----

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| (Mark      One) |
|-----------------|
| þ          | ANNUAL      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT      OF 1934 |

| o | TRANSITION      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT      OF 1934 |
|---|---------------------------------------------------------------------------------------------------------|

| A      Delaware Corporation(State      or other jurisdiction of incorporation or organization) | 94-2347624(I.R.S.      Employer Identification No.) |
|------------------------------------------------------------------------------------------------|-----------------------------------------------------|

| 1      DNA Way, South San Francisco, California(Address      of principal executive offices) | 94080(Zip      Code) |
|----------------------------------------------------------------------------------------------|----------------------|

| Title of Each      Class           | Name of Each Exchange      on Which Registered |
|------------------------------------|------------------------------------------------|
| Common      Stock, $0.02 par value | New      York Stock Exchange                   |

| Large      accelerated filer þ | Accelerated      filer o | Non-accelerated      filer o |
|------------------------------------------|-------------------------------|-----------------------------------|

| Portions      of the Definitive Proxy Statement with respect to the 2008 Annual      Meeting of Stockholders to be filed by Genentech, Inc. with the Securities      and Exchange Commission (hereinafter referred to as “Proxy      Statement”) | Part III |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------|

| (A) | Excludes      587,250,021 shares of Common Stock held by directors and executive      officers of Genentech and Roche Holdings,Inc. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------|

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| Page                              |
|---------------------------------------------|
| PART      I                                 |
| Item 1                                 | Business | 1 |
| Item 1A                                | Risk      Factors | 11 |
| Item 1B                                | Unresolved Staff      Comments | 24 |
| Item 2                                 | Properties | 24 |
| Item 3                                 | Legal Proceedings | 25 |
| Item 4                                 | Submission of Matters to a      Vote of Security Holders | 27 |
| Executive      Officers of the Company | 28 |
|                                        |
| PART      II                                |
| Item 5                                 | Market for the      Registrant’s Common      Equity, Related Stockholder Matters and      Issuer Purchases of Equity Securities | 30 |
| Item 6                                 | Selected      Financial      Data | 32 |
| Item 7                                 | Management’s Discussion and      Analysis of      Financial Condition and Results of    Operations | 33 |
| Item 7A                                | Quantitative and Qualitative      Disclosures About Market Risk | 64 |
| Item 8                                 | Financial Statements and      Supplementary Data | 67 |
| Item 9                                 | Changes in and      Disagreements with Accountants on      Accounting and Financial      Disclosure | 107 |
| Item 9A                                | Controls and Procedures | 107 |
| Item 9B                                | Other Information | 109 |
|                                        |
| PART      III                               |
| Item 10                                | Directors,      Executive Officers and Corporate      Governance | 110 |
| Item 11                                | Executive Compensation | 110 |
| Item 12                                | Security Ownership of      Certain Beneficial Owners and      Management and Related Stockholder      Matters | 110 |
| Item 13                                | Certain      Relationships and Related      Transactions, and Director Independence | 110 |
| Item 14                                | Principal Accountant      Fees and Services | 110 |
|                                        |
| PART      IV                                |
| Item 15                                | Exhibits and Financial      Statement Schedules | 111 |
| SIGNATURES                                  | 115 |

----

PART I

| Item      1. | BUSINESS |
|--------------|----------|

----

----

| Product                               | Trade      Name                | Licensee                                                                                                          | Licensed      Territory                       |
|---------------------------------------|--------------------------------|-------------------------------------------------------------------------------------------------------------------|-----------------------------------------------|
| Trastuzumab                      | Herceptin                 | Roche                                                                                                        | Worldwide      excluding U.S.            |
| Rituximab                        | Rituxan/MabThera®    | Roche                                                                                                        | Worldwide      excluding U.S. and Japan  |
| Bevacizumab                      | Avastin                   | Roche                                                                                                        | Worldwide      excluding U.S.            |
| Dornase      alfa, recombinant   | Pulmozyme                 | Roche                                                                                                        | Worldwide      excluding U.S.            |
| Alteplase      and Tenecteplase  | Activase      and TNKase  | Roche                                                                                                        | Canada                                   |
| Somatropin                       | Nutropin                  | Roche                                                                                                        | Canada                                   |
| Daclizumab                       | Zenapax®             | Roche                                                                                                        | Worldwide      excluding U.S.            |
| Ranibizumab                      | Lucentis                  | Novartis                                                                                                     | Worldwide      excluding U.S.            |
| Etanercept                       | Enbrel®              | Immunex      Corporation (whose rights were acquired by Amgen Inc.)                                     | Worldwide                                |
| Adalimumab                       | Humira®              | Abbott      Laboratories                                                                                     | Worldwide                                |
| Infliximab                       | Remicade®            | Celltech      Pharmaceuticals plc (which transferred rights to Centocor, Inc. / Johnson      & Johnson)  | Worldwide                                |

----

| Product                             | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|-------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Awaiting      FDA Action       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| Herceptin                      | Supplemental      Biologic License Applications (sBLAs) were submitted to the FDA on June 28      and 29, 2007 for the use of Herceptin for the treatment of patients with      early-stage HER2-positive BC based on the BCIRG 006 study to enable a      broader label. This product is being developed in collaboration with      Roche. The FDA action dates for the June 28 and June 29 submissions are      April 28 and May 4, 2008, respectively.                                                                                                                                                          |
| Preparing      for Filing      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| Avastin                        | We      are preparing to submit an sBLA to the FDA for the use of Avastin in      combination with interferon alpha-2a for the treatment of patients with      previously untreated advanced renal cell carcinoma. This product is being      developed in collaboration with Roche. We expect to      submit an sBLA to the FDA in 2008.                                                                                                                                                                                                                                                                     |
| Avastin                        | We      are in preliminary discussions with the FDA regarding the submission      requirements for a potential sBLA for the use of Avastin in combination      with CPT-11 or as a single agent in patients with glioblastoma multiforme      (a form of brain cancer) who have progressed following prior      therapy.                                                                                                                                                                                                                                                                                           |
| Phase      III                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 2nd      Generation anti-CD20  | 2nd      Generation anti-CD20 is being evaluated in rheumatoid arthritis. This      product is being developed in collaboration with Roche and Biogen      Idec(1).                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 2nd      Generation anti-CD20  | 2nd      Generation anti-CD20 is being evaluated for systematic lupus      erythematosus. This product is being developed in collaboration with Roche      and Biogen Idec(1).                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Avastin                        | Avastin      is being evaluated in adjuvant colon cancer, second-line metastatic colon      cancer for patients who have progressed following first-line treatment of      Avastin plus chemotherapy, adjuvant HER2-negative BC, adjuvant lung      cancer, first-line HER2-negative and second-line HER2-negative metastatic      breast cancer in combination with several chemotherapy regimens,      first-line non-squamous NSCLC, first-line and platinum-sensitive relapsed      ovarian cancer, and hormone refractory prostate cancer. This product is      being developed in collaboration with Roche.  |
| Herceptin      +/- Avastin     | Avastin      is being evaluated in first-line metastatic HER2-positive BC. This product      is being developed in collaboration with Roche.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Avastin      +/- Tarceva       | Avastin      and Tarceva are being evaluated as combination therapy in first-line NSCLC      in combination with several chemotherapy regimens. Tarceva is being      developed in collaboration with OSI and Roche. Avastin is being developed      in collaboration with Roche.                                                                                                                                                                                                                                                                                                                                  |
| Herceptin                      | Herceptin      is being evaluated for the treatment of patients with early-stage      HER2-positive breast cancer to compare one year duration of treatment with      two years duration of treatment. This product is being developed in      collaboration with Roche.                                                                                                                                                                                                                                                                                                                                           |

----

| Herceptin      +/- Pertuzumab  | Pertuzumab      is being evaluated in first-line HER2-positve metastatic BC in combination      with Herceptin and chemotherapy. This product is being developed in      collaboration with Roche.                                                                                                                                                  |
|-------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Rituxan                        | Rituxan      is being evaluated in follicular NHL patients who achieve a response      following induction with chemotherapy plus Rituxan and in patients with      relapsed chronic lymphocytic leukemia. This product is being developed in      collaboration with Roche and Biogen Idec.                                                        |
| Rituxan                        | Rituxan      is being evaluated in rheumatoid arthritis (DMARD inadequate responders)      in collaboration with Roche and Biogen Idec. Rituxan is also being      evaluated in primary progressive multiple sclerosis, systemic lupus      erythematosus, lupus nephritis, and ANCA-associated vasculitis in      collaboration with Biogen Idec.  |
| Tarceva                        | Tarceva      is being evaluated in adjuvant NSCLC and first-line NSCLC. This product is      being developed in collaboration with OSI.                                                                                                                                                                                                             |
| Tarceva      +/- Avastin       | Tarceva      and Avastin are being evaluated as combination therapy in second-line      NSCLC. Tarceva is being developed in collaboration with OSI and Roche.      Avastin is being developed in collaboration with Roche.                                                                                                                         |
| TNKase                         | TNKase      is being evaluated in the treatment of dysfunctional hemodialysis and      central venous access catheters.                                                                                                                                                                                                                             |
| Xolair                         | Xolair      is being evaluated in pediatric asthma. A liquid formulation of Xolair is      also being evaluated for adult asthma. Xolair is being developed in      collaboration with Novartis.                                                                                                                                                    |
| Lucentis                       | Lucentis      is being evaluated in the treatment of diabetic macular edema in      collaboration with Novartis Ophthalmics. Lucentis is also being evaluated      in the treatment of retinal vein occlusion.                                                                                                                                      |
| Preparing      for Phase III   |                                                                                                                                                                                                                                                                                                                                                     |
| 2nd      Generation anti-CD20  | We      are preparing Phase III clinical trials in lupus nephritis. This product      is being developed in collaboration with Roche and Biogen Idec(1).                                                                                                                                                                                            |
| Avastin                        | We      are preparing for Phase III clinical trials in high-risk carcinoid cancer,      first-line glioblastoma multiforme, head and neck cancer, and      gastro-intestinal stromal tumors.                                                                                                                                                        |
| Herceptin                      | We      are preparing for Phase III clinical trials in ductal carcinoma in situ.      This product is being developed in collaboration with Roche.                                                                                                                                                                                                  |
| Herceptin      +/- Avastin     | We      are preparing for a Phase III clinical trial of Herceptin and Avastin as      combination therapy in first-line and adjuvant HER2-positve metastatic BC.      These products are being developed in collaboration with Roche. These are      separate trials from that listed in Phase III above.                                           |
| Phase      II                  |                                                                                                                                                                                                                                                                                                                                                     |
| Anti-CD40                      | Anti-CD40      is being evaluated as a single agent and in combination with Rituxan plus      chemotherapy for patients with relapsed or refractory diffuse large B-cell      lymphoma. This product is being developed in collaboration with Seattle      Genetics, Inc.                                                                           |
| Apo2L/TRAIL                    | Apo2L/TRAIL      is being evaluated in first-line NSCLC in combination with      chemotherapy/Avastin and in NHL in combination with Rituxan. This product      is being developed in collaboration with Amgen.                                                                                                                                     |
| Apomab                         | Apomab      is being evaluated in first-line NSCLC in combination with      chemotherapy/Avastin, and as a single agent inchondrosarcoma.                                                                                                                                                                                                           |

----

| Avastin                                 | Avastin      is being evaluated in multiple myeloma, platinum-sensitive relapsed      ovarian cancer, extensive small cell lung cancer, and NSCLC with      previously treated brain metastasis and squamous cell histology. This      product is being developed in collaboration with Roche.  |
|----------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Herceptin      +/- Pertuzumab           | Pertuzumab      is being evaluated in HER2-positive metastatic BC patients who have      progressed on Herceptin. This product is being developed in collaboration      with Roche.                                                                                                             |
| Pertuzumab                              | Pertuzumab      is being evaluated in ovarian cancer in combination with chemotherapy.      This product is being developed in collaboration with Roche.                                                                                                                                        |
| Trastuzumab-DM1                         | Trastuzumab-DM1      is being evaluated in late stage HER2-positive metastatic BC. This product      is being developed in collaboration with Roche.                                                                                                                                            |
| ABT-869                                 | ABT-869      is being evaluated for the treatment of several types of tumors. This      product is being developed in collaboration with Abbott.                                                                                                                                                |
| Preparing      for Phase II             |                                                                                                                                                                                                                                                                                                 |
| 2nd      Generation anti-CD20           | We      are preparing for a Phase II clinical trial in relapsing remitting      multiple sclerosis. This product is being developed in collaboration with      Roche and Biogen Idec(1).                                                                                                        |
| Rituxan      +/- Apomab                 | We      are preparing for a Phase II clinical trial of Apomab and Rituxan as      combination therapy in NHL.                                                                                                                                                                                   |
| Systemic      Hedgehog Antagonist       | We      are preparing for Phase II clinical trials for solid tumors. This product      is being developed in collaboration with Curis, Inc.                                                                                                                                                     |
| Phase      I and Preparing for Phase I  | We      have multiple new molecular entities in Phase I or Preparing for Phase      I.                                                                                                                                                                                                          |

| (1) | Our      collaborator Biogen Idec disagrees with certain of our development      decisions under our 2003 collaboration agreement with them. We continue to      pursue a resolution of our differences with Biogen Idec, and the disputed      issues have been submitted to arbitration. See Part I, Item 3, “Legal      Proceedings,” of this Form 10-K for further  information. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| Product         | Latest-to-expire      product-specific U.S. Patent(s) | Year      of expiration |
|-----------------|-------------------------------------------------------|-------------------------|
| Avastin    | 6,884,8797,169,901                               | 20172019           |
| Rituxan    | 5,677,1805,736,137                               | 20142015           |
| Herceptin  | 6,339,1426,407,2137,074,404                      | 201920192019       |
| Lucentis   | 6,884,8797,169,901                               | 20172019           |
| Xolair     | 6,329,509                                        | 2018               |

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----

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|   | Ÿ | Our      annual report on Form 10-K, quarterly reports on Form 10-Q, current      reports on Form 8-K, and all amendments to those reports as soon as is      reasonably practicable after such material is electronically filed with      the U.S. Securities and ExchangeCommission; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Our      policies related to corporate governance, including our Principles of      Corporate Governance, Good Operating Principles, and Code of Ethics, which      apply to our Chief Executive Officer, Chief Financial Officer, and senior      financial officials; and |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | The      charters of the Audit Committee and the Compensation Committee of our      Board of Directors. |
|--------|--------|---------------------------------------------------------------------------------------------------------|

| Item      1A. | RISK FACTORS |
|---------------|--------------|

|   | Ÿ | Preclinical      tests may show the product to be toxic or lack efficacy in animal      models. |
|--------|--------|-------------------------------------------------------------------------------------------------|

|   | Ÿ | Clinical      trial results may show the product to be less effective than desired or to      have harmful or problematic sideeffects. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Failure      to receive the necessary U.S. and international regulatory approvals or a      delay in receiving such approvals. Among other things, such delays may be      caused by slow enrollment in clinical studies; extended length of time to      achieve study endpoints; additional time requirements for data analysis or      BLA or NDA preparation; discussions with the United States (U.S.) Food and      Drug Administration (FDA); FDA requests for additional preclinical or      clinical data; analyses or changes to study design; or unexpected safety,      efficacy, or manufacturing issues. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Difficulties      in formulating the product, scaling the manufacturing process, or getting      approval for manufacturing. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Manufacturing      costs, pricing, or reimbursement issues, or other factors may make the      product uneconomical. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | The      proprietary rights of others and their competing products and technologies      may prevent the product from being developed or      commercialized. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | The      contractual rights of our collaborators or others may prevent the product      from being developed orcommercialized. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------|

----

|   | Ÿ | The      number of and the outcome of clinical trials currently being conducted by      us and/or our collaborators. For example, our R&D expenses may      increase based on the number of late-stage clinical trials being conducted      by us and/or our collaborators. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | The      number of products entering into development from late-stage research. For      example, there is no guarantee that internal research efforts will succeed      in generating a sufficient number of product candidates that are ready to      move into development or that product candidates will be available for      in-licensing on terms acceptable to us and permitted under the anti-trust      laws. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Decisions      by Roche Holding AG and affiliates (Roche) whether to exercise its options      to develop and sell our future products in non-U.S. markets, and the      timing and amount of any related development cost      reimbursements. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Our      ability to in-license projects of interest to us, and the timing and      amount of related development funding or milestone payments for such      licenses. For example, we may enter into agreements requiring us to pay a      significant up-front fee for the purchase of in-process R&D, which we      may record as an R&D expense. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Participation      in a number of collaborative research arrangements. On many of these      collaborations, our share of expenses recorded in our financial statements      is subject to volatility based on our collaborators’ spending activities      as well as the mix and timing of activities between the      parties. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Charges      incurred in connection with expanding our product manufacturing      capabilities, as described below in “Difficulties or delays in product      manufacturing or in obtaining materials from our suppliers, or      difficulties in accurately forecasting manufacturing capacity needs, could      harm our business and/or negatively affect our financial      performance.” |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Future      levels of revenue. |
|--------|--------|--------------------------------|

|   | Ÿ | Our      ability to supply product for use in clinical  trials. |
|--------|--------|-----------------------------------------------------------------|

----

|   | Ÿ | Significant      delays in obtaining or failing to obtain approvals, as described above in      “The successful development of pharmaceutical products is highly uncertain      and requires significant expenditures andtime.” |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Loss      of, or changes to, previously obtained approvals or accelerated approvals,      including those resulting from post-approval safety or efficacy issues.      For example, with respect to the FDA’s accelerated approval of Avastin in      combination with paclitaxel chemotherapy for the treatment of patients who      have not received prior chemotherapy for metastatic HER2-negative BC, the      FDA may withdraw or modify such approval, or request additional      post-marketing studies. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Failure      to comply with existing or future regulatory  requirements. |
|--------|--------|--------------------------------------------------------------------------|

|   | Ÿ | A      determination by the FDA that any study endpoints used in clinical trials      for our products are not sufficient for product  approval. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Changes      to manufacturing processes, manufacturing process standards or current      Good Manufacturing Practices following approval or changing      interpretations of these factors. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | Ÿ | Humatrope®      (Lilly) |
|--------|--------|------------------------------|

|   | Ÿ | Genotropin®      (Pfizer) |
|--------|--------|--------------------------------|

|   | Ÿ | Norditropin®      (Novo Nordisk) |
|--------|--------|---------------------------------------|

|   | Ÿ | Saizen®      (Merck Serono) |
|--------|--------|----------------------------------|

|   | Ÿ | Tev-Tropin®      (Teva) |
|--------|--------|------------------------------|

|   | Ÿ | Omnitrope®      (Sandoz) |
|--------|--------|-------------------------------|

|   | Ÿ | Valtropin®      (LG Life Sciences) |
|--------|--------|-----------------------------------------|

|   | Ÿ | Accretropin®      (Cangene) |
|--------|--------|----------------------------------|

