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 shares of common stock 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.  

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 markets (the license agreement).  In 
the second quarter of 1997, the Company and HLR agreed in principle to 
changes to the license agreement.  In general, these changes allow for the 
sharing of United States (U.S.) and European development costs regardless of 
location or purpose of studies.  Under the license agreement, as revised, 
HLR may  exercise its option either when the Company determines to move a 
product into development or at the end of Phase II clinical trials.  In 
addition, HLR has assumed development of Xubix, trademark, (the oral 
IIb/IIIa antagonist) globally on its own.  See the Relationship with Roche 
Holdings, Inc. note in the Notes to Consolidated Financial Statements for 
further information.  

As a result of the license agreement which transferred the Company's 
Canadian and European operations to Roche, in 1996 the Company's total 
product sales decreased compared to 1995, while contract and royalty revenue 
increased.  Cost of sales as a percentage of product sales also increased 
due to the license agreement.  See below for further discussion.  

RESULTS OF OPERATIONS  
(dollars in millions, except per share amounts)
                                                            Annual % Change
                      1997         1996         1995      97/96         96/95
------------------------------------------------------------------------------
Revenues          $1,016.7      $ 968.7      $ 917.8         5%           6%


Revenues for 1997 increased in all areas, but primarily from royalties and 
contract revenues.  The increase in 1996 resulted primarily from higher 
contract and royalty revenue partly offset by lower product sales.  Product 
sales to HLR in conjunction with the license agreement were $17.4 million in 
1997, $13.2 million in 1996 and $1.8 million in 1995.

                                                             Annual % Change
Product Sales          1997        1996         1995*      97/96         96/95
------------------------------------------------------------------------------
Activase             $ 260.7    $ 284.1     $  301.0         (8)%         (6)%
Protropin, Nutropin
 and Nutropin AQ       223.6      218.2        219.4          2           (1)
Pulmozyme               91.6       76.0        111.3         21          (32)
Rituxan                  5.5          -            -          -            - 
Actimmune                3.5        4.5          3.6        (22)          25 
                    ----------------------------------------------------------
-
Total product
  sales              $ 584.9    $ 582.8     $  635.3          0%          (8)%
% of revenues            58%        60%          69%                

Total product sales increased slightly in 1997 over 1996 due to increases in 
Pulmozyme, registered trademark, growth hormone sales and new sales from the 
introduction of Rituxan, trademark.  This increase was offset by a decrease in 
Activase, registered trademark, sales.  The decrease in total product sales in 
1996 compared to 1995 primarily resulted from the license 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 in 1997 decreased primarily due to a 
new competitive thrombolytic agent, Retavase, registered trademark.  
Activase's market share fell to approximately 71% at the end of 1997 from 
approximately 80% at the end of 1996 and from approximately 75% at the end of 
1995.  Activase sales decreased in 1996 compared to 1995 primarily due to the 
impact of not having Canadian customer sales in 1996 as a result of the 
license agreement with Roche and the decline in the overall size of the U.S. 
thrombolytic market.  Activase sales to Canadian customers were $12.7 million 
in 1995. The market size decrease was approximately 6% in 1996.  This 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 
March 1997, results from the GUSTO III clinical trial, which involved a head-
to-head comparison of Activase to Retavase, failed to demonstrate that 
Retavase was superior over Activase, which was the endpoint that the trial 
was designed to assess.  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 (blood clots in the 
brain).  Activase is the first therapy to be indicated for the acute 
treatment of stroke.  

Protropin, Nutropin and Nutropin AQ:  Net sales of the Company's three growth 
hormone products - Protropin, registered trademark, (somatrem for injection), 
Nutropin, registered trademark, [somatropin (rDNA origin) for injection] and 
Nutropin AQ, registered trademark, [somatropin (rDNA origin) injection] liquid 
formulation - increased slightly in 1997 compared to 1996 and 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 for 
treatment of children with growth hormone inadequacy. 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 products.  In the 
first quarter of 1997, three of those companies, Serono Laboratories, Inc., 
Novo Nordisk A/S (Novo) and Pharmacia & Upjohn (P&U) began selling their 
growth hormone products in the U.S. market.  In addition, three of the 
Company's competitors have received approval to market their existing human 
growth hormone products for additional indications.  In December 1997, the 
Company received clearance to market Nutropin and Nutropin AQ for the 
treatment of growth hormone inadequacy in adults.  In December 1996 and 
January 1997, the Company received clearance from the FDA to market Nutropin 
and Nutropin AQ, respectively, for the treatment of growth inadequacy 
associated with Turner syndrome.  

Pulmozyme:  Net sales of Pulmozyme were higher in 1997 primarily due to 
continued penetration in the moderate and early cystic fibrosis (CF) patient 
populations as well as from variations in customer ordering patterns for 
U.S. sales.  The decrease in 1996 compared to 1995 occurred primarily as a 
result of the license 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.  In November 1996, 
Pulmozyme was cleared for marketing by the FDA for the management of CF 
patients with advanced disease, a condition that affects approximately 500 
patients in the U.S.

Rituxan:  Rituxan is marketed in the U.S. for the treatment of relapsed or 
refractory low-grade or follicular, CD20-positive B-cell non-Hodgkin's 
lymphoma (B-cell NHL), a cancer of the immune system.  In late November 1997, 
Rituxan was cleared for marketing in the U.S. by the FDA.  B-cell NHL affects 
approximately 250,000 people in the U.S. of which one-half are follicular or 
low-grade lymphoma patients.  A portion of these patients will have multiple 
relapses and may be eligible for Rituxan therapy.  The Company launched 
Rituxan on December 16, 1997, and recorded initial sales of $5.5 million.  
However, not enough time has passed for these figures to be indicative of the 
future trend of Rituxan sales.  Rituxan was co-developed by the Company and 
IDEC Pharmaceuticals Corporation (IDEC), from whom the Company licenses 
Rituxan, and is the first monoclonal antibody approved to treat cancer. IDEC 
and the Company are jointly promoting Rituxan in the U.S. and share 
responsibility for the manufacturing of the product.  HLR is responsible for 
marketing Rituxan in the rest of the world, excluding Japan.

Actimmune:  Actimmune, registered trademark, is approved in the U.S. for the 
treatment of chronic granulomatous disease, a rare, inherited disorder of the 
immune system which affects an estimated 250 to 400 Americans.

Royalties, Contract and Other,                                  Annual % 
Change
 and Interest Income             1997       1996       1995     97/96    96/95
------------------------------------------------------------------------------
-
Royalties                      $ 241.1   $  214.7   $  190.8     12%        
13%
Contract and other               121.6      107.0       31.2     14        243
Interest income                   69.1       64.2       60.5      8          6


The Company receives royalty payments from HLR from its sales of the Company's 
products outside of the U.S. under the license agreement, and receives 
royalties from other licensees and HLR from the sales of various other health 
care products.  Total royalties in 1997 increased over 1996 primarily due to 
increased licensee sales from various licensees.  Royalties in 1996 increased 
over 1995 primarily due to new royalties from HLR in conjunction with the 
license agreement, as well as higher income from existing licensees due to 
increased licensee sales.  Royalty revenue under the license agreement was 
$17.0 million in 1996 and $1.9 million in 1995.  All other royalty revenue 
from HLR in 1996 and 1995, totaled $9.2 million and $10.6 million, 
respectively.  Royalties in 1995 include $30.0 million of royalty revenue 
related 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) to hedge 
these royalty cash flows.  All options expire within the next three years.  
See below for discussion of market risks related to these financial 
instruments.

Contract and other revenues were higher in 1997 compared to 1996 primarily due 
to $30.9 million from Sumitomo Pharmaceuticals Co., Ltd. (Sumitomo) and P&U 
for strategic alliances and $11.7 million of gains from the sale of 
biotechnology equity securities in 1997.  These increases were partly offset 
by higher revenues from HLR in 1996.  As part of the strategic alliance with 
Sumitomo, the Company has agreed to provide Sumitomo exclusive rights to 
develop, import and distribute in Japan, Nutropin AQ and ProLease, registered 
trademark, sustained release growth hormone.  In its alliance with P&U, in 
exchange for development costs, fees and, upon regulatory approval, royalties, 
the Company agreed to provide P&U exclusive worldwide rights for 
thrombopoietin (TPO) which is in Phase II trials for potential use in treating 
patients with complications of cancer chemotherapy.  P&U and the Company will 
jointly develop TPO for one indication; however, the Company has no marketing 
rights for this indication.  Contract and other revenues increased in 1996 
from 1995 due to contract revenue from HLR for the exercises of their options 
under the license agreement with respect to the development of three projects 
- Rituxan, insulin-like growth factor (IGF-I) and nerve growth factor (NGF).  
Development of IGF-I was subsequently terminated.  The Company recorded non-
recurring contract revenues of $44.7 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 $67.6 million in 1997, $50.6 million in 1996 and $13.4 million in 
1995.

