FINANCIAL REVIEW
(dollars in millions, except per share amounts)

RELATIONSHIP WITH ROCHE HOLDINGS, INC.

On October 25, 1995, Genentech, Inc. (the Company) and Roche Holdings, Inc.  
(Roche) entered into a new agreement (the Agreement) to extend until June 30, 
1999, Roche's option to cause the Company to redeem (call) the outstanding 
callable putable common stock (special common stock) of the Company at 
predetermined prices.  Should the call be exercised, Roche will concurrently 
purchase from the Company a like number of common shares for a price equal to 
the Company's cost to redeem the special common stock.  If Roche does not cause 
the redemption as of June 30, 1999, the Company's stockholders will have the 
option to cause the Company to redeem none, some, or all of their shares of 
special common stock (and Roche will concurrently provide the necessary 
redemption funds to the Company by purchasing a like number of shares of common 
stock) within thirty business days commencing July 1, 1999.  See the 
"Relationship with Roche Holdings, Inc." note in the "Notes to Consolidated 
Financial Statements" for further information.

In conjunction with the Agreement, F. Hoffmann-La Roche Ltd (HLR) was granted 
an option for ten years for licenses to use and sell certain of the Company's 
products in non-United States (U.S.) markets.  As a result of the Agreement, in 
1996 the Company's total product sales decreased, while contract and royalty 
revenue increased.  Cost of sales as a percentage of product sales also 
increased due to the Agreement.  See below for further discussion.  


RESULTS OF OPERATIONS
(dollars in millions)
                                                              Annual % Change
Revenues              1996         1995         1994       96/95         95/94
-------------------------------------------------------------------------------
Revenues           $ 968.6      $ 917.8      $ 795.4         6 %           15%


The increase in revenues in 1996 resulted primarily from higher contract and 
royalty revenue partly offset by lower product sales.  The 1995 increase 
resulted primarily from higher royalty income and product sales.  Product sales 
to HLR in conjunction with the Agreement were $13.2 million in 1996 and $1.8 
million in 1995.

                                                             Annual % Change
Product Sales          1996        1995         1994        96/95       95/94
------------------------------------------------------------------------------
Activase           $  284.1    $  301.0      $ 280.9          (6)%         7%
Protropin and
 Nutropin             218.2       219.4        225.4          (1)         (3)
Pulmozyme              76.0       111.3         88.3         (32)         26 
Actimmune               4.5         3.6          6.4          25         (44)  
                    ----------------------------------------------------------
Total product
  sales            $  582.8    $  635.3      $ 601.0          (8)%         6%
% of revenues           60%         69%          76%      


Total product sales decreased in 1996 compared to 1995 primarily as a result of 
the Agreement with Roche.  On a pro forma basis that includes sales to HLR in 
1996 and the fourth quarter of 1995, and excludes Canadian and European 
customer sales in 1995, sales increased to $582.8 million in 1996 from $578.7 
million in 1995.  

Activase:  Total net sales of Activase, registered trademark, in 1996 decreased 
compared to 1995 primarily due to the impact of not having Canadian customer 
sales in 1996 as a result of the Agreement with Roche and the increased use of 
angioplasty (see below).  Activase sales to Canadian customers were $12.7 
million in 1995.  Sales to U.S. customers decreased slightly in 1996 due to a 
decline in the market size.  Although Activase's market share grew to 
approximately 80% in 1996 from approximately 75% in 1995, the overall size of 
the thrombolytic market at year end 1996 declined from 1995 by approximately 
6%.  The decline in the market size was the result of the increasing use of 
angioplasty rather than thrombolytic therapy, as well as from patients 
receiving therapy through ongoing clinical trials.  On a pro forma basis, 
Activase sales were $284.1 million in 1996 versus $288.3 million in 1995, with 
the slight decrease due to lower U.S. sales and lower bulk product sales to 
Japan licensees.  In June 1996, the Company received clearance from the U.S. 
Food and Drug Administration (FDA) to market Activase for the treatment of 
acute ischemic stroke or brain attack.  Activase is the first therapy to be 
indicated for the management of stroke.  The increase in Activase sales in 1995 
over 1994 was attributable to growth in market share and an increase in the 
number of patients receiving thrombolytic therapy in the United States.

Protropin and Nutropin:  Net sales of Protropin, registered trademark, and 
Nutropin, registered trademark, (together, growth hormone) were essentially 
flat in 1996 compared to 1995.  On a pro forma basis, growth hormone sales in 
1996 were $218.2 million compared to $216.7 million in 1995.  The Company 
continues to face increased competition in the growth hormone market.  Three 
companies in 1995, and a fourth company in 1996, received FDA approval to 
market their growth hormone products for treatment of growth hormone inadequacy 
in children, although one of those companies has been preliminarily enjoined 
from selling its product.  Two competitors have received approval to market 
their existing human growth hormone products for additional indications.  
Growth hormone sales decreased in 1995 compared to 1994 due to a slight volume 
increase in sales being more than offset by the impact of pricing programs for 
distribution channels and for the managed care sector.  In December 1996, the 
Company received clearance from the FDA to market Nutropin for the treatment of 
growth failure associated with Turner syndrome.

Pulmozyme:  Net sales of Pulmozyme, registered trademark, in 1996 decreased 
compared to 1995 primarily in conjunction with the Agreement with Roche.  
Pulmozyme sales to customers in Europe and Canada totaled $41.3 million in 
1995.  In 1996, sales in these territories were made by Roche for the full 
year, and the Company received royalties on Roche's sales.  On a pro forma 
basis, Pulmozyme sales were $76.0 million in 1996 compared to $70.0 million in 
1995.  Pulmozyme sales in 1995 increased over 1994 due to market launches in 
additional European countries and continued adoption of the product by 
physicians to treat cystic fibrosis patients.  In December 1996, Pulmozyme was 
cleared for marketing by the FDA for the management of cystic fibrosis patients 
with advanced disease, a condition that affects approximately 500 patients in 
the United States.
   
                                                   
Royalties, Contract and Other,                                 Annual % Change
 and Interest Income               1996       1995       1994   96/95   95/94
------------------------------------------------------------------------------

Royalties                      $  214.7   $  190.8   $  126.0      13%     51%

Contract and other                107.0       31.2       25.6     243      22

Interest income                    64.1       60.5       42.8       6      42


The Company receives royalty payments from HLR from its sales of the Company's 
products outside of the U.S. under the Agreement, and receives royalties from 
other licensees and HLR from the sales of various other health care products.  
Total royalties in 1996 increased over 1995 primarily due to new royalties from 
HLR in conjunction with the Agreement, as well as higher income from existing 
licensees due to increased licensee sales.  Royalty revenue under the Agreement 
was $17.0 million in 1996 and $1.9 million in 1995.  All other royalty revenue 
from HLR in 1996, 1995 and 1994, totaled $9.2 million, $10.6 million and $7.9 
million, respectively.  The increase in 1995 compared to 1994 was attributable 
to increases in product sales by various licensees and new royalty 
arrangements.  In 1995, the largest dollar increase was attributable to the 
receipt and recognition of $30.0 million of royalty revenue relating to the 
December 1994 settlement with Eli Lilly and Company (Lilly) regarding certain 
of the Company's patents. Under the December 1994 settlement agreement with 
Lilly, royalties of $30.0 million per year are payable, subject to possible 
offsets and contingent upon Humulin, registered trademark, continuing to be 
marketed in the U.S., to the Company through 1998, at which time such royalty 
obligations expire.  Under a prior license agreement with Lilly, the Company 
receives royalties from Lilly's sales of its human insulin product.  These 
royalty obligations expire in August of 1998.  Cash flows from royalty income 
include non-dollar denominated revenues.  The Company currently purchases 
simple foreign currency put option contracts (options) and enters into foreign 
currency forward exchange contracts (forward contracts) to hedge these cash 
flows.  All options expire within the next four years.  The Company has forward 
contracts of various durations that will expire by the end of 1997.

Contract and other revenues increased in 1996 due to contract revenue from HLR 
for the exercises of their options under the Agreement with respect to the 
development of three projects - IDEC-C2B8, insulin-like growth factor (IGF-1) 
and nerve growth factor (NGF).  The Company recorded non-recurring contract 
revenues of $58.2 million relating to these option exercises in 1996.  All 
other contract revenue from HLR, including reimbursement for ongoing 
development expenses after the option exercise date, totaled $37.1 million in 
1996, $13.4 million in 1995 and $17.1 million in 1994.  The increase in 1995 
compared to 1994 was attributable to $6.4 million of gains recorded from sales 
of biotechnology equity securities.  Contract and other revenues will continue 
to fluctuate due to variations in the timing of contract benchmark 
achievements; the initiation of new contractual arrangements, including the 
potential exercise of product options by HLR; and the conclusion of existing 
arrangements.

Interest income increased in 1996 compared to 1995 due to a larger investment 
portfolio. The increase in 1995 compared to 1994 was attributable to a larger 
investment portfolio and a higher average portfolio yield. The Company enters 
into interest rate swaps as part of its overall strategy of managing the 
duration of its investment portfolio. See the "Financial Instruments" note in 
the "Notes to Consolidated Financial Statements" for further information.


                                                               Annual % Change
Costs and Expenses         1996       1995       1994        96/95       95/94
-------------------------------------------------------------------------------
Cost of sales            $104.5     $ 97.9     $ 95.8          7%          2%
Research and
  development             471.1      363.0      314.3         30          15
Marketing, general and
  administrative          240.1      251.7      248.6         (5)          1
Special charge                -       25.0          -          -           -
Interest expense            5.0        8.0        7.1        (38)         13
                     ----------------------------------------------------------
Total costs
  and expenses           $820.7    $ 745.6    $ 665.8         10%         12% 
% of revenues               85%        81%        84%          

Cost of sales as % of
  product sales             18%        15%        16%     
R&D as % of revenues        49         40         40      
MG&A as % of revenues       25         27         31      
Cost of Sales:  The cost of sales as a percentage of product sales increased 
in 1996 compared to 1995 primarily due to the impact of lower margin sales to 
HLR in 1996.  The economic benefits from sales to HLR are also reflected in 
royalties as discussed above.  In 1996, 1995 and 1994, reserves of $3.6 
million, $3.7 million and $11.9 million, respectively, were provided for 
expected expirations of certain inventories.

Research and Development:  Research and development (R&D) expense increased 30% 
in 1996 compared to 1995 due to continued late-stage clinical testing of 
products and new development projects.  The increase in 1995 over 1994 resulted 
from a higher level of activity and associated costs of products in the later 
stages of clinical trials and the manufacture of products for clinical trials.

To gain additional access to potential new products and technologies and to 
utilize other companies to help develop the Company's potential new products, 
the Company has established strategic alliances with, including acquiring the 
equity and convertible debt of, companies developing technologies that fall 
outside the Company's research focus and with companies having the potential to 
generate new products through technology exchanges and investments.  The 
Company has also entered into product-specific collaborations to acquire 
development and marketing rights for products.

Marketing, General and Administrative:  Marketing, general and administrative
expenses (MG&A) in 1996 decreased from 1995 primarily due to the closure of the 
Company's European and Canadian operations in conjunction with the Agreement.  
MG&A expenses in 1995 were comparable to the 1994 level of expenses.

Special Charge:  The Company recorded a special charge of $25.0 million in 
1995, which included $21.0 million related to the Agreement with Roche and $4.0 
million associated with the resignation of the Company's former President and 
Chief Executive Officer.  The merger expenses included investment banking fees, 
legal expenses, filing fees and other costs related to the Agreement, as well 
as charges associated with the settlement of stockholder lawsuits filed after 
the transaction was announced.

Interest Expense:  Interest expense in 1996, 1995 and 1994, net of amounts 
capitalized, relates primarily to interest on the Company's 5% convertible 
subordinated debentures.  In 1995, it also included interest on a $25.0 million 
borrowing arrangement which commenced in February 1995 and was paid in December 
of that year.


