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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 |
|---|---------------------------------------------------------------------------------------------------------|

| Delaware(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        | Smaller      reporting company o |

| Portions      of the Definitive Proxy Statement with respect to the 2009 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      587,253,150 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          |
|                                        | Overview | 1          |
|                                        | Marketed Products | 1          |
|                                        | Licensed Products | 2          |
|                                        | Products in Development | 3          |
|                                        | Related Party Arrangements | 6          |
|                                        | Distribution and      Commercialization | 6          |
|                                        | Manufacturing and Raw    Materials | 7          |
|                                        | Proprietary Technology—Patents and Trade      Secrets | 7     |
|                                        | Competition | 9          |
|                                        | Government Regulation | 9          |
|                                        | Research and Development | 10          |
|                                        | Human Resources |        10     |
|                                        | Environment |  10          |
|                                        | Available Information | 11          |
| Item 1A                                | Risk Factors |        11     |
| Item 1B                                | Unresolved Staff Comments | 25          |
| Item 2                                 | Properties | 25          |
| Item 3                                 | Legal Proceedings | 26          |
| Item 4                                 | Submission of Matters to a      Vote of Security Holders | 29          |
| Executive Officers of      the Company | 30          |
|                                        |
| PART      II                                |
| Item 5                                 | Market for the      Registrant’s      Common Equity,      Related Stockholder Matters and Issuer Purchases of Equity      Securities | 32          |
| Item 6                                 | Selected      Financial      Data | 34          |
| Item 7                                 | Management’s Discussion and      Analysis of      Financial Condition and Results of Operations | 35          |
| Item 7A                                | Quantitative and Qualitative      Disclosures About Market Risk | 72          |
| Item 8                                 | Financial Statements and      Supplementary Data | 74          |
| Item 9                                 | Changes in and      Disagreements with Accountants on      Accounting and Financial      Disclosure | 117          |
| Item 9A                                | Controls and Procedures | 117          |
| Item 9B                                | Other Information | 119          |
|                                        |
| PART      III                               |
| Item 10                                | Directors, Executive Officers      and Corporate Governance | 120          |
| Item 11                                | Executive Compensation | 120          |
| Item 12                                | Security Ownership of      Certain Beneficial Owners and      Management and Related Stockholder      Matters | 120          |
| Item 13                                | Certain Relationships and      Related Transactions, and Director      Independence | 120          |
| Item 14                                | Principal Accountant      Fees and Services | 120          |
|                                        |
| PART      IV                                |
| Item 15                                | Exhibits and Financial Statement      Schedules | 121          |
|                                        | Exhibit      23.1 |   |
|                                        | Exhibit      31.1 |   |
|                                        | Exhibit      31.2 |   |
|                                        | Exhibit      32.1 |   |
| SIGNATURES                                  | 125          |

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

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| 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.           |
| Omalizumab                      | Xolair                   | Novartis | Worldwide      excluding U.S.(1)        |

| (1) | These      royalties are earned as a result of our 2007 acquisition of Tanox,      Inc. |
|-----|-----------------------------------------------------------------------------------------|

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| Product                   | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|---------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Awaiting      FDA Action  |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Avastin                   | A      Supplemental Biologic License Application (sBLA) was submitted to the FDA      on September 30, 2008 for the use of Avastin in combination with      Interferon alpha-2a for the treatment of patients with advanced renal cell      carcinoma. This product is being developed in collaboration with Roche.      The FDA action date is August 1, 2009.                                                                                                   |
| Avastin                   | An      sBLA was submitted to the FDA on October 31, 2008 for the use of Avastin      as a single agent in previously treated patients with      glioblastoma. This product is being developed in collaboration with      Roche. The FDA action date is May 5, 2009.                                                                                                                                                                                         |
| Rituxan                   | An      sBLA was submitted to the FDA on September 15, 2008 for the treatment of      patients with moderate-to-severe active RA who have had an inadequate      response to disease-modifying anti-rheumatic drugs (DMARDs). This product      is being developed in collaboration with Roche and Biogen Idec. The FDA      action date is July 17, 2009.                                                                                                        |
| Xolair                    | An      sBLA was submitted for pediatric patients (aged 6-12) with asthma on      December 5, 2008. This product is being developed in collaboration with      Novartis. The FDA action date is October 8, 2009.                                                                                                                                                                                                                                                  |
| Preparing      for Filing |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Avastin                   | We      are preparing to submit two additional studies (AVADO and RIBBON I) to the      FDA for the first-line treatment of metastatic HER2-negative BC. The      filings, expected by June 30, 2009, are required as part of the      accelerated approval that we received from the FDA on February 22, 2008.      This product is being developed in collaboration with    Roche.                                                                              |
| Tarceva                   | OSI      Pharmaceuticals, in collaboration with Genentech and Roche, is preparing      to submit a supplemental New Drug Application (sNDA) to the FDA for the      use of Tarceva in first-line maintenance therapy for advanced NSCLC      following initial treatment with platinum-based chemotherapy. This product      is being developed in collaboration with OSI Pharmaceuticals and Roche. We      expect to submit the sNDA in the first half of 2009. |
| Rituxan                   | We      are in discussions with the FDA regarding the submission requirements for      potential sBLAs for the use of Rituxan in combination with fludarabine and      cyclophosphamide chemotherapy in frontline and relapsed CD20-positive      chronic lymphocytic leukemia (CLL). This product is being developed in      collaboration with Roche and BiogenIdec.                                                                                            |

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| Phase      III                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|---------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Ocrelizumab      (2nd Generation anti-CD20) | Ocrelizumab      is being evaluated in RA and for lupus nephritis. This product is being      developed in collaboration with Roche and Biogen Idec(1).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Avastin                                     | Avastin      is being evaluated in adjuvant colon cancer, diffuse large B-cell      lymphoma, first-line advanced gastric cancer, adjuvant HER2-negative BC,      adjuvant lung cancer, first-line ovarian cancer, and hormone refractory      prostate cancer in collaboration with Roche.Avastin      is also being evaluated in gastrointestinal stromal tumors, high-risk      carcinoid cancer, second-line HER2-negative metastatic BC in combination      with several chemotherapy regimens, first-line metastatic BC in      combination with endocrine therapy, and platinum-sensitive relapsed      ovarian cancer.                  |
| Herceptin      +/- Avastin                  | The      combination of Avastin and Herceptin is being evaluated in first-line      metastatic and adjuvant HER2-positive BC. These products are being      developed in collaboration with Roche.                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Avastin      +/- Tarceva                    | We      announced that a Phase III study evaluating Tarceva in combination with      Avastin as maintenance therapy following initial treatment with Avastin      plus chemotherapy in advanced NSCLC met its primary endpoint of      progression-free survival, and was stopped early on the recommendation of      an independent data safety monitoring board after a pre-planned interim      analysis. We are evaluating the submission requirements for a potential      sNDA for the use of Avastin and Tarceva as combination therapy in      first-line NSCLC maintenance. This study was conducted in collaboration      with Roche. |
| Herceptin                                   | Herceptin      is being evaluated for the treatment of patients with early-stage      HER2-positive BC 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-positive 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. This product is being      developed in collaboration with Roche and Biogen Idec.                                                                                                                                                                                                                                                                                                                                                                                                                    |
| Rituxan                                     | Rituxan      is being evaluated for the first-line treatment of patients with      moderate-to-severe active RA in collaboration with Roche and Biogen Idec.      Rituxan is also being evaluated in lupus nephritis and ANCA-associated      vasculitis in collaboration with Biogen Idec.                                                                                                                                                                                                                                                                                                                                                     |
| Tarceva                                     | Tarceva      is being evaluated in adjuvant NSCLC. This product is being developed in      collaboration with OSI Pharmaceuticals and Roche.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| TNKase                                      | TNKase      is being evaluated in the treatment of dysfunctional hemodialysis and      central venous access catheters.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Xolair                                      | A      liquid formulation of Xolair is being evaluated for adult asthma. Xolair      is also being evaluated in patients with asthma that is not controlled      with high-dose inhaled corticosteroids and long–acting beta-agonists.      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 veinocclusion.                                                                                                                                                                                                                                                                                                                                                                                                                                   |