----

|   | Ÿ | The      inability of a supplier to provide raw materials used to manufacture our      products; |
|--------|--------|--------------------------------------------------------------------------------------------------|

|   | Ÿ | Equipment      obsolescence, malfunctions, orfailures; |
|--------|--------|--------------------------------------------------------|

|   | Ÿ | Product      quality or contamination problems, due to a number of factors included but      not limited to human error; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Damage      to a facility, including our warehouses and distribution facilities, due      to events such as fires or earthquakes, as our South San Francisco,      Vacaville, and Oceanside facilities are located in areas where earthquakes      and/or fires have occurred; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Changes      in FDA regulatory requirements or standards that require modifications to      our manufacturing processes; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Action      by the FDA or by us that results in the halting or slowdown of production      of one or more of our products or products that we make for      others; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | A      contract manufacturer going out of business or failing to produce product      as contractually required; |
|--------|--------|------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Failure      to maintain an adequate state of current Good Manufacturing Practices      compliance; and |
|--------|--------|---------------------------------------------------------------------------------------------------------|

|   | Ÿ | Implementation      and integration of our new enterprise resource planning system, including      the portions related to manufacturing and  distribution. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | Ÿ | Efficacy      data from clinical studies conducted by any party in the U.S. or      internationally, showing or perceived to show a similar or an improved      treatment benefit at a lower dose or shorter duration of therapy, could      cause the sales of our products todecrease. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Our      pricing decisions, including a decision to increase or decrease the price      of a product; the pricing decisions of our competitors; as well as our      Avastin Patient Assistance Program, which is a voluntary program that      enables eligible patients who have received 10,000 milligrams of Avastin      in a 12-month period to receive free Avastin in excess of the 10,000      milligrams during the remainder of the 12-month  period. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Negative      safety or efficacy data from new clinical studies conducted either in the      U.S. or internationally by any party could cause the sales of our products      to decrease or a product to be recalled or  withdrawn. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Negative      safety or efficacy data from post-approval marketing experience or      production-quality problems could cause sales of our products to decrease      or a product to be recalled. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | The      degree of patent protection afforded our products by patents granted to us      and by the outcome of litigation involving our  patents. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | The      outcome of litigation involving patents of other companies concerning our      products or processes related to production and formulation of those      products or uses of those products. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | The      increasing use and development of alternate  therapies. |
|--------|--------|------------------------------------------------------------------|

|   | Ÿ | The      rate of market penetration by competing  products. |
|--------|--------|-------------------------------------------------------------|

|   | Ÿ | Our      distribution strategy, including the termination of, or change in, an      existing arrangement with any major wholesalers that supply our      products. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | Ÿ | Our      decision to no longer allow compounding pharmacies the ability to purchase      Avastin directly from wholesale distributors, which could have a negative      impact on Lucentis sales as a result of negative reaction by retinal      specialists to our decision. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Product      returns and allowances greater than expected or historically      experienced. |
|--------|--------|---------------------------------------------------------------------------------------------|

|   | Ÿ | The      inability of one or more of our three major customers to meet their      payment obligations to us. |
|--------|--------|--------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Roche’s      decisions about whether to exercise its options and option extensions to      develop and sell our future products in non-U.S. markets, and the timing      and amount of any related development cost  reimbursements. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Variations      in Roche’s sales and other licensees’ sales of licensed      products. |
|--------|--------|----------------------------------------------------------------------------------------------------|

|   | Ÿ | The      expiration or termination of existing arrangements with other companies      and Roche, which may include development and marketing arrangements for      our products in the U.S., Europe, and other  countries. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | The      timing of non-U.S. approvals, if any, for products licensed to Roche and      other licensees. |
|--------|--------|---------------------------------------------------------------------------------------------------------|

|   | Ÿ | Government      and third-party payer reimbursement and coverage decisions that affect the      utilization of our products and competing  products. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | The      initiation of new contractual arrangements with other      companies. |
|--------|--------|--------------------------------------------------------------------------------|

|   | Ÿ | Whether      and when contract milestones areachieved. |
|--------|--------|--------------------------------------------------------|

|   | Ÿ | The      failure or refusal of a licensee to pay  royalties. |
|--------|--------|--------------------------------------------------------------|

|   | Ÿ | The      expiration or invalidation of our patents or licensed intellectual      property. For example, patent litigation, interferences, oppositions, and      other proceedings involving our patents often include claims by third      parties that such patents are invalid, unenforceable, or unpatentable. If      a court, patent office, or other authority were to determine that a patent      (including the Cabilly patent as discussed in Item 3, “Legal Proceedings”)      under which we receive royalties and/or other revenue is invalid,      unenforceable, or unpatentable, that determination could cause us to      suffer a loss of such royalties and/or revenue, and could cause us to      incur other monetary damages. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Decreases      in licensees’ sales of product due to competition, manufacturing      difficulties, or other factors that affect the sales of      product. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Fluctuations      in foreign currency exchange rates. |
|--------|--------|-------------------------------------------------------|

----

|   | Ÿ | Require      the approval of the directors designated by RHI to make any acquisition or      any sale or disposal of all or a portion of our business representing 10      percent or more of our assets, net income, or  revenue. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Enable      RHI to maintain its percentage ownership interest in our Common      Stock. |
|--------|--------|-----------------------------------------------------------------------------------------|

|   | Ÿ | Require      us to establish a stock repurchase program designed to maintain RHI’s      percentage ownership interest in our Common Stock based on an established      Minimum Percentage. For information regarding the Minimum Percentage, see      Note 9, “Relationship with Roche Holdings, Inc. and Related Party      Transactions,” in the Notes to Consolidated Financial Statements in Part      II, Item 8 of this Form 10-K. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | Ÿ | The      overall competitive environment for our products, as described in “We face      competition” above. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | The      amount and timing of sales to customers in the U.S. For example, sales of      a product may increase or decrease due to pricing changes, fluctuations in      distributor buying patterns, or sales initiatives that we may undertake      from time to time. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Increased      COS; R&D and marketing, general and administrative expenses;      stock-based compensation expenses; litigation related expenses; asset      impairments; and equity securitieswrite-downs. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Changes      in interest rates, and changes in credit ratings and the liquidity of our      interest-bearing investments, and the effects that such changes may have      on the value of those investments. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Changes      in foreign currency exchange rates and the effects that such changes may      have on our royalty revenue and foreign currency denominated      investments. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | The      amount and timing of our sales to Roche and our other collaborators of      products for sale outside the U.S. and the amount and timing of sales to      their respective customers, which directly affect both our product sales      and royalty revenue. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | The      timing and volume of bulk shipments to  licensees. |
|--------|--------|-------------------------------------------------------------|

|   | Ÿ | The      availability and extent of government and private third-party      reimbursements for the cost oftherapy. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | The      extent of product discounts extended to  customers. |
|--------|--------|--------------------------------------------------------------|

|   | Ÿ | The      efficacy and safety of our various products as determined both in clinical      testing and by the accumulation of additional information on each product      after the FDA approves it for sale. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | The      rate of adoption by physicians and the use of our products for approved      indications and additional indications. Among other things, the rate of      adoption by physicians and the use of our products may be affected by the      results of clinical studies reporting on the benefits or risks of a      product. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | The      potential introduction of new products and additional indications for      existing products. |
|--------|--------|--------------------------------------------------------------------------------------------------------|

|   | Ÿ | The      ability to successfully manufacture sufficient quantities of any      particular marketed product. |
|--------|--------|-------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Pricing      decisions that we or our competitors have adopted or may adopt, as well as      our Avastin Patient AssistanceProgram. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Our      distribution strategy, including the termination of, or change in, an      existing arrangement with any major wholesalers that supply our      products. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | Ÿ | Announcements      of technological innovations or new commercial products by us or our      competitors. |
|--------|--------|-----------------------------------------------------------------------------------------------------------|

|   | Ÿ | Publicity      regarding actual or potential medical results related to products under      development or being commercialized by us or our    competitors. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Concerns      about our pricing initiatives and distribution strategy, and the potential      effect of such initiatives and strategy on the utilization of our products      or our product sales. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Developments      or outcomes of litigation, including litigation regarding proprietary and      patent rights (including, for example, the Cabilly patent) and      governmental investigations. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Regulatory      developments or delays concerning our products in the U.S. and other      countries. |
|--------|--------|------------------------------------------------------------------------------------------------------|

|   | Ÿ | Issues      concerning the efficacy or safety of our products or of biotechnology      products generally. |
|--------|--------|------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Economic      and other external factors or a disaster or  crisis. |
|--------|--------|--------------------------------------------------------------------|

|   | Ÿ | Period-to-period      fluctuations in our financialresults. |
|--------|--------|-------------------------------------------------------------|

|   | Ÿ | New      proposals to change or reform the U.S. healthcare system, including, but      not limited to, new regulations concerning reimbursement or follow-on      biologics. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Item      1B. | UNRESOLVED STAFFCOMMENTS |
|---------------|--------------------------|

| Item      2. | PROPERTIES |
|--------------|------------|

----

| Item      3. | LEGAL      PROCEEDINGS |
|--------------|------------------------|

----

----

| Item      4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY      HOLDERS |
|--------------|----------------------------------------------------------|

----

| Name                                                | Age            |   | Position                                                                    |
|-----------------------------------------------------|----------------|--------|-----------------------------------------------------------------------------|
| Arthur      D. Levinson, Ph.D.*                | 57   |   | Chairman      and Chief Executive Officer                              |
| Susan      D. Desmond-Hellmann, M.D., M.P.H.*  | 50   |   | President,      Product Development                                    |
| Ian      T. Clark*                             | 47   |   | Executive      Vice President, Commercial Operations                   |
| David      A. Ebersman*                        | 38   |   | Executive      Vice President and Chief Financial Officer              |
| Stephen      G. Juelsgaard, D.V.M., J.D.*      | 59   |   | Executive      Vice President, Secretary and Chief Compliance Officer  |
| Richard      H. Scheller, Ph.D.*               | 54   |   | Executive      Vice President, Research                                |
| Patrick      Y. Yang, Ph.D.*                   | 59   |   | Executive      Vice President, Product Operations                      |
| Robert      E. Andreatta                       | 46   |   | Controller      and Chief Accounting Officer                           |
| Hal      Barron, M.D., F.A.C.C.                | 45   |   | Senior      Vice President, Development, and Chief Medical Officer     |

----

----

| Item      5. | MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER      MATTERS AND ISSUER PURCHASES OF EQUITY  SECURITIES |
|--------------|------------------------------------------------------------------------------------------------------------------------------|

|             |   | Common      Stock |   |
|------------------|--------|-------------------|--------|
|             |   | 2007              |   |   | 2006 |   |
|             |   | High              |   |   | Low |   |   | High |   |   | Low |   |
| 4th      Quarter |   | $                 | 78.61  |   |   | $ | 65.35 |   |   | $ | 86.93 |   |   | $ | 79.65 |   |
| 3rd      Quarter |   |              | 80.57  |   |   |   | 71.43 |   |   |   | 86.65 |   |   |   | 76.80 |   |
| 2nd      Quarter |   |              | 83.65  |   |   |   | 72.31 |   |   |   | 84.72 |   |   |   | 75.58 |   |
| 1st      Quarter |   |              | 89.73  |   |   |   | 80.12 |   |   |   | 95.16 |   |   |   | 81.15 |   |

----

|                                   |   | Base      Period |   |   | Years      Ending |   |
|----------------------------------------|--------|------------------|--------|--------|-------------------|--------|
|                                   |   | December         |   |   | December          |   |   | December |   |   | December |   |   | December |   |   | December |   |
| Company      / Index                   |   | 2002             |   |   | 2003              |   |   | 2004 |   |   | 2005 |   |   | 2006 |   |   | 2007 |   |
| Genentech,      Inc                    |   | $                | 100    |   |              | $      | 282.18 |   |   | $ | 328.35 |   |   | $ | 557.90 |   |   | $ | 489.32 |   |   | $ | 404.52 |   |
| S&P      500 Index                 |   |             | 100    |   |              |   | 128.68 |   |   |   | 142.69 |   |   |   | 149.70 |   |   |   | 173.34 |   |   |   | 182.86 |   |
| S&P      500 Pharmaceuticals Index |   |             | 100    |   |              |   | 108.78 |   |   |   | 100.69 |   |   |   | 97.31 |   |   |   | 112.74 |   |   |   | 117.99 |   |
| S&P      Biotechnology Index       |   |             | 100    |   |              |   | 128.86 |   |   |   | 138.66 |   |   |   | 164.00 |   |   |   | 159.50 |   |   |   | 154.04 |   |

| (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                    | The      total return on investment (change in year end stock price plus reinvested      dividends) assumes $100 invested on December 31, 2002 in our Common Stock,      the Standard & Poor’s 500 Index, the Standard & Poor’s 500      Pharmaceuticals Index and the Standard & Poor’s 500 Biotechnology      Index. At December 31, 2007, the Standard & Poor’s 500 Pharmaceuticals      Index comprised Abbott Laboratories; Allergan, Inc.; Barr      Pharmaceuticals Inc.; Bristol-Myers Squibb Company; Forest      Laboratories, Inc.; Johnson & Johnson; King Pharmaceuticals, Inc.;      Merck & Co., Inc.; Mylan Laboratories Inc.; Lilly (Eli) and Company;      Pfizer Inc.; Schering-Plough Corporation; Watson Pharmaceuticals, Inc.;      and Wyeth. At December 31, 2007, the Standard & Poor’s 500      Biotechnology Index comprised Amgen Inc.; Biogen Idec Inc.; Celgene      Corporation; Genzyme Corporation; and Gilead Sciences, Inc.  |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| The      information under “Performance Graph” is not deemed filed with the      Securities and Exchange Commission and is not to be incorporated by      reference in any filing of Genentech under the Securities Act of 1933, as      amended, or the Securities Exchange Act of 1934, as amended, whether made      before or after the date of this 10-K and irrespective of any general      incorporation language in thosefilings. |

----

| Item      6. | SELECTED FINANCIALDATA |
|--------------|------------------------|

|                                                      |   | 2007   |    |      | 2006   |   |    | 2005      |   |   | 2004    |      |   | 2003   |    |
|-----------------------------------------------------------|--------|--------|---------|-----------|--------|--------|---------|-----------|--------|--------|---------|-----------|--------|--------|---------|
| Total      operating revenue                              |   | $      | 11,724  |      |   | $      | 9,284   |      |   | $      | 6,633   |      |   | $      | 4,621   |   |   | $ | 3,300 |   |
| Product      sales                                        |   |   | 9,443   |      |   |   | 7,640   |      |   |   | 5,488   |      |   |   | 3,749   |   |   |   | 2,621 |   |
| Royalties                                                 |   |   | 1,984   |      |   |   | 1,354   |      |   |   | 935     |      |   |   | 641     |   |   |   | 501 |   |
| Contract      revenue                                     |   |   | 297     |      |   |   | 290     |      |   |   | 210     |      |   |   | 231     |   |   |   | 178 |   |
|                                                      |   |   |    |      |   |   |    |      |   |   |    |      |   |   |    |   |   |   |   |   |
| Income      before cumulative effect of accounting change |   | $      | 2,769   |      |   | $      | 2,113   |      |   | $      | 1,279   |      |   | $      | 785     |   |   | $ | 610 |   |
| Cumulative      effect of accounting change, net of tax   |   |   | – |      |   |   | – |      |   |   | – |      |   |   | – |   |   |   | (47 | )(3) |
| Net      income                                           |   | $      | 2,769   |  (1) |   | $      | 2,113   |  (1) |   | $      | 1,279   |      |   | $      | 785     |   |   | $ | 563 |  (3) |
|                                                      |   |   |    |      |   |   |    |      |   |   |    |      |   |   |    |   |   |   |   |   |
| Basic      earnings per share                             |   | $      | 2.63    |      |   | $      | 2.01    |      |   | $      | 1.21    |      |   | $      | 0.74    |   |   | $ | 0.54 |   |
| Diluted      earnings per share                           |   |   | 2.59    |      |   |   | 1.97    |      |   |   | 1.18    |      |   |   | 0.73    |   |   |   | 0.53 |   |
|                                                      |   |   |    |      |   |   |    |      |   |   |    |      |   |   |    |   |   |   |   |   |
| Total      assets                                         |   | $      | 18,940  |      |   | $      | 14,842  |      |   | $      | 12,147  |      |   | $      | 9,403   |  (2) |   | $ | 8,759 |  (2) |
| Long-term      debt                                       |   |   | 2,402   |  (2) |   |   | 2,204   |  (2) |   |   | 2,083   |  (2) |   |   | 412     |  (2) |   |   | 412 |  (2) |
| Stockholders’      equity                           |   |   | 11,905  |      |   |   | 9,478   |      |   |   | 7,470   |      |   |   | 6,782   |   |   |   | 6,520 |   |

|   | We      have paid no dividends.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | All      per share amounts reflect the two-for-one stock split that was effected in      2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | Certain      prior year amounts have been reclassified to conform to the current year      presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (1)    | Net      income in 2007 and 2006 included employee stock-based compensation costs      of $260 million and $182 million, net of tax, respectively, due to our      adoption of Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment,”      on a modified prospective basis on January 1, 2006. No employee      stock-based compensation expense was recognized in reported amounts in any      period prior to January 1, 2006. Net income in 2007      also included certain items associated with the acquisition of Tanox,      Inc., including the recognition of deferred royalty revenue of $4 million,      net of tax, a charge for in-process research and development expense of      $77 million, a gain pursuant to Emerging Issues Task Force Issue No. 04-1      of $73 million, net of tax, and amortization of intangible assets of $17      million, net of tax.                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (2)    | Long-term      debt in 2007, 2006, and 2005 included $2 billion related to our debt      issuance in July 2005, and included $399 million in 2007, $216 million in      2006, and $94 million in 2005 in construction financing obligations      related to our agreements with Health Care Properties (formerly Slough)      and Lonza. Long-term debt in 2005 also reflected the repayment of $425      million to extinguish the consolidated debt and noncontrolling interest of      a synthetic lease obligation related to our manufacturing facility located      in Vacaville, California. Upon adoption of the Financial Accounting      Standards Board Interpretation No. 46 (FIN 46), “Consolidation of Variable      Interest Entities,” in 2003, we consolidated the entity from which      we lease our manufacturing facility located in Vacaville, California.      Accordingly, we included in property, plant and equipment assets with net      book values of $326 million at December 31, 2004 and $348 million at      December 31, 2003. We also consolidated the entity’s debt of $412 million      and noncontrolling interest of $13 million, which amounts are included in      long-term debt and litigation-related and other long-term liabilities,      respectively, at December 31, 2004 and 2003. |
| (3)    | Net      income in 2003 included the receipt of $113 million in pretax litigation      settlements with Amgen Inc. and Bayer Inc. Net income in 2003 also      reflected our adoption of FIN 46 on July 1, 2003, which resulted in a $47      million charge, net of $32 million in taxes, (or $0.05 per share) as a      cumulative effect of an accounting change in  2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

----

| Item      7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION      AND RESULTS OF OPERATIONS |
|--------------|--------------------------------------------------------------------------------------------------|