Interest income increased in 1997 from last year primarily due to an increase 
in the average yield on the investment portfolio and a larger investment 
portfolio.  The increase in 1996 compared to 1995 was due to a larger 
investment portfolio.  The Company enters into interest rate swaps (swaps) as 
part of its overall strategy of managing the duration of its investment 
portfolio. See below for discussion of market risks related to these swaps and 
also the Financial Instruments note in the Notes to Consolidated Financial 
Statements.

                                                               Annual % Change
Costs and Expenses         1997       1996       1995        97/96       96/95
-------------------------------------------------------------------------------
Cost of sales           $ 102.5     $104.5     $ 97.9         (2)%          7%
Research and
  development             470.9      471.1      363.0          0           30
Marketing, general and
  administrative          269.9      240.1      251.7         12           (5)
Special charge                -          -       25.0          -            - 
Interest expense            3.6        5.1        8.0        (29)         (36)
                     ----------------------------------------------------------

Total costs
  and expenses          $ 846.9     $820.8    $ 745.6          3%          10%
% of revenues               83%        85%        81%    

Cost of sales as % of
  product sales             18%       18%        15%
R&D as % of revenues        46        49         40 
MG&A as % of revenues       27        25         27 


Cost of Sales:  Cost of sales as a percent of product sales was 18% in 1997 
which was comparable to 1996, but 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 
and 1995, reserves of $3.6 million and $3.7 million, respectively, included in 
cost of sales, were provided for expected expirations of certain inventories.  
In 1997, such reserves were immaterial.

Research and Development:  Research and Development (R&D) expenses in 1997 
were flat compared to 1996.  R&D as a percentage of revenues decreased to 46% 
in 1997 from 49% in 1996.  This percentage decrease from 1996 reflects 
increases in revenues and continuing efforts towards disciplined spending in 
R&D.  R&D expenses increased 30% in 1996 compared to 1995 due to continued 
late-stage clinical testing of products and new development projects.  

To gain additional access to potential new products and technologies, 
including acquiring the equity and convertible debt of, and to utilize other 
companies to help develop the Company's potential new products, the Company 
has established strategic alliances with 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 
(MG&A) expenses increased in 1997 primarily due to increased marketing and 
sales (M&S) expenses in the oncology area, defending Activase against new 
competition and launching a new indication, growth hormone deficiency in 
adults, for Nutropin and Nutropin AQ.  In addition, there was an increase in 
general and administrative expenses due to higher royalty expense.  MG&A 
expenses in 1996 decreased from 1995 primarily due to the closure of the 
Company's European and Canadian operations in conjunction with the license 
agreement.  

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 declined in 1997 over 1996 due to higher 
capitalized interest resulting from an increase in construction projects.  
Interest expense in 1997, 1996 and 1995, 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           1997         1996        1995
-----------------------------------------------------------------------------
Income before taxes                         $ 169.8      $ 147.9     $ 172.2

Income tax provision                           40.8         29.6        25.8
Effective tax rate                               24%          20%         15%

Increases in the effective tax rate for 1997 over 1996 and 1996 over 1995 are 
attributable to proportionally decreased realization of previously reserved 
deferred tax assets.  The valuation allowance for deferred tax assets was 
fully realized in 1996, with the exception of the portion attributable to the 
realization of tax benefits on stock option deductions which will be credited 
to additional paid-in-capital when realized. 

                                                              Annual % Change
Net Income                  1997       1996       1995       97/96      96/95
------------------------------------------------------------------------------

Net income               $ 129.0    $ 118.3    $ 146.4         9%        (19)%
Earnings per share:
  Basic                  $  1.05    $  0.98    $  1.24
  Diluted                $  1.02    $  0.95    $  1.20     

Net income in 1997 increased over 1996 primarily due to higher royalties and 
contract and other revenues partly offset by higher MG&A expenses.  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.  

LIQUIDITY AND CAPITAL RESOURCES                   1997        1996       1995 
------------------------------------------------------------------------------
Cash, cash equivalents, short-term investments
   and long-term marketable debt and equity 
   securities                                  $1,286.5    $1,159.1   $1,096.8
Working capital                                   904.4       705.1      812.0
Cash provided by (used in):
   Operating activities                           118.3       139.7      133.9
   Investing activities                          (168.4)     (141.7)    
(117.7)
   Financing activities                            87.3        72.2       54.1
Capital expenditures
  (included in investing activities above)       (154.9)     (141.8)     
(70.2)
Current ratio                                     4.1:1       3.8:1      4.5:1

Cash generated from operations, income from investments and proceeds from 
stock issuances were used to purchase marketable securities and make capital 
additions in 1997.

Capital expenditures in 1997 primarily included building improvements to 
existing manufacturing and office facilities and production systems.  In 1996, 
capital expenditures primarily included building and land purchases and 
improvements to existing manufacturing and office facilities. In 1995, the 
Company entered into an arrangement with a lessor, which qualifies as an 
operating lease, for a new manufacturing facility that 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 these and any other 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.

Product Sales:  The Company's product sales may vary from period to period for 
several reasons including, but not limited to:  the overall competitive 
environment for the Company's products, the amount of sales to customers in 
the U.S., the amount and timing of the Company's sales to HLR, the timing and 
volume of bulk shipments to licensees, the availability of third-party 
reimbursements for the cost of therapy, the effectiveness and safety of the 
products, the rate of adoption and use of the Company's products for approved 
indications and additional indications, and the potential introduction of 
additional new products and indications for existing products in 1998 and 
beyond.

Competition:  The Company faces growing competition in two of its therapeutic 
markets.  Activase lost market share and is expected to lose additional market 
share in the thrombolytic market to Retavase and such adverse effect on sales 
could be material. Boehringer Mannheim (BM) manufactures and markets Retavase.  
Recently, Centocor, Inc. announced that it was purchasing the U.S. and 
Canadian rights to Retavase from BM and will promote and sell the product in 
the U.S.  Retavase received FDA approval in October 1996 for the treatment of 
acute myocardial infarction (AMI).  In addition, there is an increasing use of 
angioplasty in lieu of thrombolytic therapy for the treatment of AMI which is 
expected to continue.  In the growth hormone market, the Company continues to 
face increased competition from five other companies with growth hormone 
products.  Three of these competitors have also 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, Nutropin and Nutropin AQ and such effect could be material.

Other competitive factors affecting the Company's product 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 degree of 
patent protection afforded to particular products, the outcome of litigation 
involving the Company's patents and patents of competing companies for 
products and processes related to production and formulation of those 
products, the increasing use and development of alternate therapies, and the 
rate of market penetration by competing products.

Royalty and Contract Revenues:  Royalty and contract revenues in future 
periods could vary significantly from 1997 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 and other licensees' 
sales of licensed products; the expiration of royalties from Lilly in 1998 for 
its sales of insulin which contribute substantially to current royalty 
revenues; fluctuations in foreign currency exchange rates; the initiation of 
other new contractual arrangements with other companies; the timing of non-
U.S. approvals, if any, for products licensed to HLR; whether and when 
contract benchmarks are achieved; and the conclusion of existing arrangements 
with other companies and HLR.

R&D:  The Company intends to continue to develop new products and is 
committed to aggressive R&D investment.  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; they may fail to receive necessary 
regulatory approvals; they may turn out to be uneconomical because of 
manufacturing costs or other factors; or they 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.

The Company currently has several products in late-stage clinical testing 
and anticipates that its R&D expenses will continue at a high percentage of 
revenues over the short-term.  Over the long-term, however, as revenues 
increase, R&D as a percent of revenues should decrease to the 20 to 25% 
range.  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, in-
licensing activities, including the timing and amount of related development 
funding or milestone payments, and future levels of revenues.  

As part of the Company and HLR's agreed upon changes to the license 
agreement, HLR has assumed development of Xubix on its own.  As a result, 
the Company will not be incurring future Xubix related R&D costs unless it 
decides to opt-in on the development of this product.  Such costs, net of 
amounts reimbursed by HLR, were approximately $4.6 million for 1997. 

In September 1997, the Company decided to discontinue development of IGF-I 
in Type I and Type II diabetes mellitus.  As a result, the Company will not 
be incurring future IGF-I related R&D costs, net of amounts reimbursed by 
HLR, which were approximately $16.1 million for 1997.

In addition, the Company announced in early October 1997 that it opted-out 
of development and returned to IDEC the Company's marketing rights for IDEC-
Y2B8, a radioimmunotherapy under investigation for the treatment of relapsed 
or refractory B-cell NHL.  As a result, the Company discontinued its R&D 
funding to IDEC for the development of IDEC-Y2B8.  Such funding for 1997 was 
immaterial.

Income Tax Provision:  The Company expects its effective tax rate to 
increase from the current rate of 24% to approximately 28% in 1998 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.  

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 has in 
the past, is currently and may in the future, be involved in 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 at a material cost 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 R&D 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.