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| Preparing      for Phase III               |                                                                                                                                                                                                                                                                                                                                              |
|--------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Avastin                                    | We      are preparing for Phase III clinical trials in first-line glioblastoma      multiforme. This product is being developed in collaboration with      Roche.                                                                                                                                                                                 |
| Trastuzumab-DM1                            | We      are preparing for Phase III clinical trials in second-line HER2-positive      metastatic BC. This product is being developed in collaboration with      Roche.                                                                                                                                                                            |
| Phase      II                              |                                                                                                                                                                                                                                                                                                                                              |
| Ocrelizumab                                | Ocrelizumab      is being evaluated in relapsing remitting multiple sclerosis. This product      is being developed in collaboration with Roche and Biogen Idec(1).                                                                                                                                                                               |
| GA101                                      | GA101      is being evaluated in hematologic malignancies (relapsed and refractory      NHL and CLL). This product is being developed in collaboration with Roche      and Biogen Idec.                                                                                                                                                           |
| Apo2L/TRAIL                                | Apo2L/TRAIL      is being evaluated in first-line metastatic NSCLC in combination with      chemotherapy and Avastin and in indolent relapsed NHL in combination with      Rituxan. This product is being developed in collaboration with      Amgen.                                                                                             |
| Apomab                                     | Apomab      is being evaluated in first-line metastatic NSCLC in combination with      chemotherapy and Avastin, and in indolent relapsed NHL in combination with      Rituxan.                                                                                                                                                                   |
| Avastin                                    | Avastin      is being evaluated in relapsed multiple myeloma, extensive small cell lung      cancer, non-squamous NSCLC with previously treated brain metastases, and      NSCLC with squamous cell histology. 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 first, second, and third-line 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      Laboratories.                                                                                                                                                                                |
| GDC      0449 (Hedgehog Pathway Inhibitor) | GDC-0449      is being evaluated in first-line metastatic colorectal cancer (CRC) in      combination with chemotherapy and Avastin, as a single agent in ovarian      cancer maintenance therapy, and as a single agent in advanced basal cell      carcinoma. This product is being developed in collaboration with Curis,      Inc. and Roche. |
| Dacetuzumab      (Anti-CD40)               | Dacetuzumab      is being evaluated 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.                                                                                             |
| Anti-IL13                                  | Anti-IL13      is being evaluated in patients with uncontrolledasthma.                                                                                                                                                                                                                                                                            |
| Preparing      for Phase II                |                                                                                                                                                                                                                                                                                                                                              |
| GA101                                      | We      are preparing for a Phase II clinical trial in Rituxan refractory indolent      NHL and in relapsed indolent NHL. This product is being developed in      collaboration with Roche and Biogen Idec.                                                                                                                                       |
| MetMAb                                     | We      are preparing for a Phase II clinical trial of MetMAb and Tarceva as      combination therapy in second- and third-line metastatic      NSCLC.                                                                                                                                                                                            |

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| Xolair                                 | We      are preparing for a Phase II clinical trial in chronic idiopathic      urticaria in collaboration with Novartis.                                                                |
|----------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Pertuzumab                             | We      are preparing for a Phase II clinical trial in second-line metastatic      NSCLC in combination with Tarceva. This product is being developed in      collaboration with Roche. |
| rhuMAb      IFN alpha                  | We      are preparing for a Phase II clinical trial in systemic lupus      erythematosus.                                                                                               |
| 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. A hearing related to the      arbitration began on September 15, 2008 and the hearing was closed on      January 8, 2009. We expect to receive a ruling within six months of the      conclusion of the hearing, i.e., no later than July 2009. See Part I, Item      3, “Legal Proceedings,” of this Form 10-K for further      information. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Product   | Latest-to-Expire      Product-Specific U.S. Patent(s) | Year      of Expiration |
|-----------|-------------------------------------------------------|-------------------------|
| Avastin   | 6,884,8797,169,901                                    | 20172019                |
| Rituxan   | 5,677,1805,736,1377,381,560                           | 201420152016            |
| 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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| 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 FDA; FDA requests for      additional preclinical or clinical data; FDA delays due to staffing or      resource limitations at the agency; analyses of 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, reimbursement issues, or other factors may make the      product uneconomical tocommercialize. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------|

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

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

| Ÿ   | The      number and 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 ready to move into      development or that product candidates will be available for in-licensing      on terms acceptable to us and permitted under anti-trust    laws. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Ÿ   | Decisions      by 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 research and      development, which we may record as an R&D  expense. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Ÿ   | Participation      in a number of collaborative R&D arrangements. In 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. |
|--------------------|-----------------------------------------------------------------|

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| 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. Additionally, we may be unable to maintain      regulatory approval for Raptiva, or we may be subject to other regulatory      requirements or actions that significantly restrict the use of Raptiva,      due to cases of PML in Raptiva patients. On February 19, 2009, the      European Medicines Agency announced that it recommended the suspension of      the marketing authorization for Raptiva from our collaborator,      Merck Serono, and the FDA issued a public health advisory regarding      Raptiva, as discussed in “Management’s Discussion and Analysis of      Financial Condition and Results of Operations” in Part II, Item 7 of this      Form 10-K. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

| Ÿ   | Changes      to manufacturing processes, manufacturing process standards, or cGMP      following approval, or changing interpretations of those      factors. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

| Ÿ   | Product      quality or contamination problems, due to a number of factors including,      but not limited to, accidental or willful 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      supplier or contract manufacturer going out of business or failing to      produce product as contractuallyrequired. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------|

| Ÿ   | Failure      to maintain an adequate state of cGMP  compliance. |
|--------------------|-----------------------------------------------------------------|

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| Ÿ   | Require      the approval of the directors designated by RHI to make any acquisition      that represents 10 percent or more of our assets, net income, or revenue;      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. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 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 10, “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   | 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   | 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 or to make other      contractual payments, the termination of a contract under which we receive      royalties or other revenue, or changes to the terms of such a      contract. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Ÿ   | The      expiration of, or an adverse legal decision or ruling with respect to, our      patents or licensed intellectual property. See “Protecting our proprietary      rights is difficult and costly” and the Cabilly patent litigation and      re-examination discussion in Note 9, “Leases, Commitments, and      Contingencies,” in the Notes to Consolidated Financial Statements in Part      II, Item 8 of this Form 10-K. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Ÿ   | Variations      in Roche’s or other licensees’ sales of their licensed products due to      competition, manufacturing difficulties, licensees’ internal forecasts, or      other factors that affect the sales ofproducts. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Ÿ   | Variations      in the recognition of royalty revenue based on our estimates of our      licensees’ sales, which are difficult to forecast because of the number of      products involved, the availability of licensee sales data, potential      contractual and intellectual property disputes, and the volatility of      foreign exchange rates. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Ÿ   | Fluctuations      in foreign currency exchange rates and the effect of any hedging contracts      that we have entered into under our hedging  policy. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| Ÿ   | Efficacy      data from clinical studies conducted by any party in the U.S. or      internationally showing, or perceived to show, a similar or 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. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

| Ÿ   | Our      distribution strategy, including the termination of, or change in, an      existing arrangement with any major wholesalers that supply our products,      and sales initiatives that we may undertake including product      discounts. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| Ÿ   | The      inability of one or more of our major customers to maintain their ordering      patterns or inventory levels, to efficiently and effectively distribute      our products, or to meet their payment obligations to us on a timely      basis or at all. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Ÿ   | The      inability of patients to afford co-pay costs due to an economic      contraction or recession, increases in co-pay costs, or for any other      reason. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Ÿ   | The      overall competitive environment for our products, as described in “We face      competition” above, factors affecting our royalty and contract revenue and      sales to collaborators, as described in “Our results of operations are      affected by our royalty and contract revenue, and sales to collaborators”      above, and other factors that could affect our products sales as described      in “Other factors could affect our product sales”  above. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