----

|   | Ÿ | We      face significant competition in the diseases of interest to us from      pharmaceutical companies and biotechnology companies. The introduction of      new competitive products or follow-on biologics, and/or new information      about existing products, and/or pricing decisions by us or our      competitors, may result in lost market share for us, reduced utilization      of our products, lower prices, and/or reduced product sales, even for      products protected by patents. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | Ÿ | Our      long-term business growth depends upon our ability to continue to      successfully develop and commercialize important novel therapeutics to      treat unmet medical needs, such as cancer. We recognize that the      successful development of pharmaceutical products is highly difficult and      uncertain, and that it will be challenging for us to continue to discover      and develop innovative treatments. Our business requires significant      investment in research and development (R&D) over many years, often      for products that fail during the R&D process. Once a product receives      FDA approval, it remains subject to ongoing FDA regulation, including      changes to the product label, new or revised regulatory requirements for      manufacturing practices, written advisement to physicians, and/or product      recalls or withdrawals. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Our      business model requires appropriate pricing and reimbursement for our      products to offset the costs and risks of drug development. The pricing      and distribution of our products have received negative press coverage and      public and governmental scrutiny. We will continue to meet with patient      groups, payers, and other stakeholders in the healthcare system to      understand their issues and concerns. The reimbursement environment for      our products may change in the future and become more      challenging. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | As      the Medicare and Medicaid programs are the largest payers for our      products, rules related to coverage and reimbursement continue to      represent an important issue for our business. New regulations related to      hospital and physician payment continue to be implemented annually. To      date, we have not seen any detectable effects of the new rules on our      product sales. As a result of the Deficit Reduction Act, new regulations      became effective in the fourth quarter of 2007 that will affect the      discounted price for our products paid by Medicaid and      government-affiliated customers. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Intellectual      property protection of our products is crucial to our business. Loss of      effective intellectual property protection could result in lost sales to      competing products, loss of royalty payments (for example, royalty      income associated with the Cabilly patent) from licensees, and may      negatively affect our sales, royalty revenue, and operating results. We      are often involved in disputes over contracts and intellectual property,      and we work to resolve these disputes in confidential negotiations or      litigation. We expect legal challenges in this area to continue. We plan      to continue to build upon and defend our intellectual property      position. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Manufacturing      pharmaceutical products is difficult and complex, and requires facilities      specifically designed and validated to run biotechnology production      processes. Difficulties or delays in product manufacturing or in obtaining      materials from our suppliers, or difficulties in accurately forecasting      manufacturing capacity needs or complying with regulatory requirements,      could negatively affect our business. Additionally, we may have an excess      of available capacity, which could lead to an idling of a portion of our      manufacturing facilities and incurring unabsorbed or idle plant charges,      or other excess capacity charges, resulting in an increase in our cost of      sales (COS). |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Our      ability to attract and retain highly qualified and talented people in all      areas of the company, and our ability to maintain our unique culture, will      be critical to our success over the long-term. We are working diligently      across the company to make sure that we successfully hire, train, and      integrate new employees into the Genentech culture and      environment. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | Ÿ | Rebate      allowances and accruals include both direct and indirect rebates. Direct      rebates are contractual price adjustments payable to direct customers,      mainly to wholesalers and specialty pharmacies that purchase products      directly from us. Indirect rebates are contractual price adjustments      payable to healthcare providers and organizations such as clinics,      hospitals, pharmacies, Medicaid, and group purchasing organizations that      do not purchase products directly fromus; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Prompt-pay      sales discounts are credits granted to wholesalers for remitting payment      on their purchases within established cash payment incentive      periods; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Product      return allowances are established in accordance with our Product Returns      Policy. Our returns policy allows product returns within the period      beginning two months prior to and six months following product      expiration; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Wholesaler      inventory management allowances are credits granted to wholesalers for      compliance with various contractually defined inventory management      programs. These programs were created to align purchases with underlying      demand for our products and to maintain consistent inventory levels,      typically at two to three weeks of sales depending on the product;      and |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Healthcare      provider contractual chargebacks are the result of contractual commitments      by us to provide products to healthcare providers at specified prices or      discounts. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

|                                                                            |   |   |   |   |   |   |    |   |   |   | Annual      Percentage Change |      |
|---------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|-------------------------------|-----------|
|                                                                            |   | 2007   |   |   | 2006   |   |    | 2005   |   |   |                          | 2007/2006 |   |   |   | 2006/2005 |   |
| Product      sales                                                              |   | $      | 9,443  |   |   | $      | 7,640   |   |   | $      | 5,488                         |      |   |   | 24 | % |   |   | 39 | % |
| Royalties                                                                       |   |   | 1,984  |   |   |   | 1,354   |   |   |   | 935                           |      |   |   | 47 |   |   |   | 45 |   |
| Contract      revenue                                                           |   |   | 297    |   |   |   | 290     |   |   |   | 210                           |      |   |   | 2 |   |   |   | 38 |   |
| Total      operating revenue                                                    |   |   | 11,724 |   |   |   | 9,284   |   |   |   | 6,633                         |      |   |   | 26 |   |   |   | 40 |   |
| Cost      of sales                                                              |   |   | 1,571  |   |   |   | 1,181   |   |   |   | 1,011                         |      |   |   | 33 |   |   |   | 17 |   |
| Research      and development                                                   |   |   | 2,446  |   |   |   | 1,773   |   |   |   | 1,262                         |      |   |   | 38 |   |   |   | 40 |   |
| Marketing,      general and administrative                                      |   |   | 2,256  |   |   |   | 2,014   |   |   |   | 1,435                         |      |   |   | 12 |   |   |   | 40 |   |
| Collaboration      profit sharing                                               |   |   | 1,080  |   |   |   | 1,005   |   |   |   | 823                           |      |   |   | 7 |   |   |   | 22 |   |
| Write-off      of in-process research and development related to    acquisition |   |   | 77     |   |   |   | – |   |   |   | –                       |      |   |   | – |   |   |   | – |   |
| Gain      on acquisition                                                        |   |   | (121   | )      |   |   | – |   |   |   | –                       |      |   |   | – |   |   |   | – |   |
| Recurring      charges related to redemption and acquisition                    |   |   | 132    |   |   |   | 105     |   |   |   | 123                           |      |   |   | 26 |   |   |   | (15 | ) |
| Special      items: litigation-related                                     |   |   | 54     |   |   |   | 54      |   |   |   | 58                            |      |   |   | 0 |   |   |   | (7 | ) |
| Total      costs and expenses                                                   |   |   | 7,495  |   |   |   | 6,132   |   |   |   | 4,712                         |      |   |   | 22 |   |   |   | 30 |   |
|                                                                            |   |   |   |   |   |   |    |   |   |   |                          |      |   |   |   |   |   |   |   |   |
| Operating      income                                                           |   |   | 4,229  |   |   |   | 3,152   |   |   |   | 1,921                         |      |   |   | 34 |   |   |   | 64 |   |
|                                                                            |   |   |   |   |   |   |    |   |   |   |                          |      |   |   |   |   |   |   |   |   |
| Other      income (expense):                                                    |   |   |   |   |   |   |    |   |   |   |                          |      |   |   |   |   |   |   |   |   |
| Interest      and other income (expense), net                                   |   |   | 273    |   |   |   | 325     |   |   |   | 142                           |      |   |   | (16 | ) |   |   | 129 |   |
| Interest      expense                                                           |   |   | (76    | )      |   |   | (74     | )      |   |   | (50                           | )         |   |   | 3 |   |   |   | 48 |   |
| Total      other income, net                                                    |   |   | 197    |   |   |   | 251     |   |   |   | 92                            |      |   |   | (22 | ) |   |   | 173 |   |
|                                                                            |   |   |   |   |   |   |    |   |   |   |                          |      |   |   |   |   |   |   |   |   |
| Income      before taxes                                                        |   |   | 4,426  |   |   |   | 3,403   |   |   |   | 2,013                         |      |   |   | 30 |   |   |   | 69 |   |
| Income      tax provision                                                       |   |   | 1,657  |   |   |   | 1,290   |   |   |   | 734                           |      |   |   | 28 |   |   |   | 76 |   |
| Net      income                                                                 |   | $      | 2,769  |   |   | $      | 2,113   |   |   | $      | 1,279                         |      |   |   | 31 |   |   |   | 65 |   |
| Earnings      per share:                                                        |   |   |   |   |   |   |    |   |   |   |                          |      |   |   |   |   |   |   |   |   |
| Basic                                                                           |   | $      | 2.63   |   |   | $      | 2.01    |   |   | $      | 1.21                          |      |   |   | 31 |   |   |   | 66 |   |
| Diluted                                                                         |   | $      | 2.59   |   |   | $      | 1.97    |   |   | $      | 1.18                          |      |   |   | 31 |   |   |   | 67 |   |
|                                                                            |   |   |   |   |   |   |    |   |   |   |                          |      |   |   |   |   |   |   |   |   |
| Cost      of sales as a % of product sales                                      |   |   | 17     | %      |   |   | 15      | %      |   |   | 18                            | %         |   |   |   |   |   |   |   |   |
| Research      and development as a % of total operating revenue                 |   |   | 21     |   |   |   | 19      |   |   |   | 19                            |      |   |   |   |   |   |   |   |   |
| Marketing,      general and administrative as a % of total operating    revenue |   |   | 19     |   |   |   | 22      |   |   |   | 22                            |      |   |   |   |   |   |   |   |   |
| Pretax      operating margin                                                    |   |   | 36     |   |   |   | 34      |   |   |   | 29                            |      |   |   |   |   |   |   |   |   |
| Net      income as a % of total operating revenue                               |   |   | 24     |   |   |   | 23      |   |   |   | 19                            |      |   |   |   |   |   |   |   |   |
| Effective      income tax rate                                                  |   |   | 37     |   |   |   | 38      |   |   |   | 36                            |      |   |   |   |   |   |   |   |   |

----

|                                    |   |   |   |   |   |   |   |   |   |   | Annual      Percentage Change |      |
|-----------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------------------------------|-----------|
| Product      Sales                      |   | 2007   |   |   | 2006   |   |   | 2005   |   |   |                          | 2007/2006 |   |   |   | 2006/2005 |   |
| Net      U.S. product sales             |   |   |   |   |   |   |   |   |   |   |                          |      |   |   |   |   |   |
| Avastin                                 |   | $      | 2,296  |   |   | $      | 1,746  |   |   | $      | 1,133                         |      |   |   | 32 | % |   |   | 54 | % |
| Rituxan                                 |   |   | 2,285  |   |   |   | 2,071  |   |   |   | 1,832                         |      |   |   | 10 |   |   |   | 13 |   |
| Herceptin                               |   |   | 1,287  |   |   |   | 1,234  |   |   |   | 747                           |      |   |   | 4 |   |   |   | 65 |   |
| Lucentis                                |   |   | 815    |   |   |   | 380    |   |   |   | –                       |      |   |   | 114 |   |   |   | * |   |
| Xolair                                  |   |   | 472    |   |   |   | 425    |   |   |   | 320                           |      |   |   | 11 |   |   |   | 33 |   |
| Tarceva                                 |   |   | 417    |   |   |   | 402    |   |   |   | 275                           |      |   |   | 4 |   |   |   | 46 |   |
| Nutropin      products                  |   |   | 371    |   |   |   | 378    |   |   |   | 370                           |      |   |   | (2 | ) |   |   | 2 |   |
| Thrombolytics                           |   |   | 268    |   |   |   | 243    |   |   |   | 218                           |      |   |   | 10 |   |   |   | 11 |   |
| Pulmozyme                               |   |   | 223    |   |   |   | 199    |   |   |   | 186                           |      |   |   | 12 |   |   |   | 7 |   |
| Raptiva                                 |   |   | 107    |   |   |   | 90     |   |   |   | 79                            |      |   |   | 19 |   |   |   | 14 |   |
| Total      U.S. product sales           |   |   | 8,540  |   |   |   | 7,169  |   |   |   | 5,162                         |      |   |   | 19 |   |   |   | 39 |   |
| Net      product sales to collaborators |   |   | 903    |   |   |   | 471    |   |   |   | 326                           |      |   |   | 92 |   |   |   | 44 |   |
| Total      product sales                |   | $      | 9,443  |   |   | $      | 7,640  |   |   | $      | 5,488                         |      |   |   | 24 |   |   |   | 39 |   |

| *      | Calculation      not meaningful.                                    |
|--------|---------------------------------------------------------------------|
|   | The      totals shown above may not appear to sum due to  rounding. |

----

----

----

----

|                                                    |   | 2007   |   |
|---------------------------------------------------------|--------|--------|--------|
| Royalty      revenue                                    |   | $      | 256    |   |
|                                                    |   |   |   |   |
| Gross      expenses(1)                                  |   | $      | 123    |   |
|                                                    |   |   |   |   |
| Net      of tax effect of Cabilly patent on diluted EPS |   | $      | 0.08   |   |

| (1) | Gross      expenses include COH’s share of royalty revenue and royalty COS on our      U.S. product sales. |
|-----|------------------------------------------------------------------------------------------------------------------|

----

|                                                |   |   |   |   |   |   |   |   |   |   | Annual      Percentage Change |      |
|-----------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------------------------------|-----------|
| Research and      Development                       |   | 2007   |   |   | 2006   |   |   | 2005   |   |   |                          | 2007/2006 |   |   |   | 2006/2005 |   |
| Product      development (including post-marketing) |   | $      | 1,742  |   |   | $      | 1,269  |   |   | $      | 935                           |      |   |   | 37 | % |   |   | 36 | % |
| Research                                            |   |   | 423    |   |   |   | 326    |   |   |   | 235                           |      |   |   | 30 |   |   |   | 39 |   |
| In-licensing                                        |   |   | 281    |   |   |   | 178    |   |   |   | 92                            |      |   |   | 58 |   |   |   | 93 |   |
| Total                                               |   | $      | 2,446  |   |   | $      | 1,773  |   |   | $      | 1,262                         |      |   |   | 38 |   |   |   | 40 |   |

----

----

|                                            |   |   |   |   |   |   |   |   |   |   | Annual      Percentage Change |      |
|-------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------------------------------|-----------|
|                                            |   | 2007   |   |   | 2006   |   |   | 2005   |   |   |                          | 2007/2006 |   |   |   | 2006/2005 |   |
| U.S.      Rituxan profit sharing expense        |   | $      | 730    |   |   | $      | 672    |   |   | $      | 603                           |      |   |   | 9 | % |   |   | 11 | % |
| U.S.      Tarceva profit sharing expense        |   |   | 165    |   |   |   | 146    |   |   |   | 83                            |      |   |   | 13 |   |   |   | 76 |   |
| Total      Xolair profit sharing expense        |   |   | 185    |   |   |   | 187    |   |   |   | 137                           |      |   |   | (1 | ) |   |   | 36 |   |
| Total      collaboration profit sharing expense |   | $      | 1,080  |   |   | $      | 1,005  |   |   | $      | 823                           |      |   |   | 7 |   |   |   | 22 |   |

----

|                                                                                                                               |   |   |   |   |   |   |   |   |   |   | Annual      Percentage Change |      |
|------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------------------------------|-----------|
|                                                                                                                               |   | 2007   |   |   | 2006   |   |   | 2005   |   |   |                          | 2007/2006 |   |   |   | 2006/2005 |   |
| Product      sales, net                                                                                                            |   | $      | 2,285  |   |   | $      | 2,071  |   |   | $      | 1,832                         |      |   |   | 10 | % |   |   | 13 | % |
| Combined      commercial costs and expenses                                                                                        |   |   | 552    |   |   |   | 489    |   |   |   | 390                           |      |   |   | 13 |   |   |   | 25 |   |
| Combined      co-promotion profits                                                                                                 |   | $      | 1,733  |   |   | $      | 1,582  |   |   | $      | 1,442                         |      |   |   | 10 |   |   |   | 10 |   |
| Amount      due to Biogen Idec for their share of co-promotion profits–included in      collaboration profit sharing expense |   | $      | 730    |   |   | $      | 672    |   |   | $      | 603                           |      |   |   | 9 |   |   |   | 11 |   |

|                                                                                                            |   |   |   |   |   |   |   |   |   |   | Annual      Percentage Change |      |
|-----------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------------------------------|-----------|
|                                                                                                            |   | 2007   |   |   | 2006   |   |   | 2005   |   |   |                          | 2007/2006 |   |   |   | 2006/2005 |   |
| Contract      revenue                                                                                           |   | $      | 108    |   |   | $      | 79     |   |   | $      | 59                            |      |   |   | 37 | % |   |   | 34 | % |
|                                                                                                            |   |   |   |   |   |   |   |   |   |   |                          |      |   |   |   |   |   |   |   |   |
| Co-promotion      profit sharing expense                                                                        |   | $      | 730    |   |   | $      | 672    |   |   | $      | 603                           |      |   |   | 9 |   |   |   | 11 |   |
|                                                                                                            |   |   |   |   |   |   |   |   |   |   |                          |      |   |   |   |   |   |   |   |   |
| Royalty      expense on ex-U.S. sales of Rituxan and other patent costs–included in      MG&A expense |   | $      | 247    |   |   | $      | 175    |   |   | $      | 139                           |      |   |   | 41 |   |   |   | 26 |   |

----

----

|                                                        |   |   |   |   |   |   |   |   |   |   | Annual      Percentage Change |      |
|-------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------------------------------|-----------|
|                                                        |   | 2007   |   |   | 2006   |   |   | 2005   |   |   |                          | 2007/2006 |   |   |   | 2006/2005 |   |
| Gains      on sales of biotechnology equity securities, net |   | $      | 22     |   |   | $      | 93     |   |   | $      | 9                             |      |   |   | (76 | )      % |   |   | 933 | % |
| Write-down      of biotechnology debt and equity securities |   |   | (20    | )      |   |   | (4     | )      |   |   | (10                           | )         |   |   | 400 |   |   |   | (60 | ) |
| Interest      income                                        |   |   | 270    |   |   |   | 230    |   |   |   | 143                           |      |   |   | 17 |   |   |   | 61 |   |
| Interest      expense                                       |   |   | (76    | )      |   |   | (74    | )      |   |   | (50                           | )         |   |   | 3 |   |   |   | 48 |   |
| Other      miscellaneous income                             |   |   | 1      |   |   |   | 6      |   |   |   | –                       |      |   |   | (83 | ) |   |   | – |   |
| Total      other income, net                                |   | $      | 197    |   |   | $      | 251    |   |   | $      | 92                            |      |   |   | (22 | ) |   |   | 173 |   |

----

|   | Ÿ | with      consideration, if that consideration is composed entirely of either cash      or equity traded on a U.S. national securities exchange, in the same form      and amounts per share as received by RHI and its affiliates;      and |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | in      all other cases, with consideration that has a value per share not less      than the weighted-average value per share received by RHI and its      affiliates as determined by a nationally recognized investment      bank. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | the      merger or sale must be authorized by the favorable vote of a majority of      non-RHI stockholders, provided no person will be entitled to cast more      than 5% of the votes at the meeting;or |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | in      the event such a favorable vote is not obtained, the value of the      consideration to be received by non-RHI stockholders would be equal to or      greater than the average of the means of the ranges of fair values for the      Common Stock as determined by two nationally recognized investment      banks. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | any      acquisition, sale, or other disposal of all or a portion of our business      representing 10% or more of our assets, net income, or      revenue; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | any      issuance of capital stock except under certain circumstances;      or |
|--------|--------|--------------------------------------------------------------------------------|

|   | Ÿ | any      repurchase or redemption of our capital stock other than a redemption      required by the terms of any security and purchases made at fair market      value in connection with any deferred compensation  plans. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | Ÿ | Roche’s      option expires in 2015; |
|--------|--------|--------------------------------------------|

|   | Ÿ | Roche      may exercise its option to license our products upon the occurrence of any      of the following: (1) upon the filing of an Investigational New      Drug Application (IND) for a product, (2) completion of the first Phase II      trial for a product or (3) completion of a Phase III trial for that      product, if Roche previously paid us a fee of $10 million to extend      its option on a product; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | If      Roche exercises its option to license a product, it has agreed to      reimburse Genentech for development costs as follows: (1) If      exercise occurs upon the filing of an IND, Roche will pay 50% of      development costs incurred prior to the filing and 50% of development      costs subsequently incurred; (2) If exercise occurs at the completion      of the first Phase II trial, Roche will pay 50% of development costs      incurred through completion of the trial, 75% of development costs      subsequently incurred for the initial indication, and 50% of subsequent      development costs for new indications, formulations or dosing schedules;      (3) If the exercise occurs at the completion of a Phase III trial,      Roche will pay 50% of development costs incurred through completion of      Phase II, 75% of development costs incurred through completion of Phase      III, and 75% of development costs subsequently incurred; and $5 million of      the option extension fee paid by Roche to preserve its right to exercise      its option at the completion of a Phase III trial will be credited against      the total development costs payable to Genentech upon the exercise of the      option; and (4) Each of Genentech and Roche have the right to “opt-out” of      developing an additional indication for a product for which Roche      exercised its option, and would not share the costs or benefits of the      additional indication, but could “opt-back-in” within 30 days of decision      to file for approval of the indication by paying twice what they would      have owed for development of the indication if they had not opted      out; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | We      agreed, in general, to manufacture for and supply to Roche its clinical      requirements of our products at cost, and its commercial requirements at      cost plus a margin of 20%; however, Roche will have the right to      manufacture our products under certain  circumstances; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Roche      has agreed to pay, for each product for which Roche exercises its option      upon the filing of an IND or completion of the first Phase II trial, a      royalty of 12.5% on the first $100 million on its aggregate sales of that      product and thereafter a royalty of 15% on its aggregate sales of that      product in excess of $100 million until the later in each country of the      expiration of our last relevant patent or 25 years from the first      commercial introduction of thatproduct; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Roche      will pay, for each product for which Roche exercises its option after      completion of a Phase III trial, a royalty of 15% on its sales of that      product until the later in each country of the expiration of our last      relevant patent or 25 years from the first commercial introduction of that      product; however, $5 million of any option extension fee paid by Roche      will be credited against royalties payable to us in the first calendar      year of sales by Roche in which aggregate sales of that product exceed      $100 million; and |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | For      certain products for which Genentech is paying a royalty to      Biogen Idec, including Rituxan, Roche shall pay Genentech a royalty      of 20% on sales of such product. Once Genentech is no longer obligated to      pay a royalty to Biogen Idec on sales of such products, Roche shall      then pay Genentech a royalty on sales of 10% on the first $75 million on      its aggregate sales of that product and thereafter a royalty of 8% on its      aggregate sales of that product in excess of $75 million until the later      in each country of the expiration of our last relevant patent or 25 years      from the first commercial introduction of that  product. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                                                                    |   | 2007   |   |   | 2006   |   |   | 2005   |   |
|-------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Product      sales to Roche                                             |   | $      | 768    |   |   | $      | 359    |   |   | $ | 177 |   |
|                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |
| Royalties      earned from Roche                                        |   | $      | 1,206  |   |   | $      | 846    |   |   | $ | 500 |   |
|                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |
| Contract      revenue from Roche                                        |   | $      | 95     |   |   | $      | 125    |   |   | $ | 65 |   |
|                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost      of sales on product sales to Roche                            |   | $      | 422    |   |   | $      | 268    |   |   | $ | 154 |   |
|                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |
| R&D      expenses incurred on joint development projects with Roche |   | $      | 259    |   |   | $      | 213    |   |   | $ | 144 |   |