Year 2000:  Some of the Company's older computer software programs were 
written using two digit fields rather than four digit fields to define the 
applicable year (i.e., "98" in the computer code refers to the year "1998").  
As a result, time-sensitive functions of those software programs may 
misinterpret dates after January 1, 2000, to refer to the twentieth century 
rather than the twenty-first century (i.e., "02" could be interpreted as 
"1902" rather than "2002").  This could cause system failures or 
miscalculations resulting in inaccuracies in computer output or disruptions of 
operations, including, among other things, inaccurate processing of financial 
information and/or temporary inabilities to process transactions, manufacture 
products, or engage in similar normal business activities.

The Company has developed plans to address the potential exposures related to 
the impact on its computer systems for the Year 2000 and beyond.  An 
assessment of key financial, informational and operational systems to 
determine if they are Year 2000 compliant has been completed.  Detailed plans 
and timelines for implementation and testing of modifications and corrections 
to the computer systems have been or are in process of being developed to 
address computer systems problems as required by December 31, 1999.  The 
Company believes that with these detailed plans and completed modifications, 
the Year 2000 issue will not pose significant operational problems for its 
computer systems.  However, if such modifications and conversions are not 
made, or are not completed in a timely fashion, the Year 2000 issue could have 
a material impact on the operations of the Company.

The total cost of the Year 2000 systems assessments and conversions is funded 
through operating cash flows and the Company is expensing these costs.  The 
financial impact of making the required systems changes can not be known 
precisely at this time, but is not expected to be material to the Company's 
financial position, results of operations or cash flows.

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.  In addition, the Company believes it could access additional 
funds from the capital and debt markets.  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, in-licensing 
activities, including the timing and amount of related development funding or 
milestone payments, and capital expenditures.

Roche Holdings, Inc.:  At December 31, 1997, Roche held approximately 66.9% of 
the Company's outstanding common equity.  The Company expects to continue to 
have material transactions with Roche, including royalty and contract 
revenues, product sales and joint product development costs.

Market Risk:  The Company is exposed to market risk, including changes to 
interest rates, foreign currency exchange rates and equity investment prices.  
To reduce the volatility relating to these exposures, the Company enters into 
various derivative transactions pursuant to the Company's investment and risk 
management policies and procedures in areas such as hedging and counterparty 
exposure practices.  The Company does not use derivatives for speculative 
purposes.

A discussion of the Company's accounting policies for financial instruments 
and further disclosures relating to financial instruments is included in the 
Description of Business and Significant Accounting Policies and the Financial 
Instruments notes in the Notes to Consolidated Financial Statements.

The Company maintains risk management control systems to monitor the risks 
associated with interest rates, foreign currency exchange rates and equity 
investment price changes, and its derivative and financial instrument 
positions.  The risk management control systems use analytical techniques, 
including sensitivity analysis, and market values. Though the Company intends 
for its risk management control systems to be comprehensive, there are 
inherent risks which may only be partially offset by the Company's hedging 
programs should there be unfavorable movements in interest rates, foreign 
currency exchange rates or equity investment prices.

The estimated exposures discussed below are intended to measure the maximum 
amount the Company could lose from adverse market movements in interest rates, 
foreign currency exchange rates and equity investment prices, given a 
specified confidence level, over a given period of time.  Loss is defined in 
the value at risk estimation as fair market value loss.  The exposures to 
interest rate, foreign currency exchange rate and equity investment price 
changes are calculated based on proprietary modeling techniques from a Monte 
Carlo simulation value at risk model (value at risk model) using a 30-day 
holding period and a 95% confidence level.  The value at risk model assumes 
non-linear financial returns and generates potential paths various market 
prices could take and tracks the hypothetical performance of a portfolio under 
each scenario to approximate its financial return.  The value at risk model 
takes into account correlations and diversification across market factors, 
including interest rates, foreign currencies and equity prices.  Market 
volatilities and correlations are based on JP Morgan Riskmetrics, trademark, 
dataset as of December 31, 1997.

     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, convertible equity loans and long-term investments. To 
mitigate the impact of fluctuations in U.S. interest rates, the Company may 
enter into swap transactions which involve the receipt of fixed rate interest 
and the payment of floating rate interest without the exchange of the 
underlying principal.  By investing the Company's cash in an amount equal to 
the notional amount of the swap contract, with a maturity date equal to the 
maturity date of the floating rate obligation, the Company hedges itself from 
any potential earnings impact due to changes in interest rates.

Based on the Company's overall interest rate exposure at December 31, 1997, 
including derivative and other interest rate sensitive instruments, a near-
term change in interest rates, within a 95% confidence level based on 
historical interest rate movements, would not materially affect the fair value 
of interest rate sensitive instruments.

     Foreign Currency Exchange Rates -  The Company receives royalty revenues 
from licensees selling products in 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 licensed products are 
sold.  The Company is exposed to changes in exchange rates in Europe, Asia and 
Canada.  The Company's exposure to foreign exchange rates primarily exists 
with the German Mark.  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.  In addition, as part 
of its overall investment strategy, the Company has three portfolios that are 
managed by external money managers and these portfolios consist primarily of 
non-dollar denominated investments.  As a result, the Company is exposed to 
changes in the exchanges rates of the countries in which these non-dollar 
denominated investments are made. 

To mitigate this risk, the Company hedges certain of its anticipated revenues 
by purchasing option contracts with expiration dates and amounts of currency 
that are based on 40%-90% of probable future revenues so that the potential 
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 duration of these options is generally one to 
four years.  The Company may also enter into foreign currency forward 
contracts (forward contracts) to lock in the dollar value of a portion of 
these anticipated revenues.  The duration of these forward contracts is 
generally less than one year.  Also, to hedge the non-dollar denominated 
investments in the externally managed portfolios, the external money managers 
also enter into forward contracts.

Based on the Company's overall currency rate exposure at December 31, 1997, 
including derivative and other foreign currency sensitive instruments, a near-
term change in currency rates within a 95% confidence level based on 
historical currency rate movements, would not materially affect the fair value 
of foreign currency sensitive instruments.

     Equity Investment Securities -  As part of its strategic alliance 
efforts, the Company invests in equity instruments of biotechnology companies 
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).  In 
addition, as part of its strategic alliance efforts, the Company has issued 
interest bearing convertible equity loans.

Based on the Company's overall exposure to fluctuations from market value 
changes in equity prices at December 31, 1997, a near-term change in equity 
prices within a 95% confidence level based on historic volatilities could 
result in a potential loss in fair value of the equity securities portfolio of 
$11.3 million.  

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 42 to 60, 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 61.

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.  The Audit Committee of the Board of Directors is composed of 
four non-management directors who meet regularly with management and the 
independent auditors and the general auditor, jointly and separately, to 
review the adequacy of internal accounting controls and auditing and financial 
reporting matters to ascertain that each is properly discharging its 
responsibilities.



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




<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(thousands, except per share amounts)
<S>                                         <C>           <C>          <C>
YEAR ENDED DECEMBER 31                           1997        1996         1995 
---------------------------------------------------------------------------------
Revenues
  Product sales (including amounts from
      related parties: 1997-$17,396;
      1996-$13,216; 1995-$1,776)            $  584,889    $ 582,829    $ 635,263
  Royalties (including amounts
      from related parties: 1997-$25,362;
      1996-$26,240; 1995-$12,492)              241,112      214,702      190,811
  Contract and other (including amounts
      from related parties: 1997-$67,596;
      1996-$95,299; 1995-$13,448)              121,587      107,037       31,209
  Interest                                      69,160       64,110       60,562
                                             ------------------------------------

      Total revenues                         1,016,748      968,678      917,845

Costs and expenses
  Cost of sales (including amounts from
      related parties:  1997-$14,348;
      1996-$10,900; 1995-$6,963)               102,536      104,527       97,930
  Research and development (including
      contract related: 1997-$67,596;
      1996-$50,586; 1995-$17,124)              470,923      471,143      363,049
  Marketing, general and administrative        269,852      240,063      251,653
  Special charge (primarily merger related)         --           --       25,000
  Interest                                       3,642        5,010        7,940
                                            -------------------------------------

      Total costs and expenses                 846,953      820,743      745,572


Income before taxes                            169,795      147,935      172,273
Income tax provision                            40,751       29,587       25,841
                                            -------------------------------------

Net income                                   $ 129,044    $ 118,348    $ 146,432
                                            =====================================

Earnings per share:
  Basic                                      $    1.05    $    0.98    $   1.24
  Diluted                                    $    1.02    $    0.95    $   1.20
                                            =====================================

Weighted average shares used to compute
  diluted earnings per share:                  126,397      123,969     121,748
                                            =====================================

<FN>

               See Notes to Consolidated Financial Statements.