----

| Ÿ   | Changes      in the economy, the credit markets, increased counterparty performance      risks, interest rates, credit ratings, and the liquidity of our      investments, and the effects that such changes or volatility may have on      the value of our interest-bearing or equity  investments. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Ÿ   | Changes      in foreign currency exchange rates, the effect of any hedging contracts      that we have entered into under our policy and the effects that they may      have on our royalty revenue, contract revenue, R&D expenses and      foreign-currency-denominatedinvestments. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

| Ÿ   | The      Roche Tender Offer or any other tender offer or other proposal by Roche to      acquire all of the outstanding shares of our Common Stock not owned by      Roche. In addition, other future developments and announcements      related to the Roche Tender Offer or any other tender offer or other      proposal by Roche to acquire all of the outstanding shares of our Common      Stock not owned by Roche may result in further volatility in the price of      our Common Stock. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 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   | Our      financial results or the guidance we provide relating to our financial      results. |
|--------------------|-----------------------------------------------------------------------------------------------|

| 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 discussed      in Note 9, “Leases, Commitments, and Contingencies,” in the Notes to      Consolidated Financial Statements in Part II, Item 8 of this Form 10-K),      and governmental investigations. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Ÿ   | Regulatory      developments or delays affecting 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   | 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      STAFF COMMENTS |
|---------------|--------------------------------|

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

----

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

----

----

----

| Item      4. | SUBMISSION      OF MATTERS TO A VOTE OF SECURITYHOLDERS |
|--------------|---------------------------------------------------------|

----

| Name                                          | Age      |   | Position                                                              |
|-----------------------------------------------|----------|--------|-----------------------------------------------------------------------|
| Arthur      D. Levinson, Ph.D.*               | 58  |   | Chairman      and Chief Executive Officer                             |
| Susan      D. Desmond-Hellmann, M.D., M.P.H.* | 51  |   | President,      Product Development                                   |
| Ian      T. Clark*                            | 48  |   | Executive      Vice President, Commercial Operations                  |
| David      A. Ebersman*                       | 39  |   | Executive      Vice President and Chief Financial Officer             |
| Stephen      G. Juelsgaard, D.V.M., J.D.*     | 60  |   | Executive      Vice President, Secretary and Chief Compliance Officer |
| Richard      H. Scheller, Ph.D.*              | 55  |   | Executive      Vice President, Research and Chief Scientific Officer  |
| Patrick      Y. Yang, Ph.D.*                  | 60  |   | Executive      Vice President, Product Operations                     |
| Marc      Tessier-Lavigne, Ph.D.              | 49  |   | Executive      Vice President, Research Drug Discovery                |
| Hal      Barron, M.D., F.A.C.C.               | 46  |   | Senior      Vice President, Development, and Chief Medical Officer    |
| Robert      E. Andreatta                      | 47  |   | Vice      President, Controller and Chief Accounting  Officer         |

----

----

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

|             |   | Common      Stock |   |
|------------------|--------|-------------------|--------|
|             |   | 2008              |   |   | 2007 |   |
|             |   | High              |   |   | Low |   |   | High |   |   | Low |   |
| 4th      Quarter |   | $                 | 89.77  |   |   | $ | 69.17 |   |   | $ | 78.61 |   |   | $ | 65.35 |   |
| 3rd      Quarter |   |              | 99.14  |   |   |   | 75.01 |   |   |   | 80.57 |   |   |   | 71.43 |   |
| 2nd      Quarter |   |              | 82.00  |   |   |   | 66.80 |   |   |   | 83.65 |   |   |   | 72.31 |   |
| 1st      Quarter |   |              | 82.20  |   |   |   | 65.60 |   |   |   | 89.73 |   |   |   | 80.12 |   |

----

|                                   |   | Base      Period |   |   | Years      Ending |   |
|----------------------------------------|--------|------------------|--------|--------|-------------------|--------|
|                                   |   | December         |   |   | December          |   |   | December |   |   | December |   |   | December |   |   | December |   |
| Company      / Index                   |   | 2003             |   |   | 2004              |   |   | 2005 |   |   | 2006 |   |   | 2007 |   |   | 2008 |   |
| Genentech,      Inc.                   |   | $                | 100    |   |              | $      | 116.36 |   |   | $ | 197.71 |   |   | $ | 173.41 |   |   | $ | 143.36 |   |   | $ | 177.21 |   |
| S&P      500 Index                 |   |             | 100    |   |              |   | 110.88 |   |   |   | 116.33 |   |   |   | 134.70 |   |   |   | 142.10 |   |   |   | 89.53 |   |
| S&P      500 Pharmaceuticals Index |   |             | 100    |   |              |   | 92.57 |   |   |   | 89.46 |   |   |   | 103.64 |   |   |   | 108.47 |   |   |   | 88.73 |   |
| S&P      500 Biotechnology Index   |   |             | 100    |   |              |   | 107.61 |   |   |   | 127.27 |   |   |   | 123.78 |   |   |   | 119.55 |   |   |   | 131.88 |   |

| (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                    | The      total return on investment (the change in year-end stock price plus      reinvested dividends) assumes $100 invested on December 31, 2003 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, 2008, the Standard & Poor’s 500      Pharmaceuticals Index comprised Abbott Laboratories; Allergan, Inc.;      Bristol-Myers Squibb Company; Forest Laboratories, Inc.; Johnson &      Johnson; King Pharmaceuticals, Inc.; Merck & Co., Inc.; Mylan      Laboratories Inc.; Eli Lilly and Company; Pfizer Inc.;      Schering-Plough Corporation; Watson Pharmaceuticals, Inc.; and Wyeth. At      December 31, 2008, the Standard & Poor’s 500 Biotechnology Index      comprised Amgen Inc.; Biogen Idec Inc.; Celgene Corporation;      Cephalon, Inc.; 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      FINANCIAL DATA |
|--------------|------------------------------|

|                            |   | 2008   |   |      | 2007   |   |   | 2006      |   |   | 2005   |      |   | 2004   |   |
|---------------------------------|--------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|--------|
| Total      operating revenue    |   | $      | 13,418 |      |   | $      | 11,724 |      |   | $      | 9,284  |      |   | $      | 6,633  |   |   | $ | 4,621 |   |
| Product      sales              |   |   | 10,531 |      |   |   | 9,443  |      |   |   | 7,640  |      |   |   | 5,488  |   |   |   | 3,749 |   |
| Royalties                       |   |   | 2,539  |      |   |   | 1,984  |      |   |   | 1,354  |      |   |   | 935    |   |   |   | 641 |   |
| Contract      revenue           |   |   | 348    |      |   |   | 297    |      |   |   | 290    |      |   |   | 210    |   |   |   | 231 |   |
|                            |   |   |   |      |   |   |   |      |   |   |   |      |   |   |   |   |   |   |   |   |
| Net      income                 |   | $      | 3,427  |  (1) |   | $      | 2,769  |  (1) |   | $      | 2,113  |  (1) |   | $      | 1,279  |   |   | $ | 785 |   |
|                            |   |   |   |      |   |   |   |      |   |   |   |      |   |   |   |   |   |   |   |   |
| Basic      earnings per share   |   | $      | 3.25   |      |   | $      | 2.63   |      |   | $      | 2.01   |      |   | $      | 1.21   |   |   | $ | 0.74 |   |
| Diluted      earnings per share |   |   | 3.21   |      |   |   | 2.59   |      |   |   | 1.97   |      |   |   | 1.18   |   |   |   | 0.73 |   |
|                            |   |   |   |      |   |   |   |      |   |   |   |      |   |   |   |   |   |   |   |   |
| Total      assets               |   | $      | 21,787 |      |   | $      | 18,940 |      |   | $      | 14,842 |      |   | $      | 12,147 |   |   | $ | 9,403 |  (2) |
| Long-term      debt             |   |   | 2,329  |  (2) |   |   | 2,402  |  (2) |   |   | 2,204  |  (2) |   |   | 2,083  |  (2) |   |   | 412 |  (2) |
| Stockholders’      equity |   |   | 15,671 |      |   |   | 11,905 |      |   |   | 9,478  |      |   |   | 7,470  |   |   |   | 6,782 |   |