----

|                                                                          |   | 2007   |   |   | 2006   |   |   | 2005   |   |
|-------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Product      sales to Novartis                                                |   | $      | 10     |   |   | $      | 5      |   |   | $ | 7 |   |
|                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Royalties      earned from Novartis                                           |   | $      | 95     |   |   | $      | 3      |   |   | $ | 1 |   |
|                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Contract      revenue from Novartis                                           |   | $      | 70     |   |   | $      | 40     |   |   | $ | 50 |   |
|                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost      of sales on product sales to Novartis                               |   | $      | 10     |   |   | $      | 4      |   |   | $ | 17 |   |
|                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| R&D      expenses incurred on joint development projects with    Novartis |   | $      | 43     |   |   | $      | 38     |   |   | $ | 39 |   |
|                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Collaboration      profit sharing expense to Novartis                         |   | $      | 185    |   |   | $      | 187    |   |   | $ | 136 |   |

| Liquidity and Capital      Resources                                                                                                                            |   | 2007               |   |   | 2006   |   |   | 2005   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|--------|--------|--------|--------|--------|--------|--------|
| December      31:                                                                                                                                               |   | (in      millions) |   |
| Unrestricted      cash, cash equivalents, short-term investments and long-term marketable      debt and equity securities                                       |   | $                  | 6,065  |   |   | $      | 4,325  |   |   | $ | 3,814 |   |
| Net      receivable—equity hedge instruments                                                                                                              |   |               | 24     |   |   |   | 50     |   |   |   | 73 |   |
| Total      unrestricted cash, cash equivalents, short-term investments, long-term      marketable debt and equity securities, and equity hedge      instruments |   | $                  | 6,089  |   |   | $      | 4,375  |   |   | $ | 3,887 |   |
| Working      capital                                                                                                                                            |   | $                  | 4,835  |   |   | $      | 3,547  |   |   | $ | 2,726 |   |
| Current      ratio                                                                                                                                              |   | 2.2:1              |   |   | 2.6:1  |   |   | 2.6:1  |   |
| Year      ended December 31:                                                                                                                                    |   |               |   |   |   |   |   |   |   |   |   |   |
| Cash      provided by (used in):                                                                                                                                |   |               |   |   |   |   |   |   |   |   |   |   |
| Operating      activities                                                                                                                                       |   | $                  | 3,230  |   |   | $      | 2,138  |   |   | $ | 2,363 |   |
| Investing      activities                                                                                                                                       |   |               | (1,865 | )      |   |   | (1,681 | )      |   |   | (1,776 | ) |
| Financing      activities                                                                                                                                       |   |               | (101   | )      |   |   | (432   | )      |   |   | 368 |   |
| Capital      expenditures (included in investing activities above)                                                                                              |   |               | (977   | )      |   |   | (1,214 | )      |   |   | (1,400 | ) |

----

----

----

|                      |   | Total      Number ofShares      Purchased |   |   | Average      Price Paidper      Share |   |
|---------------------------|--------|-------------------------------------------|--------|--------|---------------------------------------|--------|
| January      1–31   |   |                                      | 3.0    |   |                                  | $      | 87.33 |   |
| February      1–28  |   |                                      | 0.9    |   |                                  |   | 86.54 |   |
| March      1–31     |   |                                      | 0.6    |   |                                  |   | 82.33 |   |
| April      1–30     |   |                                      | 0.8    |   |                                  |   | 82.14 |   |
| May      1–31       |   |                                      | 1.4    |   |                                  |   | 79.65 |   |
| June      1–30      |   |                                      | 1.3    |   |                                  |   | 75.84 |   |
| August      1–31    |   |                                      | 0.8    |   |                                  |   | 73.66 |   |
| September      1–30 |   |                                      | 1.2    |   |                                  |   | 78.67 |   |
| October      1–31   |   |                                      | 0.6    |   |                                  |   | 76.08 |   |
| November      1–30  |   |                                      | 1.0    |   |                                  |   | 74.86 |   |
| December      1–31  |   |                                      | 1.5    |   |                                  |   | 67.96 |   |
| Total                     |   |                                      | 13.1   |   |                                  | $      | 79.40 |   |

----

----

|                                          |   | Payments Due by Period      (in      millions) |   |
|-----------------------------------------------|--------|------------------------------------------------|--------|
| Contractual      Obligations                  |   | Total                                          |   |   | 2008 |   |   | 2009      and 2010 |   |   | 2011      and 2012 |   |   | 2013      and Beyond |   |
| Operating      lease obligations and other(1) |   | $                                              | 261    |   |   | $ | 35 |   |   | $ | 69 |   |   | $ | 60 |   |   | $ | 97 |   |
| HCP(2)      (Financing lease)                 |   |                                           | 524    |   |   |   | 32 |   |   |   | 73 |   |   |   | 78 |   |   |   | 341 |   |
| Lonza(3)      (Singapore facility agreement)  |   |                                           | 510    |   |   |   | 15 |   |   |   | 220 |   |   |   | 275 |   |   |   | – |   |
| Purchase      obligations(4)                  |   |                                           | 1,283  |   |   |   | 799 |   |   |   | 378 |   |   |   | 81 |   |   |   | 25 |   |
| Long-term      debt(5)                        |   |                                           | 2,000  |   |   |   | – |   |   |   | 500 |   |   |   | – |   |   |   | 1,500 |   |
| Deferred      tax liabilities(6)              |   |                                           | 63     |   |   |   | 63 |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Accrued      litigation(7)                    |   |                                           | 776    |   |   |   | 776 |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Other      long-term liabilities(8)           |   |                                           | 30     |   |   |   | 1 |   |   |   | 7 |   |   |   | 4 |   |   |   | 18 |   |
| Interest      expense on long-term debt(9)    |   |                                           | 1,130  |   |   |   | 95 |   |   |   | 175 |   |   |   | 148 |   |   |   | 712 |   |
| Total                                         |   | $                                              | 6,577  |   |   | $ | 1,816 |   |   | $ | 1,422 |   |   | $ | 646 |   |   | $ | 2,693 |   |

| (1)                                                                                  | Operating      lease obligations include Owner Association Fees on buildings that we      own.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)                                                                                  | See      further discussion related to the HCP lease above in “Off-Balance Sheet      Arrangements.”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (3)                                                                                  | Included      in “2009 and 2010” is a manufacturing milestone payment. See further      discussion of the agreements with Lonza above in “Off-Balance Sheet      Arrangements” and in Note 8, “Leases, Commitments and Contingencies,” in      the Notes to Consolidated Financial Statements in Part II, Item 8 of this      Form 10-K.                                                                                                                                                                                                                                                                                                                                                                 |
| (4)                                                                                  | Purchase      obligations include commitments related to capital expenditures, clinical      development, manufacturing and research operations and other significant      purchase commitments. Purchase obligations exclude capitalized labor and      capitalized interest on construction projects. Included in this line are      our purchase obligations under our contract manufacturing arrangements      with Wyeth Pharmaceuticals, a division of Wyeth, for bulk supply of      Herceptin, and Novartis for the manufacture of Xolair and Lucentis. See      also Note 8, “Leases, Commitments and Contingencies,” in the Notes to      Consolidated Financial Statements in Part II, Item 8 of this Form      10-K. |
| (5)                                                                                  | See      also Note 7, “Debt,” in the Notes to Consolidated Financial Statements in      Part II, Item 8 of this Form 10-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (6)                                                                                  | Amount      represents the current portion of our tax obligations and related interest      under FIN 48. See also Note 12, “Income Taxes,” in the Notes to      Consolidated Financial Statements in Part II, Item 8 of this Form      10-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (7)                                                                                  | Accrued      litigation includes our litigation liabilities and other similar items      which are reflected on our balance sheet. The amount of cash paid, if any,      or the timing of such payment in connection with the COH matter will      depend on the outcome of the California Supreme Court’s review of the      matter; this item is captured in the “2008” category in the table      above.                                                                                                                                                                                                                                                                                                                |
| (8)                                                                                  | Other      long-term liabilities primarily represent our post-retirement benefit      obligations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (9)                                                                                  | Interest      expense includes the effects of an interest rate swap agreement. See also,      Note 4 “Investment Securities and Financial Instruments,” in the Notes to      Consolidated Financial Statements in Part II, Item 8 of this Form      10-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| Excludes      payment obligations associated with our commercial paper      program. |

----

|                        |   |                          |    |   | Options      Outstanding |   |
|-----------------------------|--------|-------------------------------|---------|--------|--------------------------|--------|
|                        |   | SharesAvailablefor      Grant |    |   | Number      ofShares     |   |   | WeightedAverageExercise      Price |   |
| December 31,      2005 |   |                          | 84      |   |                     |   | 83 |   |   | $ | 46.64 |   |
| Grants                      |   |                          | (17     | )      |                     |   | 17 |   |   |   | 79.85 |   |
| Exercises                   |   |                          | – |   |                     |   | (9 | ) |   |   | 30.42 |   |
| Cancellations               |   |                          | 3       |   |                     |   | (3 | ) |   |   | 62.09 |   |
| December 31,      2006 |   |                          | 70      |   |                     |   | 88 |   |   | $ | 54.43 |   |
| Grants                      |   |                          | (18     | )      |                     |   | 18 |   |   |   | 79.40 |   |
| Exercises                   |   |                          | – |   |                     |   | (10 | ) |   |   | 32.76 |   |
| Cancellations               |   |                          | 4       |   |                     |   | (4 | ) |   |   | 76.45 |   |
| December 31,      2007 |   |                          | 56      |   |                     |   | 92 |   |   | $ | 60.94 |   |

|                           |   | Exercisable |   |   | Unexercisable               |   |   | Total  |   |
|--------------------------------|--------|-------------|--------|--------|-----------------------------|--------|--------|--------|--------|
| As      of December 31, 2007   |   | Shares      |   |   | Wtd.      Avg.ExercisePrice |   |   | Shares |   |   | Wtd.      Avg.ExercisePrice |   |   | Shares |   |   | Wtd.      Avg.ExercisePrice |   |
| In-the-Money                   |   |        | 39     |   |                        | $      | 35.22  |   |   |   | 3 |   |   | $ | 52.93 |   |   |   | 42 |   |   | $ | 36.56 |   |
| Out-of-the-Money(1)            |   |        | 15     |   |                        |   | 83.68  |   |   |   | 35 |   |   |   | 80.77 |   |   |   | 50 |   |   |   | 81.62 |   |
| Total      Options Outstanding |   |        | 54     |   |                        |   |   |   |   |   | 38 |   |   |   |   |   |   |   | 92 |   |   |   |   |   |

| (1) | Out-of-the-money      options are those options with an exercise price equal to or greater than      the fair market value of Genentech Common Stock, which was $67.07 at the      close of business on December 31,2007. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                 |   | 2007*  |   |   | 2006*  |   |   | 2005* |   |
|--------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|-------|--------|
| Net      grants during the year as % of outstanding shares                           |   |   | 1.36   | %      |   |   | 1.43   | %     |   |   | 1.70 | % |
| Grants      to Executive Officers during the period as % of outstanding      shares  |   |   | 0.13   | %      |   |   | 0.14   | %     |   |   | 0.18 | % |
| Grants      to Executive Officers during the year as % of total options      granted |   |   | 7.41   | %      |   |   | 8.60   | %     |   |   | 9.44 | % |

| * | Executive      officers as of December 31 for the years  presented. |
|---|---------------------------------------------------------------------|

----

| Item      7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET      RISK |
|---------------|-----------------------------------------------------------------|

Our VAR model utilizeshistorical simulation of daily market data over the past three years andcalculates market data changes using a 21-trading-day holding period to estimateexpected loss in fair value at a 95% confidence level. The VAR model is notintended to represent actual losses but is used as a risk estimation andmanagement tool.

----

----

----

| Item      8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY  DATA |
|--------------|----------------------------------------------|

----

|                                                                                                                                                                                                                                |   | Year      Ended December 31, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|--------|
|                                                                                                                                                                                                                                |   | 2007                         |   |   | 2006 |   |   | 2005 |   |
| Revenue                                                                                                                                                                                                                             |   |                         |   |   |   |   |   |   |   |
| Product      sales (including amounts from related parties:2007-$778;      2006-$364; 2005-$184)                                                                                                                                    |   | $                            | 9,443  |   |   | $ | 7,640 |   |   | $ | 5,488 |   |
| Royalties      (including amounts from related parties:2007-$1,301;      2006-$849; 2005-$501)                                                                                                                                      |   |                         | 1,984  |   |   |   | 1,354 |   |   |   | 935 |   |
| Contract      revenue (including amounts from related parties:2007-$165;      2006-$165; 2005-$115)                                                                                                                                 |   |                         | 297    |   |   |   | 290 |   |   |   | 210 |   |
| Total      operating revenue                                                                                                                                                                                                        |   |                         | 11,724 |   |   |   | 9,284 |   |   |   | 6,633 |   |
|                                                                                                                                                                                                                                |   |                         |   |   |   |   |   |   |   |   |   |   |
| Costs      and expenses                                                                                                                                                                                                             |   |                         |   |   |   |   |   |   |   |   |   |   |
| Cost      of sales (including amounts for related parties:2007-$432;      2006-$272; 2005-$171)                                                                                                                                     |   |                         | 1,571  |   |   |   | 1,181 |   |   |   | 1,011 |   |
| Research      and development (associated with related partycollaborations:2007-$302;      2006-$251; 2005-$183)(including      amounts where reimbursement was recorded as contract revenue: 2007-$196;      2006-$185; 2005-$144) |   |                         | 2,446  |   |   |   | 1,773 |   |   |   | 1,262 |   |
| Marketing,      general and administrative                                                                                                                                                                                          |   |                         | 2,256  |   |   |   | 2,014 |   |   |   | 1,435 |   |
| Collaboration      profit sharing (including related party amounts:2007-$185;      2006-$187; 2005-$136)                                                                                                                            |   |                         | 1,080  |   |   |   | 1,005 |   |   |   | 823 |   |
| Write-off      of in-process research and development related to    acquisition                                                                                                                                                     |   |                         | 77     |   |   |   | – |   |   |   | – |   |
| Gain      on acquisition                                                                                                                                                                                                            |   |                         | (121   | ) |   |   | – |   |   |   | – |   |
| Recurring      charges related to redemption and acquisition                                                                                                                                                                        |   |                         | 132    |   |   |   | 105 |   |   |   | 123 |   |
| Special      items: litigation-related                                                                                                                                                                                         |   |                         | 54     |   |   |   | 54 |   |   |   | 58 |   |
| Total      costs and expenses                                                                                                                                                                                                       |   |                         | 7,495  |   |   |   | 6,132 |   |   |   | 4,712 |   |
|                                                                                                                                                                                                                                |   |                         |   |   |   |   |   |   |   |   |   |   |
| Operating      income                                                                                                                                                                                                               |   |                         | 4,229  |   |   |   | 3,152 |   |   |   | 1,921 |   |
| Other      income (expense):                                                                                                                                                                                                        |   |                         |   |   |   |   |   |   |   |   |   |   |
| Interest      and other income (expense), net                                                                                                                                                                                       |   |                         | 273    |   |   |   | 325 |   |   |   | 142 |   |
| Interest      expense                                                                                                                                                                                                               |   |                         | (76    | ) |   |   | (74 | ) |   |   | (50 | ) |
| Total      other income, net                                                                                                                                                                                                        |   |                         | 197    |   |   |   | 251 |   |   |   | 92 |   |
| Income      before taxes                                                                                                                                                                                                            |   |                         | 4,426  |   |   |   | 3,403 |   |   |   | 2,013 |   |
| Income      tax provision                                                                                                                                                                                                           |   |                         | 1,657  |   |   |   | 1,290 |   |   |   | 734 |   |
| Net      income                                                                                                                                                                                                                     |   | $                            | 2,769  |   |   | $ | 2,113 |   |   | $ | 1,279 |   |
|                                                                                                                                                                                                                                |   |                         |   |   |   |   |   |   |   |   |   |   |
| Earnings      per share                                                                                                                                                                                                             |   |                         |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                                                                                                                               |   | $                            | 2.63   |   |   | $ | 2.01 |   |   | $ | 1.21 |   |
| Diluted                                                                                                                                                                                                                             |   | $                            | 2.59   |   |   | $ | 1.97 |   |   | $ | 1.18 |   |
|                                                                                                                                                                                                                                |   |                         |   |   |   |   |   |   |   |   |   |   |
| Shares      used to compute basic earnings per share                                                                                                                                                                                |   |                         | 1,053  |   |   |   | 1,053 |   |   |   | 1,055 |   |
| Shares      used to compute diluted earnings per share                                                                                                                                                                              |   |                         | 1,069  |   |   |   | 1,073 |   |   |   | 1,081 |   |

----

|                                                                                         |   | Year      Ended December 31, |    |
|----------------------------------------------------------------------------------------------|--------|------------------------------|---------|
|                                                                                         |   | 2007                         |    |   | 2006 |   |   | 2005 |   |
| Cash      flows from operating activities                                                    |   |                         |    |   |   |   |   |   |   |
| Net      income                                                                              |   | $                            | 2,769   |   |   | $ | 2,113 |   |   | $ | 1,279 |   |
| Adjustments      to reconcile net income to net cash provided by operating      activities:  |   |                         |    |   |   |   |   |   |   |   |   |   |
| Depreciation      and amortization                                                           |   |                         | 492     |   |   |   | 407 |   |   |   | 370 |   |
| Employee      stock-based compensation                                                       |   |                         | 403     |   |   |   | 309 |   |   |   | – |   |
| In-process      research and development                                                     |   |                         | 77      |   |   |   | – |   |   |   | – |   |
| Gain      on acquisition                                                                     |   |                         | (121    | ) |   |   | – |   |   |   | – |   |
| Deferred      income taxes                                                                   |   |                         | (234    | ) |   |   | (112 | ) |   |   | (110 | ) |
| Deferred      revenue                                                                        |   |                         | (68     | ) |   |   | (3 | ) |   |   | (49 | ) |
| Litigation-related      liabilities                                                          |   |                         | 51      |   |   |   | 51 |   |   |   | 51 |   |
| Excess      tax benefit from stock-based compensation arrangements                           |   |                         | (193    | ) |   |   | (179 | ) |   |   | – |   |
| Tax      benefit from employee stock options                                                 |   |                         | – |   |   |   | – |   |   |   | 632 |   |
| Gain      on sales of securities available-for-sale and other                                |   |                         | (27     | ) |   |   | (94 | ) |   |   | (12 | ) |
| Loss      on sales and write-downs of securities available-for-sale and      other           |   |                         | 58      |   |   |   | 5 |   |   |   | 13 |   |
| Loss      on fixed asset dispositions                                                        |   |                         | 32      |   |   |   | 23 |   |   |   | 10 |   |
| Changes      in assets and liabilities:                                                      |   |                         |    |   |   |   |   |   |   |   |   |   |
| Receivables      and other assets                                                            |   |                         | 38      |   |   |   | (628 | ) |   |   | (128 | ) |
| Inventories                                                                                  |   |                         | (310    | ) |   |   | (408 | ) |   |   | (112 | ) |
| Investments      in trading securities                                                       |   |                         | (360    | ) |   |   | (29 | ) |   |   | (17 | ) |
| Accounts      payable, other accrued liabilities, and other long-term      liabilities       |   |                         | 623     |   |   |   | 683 |   |   |   | 436 |   |
| Net      cash provided by operating activities                                               |   |                         | 3,230   |   |   |   | 2,138 |   |   |   | 2,363 |   |
| Cash      flows from investing activities                                                    |   |                         |    |   |   |   |   |   |   |   |   |   |
| Purchases      of securities available-for-sale                                              |   |                         | (1,152  | ) |   |   | (1,036 | ) |   |   | (1,000 | ) |
| Proceeds      from sales of securities available-for-sale                                    |   |                         | 651     |   |   |   | 256 |   |   |   | 148 |   |
| Proceeds      from maturities of securities available-for-sale                               |   |                         | 486     |   |   |   | 357 |   |   |   | 574 |   |
| Capital      expenditures                                                                    |   |                         | (977    | ) |   |   | (1,214 | ) |   |   | (1,400 | ) |
| Change      in other intangible and long-term assets                                         |   |                         | (40     | ) |   |   | 9 |   |   |   | (45 | ) |
| Acquisition      and related costs, net                                                      |   |                         | (833    | ) |   |   | – |   |   |   | – |   |
| Transfer      to restricted cash, net                                                        |   |                         | – |   |   |   | (53 | ) |   |   | (53 | ) |
| Net      cash used in investing activities                                                   |   |                         | (1,865  | ) |   |   | (1,681 | ) |   |   | (1,776 | ) |
| Cash      flows from financing activities                                                    |   |                         |    |   |   |   |   |   |   |   |   |   |
| Stock      issuances                                                                         |   |                         | 452     |   |   |   | 385 |   |   |   | 821 |   |
| Stock      repurchases and prepaid share repurchase deposits                                 |   |                         | (1,345  | ) |   |   | (996 | ) |   |   | (2,016 | ) |
| Excess      tax benefit from stock-based compensation arrangements                           |   |                         | 193     |   |   |   | 179 |   |   |   | – |   |
| Proceeds      from issuance of commercial paper                                              |   |                         | 599     |   |   |   | – |   |   |   | – |   |
| Repayment      of long-term debt and noncontrolling interest                                 |   |                         | – |   |   |   | – |   |   |   | (425 | ) |
| Proceeds      from issuance of long-term debt                                                |   |                         | – |   |   |   | – |   |   |   | 1,988 |   |
| Net      cash (used in) provided by financing activities                                     |   |                         | (101    | ) |   |   | (432 | ) |   |   | 368 |   |
| Net      increase in cash and cash equivalents                                               |   |                         | 1,264   |   |   |   | 25 |   |   |   | 955 |   |
| Cash      and cash equivalents at beginning of year                                          |   |                         | 1,250   |   |   |   | 1,225 |   |   |   | 270 |   |
| Cash      and cash equivalents at end of year                                                |   | $                            | 2,514   |   |   | $ | 1,250 |   |   | $ | 1,225 |   |
| Supplemental      cash flow data                                                             |   |                         |    |   |   |   |   |   |   |   |   |   |
| Cash      paid during the year for:                                                          |   |                         |    |   |   |   |   |   |   |   |   |   |
| Interest                                                                                     |   | $                            | 60      |   |   | $ | 68 |   |   | $ | 8 |   |
| Income      taxes                                                                            |   |                         | 1,673   |   |   |   | 1,038 |   |   |   | 312 |   |
| Non-cash      investing and financing activities                                             |   |                         |    |   |   |   |   |   |   |   |   |   |
| Capitalization      of construction in progress related to financing lease      transactions |   |                         | 203     |   |   |   | 128 |   |   |   | 94 |   |
| Sale      of subsidiary in exchange for note receivable                                      |   |                         | – |   |   |   | 135 |   |   |   | – |   |
| Exchange      of XOMA note receivable for a prepaid royalty and other long-term      asset   |   |                         | – |   |   |   | – |   |   |   | 29 |   |