Income Before Taxes and Income Taxes           1996         1995        1994
-----------------------------------------------------------------------------

Income before taxes                         $ 147.9      $ 172.2     $ 129.6 

Income tax provision                           29.6         25.8         5.2
Effective tax rate                              20%          15%          4%


The increase in the effective tax rate to 20% in 1996 from 15% in 1995 is due 
to the recognition of a greater amount of tax credit carryforwards in 1995 than 
in 1996.  The net increase in the rate from 1994 to 1995 was primarily related 
to limitations on the utilization of existing carryforwards related to the U.S. 
alternative minimum tax.


                                                              Annual % Change
Net Income                  1996       1995       1994       96/95       95/94
-------------------------------------------------------------------------------

Net income               $ 118.3    $ 146.4     $124.4       (19)%        18% 
Net income per share     $  0.96    $  1.21     $ 1.04     

Net income in 1996 decreased compared to 1995 primarily due to higher R&D 
expenses and lower product sales, partly offset by increased contract and 
royalty revenue.  Net income in 1995 increased over 1994 due to higher revenue 
from all sources, partly offset by higher expenses, primarily R&D and special 
charges.


LIQUIDITY AND CAPITAL RESOURCES                   1996        1995       1994
------------------------------------------------------------------------------

Cash, cash equivalents, short-term investments
   and long-term marketable debt and equity 
   securities                                  $1,159.1    $1,096.8   $ 920.9 
Working capital                                   705.1       812.0     776.6 
Cash provided by (used in):
   Operating activities                           139.7       133.9     200.4
   Investing activities                          (141.7)     (117.7)   (322.3)
   Financing activities                            72.2        54.1      71.2
Capital expenditures
  (included in investing activities above)       (141.8)      (70.2)    (82.8)
Current ratio                                     3.8:1       4.5:1     4.5:1


Cash generated from operations, the maturity of investments and stock issuances 
were used to purchase marketable securities and make capital additions in 1996.

Capital expenditures in 1996 primarily include building and land purchases and 
improvements to existing manufacturing and office facilities. In 1995, the 
Company entered into an arrangement with a lessor for a new manufacturing 
facility which qualifies as an operating lease and is expected to become 
operational in 1998.

FORWARD-LOOKING STATEMENTS

The following section contains forward-looking statements that are based on 
the Company's current expectations.  Because the Company's actual results may 
differ materially from any forward-looking statements made by or on behalf of 
the Company, this section also includes a discussion of important factors that 
could affect the Company's actual future results, including its product sales, 
royalties, contract revenues, expenses and net income.

Total Product Sales:  The Company anticipates that total reported quarterly 
product sales in 1997 will be comparable to 1996; however, product sales will 
be dependent on the overall competitive environment.  Other factors affecting 
the Company's total product sales include, but are not limited to, the amount 
and timing of the Company's sales to HLR, the amount of sales to customers in 
the U.S., increased competition in the growth hormone and thrombolytic 
markets, the timing and amount of bulk shipments to licensees, and the 
possibility of the introduction of a new product in late 1997.

Activase Sales:  The Company faces new competition in the thrombolytic market. 
The Company is aware that one company received FDA approval in October 1996 to 
market its product for the treatment of acute myocardial infarction (AMI) in 
the U.S.  The Company has brought suit against that company for patent 
infringement.  In addition, there is an increasing use of angioplasty in the 
treatment of AMI patients in lieu of the use of thrombolytic therapy.  
Depending on the extent and type of new competition, the Company's total 
Activase sales could be materially affected.  Other factors affecting the 
Company's Activase sales include, but are not limited to, the timing of FDA 
approval, if any, of additional competitive products, pricing decisions made 
by the Company, the outcome of litigation against Boehringer Mannheim GmbH and 
Boehringer Mannheim Corporation involving the Company's patents for tissue 
plasminogen activator and processes related to its production and formulation, 
the increasing use of other therapies such as angioplasty techniques for the 
treatment of AMI, and the impact of the FDA's recent clearance for the Company 
to market Activase for the treatment of acute ischemic stroke.

Growth Hormone Sales:  The Company continues to face the possibility of 
increased competition in the growth hormone market.  Three companies received 
FDA approval in 1995, and a fourth company received FDA approval in October 
1996, to market their growth hormone products for treatment of growth hormone
inadequacy in children, although one of those companies has been preliminarily 
enjoined from selling its product.  Two of the Company's competitors have 
received approval to market their existing human growth hormone products for 
additional indications.  The Company expects such competition to have an 
adverse effect on its sales of Protropin and Nutropin which, depending on the 
extent and type of competition, could be material.  Other factors affecting 
the Company's growth hormone sales include, but are not limited to, the timing 
of FDA approval, if any, of other new competitive products, the outcome of 
litigation involving the Company's patents for human growth hormone and 
related processes, pricing decisions made by the Company, the availability of 
third- party reimbursement for the cost of growth hormone therapy, and the 
impact of Nutropin as a treatment for growth failure associated with Turner 
syndrome.

Pulmozyme Sales:  Factors that may influence the future sales of Pulmozyme 
include, but are not limited to, physician perception of the number and kinds 
of patients who will benefit from such therapy, the availability of third-
party reimbursement for the costs of therapy, the timing of the development of 
alternative therapies for the treatment and care of cystic fibrosis, whether 
and when additional indications are approved, and the cost of therapy.

Royalty and Contract Revenues:  Royalty and contract revenues in future 
periods could vary significantly from 1996 levels.  Major factors affecting 
these revenues include, but are not limited to:  HLR's decisions to exercise 
or not to exercise its option to develop and sell the Company's future 
products in non-U.S. markets and the timing and amount of related development 
cost reimbursement, if any; variations in HLR's sales of Genentech products, 
and other licensees' sales of licensed products; the expiration of royalties 
from Lilly in 1998; fluctuations in foreign currency exchange rates; the 
timing of non-U.S. approvals, if any, for products licensed to HLR; whether 
and when contract benchmarks are achieved; the initiation of other new 
contractual arrangements; and the conclusion of existing arrangements with 
other companies and HLR.

R&D Expenses:  The Company intends to continue its commitment to aggressive 
investment in R&D.  As it continues late-stage clinical testing of products, 
the Company anticipates that its R&D expenses will continue at a high 
percentage of revenues over the short-term.  Over the long-term, however, R&D 
as a percent of revenues should decrease, although in dollar terms R&D 
spending is generally expected to rise as revenues rise. Factors affecting the 
Company's R&D expenses include, but are not limited to: the outcome of 
clinical trials currently being conducted; the number of products entering 
into development from late-stage research; future levels of the Company's 
product sales (including the impact of competition), royalty and contract 
revenues; the possibility of competition with respect to products or 
technologies under development; and decisions by HLR to exercise or not to 
exercise its option to develop and sell potential products of the Company in 
non-U.S. markets and the timing of such decisions.

Income Tax Provision:  The Company expects that its effective tax rate will 
increase from the current rate of 20% to approximately 35% in 1997, and 
continue at or near 35% for the next several years dependent upon several 
factors.  These factors include, but are not limited to, changes in tax laws 
and rates, future levels of R&D spending, the outcome of clinical trials of 
certain development products, the Company's success in commercializing such 
products, and potential competition regarding the products.

Successful Development of Products:  The Company intends to continue to 
develop new products. Successful pharmaceutical product development is highly 
uncertain and is dependent on numerous factors, many of which are beyond the
Company's control. Products that appear promising in the early phases of 
development may fail to reach the market for numerous reasons. They may be
found to be ineffective or to have harmful side effects in preclinical or 
clinical testing, may fail to receive necessary regulatory approvals, may turn 
out to be uneconomical because of manufacturing costs or other factors, or may 
be precluded from commercialization by the proprietary rights of others or by
competing products or technologies for the same indication.  Success in 
preclinical and early clinical trials does not ensure that large-scale 
clinical trials will be successful. Clinical results are frequently 
susceptible to varying interpretations which may delay, limit or prevent 
regulatory approvals. The length of time necessary to complete clinical trials 
and to submit an application for marketing approval for a final decision by a 
regulatory authority varies significantly and may be difficult to predict.

Uncertainties Surrounding Proprietary Rights:  The patent positions of 
pharmaceutical and biotechnology companies can be highly uncertain and involve 
complex legal and factual questions. Accordingly, the breadth of claims 
allowed in such companies' patents cannot be predicted. Patent disputes are 
frequent and can preclude commercialization of products. The Company, as in 
the past, may be involved in future material patent litigation. Such 
litigation is costly in its own right and could subject the Company to 
significant liabilities to third-parties and, if decided adversely, the 
Company may need to obtain third party licenses or cease using the technology 
or product in dispute.  The presence of patents or other proprietary rights 
belonging to other parties may lead to the termination of research and 
development of a particular product. The Company believes it has strong patent 
protection or the potential for strong patent protection for a number of its 
products that generate sales and royalty revenue or that the Company is 
developing; however, the courts will determine the ultimate strength of patent 
protection of the Company's products and those on which the Company earns 
royalties.

Liquidity:  The Company believes that its cash, cash equivalents, and short-
term investments, together with funds provided by operations and leasing 
arrangements, will be sufficient to meet its foreseeable operating cash 
requirements. Factors affecting the Company's cash position include, but are 
not limited to, future levels of the Company's product sales, royalty and 
contract revenues, expenses and capital expenditures.

Market Potential/Risk:  Over the longer term, the Company's (and its 
partners') ability to successfully market current products, expand their 
usage, and bring new products to the marketplace will depend on many factors, 
including, but  not limited to, the effectiveness and safety of the products, 
FDA and foreign regulatory agencies' approvals for new products and new 
indications, and the degree of patent protection afforded to particular 
products.

Roche Holdings, Inc.:  At December 31, 1996, Roche held approximately 66.0% of 
the Company's outstanding common equity.  In January and February 1997, Roche 
purchased additional shares of the Company's common equity increasing Roche's 
holdings to 68.0%.  The Company expects to continue to have material 
transactions with Roche, including royalty and contract development revenues, 
product sales and joint product development.

Foreign Exchange:  The Company receives royalty revenues from countries 
throughout the world.  As a result, the Company's financial results could be 
significantly affected by factors such as changes in foreign currency exchange 
rates or weak economic conditions in the foreign markets in which the 
Company's products are sold.  The Company is exposed to changes in exchange 
rates in Europe, Asia and Canada.  When the U.S. dollar strengthens against 
the currencies in these countries, the U.S. dollar value of non-U.S. dollar-
based revenue decreases; when the U.S. dollar weakens, the U.S. dollar value 
of the non-U.S. dollar-based revenues increases.  Accordingly, changes in 
exchange rates, and in particular a strengthening of the U.S. dollar, may 
adversely affect the Company's royalty revenues as expressed in U.S. dollars.

To mitigate this risk, the Company hedges certain of these anticipated 
revenues by purchasing options with expiration dates and amounts of currency 
that are based on a portion of probable revenues so that the adverse impact of 
movements in currency exchange rates on the non-dollar denominated revenues 
will be at least partly offset by an associated increase in the value of the 
option.  The Company also enters into forward contracts to lock in the dollar 
value of a portion of these anticipated revenues.

Interest Rates:  The Company's interest income is sensitive to changes in the 
general level of U.S. interest rates.  In this regard, changes in U.S. 
interest rates affect the interest earned on the Company's cash equivalents, 
short-term  investments and long-term investments.  To mitigate the impact of 
fluctuations in U.S. interest rates, the Company enters into interest rate 
swap transactions which generally involve the receipt of fixed rate interest 
and the payment of floating rate interest without the exchange of the 
underlying principal.  These agreements have the effect of locking in rates 
for longer periods of time than the duration of short-term investments.