|   | We      have not paid any dividends.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | All      per share amounts reflect the two-for-one stock split that was effected in      2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (1)    | Net      income in 2008, 2007, and 2006 included employee stock-based compensation      costs of $262 million, $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 2008      also included (i) a benefit of $(158) million, net of tax, related to the      net settlement of the City of Hope National Medical Center (COH)      litigation and additional royalties and other amounts owed by us to COH      for third-party product sales and settlement of a third-party patent      litigation that occurred after the 2002 judgment and (ii) $93 million, net      of tax, of charges related to the unsolicited proposal from Roche to      acquire all of the outstanding shares of our Common Stock not owned by      Roche (the Roche Proposal), including costs related to the retention      programs and third-party legal and advisory costs. Net income in 2007 also      included certain items associated with the acquisition of Tanox, including      a charge for in-process research and development expense of $77 million      and a gain pursuant to Emerging Issues Task Force (EITF) Issue No. 04-1,      “Accounting for Preexisting      Business Relationships between the Parties to a Business      Combination” (EITF 04-1), of $73      million, net of tax. |
| (2)    | Long-term      debt in 2008, 2007, 2006, and 2005 included $2 billion related to our debt      issuance in July 2005, and included $306 million in 2008, $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 (HCP, formerly Slough SSF, LLC) and Lonza. Long-term debt in      2008 was reduced by a $200 million financing payment to Lonza related to a      the construction of a manufacturing facility in Singapore. Long-term debt      in 2005 was also reduced by 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. 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.                                                                                                                                  |

----

| 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 and biotechnology companies. The introduction of new      competitive products or follow-on biologics, new information about      existing products, and pricing and distribution 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. We monitor the competitive landscape and      develop strategies in response to new  information. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Ÿ   | Our      long-term business growth depends on our ability to continue to      successfully develop and commercialize important novel therapeutics to      treat unmet medical needs. 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 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. Some of 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 pricing and      reimbursement environment for our products may change in the future and      become more challenging due to, among other reasons, policies of the new      presidential administration or new healthcare legislation passed by      Congress. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Ÿ   | As      the Medicare and Medicaid programs are the largest payers for our      products, rules related to the programs’ 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. In addition, regulations implemented as a result of the Deficit      Reduction Act of 2005, the Medicare, Medicaid, and State Children’s Health      Insurance Program Extension Act of 2007, and the Medicare Improvements for      Patients and Providers Act of 2008 will continue to affect the      reimbursement for our products paid by Medicare, Medicaid, and other      public payers. We consider these rules as we plan our business and as we      work to present our point of view to legislators and    payers. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 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 and loss of royalty payments (for example, royalty      income associated with the Cabilly patent) from licensees. 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 have had, and may      continue to have, an excess of available capacity, which could lead to      idling of a portion of our manufacturing facilities, during which      time we would incur 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,      particularly in light of the Roche Tender Offer or any other tender offer      or other proposal by Roche to acquire all of the outstanding shares of our      Common Stock not owned by Roche, 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 andenvironment. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Ÿ   | Since      September 2008, the financial markets have experienced high volatility and      significant price declines, and the availability of credit has decreased      significantly, making it more difficult for businesses to access capital.      Various macroeconomic factors impacted by the financial markets could      affect our business and the results of our operations. Macroeconomic      factors could affect the ability of patients to pay for co-pay costs.      Interest rates and the ability to access credit markets could affect the      ability of our customers/distributors to purchase, pay for, and      effectively distribute our products. Similarly, these macroeconomic      factors could also affect the ability of our sole-source or single-source      suppliers to remain in business or otherwise supply product; failure by      any of them to remain a going concern could affect our ability to      manufacture products. In addition, if inflation or other factors were to      significantly increase our business costs, it may not be feasible to pass      significant price increases on to our customers due to the process by      which physician reimbursement for our products is calculated by the      government. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

----

| 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. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

----

----

----

|                                                                            |   |   |    |   |   |   |   |   |   |   | Annual      Percentage Change |      |
|---------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|-------------------------------|-----------|
|                                                                            |   | 2008   |    |   | 2007   |   |   | 2006   |   |   |                          | 2008/2007 |   |   |   | 2007/2006 |   |
| Product      sales                                                              |   | $      | 10,531  |   |   | $      | 9,443  |   |   | $      | 7,640                         |      |   |   | 12 | % |   |   | 24 | % |
| Royalties                                                                       |   |   | 2,539   |   |   |   | 1,984  |   |   |   | 1,354                         |      |   |   | 28 |   |   |   | 47 |   |
| Contract      revenue                                                           |   |   | 348     |   |   |   | 297    |   |   |   | 290                           |      |   |   | 17 |   |   |   | 2 |   |
| Total      operating revenue                                                    |   |   | 13,418  |   |   |   | 11,724 |   |   |   | 9,284                         |      |   |   | 14 |   |   |   | 26 |   |
| Cost      of sales                                                              |   |   | 1,744   |   |   |   | 1,571  |   |   |   | 1,181                         |      |   |   | 11 |   |   |   | 33 |   |
| Research      and development                                                   |   |   | 2,800   |   |   |   | 2,446  |   |   |   | 1,773                         |      |   |   | 14 |   |   |   | 38 |   |
| Marketing,      general and administrative                                      |   |   | 2,405   |   |   |   | 2,256  |   |   |   | 2,014                         |      |   |   | 7 |   |   |   | 12 |   |
| Collaboration      profit sharing                                               |   |   | 1,228   |   |   |   | 1,080  |   |   |   | 1,005                         |      |   |   | 14 |   |   |   | 7 |   |
| Write-off      of in-process research and development related to    acquisition |   |   | – |   |   |   | 77     |   |   |   | –                       |      |   |   | (100 | ) |   |   | – |   |
| Gain      on acquisition                                                        |   |   | – |   |   |   | (121   | )      |   |   | –                       |      |   |   | (100 | ) |   |   | – |   |
| Recurring      amortization charges related to redemption and acquisition       |   |   | 172     |   |   |   | 132    |   |   |   | 105                           |      |   |   | 30 |   |   |   | 26 |   |
| Special      items: litigation-related                                     |   |   | (260    | )      |   |   | 54     |   |   |   | 54                            |      |   |   | (581 | ) |   |   | 0 |   |
| Total      costs and expenses                                                   |   |   | 8,089   |   |   |   | 7,495  |   |   |   | 6,132                         |      |   |   | 8 |   |   |   | 22 |   |
|                                                                            |   |   |    |   |   |   |   |   |   |   |                          |      |   |   |   |   |   |   |   |   |
| Operating      income                                                           |   |   | 5,329   |   |   |   | 4,229  |   |   |   | 3,152                         |      |   |   | 26 |   |   |   | 34 |   |
|                                                                            |   |   |    |   |   |   |   |   |   |   |                          |      |   |   |   |   |   |   |   |   |
| Other      income (expense):                                                    |   |   |    |   |   |   |   |   |   |   |                          |      |   |   |   |   |   |   |   |   |
| Interest      and other income, net                                             |   |   | 184     |   |   |   | 273    |   |   |   | 325                           |      |   |   | (33 | ) |   |   | (16 | ) |
| Interest      expense                                                           |   |   | (82     | )      |   |   | (76    | )      |   |   | (74                           | )         |   |   | 8 |   |   |   | 3 |   |
| Total      other income, net                                                    |   |   | 102     |   |   |   | 197    |   |   |   | 251                           |      |   |   | (48 | ) |   |   | (22 | ) |
|                                                                            |   |   |    |   |   |   |   |   |   |   |                          |      |   |   |   |   |   |   |   |   |
| Income      before taxes                                                        |   |   | 5,431   |   |   |   | 4,426  |   |   |   | 3,403                         |      |   |   | 23 |   |   |   | 30 |   |
| Income      tax provision                                                       |   |   | 2,004   |   |   |   | 1,657  |   |   |   | 1,290                         |      |   |   | 21 |   |   |   | 28 |   |
| Net      income                                                                 |   | $      | 3,427   |   |   | $      | 2,769  |   |   | $      | 2,113                         |      |   |   | 24 |   |   |   | 31 |   |
| Earnings      per share:                                                        |   |   |    |   |   |   |   |   |   |   |                          |      |   |   |   |   |   |   |   |   |
| Basic                                                                           |   | $      | 3.25    |   |   | $      | 2.63   |   |   | $      | 2.01                          |      |   |   | 24 |   |   |   | 31 |   |
| Diluted                                                                         |   | $      | 3.21    |   |   | $      | 2.59   |   |   | $      | 1.97                          |      |   |   | 24 |   |   |   | 31 |   |
|                                                                            |   |   |    |   |   |   |   |   |   |   |                          |      |   |   |   |   |   |   |   |   |
| Cost      of sales as a % of product sales                                      |   |   | 17      | %      |   |   | 17     | %      |   |   | 15                            | %         |   |   |   |   |   |   |   |   |
| Research      and development as a % of total operating revenue                 |   |   | 21      |   |   |   | 21     |   |   |   | 19                            |      |   |   |   |   |   |   |   |   |
| Marketing,      general and administrative as a % of total operating    revenue |   |   | 18      |   |   |   | 19     |   |   |   | 22                            |      |   |   |   |   |   |   |   |   |
| Pretax      operating margin                                                    |   |   | 40      |   |   |   | 36     |   |   |   | 34                            |      |   |   |   |   |   |   |   |   |
| Net      income as a % of total operating revenue                               |   |   | 26      |   |   |   | 24     |   |   |   | 23                            |      |   |   |   |   |   |   |   |   |
| Effective      income tax rate                                                  |   |   | 37      |   |   |   | 37     |   |   |   | 38                            |      |   |   |   |   |   |   |   |   |