----

|                                                                                                                                                      |   | December      31, |    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|
|                                                                                                                                                      |   | 2007              |    |   | 2006 |   |
| Assets                                                                                                                                                    |   |              |    |   |   |   |
| Current      assets                                                                                                                                       |   |              |    |   |   |   |
| Cash      and cash equivalents                                                                                                                            |   | $                 | 2,514   |   |   | $ | 1,250 |   |
| Short-term      investments                                                                                                                               |   |              | 1,461   |   |   |   | 1,243 |   |
| Restricted      cash and investments                                                                                                                      |   |              | 788     |   |   |   | – |   |
| Accounts      receivable - product sales (net of allowances:2007-$116;      2006-$92; including amounts from related parties:2007-$2;      2006-$57) |   |              | 847     |   |   |   | 965 |   |
| Accounts      receivable - royalties (including amounts from related      parties:2007-$463;      2006-$316)                                         |   |              | 620     |   |   |   | 453 |   |
| Accounts      receivable - other (including amounts from related parties:2007-$233;      2006-$150)                                                       |   |              | 299     |   |   |   | 248 |   |
| Inventories                                                                                                                                               |   |              | 1,493   |   |   |   | 1,178 |   |
| Deferred      tax assets                                                                                                                                  |   |              | 614     |   |   |   | 278 |   |
| Prepaid      expenses and other current assets                                                                                                            |   |              | 117     |   |   |   | 89 |   |
| Total      current assets                                                                                                                                 |   |              | 8,753   |   |   |   | 5,704 |   |
| Long-term      marketable debt and equity securities                                                                                                      |   |              | 2,090   |   |   |   | 1,832 |   |
| Property,      plant and equipment, net                                                                                                                   |   |              | 4,986   |   |   |   | 4,173 |   |
| Goodwill                                                                                                                                                  |   |              | 1,577   |   |   |   | 1,315 |   |
| Other      intangible assets                                                                                                                              |   |              | 1,168   |   |   |   | 476 |   |
| Restricted      cash and investments                                                                                                                      |   |              | – |   |   |   | 788 |   |
| Deferred      tax assets                                                                                                                                  |   |              | – |   |   |   | 183 |   |
| Other      long-term assets                                                                                                                               |   |              | 366     |   |   |   | 371 |   |
| Total      assets                                                                                                                                         |   | $                 | 18,940  |   |   | $ | 14,842 |   |
| Liabilities      and stockholders’ equity                                                                                                           |   |              |    |   |   |   |   |   |
| Current      liabilities                                                                                                                                  |   |              |    |   |   |   |   |   |
| Accounts      payable (including amounts to related parties:2007-$2;      2006-$7)                                                                        |   | $                 | 420     |   |   | $ | 346 |   |
| Commercial      paper                                                                                                                                     |   |              | 599     |   |   |   | – |   |
| Deferred      revenue                                                                                                                                     |   |              | 73      |   |   |   | 62 |   |
| Accrued      litigation                                                                                                                                   |   |              | 776     |   |   |   | – |   |
| Other      accrued liabilities (including amounts to related      parties:2007-$230;      2006-$136)                                                 |   |              | 2,050   |   |   |   | 1,602 |   |
| Total      current liabilities                                                                                                                            |   |              | 3,918   |   |   |   | 2,010 |   |
| Long-term      debt                                                                                                                                       |   |              | 2,402   |   |   |   | 2,204 |   |
| Deferred      revenue                                                                                                                                     |   |              | 418     |   |   |   | 199 |   |
| Accrued      litigation                                                                                                                                   |   |              | – |   |   |   | 726 |   |
| Other      long-term liabilities                                                                                                                          |   |              | 297     |   |   |   | 225 |   |
| Total      liabilities                                                                                                                                    |   |              | 7,035   |   |   |   | 5,364 |   |
| Commitments      and contingencies (Note 8)                                                                                                               |   |              |    |   |   |   |   |   |
| Stockholders’      equity                                                                                                                           |   |              |    |   |   |   |   |   |
| Preferred      stock, $0.02 par value; authorized: 100 shares; none      issued                                                                      |   |              | – |   |   |   | – |   |
| Common      Stock, $0.02 par value; authorized: 3,000 shares;outstanding: 2007-1,052      shares; 2006-1,053 shares                             |   |              | 21      |   |   |   | 21 |   |
| Additional      paid-in capital                                                                                                                           |   |              | 10,695  |   |   |   | 10,091 |   |
| Accumulated      other comprehensive income                                                                                                               |   |              | 197     |   |   |   | 204 |   |
| Retained      earnings (accumulated deficit), since June 30, 1999                                                                                         |   |              | 992     |   |   |   | (838 | ) |
| Total      stockholders’ equity                                                                                                                     |   |              | 11,905  |   |   |   | 9,478 |   |
| Total      liabilities and stockholders’ equity                                                                                                     |   | $                 | 18,940  |   |   | $ | 14,842 |   |

----

|                                                                               |   |              |    |   |    |   |    |         |   |   | Retained      |   |   | Accumulated |    |   |   |   |
|------------------------------------------------------------------------------------|--------|-------------------|---------|--------|---------|--------|---------|--------------|--------|--------|---------------|--------|--------|-------------|---------|--------|--------|--------|
|                                                                               |   |              |    |   |    |   |    | Additional   |   |   | Earnings      |   |   | Other       |    |   |   |   |
|                                                                               |   | Common      Stock |    |   | Paid-in |   |    | (Accumulated |   |   | Comprehensive |   |   |        |    |
|                                                                               |   | Shares            |    |   | Amounts |   |    | Capital      |   |   | Deficit)      |   |   | Income      |    |   | Total  |   |
| Balance      December 31, 2004                                                     |   |              | 1,047   |   |    | $      | 21      |         |   | $      | 8,002         |   |   | $           | (1,532  | )      |   | $      | 291 |   |   | $ | 6,782 |   |
| Comprehensive      income                                                          |   |              |    |   |    |   |    |         |   |   |          |   |   |        |    |   |   |   |   |   |   |   |   |   |
| Net      income                                                                    |   |              | – |   |    |   | – |         |   |   | –       |   |   |        | 1,279   |   |   |   | – |   |   |   | 1,279 |   |
| Decrease      in unrealized gain on securities available-for-sale, net of      tax |   |              | – |   |    |   | – |         |   |   | –       |   |   |        | – |   |   |   | (75 | ) |   |   | (75 | ) |
| Changes      in fair value of cash flow hedges, net of tax                         |   |              | – |   |    |   | – |         |   |   | –       |   |   |        | – |   |   |   | 37 |   |   |   | 37 |   |
| Comprehensive      income                                                          |   |              |    |   |    |   |    |         |   |   |          |   |   |        |    |   |   |   |   |   |   |   | 1,241 |   |
| Issuance      of stock upon exercise of options                                    |   |              | 29      |   |    |   | 1       |         |   |   | 745           |   |   |        | – |   |   |   | – |   |   |   | 746 |   |
| Income      tax benefits realized from employee stock option exercises             |   |              | – |   |    |   | – |         |   |   | 642           |   |   |        | – |   |   |   | – |   |   |   | 642 |   |
| Issuance      of stock under employee stock purchase plan                          |   |              | 2       |   |    |   | – |         |   |   | 75            |   |   |        | – |   |   |   | – |   |   |   | 75 |   |
| Repurchase      of Common Stock                                                    |   |              | (24     | )      |    |   | (1      | )            |   |   | (201          | )      |   |        | (1,814  | )      |   |   | – |   |   |   | (2,016 | ) |
| Balance      December 31, 2005                                                     |   |              | 1,054   |   |    |   | 21      |         |   |   | 9,263         |   |   |        | (2,067  | )      |   |   | 253 |   |   |   | 7,470 |   |
| Comprehensive      income                                                          |   |              |    |   |    |   |    |         |   |   |          |   |   |        |    |   |   |   |   |   |   |   |   |   |
| Net      income                                                                    |   |              | – |   |    |   | – |         |   |   | –       |   |   |        | 2,113   |   |   |   | – |   |   |   | 2,113 |   |
| Decrease      in unrealized gain on securities available-for-sale, net of      tax |   |              | – |   |    |   | – |         |   |   | –       |   |   |        | – |   |   |   | (16 | ) |   |   | (16 | ) |
| Changes      in fair value of cash flow hedges, net of tax                         |   |              | – |   |    |   | – |         |   |   | –       |   |   |        | – |   |   |   | (27 | ) |   |   | (27 | ) |
| Change      in post-retirement benefit obligation, net of tax                      |   |              | – |   |    |   | – |         |   |   | –       |   |   |        | – |   |   |   | (6 | ) |   |   | (6 | ) |
| Comprehensive      income                                                          |   |              |    |   |    |   |    |         |   |   |          |   |   |        |    |   |   |   |   |   |   |   | 2,064 |   |
| Issuance      of stock upon exercise of options                                    |   |              | 9       |   |    |   | – |         |   |   | 288           |   |   |        | – |   |   |   | – |   |   |   | 288 |   |
| Income      tax benefits realized from employee stock option exercises             |   |              | – |   |    |   | – |         |   |   | 179           |   |   |        | – |   |   |   | – |   |   |   | 179 |   |
| Issuance      of stock under employee stock purchase plan                          |   |              | 2       |   |    |   | – |         |   |   | 97            |   |   |        | – |   |   |   | – |   |   |   | 97 |   |
| Stock-based      compensation expense                                              |   |              | – |   |    |   | – |         |   |   | 376           |   |   |        | – |   |   |   | – |   |   |   | 376 |   |
| Repurchase      of Common Stock                                                    |   |              | (12     | )      |    |   | – |         |   |   | (112          | )      |   |        | (884    | )      |   |   | – |   |   |   | (996 | ) |
| Balance      December 31, 2006                                                     |   |              | 1,053   |   |    |   | 21      |         |   |   | 10,091        |   |   |        | (838    | )      |   |   | 204 |   |   |   | 9,478 |   |
| Comprehensive      income                                                          |   |              |    |   |    |   |    |         |   |   |          |   |   |        |    |   |   |   |   |   |   |   |   |   |
| Net      income                                                                    |   |              | – |   |    |   | – |         |   |   | –       |   |   |        | 2,769   |   |   |   | – |   |   |   | 2,769 |   |
| Increase      in unrealized gain on securities available-for-sale, net of      tax |   |              | – |   |    |   | – |         |   |   | –       |   |   |        | – |   |   |   | 5 |   |   |   | 5 |   |
| Changes      in fair value of cash flow hedges, net of tax                         |   |              | – |   |    |   | – |         |   |   | –       |   |   |        | – |   |   |   | (10 | ) |   |   | (10 | ) |
| Change      in post-retirement benefit obligation, net of tax                      |   |              | – |   |    |   | – |         |   |   | –       |   |   |        | – |   |   |   | (2 | ) |   |   | (2 | ) |
| Comprehensive      income                                                          |   |              |    |   |    |   |    |         |   |   |          |   |   |        |    |   |   |   |   |   |   |   | 2,762 |   |
| Issuance      of stock upon exercise of options                                    |   |              | 10      |   |    |   | – |         |   |   | 340           |   |   |        | – |   |   |   | – |   |   |   | 340 |   |
| Income      tax benefits realized from employee stock option exercises             |   |              | – |   |    |   | – |         |   |   | 177           |   |   |        | – |   |   |   | – |   |   |   | 177 |   |
| Issuance      of stock under employee stock purchase plan                          |   |              | 2       |   |    |   | – |         |   |   | 112           |   |   |        | – |   |   |   | – |   |   |   | 112 |   |
| Stock-based      compensation expense                                              |   |              | – |   |    |   | – |         |   |   | 407           |   |   |        | – |   |   |   | – |   |   |   | 407 |   |
| Cumulative      effect of change in accounting principle                           |   |              | – |   |    |   | – |         |   |   | –       |   |   |        | (26     | )      |   |   | – |   |   |   | (26 | ) |
| Repurchase      of Common Stock                                                    |   |              | (13     | )      |    |   | – |         |   |   | (132          | )      |   |        | (913    | )      |   |   | – |   |   |   | (1,045 | ) |
| Prepaid      repurchase of Common Stock                                            |   |              | – |   |    |   | – |         |   |   | (300          | )      |   |        | – |   |   |   | – |   |   |   | (300 | ) |
| Balance      December 31, 2007                                                     |   |              | 1,052   |   |    | $      | 21      |         |   | $      | 10,695        |   |   | $           | 992     |   |   | $      | 197 |   |   | $ | 11,905 |   |

----

| Note      1. | DESCRIPTION      OF BUSINESS |
|--------------|------------------------------|

| Note      2. | SUMMARY      OF SIGNIFICANT ACCOUNTING POLICIES |
|--------------|-------------------------------------------------|

----

----

|   | Ÿ | Nonrefundable      upfront fees, including product opt-ins, for which no further performance      obligations exist, are recognized as revenue on the earlier of when      payments are received or collection isassured. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Nonrefundable      upfront licensing fees, including product opt-ins, and certain guaranteed,      time-based payments that require our continuing involvement in the form of      development, manufacturing or other commercialization efforts by us are      recognized as revenue: |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | ratably      over the development period if development risk is significant,      or |
|--------|--------|--------------------------------------------------------------------------------------|

|   | Ÿ | ratably      over the manufacturing period or estimated product useful life if      development risk has been substantially  eliminated. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Upfront      manufacturing fees are recognized as revenue as the related manufacturing      services are rendered, generally on a straight-line basis over the      performance period of the longer of the manufacturing obligation period or      the expected product life. Manufacturing profit is recognized when the      product is shipped and titlepasses. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Fees      associated with substantive milestones, which are contingent upon future      events for which there is reasonable uncertainty as to their achievement      at the time the agreement was entered into, are recognized as revenue when      these milestones, as defined in the contract, are  achieved. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | We      evaluate whether there is stand-alone value to the customer for the      delivered elements and objective evidence of fair value to allocate      revenue to each element in multiple element agreements. When the delivered      element does not have stand-alone value or there is insufficient evidence      of fair value for the undelivered element(s), we recognize the      consideration for the combined unit of accounting in the same manner as      the revenue is recognized for the final deliverable, which is generally      ratably over the longest period ofinvolvement. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | Ÿ | Rebate      allowances and accruals comprise both direct and indirect rebates. Direct      rebates are contractual price adjustments payable to wholesalers and      specialty pharmacies that purchase products directly from us. Indirect      rebates are contractual price adjustments payable to healthcare providers      and organizations, such as payers, clinics, hospitals, pharmacies, and      group purchasing organizations that do not purchase products directly from      us. Both types of allowances are based on definitive contractual      agreements or legal requirements (such as Medicaid) related to the      dispensing of the product by a pharmacy, clinic, or hospital to a benefit      plan participant. Rebate accruals are recorded in the same period that the      related revenue is recognized, resulting in a reduction to product sales      revenue and the recognition of a contra asset (if due to a wholesaler or      specialty pharmacy) or a liability (if due to a third party, such as a      healthcare provider) as appropriate, which are included in accounts      receivable allowances or other accrued liabilities, respectively. Rebates      are estimated using historical and other data, including patient usage,      customer buying patterns, applicable contractual rebate rates, and      contract performance by the benefit providers. Rebate estimates are      evaluated quarterly and may require adjustments to better align our      estimates with actual results. As part of this evaluation, we review      changes to federal legislation, changes to rebate contracts, changes in      the level of discounts, and changes in product sales trends. Although      rebates are accrued at the time of sale, rebates are typically paid out,      on average, up to six months after thesale. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Healthcare      provider contractual chargebacks are the result of contractual commitments      by us to provide products to healthcare providers at specified prices or      discounts. These contracted healthcare providers include (i) hospitals      that service a disproportionately high share of economically indigent and      Medicaid patients for which they receive little or no reimbursement (i.e.,      Disproportionate Share Hospitals), (ii) government-owned hospitals that      receive discounts, and (iii) hospitals that have contract pricing for      certain products, usually through a group purchasing agreement.      Chargebacks occur when a contracted healthcare provider purchases our      products through an intermediary wholesaler at fixed contract prices that      are lower than the list prices we charge the wholesalers. The wholesaler,      in turn, charges us back for the difference between the price initially      paid by the wholesaler and the contract price paid to the wholesaler by      the healthcare providers. Chargebacks are accrued at the time of sale and      are estimated based on historical trends, which closely approximate actual      results as we generally issue credits within a few weeks of the time of      sale. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Prompt      pay sales discounts are credits granted to wholesalers for remitting      payment on their purchases within contractually defined cash repayment      incentive periods. The contractually defined cash repayment periods are      generally 30 days; however, for newly launched products, we have offered      and we may offer in the future, extended payment terms to wholesalers. In      connection with the launch of Lucentis, we have offered, and continued to      offer, an extended payment terms program to certain wholesalers. Based      upon our experience that it is rare that a wholesaler does not comply with      the contractual terms to earn the prompt pay sales discount, we accrue 100      percent of the prompt pay sales discounts at the time of original      sale. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Wholesaler      and distributor inventory management allowances are credits granted to      wholesalers and distributors for compliance with various contractually      defined inventory management programs. These programs provide monetary      incentives in the form of a credit for wholesalers and distributors to      maintain consistent inventory levels at approximately two to three weeks      of sales depending on the product. These wholesaler inventory management      credits are calculated based on quarterly product purchases multiplied by      a factor to determine the maximum possible credit for a product for the      preceding quarter. Adjustments to reduce the maximum credit are made if      the wholesaler does not meet and/or comply with the contractually defined      metrics. These metrics include data timeliness, completeness and accuracy      and deviations outside of the contracted inventory days on hand for each      product. The maximum credits are accrued at the time of sale, and are      typically granted to wholesaler accounts within 90 days after the      sale. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | Ÿ | Product      return allowances are established in accordance with our returns policy,      which allows buyers to return our products within two months prior to and      six months following product expiration. Most of our products are sold to      our wholesalers with at least six months of dating prior to expiration. As      part of our estimation process, we calculate historical return data on a      production lot basis. Historical rates of return are determined by product      and are adjusted for known or expected changes in the marketplace specific      to each product. In addition, we review expiration dates to determine the      remaining shelf life of each product not yet returned. Although product      return allowances are accrued at the time of sale, the majority of returns      take place up to two years after thesale. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

|                                 | Useful      Lives               |
|--------------------------------------|---------------------------------|
| Buildings                            | 25      years                   |
| Certain      manufacturing equipment | 15      years                   |
| Other      equipment                 | 3      to 8 years               |
| Leasehold      improvements          | length      of applicable lease |

