7 million and an inducement for the holders to convert of approximately $3.3 million. The inducement payment of $3.3 million was recognized as additional expense during the third quarter. Also as a result of the conversion, approximately $0.9 million in previously capitalized debt offering costs were reclassified to additional paid in capital. As of December 31, 2006, the Company had an outstanding balance of $51.4 million of the Company’s 3.5% Senior Subordinated Convertible Notes due 2008, which was converted into approximately 3.7 million shares of common stock in January 2007. As a result of this conversion, approximately $0.5 million in previously capitalized debt offering costs were reclassified to additional paid in capital.

Interest expense for the three and nine months ended September 30,March 31, 2007 and 2008 was, $4.1$2.3 million and $10.2$4.1 million, respectively, and each period included $1.1 million and $3.4 million in imputed interest expense respectively. Imputed interest expense relates to the amortization of the discount on the Company’s Ascent Pediatrics acquisition obligation. Interest expense for the three and nine months ended September 30, 2006 was $3.6 million and $10.5 million, respectively, and included $1.2 million and $3.5 million in imputed interest expense, respectively. Interest paid for the three and nine months ended September 30, 2007 was $2.2 and $4.3 million, respectively, and was $2.8 million and $5.0 million for the three and nine months ended September 30, 2006, respectively. Capitalized interest related to the Company’s fixed asset purchases during the three and nine months ended September 30, 2006 and 2007 was insignificant.

BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIESacquisition obligation.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

(Unaudited)

(10)(8) DERIVATIVE FINANCIAL INSTRUMENTS

The Company periodically enters into foreign currency forward contracts, which have a maturity of less than one year. At September 30, 2007,March 31, 2008, the Company had net outstanding foreign exchange forward contracts to sell $13.3$16.2 million, of foreign currencies, comprised of sell contracts of $9.6$17.0 million of equivalent Euros and $3.7$5.0 million of equivalent British Pounds bothand buy contracts of $5.8 million of equivalent Euros, all of which have a term of less than 3 months. The notional settlement value of all foreign currency forward contracts outstanding as of December 31, 2007 was $12.9 million.

BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2008

(Unaudited)

None of the Company’s forward exchange contracts are designated as hedges under SFAS No. 133. As a result, the fair value changes of all contracts are reported in earnings as foreign exchange gain or loss. For the three and nine months ended September 30, 2007, foreign exchange gainMarch 31, 2008, approximately $1.1 million of approximately $0.5 million and $0.7 millionnet loss has been included in the Company’s consolidated statement of operations with respect to the Company’sthese forward exchange contracts. The Company did not utilize any foreign currency forward contracts, duringas compared to $48,000 for the three and nine months ended September 30, 2006.March 31, 2007.

(11)(9) SUPPLEMENTAL CASH FLOW INFORMATION

The following significant non-cash transactions took place in the periods presented (in thousands):

Cash paid for interest for each of the three months ended March 31, 2007 and 2008 was $2.2 million.

Cash paid for income taxes for the three months ended March 31, 2007 and 2008 was $0 and $0.1 million, respectively.