----

|                                    |   |   |   |   |   |   |   |   |   |   | Annual      Percentage Change |      |
|-----------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------------------------------|-----------|
| Product Sales                           |   | 2008   |   |   | 2007   |   |   | 2006   |   |   |                          | 2008/2007 |   |   |   | 2007/2006 |   |
| Net      U.S. product sales             |   |   |   |   |   |   |   |   |   |   |                          |      |   |   |   |   |   |
| Avastin                                 |   | $      | 2,686  |   |   | $      | 2,296  |   |   | $      | 1,746                         |      |   |   | 17 | % |   |   | 32 | % |
| Rituxan                                 |   |   | 2,587  |   |   |   | 2,285  |   |   |   | 2,071                         |      |   |   | 13 |   |   |   | 10 |   |
| Herceptin                               |   |   | 1,382  |   |   |   | 1,287  |   |   |   | 1,234                         |      |   |   | 7 |   |   |   | 4 |   |
| Lucentis                                |   |   | 875    |   |   |   | 815    |   |   |   | 380                           |      |   |   | 7 |   |   |   | 114 |   |
| Xolair                                  |   |   | 517    |   |   |   | 472    |   |   |   | 425                           |      |   |   | 10 |   |   |   | 11 |   |
| Tarceva                                 |   |   | 457    |   |   |   | 417    |   |   |   | 402                           |      |   |   | 10 |   |   |   | 4 |   |
| Nutropin      products                  |   |   | 358    |   |   |   | 371    |   |   |   | 378                           |      |   |   | (4 | ) |   |   | (2 | ) |
| Thrombolytics                           |   |   | 275    |   |   |   | 268    |   |   |   | 243                           |      |   |   | 3 |   |   |   | 10 |   |
| Pulmozyme                               |   |   | 257    |   |   |   | 223    |   |   |   | 199                           |      |   |   | 15 |   |   |   | 12 |   |
| Raptiva                                 |   |   | 108    |   |   |   | 107    |   |   |   | 90                            |      |   |   | 1 |   |   |   | 19 |   |
| Total      net U.S. product sales       |   |   | 9,503  |   |   |   | 8,540  |   |   |   | 7,169                         |      |   |   | 11 |   |   |   | 19 |   |
| Net      product sales to collaborators |   |   | 1,028  |   |   |   | 903    |   |   |   | 471                           |      |   |   | 14 |   |   |   | 92 |   |
| Total      net product sales            |   | $      | 10,531 |   |   | $      | 9,443  |   |   | $      | 7,640                         |      |   |   | 12 |   |   |   | 24 |   |

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

----

----

----

----

----

----

|                                                                         |   | 2008   |   |   | 2007   |   |
|------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Royalty      revenue                                                         |   | $      | 298    |   |   | $      | 256 |   |
|                                                                         |   |   |   |   |   |   |   |   |
| COH’s      share of royalty revenue                                    |   | $      | 61     |   |   | $      | 50 |   |
|                                                                         |   |   |   |   |   |   |   |   |
| Net      of tax effect of our Cabilly licensing agreements on diluted EPS(1) |   | $      | 0.14   |   |   | $      | 0.12 |   |

| (1) | In      addition, we record royalty expense in our COS for Cabilly-related      payments to COH based on our U.S. product sales. Including the effect of      these COS royalties, the net of tax effect of the Cabilly patent on      diluted EPS was $0.09 and $0.08 in 2008 and 2007,      respectively. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                                            |   |   |   |   |   |   |   |   |   |   | Annual      Percentage Change |      |
|-------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------------------------------|-----------|
|                                            |   | 2008   |   |   | 2007   |   |   | 2006   |   |   |                          | 2008/2007 |   |   |   | 2007/2006 |   |
| U.S.      Rituxan profit sharing expense        |   | $      | 848    |   |   | $      | 730    |   |   | $      | 672                           |      |   |   | 16 | % |   |   | 9 | % |
| U.S.      Tarceva profit sharing expense        |   |   | 191    |   |   |   | 165    |   |   |   | 146                           |      |   |   | 16 |   |   |   | 13 |   |
| Xolair      profit sharing expense              |   |   | 189    |   |   |   | 185    |   |   |   | 187                           |      |   |   | 2 |   |   |   | (1 | ) |
| Total      collaboration profit sharing expense |   | $      | 1,228  |   |   | $      | 1,080  |   |   | $      | 1,005                         |      |   |   | 14 |   |   |   | 7 |   |