----

----

----

|                                                                                              |   | 2007   |   |   | 2006   |   |   | 2005   |   |
|---------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Numerator:                                                                                        |   |   |   |   |   |   |   |   |   |
| Net      income                                                                                   |   | $      | 2,769  |   |   | $      | 2,113  |   |   | $ | 1,279 |   |
| Denominator:                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted-average      shares outstanding used to compute basic EPS                                |   |   | 1,053  |   |   |   | 1,053  |   |   |   | 1,055 |   |
| Effect      of dilutive stock options                                                             |   |   | 16     |   |   |   | 20     |   |   |   | 26 |   |
| Weighted-average      shares outstanding and dilutive securities used to compute diluted      EPS |   |   | 1,069  |   |   |   | 1,073  |   |   |   | 1,081 |   |

|                                                       |   | 2007   |   |   | 2006   |   |
|------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Net      unrealized gains on securities available-for-sale |   | $      | 219    |   |   | $      | 214 |   |
| Net      unrealized losses on cash flow hedges             |   |   | (14    | )      |   |   | (4 | ) |
| Change      in post-retirement benefit obligation          |   |   | (8     | )      |   |   | (6 | ) |
| Accumulated      other comprehensive income                |   | $      | 197    |   |   | $      | 204 |   |

|                                                                                                                                                                        |   | 2007   |   |   | 2006   |   |   | 2005 |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|------|--------|
| Decrease      in unrealized gains on securities available-for-sale (net of      tax: 2007-$(7); 2006-$(11); 2005-$(49))                                                |   | $      | (10    | )      |   | $      | (13    | )    |   | $ | (74 | ) |
| Reclassification      adjustment for net losses (gains) on securities available-for-sale      included in net income (net of tax: 2007-$10; 2006-$(2);      2005-$(1)) |   |   | 15     |   |   |   | (3     | )    |   |   | (1 | ) |
| (Decrease)      increase in unrealized gains on cash flow hedges (net of      tax: 2007-$(8); 2006-$(12); 2005-$32)                                                    |   |   | (12    | )      |   |   | (18    | )    |   |   | 48 |   |
| Reclassification      adjustment for net (gains) losses on cash flow hedges included in net      income (net of tax: 2007-$2; 2006-$(6); 2005-$(7))                    |   |   | 2      |   |   |   | (9     | )    |   |   | (11 | ) |
| Change      in post-retirement benefit obligation (net of tax: 2007-$(1);      2006-$(4))                                                                                   |   |   | (2     | )      |   |   | (6     | )    |   |   | – |   |
| Other      comprehensive loss                                                                                                                                               |   | $      | (7     | )      |   | $      | (49    | )    |   | $ | (38 | ) |

----

| Note      3. | Employee      Stock-Based Compensation |
|--------------|----------------------------------------|

|                                                                     |   | 2007   |   |   | 2006   |   |
|--------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Cost      of sales                                                       |   | $      | 71     |   |   | $      | – |   |
| Research      and development                                            |   |   | 153    |   |   |   | 140 |   |
| Marketing,      general and administrative                               |   |   | 179    |   |   |   | 169 |   |
| Total      employee stock-based compensation expense                     |   |   | 403    |   |   |   | 309 |   |
| Tax      benefit related to employee stock-based compensation    expense |   |   | (143   | )      |   |   | (127 | ) |
| Net      effect on net income                                            |   | $      | 260    |   |   | $      | 182 |   |
| Effect      on earnings per share:                                       |   |   |   |   |   |   |   |   |
| Basic                                                                    |   | $      | 0.25   |   |   | $      | 0.17 |   |
| Diluted                                                                  |   | $      | 0.24   |   |   | $      | 0.17 |   |

----

|                                                                                                                           |   | 2006   |   |
|--------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
| Net      income as reported                                                                                                    |   | $      | 2,113  |   |
| Deduct: Total      employee stock-based compensation expense includable in cost of sales, net      of related tax effects |   |   | (34    | ) |
| Pro      forma net income                                                                                                      |   | $      | 2,079  |   |
| Earnings      per share:                                                                                                       |   |   |   |   |
| Basic-as      reported                                                                                                         |   | $      | 2.01   |   |
| Basic-pro      forma                                                                                                           |   | $      | 1.97   |   |
|                                                                                                                           |   |   |   |   |
| Diluted-as      reported                                                                                                       |   | $      | 1.97   |   |
| Diluted-pro      forma                                                                                                         |   | $      | 1.94   |   |

|                                                                                                                                                           |   | 2005   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
| Net      income as reported                                                                                                                                    |   | $      | 1,279  |   |
| Deduct: Total      employee stock-based compensation expense determined under the fair value      based method for all awards, net of related tax effects |   |   | (175   | ) |
| Pro      forma net income                                                                                                                                      |   | $      | 1,104  |   |
| Earnings      per share:                                                                                                                                       |   |   |   |   |
| Basic-as      reported                                                                                                                                         |   | $      | 1.21   |   |
| Basic-pro      forma                                                                                                                                           |   | $      | 1.05   |   |
|                                                                                                                                                           |   |   |   |   |
| Diluted-as      reported                                                                                                                                       |   | $      | 1.18   |   |
| Diluted-pro      forma                                                                                                                                         |   | $      | 1.02   |   |

----

|                         |   | 2007   |   |                | 2006   |   |   | 2005                |   |
|------------------------------|--------|--------|--------|---------------------|--------|--------|--------|---------------------|--------|
| Risk-free      interest rate |   |   | 4.3    | %    |   |   | 4.6    | %    |   |   | 4.2 | %    |
| Dividend      yield          |   |   | 0.0    | %    |   |   | 0.0    | %    |   |   | 0.0 | %    |
| Expected      volatility     |   |   | 25.1   | %    |   |   | 27.2   | %    |   |   | 29.3 | %    |
| Expected      term (years)   |   |   | 5.0    |                |   |   | 4.6    |                |   |   | 4.2 |   |

|                   |   |                            |    |   | Options      Outstanding |   |
|------------------------|--------|---------------------------------|---------|--------|--------------------------|--------|
|                   |   | Shares      Available for Grant |    |   | Number      of Shares    |   |   | Weighted-Average      Exercise Price |   |
| December      31, 2004 |   |                            | 102     |   |                     |   | 94 |   |   | $ | 32.32 |   |
| Grants                 |   |                            | (20     | )      |                     |   | 20 |   |   |   | 84.01 |   |
| Exercises              |   |                            | – |   |                     |   | (29 | ) |   |   | 25.88 |   |
| Cancellations          |   |                            | 2       |   |                     |   | (2 | ) |   |   | 42.16 |   |
| December      31, 2005 |   |                            | 84      |   |                     |   | 83 |   |   |   | 46.64 |   |
| Grants                 |   |                            | (17     | )      |                     |   | 17 |   |   |   | 79.85 |   |
| Exercises              |   |                            | – |   |                     |   | (9 | ) |   |   | 30.42 |   |
| Cancellations          |   |                            | 3       |   |                     |   | (3 | ) |   |   | 62.09 |   |
| December      31, 2006 |   |                            | 70      |   |                     |   | 88 |   |   |   | 54.53 |   |
| Grants                 |   |                            | (18     | )      |                     |   | 18 |   |   |   | 79.40 |   |
| Exercises              |   |                            | – |   |                     |   | (10 | ) |   |   | 32.76 |   |
| Cancellations          |   |                            | 4       |   |                     |   | (4 | ) |   |   | 76.45 |   |
| December      31, 2007 |   |                            | 56      |   |                     |   | 92 |   |   | $ | 60.94 |   |

----

|                              |                 |   | Options      Outstanding        |   |   | Options      Exercisable                                      |   |
|-----------------------------------|----------------------|--------|---------------------------------|--------|--------|---------------------------------------------------------------|--------|
| Range      ofExercise      Prices |                 |   | Numberof      SharesOutstanding |   |   | Weighted-AverageRemainingContractual      Life(in      years) |   |   | Weighted-AverageExercise Price |   |   | Numberof      SharesExercisable |   |   | Weighted-AverageRemainingContractual      Life(in      years) |   |   | Weighted-AverageExercise      Price |   |
|                              | $6.27      - $8.89   |   |                            |   | 0.3    |                                                          |   |   | 4.64 |   |   | $ | 7.41 |   |   |   | 0.3 |   |   |   | 4.64 |   |   | $ | 7.41 |   |
|                              | $10.00      - $14.35 |   |                            |   | 8.2    |                                                          |   |   | 3.86 |   |   | $ | 13.68 |   |   |   | 8.2 |   |   |   | 3.86 |   |   | $ | 13.68 |   |
|                              | $15.04      - $22.39 |   |                            |   | 6.1    |                                                          |   |   | 3.33 |   |   | $ | 20.87 |   |   |   | 6.1 |   |   |   | 3.33 |   |   | $ | 20.87 |   |
|                              | $22.88      - $33.00 |   |                            |   | 0.2    |                                                          |   |   | 3.46 |   |   | $ | 26.33 |   |   |   | 0.2 |   |   |   | 3.46 |   |   | $ | 26.33 |   |
|                              | $35.63      - $53.23 |   |                            |   | 26.6   |                                                          |   |   | 5.73 |   |   | $ | 47.05 |   |   |   | 23.6 |   |   |   | 5.67 |   |   | $ | 46.31 |   |
|                              | $53.95      - $75.90 |   |                            |   | 1.7    |                                                          |   |   | 7.90 |   |   | $ | 64.79 |   |   |   | 0.8 |   |   |   | 6.76 |   |   | $ | 59.09 |   |
|                              | $75.99      - $98.80 |   |                            |   | 49.0   |                                                          |   |   | 8.66 |   |   | $ | 81.78 |   |   |   | 14.5 |   |   |   | 8.08 |   |   | $ | 83.79 |   |
|                              |                 |   |                            |   | 92.1   |                                                          |   |   |   |   |   |   |   |   |   |   | 53.7 |   |   |   |   |   |   |   |   |   |

| Note      4. | INVESTMENT      SECURITIES AND FINANCIALINSTRUMENTS |
|--------------|-----------------------------------------------------|

| December 31,      2007                   |   | AmortizedCost |   |   | GrossUnrealizedGains |   |    | GrossUnrealizedLosses |   |   | EstimatedFairValue |   |
|------------------------------------------|--------|---------------|--------|--------|----------------------|--------|---------|-----------------------|--------|--------|--------------------|--------|
| Total      Trading Securities            |   | $             | 984    |   |                 | $      | 30      |                  |   | $      | (13                | )      |   | $ | 1,001 |   |
| Securities      available-for-sale:      |   |          |   |   |                 |   |    |                  |   |   |               |   |   |   |   |   |
| Equity      securities                   |   | $             | 42     |   |                 | $      | 389     |                  |   | $      | (15                | )      |   | $ | 416 |   |
| Preferred      stock                     |   |          | 162    |   |                 |   | 1       |                  |   |   | (24                | )      |   |   | 139 |   |
| Debt      securities maturing:           |   |          |   |   |                 |   |    |                  |   |   |               |   |   |   |   |   |
| within      1 year                       |   |          | 1,171  |   |                 |   | – |                  |   |   | (1                 | )      |   |   | 1,170 |   |
| between      1-5 years                   |   |          | 1,886  |   |                 |   | 15      |                  |   |   | (11                | )      |   |   | 1,890 |   |
| between      5-10 years                  |   |          | 521    |   |                 |   | 12      |                  |   |   | (3                 | )      |   |   | 530 |   |
| Total      securities available-for-sale |   | $             | 3,782  |   |                 | $      | 417     |                  |   | $      | (54                | )      |   | $ | 4,145 |   |

----

| December 31,      2006                   |   | AmortizedCost |   |   | GrossUnrealizedGains |   |    | GrossUnrealizedLosses |   |   | EstimatedFairValue |   |
|------------------------------------------|--------|---------------|--------|--------|----------------------|--------|---------|-----------------------|--------|--------|--------------------|--------|
| Total      Trading Securities            |   | $             | 639    |   |                 | $      | 12      |                  |   | $      | (10                | )      |   | $ | 641 |   |
| Securities      available-for-sale:      |   |          |   |   |                 |   |    |                  |   |   |               |   |   |   |   |   |
| Equity      securities                   |   | $             | 9      |   |                 | $      | 354     |                  |   | $      | (3                 | )      |   | $ | 360 |   |
| Preferred      stock                     |   |          | 226    |   |                 |   | 8       |                  |   |   | (3                 | )      |   |   | 231 |   |
| Debt      securities maturing:           |   |          |   |   |                 |   |    |                  |   |   |               |   |   |   |   |   |
| within      1 year                       |   |          | 1,350  |   |                 |   | – |                  |   |   | (1                 | )      |   |   | 1,349 |   |
| between      1-5 years                   |   |          | 1,491  |   |                 |   | 7       |                  |   |   | (3                 | )      |   |   | 1,495 |   |
| between      5-10 years                  |   |          | 545    |   |                 |   | 4       |                  |   |   | (7                 | )      |   |   | 542 |   |
| Total      securities available-for-sale |   | $             | 3,621  |   |                 | $      | 373     |                  |   | $      | (17                | )      |   | $ | 3,977 |   |

|                   |   | Less      Than 12 Months |   |   | 12      Months or Greater |   |   | Total     |   |
|------------------------|--------|--------------------------|--------|--------|---------------------------|--------|--------|-----------|--------|
| December 31,      2007 |   | FairValue                |   |   | UnrealizedLosses          |   |   | FairValue |   |   | UnrealizedLosses |   |   | FairValue |   |   | UnrealizedLosses |   |
| Equity      securities |   | $                        | 19     |   |                      | $      | (15    | )         |   | $ | – |   |   | $ | – |   |   | $ | 19 |   |   | $ | (15 | ) |
| Preferred      stock   |   |                     | 86     |   |                      |   | (18    | )         |   |   | 24 |   |   |   | (6 | ) |   |   | 110 |   |   |   | (24 | ) |
| Debt      securities   |   |                     | 1,004  |   |                      |   | (12    | )         |   |   | 182 |   |   |   | (3 | ) |   |   | 1,186 |   |   |   | (15 | ) |
| Total                  |   | $                        | 1,109  |   |                      | $      | (45    | )         |   | $ | 206 |   |   | $ | (9 | ) |   | $ | 1,315 |   |   | $ | (54 | ) |

|                   |   | Less      Than 12 Months |   |   | 12      Months or Greater |   |   | Total     |   |
|------------------------|--------|--------------------------|--------|--------|---------------------------|--------|--------|-----------|--------|
| December 31,      2006 |   | FairValue                |   |   | UnrealizedLosses          |   |   | FairValue |   |   | UnrealizedLosses |   |   | FairValue |   |   | UnrealizedLosses |   |
| Equity      securities |   | $                        | 9      |   |                      | $      | (3     | )         |   | $ | – |   |   | $ | – |   |   | $ | 9 |   |   | $ | (3 | ) |
| Preferred      stock   |   |                     | 34     |   |                      |   | (1     | )         |   |   | 53 |   |   |   | (2 | ) |   |   | 87 |   |   |   | (3 | ) |
| Debt      securities   |   |                     | 470    |   |                      |   | (1     | )         |   |   | 490 |   |   |   | (10 | ) |   |   | 960 |   |   |   | (11 | ) |
| Total                  |   | $                        | 513    |   |                      | $      | (5     | )         |   | $ | 543 |   |   | $ | (12 | ) |   | $ | 1,056 |   |   | $ | (17 | ) |

----

| Security                                                       |   | 2007   |   |   | 2006   |   |
|----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Cash                                                           |   | $      | 1,706  |   |   | $      | 495 |   |
| Cash      equivalents                                          |   |   | 808    |   |   |   | 755 |   |
| Total      cash and cash equivalents                           |   | $      | 2,514  |   |   | $      | 1,250 |   |
|                                                           |   |   |   |   |   |   |   |   |
| Trading      securities                                        |   | $      | 1,001  |   |   | $      | 641 |   |
| Securities      available-for-sale maturing within one year    |   |   | 321    |   |   |   | 371 |   |
| Preferred      stock                                           |   |   | 139    |   |   |   | 231 |   |
| Total      short-term investments                              |   | $      | 1,461  |   |   | $      | 1,243 |   |
|                                                           |   |   |   |   |   |   |   |   |
| Securities      available-for-sale maturing after one year     |   | $      | 1,674  |   |   | $      | 1,472 |   |
| Equity      securities                                         |   |   | 416    |   |   |   | 360 |   |
| Total      long-term marketable debt and equity securities     |   | $      | 2,090  |   |   | $      | 1,832 |   |
|                                                           |   |   |   |   |   |   |   |   |
| Cash                                                           |   | $      | 1      |   |   | $      | – |   |
| Securities      available-for-sale maturing within one year    |   |   | 41     |   |   |   | 223 |   |
| Securities      available-for-sale maturing between 1-10 years |   |   | 746    |   |   |   | 565 |   |
| Total      restricted cash and investments                     |   | $      | 788    |   |   | $      | 788 |   |

----

----

|                                    |   | 2007   |    |   | 2006   |   |
|-----------------------------------------|--------|--------|---------|--------|--------|--------|
| Assets:                                 |   |   |    |   |   |   |
| Foreign      exchange options           |   | $      | – |   |   | $      | 1 |   |
| Equity      forwards                    |   |   | 24      |   |   |   | 47 |   |
| Interest      rate swap agreements      |   |   | 6       |   |   |   | – |   |
| Equity      collars                     |   |   | – |   |   |   | 4 |   |
| Liabilities:                            |   |   |    |   |   |   |   |   |
| Foreign      exchange options           |   |   | 14      |   |   |   | – |   |
| Foreign      exchange forward contracts |   |   | 5       |   |   |   | 3 |   |
| Interest      rate swap agreements      |   |   | – |   |   |   | 12 |   |

| Note      5. | CONSOLIDATED      FINANCIAL STATEMENT DETAIL |
|--------------|----------------------------------------------|

|                            |   | 2007   |   |   | 2006   |   |
|---------------------------------|--------|--------|--------|--------|--------|--------|
| Raw      materials and supplies |   | $      | 119    |   |   | $      | 116 |   |
| Work-in-process                 |   |   | 1,062  |   |   |   | 818 |   |
| Finished      goods             |   |   | 312    |   |   |   | 244 |   |
| Total                           |   | $      | 1,493  |   |   | $      | 1,178 |   |

|                                                 |   | 2007   |   |   | 2006   |   |
|------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| At      cost:                                        |   |   |   |   |   |   |
| Land                                                 |   | $      | 418    |   |   | $      | 399 |   |
| Land      improvements                               |   |   | 48     |   |   |   | 38 |   |
| Buildings                                            |   |   | 1,914  |   |   |   | 1,712 |   |
| Equipment                                            |   |   | 2,318  |   |   |   | 1,953 |   |
| Leasehold      improvements                          |   |   | 285    |   |   |   | 146 |   |
| Construction-in-progress                             |   |   | 1,675  |   |   |   | 1,291 |   |
|                                                 |   |   | 6,658  |   |   |   | 5,539 |   |
| Less:      accumulated depreciation and amortization |   |   | 1,672  |   |   |   | 1,366 |   |
| Net      property, plant and equipment               |   | $      | 4,986  |   |   | $      | 4,173 |   |