Equity Securities:  As part of its strategic alliance efforts, the Company 
invests in equity instruments that are subject to fluctuations from market 
value changes in stock prices.  To mitigate this risk, certain equity 
securities are hedged with costless collars.  A costless collar is a purchased 
put option and a written call option in which the cost of the purchased put 
and the proceeds of the written call offset each other; therefore, there is no 
initial cost or cash outflow for these instruments at the time of purchase.  
The purchased put protects the Company from a decline in the market value of 
the security below a certain minimum level (the put "strike" level); while the 
call effectively limits the Company's potential to benefit from an increase in 
the market value of the security above a certain maximum level (the call 
"strike" level).

Credit Risk of Counterparties:  The Company could be exposed to losses related 
to the above financial instruments should one of its counterparties default.  
This risk is mitigated through credit monitoring procedures.

Legal Proceedings:  The Company is a party to various legal proceedings 
including patent infringement cases and various cases involving product 
liability and other matters. See the "Leases, Commitments and Contingencies" 
note in the "Notes to Consolidated Financial Statements" for further 
information.
















REPORT OF MANAGEMENT

Genentech, Inc. is responsible for the preparation, integrity and fair
presentation of its published financial statements. The Company has prepared 
the financial statements, presented on pages 51 to 74, in accordance with 
generally accepted accounting principles. As such, the statements include 
amounts based on judgments and estimates made by management. The Company also 
prepared the other information included in the annual report and is 
responsible for its accuracy and consistency with the financial statements.

The financial statements have been audited by the independent auditing firm, 
Ernst & Young LLP, which was given unrestricted access to all financial 
records and related data, including minutes of all meetings of stockholders, 
the Board of Directors and committees of the Board. The Company believes that 
all representations made to the independent auditors during their audit were 
valid and appropriate. Ernst & Young LLP's audit report appears on page 75.

Systems of internal accounting controls, applied by operating and financial 
management, are designed to provide reasonable assurance as to the integrity 
and reliability of the financial statements and reasonable, but not absolute, 
assurance that assets are safeguarded from unauthorized use or disposition, 
and that transactions are recorded according to management's policies and 
procedures. The Company continually reviews and modifies these systems, where 
appropriate, to maintain such assurance. Through the Company's general audit 
activities, the adequacy and effectiveness of the systems and controls are 
reviewed and the resultant findings are communicated to management and the 
Audit Committee of the Board of Directors.

The selection of Ernst & Young LLP as the Company's independent auditors has 
been approved by the Company's Board of Directors and ratified by the 
stockholders. An Audit Committee of the Board of Directors, composed of four 
non-management directors, meets regularly with, and reviews the activities of, 
corporate financial management, the general audit function and the independent 
auditors to ascertain that each is properly discharging its responsibilities. 
The independent auditors and general auditor meet with the Audit Committee, 
with and without management present, to discuss the results of their work, the 
adequacy of internal accounting controls and the quality of financial 
reporting.


Arthur D. Levinson, Ph.D.  Louis J. Lavigne, Jr.      Bradford S. Goodwin
President and              Senior Vice President and  Vice President - Finance
Chief Executive Officer    Chief Financial Officer    and Controller



<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(thousands, except per share amounts)
<S>                                          <C>          <C>          <C>
YEAR ENDED DECEMBER 31                           1996        1995         1994      
---------------------------------------------------------------------------------
Revenues
  Product sales (including amounts from
      related parties: 1996-$13,216;
      1995-$1,776; 1994-$0)                  $ 582,829    $ 635,263    $ 601,064
  Royalties (including amounts
      from related parties: 1996-$26,240;
      1995-$12,492; 1994-$8,454)               214,702      190,811      126,022
  Contract and other (including amounts
      from related parties: 1996-$95,299;
      1995-$13,448; 1994-$17,106)              107,037       31,209       25,556
  Interest                                      64,110       60,562       42,748
                                             -----------------------------------

      Total revenues                           968,678      917,845      795,390

Costs and expenses
  Cost of sales (including amounts from
      related parties:  1996-$10,900;
      1995-$6,963; 1994-$0)                    104,527       97,930       95,829
  Research and development (including
      contract related: 1996-$37,051;
      1995-$17,124; 1994-$7,584)               471,143      363,049      314,322
  Marketing, general and administrative        240,063      251,653      248,604
  Special charge (primarily merger related)         --       25,000          --
  Interest                                       5,010        7,940        7,058
                                            ------------------------------------

      Total costs and expenses                 820,743      745,572      665,813


Income before taxes                            147,935      172,273      129,577
Income tax provision                            29,587       25,841        5,183
                                            ------------------------------------

Net income                                   $ 118,348    $ 146,432    $ 124,394
                                            ====================================

Net income per share                         $    0.96    $    1.21    $    1.04
                                            ====================================

Weighted average number of shares used
  in computing per share amounts               123,695      121,220      119,465
                                            ====================================

<FN>
               See Notes to Consolidated Financial Statements.
</TABLE>











<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands)
                                                            Increase (Decrease) in Cash and
                                                                    Cash Equivalents
YEAR ENDED DECEMBER 31                                         1996       1995       1994
-------------------------------------------------------------------------------------------
<S>                                                      <C>          <C>        <C>
Cash flows from operating activities:
  Net income                                              $ 118,348   $ 146,432  $ 124,394 
Adjustments to reconcile net income to
   net cash provided by operating activities:
         Depreciation and amortization                       62,124      58,421     53,452
         Writedown of securities available-for-sale               -       6,609     12,590
         Gain on sales of securities available-for-sale        (347)     (7,432)         -
         Deferred income taxes                              (34,021)    (22,655)   (34,193)
         Loss on fixed asset dispositions 
            (including merger-related in 1995)                5,309       1,032      5,510
         Other                                                    -        (234)       748
  Changes in assets and liabilities:
         Net cash flow from trading securities               (8,184)    (50,014)    (4,634)
         Receivables and other current assets               (30,416)    (28,446)   (11,937)
         Inventories                                          1,705       9,552    (18,475)
         Accounts payable, other current
            liabilities and other long-term
            liabilities                                      25,153      20,682      72,901
                                                          ----------------------------------
  Net cash provided by operating activities                 139,671     133,947     200,356

Cash flows from investing activities: 
  Purchases of securities held-to-maturity                 (634,124)   (682,396) (1,088,737)
  Proceeds from maturities of securities 
     held-to-maturity                                       772,922     924,345     877,139
  Purchases of securities available-for-sale               (304,806)   (353,118)    (22,644)
  Proceeds from sales of securities available-
     for-sale                                               182,564     101,591           -
  Purchases of non-marketable equity securities              (9,323)          -      (4,000)
  Capital expenditures                                     (141,837)    (70,166)    (82,837)
  Change in other assets                                     (7,046)    (37,948)     (1,198)
                                                         ------------------------------------
  Net cash used in investing activities                    (141,650)   (117,692)   (322,277)

Cash flows from financing activities:
  Stock issuances                                            72,558      54,946      71,955
  Reduction in long-term debt,
     including current portion                                 (358)       (871)       (794)
                                                         ------------------------------------
  Net cash provided by financing activities                  72,200      54,075      71,161
                                                         ------------------------------------
Increase (decrease) in cash and cash equivalents             70,221      70,330     (50,760)
Cash and cash equivalents at beginning of year              137,043      66,713     117,473
                                                         ------------------------------------
Cash and cash equivalents at end of year                  $ 207,264   $ 137,043   $  66,713
                                                         ====================================
Supplemental cash flow data:
  Cash paid during the year for:
      Interest, net of portion capitalized                $   5,010   $   7,917   $   7,058
      Income taxes                                           52,243      44,699       4,099

<FN>

                 See Notes to Consolidated Financial Statements.
</TABLE>








<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)

DECEMBER 31                                               1996            1995
--------------------------------------------------------------------------------
<S>                                                <C>             <C>
Assets:
Current assets:
  Cash and cash equivalents                         $   207,264     $   137,043
  Short-term investments                                415,900         603,296
  Accounts receivable - trade (net of
      allowances of: 1996-$4,110; 1995-$4,579)           77,785          87,694
  Accounts receivable - other (net of
      allowances of: 1996-$3,759; 1995-$2,093)           86,450          65,185
  Accounts receivable - related party                    33,377          19,281
  Inventories                                            91,943          93,648
  Prepaid expenses and other current assets              42,365          39,267
                                                  -----------------------------
      Total current assets                              955,084       1,045,414

Long-term marketable securities                         535,916         356,475
Property, plant and equipment, net                      586,167         503,654
Other assets                                            149,205         105,452
                                                  -----------------------------
Total assets                                        $ 2,226,372     $ 2,010,995
                                                  =============================
Liabilities and stockholders' equity:
Current liabilities:
  Accounts payable                                  $    45,501     $    37,101
  Accrued liabilities - related party                     9,908           8,745
  Other accrued liabilities                             194,542         187,598
                                                  -----------------------------
      Total current liabilities                         249,951         233,444
Long-term debt                                          150,000         150,000
Other long-term liabilities                              25,362          25,504
                                                  -----------------------------
Total liabilities                                       425,313         408,948
Commitments and contingencies
Stockholders' equity:
  Preferred stock, $.02 par value; authorized:
      100,000,000 shares; none issued                         -               -
  Special common stock, $.02 par value;
      authorized: 100,000,000 shares; outstanding:
      1996-44,805,755; 1995-42,646,958                      896             853
  Common stock, $.02 par value;
      authorized: 200,000,000 shares;
      outstanding: 1996 and 1995-76,621,009               1,532           1,532
  Additional paid-in capital                          1,362,585       1,281,640
  Retained earnings (since October 1, 1987
      quasi-reorganization)                             382,097         263,749
  Net unrealized gain on securities
      available-for-sale                                 53,949          54,273
                                                 -------------------------------
      Total stockholders' equity                      1,801,059       1,602,047
                                                 -------------------------------
Total liabilities and stockholders' equity          $ 2,226,372     $ 2,010,995
                                                 ===============================

<FN>
               See Notes to Consolidated Financial Statements.
</TABLE>







<TABLE>
<CAPTION>
                              CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                 (thousands)

                                             1996                  1995                 1994
Year ended December 31               -------------------   -------------------   -------------------
                                      Shares     Amount     Shares     Amount     Shares     Amount
                                     --------  ---------   --------  ---------   --------  ---------
<S>                                  <C>        <C>        <C>       <C>         <C>       <C>
Special common stock
  Beginning balance                   42,647     $  853          -          -          -          -
  Issuance of stock upon exercise
    of options and warrants            2,159         43        298      $   6          -          -
  Conversion of common stock
    to special common stock                -          -     42,349        847          -          -
                                     ---------------------------------------------------------------
  Ending balance                      44,806        896     42,647        853          -          -
                                     ---------------------------------------------------------------
  
Redeemable common stock
  Beginning balance                        -          -     50,106      1,002     47,690      $ 954
  Issuance of stock upon exercise
    of options and warrants                -          -        679         14      1,905         38
  Issuance of stock under
    employee stock plan                    -          -        322          6        511         10
  Conversion of redeemable 
    common stock to common stock           -          -    (51,107)    (1,022)         -          -
                                     ---------------------------------------------------------------
  Ending balance                           -          -          -          -     50,106      1,002
                                     ---------------------------------------------------------------
Common stock
  Beginning balance                   76,621      1,532     67,133      1,343     67,133      1,343
  Issuance of stock upon exercise
    of options and warrants                -          -        512         10          -          -
  Issuance of stock under
    employee stock plan                    -          -        218          4          -          -
  Conversion of redeemable
    common stock to common stock           -          -     51,107      1,022          -          -
  Conversion of common stock 
    to special common stock                -          -    (42,349)      (847)         -          -
                                     ---------------------------------------------------------------
  Ending balance                      76,621      1,532     76,621      1,532     67,133      1,343
                                     ---------------------------------------------------------------
Additional paid-in capital 
  Beginning balance                           1,281,640             1,207,720             1,070,121
  Issuance of stock upon exercise
    of options and warrants                      55,103                37,087                56,133
  Issuance of stock under
    employee stock plan                          17,412                17,819                15,774
  Income tax benefits
    realized from employee
    stock option exercises                        8,430                 7,204                26,038
  Tax benefits arising prior
    to quasi-reorganization                           -                11,810                39,654
                                             ----------            ----------           -----------
  Ending balance                              1,362,585             1,281,640             1,207,720
                                             ----------            -----------          -----------
Retained earnings 
  Beginning balance                             263,749               129,127                44,387
  Net income                                    118,348               146,432               124,394
  Tax benefits arising prior
    to quasi-reorganization                           -               (11,810)              (39,654)
                                             ----------            ----------           -----------
  Ending balance                                382,097               263,749               129,127
                                             ----------            ----------           -----------
Net unrealized gain on securities
  Beginning balance                              54,273                 9,592                     -
  Net unrealized (loss) gain on 
    securities available-for-sale                  (324)               44,681                 9,592
                                             ----------            ----------            ----------