</TABLE>


<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands)
                                                                  Increase in Cash and
                                                                    Cash Equivalents
YEAR ENDED DECEMBER 31                                         1997       1996       1995
--------------------------------------------------------------------------------------------
<S>                                                      <C>         <C>         <C>
Cash flows from operating activities:
  Net income                                              $ 129,044   $ 118,348   $ 146,432
Adjustments to reconcile net income to
   net cash provided by operating activities:
         Depreciation and amortization                       65,533      62,124      58,421
         Deferred income taxes                               19,660     (34,021)    (22,655)
         Gain on sales of securities available-for-sale     (13,203)     (1,010)     (7,589)
         Loss on sales of securities available-for-sale       2,096         663         157
         Writedown of securities available-for-sale           4,000           -       6,609
         Loss on fixed asset dispositions 
            (including merger-related in 1995)                  318       5,309       1,032
         Other                                                    -           -        (234)
Changes in assets and liabilities:
         Net cash flow from trading securities             (109,132)     (8,184)    (50,014)
         Receivables and other current assets                11,194     (30,416)    (28,446)
         Inventories                                        (24,083)      1,705       9,552
         Accounts payable, other current
            liabilities and other long-term
            liabilities                                      32,897      25,153      20,682
                                                          ----------------------------------
  Net cash provided by operating activities                 118,324     139,671     133,947

Cash flows from investing activities: 
  Purchases of securities held-to-maturity                 (304,932)   (634,124)   (682,396)
  Proceeds from maturities of securities 
     held-to-maturity                                       455,317     772,922     924,345
  Purchases of securities available-for-sale               (512,727)   (304,806)   (353,118)
  Proceeds from sales of securities available-
     for-sale                                               410,395     182,564     101,591
  Purchases of nonmarketable equity securities                    -      (9,323)          -
  Capital expenditures                                     (154,902)   (141,837)    (70,166)
  Change in other assets                                    (61,529)     (7,046)    (37,948)
                                                         -----------------------------------
  Net cash used in investing activities                    (168,378)   (141,650)   (117,692)

Cash flows from financing activities:
  Stock issuances                                            87,259      72,558      54,946
  Reduction in long-term debt,
     including current portion                                    -        (358)       (871)
                                                         -----------------------------------
  Net cash provided by financing activities                  87,259      72,200      54,075
                                                         -----------------------------------
Increase in cash and cash equivalents                        37,205      70,221      70,330
Cash and cash equivalents at beginning of year              207,264     137,043      66,713
                                                         -----------------------------------
Cash and cash equivalents at end of year                  $ 244,469   $ 207,264   $ 137,043
                                                         ===================================
Supplemental cash flow data:
  Cash paid during the year for:
      Interest, net of portion capitalized                $   3,642   $   5,010   $   7,917
      Income taxes                                           15,474      52,243      44,699

<FN>

                        See Notes to Consolidated Financial Statements.
</TABLE>

<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except par value)

DECEMBER 31                                               1997            1996
--------------------------------------------------------------------------------
<S>                                                <C>             <C>
Assets:
Current assets:
  Cash and cash equivalents                         $   244,469     $   207,264
  Short-term investments                                588,853         415,900
  Accounts receivable - trade (net of
      allowances of: 1997-$8,826; 1996-$4,110)           71,415          77,785
  Accounts receivable - other (net of
      allowances of: 1997-$5,709; 1996-$3,759)           73,444          86,450
  Accounts receivable - related party                    44,386          33,377
  Inventories                                           116,026          91,943
  Prepaid expenses and other current assets              55,325          42,365
                                                  ------------------------------
      Total current assets                            1,193,918         955,084

Long-term marketable securities                         453,188         535,916
Property, plant and equipment, net                      683,304         586,167
Other assets                                            177,202         149,205
                                                  ------------------------------
Total assets                                        $ 2,507,612     $ 2,226,372
                                                  ==============================
Liabilities and stockholders' equity:
Current liabilities:
  Accounts payable                                  $    48,992     $    45,501
  Income taxes payable                                   40,293          18,530
  Accrued liabilities - related party                    15,427           9,908
  Other accrued liabilities                             184,845         176,012
                                                  ------------------------------
      Total current liabilities                         289,557         249,951
Long-term debt                                          150,000         150,000
Other long-term liabilities                              36,830          25,362
                                                  ------------------------------
Total liabilities                                       476,387         425,313
Commitments and contingencies
Stockholders' equity:
  Preferred stock, $0.02 par value; authorized:
      100,000,000 shares; none issued                         -               -
  Special common stock, $0.02 par value;
      authorized: 100,000,000 shares; outstanding:
      1997-47,606,785; 1996-44,805,755                      952             896
  Common stock, $0.02 par value;
      authorized: 200,000,000 shares;
      outstanding: 1997-76,621,009;
      1996-76,621,009                                     1,532           1,532
  Additional paid-in capital                          1,463,768       1,362,585
  Retained earnings (since October 1, 1987              
      quasi-reorganization)                             511,141         382,097
  Net unrealized gain on securities
      available-for-sale                                 53,832          53,949
                                                 -------------------------------
      Total stockholders' equity                      2,031,225       1,801,059
                                                 -------------------------------
Total liabilities and stockholders' equity          $ 2,507,612     $ 2,226,372
                                                 ===============================

<FN>

               See Notes to Consolidated Financial Statements.
</TABLE>

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

                                            1997                  1996                 1995
Year ended December 31               -------------------   -------------------   -------------------
                                      Shares     Amount     Shares     Amount     Shares     Amount
                                     --------   --------   --------   --------   --------   --------
<S>                                  <C>        <C>        <C>        <C>        <C>        <C>
Special common stock
  Beginning balance                   44,806     $  896     42,647     $  853          -          - 
  Issuance of stock upon exercise
    of options and warrants            2,801         56      2,159         43        298      $   6
  Conversion of common stock
    to special common stock                -          -          -          -     42,349        847
                                     ---------------------------------------------------------------
  Ending balance                      47,607        952     44,806        896     42,647        853
                                     ---------------------------------------------------------------
  
Redeemable common stock
  Beginning balance                        -          -          -          -     50,106      1,002
  Issuance of stock upon exercise
    of options and warrants                -          -          -          -        679         14
  Issuance of stock under
    employee stock plan                    -          -          -          -        322          6
  Conversion of redeemable 
    common stock to common stock           -          -          -          -    (51,107)    (1,022)
                                     ---------------------------------------------------------------
  Ending balance                           -          -          -          -          -          -
                                     ---------------------------------------------------------------
Common stock
  Beginning balance                   76,621      1,532     76,621      1,532     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     76,621      1,532
                                     ---------------------------------------------------------------
Additional paid-in capital 
  Beginning balance                           1,362,585             1,281,640             1,207,720
  Issuance of stock upon exercise
    of options and warrants                      68,346                55,103                37,087
  Issuance of stock under
    employee stock plan                          18,857                17,412                17,819
  Income tax benefits
    realized from employee
    stock option exercises                       13,980                 8,430                 7,204
  Tax benefits arising prior
    to quasi-reorganization                           -                     -                11,810
                                             ----------            ----------           -----------
  Ending balance                              1,463,768             1,362,585             1,281,640
                                             ----------            ----------           -----------
Retained earnings 
  Beginning balance                             382,097               263,749               129,127
  Net income                                    129,044               118,348               146,432
  Tax benefits arising prior
    to quasi-reorganization                           -                     -               (11,810)
                                             ----------            ----------           -----------
  Ending balance                                511,141               382,097               263,749
                                             ----------            ----------           -----------
Net unrealized gain on securities
  Beginning balance                              53,949                54,273                 9,592
  Net unrealized (loss) gain on 
    securities available-for-sale                  (117)                 (324)               44,681
                                             ----------            ----------            ----------

  Ending balance                                 53,832                53,949                54,273
                                             ----------            ----------            ----------

Total stockholders' equity                   $2,031,225            $1,801,059            $1,602,047
                                             ==========            ==========            ==========
<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 seven 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 U.S.  Of these seven products, HLR 
has the right to sell six in Canada and two 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. 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 interest bearing convertible debt of other biotechnology 
companies.  Marketable equity securities are accounted for as available-for-
sale investment securities as described below.  Nonmarketable equity 
securities and convertible debt are carried at cost.  At December 31, 1997 and 
1996, the Company had investments of $55.2 million and $15.7 million, 
respectively, in convertible debt of various 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 adjustments 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, 
1997, 1996 and 1995 were $32.9 million, $28.8 million and $22.1 million, 
respectively.  Capitalized interest on construction-in-progress of $3.9 
million in 1997, $2.5 million in 1996 and $1.5 million in 1995 is included in 
property, plant and equipment.

Property, plant and equipment balances at December 31 are summarized below 
(in thousands):
                                                        1997            1996
     -------------------------------------------------------------------------
     At cost:
       Land                                        $   69,010        $  67,619
       Buildings                                      339,708          297,888
       Equipment                                      494,874          428,738
       Leasehold improvements                           3,270           12,314
       Construction in progress                       152,533           99,708
                                                  ----------------------------
                                                    1,059,395          906,267
     Less: accumulated depreciation                   376,091          320,100
                                                  ----------------------------
     Net property, plant and equipment             $  683,304        $ 586,167
                                                 =============================

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 $39.8 million, $36.0 million, and $30.2 million in 1997, 
1996, and 1995, respectively, and are classified in marketing, general and 
administrative expenses.