(12)(10) FINANCIAL INSTRUMENTS—CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, short-term investments and accounts receivable. All cash, cash equivalents, and short-term investments are placed in financial institutions with strong credit ratings, which minimizes the risk of loss due to nonpayment. Trade accountsAccounts receivable as of September 30, 2007March 31, 2008 related to net product sales of Naglazyme.Naglazyme and Kuvan and Aldurazyme product transfer and royalty revenues. A significant portion of net product sales are made to a limited number of financially viable specialty pharmacies and distributors. The Company’s two largest customer is one of its authorized European distributors andcustomers accounted for 48%49% and 58%13% of Naglazyme net product sales, respectively. The Company’s three largest customers accounted for 32%, 20% and 19% of Kuvan net product sales. Genzyme accounted for all of the Aldurazyme net product revenues. For the first quarter of 2008, net product sales of Naglazyme were $5.1 million from customers based in the U.S. and $22.6 million from customers based outside of the U.S, as compared to $4.2 million and $14.2 million for the first quarter of 2007, respectively. All net product sales of Kuvan were from customers based in the U.S. during the first quarter of 2008. Significant specific concentrations of the Company’s total net product sales of Naglazyme for the nine months ended September 30, 2006 and 2007, respectively. For the three and nine months ended September 30, 2007,include net product sales of Naglazyme were $3.8related to sales in Germany and France totaling $5.3 million and $12.7$3.3 million, from customers based inrespectively, for the U.S., respectively,three months ended March 31, 2008, and $17.5$5.0 million and $47.9$2.0 million, from customers based outside ofrespectively, for the U.S., respectively. For the three and nine monthsyear ended September 30, 2006, net product sales of Naglazyme were $4.2 million and $11.2 million from customers based in the U.S., respectively, and $8.7 million and $19.0 million from customers based outside of the U.S., respectively.March 31, 2007.

The Company does not require collateral from its customers, but performs periodic credit evaluations of its customers’ financial condition and requires immediate payment in certain circumstances. The Company has not experienced any significant losses related to its financial instruments and management does not believe a significant credit risk existed at September 30, 2007.March 31, 2008.

BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES

(13) DEFERRED COMPENSATION PLANNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2008

(Unaudited)

In December 2005,the first quarter of 2008, the Company adopted SFAS No. 157, “Fair Value Measurements” for financial assets and liabilities. SFAS No. 157 utilizes a fair value hierarchy that prioritizes the BioMarin Pharmaceutical Inc. Nonqualified Deferred Compensation Plan (the “Deferred Compensation Plan”). The Deferred Compensation Plan allows eligible employees, including managementinputs to valuation techniques used to measure fair value into three broad levels. Level 1 involves observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 involves inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly, which include quoted prices for similar assets or liabilities in active markets and certain highly-compensated employees as designated byquoted prices for identical or similar assets or liabilities in markets that are not active. Level 3 involves unobservable inputs that reflect the Plan’s Administrative Committee, and members of the Board the opportunity to make voluntary deferrals of compensation to specified future dates, retirement or death. Participants are permitted to defer portions of their salary, annual cash bonus and restricted stock.reporting entity’s own assumptions. The Company maymeasures certain financial assets and liabilities at fair value on a recurring basis, including available-for-sale fixed income and equity securities, other equity securities and foreign currency derivatives. The table below presents the fair value of these certain financial assets and liabilities determined using the inputs defined at March 31, 2008, by SFAS No. 157. In February 2008, the FASB issued FASB FSP 157-2 which delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The partial adoption of SFAS No. 157 for financial assets and liabilities did not make additional direct contributions tohave a material impact on the Deferred Compensation Plan on behalfCompany’s consolidated financial position, results of operations or cash flows.

Fixed income available-for-sale securities primarily include money market funds (48% of total), commercial paper (34% of total) and corporate bonds (9 % of total). Included in fixed income available-for-sale securities is approximately $300.1 million of cash equivalents. Cash equivalents consist of $32.6 million in instruments with original maturities of three months or less at the participants without further action bydate of purchase. The remaining balance of cash equivalents consists primarily of money market funds, for which the Board. Deferred compensationcarrying amount is held in trust and generally invested to match the investment benchmarks selected by participants. The recorded costa reasonable estimate of any investments will approximate fair value. Investments of $0.7 million and $1.2 million

Foreign currency derivatives include forward foreign exchange contracts for the Euro and the related deferred compensation liability of $0.7 million and $1.2 million were recorded as of December 31, 2006 and September 30, 2007, respectively. The change in market value was a gain of $44,000 and $0.2 million for the three and nine months ended September 30, 2007, and was insignificant for the three and nine months ended September 30, 2006.British Pound.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

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,“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“Risk Factors,,” in our Form 10-K for the year ended December 31, 20062007 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 the notes thereto appearing elsewhere in this quarterly report.