  Ending balance                                 53,949                54,273                 9,592
                                             ----------            ----------            ----------

Total stockholders' equity                   $1,801,059            $1,602,047            $1,348,784
                                             ==========            ==========            ==========
<FN>
                               See Notes to Consolidated Financial Statements.
</TABLE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business:  Genentech, Inc. (the Company) is a biotechnology 
company that discovers, develops, manufactures and markets human 
pharmaceuticals produced by recombinant DNA technology for significant unmet 
medical needs.  The Company manufactures and markets six products directly in 
the United States (U.S.) and sells these products to F. Hoffmann-La Roche Ltd 
(HLR) for HLR to sell outside of the United States.  Of these six products, 
HLR has the right to sell five in Canada and one in a number of countries.  In 
addition, the Company receives royalties from HLR's sales of these products, 
and receives royalties from HLR and other licensees from sales of five other 
products which originated from the Company's technology.

Principles of Consolidation:  The consolidated financial statements include the 
accounts of the Company and all significant subsidiaries and collaborations. 
Material intercompany balances and transactions are eliminated. 

Use of Estimates:  The preparation of financial statements in conformity with 
generally accepted accounting principles requires management to make estimates 
and assumptions that affect the amounts reported in the financial statements 
and accompanying notes.  Actual results could differ from those estimates.

Cash and Cash Equivalents:  The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents.

Short-term Investments and Long-term Marketable Securities:  The Company
invests its excess cash balances in short-term and long-term marketable 
securities, primarily corporate notes, certificates of deposit and treasury 
notes.  As part of its strategic alliance efforts, the Company also invests in 
equity securities and convertible debt of other biotechnology companies.

Investment securities are classified into one of three categories:  held-to-
maturity, available-for-sale, or trading.  Securities are considered held-to-
maturity when the Company has the positive intent and ability to hold the 
securities to maturity.  These securities are recorded as either short-term 
investments or long-term marketable securities on the balance sheet depending 
upon their contractual maturity dates. Held-to-maturity securities are stated 
at amortized cost, including adjustment for amortization of premiums and 
accretion of discounts.  Securities are considered trading when bought 
principally for the purpose of selling in the near term.  These securities are 
recorded as short-term investments and are carried at market value.  
Unrealized holding gains and losses on trading securities are included in 
interest income.  Securities not classified as held-to-maturity or as trading 
are considered available-for-sale.  These securities are recorded as either 
short-term investments or long-term marketable securities and are carried at 
market value with unrealized gains and losses included in stockholders' 
equity. If a decline in fair value below cost is considered other than 
temporary, such securities are written down to estimated fair value with a 
charge to marketing, general and administrative expenses.  The cost of all 
securities sold is based on the specific identification method.

Property, Plant and Equipment:  The costs of buildings and equipment are
depreciated using the straight-line method over the following estimated useful 
lives of the assets: buildings - 25 years; certain manufacturing equipment - 
15 years; other equipment - 4 or 8 years; leasehold improvements - length of 
applicable lease.  The costs of repairs and maintenance are expensed as 
incurred.  Repairs and maintenance expenses for the years ended December 31, 
1996, 1995 and 1994, were $28.8 million, $22.1 million and $19.2 million, 
respectively.  Interest on construction-in-progress of $2.5 million in 1996, 
$1.5 million in 1995 and $0.6 million in 1994 has been capitalized and is 
included in property, plant and equipment.

Property, plant and equipment balances at December 31 are summarized below 
(thousands):
                                                    1996             1995
     ---------------------------------------------------------------------
     At cost:
       Land                                    $  67,619         $  57,313
       Buildings                                 297,888           258,717
       Equipment                                 428,738           383,387
       Leasehold improvements                     12,314            12,508
       Construction in progress                   99,708            60,480
                                              -----------------------------
                                                 906,267           772,405 
     Less: accumulated depreciation              320,100           268,751
                                              -----------------------------
     Net property, plant and equipment         $ 586,167         $ 503,654
                                              =============================

Patents and Other Intangible Assets:  As a result of its research and 
development (R&D) programs, the Company owns or is in the process of applying 
for patents in the U.S. and other countries which relate to products and 
processes of significant importance to the Company. Costs of patents and 
patent applications are capitalized and amortized on a straight-line basis 
over their estimated useful lives of approximately 12 years.  Intangible 
assets are generally amortized on a straight-line basis over their estimated 
useful lives.

Contract Revenue:  Contract revenue for R&D is recorded as earned based on the 
performance requirements of the contract. In return for contract payments, 
contract partners may receive certain marketing and manufacturing rights, 
products for clinical use and testing, or R&D services.

Royalty Expenses:  Royalty expenses directly related to product sales are 
classified in cost of sales.  Other royalty expenses, relating to royalty 
revenue, totaled $36.0 million, $30.2 million and $26.5 million in 1996, 1995 
and 1994, respectively, and are classified in marketing, general and 
administrative expenses.

Advertising Expenses:  The Company expenses the costs of advertising as 
incurred.  Advertising expenses for the years ended December 31, 1996, 1995 
and 1994, were $28.0 million, $29.2 million and $44.2 million, respectively.

Income Taxes:  The Company accounts for income taxes by the asset and 
liability approach for financial accounting and reporting of income taxes.  
The Company's method of accounting for operating loss and tax credit 
carryforwards arising prior to the date of the Company's quasi-reorganization 
in 1987 is described in the "Quasi-Reorganization" note.

Net Income Per Share:  Net income per share is computed based on the weighted
average number of shares of the Company's special common stock, common stock 
and common stock equivalents, if dilutive.

Financial Instruments:  The Company purchases simple foreign currency put 
options (options) with expiration dates and amounts of currency that are based 
on a portion of probable non-dollar revenues so that the potential adverse 
impact of movements in currency exchange rates on the non-dollar denominated 
revenues will be  at least partially offset by an associated increase in the 
value of the options.  See the "Financial Instruments" note for further 
discussion.  At the time the options are purchased they have little or no 
intrinsic value.  Realized and unrealized gains related to the options are 
deferred until the designated hedged revenues are recorded. The associated 
costs, which are deferred and classified as other current assets, are 
amortized over the term of the options and recorded as a reduction of the 
hedged revenues.  Realized gains and losses are recorded in the income 
statement with the related hedged revenues.  The Company also enters into 
foreign currency forward contracts (forward contracts) as hedging instruments.  
Forward contracts are recorded at fair value, and any gains and losses from 
these forward contracts are recorded in the income statement with the related 
hedged revenues.  Financial instruments, such as forward contracts, not 
qualifying as hedges under generally accepted accounting principles are marked 
to market with gains or losses recorded in income as they occur.

Interest rate swaps have been used and may be used in the future to adjust the 
duration of the investment portfolio in order to meet  duration targets.  
Interest rate swaps are contracts in which two parties agree to swap future 
streams of payments over a specified period.  See the "Financial Instruments" 
note for further discussion.  Net payments made or received on swaps are 
included in interest income as adjustments to the interest received on invested 
cash.  Amounts deferred on terminated swaps are classified as other assets and 
are amortized to interest income over the original contractual term of the 
swaps by a method that approximates the level-yield method.

The Company's marketable equity portfolio consists primarily of biotechnology 
companies whose risk of market fluctuations is greater than the stock market 
in general.  To manage this risk, the Company enters into certain costless 
collar instruments to hedge certain equity securities against changes in 
market value. See the "Financial Instruments" note for further discussion.  
Gains and losses on these instruments are recorded as an adjustment to 
unrealized gains and losses on marketable securities with a corresponding 
receivable or payable recorded in long-term other assets or long-term 
liabilities.

401(k) Plan:  The Company's 401(k) plan (Plan) covers substantially all of its 
U.S. employees. Under the Plan, eligible employees may contribute up to 15% of 
their eligible compensation, subject to certain Internal Revenue Service 
restrictions. The Company matches a portion of employee contributions, up to a 
maximum of 4% of each employee's eligible compensation. The match is effective 
December 31 of each year and is fully vested when made. During 1996, 1995 and 
1994, the Company provided $6.1 million, $5.6 million and $5.2 million, 
respectively, for the Company match under the Plan.

New Accounting Standards:  On January 1, 1996, the Company adopted Statement 
of Financial Accounting Standards (FAS) 121, "Accounting for the Impairment of 
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires 
the Company to review for impairment of long-lived assets, certain 
identifiable intangibles, and goodwill related to those assets whenever events 
or changes in circumstances indicate that the carrying amount of an asset may 
not be recoverable.  In certain situations, an impairment loss would be 
recognized.  The adoption of FAS 121 did not have a material impact on the 
financial position, results of operations or cash flows of the Company.

In 1996, the Company also implemented the disclosure requirements of FAS 123 
"Accounting for Stock-Based Compensation" (FAS 123).  Under FAS 123, the 
Company will continue to account for stock-based employee compensation 
arrangements under the intrinsic value method prescribed by Accounting 
Principles Board  Opinion 25 "Accounting for Stock Issued to Employees" (APB 
25), and will provide pro forma disclosures of net income and earnings per 
share as if the fair value basis method prescribed by FAS 123 had been applied 
in measuring employee compensation expense.  See the "Capital Stock" note for 
such disclosure.










Inventories:  Inventories are stated at the lower of cost or market. Cost is 
determined using a weighted-average approach which approximates the first-in, 
first-out method.  Inventories at December 31, 1996 and 1995 are summarized 
below (thousands):
                                                     1996        1995
     ------------------------------------------------------------------

     Raw materials and supplies                   $ 17,971    $ 12,808
     Work in process                                61,368      67,239
     Finished goods                                 12,604      13,601
                                                 ----------------------
     Total                                        $ 91,943    $ 93,648
                                                 ======================

Reclassifications:  Certain reclassifications of prior year amounts have been 
made to conform with the current year presentation.

SIGNIFICANT CUSTOMER AND GEOGRAPHIC INFORMATION

HLR contributed approximately 14% of the Company's total revenues in 1996, and 
contributed less than 10% in 1995 and 1994.  See the "Related Party 
Transactions" note below for further information.  Two major customers, 
Caremark, Inc. and Bergen Brunswig, contributed 10% or more of the Company's 
total revenues.  Caremark, Inc., which accounted for 15%, 18% and 21% of total 
revenues in 1996, 1995 and 1994, respectively, distributes Protropin, 
Nutropin, Pulmozyme and Actimmune through its extensive branch network and is 
then reimbursed through a variety of sources.  Bergen Brunswig, a wholesale 
distributor of all of the Company's products, contributed 10% of revenues in 
1996 and 11% in each of the years 1995 and 1994.

Approximate foreign sources of revenues were as follows (millions):

                         1996       1995        1994
-----------------------------------------------------

Europe                 $146.4     $112.0       $81.8
Asia                     17.8       23.6        19.5
Canada                   11.1       25.0         9.7


The Company currently sells primarily to distributors and hospitals throughout 
the U.S., performs ongoing credit evaluations of its customers' financial 
condition and generally requires no collateral. In 1996, 1995 and 1994, the 
Company did not record any material additions to, or losses against, its 
provision for doubtful accounts.