----

|                                                                                                |   | 2007   |   |   | 2006   |   |
|-----------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Accrued      compensation                                                                           |   | $      | 450    |   |   | $      | 385 |   |
| Accrued      royalties                                                                              |   |   | 270    |   |   |   | 224 |   |
| Accrued      clinical and other studies (including to relatedparties:2007-$106;      2006-$67) |   |   | 357    |   |   |   | 218 |   |
| Accrued      marketing and promotion costs                                                          |   |   | 181    |   |   |   | 155 |   |
| Taxes      payable                                                                                  |   |   | 173    |   |   |   | 258 |   |
| Accrued      collaborations (including to a related party:2007-$50;      2006-$53)             |   |   | 267    |   |   |   | 291 |   |
| Other      (including to related parties:2007-$74;      2006-$16)                                   |   |   | 352    |   |   |   | 218 |   |
| Total      other accrued liabilities                                                                |   | $      | 2,050  |   |   | $      | 1,749 |   |

|                                                         |   | 2007   |   |   | 2006   |   |   | 2005   |   |
|--------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Gains      on sales of biotechnology equity securities, net  |   | $      | 22     |   |   | $      | 93     |   |   | $ | 9 |   |
| Write-downs      of biotechnology debt and equity securities |   |   | (20    | )      |   |   | (4     | )      |   |   | (10 | ) |
| Interest      income                                         |   |   | 270    |   |   |   | 230    |   |   |   | 143 |   |
| Other      miscellaneous income                              |   |   | 1      |   |   |   | 6      |   |   |   | – |   |
| Total      interest and other income (expense), net          |   | $      | 273    |   |   | $      | 325    |   |   | $ | 142 |   |

----

| Note      6. | OTHER      INTANGIBLE ASSETS |
|--------------|------------------------------|

|                              |                            |   | 2007                |   |   | 2006                    |   |
|-----------------------------------|---------------------------------|--------|---------------------|--------|--------|-------------------------|--------|
|                              | WeightedAverageUseful      Life |   | GrossCarryingAmount |   |   | AccumulatedAmortization |   |   | NetCarryingAmount |   |   | GrossCarryingAmount |   |   | AccumulatedAmortization |   |   | NetCarryingAmount |   |
| Developed      product technology | 12      years                   |   | $                   | 1,974  |   |                    | $      | 1,106 |   |   | $ | 868 |   |   | $ | 1,194 |   |   | $ | 1,003 |   |   | $ | 191 |   |
| Core      technology              | 12      years                   |   |                | 478    |   |                    |   | 414 |   |   |   | 64 |   |   |   | 444 |   |   |   | 393 |   |   |   | 51 |   |
| Trade      names                  | 12      years                   |   |                | 144    |   |                    |   | 98 |   |   |   | 46 |   |   |   | 144 |   |   |   | 91 |   |   |   | 53 |   |
| Patents                           | 12      years                   |   |                | 232    |   |                    |   | 94 |   |   |   | 138 |   |   |   | 197 |   |   |   | 78 |   |   |   | 119 |   |
| Other      intangible assets      | 10      years                   |   |                | 99     |   |                    |   | 47 |   |   |   | 52 |   |   |   | 98 |   |   |   | 36 |   |   |   | 62 |   |
| Total                             |                            |   | $                   | 2,927  |   |                    | $      | 1,759 |   |   | $ | 1,168 |   |   | $ | 2,077 |   |   | $ | 1,601 |   |   | $ | 476 |   |

|                                                    |   | 2007   |   |   | 2006   |   |   | 2005   |   |
|---------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Acquisition-related      intangible assets amortization |   | $      | 132    |   |   | $      | 105    |   |   | $ | 123 |   |
| Patents      amortization                               |   |   | 16     |   |   |   | 13     |   |   |   | 11 |   |
| Other      intangible assets amortization               |   |   | 10     |   |   |   | 10     |   |   |   | 10 |   |
| Total      amortization expense                         |   | $      | 158    |   |   | $      | 128    |   |   | $ | 144 |   |

| For the Year Ending      December 31,          |   |   |   |
|------------------------------------------------|--------|--------|--------|
| 2008                                           |   | $      | 198    |   |
| 2009                                           |   |   | 149    |   |
| 2010                                           |   |   | 99     |   |
| 2011                                           |   |   | 97     |   |
| 2012                                           |   |   | 97     |   |
| Thereafter                                     |   |   | 528    |   |
| Total      expected future annual amortization |   | $      | 1,168  |   |

| Note      7. | DEBT |
|--------------|------|

----

| 2010       |   | $      | 500     |   |
|------------|--------|--------|---------|--------|
| 2011       |   |   | – |   |
| Thereafter |   |   | 1,500   |   |
| Total      |   | $      | 2,000   |   |

| Note      8. | LEASES,      COMMITMENTS AND CONTINGENCIES |
|--------------|--------------------------------------------|

----

|                  |   | 2008   |   |   | 2009   |   |   | 2010   |   |   | 2011 |   |   | 2012   |   |   | Thereafter |   |   | Total  |   |
|-----------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|------|--------|--------|--------|--------|--------|------------|--------|--------|--------|--------|
| Operating      leases |   | $      | 26     |   |   | $      | 26     |   |   | $      | 26   |   |   | $      | 24     |   |       | $      | 20     |   |   | $ | 66 |   |   | $ | 188 |   |
| HCP      leases       |   |   | 32     |   |   |   | 36     |   |   |   | 37   |   |   |   | 38     |   |       |   | 40     |   |   |   | 341 |   |   |   | 524 |   |
| Total                 |   | $      | 58     |   |   | $      | 62     |   |   | $      | 63   |   |   | $      | 62     |   |       | $      | 60     |   |   | $ | 407 |   |   | $ | 712 |   |

----

----

----

| Note      9. | RELATIONSHIP      WITH ROCHE HOLDINGS, INC. AND RELATED PARTY  TRANSACTIONS |
|--------------|-----------------------------------------------------------------------------|

|   | Ÿ | Roche’s      option expires in 2015; |
|--------|--------|--------------------------------------------|

|   | Ÿ | Roche      may exercise its option to license our products upon the occurrence of any      of the following: (1) upon the filing of an Investigational New      Drug Application (IND) for a product, (2) completion of the first Phase II      trial for a product or (3) completion of a Phase III trial for that      product, if Roche previously paid us a fee of $10 million to extend      its option on a product; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | If      Roche exercises its option to license a product, it has agreed to      reimburse Genentech for development costs as follows: (1) If      exercise occurs upon the filing of an IND, Roche will pay 50% of      development costs incurred prior to the filing and 50% of development      costs subsequently incurred; (2) If exercise occurs at the completion      of the first Phase II trial, Roche will pay 50% of development costs      incurred through completion of the trial, 75% of development costs      subsequently incurred for the initial indication, and 50% of subsequent      development costs for new indications, formulations or dosing schedules;      (3) If the exercise occurs at the completion of a Phase III trial,      Roche will pay 50% of development costs incurred through completion of      Phase II, 75% of development costs incurred through completion of Phase      III, and 75% of development costs subsequently incurred; and $5 million of      the option extension fee paid by Roche to preserve its right to exercise      its option at the completion of a Phase III trial will be credited against      the total development costs payable to Genentech upon the exercise of the      option; and (4) Each of Genentech and Roche have the right to “opt-out” of      developing an additional indication for a product for which Roche      exercised its option, and would not share the costs or benefits of the      additional indication, but could “opt-back-in” within 30 days of decision      to file for approval of the indication by paying twice what they would      have owed for development of the indication if they had not opted      out; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | We      agreed, in general, to manufacture for and supply to Roche its clinical      requirements of our products at cost, and its commercial requirements at      cost plus a margin of 20%; however, Roche will have the right to      manufacture our products under certain  circumstances; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Roche      has agreed to pay, for each product for which Roche exercises its option      upon the filing of an IND or completion of the first Phase II trial, a      royalty of 12.5% on the first $100 million on its aggregate sales of that      product and thereafter a royalty of 15% on its aggregate sales of that      product in excess of $100 million until the later in each country of the      expiration of our last relevant patent or 25 years from the first      commercial introduction of thatproduct; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Ÿ | Roche      will pay, for each product for which Roche exercises its option after      completion of a Phase III trial, a royalty of 15% on its sales of that      product until the later in each country of the expiration of our last      relevant patent or 25 years from the first commercial introduction of that      product; however, $5 million of any option extension fee paid by Roche      will be credited against royalties payable to us in the first calendar      year of sales by Roche in which aggregate sales of that product exceed      $100 million; and |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | Ÿ | For      certain products for which Genentech is paying a royalty to      Biogen Idec, including Rituxan, Roche shall pay Genentech a royalty      of 20% on sales of such product. Once Genentech is no longer obligated to      pay a royalty to Biogen Idec on sales of such products, Roche shall      then pay Genentech a royalty on sales of 10% on the first $75 million on      its aggregate sales of that product and thereafter a royalty of 8% on its      aggregate sales of that product in excess of $75 million until the later      in each country of the expiration of our last relevant patent or 25 years      from the first commercial introduction of that  product. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                    |   | 2007   |   |   | 2006   |   |   | 2005   |   |
|-------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Product      sales to Roche                                             |   | $      | 768    |   |   | $      | 359    |   |   | $ | 177 |   |
|                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |
| Royalties      earned from Roche                                        |   | $      | 1,206  |   |   | $      | 846    |   |   | $ | 500 |   |
|                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |
| Contract      revenue from Roche                                        |   | $      | 95     |   |   | $      | 125    |   |   | $ | 65 |   |
|                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost      of sales on product sales to Roche                            |   | $      | 422    |   |   | $      | 268    |   |   | $ | 154 |   |
|                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |
| R&D      expenses incurred on joint development projects with Roche |   | $      | 259    |   |   | $      | 213    |   |   | $ | 144 |   |

----

|                                                                          |   | 2007   |   |   | 2006   |   |   | 2005   |   |
|-------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Product      sales to Novartis                                                |   | $      | 10     |   |   | $      | 5      |   |   | $ | 7 |   |
|                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Royalties      earned from Novartis                                           |   | $      | 95     |   |   | $      | 3      |   |   | $ | 1 |   |
|                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Contract      revenue from Novartis                                           |   | $      | 70     |   |   | $      | 40     |   |   | $ | 50 |   |
|                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost      of sales on product sales to Novartis                               |   | $      | 10     |   |   | $      | 4      |   |   | $ | 17 |   |
|                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| R&D      expenses incurred on joint development projects with    Novartis |   | $      | 43     |   |   | $      | 38     |   |   | $ | 39 |   |
|                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Collaboration      profit sharing expense to Novartis                         |   | $      | 185    |   |   | $      | 187    |   |   | $ | 136 |   |

----

| Note      10. | ACQUISITION      OF TANOX, INC. |
|---------------|---------------------------------|

| (In      millions)                                   |   |   |   |
|------------------------------------------------------|--------|--------|--------|
| Assets                                               |   |   |   |
| Cash                                                 |   | $      | 100    |   |
| Investments                                          |   |   | 102    |   |
| Working      capital and other, net                  |   |   | 54     |   |
| In-process      research and development (IPR&D) |   |   | 77     |   |
| Developed      product technology                    |   |   | 780    |   |
| Core      technology                                 |   |   | 34     |   |
| Goodwill                                             |   |   | 261    |   |
| Deferred      revenue                                |   |   | (185   | ) |
| Deferred      tax liability, net                     |   |   | (217   | ) |
| Total      acquisition consideration and gain        |   | $      | 1,006  |   |

| Consideration      and Gain                                     |   |   |   |
|-----------------------------------------------------------------|--------|--------|--------|
| Consideration                                                   |   | $      | 925    |   |
| Transaction      costs                                          |   |   | 8      |   |
| Gain      on settlement of preexisting relationship, net of tax |   |   | 73     |   |
|                                                            |   | $      | 1,006  |   |

----

| Note      11. | CAPITAL      STOCK |
|---------------|--------------------|

----

| Note      12. | INCOME      TAXES |
|---------------|-------------------|

|                            |   | 2007   |   |   | 2006   |   |   | 2005   |   |
|---------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Current:                        |   |   |   |   |   |   |   |   |   |
| Federal                         |   | $      | 1,729  |   |   | $      | 1,306  |   |   | $ | 723 |   |
| State                           |   |   | 162    |   |   |   | 96     |   |   |   | 121 |   |
| Total      current              |   |   | 1,891  |   |   |   | 1,402  |   |   |   | 844 |   |
| Deferred:                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal                         |   |   | (251   | )      |   |   | (155   | )      |   |   | (85 | ) |
| State                           |   |   | 17     |   |   |   | 43     |   |   |   | (25 | ) |
| Total      deferred             |   |   | (234   | )      |   |   | (112   | )      |   |   | (110 | ) |
| Total      income tax provision |   | $      | 1,657  |   |   | $      | 1,290  |   |   | $ | 734 |   |

|                                               |   | 2007   |    |   | 2006   |   |    | 2005   |   |
|----------------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
| Tax      at U.S. statutory rate                    |   |   | 35.0    | %      |   |   | 35.0    | %      |   |   | 35.0 | % |
| Research      and other credits                    |   |   | (2.1    | )      |   |   | (2.3    | )      |   |   | (1.5 | ) |
| In-process      research and development           |   |   | 0.6     |   |   |   | – |   |   |   | – |   |
| Prior      years’ items                      |   |   | – |   |   |   | 0.9     |   |   |   | (0.7 | ) |
| Export      sales benefit                          |   |   | – |   |   |   | (0.3    | )      |   |   | (0.4 | ) |
| State      taxes                                   |   |   | 4.8     |   |   |   | 5.0     |   |   |   | 5.0 |   |
| Deduction      for qualified production activities |   |   | (1.2    | )      |   |   | (0.7    | )      |   |   | (0.8 | ) |
| Tax-exempt      investment income                  |   |   | (0.2    | )      |   |   | (0.2    | )      |   |   | (0.3 | ) |
| Other                                              |   |   | 0.5     |   |   |   | 0.5     |   |   |   | 0.2 |   |
| Effective      tax rate                            |   |   | 37.4    | %      |   |   | 37.9    | %      |   |   | 36.5 | % |

----

|                                                  |   | 2007   |    |   | 2006   |   |
|-------------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Deferred      tax liabilities:                        |   |   |    |   |   |   |
| Depreciation                                          |   | $      | (147    | )      |   | $      | (156 | ) |
| Unrealized      gain on securities available-for-sale |   |   | (136    | )      |   |   | (144 | ) |
| Intangibles      - Roche transaction                  |   |   | (75     | )      |   |   | (118 | ) |
| Other      intangible assets                          |   |   | (258    | )      |   |   | (48 | ) |
| Other                                                 |   |   | (14     | )      |   |   | (46 | ) |
| Total      deferred tax liabilities                   |   |   | (630    | )      |   |   | (512 | ) |
| Deferred      tax assets:                             |   |   |    |   |   |   |   |   |
| Capitalized      R&D costs                        |   |   | 11      |   |   |   | 14 |   |
| Employee      stock-based compensation costs          |   |   | 217     |   |   |   | 102 |   |
| Expenses      not currently deductible                |   |   | 598     |   |   |   | 492 |   |
| Deferred      revenue                                 |   |   | 125     |   |   |   | 101 |   |
| Investment      basis difference                      |   |   | 204     |   |   |   | 203 |   |
| State      credit carryforwards                       |   |   | – |   |   |   | 56 |   |
| Other                                                 |   |   | 5       |   |   |   | 5 |   |
| Total      deferred tax assets                        |   |   | 1,160   |   |   |   | 973 |   |
| Total      net deferred tax assets                    |   | $      | 530     |   |   | $      | 461 |   |

| Balance      at January 1, 2007                                   |   | $      | 147 |   |
|-------------------------------------------------------------------|--------|--------|-----|--------|
| Additions      based on tax positions related to the current year |   |   | 1   |   |
| Additions      for tax positions of prior years                   |   |   | 5   |   |
| Balance      at December 31, 2007                                 |   | $      | 153 |   |

----

| Note      13. | SEGMENT,      SIGNIFICANT CUSTOMER AND GEOGRAPHICINFORMATION |
|---------------|--------------------------------------------------------------|

| Product      Sales                        |   | 2007   |    |   | 2006   |   |    | 2005   |   |
|-------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
| Net      U.S. Product Sales               |   |   |    |   |   |   |    |   |   |
| Avastin                                   |   | $      | 2,296   |   |   | $      | 1,746   |   |   | $ | 1,133 |   |
| Rituxan                                   |   |   | 2,285   |   |   |   | 2,071   |   |   |   | 1,832 |   |
| Herceptin                                 |   |   | 1,287   |   |   |   | 1,234   |   |   |   | 747 |   |
| Lucentis                                  |   |   | 815     |   |   |   | 380     |   |   |   | – |   |
| Xolair                                    |   |   | 472     |   |   |   | 425     |   |   |   | 320 |   |
| Tarceva                                   |   |   | 417     |   |   |   | 402     |   |   |   | 275 |   |
| Nutropin      products                    |   |   | 371     |   |   |   | 378     |   |   |   | 370 |   |
| Thrombolytics                             |   |   | 268     |   |   |   | 243     |   |   |   | 218 |   |
| Pulmozyme                                 |   |   | 223     |   |   |   | 199     |   |   |   | 186 |   |
| Raptiva                                   |   |   | 107     |   |   |   | 90      |   |   |   | 79 |   |
| Total      U.S. product sales             |   |   | 8,540   |   |   |   | 7,169   |   |   |   | 5,162 |   |
|                                      |   |   |    |   |   |   |    |   |   |   |   |   |
| Net      Product Sales to Collaborators   |   |   |    |   |   |   |    |   |   |   |   |   |
| Avastin                                   |   | $      | 157     |   |   | $      | 107     |   |   | $ | 50 |   |
| Rituxan                                   |   |   | 230     |   |   |   | 181     |   |   |   | 158 |   |
| Herceptin                                 |   |   | 417     |   |   |   | 96      |   |   |   | 17 |   |
| Lucentis                                  |   |   | 10      |   |   |   | 1       |   |   |   | – |   |
| Xolair                                    |   |   | – |   |   |   | 4       |   |   |   | 7 |   |
| Nutropin      products                    |   |   | 12      |   |   |   | 8       |   |   |   | 5 |   |
| Thrombolytics                             |   |   | 20      |   |   |   | 16      |   |   |   | 8 |   |
| Pulmozyme                                 |   |   | 43      |   |   |   | 45      |   |   |   | 35 |   |
| Raptiva                                   |   |   | 12      |   |   |   | 14      |   |   |   | 15 |   |
| Enbrel®                              |   |   | – |   |   |   | – |   |   |   | 31 |   |
| Total      product sales to collaborators |   |   | 903     |   |   |   | 471     |   |   |   | 326 |   |
| Total      product sales                  |   | $      | 9,443   |   |   | $      | 7,640   |   |   | $ | 5,488 |   |

----

|                           |   | 2007   |   |   | 2006   |   |   | 2005   |   |
|--------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Switzerland                    |   | $      | 983    |   |   | $      | 561    |   |   | $ | 320 |   |
| Other      foreign countries   |   |   | 1,327  |   |   |   | 885    |   |   |   | 552 |   |
| Total      net foreign revenue |   | $      | 2,310  |   |   | $      | 1,446  |   |   | $ | 872 |   |

|                                           |   | 2007   |   |   | 2006   |   |   | 2005   |   |
|------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| United      States                             |   | $      | 4,753  |   |   | $      | 4,153  |   |   | $ | 3,349 |   |
| Singapore                                      |   |   | 233    |   |   |   | 20     |   |   |   | – |   |
| Total      property, plant, and equipment, net |   | $      | 4,986  |   |   | $      | 4,173  |   |   | $ | 3,349 |   |