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 twothree approved products and multiple investigational product candidates. Approved products include Naglazyme, (galsulfase)Aldurazyme, and Aldurazyme (laronidase).Kuvan. Additionally, we have rights to receive payments and royalties related to Orapred (prednisolone sodium phosphate)^® and Orapred ODT (prednisolone sodium phosphate orally disintegrating tablets) subsequent to the sublicense of North American rights in March 2006.^®.

Naglazyme is a recombinant form of N-acetylgalactosamine 4-sulfatase (arylsulfatase B) indicated for patients with mucopolysaccharidosis VI (MPS VI). MPS VI is a debilitating life-threatening genetic disease for which no other drug treatment currently exists and is caused by the deficiency of N-acetylgalactosamine 4-sulfatase (arylsulfatase B), an enzyme normally required for the breakdown of certain complex carbohydrates known as glycosaminoglycans (GAGs). Patients with MPS VI typically become progressively worse and experience multiple severe and debilitating symptoms resulting from the build-up of carbohydrate residues in all tissues in the body.

Naglazyme was grantedreceived marketing approval in the U.S. in May 2005 and in the E.U. in January 2006. We market Naglazyme in the U.S. and E.U. using our own sales force and commercial organization. We have launched the product in the major markets of the E.U. and are continuing launch efforts on a country-by-country basis in the other E.U. countries. Additionally, we are receiving revenue from named patient sales of Naglazyme in other countries. We initiated commercial operations in South America, with headquarters in Brazil, during 2006 and are currently evaluating commercialization options in other countries, including the use of local distributors of Naglazyme. Naglazyme net product sales for the thirdfirst quarter and first nine months of 20062007 totaled $12.9$18.4 million and $30.2 million, respectively, and increased to $21.3 million and $60.6$27.7 million for the thirdfirst quarter and first nine months of 2007, respectively.2008.

Aldurazyme has been approved for marketing in the U.S., E.U., Japan and in other countries for patients with mucopolysaccharidosis I (MPS I), for which no other drug treatment currently exists. MPS I is a progressivecountries. Prior to 2008, we developed and debilitating life-threatening genetic disease that is caused by the deficiency of alpha-L-iduronidase, a lysosomal enzyme normally required for the breakdown of GAGs. Patients with MPS I typically become progressively worse and experience multiple severe and debilitating symptoms resulting from the build-up of carbohydrate residues in all tissues in the body.

We have developedcommercialized Aldurazyme through a 50/50 joint venture with Genzyme. Effective January 2008, we restructured our relationship with Genzyme Corporation. whereby Genzyme sells Aldurazyme to third parties and we recognize royalty revenue on net sales by Genzyme. In addition, we recognize product transfer revenue when product is shipped to Genzyme. The amount of product transfer revenue will eventually be deducted from royalties earned when the product is sold by Genzyme. Our Aldurazyme net product revenue for the first quarter of 2008 totaled $24.1 million.

Kuvan was granted marketing approval in the U.S. in December 2007. Kuvan net product sales for the first quarter of 2008 were $5.8 million.

We are responsibledeveloping several product candidates for product development, manufacturingthe treatment of genetic diseases including: PEG-PAL, a preclinical enzyme substitution therapy for the treatment of PKU for patients that are not responsive to Kuvan. We are also developing 6R-BH4, the active ingredient in Kuvan, for the treatment of certain cardiovascular indications including peripheral arterial disease and U.S. regulatory submissions. Genzyme is responsiblesickle cell disease, as well as other indications.

Key components of our results of operations for sales, marketing, distribution, obtaining reimbursementthe three months ended March 31, 2007 and 2008, include the following (in thousands):

Our critical accounting policies and estimates are set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—BioMarin/Genzyme LLC” for discussion of the financial results of Aldurazyme. Aldurazyme net revenue recorded by our joint venture for the third quarter and first nine months of 2007 increased to $32.3 million and $88.3 million, respectively, from $25.0 million and $69.9 million for the third quarter and first nine months of 2006, respectively.