RESEARCH AND DEVELOPMENT ARRANGEMENTS

To gain access to potential new products and technologies and to utilize other 
companies to help develop the Company's potential new products, the Company has 
established strategic alliances with, including the acquisition of both 
marketable and non-marketable equity investments and convertible debt in,  
companies developing technologies that fall outside the Company's research 
focus and with companies having the potential to generate new products through 
technology exchanges and investments. Potential future payments may be due to 
certain collaborative partners if the partners achieve certain benchmarks as 
defined in the collaborative agreements.  The Company has also entered into 
product-specific collaborations to acquire development and marketing rights 
for products.






SPECIAL CHARGE

The $25.0 million special charge in 1995 includes $21.0 million related to the 
merger agreement (the Agreement) with Roche Holdings, Inc. (Roche), discussed 
in the note "Relationship with Roche Holdings, Inc.," and $4.0 million of 
charges associated with the resignation of the Company's former President and 
Chief Executive Officer.  The merger expenses include legal expenses, 
investment banking fees, filing fees and other costs related to the Agreement 
with Roche, as well as charges associated with the settlement of stockholder 
lawsuits filed after the transaction was announced.

INCOME TAXES

The income tax provision consists of the following amounts (thousands):

                                1996       1995        1994
----------------------------------------------------------------
Current:
  Federal                    $ 61,502   $ 43,997    $ 38,331
  State                         2,104      4,467       1,016
  Foreign                           2         32          29
                            ------------------------------------
     Total current             63,608     48,496      39,376
                            ------------------------------------
Deferred:
  Federal                     (34,021)   (12,319)    (34,193)
  State                             -    (10,336)          -
                            ------------------------------------
     Total deferred           (34,021)   (22,655)    (34,193)
                            ------------------------------------
Total income tax provision   $ 29,587   $ 25,841    $  5,183
                            ====================================

Actual current tax liabilities are lower than reflected above by $8.4 million, 
$7.2 million and $26.0 million in 1996, 1995 and 1994, respectively, due to 
employee stock option related tax benefits which were credited to 
stockholders' equity.

A reconciliation between the Company's effective tax rate and the U.S. 
statutory rate follows:

</TABLE>
<TABLE>
<CAPTION>
                                        1996 Amount             Tax Rate
                                        (thousands)    1996        1995       1994
------------------------------------------------------------------------------------
<S>                                      <C>          <C>        <C>         <C>  
Tax at U.S. statutory rate               $ 51,777      35.0%       35.0%      35.0%
Operating losses utilized                       -         -           -      (45.6)
Research and development
  credits realized                         (4,500)     (3.0)      (15.9)         -
Alternative minimum tax liability               -         -           -       24.6
Adjustment of deferred tax assets 
  valuation allowance                     (22,566)    (15.3)      (13.1)     (26.4)
Foreign losses (benefited) not benefited   (5,050)     (3.4)        2.8       15.0
State taxes                                 3,368       2.3         2.6        0.8
Other                                       6,558       4.4         3.6        0.6
                                         -------------------------------------------
Income tax provision                     $ 29,587      20.0%       15.0%       4.0%
                                         ===========================================
</TABLE>

The components of deferred taxes consist of the following at December 31 
(thousands):

                                                         1996           1995
-----------------------------------------------------------------------------
Deferred tax liabilities:
   Depreciation                                        $ 58,842      $ 50,010 
   Unrealized gain on sale of securities 
     available-for-sale                                  21,017        21,204
   Other                                                 10,543         3,109
                                                   --------------------------

      Total deferred tax liabilities                     90,402        74,323

Deferred tax assets:
   Capitalized research and development costs            34,280             -
   Federal credit carryforwards                         111,400       107,350
   Expenses not currently deductible                     38,368        39,433
   State credit carryforwards                            26,710        32,147
   Other                                                  6,340         5,058
                                                   -------------------------- 

      Total deferred tax assets                         217,098       183,988

      Valuation allowance                               (35,827)      (52,817)
                                                   --------------------------

      Total net deferred tax assets                     181,271       131,171
                                                   --------------------------

Total net deferred taxes                              $  90,869      $ 56,848
                                                   ==========================


Total tax credit carryforwards of $138.1 million expire in the years 1997 
through 2012, except for $43.0 million of alternative minimum tax credits which 
have no expiration date.  The valuation allowance at December 31, 1996, 
reflected above relates to the tax benefits of stock option deductions which 
will be credited to additional paid-in capital when realized.

The valuation allowance decreased by $17.0 million in 1996,  $31.6 million in 
1995 and $38.5 million in 1994.. Realization of net deferred taxes depends on 
future earnings from existing and new products and new indications for existing 
products. The timing and amount of future earnings will depend on continued 
success in marketing and sales of the Company's current products, as well as 
the scientific success, results of clinical trials and regulatory approval of 
products under development.

















INVESTMENT SECURITIES

Securities classified as trading, available-for-sale and held-to-maturity at 
December 31, 1996 and 1995 are summarized below. Estimated fair value is based 
on quoted market prices for these or similar investments.

                                             Gross        Gross      Estimated
                                Amortized  Unrealized   Unrealized     Fair
December 31, 1996                  Cost      Gains        Losses       Value
------------------------------------------------------------------------------
                                                  (thousands)
TOTAL TRADING SECURITIES
 (carried at estimated
 fair value)                    $ 144,460   $  1,932    $ (2,897)    $ 143,495
                                ==============================================
SECURITIES AVAILABLE-FOR-SALE
 (carried at estimated 
  fair value):
Equity securities               $  42,773   $ 56,347    $ (1,376)    $  97,744
U.S. Treasury securities
  and obligations of other
  U.S. government agencies 
  maturing within:
       1 year                      51,179          -         (71)       51,108
       1-5 years                  103,057      1,299        (209)      104,147
       5-10 years                 113,176      1,001      (2,114)      112,063
Other debt securities 
  maturing within:
       1 year                      46,583         27           -        46,610
       1-5 years                   43,954        185         (94)       44,045
                                ----------------------------------------------
TOTAL AVAILABLE-FOR-SALE        $ 400,722   $ 58,859    $ (3,864)    $ 455,717
                                ==============================================

SECURITIES HELD-TO-MATURITY*
 (carried at amortized cost):
U.S. Treasury securities
  and obligations of other
  U.S. government agencies
  maturing within:
       1 year                   $  76,718   $     31           -     $  76,749
       5-10 years                  30,155          -    $   (777)       29,378
Other debt securities
  maturing within:
       1 year                      91,664          4         (35)       91,633
       1-5 years                  141,553        576         (27)      142,102
                                ----------------------------------------------
TOTAL HELD-TO-MATURITY          $ 340,090   $    611    $   (839)    $ 339,862
                                ==============================================















                                             Gross        Gross      Estimated
                                Amortized  Unrealized   Unrealized     Fair
December 31, 1995                  Cost      Gains        Losses       Value
------------------------------------------------------------------------------
                                                  (thousands)
TOTAL TRADING SECURITIES
 (carried at estimated
 fair value)                    $135,325    $ 1,314     $ (1,328)    $135,311 
                                ==============================================
SECURITIES AVAILABLE-FOR-SALE
 (carried at estimated 
  fair value):
Equity securities               $ 22,423    $ 45,894    $   (350)    $ 67,967
U.S. Treasury securities
  and obligations of other
  U.S. government agencies 
  maturing within:
       1 year                      7,503          17           -        7,520
       1-5 years                 162,322       7,103           -      169,425
       5-10 years                 83,188         437           -       83,625
Other debt securities 
  maturing within
       1-5 years                  29,868       1,172           -       31,040
                                ----------------------------------------------
TOTAL AVAILABLE-FOR-SALE        $305,304    $ 54,623    $   (350)    $359,577
                                ==============================================

SECURITIES HELD-TO-MATURITY*
 (carried at amortized cost)
  maturing within 1 year:
U.S. Treasury securities
  and obligations of other
  U.S. government agencies      $219,267    $    318    $    (53)    $219,532
Other debt securities            236,870          95        (297)     236,668
                                ----------------------------------------------
TOTAL HELD-TO-MATURITY          $456,137    $    413    $   (350)    $456,200
                                ==============================================

*  Interest rate swap arrangements are used to modify the duration of certain 
   held-to-maturity securities.  The average effective maturity of the
   portfolio was 2.5 years and 2.7 years at December 31, 1996 and 1995, 
   respectively.  See "Financial Instruments" note for further information.


The carrying value of all investment securities held at December 31, 1996 and 
1995 is summarized below (thousands):

 Security                                                   1996         1995
------------------------------------------------------------------------------
Trading securities                                        $143,495    $135,311
Securities available-for-sale maturing within one year      97,718       7,520
Securities held-to-maturity maturing within one year       168,382     456,137
Accrued interest                                             6,305       4,328
                                                          --------    --------
     Total short-term investments                         $415,900    $603,296
                                                          ========    ========

Securities available-for-sale maturing within 1-10 years,
  including equity securities                             $357,999    $352,057
Securities held-to-maturity maturing within 1-10 years     171,708           -
Accrued interest                                             6,209       4,418
                                                          --------    --------
     Total long-term marketable securities                $535,916    $356,475
                                                          ========    ========

In 1996, proceeds from sales of available-for-sale securities totaled $182.6 
million; gross realized gains totaled $1.0 million and gross realized losses 
totaled $0.7 million.  In 1995, proceeds from sales of available-for-sale 
securities totaled $101.6 million; gross realized gains totaled $7.6 million 
and gross realized losses totaled $0.2 million.  During 1994, no available-for-
sale securities were sold.  The Company recorded charges in 1995 and 1994 of 
$6.6 million and $12.6 million, respectively, to write down certain available-
for-sale biotechnology equity securities for which the decline in fair value 
below cost was other than temporary.

During the year ended December 31, 1996, net unrealized holding losses on 
trading securities included in net income totaled $1.0 million.  In 1995 and 
1994, such losses were not material.

Marketable debt securities held by the Company are issued by a diversified 
selection of corporate and financial institutions with strong credit ratings. 
The Company's investment policy limits the amount of credit exposure with any 
one institution. These debt securities are generally not collateralized. The 
Company has not experienced any material losses due to credit impairment on 
its investments in marketable debt securities in the years 1996, 1995 and 
1994.

FINANCIAL INSTRUMENTS

Foreign Currency Instruments:  Certain of the Company's revenues are earned 
outside of the United States.  Moreover, the Company's foreign currency 
denominated revenues exceed its foreign currency denominated expenses; 
therefore, risk exists that net income may be impacted by changes in the 
exchange rates between the U.S. dollar and foreign currencies.  To hedge 
anticipated non-dollar denominated net revenues, the Company currently 
purchases options and enters into forward contracts.  At December 31, 1996, 
the Company had hedged approximately 90% of probable net foreign revenues 
anticipated within 12 months and between 20% and 45% of its probable net 
foreign revenues through 2000.  At December 31, 1996 and 1995, the notional 
amount of the options totaled $100.3 million and $72.8 million, respectively, 
and consisted of the following currencies:  Australian dollars, Canadian 
dollars, German marks, Spanish pesetas, French francs, British pounds, Italian 
lire, Japanese yen, and Swedish krona.  All option contracts mature within the 
next four years.  The fair value of the options, which is based on exchange 
rates and market conditions at December 31, 1996 and 1995, totaled $7.3 
million and $6.3 million, respectively.  At December 31, 1996 and 1995, the 
U.S. dollar equivalent of the notional amount of the forward sell contracts 
was $34.3 million and $6.0 million, respectively, and the forward buy 
contracts totaled $0.4 million and $6.2 million, respectively.