Advertising Expenses:  The Company expenses the costs of advertising, which 
also includes promotional expenses, as incurred.  Advertising expenses for the 
years ended December 31, 1997, 1996, and 1995, were $41.8 million, $28.0 
million, and $29.2 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.

Earnings Per Share:  Basic earnings per share is computed based on the 
weighted average number of shares of the Company's special common stock and 
common stock.  Diluted earnings 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.  See also the New Accounting 
Standards section below.

Financial Instruments:  The Company uses external money managers to manage 
part of its investment portfolio that is held for trading purposes.  This 
externally managed investment portfolio consists entirely of debt securities.  
When the money managers purchase securities denominated in a foreign currency, 
they enter into foreign currency forward contracts which are recorded at fair 
value with the related gain or loss recorded in interest income.
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.  
Options are generally terminated, or offsetting contracts are entered into, 
upon determination that purchased options no longer qualify as a hedge or are 
determined to exceed probable anticipated net foreign revenues.  The realized 
gains and losses are recorded as a component of other revenues.  For early 
termination of options that qualify as hedges, the gain or loss on termination 
will be deferred through the original term of the option and then recognized 
as a component of the hedged revenues.  Changes in the fair value of hedging 
instruments that qualify as a hedge are not recognized and changes in the fair 
value of instruments that do not qualify as a hedge would be recognized in 
other revenues.

The Company may also enter 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 
other revenues if they occur.

Interest rate swaps (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. The accrued net settlement amounts on 
swaps are reflected on the balance sheet as other accounts receivable or other 
accrued liabilities.  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.  For early termination 
of swaps where the underlying asset is not sold, the amount of the terminated 
swap is deferred and amortized over the remaining life of the original swap.  
For early termination of swaps with the corresponding termination or sale of 
the underlying asset, the amounts are recognized through interest income.  
Changes in the fair value of swap hedging instruments that qualify as a hedge 
are not recognized and changes in the fair value of swap instruments that do 
not qualify as a hedge would be recognized in other income.

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 short-term or long-term other assets or 
liabilities.  Equity collar instruments that do not qualify for hedge 
accounting and early termination of these instruments with the sale of the 
underlying security would be recognized through earnings.  For early 
termination of these instruments without the sale of the underlying security, 
the time value would be recognized through earnings and the intrinsic value 
will adjust the cost basis of the underlying security.

401(k) Plan:  The Company's 401(k) Plan (Plan) covers substantially all of its  
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 1997, 1996, and 
1995, the Company provided $6.7 million, $6.1 million, and $5.6 million, 
respectively, for the Company match under the Plan.

New Accounting Standards:  On December 31, 1997, the Company adopted Statement 
of Financial Accounting Standards (FAS) 128, "Earnings per Share."  As a 
result, the Company has changed the method used to compute earnings per share 
(EPS) and has restated all prior periods as required by FAS 128.  The adoption 
of FAS 128 did not have a material impact on the Company's results of 
operations.  The following is a reconciliation of the numerator and 
denominators of the basic and diluted EPS computations for the years ended 
December 31, 1997, 1996 and 1995 (in thousands).

                                      1997         1996         1995    
                                  -------------------------------------
Numerator:
 Net income - numerator for 
  basic and diluted EPS:          $ 129,044     $ 118,348     $ 146,432
                                  ---------     ---------     ---------
Denominator:
 Denominator for basic EPS--
  weighted-average shares           123,042       120,623       118,271

 Effect of dilutive securities:
  Stock options                       3,355         3,325         3,440
  Warrants                                -            21            37
                                  ---------     ---------     ---------
 Denominator for diluted EPS
 --adjusted weighted-average 
   shares and assumed conversions   126,397       123,969       121,748
                                  =========     =========    ==========

Options to purchase 103,700 shares of common stock at $59.00 per share, 
5,251,665 shares of common stock at $54.25 per share and 17,500 shares of 
common stock at $51.63 per share were outstanding during 1997, 1996 and 1995, 
respectively, but were not included in the computation of diluted earnings per 
share because the options' exercise price was greater than the average market 
price of the common shares and therefore, the effect would be anti-dilutive.  
See Capital Stock note for information on option expiration dates.

During 1997, 1996 and 1995, the Company had convertible subordinated 
debentures which are convertible to 1,013,514 shares of common stock, but were 
not included in the computation of diluted earnings per share because they 
were  anti-dilutive.  See the Long-Term Debt note for additional information 
on the convertible subordinated debentures.

The Financial Accounting Standards Board also issued FAS 130, Reporting 
Comprehensive Income, and FAS 131, Disclosures about Segments of an Enterprise 
and Related Information, in June 1997, which requires additional disclosures 
to be adopted on December 31, 1998.  Under FAS 130, the Company is required to 
display comprehensive income and its components as part of the Company's full 
set of financial statements.  FAS 131 requires that the Company report 
financial and descriptive information about its reportable operating segments.  
The Company is evaluating the impact on its disclosures, if any.



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, 1997 and 1996 are summarized 
below (in thousands):
                                                     1997        1996
     ------------------------------------------------------------------

     Raw materials and supplies                   $ 17,544    $ 17,971
     Work in process                                84,831      61,368
     Finished goods                                 13,651      12,604
                                                 ----------------------
     Total                                        $116,026    $ 91,943
                                                 ======================

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 11% of the Company's total revenues in 1997, 14% 
in 1996, and less than 10% in 1995.  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 in each of 
the last three years.  Caremark, Inc., which accounted for 14%, 15% and 18% of 
total revenues in 1997, 1996 and 1995, respectively, distributes Protropin, 
registered trademark, Nutropin, registered trademark, Nutropin AQ, registered 
trademark, Pulmozyme, registered trademark, and Actimmune, registered 
trademark, 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% in 1997 and 1996 and 11% in 1995.

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

                         1997       1996       1995
----------------------------------------------------

Europe                 $139.5     $146.4     $112.0
Asia                     34.2       17.8       23.6
Canada                   11.7       11.1       25.0


The Company currently sells primarily to distributors and hospitals throughout 
the U.S., performs ongoing credit evaluations of its customers' financial 
condition and extends credit without collateral. In 1997, 1996 and 1995, 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 achieving 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 Relationship with Roche Holdings, Inc. note, 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 (in thousands):

                                1997       1996       1995
--------------------------------------------------------------

Current:
  Federal                    $ 30,617   $ 61,502   $ 43,997
  State                           432      2,104      4,467
  Foreign                           2          2         32
                            ----------------------------------

     Total current             31,051     63,608     48,496
                            ----------------------------------
Deferred:
  Federal                      23,799    (34,021)   (12,319)
  State                       (14,099)         -    (10,336)
                            ----------------------------------
     Total deferred             9,700    (34,021)   (22,655)
                            ----------------------------------

Total income tax provision   $ 40,751   $ 29,587   $ 25,841
                            ==================================

Actual current tax liabilities are lower than reflected above by $14.0 
million, $8.4 million and $7.2 million in 1997, 1996 and 1995, respectively, 
due to employee stock option related tax benefits which were credited to 
stockholders' equity.  The deferred provision excludes activity in the net 
deferred tax assets relating to appreciation in securities available-for-sale 
in the amount of $10.0 million.

A reconciliation between the Company's effective tax rate and the U.S. 
statutory rate follows:
<TABLE>
<CAPTION>
                                                                 Tax Rate
                                         1997 Amount   ---------------------------
                                        (thousands)     1997       1996       1995
----------------------------------------------------------------------------------
<S>                                      <C>           <C>        <C>       <C>
Tax at U.S. statutory rate               $ 59,428       35.0%      35.0%      5.0%
R&D credits realized                      (19,298)     (11.4)      (3.0)    (15.9)
Tax benefit of realized gains on
  securities available-for-sale            (6,517)      (3.8)         -         - 
Adjustment of deferred tax assets 
  valuation allowance                           -          -      (15.3)    (13.1)
Foreign losses (benefited) not benefited        -          -       (3.4)      2.8
State taxes                                 3,871        2.3        2.3       2.6
Other                                       3,267        1.9        4.4       3.6
                                         -----------------------------------------

Income tax provision                     $ 40,751       24.0%      20.0%     15.0%
                                         =========================================
</TABLE>



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

                                                           1997          1996 
------------------------------------------------------------------------------
Deferred tax liabilities:
   Depreciation                                         $ 55,137      $ 58,842
   Unrealized gain on sale of securities 
     available-for-sale                                   25,086        21,017
   Other                                                   2,173        10,543
                                                    --------------------------

      Total deferred tax liabilities                      82,396        90,402

Deferred tax assets:
   Capitalized R&D costs                                  33,950        34,280
   Federal credit carryforwards                          100,400       111,400
   Expenses not currently deductible                      35,000        38,368
   State credit carryforwards                             28,365        26,710
   Other                                                   4,398         6,340
                                                    --------------------------

      Total deferred tax assets                          202,113       217,098

      Valuation allowance                                (48,508)      (35,827)
                                                    --------------------------