In May 2004, we completed the transaction to acquire the Orapred product line from Ascent Pediatrics, a wholly owned subsidiary of Medicis. In March 2006, we entered into an agreement with Alliant Pharmaceuticals, Inc., which was recently acquired by Sciele Pharma Inc. (Sciele), for the continued sale and commercialization of the Orapred product line. Through the sublicense agreement, Sciele acquired exclusive rights to market these products in North America. Sciele is responsible for the costs of commercializing the products in North America. In June 2006, the FDA granted marketing approval for Orapred ODT (prednisolone sodium phosphate orally disintegrating tablets), the first orally disintegrating tablet form of prednisolone available in the United States.

In May 2005, we entered into an agreement with Merck Serono for the further development and commercialization of Kuvan and Phenylase for PKU and 6R-BH4 (BH4), the active ingredient in Kuvan, for other diseases such as cardiovascular indications, including those associated with endothelial dysfunction. Through the agreement, Merck Serono acquired exclusive rights to market these products in all territories outside the U.S. and Japan, and we retained exclusive rights to market these products in the U.S. Merck Serono and we will generally share equally all development costs following successful completion of Phase 2 clinical trials for each product candidate in each indication. Merck Serono and we are individually responsible for the costs of commercializing the products within our respective territories. Merck Serono will also pay us royalties on its net sales of these products and milestone payments for the successful completion of certain development and approval milestones.

PKU is an inherited metabolic disease that we estimate affects at least 50,000 diagnosed patients under the age of 40 in the developed world. We believe that 30% to 50% of those with PKU could benefit from treatment with Kuvan, if approved. PKU is caused by a deficiency of activity of an enzyme, phenylalanine hydroxylase (PAH), which is required for the metabolism of Phe. Phe is an essential amino acid found in all protein-containing foods. Without sufficient quantity or activity of PAH, Phe accumulates to abnormally high levels in the blood resulting in a variety of serious neurological complications, including severe mental retardation and brain damage, mental illness, seizures and other cognitive problems. Kuvan, our lead product candidate for the treatment of PKU, is a proprietary synthetic oral form of 6R-BH4, a naturally occurring enzyme co-factor for PAH. If approved, Kuvan could become the first drug for the treatment of PKU.

In March 2006, we announced positive results from the Phase 3 clinical trial, which was a six-week, multi-center international, double-blind placebo-controlled study of Kuvan. In December 2006, we announced positive results from the Phase 3 extension study, and in January 2007, we announced positive results from the Phase 3 diet study. We have received orphan drug designation for Kuvan for the treatment of PKU in both the U.S. and E.U. If Kuvan is the first approved drug for PKU, it will have seven years of market exclusivity in the U.S. and 10 years of market exclusivity in the E.U. In January 2006, the FDA designated Kuvan as a fast track product for the treatment of PKU. In May 2007, we filed the New Drug Application (NDA) for Kuvan with the FDA. On July 25, 2007, we announced that the FDA granted priority review status to the NDA for Kuvan. Under the Prescription Drug User Fee Act (PDUFA), the FDA was expected to take action on the application by November 25, 2007. On Tuesday, October 30, 2007, the FDA notified us that, solely due to an unanticipated staffing constraint at the FDA and not due to any identified issues in the NDA, the action date has been moved to December 14, 2007.

We are also developing BH4 for the treatment of other indications, including sickle cell disease and indications associated with endothelial dysfunction. Endothelial dysfunction has been associated with many cardiovascular diseases, such as peripheral arterial disease. Endothelial dysfunction is a condition characterized by the inability of the endothelium (the single cell layer lining of the blood vessels) to respond to physiological changes correctly. In preclinical and investigator-sponsored studies, administration of BH4 has improved vascular endothelial function in animal models and in patients with diabetes and other cardiovascular diseases. BH4 is a naturally occurring enzyme cofactor required for the production of nitric oxide, a molecule that is key to the regulation of dilation and constriction of blood vessels. Data from preclinical and clinical trials suggest that treatment with BH4 is generally safe and well tolerated.