----

|                                                                                                                               |   |   |   |   |   |   |   |   |   |   | Annual      Percentage Change |      |
|------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------------------------------|-----------|
|                                                                                                                               |   | 2008   |   |   | 2007   |   |   | 2006   |   |   |                          | 2008/2007 |   |   |   | 2007/2006 |   |
| Product      sales, net                                                                                                            |   | $      | 2,587  |   |   | $      | 2,285  |   |   | $      | 2,071                         |      |   |   | 13 | % |   |   | 10 | % |
| Combined      commercial costs and expenses                                                                                        |   |   | 579    |   |   |   | 552    |   |   |   | 489                           |      |   |   | 5 |   |   |   | 13 |   |
| Combined      co-promotion profits                                                                                                 |   | $      | 2,008  |   |   | $      | 1,733  |   |   | $      | 1,582                         |      |   |   | 16 |   |   |   | 10 |   |
| Amount      due to Biogen Idec for their share of co-promotion profits–included in      collaboration profit sharing expense |   | $      | 848    |   |   | $      | 730    |   |   | $      | 672                           |      |   |   | 16 |   |   |   | 9 |   |

|                                                                                                                     |   |   |   |   |   |   |   |   |   |   | Annual      Percentage Change |      |
|--------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------------------------------|-----------|
|                                                                                                                     |   | 2008   |   |   | 2007   |   |   | 2006   |   |   |                          | 2008/2007 |   |   |   | 2007/2006 |   |
| Contract      revenue from Biogen Idec (R&D reimbursement)                                                           |   | $      | 122    |   |   | $      | 108    |   |   | $      | 79                            |      |   |   | 13 | % |   |   | 37 | % |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |                          |      |   |   |   |   |   |   |   |   |
| Co-promotion      profit sharing expense                                                                                 |   | $      | 848    |   |   | $      | 730    |   |   | $      | 672                           |      |   |   | 16 |   |   |   | 9 |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |                          |      |   |   |   |   |   |   |   |   |
| Royalty      expense on sales of Rituxan outside the U.S. and other patent      costs–included in MG&A expense |   | $      | 294    |   |   | $      | 247    |   |   | $      | 175                           |      |   |   | 19 |   |   |   | 41 |   |

----

----

|                                                         |   |   |   |   |   |   |   |   |   |   | Annual      Percentage Change |      |
|--------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------------------------------|-----------|
|                                                         |   | 2008   |   |   | 2007   |   |   | 2006   |   |   |                          | 2008/2007 |   |   |   | 2007/2006 |   |
| Gains      on sales of biotechnology equity securities, net  |   | $      | 109    |   |   | $      | 22     |   |   | $      | 93                            |      |   |   | 395 | % |   |   | (76 | )      % |
| Write-downs      of biotechnology debt and equity securities |   |   | (16    | )      |   |   | (20    | )      |   |   | (4                            | )         |   |   | (20 | ) |   |   | 400 |   |
| Interest      income                                         |   |   |   |   |   |   |   |   |   |   |                          |      |   |   |   |   |   |   |   |   |
| Investment      income                                       |   |   | 157    |   |   |   | 300    |   |   |   | 230                           |      |   |   | (48 | ) |   |   | 30 |   |
| Impairment      charges                                      |   |   | (67    | )      |   |   | (30    | )      |   |   | –                       |      |   |   | 123 |   |   |   | – |   |
| Interest      expense                                        |   |   | (82    | )      |   |   | (76    | )      |   |   | (74                           | )         |   |   | 8 |   |   |   | 3 |   |
| Other      miscellaneous income                              |   |   | 1      |   |   |   | 1      |   |   |   | 6                             |      |   |   | 0 |   |   |   | (83 | ) |
| Total      other income, net                                 |   | $      | 102    |   |   | $      | 197    |   |   | $      | 251                           |      |   |   | (48 | ) |   |   | (22 | ) |

----

| 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 that      will be appointed by a committee of our independent    directors. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 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      that will be appointed by a committee of our independent      directors. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 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      may exercise its option to license our products upon the occurrence of any      of the following: (1) the filing of the first Investigational New Drug      Application (IND) for a product; (2) the date by which Genentech has      clinical trial data and other information sufficient to enable the first      Phase III trial in the U.S. (Phase II Completion) for a product; or (3)      provided Roche has paid a fee of $10 million (Option Extension Fee) within      a certain time following its decision not to exercise the option in (2)      above, the date by which the first Phase III Trial for a product is      completed and the results are known, available, analyzed and, in      Genentech’s reasonable judgment, enable a U.S. BLA/NDA    filing; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Ÿ   | Roche’s      options expire on October 25, 2015 except that Roche maintains: (1) a      Phase II Completion option for those products for which Genentech has      filed an IND prior to October 25, 2015, but which have not reached Phase      II Completion; and (2) an option at Phase III completion for those      products for which Roche had paid the Option Extension Fee at the Phase II      Completion prior to October 25,2015; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 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 half 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      sharing development costs for an additional indication for a product for      which Roche exercised its option, but could “opt-back-in” within 30 days      of the other party’s 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      licensing 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 that  product; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Ÿ   | Roche      will pay, for each product for which Roche exercises its licensing 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, the second half of the Option Extension Fee paid by      Roche related to a product 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 in Roche’s licensed territory. Once      Genentech is no longer obligated to pay a royalty to Biogen Idec on      sales of such products in each country, 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. During the fourth quarter of      2008, our obligation to pay a royalty to Biogen Idec on sales of Rituxan      ended in certain countries. The shift from the 20% royalty on Rituxan to      the lower 8% to 10% royalty rate will occur in certain countries during      2009 and beyond. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

|                                                                                             |   | 2008   |   |
|--------------------------------------------------------------------------------------------------|--------|--------|--------|
| Retention      plan costs(1)                                                                     |   |   |   |
| Research      and development                                                                    |   | $      | 66     |   |
| Marketing,      general and administrative                                                       |   |   | 69     |   |
| Total      retention plan costs                                                                  |   |   | 135    |   |
| Third-party      legal and advisory costs incurred by us on behalf of the Special      Committee |   |   | 14     |   |
| Other      third-party legal and advisory costs                                                  |   |   | 4      |   |
|          Total retention plan costs and legal and advisory costs                  |   |   | 153    |   |
| Tax      effect related to Roche Proposal-related costs                                          |   |   | (60    | ) |
|          Roche Proposal-related costs, net of tax                                 |   | $      | 93     |   |
|          Effect on earnings per share:                                            |   |   |   |   |
|          Basic                                                                    |   | $      | 0.09   |   |
|          Diluted                                                                  |   | $      | 0.09   |   |

| (1) | In      2008, an additional $27 million of retention plan costs were capitalized      into inventory, which will be recognized as COS as products that were      manufactured after the initiation of the retention plans are estimated to      be sold. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                                                                    |   | 2008   |   |   | 2007   |   |    | 2006   |   |
|-------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|---------|--------|--------|
| Product      sales to Roche                                             |   | $      | 868    |   |   | $      | 768     |   |   | $ | 359 |   |
|                                                                    |   |   |   |   |   |   |    |   |   |   |   |   |
| Royalties      earned from Roche                                        |   | $      | 1,544  |   |   | $      | 1,206   |   |   | $ | 846 |   |
|                                                                    |   |   |   |   |   |   |    |   |   |   |   |   |
| Contract      revenue from Roche                                        |   | $      | 138    |   |   | $      | 95      |   |   | $ | 125 |   |
|                                                                    |   |   |   |   |   |   |    |   |   |   |   |   |
| Cost      of sales on product sales to Roche                            |   | $      | 472    |   |   | $      | 422     |   |   | $ | 268 |   |
|                                                                    |   |   |   |   |   |   |    |   |   |   |   |   |
| R&D      expenses incurred on joint development projects with Roche |   | $      | 336    |   |   | $      | 259     |   |   | $ | 213 |   |
|                                                                    |   |   |   |   |   |   |    |   |   |   |   |   |
| In-licensing      expenses to Roche                                     |   | $      | 145    |   |   |   | – |   |   |   | – |   |