      Total net deferred tax assets                      153,605       181,271
                                                    --------------------------

Total net deferred taxes                               $  71,209     $  90,869
                                                    ==========================


Total tax credit carryforwards of $128.8 million expire in the years 1998 
through 2012, except for $43.0 million of alternative minimum tax credits 
which have no expiration date.  The valuation allowance at December 31, 1997, 
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 increased by $12.7 million in 1997, decreased by $17.0 
million in 1996 and decreased by $31.6 million in 1995. 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, 1997 and 1996 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, 1997                  Cost      Gains        Losses       Value
------------------------------------------------------------------------------
                                                  (thousands)
TOTAL TRADING SECURITIES
 (carried at estimated
 fair value)                    $ 256,428   $    686    $  (4,487)  $ 252,627
                                ==============================================
SECURITIES AVAILABLE-FOR-SALE
 (carried at estimated 
  fair value):
Equity securities               $  46,262   $ 75,796    $  (2,147)  $ 119,911
U.S. Treasury securities
  and obligations of other
  U.S. government agencies 
  maturing:
       between 5-10 years          38,330        577           (3)     38,904
Corporate debt securities 
  maturing:
       within 1 year               98,073         51           (8)     98,116 
       between 1-5 years           98,283        770         (103)     98,950 
       between 5-10 years         146,921      4,053            -     150,974 
Other debt securities 
  maturing:
       within 1 year               40,314          -         (578)     39,736
       between 1-5 years           40,323          -       (2,008)     38,315
                                ----------------------------------------------
TOTAL AVAILABLE-FOR-SALE        $ 508,506   $ 81,247    $  (4,847)  $ 584,906 
                                ==============================================

SECURITIES HELD-TO-MATURITY
 (carried at amortized cost):

Corporate debt securities
  maturing:
       within 1 year            $ 193,295   $     19            -   $ 193,314
                                ----------------------------------------------
TOTAL HELD-TO-MATURITY          $ 193,295   $     19            -   $ 193,314
                                ==============================================



















                                             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
       between 1-5 years          103,057      1,299        (209)      104,147
       between 5-10 years         113,176      1,001      (2,114)      112,063
Other debt securities 
  maturing:
       within 1 year               46,583         27           -        46,610
       between 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
       between 5-10 years          30,155          -    $   (777)       29,378
Other debt securities
  maturing:
       within 1 year               91,664          4         (35)       91,633
       between 1-5 years          141,553        576         (27)      142,102
                                ----------------------------------------------
TOTAL HELD-TO-MATURITY          $ 340,090   $    611    $   (839)    $ 339,862
                                ==============================================


*  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 at December 31, 1996.  

















The carrying value of all investment securities held at December 31, 1997 and 
1996 is summarized below (in thousands):


 Security                                                    1997        1996
------------------------------------------------------------------------------
Trading securities                                         $252,627   $143,495
Securities available-for-sale maturing within one year      137,852     97,718
Securities held-to-maturity maturing within one year        193,295     68,382
Accrued interest                                              5,079      6,305
                                                           --------   --------
     Total short-term investments                          $588,853   $415,900
                                                           ========   ========

Securities available-for-sale maturing between 
  1-10 years, including equity securities                  $447,054   $357,999
Securities held-to-maturity maturing between 1-10 years           -    171,708
Accrued interest                                              6,134      6,209
                                                           --------   --------
     Total long-term marketable securities                 $453,188   $535,916
                                                           ========   ========

In 1997, proceeds from the sales of available-for-sale securities totaled 
$410.4 million; gross realized gains totaled $13.2 million and gross realized 
losses totaled $2.1 million.  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.  The Company recorded charges in 1997 and 1995 of $4.0 million and 
$6.6 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.  In 1996, there were no such write downs.

During the year ended December 31, 1997 and 1996, net unrealized holding 
losses on trading securities included in net income totaled $3.8 million and 
$1.0 million, respectively.  In 1995, 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 1997, 1996 and 
1995.

FINANCIAL INSTRUMENTS

Foreign Currency Instruments:  Certain of the Company's revenues are earned 
outside of the U.S.  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, 1997, the Company had hedged 
approximately 75% of probable net foreign revenues anticipated within 12 
months and between 40% and 75% of its probable net foreign revenues through 
the year 2000.  At December 31, 1997 and 1996, the notional amount of the 
options totaled $122.9 million and $100.3 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 three 
years.  The fair value of the options is based on exchange rates and market 
conditions at December 31, 1997 and 1996.  At December 31, 1996, the U.S. 
dollar equivalent of the notional amount of the forward sell contracts was 
$34.3 million and the forward buy contracts totaled $0.4 million, 
respectively.  All forward contracts were closed out at the end of December 
31, 1997. 

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 material 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 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, 1997 and 1996, was $3.7 million 
and $6.8 million, respectively.  The net carrying amount of the swaps, which 
reflects the net interest accrued for such swaps, totaled $2.0 million and 
$2.1 million at December 31, 1997 and 1996, 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, 1997, 1996 and 1995, the weighted average 
rate received on swaps was 7.57%, 6.71% and 7.29%, respectively, and the 
weighted average rate paid on swaps was 5.38%, 5.68% and 6.56%, respectively. 
Net interest income (loss) from swaps, including amortization of net losses on 
terminated swaps, totaled $3.6 million in 1997, $2.5 million in 1996 and 
($0.7) million in 1995.

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, 1997, the notional amount of the put and call 
options were $33.7 million and $50.1 million, respectively.  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, 1997 and 1996. 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, 1997:    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        9 days    5.65%

Other short-term 
  investments              -                              439
                      --------                        --------
    Total               $ 150                           $ 589
                      ========                        ========

December 31, 1996:
------------------

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
                      ========                       =========

<FN>

*  3- and 6-month LIBOR rates are reset every 3 or 6 months. At December 31, 
1997, the 3-month LIBOR rate and the 6-month LIBOR rate were 5.8%.  At December 
31, 1996, the 3-month LIBOR rate and the 6-month LIBOR rate were 5.6%.  

** 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 three external money 
managers in 1997 and two external money managers in 1996 to manage part of its 
investment portfolio.  Three portfolios in 1997, which had a combined carrying 
value of $145.1 million at December 31, 1997, and one portfolio in 1996, which 
had a carrying value of $37.2 million at December 31, 1996, consisted of 
primarily non-dollar denominated investments.  To hedge the non-dollar 
denominated investments, the money managers enter into forward contracts.  The 
notional amounts of the forward contracts at December 31, 1997 and 1996, were 
$209.3 million and $41.7 million, respectively.  The fair value at December 
31, 1997 and 1996, of the forward contracts, totaled $3.3 million and $0.8 
million, respectively.  The average fair value during 1997 and 1996 totaled 
$2.1 million and $0.3 million, respectively.  Net realized and unrealized 
trading gains on the portfolio totaled approximately $9.1 million in 1997 and 
$2.4 million in 1996, respectively, 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, 1997 and 1996, 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 (in thousands):


                                             1997                  1996 
                                     ------------------    -------------------
                                      Carrying     Fair     Carrying    Fair
Financial Instrument                    Value     Value       Value    Value
------------------------------------------------------------------------------

Assets:
Investment securities
 (including accrued interest 
   and traded forward contracts)    $1,042,041 $1,042,060   $951,816  $951,588
Convertible equity loans                55,248     55,248     15,668    15,668
Purchased foreign exchange put 
  options                                3,891     14,468      4,616     7,273
Outstanding interest rate swaps          5,742    165,559      6,757   226,189

Liabilities:
Long-term debt                         150,000    139,500    150,000   139,500
Equity collars                          12,161     15,533      1,222     4,892
Outstanding interest rate swaps          3,732    153,732      4,635   214,634


OTHER ACCRUED LIABILITIES

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

                                                    1997               1996
------------------------------------------------------------------------------
Accrued compensation                            $  44,624             $ 42,716
Accrued clinical and other studies                 40,269               39,981
Accrued royalties                                  30,905               25,098
Accrued marketing and promotion costs              13,369               11,889
Other                                              55,678               56,328
                                                ------------------------------
  Total other accrued liabilities                $184,845             $176,012
                                                 =============================

LONG-TERM DEBT

The Company's long-term debt as of December 31, 1997 and 1996 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, net of sublease income, 
at December 31, 1997 are as follows (in thousands):

                                                         
   1998      1999       2000       2001       2002     Thereafter      Total
------------------------------------------------------------------------------
 $15,068   15,622     15,196     14,950     14,969        14,759     $90,564


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, $11.7 million and $9.5 million for the years 
1997, 1996 and 1995, 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 
$293.7 million.  The Company also is required to maintain certain financial 
ratios and is limited to the amount of additional debt it can assume.

The Company and CuraGen Corporation (CuraGen) entered into a research 
collaborative agreement in November 1997, whereby the Company will invest $5.0 
million in equity of CuraGen and provide a convertible equity loan to CuraGen 
of up to $26.0 million.  As of December 31, 1997, no amounts have been funded 
to CuraGen.