Credit exposure is limited to the unrealized gains on these contracts. All 
agreements are with a diversified selection of institutions with strong credit 
ratings which minimizes risk of loss due to nonpayment from the counterparty.
The Company has not experienced any losses due to credit impairment of its 
foreign currency instruments.

Interest Rate Swaps:  Interest income is subject to fluctuations as U.S. 
interest rates change. To manage this risk, the Company periodically 
establishes duration targets for its investment portfolio that reflect its 
anticipated use of cash and fluctuations in market rates of interest.  The 
Company enters into interest rate swaps (swaps) as part of its overall 
strategy of managing the duration of its cash portfolio.  For each swap, the 
Company receives interest based on fixed rates and pays interest to 
counterparties based on floating rates (three- or six- month London Inter-Bank 
Offered Rate (LIBOR)) on a notional principal amount.  By designating a swap 
with a pool of short-term securities equal in size to the notional amount of 
the swap, an instrument with an effective interest rate and maturity equal to 
the term of the swap is created.  Increases (decreases) in swap variable 
payments caused by rising (falling) interest rates will be essentially offset 
by increased (reduced) interest income on the related short-term investments, 
while the fixed rate payments received from the swap counterparty establish 
the Company's interest income.  LIBOR payments received on swaps are highly 
correlated to interest collections on short-term investments.  The use of 
swaps in this manner generates net interest income on the swap and the 
associated pool of short-term securities equivalent to interest income that 
would be earned from a high-grade corporate security of the same maturity as 
the swap, while reducing credit risk (there is no principal invested in a 
swap). The Company's credit exposure on swaps is limited to the value of the 
interest rate swaps that have become favorable to the Company and any net 
interest earned but not yet received. The Company's swap counterparties have 
strong credit ratings which minimize the risk of non-performance on the swaps. 
The Company has not experienced any material losses due to credit impairment.  
The Company's credit exposure on swaps as of December 31, 1996 and 1995, was 
$6.8 million and $24.1 million, respectively.  The net carrying amount of the 
swaps, which reflects the net interest accrued for such swaps, totaled $2.1 
million and $7.2 million at December 31, 1996 and 1995, respectively, and is 
included in accounts receivable.

The Company targets the average maturity of its investment portfolio 
(including cash, cash equivalents, short-term and long-term investments, 
swaps, and excluding equity securities) based on its anticipated use of cash 
and fluctuations in the market rates of interest. The maturity of the 
investment portfolio (including swaps) ranges from overnight funds used for 
near-term working capital purposes to investments maturing within the next one 
to ten years for future working capital, capital expenditures, strategic 
investments and debt repayment.  

The notional amount of each swap is equal to the amount of designated high- 
quality short-term investments which are expected to be invested in during the 
life of the swap. The anticipated investments include U.S. Treasury 
securities, U.S. government agency securities, commercial paper and corporate 
debt obligations.  Swaps are used to extend the maturity of the investment 
portfolio. 

For the years ended December 31, 1996 and 1995, the weighted average rate 
received on swaps was 6.71% and 7.29%, respectively, and the weighted average 
rate paid on swaps was 5.68% and 6.56%, respectively. Net interest income 
(loss) from swaps, including amortization of net losses on terminated swaps, 
totaled $2.5 million in 1996 and ($0.7) million in 1995.

During 1995, to reduce the average effective maturity of its portfolio, the 
Company terminated certain swap agreements prior to maturity and is amortizing 
the realized gains and losses over the original contractual term of the swaps 
as a reduction to interest income. At December 31, 1996, net losses of $0.7 
million remained unamortized; $0.5 million will be recognized in 1997 and $0.2 
million will be recognized in 1998.

Equity Collar Instruments:  To hedge against fluctuations in the market value  
of a portion of the marketable equity portfolio, the Company has entered into 
costless collar instruments, a form of equity collar instrument, that expire 
in 1998 and 1999 and will require settlement in equity securities or cash.  A 
costless collar instrument is a purchased put option and a written call option 
on a specific equity security such that the cost of the purchased put and the 
proceeds of the written call offset each other; therefore, there is no initial 
cost or cash outflow for these instruments.  The fair value of the purchased 
puts and the written calls were determined based on quoted market prices at 
year end.  At December 31, 1996, the notional amount of the put and call 
options were $17.2 million and $27.5 million, respectively.





The tables below outline specific information for the swaps outstanding at 
December 31, 1996 and 1995. The fair value is based on market prices of similar 
agreements. Dollars are in millions. 

<TABLE>
<CAPTION>
                         Interest Rate Swaps            Short-term Investments
                      ---------------------------     --------------------------------
                               Fixed                                        Average
                               Rates    Variable                           Effective
                      Notional To Be    Rates To       Carrying  Average   Interest
December 31, 1996:    Amounts  Received Be Paid*        Value   Maturity**   Rate
-------------------------------------------------------------------------------------
<S>                   <C>      <C>      <C>           <C>         <C>         <C>
Swaps matched
  to investments
  to meet maturity 
  target comparable
  to outstanding debt                    3- or 6-
  [Maturing on:                 7.68%-    month
   1/2/02]              $150    7.71%     LIBOR        $150         13 days    5.66%

Swaps matched to
  other investments
  to meet specific
  maturity targets                       3- or 6-
  [Ending dates:                 4.97%-   month
   10/27/97-9/20/99]      60     7.20%    LIBOR          60         32 days    5.47%

Other short-term 
  investments              -                            206    
                      --------                       --------
    Total               $210                           $416   
                      ========                       ========


December 31, 1995:
------------------

Swaps matched
  to investments
  to meet maturity 
  target comparable
  to outstanding debt                    3- or 6-
  [Maturing on:                 7.68%-    month
   1/2/02]              $150    7.71%     LIBOR         $150     118 days    5.52%

Swaps matched to
  other investments
  to meet specific
  maturity targets                       3- or 6-
  [Ending dates:                6.09%-    month
   8/12/97 - 9/20/99]     80    7.20%     LIBOR           80      93 days    5.85%

Other short-term 
  investments              -                             373                    
                      --------                        --------
    Total               $230                            $603                  
                      ========                        ========
<FN>

*  3- and 6-month LIBOR rates are reset every 3 or 6 months.  At December 31, 
1996, the 3-month LIBOR rate and the 6-month LIBOR rate were 5.6%.  At December 
31, 1995, the 3-month LIBOR rate was 5.6% and the 6-month LIBOR rate was 5.5%.

** Average maturity reflects either the maturity date or, for a floating 
investment, the next reset date.
</TABLE>
Financial Instruments Held for Trading Purposes:  As part of its overall 
investment strategy, the Company has contracted with two external money 
managers to manage part of its investment portfolio.  One portfolio, which had 
a carrying value of $37.2 million at December 31, 1996, and $34.9 million at 
December 31, 1995, consisted of primarily non-dollar denominated investments.  
To hedge the non-dollar denominated investments, the money manager enters into 
forward contracts.  The fair value at December 31, 1996 and 1995, of the 
forward contracts totaled $0.8 million and $0.1 million, respectively.  The 
average fair value during 1996 and 1995 totaled $0.3 million and $0.1 million, 
respectively.  Net realized and unrealized trading gains on the portfolio 
totaled approximately $2.4 million in 1996 and $3.8 million in 1995, and are 
included in interest income.  Counterparties have strong credit ratings which 
minimize the risk of non-performance from the counterparties.

Summary of Fair Values:  The table below summarizes the carrying value and fair 
value at December 31, 1996 and 1995, of the Company's financial instruments. 
The fair value of the long-term debt was estimated based on the quoted market 
price at year end.


                                            1996                  1995
                                     ------------------  ---------------------
                                      Carrying     Fair     Carrying    Fair
Financial Instrument                    Value     Value       Value    Value
------------------------------------------------------------------------------
                                                 (thousands)
Assets:
Investment securities
 (including accrued interest 
   and traded forward contracts)     $ 951,816  $ 951,588  $959,771   $959,834
Purchased foreign exchange put 
  options                                4,616      7,273     2,345      6,300
Outstanding interest rate swaps (net)    2,122     11,555     7,194     23,940

Liabilities:
Short-term and long-term debt          150,000    139,500   150,358    147,750
Equity collars                           1,222      4,892         -          -
Foreign exchange forward contracts         138        138       237        237



OTHER ACCRUED LIABILITIES

Other accrued liabilities at December 31 are as follows (thousands):


                                                     1996                1995
------------------------------------------------------------------------------
Accrued compensation                              $ 42,716            $ 36,945
Accrued clinical and other studies                  39,981              27,290
Accrued royalties                                   25,098              23,159
Accrued marketing and promotion costs               11,889              18,863
Income taxes payable                                18,530              14,329
Other                                               56,328              67,012
                                                 -----------------------------
  Total other accrued liabilities                 $194,542            $187,598
                                                 =============================







LONG-TERM DEBT

The Company's long-term debt as of December 31, 1996 and 1995 consisted of 
$150.0 million of convertible subordinated debentures, with interest payable 
at 5%, due in 2002.  The debentures are convertible at the option of the 
holder into shares of the Company's special common stock.  Upon conversion, 
the holder receives, for each $74 in principal amount of debenture converted, 
one-half share of the Company's special common stock and $18 in cash. The $18 
in cash is reimbursed by Roche to the Company.  Generally, the Company may 
redeem the debentures until maturity.

LEASES, COMMITMENTS AND CONTINGENCIES

Future minimum lease payments under operating leases at December 31, 1996 are 
as follows (thousands):


                                                         
  1997      1998       1999       2000        2001    Thereafter      Total
------------------------------------------------------------------------------
$7,563     3,942      5,400      5,121       4,791      9,155        $35,972


The Company leases various real property under operating leases that generally 
require the Company to pay taxes, insurance and maintenance.  Rent expense was 
approximately $11.7 million, $9.5 million and $6.5 million for the years 1996, 
1995 and 1994, respectively.  Sublease income was not material in any of the 
three years presented.

Under three of the lease agreements, the Company has an option to purchase the 
properties at an amount that does not constitute a bargain.  Alternatively, 
the Company can cause the property to be sold to a third party.  The Company 
is contingently liable, under residual value guarantees, for approximately 
$166.0 million.  The Company also is required to maintain certain financial 
ratios and is limited to the amount of additional debt it can assume.

Pursuant to its research and development collaboration agreement entered into 
with Scios Inc. (Scios) in 1995, the Company established a line of credit for 
$30 million that Scios may draw down at Scios' discretion through 2002. This 
commitment is supported through December 31, 1997, by a bank letter of credit 
under which Scios may draw up to $30 million directly from the bank, with 
immediate repayment of the funds due to the bank by the Company. Amounts drawn 
by Scios under the bank letter of credit or directly from the Company are 
repayable in the form of cash or Scios common stock (at the average market 
price over the thirty day period before the date of repayment) at Scios' 
option any time through December 30, 2002. Interest on amounts borrowed by 
Scios accrue to the Company at the prime rate of interest. At December 31, 
1996 and 1995, no amounts were drawn.

In addition, the Company has entered into research collaborations with 
companies whereby potential future payments may be due to selective 
collaborative partners if the partners achieve certain benchmarks as defined 
in the collaborative agreements.  The Company may also, from time to time, 
lend additional funds to these companies, subject to approval.

The Company is a party to various legal proceedings including patent 
infringement cases involving human growth hormone products and Activase; 
product liability cases involving Activase and growth hormone products; and 
class action lawsuits regarding Protropin.  In addition, in 1995 the Company 
received and responded to grand jury document subpoenas from the United States 
District Court for the Northern District of California for documents relating 
to the Company's clinical, sales and marketing activities associated with 
human growth hormone.  In February 1997, the Company received another grand 
jury document subpoena from the same court related to the same subject matter. 
Based upon the nature of the claims made and the investigations completed to 
date by the Company and its counsel, the Company believes the outcome of these 
actions will not have a material adverse effect on the financial position, 
results of operations or cash flows of the Company.  However, were an 
unfavorable ruling to occur in any quarterly period, there exists the 
possibility of a material impact on the net income of that period.