In January 2007, we announced the initiation of a Phase 2 clinical trial of BH4 for peripheral arterial disease, which is a 24-week, multi-center, double-blind, placebo-controlled study. We expect results from the Phase 2 clinical trial in the second half of 2008, depending on trial enrollment rates. We have initiated several additional preclinical and clinical studies of BH4 for other indications, including those related to endothelial dysfunction, and expect results from these studies in 2008.

Phenylase is an investigational enzyme substitution therapy currently in preclinical development. It is being developed as a subcutaneous injection and is intended for those who suffer from classic PKU and for those who do not respond to Kuvan. In preclinical models, Phenylase produced a rapid, dose-dependent reduction in blood Phe levels. We expect to file an Investigational New Drug application for Phenylase with the FDA in late 2007.

Key components of our results of operations for the nine months ended September 30, 2006 and 2007, include the following:

Our cash, cash equivalents and short-term investments totaled $586.7 million as of September 30, 2007 compared to $288.8 million as of December 31, 2006.

Critical Accounting Policies and Estimates

In preparingEstimates” in our consolidated financial statements, we make assumptions, judgments and estimates that can2007 Form 10-K. Additional information regarding updates to our policies for Aldurazyme Revenue Recognition are included below. There have abeen no significant impact on our net loss, as well as on the value of certain assets and liabilities on our consolidated balance sheets. 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 and make changes accordingly. Unless otherwise noted below, there have not been any recent changes to our assumptions, judgments or estimates included in our critical accounting policies. 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, clinical trial accruals and stock option plans have the greatest potential impact on our consolidated financial statements, so we consider these to be our critical accounting policies. Historically, our assumptions, judgments and estimates relative to ourother critical accounting policies have not differed materially from actual results. For further information on our critical and other accounting policies, see Note 2 to the accompanying consolidated financial statements.

Impairment of Long-Lived Assets

Our long-lived assets primarily include our investment in BioMarin/Genzyme LLC, property, plant and equipment, the acquired Orapred intangible assets and goodwill. We regularly review long-lived assets for impairment. The recoverability of long-lived assets, other than goodwill and our investment in BioMarin/Genzyme LLC, is measured by comparing the asset’s carrying amount to the expected undiscounted future cash flows that the asset is expected to generate. If the carrying amount of the asset is not recoverable, an impairment loss is recorded for the amount that the carrying value of the asset exceeds its fair value. No significant impairments were recognized for the year endedor estimates since December 31, 2006 or the nine months ended September 30, 2007.

We currently operate in one business segment, the biopharmaceutical development and commercialization segment. When reviewing goodwill for impairment, we assess whether goodwill should be allocated to operating levels lower than our single operating segment for which discrete financial information is available and reviewed for decision-making purposes. These lower levels are referred to as reporting units. Currently, we have identified only one reporting unit as per SFAS No. 142, “Goodwill and Other Intangible Assets”. The amount of our goodwill originated from the acquisition of the Orapred business in 2004. No triggering events occurred during the first nine months of 2007 that required an impairment test. We also perform an annual impairment test in the fourth quarter of each fiscal year by assessing the fair value and recoverability of our goodwill by comparing the carrying value of the reporting unit to its fair value as determined by available market value, a discounted cash flow model or appraisals, unless facts and circumstances warrant a review of goodwill for impairment before that time.

Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount, and the asset’s residual value, if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available. We use internal cash flow estimates, quoted market prices when available and independent appraisals as appropriate to determine fair value. We derive the required cash flow estimates from our historical experience and our internal business plans and apply an appropriate discount rate.