In December 1997, the Company and Alteon Inc. entered into a collaborative 
agreement to develop and market pimagedine, an advanced glycosylation end-
product formation inhibitor which Alteon currently has in Phase III clinical 
trials, to treat kidney disease in diabetic patients.  Under the terms of the 
agreement, the Company licensed pimagedine from Alteon and made an initial 
equity investment in Alteon stock of $15.0 million and will make additional 
equity investments of up to $48.0 million to fund development costs for 
pimagedine.  A $16.0 million investment is scheduled for the first quarter of 
1998.

Also, in December 1997, the Company and LeukoSite Inc. entered into a 
collaboration agreement to develop and commercialize LeukoSite's LDP-02, a 
humanized monoclonal antibody for the potential treatment of inflammatory 
bowel diseases.  Under the terms of the agreement, the Company made a $4.0 
million equity investment in LeukoSite and will provide a convertible equity 
loan for approximately $15.0 million to fund Phase II development costs.  Upon 
successful completion of Phase II, if LeukoSite agrees to fund 25% of Phase 
III development costs, the Company will provide a second loan to LeukoSite for 
such funding.

In addition, the Company has entered into research collaborations with 
companies whereby potential future payments may be due to selective 
collaborative partners achieving 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 limited partner in the Vector Later-Stage Equity Fund II, 
L.P. (Vector Fund).  The General Partner is Vector Fund Management II, L.L.C., 
a Delaware limited liability company.  The purpose of the Vector Fund is to 
invest in biotech equity and equity-related securities.  Under the terms of 
the Vector Fund agreement, the Company makes contributions to the capital of 
the Vector Fund through installments in cash as called by the General Partner.  
The Company's total commitment to the Vector Fund through September 2003 is 
$25.0 million, of which $1.0 million was contributed as of December 31, 1997 
and another $1.8 million was contributed in January 1998.  The Vector Fund 
will terminate and be dissolved in September 2007.

The Company is a party to various legal proceedings including patent 
infringement cases involving human growth hormone products and Activase, 
product liability cases involving Protropin and other matters.  In addition, 
in July 1997, an action was filed in the U.S. District Court for the Northern 
District of California alleging that the Company's manufacture, use and sale 
of its Nutropin human growth hormone products infringed a patent (the Goodman 
Patent) owned by the Regents of the University of California (UC).  This 
action is substantially the same as a previous action filed in 1990 against 
the Company by UC alleging that the Company's manufacture, use and sale of its 
Protropin human growth hormone products infringed the Goodman Patent and it 
has been consolidated with that prior case.  The case is expected to commence 
trial on June 22, 1998. In October 1997, the Company was named, along with 
several other pharmaceutical companies, in a lawsuit brought by Novo Nordisk 
A/S (Novo) in the U.S. District Court for the District of New Jersey alleging 
infringement of a patent held by Novo relating to the Company's manufacture, 
use and sale of its Nutropin human growth hormone products.  Novo seeks to 
permanently enjoin the Company from the alleged patent infringement and also 
seeks compensatory and enhanced damages from the Company.  In addition, in 
1995 the Company received and responded to grand jury document subpoenas from 
the U.S. District Court for the Northern District of California for documents 
relating to the Company's past clinical, sales and marketing activities 
associated with human growth hormone.  In February 1997 and February 1998, the 
Company received grand jury document subpoenas from the same court related to 
the same subject matter.  The government is investigating this matter, and the 
Company believes that it is a subject of that investigation.

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 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, 1998, the call price is 
$75.00 per share and increases by $1.50 per share each quarter through the end 
of the option period on June 30, 1999, on which date the price will be $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 the event of the put, wherein sufficient shares of the Company's special 
common stock are tendered to result in Roche owning at least 85% of the total 
outstanding shares of the Company's stock, the Company has in place an 
Incentive Units Program (Program) which could result in amounts payable to 
eligible employees.  These amounts are based on specified performance 
benchmarks achieved by the Company during the term of the Program.  At 
December 31, 1997, no such amounts were payable under the Program.

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 
(the license agreement). In the second quarter of 1997, the Company and HLR 
agreed in principle to changes to the license agreement.  Key changes to the 
license agreement are summarized as follows:  (1) For future products, HLR may 
choose to exercise its option either when the Company determines to move a 
product into development, or at the end of Phase II clinical trials (as in the 
1995 agreement).  U.S. and European development costs will be shared 
(discontinuing the distinction regarding location or purpose of studies). (2) 
If HLR exercises its option at the development determination point, U.S. and 
European development costs will be shared 50/50. (3) If HLR exercises its 
option at the end of Phase II clinical trials, HLR will reimburse the Company 
for 50 percent of any development costs incurred, and subsequent U.S. and 
European development costs will be shared 75/25, HLR/Genentech. (4) For nerve 
growth factor (NGF), which HLR has already exercised its option to develop, 
prospective U.S. and European development costs will be shared 60/40, 
HLR/Genentech. (5) HLR has assumed development of Xubix, trademark, (the oral 
IIb/IIIa antagonist) globally on its own.  The Company may subsequently opt-in 
and join development at any time up to the New Drug Application (NDA) filing 
for the first indication.  If the Company does not opt-in, it will receive 
from HLR a 6.0% royalty on worldwide sales of Xubix.

In general, with respect to the Company's products, HLR pays a royalty of 
12.5% until a product reaches $100.0 million in aggregate sales outside of the 
U.S. on a country-by-country basis, at which time the royalty rate on all 
sales increases to 15%. In addition, HLR has rights to, and pays the Company 
20% royalties on, Canadian sales of the Company's existing products, except 
Rituxan, trademark, (the C2B8 antibody), and European sales of Pulmozyme and 
Rituxan.  Consequently, in the fourth quarter of 1995, the Company transferred 
to HLR the rights to sell Pulmozyme exclusively in Canada and Europe and 
commenced recording royalty revenue from HLR on such sales.  The Company 
supplies its products to HLR, and has agreed to supply its 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 
66.9% of the outstanding common equity of the Company as of December 31, 1997.

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 license agreement with respect to the development of three 
projects - Rituxan, insulin-like growth factor (IGF-I) and NGF. The Company 
recorded non-recurring contract revenues in 1996 of $44.7 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 $67.6 million in 1997, $50.6 million in 1996 
and $13.4 million in 1995.  All other revenue from Roche, HLR and their 
affiliates, principally royalties under previous product licensing agreements, 
and royalties and product sales under the license agreement, totaled $42.8 
million in 1997, $39.5 million in 1996 and $14.3 million in 1995.  Development 
of IGF-I was discontinued in September 1997 due to the amount of additional 
clinical effort and the greater period of time that would be required to 
address potential concerns about retinopathy when using IGF-I in Type I and 
Type II diabetes mellitus.  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 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, stock awards and stock appreciation rights to employees, non-employee 
directors and consultants of the Company.  Incentive stock options may only be 
granted to employees under these plans.  Generally, non-qualified options have 
a maximum term of 20 years, except those granted under the 1996 Plan and 
options granted prior to 1992 under the 1984 Plan, which have a term of 10 
years.  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, 1995 and 1997.  The 1991 Plan allows 
eligible employees to purchase special common stock at 85% of the lower of the 
fair market value of the special common stock on the grant date or the fair 
market value on the first business day of each calendar quarter.  Purchases 
are limited to 15% of each employee's eligible compensation.  All full-time 
employees of the Company are eligible to participate in the 1991 Plan.  Of the 
4,500,000 shares of special common stock reserved for issuance under the 1991 
Plan, 3,316,826 shares have been issued as of December 31, 1997.  During 1997, 
2,624 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, Accounting for Stock-Based Compensation, requires the 
use of option valuation models that were not developed for use in valuing 
employee stock options. Under APB 25, Accounting for Stock Issued to 
Employees, 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 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 and the 
earnings per share method under FAS 128.  The resulting effect on pro forma 
net income and earnings per share disclosed is not likely to be representative 
of the effects on net income and earnings per share on a pro forma basis in 
future years, due to subsequent years including additional grants and years of 
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 for 1997, 1996 and 1995, respectively:  risk-free interest rates 
of 6.2%, 5.8% and 6.0%; dividend yields of 0%; volatility factors of the 
expected market price of the Company's common stock of 9.2%, 6.2% and 6.2%; 
and a weighted-average expected life of the option of five years. 