----

|                                                                          |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|-------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Product      sales to Novartis                                                |   | $      | 12     |   |   | $      | 10     |   |   | $ | 5 |   |
|                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Royalties      earned from Novartis                                           |   | $      | 241    |   |   | $      | 95     |   |   | $ | 3 |   |
|                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Contract      revenue from Novartis                                           |   | $      | 60     |   |   | $      | 70     |   |   | $ | 40 |   |
|                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost      of sales on product sales to Novartis                               |   | $      | 9      |   |   | $      | 10     |   |   | $ | 4 |   |
|                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| R&D      expenses incurred on joint development projects with    Novartis |   | $      | 43     |   |   | $      | 43     |   |   | $ | 38 |   |
|                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Collaboration      profit sharing expense to Novartis                         |   | $      | 189    |   |   | $      | 185    |   |   | $ | 187 |   |

----

|                                           |   | December      31, 2008 |    |   | December      31, 2007 |   |
|------------------------------------------------|--------|------------------------|---------|--------|------------------------|--------|
|                                           |   | Assets                 |    |   | Liabilities            |   |   | Assets |   |   | Liabilities |   |
| Cash      and cash equivalents                 |   | $                      | 4,533   |   |                   | $      | – |   |   | $ | 2,514 |   |   | $ | – |   |
| Restricted      cash                           |   |                   | – |   |                   |   | – |   |   |   | 788 |   |   |   | – |   |
| Short-term      investments                    |   |                   | 1,665   |   |                   |   | – |   |   |   | 1,461 |   |   |   | – |   |
| Long-term      marketable debt securities |   |                   | 3,060   |   |                   |   | – |   |   |   | 1,674 |   |   |   | – |   |
| Total      fixed income investment portfolio   |   |                   | 9,258   |   |                   |   | – |   |   |   | 6,437 |   |   |   | – |   |
|                                           |   |                   |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term      marketable equity securities    |   |                   | 287     |   |                   |   | – |   |   |   | 416 |   |   |   | – |   |
| Total      derivative financial instruments    |   |                   | 83      |   |                   |   | 31 |   |   |   | 30 |   |   |   | 19 |   |
| Total                                          |   | $                      | 9,628   |   |                   | $      | 31 |   |   | $ | 6,883 |   |   | $ | 19 |   |

| (In      millions)                                                                                                                                              |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| December      31:                                                                                                                                               |   |   |   |
| Unrestricted      cash, cash equivalents, short-term investments and long-term marketable      debt and equity securities                                       |   | $      | 9,545  |   |   | $      | 6,065  |   |   | $ | 4,325 |   |
| Net      receivable—equity hedge instruments                                                                                                              |   |   | 40     |   |   |   | 24     |   |   |   | 50 |   |
| Total      unrestricted cash, cash equivalents, short-term investments, long-term      marketable debt and equity securities, and equity hedge      instruments |   | $      | 9,585  |   |   | $      | 6,089  |   |   | $ | 4,375 |   |
| Working      capital                                                                                                                                            |   | $      | 6,978  |   |   | $      | 4,835  |   |   | $ | 3,547 |   |
| Current      ratio                                                                                                                                              |   | 3.3:1  |   |   | 2.2:1  |   |   | 2.6:1  |   |
| Year      ended December 31:                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      provided by (used in):                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      activities                                                                                                                                       |   | $      | 3,955  |   |   | $      | 3,230  |   |   | $ | 2,138 |   |
| Investing      activities                                                                                                                                       |   |   | (1,667 | )      |   |   | (1,865 | )      |   |   | (1,681 | ) |
| Financing      activities                                                                                                                                       |   |   | (269   | )      |   |   | (101   | )      |   |   | (432 | ) |
| Capital      expenditures (included in investing activities above)                                                                                              |   |   | (751   | )      |   |   | (977   | )      |   |   | (1,214 | ) |

----

----

----

|                      |   | Total      Number of Shares      Purchased |   |   | Average      Price Paid per      Share |   |
|---------------------------|--------|--------------------------------------------|--------|--------|----------------------------------------|--------|
| March      1–31     |   |                                       | 4.2    |   |                                   | $      | 72.00 |   |
| April      1–30     |   |                                       | 0.9    |   |                                   |   | 74.76 |   |
| May      1–31       |   |                                       | 1.5    |   |                                   |   | 68.77 |   |
| June      1–30      |   |                                       | 1.2    |   |                                   |   | 73.68 |   |
| September      1–30 |   |                                       | 5.5    |   |                                   |   | 90.24 |   |
| October      1–31   |   |                                       | 0.3    |   |                                   |   | 80.80 |   |
| Total                     |   |                                       | 13.6   |   |                                   | $      | 79.62 |   |

----

|                                                  |   | Payments Due by Period      (in      millions) |   |
|-------------------------------------------------------|--------|------------------------------------------------|--------|
| Contractual Obligations                               |   | Total                                          |   |   | 2009 |   |   | 2010      and 2011 |   |   | 2012      and 2013 |   |   | 2014      and Beyond |   |
| Operating      lease and lease-related obligations(1) |   | $                                              | 257    |   |   | $ | 36 |   |   | $ | 70 |   |   | $ | 60 |   |   | $ | 91 |   |
| HCP(2)      (Financing lease)                         |   |                                           | 491    |   |   |   | 36 |   |   |   | 76 |   |   |   | 81 |   |   |   | 298 |   |
| Lonza(3)      (Singapore facility agreement)          |   |                                           | 215    |   |   |   | – |   |   |   | 90 |   |   |   | 125 |   |   |   | – |   |
| Purchase      obligations(4)                          |   |                                           | 1,057  |   |   |   | 702 |   |   |   | 279 |   |   |   | 76 |   |   |   | – |   |
| Long-term      debt(5)                                |   |                                           | 2,000  |   |   |   | – |   |   |   | 500 |   |   |   | – |   |   |   | 1,500 |   |
| Deferred      tax liabilities(6)                      |   |                                           | 46     |   |   |   | 46 |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Other      long-term liabilities(7)                   |   |                                           | 31     |   |   |   | 2 |   |   |   | 4 |   |   |   | 5 |   |   |   | 20 |   |
| Interest      expense on long-term debt(8)            |   |                                           | 1,022  |   |   |   | 85 |   |   |   | 151 |   |   |   | 148 |   |   |   | 638 |   |
| Total                                                 |   | $                                              | 5,119  |   |   | $ | 907 |   |   | $ | 1,170 |   |   | $ | 495 |   |   | $ | 2,547 |   |

| (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 “2010 and 2011” is a manufacturing milestone payment. We also entered      into a loan agreement, subject to certain mutually acceptable conditions      of securitization, with Lonza to advance up to $290 million to Lonza for      the construction of their Singapore facility, and $9 million for a related      land lease option, of which $225 million was advanced as of December 31,      2008. If we exercise our option to purchase the facility, any outstanding      advances may be offset against the purchase price. If we do not exercise      our purchase option, the advances will be offset against supply purchases.      The supply purchases presented in the table above have been offset by the      advances made to Lonza as of December 31, 2008. See further discussion of      the agreements with Lonza above in “Off-Balance Sheet Arrangements” and in      Note 9, “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 with Novartis for the manufacture of Xolair and Lucentis.      See also Note 9, “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 8, “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 13, “Income Taxes,” in the Notes to      Consolidated Financial Statements in Part II, Item 8 of this Form      10-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (7)                                                                                  | Other      long-term liabilities primarily represent our post-retirement benefit      obligations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (8)                                                                                  | 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,      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 |   |
| Grants                      |   |                          | (1      | )      |                     |   | 1 |   |   |   | 79.23 |   |
| Exercises                   |   |                          | – |   |                     |   | (13 | ) |   |   | 44.83 |   |
| Cancellations               |   |                          | 3       |   |                     |   | (3 | ) |   |   | 80.52 |   |
| December 31,      2008 |   |                          | 58      |   |                     |   | 77 |   |   | $ | 63.06 |   |