RELATIONSHIP WITH ROCHE HOLDINGS, INC.

On October 25, 1995, the Company and Roche entered into a new agreement (the 
Agreement).  Each share of the Company's common stock not held by Roche or its 
affiliates on that date automatically converted to one share of callable 
putable common stock (special common stock).  The Agreement extends until June 
30, 1999, Roche's option to cause the Company to redeem (call) the outstanding 
special common stock of the Company at predetermined prices. Should the call 
be exercised, Roche will concurrently purchase from the Company a like number 
of common shares for a price equal to the Company's cost to redeem the special 
common stock.  During the quarter beginning January 1, 1997, the call price is 
$69.25 per share; it increases by $1.25 in the following quarter, then 
increases by $1.50 per share each quarter through the end of the option period 
on June 30, 1999, on which date the price is $82.50 per share.  If Roche does 
not cause the redemption as of June 30, 1999, the Company's stockholders will 
have the option (the put) to cause the Company to redeem none, some, or all of 
their shares of special common stock at $60.00 per share (and Roche will 
concurrently provide the necessary redemption funds to the Company by 
purchasing a like number of shares of common stock at $60.00 per share) within 
thirty business days commencing July 1, 1999.  Roche Holding Ltd, a Swiss 
corporation, has guaranteed Roche's obligation under the put.

In conjunction with the Agreement, HLR was granted an option for ten years for 
licenses to use and sell certain of the Company's products in non-U.S. 
markets.  As a general matter, such option for a Genentech product must be 
exercised at, or prior to if the Company mutually agrees, the conclusion of 
phase II clinical trials for each product.  In general, for each product for 
which HLR exercises its option, the Company and HLR will share equally all 
development expenses incurred by the Company through the option exercise date 
and prospectively with respect to the development of the product in the United 
States.  HLR will pay all non-U.S. development expenses.  At the Company's 
election, and with HLR's consent, HLR may reimburse the Company for HLR's 
share of development costs incurred prior to HLR's option exercise date, 
either by payment of such costs at the time of the option exercise or by 
making payments prospectively until HLR's share has been fully reimbursed to 
the Company.

In general, HLR pays a royalty of 12.5% until a product reaches $100 million 
in aggregate sales outside of the U.S., at which time the royalty rate 
increases to 15%. In addition, HLR has exclusive rights to, and pays the 
Company 20% royalties on, Canadian sales of the Company's existing products 
and European sales of Pulmozyme.  Consequently, in the fourth quarter of 1995, 
the Company transferred to HLR the rights to its Canadian product sales and 
European sales of Pulmozyme, and commenced recording royalty revenue from HLR 
on such sales.  The Company supplies its products to HLR, and has agreed to 
supply products for which HLR has exercised its option, for sales outside of 
the U.S. at cost plus 20%.

Under the Agreement, independent of its right to cause the Company to redeem 
the special common stock, Roche may increase its ownership of the Company up 
to 79.9% by making purchases on the open market.  Roche holds approximately 
66.0% of the outstanding common equity of the Company as of December 31, 1996.  
In January and February 1997, Roche purchased additional shares of the 
Company's common equity increasing Roche's holdings to 68.0%.



RELATED PARTY TRANSACTIONS 

The Company has transactions with Roche, HLR (a wholly owned subsidiary of 
Roche, with two officers on the Company's Board of Directors), and its 
affiliates in the ordinary course of business.  In 1996, HLR exercised its 
option under the Agreement with respect to the development of three projects - 
IDEC-C2B8, insulin-like growth factor (IGF-1) and nerve growth factor (NGF). 
The Company recorded non-recurring contract revenues of $58.2 million relating 
to the option exercises.  Other contract revenue from HLR, including 
reimbursement for ongoing development expenses after the option exercise date 
for the three projects, totaled $37.1 million in 1996, $13.4 million in 1995 
and $17.1 million in 1994.  All other revenue from Roche, HLR and their 
affiliates, principally royalties under previous product licensing agreements, 
and royalties and product sales under the Agreement, totaled $39.5 million in 
1996, $14.3 million in 1995 and $8.5 million in 1994. During the three years, 
the Company has collaborated with HLR on other projects.

CAPITAL STOCK

Common Stock, Special Common Stock and Redeemable Common Stock

After the close of business on June 30, 1995, each share of the Company's 
redeemable common stock automatically converted to one share of Genentech 
common stock, in accordance with the terms of the redeemable common stock put 
in place at the time of its issuance in 1990 and as described in Genentech's 
Certificate of Incorporation.  On October 25, 1995, pursuant to the Agreement 
with Roche, each share of the Company's common stock not held by Roche or its 
affiliates automatically converted to one share of callable putable common 
stock (special common stock).  See the "Relationship with Roche Holdings, 
Inc." note above for a discussion of these transactions.

Stock Award Plans

The Company has stock option plans adopted in 1996, 1994, 1990 and 1984, which 
variously allow for the granting of non-qualified stock options, incentive 
stock options and stock appreciation rights to employees, and the granting of 
non-qualified stock options to directors and consultants of the Company.  
Generally, non-qualified options have a maximum term of 20 years and incentive 
options have a maximum term of 10 years.  In general, options vest in 
increments over four years from the date of grant, although the Company may 
grant options with different vesting terms from time to time.  No stock 
appreciation rights have been granted to date.  

The Company adopted the 1991 Employee Stock Plan (1991 Plan) on December 4, 
1990, and amended it during 1993 and 1995. All full-time employees of the 
Company are eligible to participate in the 1991 Plan. Of the 3,800,000 shares 
of special common stock reserved for issuance under the 1991 Plan, 2,865,196 
shares have been issued as of December 31, 1996.  During 1996, 2,487 of the 
eligible employees participated in the 1991 Plan.

The Company has elected to continue to follow APB 25 for accounting for its 
employee stock options because the alternative fair value method of accounting 
prescribed by FAS 123 requires the use of option valuation models that were 
not developed for use in valuing employee stock options. Under APB 25, no 
compensation expense is recognized because the exercise price of the Company's 
employee stock options equals the market price of the underlying stock on the 
date of grant.  

Pro forma information regarding net income and earnings per share in 1996 and 
1995 has been determined as if the Company had accounted for its employee 
stock options and employee stock plan under the fair value method prescribed 
by FAS 123.  The resulting effect on pro forma net income and earnings per 
share disclosed for 1996 and 1995 is not likely to be representative of the 
effects on net income and earnings per share on a pro forma basis in future 
years, because 1995 and 1996 pro forma results include the impact of only one 
and two years, respectively, of grants and related vesting, while subsequent 
years will include additional years of grants and vesting.  The fair value of 
options was estimated at the date of grant using a Black-Scholes option 
valuation model with the following weighted average assumptions:  risk-free 
interest rates of 5.8% for 1996 and 6.0% for 1995; dividend yields of 0%; 
volatility factors of the expected market price of the Company's common stock 
of 6.2%; and a weighted-average expected life of the option of 5.0 years.  
Grants under the employee stock plan terminate with each quarterly stock 
purchase.

The Black-Scholes option valuation model was developed for use in estimating 
the fair value of traded options which have no vesting restrictions and are 
fully transferable.  In addition, option valuation models require the input of 
highly subjective assumptions including the expected stock price volatility.  
Because the Company's employee stock options have characteristics 
significantly different from those of traded options, and because changes in 
the subjective input assumptions can materially affect the fair value 
estimate, in management's opinion the existing models do not necessarily 
provide a reliable single measure of the fair value of its employee stock 
options. 

For purposes of pro forma disclosures, the estimated fair value of options is 
amortized to pro forma expense over the options' vesting period. Pro forma 
information for the years ending December 31 follows (in thousands, except per 
share amounts):

                                                  1996            1995
                                                  ----            ----   
Net income - as reported                      $ 118,348       $ 146,432  
Net income - pro forma                          104,358         142,370  
Earnings per share - as reported                   0.96            1.21  
Earnings per share - pro forma                     0.84            1.18  


A summary of the Company's stock option activity and related information were 
as follows:

                                                Shares        Weighted Average
                                                                    Price   
                                              -----------     ----------------
Options outstanding at December 31, 1993       12,439,727         $  27.38
Grants                                          5,137,055            50.19
Exercises                                      (1,400,223)           23.53
Cancellations                                    (195,752)           36.89
Options outstanding at December 31, 1994       15,980,807            34.93
Grants                                          1,303,800            48.52
Exercises                                      (1,472,759)           24.60
Cancellations                                    (602,774)           42.59
                                              ------------
Options outstanding at December 31, 1995       15,209,074            36.80
Grants                                          6,761,545            53.99
Exercises                                      (1,624,541)           29.39
Cancellations                                    (743,569)           48.93
                                              ------------
Options outstanding at December 31, 1996       19,602,509            42.89
                                              ============







The following table summarizes information concerning currently outstanding and 
exercisable options:


                          Options Outstanding             Options Exercisable
                   -----------------------------------   ----------------------
                                 Weighted
                                  Average     Weighted                Weighted
                                 Remaining    Average                 Average
Range of             Number     Contractual   Exercise     Number     Exercise
Exercise Prices    Outstanding     Life        Price     Exercisable    Price
-----------------  -----------  -----------   --------   -----------  ---------

$14.080 - $20.625    1,278,761      2.83       $17.01      1,278,361   $17.01
$21.375 - $31.000    4,181,212     12.77        26.37      4,114,332    26.37
$32.125 - $48.125    2,964,663     16.74        41.68      2,126,573    39.33
$48.250 - $54.250   11,177,873     13.42        52.45        952,284    50.45
                   -----------                           -----------
                    19,602,509     13.09        42.93      8,471,550    30.91
                   ===========                           ===========
     


Using the Black-Scholes option valuation model, the weighted average fair value 
of options granted in 1996 and 1995 was $13.36 and $12.27, respectively.  
Shares of special common stock available for future grants under all stock 
option plans were 4,469,574 at December 31, 1996.

Warrants

All previously outstanding warrants to purchase the Company's special common 
stock were exercised or expired as of July 31, 1996.  As of December 31, 1995, 
121,445 shares subject to exercisable warrants were outstanding, with a price 
range of $27.57 to $28.26.  113,093 shares were exercised through July 31, 
1996, at a price range of $27.57 to $28.26, and 8,352 shares expired 
unexercised.

QUASI-REORGANIZATION

On October 1, 1987, the Company eliminated its accumulated deficit through an 
accounting reorganization of its stockholders' equity accounts (a quasi-
reorganization) that did not involve any revaluation of assets or liabilities. 
An accumulated deficit of $329.5 million was eliminated by a transfer from 
additional paid-in capital in an amount equal to the accumulated deficit.

The Company has been recording, in income, the recognition of operating loss 
and tax credit carryforward items arising prior to the quasi-reorganization 
due to the Company's adoption of its quasi-reorganization in the context of 
the accounting and quasi-reorganization literature existing at the date the 
quasi-reorganization was effected. If the provisions of the subsequently 
issued Staff Accounting Bulletin 86 (SAB 86) had been applied, net income in 
1995 would have been reduced by $11.8 million or $.10 per share, and 1994 net 
income would have been reduced by $39.7 million or $.33 per share, because SAB 
86 would require that the tax benefits of prior operating loss and tax credit 
carryforwards be reported as a direct addition to additional paid-in capital 
rather than being recorded in the income statement. The Securities and 
Exchange Commission staff has indicated that it would not object to the 
Company's accounting for such tax benefits.  As of June 30, 1995, the 
operating loss and tax credit carryforwards arising prior to the quasi-
reorganization had been fully utilized, therefore there was no impact on 
earnings in 1996.



REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders of Genentech, Inc.