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):

                                        1997          1996          1995
                                       ------        ------        ------
Net income - as reported            $ 129,044     $ 118,348     $ 146,432

Net income - pro forma              $ 111,441       104,358       142,370

Earnings per share - as reported:
  Basic                                  1.05          0.98          1.24
  Diluted                                1.02          0.95          1.20


Earnings per share - pro forma:
  Basic                                  0.91          0.87          1.20
  Diluted                                0.89          0.84          1.17




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

                                                Shares        Weighted Average
                                                                     Price
                                              ------------    ----------------

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

Grants                                            329,505            58.21
Exercises                                      (2,443,696)           30.07
Cancellations                                  (1,248,709)           52.35
                                              ------------

Options outstanding at December 31, 1997       16,239,609         $  44.41
                                              ============













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     753,169       1.19      $ 17.21       753,169    $ 17.21
$21.375 - $31.000   3,064,884      11.59        26.42     3,011,197      26.42
$32.125 - $48.125   2,484,800      15.69        41.83     2,102,035      40.69
$48.250 - $59.000   9,936,756      12.44        52.68     2,677,214      52.07
                   -----------                           -----------
                   16,239,609                             8,543,615 
                   ===========                           ===========

Using the Black-Scholes option valuation model, the weighted average fair 
value of options granted in 1997, 1996 and 1995, respectively was $15.37, 
$13.36 and $12.27.  Shares of special common stock available for future grants 
under all stock option plans were 5,401,056 at December 31, 1997.

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 $0.10 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 and 1997.

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, 1997 and 1996, and the related consolidated statements 
of income, stockholders' equity, and cash flows for each of the three years in 
the period ended December 31, 1997. 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, 1997 and 1996, and the consolidated results of its operations 
and its cash flows for each of the three years in the period ended December 
31, 1997, in conformity with generally accepted accounting principles.


                                                            Ernst & Young LLP


San Jose, California
January 20, 199

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


                                                1997 Quarter Ended
                                 ----------------------------------------------

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

Total revenues                     $277,053     $248,917     $233,493  $257,285
Product sales                       143,352      142,306      145,018   154,213
Gross margin from product sales     120,633      115,741      119,451   126,528
Net income                           41,529       32,122       23,794    31,599
Earnings per share:
  Basic                                0.34         0.26         0.19      0.26
  Diluted                              0.33         0.25         0.19      0.25


                                                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
Earnings per share:
  Basic                                0.06         0.42         0.18      0.32
  Diluted                              0.06         0.41         0.17      0.31







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

                                             1997     1996     1995     1994     1993
-------------------------------------------------------------------------------------
<S>                                     <C>       <C>      <C>      <C>      <C>
Total revenues                           $1,016.7  $ 968.7  $ 917.8  $ 795.4  $ 649.7
  Product sales                             584.9    582.8    635.3    601.0    457.4
  Royalties                                 241.1    214.7    190.8    126.0    112.9
  Contract & other                          121.6    107.0     31.2     25.6     37.9
  Interest                                   69.1     64.2     60.5     42.8     41.5
                                       ----------------------------------------------

Total costs and expenses                 $  846.9  $ 820.8  $ 745.6  $ 665.8  $ 590.8
  Cost of sales                             102.5    104.5     97.9     95.8     70.5
  Research & development                    470.9    471.1    363.0    314.3    299.4
  Marketing, general & administrative       269.9    240.1    251.7    248.6    214.4
  Special charge                                -        -     25.0(1)     -        -
  Interest                                    3.6      5.1      8.0      7.1      6.5
                                       ----------------------------------------------
Income data
  Income (loss) before taxes             $  169.8  $ 147.9  $ 172.2  $ 129.6   $ 58.9
  Income tax provision                       40.8     29.6     25.8      5.2        -
  Net income (loss)                         129.0    118.3    146.4    124.4     58.9
  Earnings (loss) per share:
    Basic                                    1.05    0.98      1.24     1.07     0.52
    Diluted                                  1.02    0.95      1.20     1.03     0.50
                                       ----------------------------------------------

Selected balance sheet data
  Cash, short-term investments
    & long-term marketable securities    $1,286.5 $1,159.1 $1,096.8  $ 920.9  $ 719.8
  Accounts receivable                       189.2    197.6    172.2    146.3    130.5
  Inventories                               116.0     91.9     93.6    103.2     84.7
  Property, plant & equipment, net          683.3    586.2    503.7    485.3    456.7
  Other long-term assets                    177.2    149.2    105.5     61.0     64.1
  Total assets                            2,507.6  2,226.4  2,011.0  1,745.1  1,468.8
  Total current liabilities                 289.6    250.0    233.4    220.5    190.7
  Long-term debt                            150.0    150.0    150.0    150.4    151.2
  Total liabilities                         476.4    425.3    408.9    396.3    352.0
  Total stockholders' equity              2,031.2  1,801.1  1,602.0  1,348.8  1,116.8
                                       ----------------------------------------------

Other data
  Depreciation and amortization expense  $   65.5  $  62.1  $  58.4  $  53.5  $  44.0
  Capital expenditures                      154.9    141.8     70.2     82.8     87.5
                                       ----------------------------------------------

Share information
  Shares used to compute EPS:
    Basic                                   123.0    120.6    118.3    116.0    113.9
    Diluted                                 126.4    124.0    121.7    120.2    118.7
  Actual year-end                           124.2    121.4    119.3    117.2    114.8
                                       ----------------------------------------------

Per share data
  Market price:       High               $  60.63  $ 55.38  $ 53.00* $ 53.50  $ 50.50

                      Low                $  53.25  $ 51.38  $ 44.50* $ 41.75  $ 31.25

  Book value                             $  16.35  $ 14.84  $ 13.43  $ 11.50  $  9.73
                                       ----------------------------------------------

Number of employees                         3,242    3,071    2,842    2,738    2,510
                                       ----------------------------------------------

<FN>

The Company has paid no dividends.
The Financial Summary above reflects adoption of FAS 128 and 129 in 1997, 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 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)  Reflect amounts previously reported.  Information was not available to restate
      these amounts pursuant to FAS 128.
</TABLE>

     1992       1991       1990       1989       1988       1987 
--------------------------------------------------------------------

 $  544.3   $  515.9    $ 476.1    $ 400.5    $ 334.8    $ 230.5 
    391.0      383.3      367.2      319.1      262.5      141.4 
     91.7       63.4       47.6       36.7       26.7       20.1 
     16.7       20.4       31.9       27.5       33.5       57.1 
     44.9       48.8       29.4       17.2       12.1       11.9 
--------------------------------------------------------------------

 $  522.3   $  469.8    $ 572.7    $ 352.9    $ 311.7    $ 186.6 
     66.8       68.4       68.3       60.6       46.9       23.8 
    278.6      221.3      173.1      156.9      132.7       96.5 
    172.5      175.3      158.1      127.9      101.9       59.5 
        -          -      167.7(2)       -       23.3(3)       - 
      4.4        4.8        5.5        7.5        6.9        6.8 
--------------------------------------------------------------------

 $   21.9   $   46.1    $ (96.6)    $ 47.6     $ 23.1     $ 43.9 
      1.1        1.8        1.5        3.6        2.5        1.7 
     20.8       44.3      (98.0)      44.0       20.6       42.2   

     0.19        0.40          -          -       0.25       0.54 
     0.18        0.39      (1.05)(4)   0.51(4)    0.24       0.50 
--------------------------------------------------------------------

 $  646.9   $  711.4    $ 691.3    $ 205.0    $ 152.5    $ 158.3 
     93.9       69.0       58.8       66.8       63.9       92.2 
     65.3       56.2       39.6       49.3       63.4       58.0 
    432.5      342.5      300.2      299.1      289.4      195.7 
     37.1       42.7       61.7       85.0       89.7      108.7 
  1,305.1    1,231.4    1,157.7      711.2      662.9      619.0 
    133.5      118.6      101.4       75.9       95.4       82.8 
    152.0      152.9      153.5      154.4      155.3      168.1 
    297.8      281.7      264.5      242.2      263.6      263.6 
  1,007.3      949.7      893.2      469.0      399.3      355.4 
--------------------------------------------------------------------

 $   52.2   $   46.9     $ 47.6     $ 44.6     $ 38.3     $ 23.5 
    126.0       71.3       36.0       37.2      110.9       65.3 
--------------------------------------------------------------------

    111.9      111.0          -          -       82.2       78.1 
    115.0      113.2       93.0(4)    86.0(4)    85.0       85.1 
    112.9      111.3      110.6       84.3       82.9       78.7 
--------------------------------------------------------------------

 $  39.50   $  36.25    $ 30.88    $ 23.38    $ 47.50    $ 64.75 
                        $ 27.50**
 $  25.88   $  20.75    $ 20.13    $ 16.00    $ 14.38    $ 28.00 
                        $ 21.75**
 $   8.92   $   8.53    $  8.08    $  5.56    $  4.82    $  4.52 
--------------------------------------------------------------------

    2,331      2,202      1,923      1,790      1,744      1,465 
--------------------------------------------------------------------





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 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 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, 1997, there were approximately 15,122 stockholders of 
record of the Company's special common stock.


Stock Prices                Special Common/Redeemable Common/Common Stock
                                   1997                     1996
--------------------------------------------------------------------------

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

4th Quarter               $ 60 5/8     $ 57 1/2    $ 54 3/8      $ 52 3/4
3rd Quarter                 58 15/16     56 1/2      53 1/4        51 3/8
2nd Quarter                 59 1/4       56 1/2      53 3/8        51 7/8
1st Quarter                 58           53 1/4      55 3/8        52 1/2

	

Draft # 2 (3/3/98)