----

|                                 |   | 2007 Quarter Ended(2) |   |
|--------------------------------------|--------|-----------------------|--------|
|                                 |   | December 31      |   |   | September 30 |   |   | June 30 |   |   | March 31 |   |
| Total      operating revenue         |   | $                     | 2,970  |   |   | $ | 2,908 |   |   | $ | 3,004 |   |   | $ | 2,843 |   |
| Product      sales                   |   |                  | 2,349  |   |   |   | 2,321 |   |   |   | 2,443 |   |   |   | 2,329 |   |
| Gross      margin from product sales |   |                  | 2,005  |   |   |   | 1,915 |   |   |   | 2,014 |   |   |   | 1,937 |   |
| Net      income(1)                   |   |                  | 632    |   |   |   | 685 |   |   |   | 747 |   |   |   | 706 |   |
| Earnings      per share:             |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                |   |                  | 0.60   |   |   |   | 0.65 |   |   |   | 0.71 |   |   |   | 0.67 |   |
| Diluted                              |   |                  | 0.59   |   |   |   | 0.64 |   |   |   | 0.70 |   |   |   | 0.66 |   |

|                                 |   | 2006 Quarter Ended(2) |   |
|--------------------------------------|--------|-----------------------|--------|
|                                 |   | December 31      |   |   | September 30 |   |   | June 30 |   |   | March 31 |   |
| Total      operating revenue         |   | $                     | 2,714  |   |   | $ | 2,384 |   |   | $ | 2,199 |   |   | $ | 1,986 |   |
| Product      sales                   |   |                  | 2,244  |   |   |   | 1,941 |   |   |   | 1,810 |   |   |   | 1,644 |   |
| Gross      margin from product sales |   |                  | 1,906  |   |   |   | 1,644 |   |   |   | 1,526 |   |   |   | 1,382 |   |
| Net      income(1)                   |   |                  | 594    |   |   |   | 568 |   |   |   | 531 |   |   |   | 421 |   |
| Earnings      per share:             |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                |   |                  | 0.56   |   |   |   | 0.54 |   |   |   | 0.50 |   |   |   | 0.40 |   |
| Diluted                              |   |                  | 0.55   |   |   |   | 0.53 |   |   |   | 0.49 |   |   |   | 0.39 |   |

| (1) | Net      income in 2007 and 2006 includes $260 million and $182 million, net of      tax, respectively, in employee stock-based compensation expense      related to our adoption of FAS 123R on January 1, 2006. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | The      2007 and 2006 amounts were computed independently for each quarter,      and the sum of the quarters may not total the annual    amounts.                                                                |

| Item 9. | CHANGES      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL      DISCLOSURE |
|---------|------------------------------------------------------------------------------------------------|

| Item 9A. | CONTROLS      AND PROCEDURES |
|----------|------------------------------|

----

----

| Item 9B. | OTHER      INFORMATION |
|----------|------------------------|

----

PART III

| Item      10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE      GOVERNANCE |
|---------------|-------------------------------------------------------------|

| Item      11. | EXECUTIVECOMPENSATION |
|---------------|-----------------------|

| Item      12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND      MANAGEMENT AND RELATED STOCKHOLDERMATTERS |
|---------------|----------------------------------------------------------------------------------------------------|

| Item      13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR      INDEPENDENCE |
|---------------|--------------------------------------------------------------------------------|

| Item      14. | PRINCIPAL ACCOUNTANT FEES AND  SERVICES |
|---------------|-----------------------------------------|

----

PART IV

| Item      15. | EXHIBITS AND FINANCIAL STATEMENT  SCHEDULES |
|---------------|---------------------------------------------|

| Exhibit      No. |          Description                                                                 | Location                                                                                                                                                                                               |
|------------------|-----------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1         | Amended      and Restated Certificate of Incorporation                                         | Filed      as an exhibit to our Current Report on Form 8-K filed with the U. S.      Securities and Exchange Commission (Commission) on July 28, 1999 and      incorporated herein by reference.  |
| 3.2         | Certificate      of Amendment of Amended and Restated Certificate of      Incorporation        | Filed      as an exhibit to our Annual Report on Form 10-K for the year ended      December 31, 2000 filed with      the Commission and incorporated herein byreference.           |
| 3.3         | Certificate      of Amendment of Amended and Restated Certificate of      Incorporation        | Filed      as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended      June 30, 2001 filed with the Commission and incorporated herein by      reference.                       |
| 3.4         | Certificate      of Third Amendment of Amended and Restated Certificate of      Incorporation  | Filed      as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended      June 30, 2004 filed with the Commission and incorporated herein by      reference.                       |
| 3.5         | Bylaws                                                                                         | Filed      as an exhibit to our Annual Report on Form 10-K for the year ended      December 31, 2005 filed with      the Commission and incorporated herein byreference.           |

----

| 4.1   | Form      of Common Stock Certificate                                                                                                                                                                                      | Filed      as an exhibit to Amendment No. 3 to our Registration Statement (No.      333-80601) on Form S-3 filed with the Commission on July 16, 1999 and      incorporated herein by reference.  |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.2   | Indenture,      dated as of July 18, 2005, between the Company and Bank of New York,      as trustee                                                                                                                  | Filed      on a Current Report on Form 8-K with the Commission on July 19, 2005 and      incorporated herein by reference.                                                                        |
| 4.3   | Officers’      Certificate of Genentech, Inc. dated July 18, 2005, including forms      of the Company’s 4.40% Senior Notes due 2010, 4.75 Senior Notes due 2015      and 5.25% Senior Notes due 2035     | Filed      on a Current Report on Form 8-K with the Commission on July 19, 2005 and      incorporated herein by reference.                                                                        |
| 4.4   | Form      of 4.40% Senior Note due 2010                                                                                                                                                                                    | Filed      on a Current Report on Form 8-K with the Commission on July 19, 2005 and      incorporated herein by reference.                                                                        |
| 4.5   | Form      of 4.75% Senior Note due 2015                                                                                                                                                                                    | Filed      on a Current Report on Form 8-K with the Commission on July 19, 2005 and      incorporated herein by reference.                                                                        |
| 4.6   | Form      of 5.25% Senior Note due 2035                                                                                                                                                                                    | Filed      on a Current Report on Form 8-K with the Commission on July 19, 2005 and      incorporated herein by reference.                                                                        |
| 4.7   | Registration      Rights Agreement, dated as of July 18, 2005, among Genentech, Inc.      and Citigroup Global Markets, Inc. and Goldman, Sachs & Co. as      representatives of the initial purchasers           | Filed      on a Current Report on Form 8-K with the Commission on July 19, 2005 and      incorporated herein by reference.                                                                        |
| 10.1  | Form      of Affiliation Agreement, dated as of July 22, 1999, between Genentech and      Roche Holdings, Inc.                                                                                                             | Filed      as an exhibit to Amendment No. 3 to our Registration Statement (No.      333-80601) on Form S-3 filed with the Commission on July 16, 1999 and      incorporated herein by reference.  |
| 10.2  | Amendment      No. 1, dated October 22, 1999, to Affiliation Agreement between Genentech      and Roche Holdings, Inc.                                                                                                     | Filed      as an exhibit to our Annual Report on Form 10-K for the year ended      December 31, 1999 filed with the Commission and incorporated herein by      reference.                         |
| 10.3  | Form      of Amended and Restated Agreement, restated as of July 1, 1999, between      Genentech and F. Hoffmann-La Roche Ltd regarding Commercialization of      Genentech’s Products outside the United States     | Filed      as an exhibit to Amendment No. 3 to our Registration Statement (No.      333-80601) on Form S-3 filed with the Commission on July 16, 1999 and      incorporated herein by reference.  |
| 10.4  | Amendment      dated March 10, 2000, to Amended and Restated Agreement between Genentech      and F. Hoffmann-La Roche Ltd regarding Commercialization of Genentech’s      Products outside the United States        | Filed      as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended      June 30, 2004 filed with the Commission and incorporated herein by      reference.                       |
| 10.5  | Amendment      dated June 26, 2000, to Amended and Restated Agreement between Genentech      and F. Hoffmann-La Roche Ltd regarding Commercialization of Genentech’s      Products outside the United States         | Filed      as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended      June 30, 2004 filed with the Commission and incorporated herein by      reference.                       |
| 10.6  | Third      Amendment dated April 30, 2004, to Amended and Restated Agreement between      Genentech and F. Hoffmann-La Roche Ltd regarding Commercialization of      Genentech’s Products outside the United States  | Filed      as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended      June 30, 2004 filed with the Commission and incorporated herein by      reference.                       |

----

| 10.7   | Form      of Tax Sharing Agreement, dated as of July 22, 1999, between Genentech,      Inc. and Roche Holdings, Inc.                                     | Filed      as an exhibit to Amendment No. 3 to our Registration Statement (No.      333-80601) on Form S-3 filed with the Commission on July 16, 1999 and      incorporated herein by reference.  |
|-------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.8   | Collaborative      Agreement, dated April 13, 2004, among Genentech, F. Hoffmann-La Roche Ltd      and Hoffmann-La Roche Inc.                            | Filed      as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended      June 30, 2004 filed with the Commission and incorporated herein by      reference.                       |
| 10.9   | Genentech,      Inc. Tax Reduction Investment Plan, as amended and restated †                                                                      | Filed      herewith                                                                                                                                                                               |
| 10.10  | Genentech,      Inc. 1990 Stock Option/Stock Incentive Plan, as amended effective October      16, 1996 †                                          | Filed      as an exhibit to our Registration Statement (No. 333-83157) on Form S-8      filed with the Commission on July 19, 1999 and incorporated herein by      reference.                     |
| 10.11  | Genentech,      Inc. 1994 Stock Option Plan, as amended effective October 16, 1996      †                                                          | Filed      as an exhibit to our Registration Statement (No. 333-83157) on Form S-8      filed with the Commission on July 19, 1999 and incorporated herein by      reference.                     |
| 10.12  | Genentech,      Inc. 1996 Stock Option/Stock Incentive Plan, as amended effective October      16, 1996 †                                          | Filed      as an exhibit to our Registration Statement (No. 333-83157) on Form S-8      filed with the Commission on July 19, 1999 and incorporated herein by      reference.                     |
| 10.13  | Genentech,      Inc. 1999 Stock Plan, as amended and restated as of February 13, 2003      †                                                       | Filed      as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended      March 31, 2003 filed with the Commission and incorporated herein by      reference.                      |
| 10.14  | Genentech,      Inc. 1999 Stock Plan, Form of Stock Option Agreement †                                                                             | Filed      as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended      September 30, 2004 filed with the Commission and incorporated herein by      reference.                  |
| 10.15  | Genentech,      Inc. 1999 Stock Plan, Form of Stock Option Agreement (Director Version)      †                                                     | Filed      as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended      September 30, 2004 filed with the Commission and incorporated herein by      reference.                  |
| 10.16  | Genentech,      Inc. 2004 Equity Incentive Plan †                                                                                                  | Filed      as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended      March 31, 2004 filed with the Commission and incorporated herein by      reference.                      |
| 10.17  | Form      of Genentech, Inc. 2004 Equity Incentive Plan Nonqualified Stock Option      Grant Agreement (Employee Version) †                        | Filed      herewith                                                                                                                                                                               |
| 10.18  | Form      of Genentech, Inc. 2004 Equity Incentive Plan Nonqualified Stock Option      Grant Agreement (Director Version) †                        | Filed      on a Current Report on Form 8-K with the Commission on September 26, 2006,      and incorporated herein by reference.                                                                  |
| 10.19  | Genentech,      Inc. Supplemental Plan †                                                                                                           | Filed      on a Current Report on Form 8-K with the Commission on February 24, 2005      and incorporated herein by reference.                                                                    |
| 10.20  | Genentech,      Inc. 1991 Employee Stock Plan, as amended                                                                                                | Filed      on a Current Report on Form 8-K with the Commission on April 25, 2006, and      incorporated herein by reference.                                                                      |
| 10.21  | Bonus      Program †                                                                                                                               | Incorporated      by reference to the description under “Bonus Program” in the Current      Report on Form 8-K filed with the Commission on December 21,      2007.                   |
| 10.22  | Form      of Indemnification Agreement for Directors and Officers †                                                                                | Filed      as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended      March 31, 2005 filed with the Commission and incorporated herein by      reference.                      |
| 10.26  | Master      Lease Agreement dated as of November 1, 2004, between Genentech and Slough      SSF, LLC                                                     | Filed      as an exhibit to our Annual Report on Form 10-K for the year ended      December 31, 2004 filed with the Commission and incorporated herein by      reference.                         |
| 10.27  | First      Amendment to Master Lease Agreement and First Amendment to Building Leases      between Genentech and Slough SSF, LLC, dated October 2, 2006  | Filed      as an exhibit to our Annual Report on Form 10-K for the year ended      December 31, 2006 filed with the Commission and incorporated herein by      reference.                         |

----

| 10.29  | Purchase      Agreement, dated as of July 13, 2005, among Genentech, Inc. and Citigroup      Global Markets, Inc. and Goldman, Sachs & Co. as representatives of      the initial purchasers  | Filed      as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended      October 31, 2005 filed with the Commission and incorporated herein by      reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|-------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.36  | Amended      and Restated Collaboration Agreement between Genentech, Inc. and Idec      Pharmaceuticals Corporation dated as of June 19, 2003 *                                              | Filed      as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended      June 30, 2006, filed with the Commission on August 3, 2006, and      incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.37  | Letter      Amendment dated as of August 21, 2003, to the Amended and Restated      Collaboration Agreement between Genentech, Inc. and Idec Pharmaceuticals      Corporation                     | Filed      as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended      June 30, 2006, filed with the Commission on August 3, 2006, and      incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.38  | Agreement      and Plan of Merger by and among Genentech, Inc., Green Acquisition      Corporation and Tanox, Inc., dated as of November 9, 2006                                                  | Filed      as an exhibit to our Annual Report on Form 10-K for the year ended      December 31, 2006 filed with the Commission and incorporated herein by      reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.39  | Form      of Voting Agreement between Genentech, Inc. and Certain Stockholders of      Tanox, Inc.                                                                                                | Filed      as an exhibit to our Annual Report on Form 10-K for the year ended      December 31, 2006 filed with the Commission and incorporated herein by      reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 23.1   | Consent      of Independent Registered Public Accounting Firm                                                                                                                                     | Filed      herewith                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 24.1   | Power      of Attorney                                                                                                                                                                            | Reference      is made to the signature page.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 28.1   | Description      of the Company’s capital stock                                                                                                                                             | Incorporated      by reference to the description under the heading “Description of Capital      Stock” relating to our Common Stock in the prospectus included in our      Amendment No. 2 to the Registration Statement on Form S-3 (No. 333-88651)      filed with the Commission on October 20, 1999, and the description under      the heading “Description of Capital Stock” relating to the Common Stock in      our final prospectus filed with the Commission on October 21, 1999      pursuant to Rule 424(b)(1) under the Securities Act of 1933, as amended,      including any amendment or report filed for the purpose of updating that      description.  |
| 31.1   | Certification      of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a)      promulgated under the Securities Exchange Act of 1934, as      amended                               | Filed      herewith                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 31.2   | Certification      of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a)      promulgated under the Securities Exchange Act of 1934, as      amended                               | Filed      herewith                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 32.1   | Certifications      of Chief Executive Officer and Chief Financial Officer pursuant to 18      U.S.C. Section 1350, as adopted pursuant to Section 906 of the      Sarbanes-Oxley Act of 2002     | Furnished      herewith                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

|   | *   Pursuant      to a request for confidential treatment, portions of this Exhibit have      been redacted from the publicly filed document and have been furnished      separately to the Securities and Exchange Commission as required by Rule      24b-2 under the Securities Exchange Act of1934. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   |                               |   | GENENTECH,      INC.Registrant |
|--------|------------------------------------|--------|--------------------------------|
|   |                               |   |
|   |                               |   |                           |   |
|   |                               |   |                           |   |
| Date:  |   February      25, 2008 |   | By:                            | /s/      ROBERT E. ANDREATTA |
|   |                               |   |                           | Robert      E. Andreatta |
|   |                               |   |                           | Controller      and Chief Accounting Officer |

| Signature                          |   | Title                                     |   | Date                   |
|------------------------------------|--------|-------------------------------------------|--------|------------------------|
|                               |   |                                      |   |                   |
| Principal      Executive Officer:  |   |                                      |   |                   |
|                               |   |                                      |   |                   |
|                               |   |                                      |   |                   |
| /s/      ARTHUR D. LEVINSON        |   | Chairman      and Chief Executive Officer |   | February      25, 2008 |
| Arthur      D. Levinson            |   |                                      |   |                   |
|                               |   |                                      |   |                   |
|                               |   |                                      |   |                   |
| Principal      Financial Officer:  |   |                                      |   |                   |
|                               |   |                                      |   |                   |
|                               |   |                                      |   |                   |
| /s/      DAVID A. EBERSMAN         |   | Executive      Vice President and         |   | February      25, 2008 |
| David      A. Ebersman             |   | Chief      Financial Officer              |   |                   |
|                               |   |                                      |   |                   |
|                               |   |                                      |   |                   |
| Principal      Accounting Officer: |   |                                      |   |                   |
|                               |   |                                      |   |                   |
|                               |   |                                      |   |                   |
| /s/      ROBERT E. ANDREATTA       |   | Controller      and                       |   | February      25, 2008 |
| Robert      E. Andreatta           |   | Chief      Accounting Officer        |   |                   |

----

| Signature                      |   | Title    |   | Date                   |
|--------------------------------|--------|----------|--------|------------------------|
|                           |   |     |   |                   |
| Directors:                     |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
| /s/      HERBERT W. BOYER      |   | Director |   | February      25, 2008 |
| Herbert      W. Boyer          |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
| /s/      WILLIAM M. BURNS      |   | Director |   | February      25, 2008 |
| William      M. Burns          |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
| /s/      ERICH HUNZIKER        |   | Director |   | February      25, 2008 |
| Erich      Hunziker            |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
| /s/      JONATHAN K.C. KNOWLES |   | Director |   | February      25, 2008 |
| Jonathan      K.C. Knowles     |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
| /s/      DEBRA L. REED         |   | Director |   | February      25, 2008 |
| Debra      L. Reed             |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
| /s/      CHARLES A. SANDERS    |   | Director |   | February      25, 2008 |
| Charles      A. Sanders        |   |     |   |                   |

----

|                                 |   | Balance      atBeginningof      Period |   |   | AdditionCharged      toCost      andExpenses |   |   | Deductions* |   |   | Balance      atEnd      ofPeriod |   |
|--------------------------------------|--------|----------------------------------------|--------|--------|----------------------------------------------|--------|--------|-------------|--------|--------|----------------------------------|--------|
| Accounts      receivable allowances: |   |                                   |   |   |                                         |   |   |        |   |   |                             |   |
| Year      Ended December 31, 2007:   |   | $                                      | 92     |   |                                         | $      | 521    |        |   | $      | (497                             | )      |   | $ | 116 |   |
| Year      Ended December 31, 2006:   |   | $                                      | 84     |   |                                         | $      | 415    |        |   | $      | (407                             | )      |   | $ | 92 |   |
| Year      Ended December 31, 2005:   |   | $                                      | 62     |   |                                         | $      | 307    |        |   | $      | (284                             | )      |   | $ | 84 |   |
| Inventory      reserves:             |   |                                   |   |   |                                         |   |   |        |   |   |                             |   |   |   |   |   |
| Year      Ended December 31, 2007:   |   | $                                      | 71     |   |                                         | $      | 41     |        |   | $      | (50                              | )      |   | $ | 62 |   |
| Year      Ended December 31, 2006:   |   | $                                      | 57     |   |                                         | $      | 50     |        |   | $      | (36                              | )      |   | $ | 71 |   |
| Year      Ended December 31, 2005:   |   | $                                      | 46     |   |                                         | $      | 35     |        |   | $      | (24                              | )      |   | $ | 57 |   |
| Rebate      accruals:                |   |                                   |   |   |                                         |   |   |        |   |   |                             |   |   |   |   |   |
| Year      Ended December 31, 2007:   |   | $                                      | 47     |   |                                         | $      | 144    |        |   | $      | (131                             | )      |   | $ | 60 |   |
| Year      Ended December 31, 2006:   |   | $                                      | 38     |   |                                         | $      | 113    |        |   | $      | (104                             | )      |   | $ | 47 |   |
| Year      Ended December 31, 2005:   |   | $                                      | 35     |   |                                         | $      | 77     |        |   | $      | (74                              | )      |   | $ | 38 |   |

| * | Represents      amounts written off or returned against the allowance or reserves, or      returned against earnings. |
|---|-----------------------------------------------------------------------------------------------------------------------|

----