We have audited the accompanying consolidated balance sheets of Genentech, 
Inc. as of December 31, 1996 and 1995, and the related consolidated statements 
of income, stockholders' equity, and cash flows for each of the three years in 
the period ended December 31, 1996. These financial statements are the 
responsibility of the Company's management. Our responsibility is to express 
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free of 
material misstatement. An audit includes examining, on a test basis, evidence 
supporting the amounts and disclosures in the financial statements. An audit 
also includes assessing the accounting principles used and significant 
estimates made by management, as well as evaluating the overall financial 
statement presentation. We believe that our audits provide a reasonable basis 
for our opinion.

In our opinion, the financial statements referred to above present fairly, in 
all material respects, the consolidated financial position of Genentech, Inc. 
at December 31, 1996 and 1995, and the consolidated results of its operations 
and its cash flows for each of the three years in the period ended December 
31, 1996, in conformity with generally accepted accounting principles.


                                                            Ernst & Young LLP


San Jose, California
January 17, 1997































QUARTERLY FINANCIAL DATA (UNAUDITED)
(thousands, except per share amounts)


                                              1996 Quarter Ended
                               -----------------------------------------------

                               December 31   September 30   June 30   March 31
------------------------------------------------------------------------------

Total revenues                   $230,325    $251,707      $243,762   $242,884
Product sales                     139,724     142,463       148,305    152,337
Gross margin from product sales   113,065     117,627       121,152    126,458
Net income                          7,470      50,942        21,719     38,217
Net income per share                  .06         .41           .18        .31



                                              1995 Quarter Ended
                               -----------------------------------------------

                               December 31   September 30   June 30   March 31
------------------------------------------------------------------------------

Total revenues                   $221,914    $223,911      $233,053   $238,967
Product sales                     153,482     158,478       161,236    162,067
Gross margin from product sales   130,983     134,109       136,924    135,317
Net income                         25,636      40,229        37,163     43,404
Net income per share                  .21         .33           .31        .36


Total revenues were higher in the first three quarters of 1996 compared to the 
fourth quarter due primarily to contract revenue from HLR for the exercises of 
its options under the Agreement (see the "Related Party Transactions" note in 
the "Notes to Consolidated Financial Statements" for more information) in each 
of the first three quarters.  Net income was lower in the fourth quarter due 
to lower revenues and higher expenses, primarily research and development.



























<TABLE>
<CAPTION>
11-YEAR FINANCIAL SUMMARY (UNAUDITED)
(millions, except per share and employee data)

                                               1996    1995     1994     1993     1992
---------------------------------------------------------------------------------------
<S>                                        <C>      <C>      <C>      <C>      <C>
Total revenues                              $ 968.6  $ 917.8  $ 795.4  $ 649.7  $ 544.3
  Product sales                               582.8    635.3    601.0    457.4    391.0
  Royalties                                   214.7    190.8    126.0    112.9     91.7
  Contract & other                            107.0     31.2     25.6     37.9     16.7
  Interest                                     64.1     60.5     42.8     41.5     44.9
                                         ----------------------------------------------

Total costs and expenses                    $ 820.7  $ 745.6  $ 665.8  $ 590.8  $ 522.3
  Cost of sales                               104.5     97.9     95.8     70.5     66.8
  Research & development                      471.1    363.0    314.3    299.4    278.6
  Marketing, general & administrative         240.1    251.7    248.6    214.4    172.5
  Special charge                                  -     25.0(1)     -        -        -
  Interest                                      5.0      8.0      7.1      6.5      4.4
                                         ----------------------------------------------
Income data
  Income (loss) before taxes                $ 147.9  $ 172.2  $ 129.6   $ 58.9   $ 21.9
  Income tax provision                         29.6     25.8      5.2        -      1.1
  Net income (loss)                           118.3    146.4    124.4     58.9     20.8
  Net income (loss) per share                  0.96     1.21     1.04     0.50     0.18
                                         ----------------------------------------------

Selected balance sheet data
  Cash, short-term investments
    & marketable securities                $1,159.1 $1,096.8  $ 920.9  $ 719.8  $ 646.9
  Accounts receivable                         197.6    172.2    146.3    130.5     93.9
  Inventories                                  91.9     93.6    103.2     84.7     65.3
  Property, plant & equipment, net            586.2    503.7    485.3    456.7    432.5
  Other long-term assets                      149.2    105.5     61.0     64.1     37.1
  Total assets                              2,226.4  2,011.0  1,745.1  1,468.8  1,305.1
  Total current liabilities                   250.0    233.4    220.5    190.7    133.5
  Long-term debt                              150.0    150.0    150.4    151.2    152.0
  Total liabilities                           425.3    408.9    396.3    352.0    297.8
  Total stockholders' equity                1,801.1  1,602.0  1,348.8  1,116.8  1,007.3
                                         ----------------------------------------------

Other data
  Depreciation and amortization expense     $  62.1  $  58.4  $  53.5  $  44.0  $  52.2
  Capital expenditures                        141.8     70.2     82.8     87.5    126.0
                                         ----------------------------------------------

Share information
  Shares used to compute EPS                  123.7    121.2    119.5    117.1    114.0
  Actual year-end                             121.4    119.3    117.2    114.8    112.9
                                         ----------------------------------------------

Per share data
  Market price:       High                  $ 55.38  $ 53.00* $ 53.50  $ 50.50  $ 39.50

                      Low                   $ 51.38  $ 44.50* $ 41.75  $ 31.25  $ 25.88

  Book value                                $ 14.84  $ 13.43  $ 11.50  $  9.73  $  8.92
                                         ----------------------------------------------

Number of employees                           3,071    2,842    2,738    2,510    2,331
                                         ----------------------------------------------

<FN>
The Company has paid no dividends.
The Financial Summary above reflects adoption of FAS 121 in 1996, FAS 115 in 1994, FAS 
109 in 1992 and FAS 96 in 1988.
All share and per share amounts reflect a two-for-one split in 1986 and a two-for-one 
split in 1987.
*Special common stock began trading October 26, 1995.  On October 25, 1995, pursuant to 
the new Agreement with Roche, each share of the Company's common stock not held by 
Roche or its affiliates automatically converted to one share of special common stock.
**Redeemable common stock began trading September 10, 1990; prior to that date
all shares were common stock.  Pursuant to the merger agreement with Roche, all
shareholders as of effective date September 7, 1990, received for each common
share owned, $18 in cash from Roche and one-half share of newly issued
redeemable common stock from the Company.
(1) Charges related to 1995 merger and new Agreement with Roche ($21 million) and 
      resignation of the Company's former CEO ($4 million).
(2) Charges primarily related to 1990 Roche merger.
(3) Primarily inventory-related charge.
(4) Charge for purchase of in-process R&D.

</TABLE>













































     1991       1990       1989       1988       1987       1986    
--------------------------------------------------------------------

 $  515.9    $ 476.1    $ 400.5    $ 334.8    $ 230.5    $ 134.0    
    383.3      367.2      319.1      262.5      141.4       43.6    
     63.4       47.6       36.7       26.7       20.1       12.9    
     20.4       31.9       27.5       33.5       57.1       70.9    
     48.8       29.4       17.2       12.1       11.9        6.6    
--------------------------------------------------------------------

 $  469.8    $ 572.7    $ 352.9    $ 311.7    $ 186.6    $ 484.6    
     68.4       68.3       60.6       46.9       23.8       10.8    
    221.3      173.1      156.9      132.7       96.5       79.8    
    175.3      158.1      127.9      101.9       59.5       27.3    
        -      167.7(2)       -       23.3(3)       -      366.7(4) 
      4.8        5.5        7.5        6.9        6.8          -    
--------------------------------------------------------------------

 $   46.1    $ (96.6)    $ 47.6     $ 23.1     $ 43.9   $ (350.6)   
      1.8        1.5        3.6        2.5        1.7        2.4    
     44.3      (98.0)      44.0       20.6       42.2     (353.0)   
     0.39      (1.05)      0.51       0.24       0.50      (5.10)   
--------------------------------------------------------------------

 $  711.4    $ 691.3    $ 205.0    $ 152.5    $ 158.3     $ 84.3    
     69.0       58.8       66.8       63.9       92.2       24.5    
     56.2       39.6       49.3       63.4       58.0       14.7    
    342.5      300.2      299.1      289.4      195.7      133.1    
     42.7       61.7       85.0       89.7      108.7      114.9    
  1,231.4    1,157.7      711.2      662.9      619.0      376.0    
    118.6      101.4       75.9       95.4       82.8       37.8    
    152.9      153.5      154.4      155.3      168.1       31.6    
    281.7      264.5      242.2      263.6      263.6       83.3    
    949.7      893.2      469.0      399.3      355.4      292.6    
--------------------------------------------------------------------

 $   46.9     $ 47.6     $ 44.6     $ 38.3     $ 23.5     $  8.1    
     71.3       36.0       37.2      110.9       65.3       46.3    
--------------------------------------------------------------------

    112.5       93.0       86.0       84.5       84.4       69.3    
    111.3      110.6       84.3       82.9       78.7       67.0    
--------------------------------------------------------------------

 $  36.25    $ 30.88    $ 23.38    $ 47.50    $ 64.75    $ 49.38   
             $ 27.50**
 $  20.75    $ 20.13    $ 16.00    $ 14.38    $ 28.00    $ 16.44   
             $ 21.75**
 $   8.53    $  8.08    $  5.56    $  4.82    $  4.52    $  4.37   
--------------------------------------------------------------------

    2,202      1,923      1,790      1,744      1,465      1,168    
--------------------------------------------------------------------









COMMON STOCK, SPECIAL COMMON STOCK AND REDEEMABLE COMMON STOCK INFORMATION

Stock Trading Symbol   GNE

Stock Exchange Listings

The Company's callable putable common stock (special common stock) has traded 
on the New York Stock Exchange and the Pacific Stock Exchange under the symbol 
GNE since October 26, 1995.  On October 25, 1995, the Company's non-Roche 
stockholders approved a new agreement (the Agreement) with Roche Holdings, 
Inc. (Roche).  Pursuant to the Agreement, each share of the Company's common 
stock not held by Roche or its affiliates automatically converted to one share 
of special common stock.  From July 3, 1995 through October 25, 1995, the 
Company's common stock was traded under the symbol GNE.  After the close of 
business on June 30, 1995, each share of the Company's redeemable common stock 
automatically converted to one share of the Company's common stock.  The 
conversion was in accordance with the terms of the redeemable common stock put 
in place at the time of its issuance on September 7, 1990, when the Company's 
merger with a wholly owned subsidiary of Roche was consummated.  The 
redeemable common stock of the Company traded under the symbol GNE from 
September 10, 1990 to June 30, 1995. The Company's common stock was traded on 
the New York Stock Exchange under the symbol GNE from March 2, 1988, until 
September 7, 1990, and on the Pacific Stock Exchange under the symbol GNE from 
April 12, 1988, until September 7, 1990. The Company's common stock was 
previously traded in the NASDAQ National Market System under the symbol GENE. 
No dividends have been paid on the common stock, special common stock or 
redeemable common stock. The Company currently intends to retain all future 
income for use in the operation of its business and, therefore, does not 
anticipate paying any cash dividends in the foreseeable future.  See the 
"Relationship with Roche Holdings, Inc." note in the "Notes to  Consolidated 
Financial Statements" for a further description of the Agreement with Roche. 

Special Common Stockholders

As of December 31, 1996, there were approximately 16,748 stockholders of 
record of the Company's special common stock.


Stock Prices                Special Common/Redeemable Common/Common Stock
                                  1996                       1995
--------------------------------------------------------------------------

                             High        Low         High          Low
                         -------------------------------------------------

4th Quarter               $ 54 3/8     $ 52 3/4    $ 53          $ 47 7/8
3rd Quarter                 53 1/4       51 3/8      49 1/4        46 5/8
2nd Quarter                 53 3/8       51 7/8      52            46 3/8
1st Quarter                 55 3/8       52 1/2      51            44 1/2