----

|                           |   | Exercisable |   |   | Unexercisable               |   |   | Total  |   |
|--------------------------------|--------|-------------|--------|--------|-----------------------------|--------|--------|--------|--------|
| As      of December 31, 2008   |   | Shares      |   |   | Wtd.      Avg.ExercisePrice |   |   | Shares |   |   | Wtd.      Avg.ExercisePrice |   |   | Shares |   |   | Wtd.      Avg.ExercisePrice |   |
| In-the-money                   |   |        | 45     |   |                        | $      | 49.01  |   |   |   | 18 |   |   | $ | 79.01 |   |   |   | 63 |   |   | $ | 57.59 |   |
| Out-of-the-money(1)            |   |        | 11     |   |                        |   | 86.28  |   |   |   | 3 |   |   |   | 86.67 |   |   |   | 14 |   |   |   | 86.37 |   |
| Total      options outstanding |   |        | 56     |   |                        |   |   |   |   |   | 21 |   |   |   |   |   |   |   | 77 |   |   |   |   |   |

| (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 $82.91 at the      close of business on December 31,2008. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                 |   | 2008(1) |    |     | 2007(1) |   |   | 2006(1) |   |
|--------------------------------------------------------------------------------------|--------|---------|---------|----------|---------|--------|--------|---------|--------|
| Grants,      net of forfeitures, during the year as % of outstanding    shares       |   |    | (0.20   | )      % |    |   | 1.36   | %       |   |   | 1.43 | % |
| Grants      to Executive Officers during the period as % of outstanding      shares  |   |    | – | %        |    |   | 0.13   | %       |   |   | 0.14 | % |
| Grants      to Executive Officers during the year as % of total options      granted |   |    | – | %        |    |   | 7.41   | %       |   |   | 8.60 | % |

| (1) | Executive      officers as of December 31 for the years  presented. |
|-----|---------------------------------------------------------------------|

----

| Item      7A. | QUANTITATIVE      AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK |
|---------------|----------------------------------------------------------------|

----

----

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

|   | /s/ Ernst      & Young LLP |
|--------|-------------------------------------|

----

|                                                                                                                                                                                                                                                               |   | Year      Ended December 31, |    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|---------|
|                                                                                                                                                                                                                                                               |   | 2008                         |    |   | 2007 |   |   | 2006 |   |
| Revenue                                                                                                                                                                                                                                                            |   |                         |    |   |   |   |   |   |   |
| Product      sales (including amounts from related parties:2008-$880;      2007-$778; 2006-$364)                                                                                                                                                                   |   | $                            | 10,531  |   |   | $ | 9,443 |   |   | $ | 7,640 |   |
| Royalties      (including amounts from related parties:2008-$1,785;      2007-$1,301; 2006-$849)                                                                                                                                                                   |   |                         | 2,539   |   |   |   | 1,984 |   |   |   | 1,354 |   |
| Contract      revenue (including amounts from related parties:2008-$198;      2007-$165; 2006-$165)                                                                                                                                                                |   |                         | 348     |   |   |   | 297 |   |   |   | 290 |   |
| Total      operating revenue                                                                                                                                                                                                                                       |   |                         | 13,418  |   |   |   | 11,724 |   |   |   | 9,284 |   |
|                                                                                                                                                                                                                                                               |   |                         |    |   |   |   |   |   |   |   |   |   |
| Costs      and expenses                                                                                                                                                                                                                                            |   |                         |    |   |   |   |   |   |   |   |   |   |
| Cost      of sales (including amounts for related parties:2008-$481;      2007-$432; 2006-$272)                                                                                                                                                                    |   |                         | 1,744   |   |   |   | 1,571 |   |   |   | 1,181 |   |
| Research      and development (including amounts from programs where related parties      share costs:2008-$379;      2007-$302; 2006-$251)(including      amounts for which reimbursement was recorded as contract revenue:      2008-$227; 2007-$196; 2006-$185) |   |                         | 2,800   |   |   |   | 2,446 |   |   |   | 1,773 |   |
| Marketing,      general and administrative                                                                                                                                                                                                                         |   |                         | 2,405   |   |   |   | 2,256 |   |   |   | 2,014 |   |
| Collaboration      profit sharing (including related party amounts:2008-$189;      2007-$185; 2006-$187)                                                                                                                                                           |   |                         | 1,228   |   |   |   | 1,080 |   |   |   | 1,005 |   |
| Write-off      of in-process research and development related to    acquisition                                                                                                                                                                                    |   |                         | – |   |   |   | 77 |   |   |   | – |   |
| Gain      on acquisition                                                                                                                                                                                                                                           |   |                         | – |   |   |   | (121 | ) |   |   | – |   |
| Recurring      amortization charges related to redemption and acquisition                                                                                                                                                                                          |   |                         | 172     |   |   |   | 132 |   |   |   | 105 |   |
| Special      items: litigation-related                                                                                                                                                                                                                        |   |                         | (260    | ) |   |   | 54 |   |   |   | 54 |   |
| Total      costs and expenses                                                                                                                                                                                                                                      |   |                         | 8,089   |   |   |   | 7,495 |   |   |   | 6,132 |   |
|                                                                                                                                                                                                                                                               |   |                         |    |   |   |   |   |   |   |   |   |   |
| Operating      income                                                                                                                                                                                                                                              |   |                         | 5,329   |   |   |   | 4,229 |   |   |   | 3,152 |   |
| Other      income (expense):                                                                                                                                                                                                                                       |   |                         |    |   |   |   |   |   |   |   |   |   |
| Interest      and other income, net                                                                                                                                                                                                                                |   |                         | 184     |   |   |   | 273 |   |   |   | 325 |   |
| Interest      expense                                                                                                                                                                                                                                              |   |                         | (82     | ) |   |   | (76 | ) |   |   | (74 | ) |
| Total      other income, net                                                                                                                                                                                                                                       |   |                         | 102     |   |   |   | 197 |   |   |   | 251 |   |
| Income      before taxes                                                                                                                                                                                                                                           |   |                         | 5,431   |   |   |   | 4,426 |   |   |   | 3,403 |   |
| Income      tax provision                                                                                                                                                                                                                                          |   |                         | 2,004   |   |   |   | 1,657 |   |   |   | 1,290 |   |
| Net      income                                                                                                                                                                                                                                                    |   | $                            | 3,427   |   |   | $ | 2,769 |   |   | $ | 2,113 |   |
|                                                                                                                                                                                                                                                               |   |                         |    |   |   |   |   |   |   |   |   |   |
| Earnings      per share                                                                                                                                                                                                                                            |   |                         |    |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                                                                                                                                                              |   | $                            | 3.25    |   |   | $ | 2.63 |   |   | $ | 2.01 |   |
| Diluted                                                                                                                                                                                                                                                            |   | $                            | 3.21    |   |   | $ | 2.59 |   |   | $ | 1.97 |   |
|                                                                                                                                                                                                                                                               |   |                         |    |   |   |   |   |   |   |   |   |   |
| Shares      used to compute basic earnings per share                                                                                                                                                                                                               |   |                         | 1,053   |   |   |   | 1,053 |   |   |   | 1,053 |   |
| Shares      used to compute diluted earnings per share                                                                                                                                                                                                             |   |                         | 1,067   |   |   |   | 1,069 |   |   |   | 1,073 |   |

----

|                                                                                         |   | Year      Ended December 31, |    |
|----------------------------------------------------------------------------------------------|--------|------------------------------|---------|
|                                                                                         |   | 2008                         |    |   | 2007 |   |   | 2006 |   |
| Cash      flows from operating activities                                                    |   |                         |    |   |   |   |   |   |   |
| Net      income                                                                              |   | $                            | 3,427   |   |   | $ | 2,769 |   |   | $ | 2,113 |   |
| Adjustments      to reconcile net income to net cash provided by operating      activities:  |   |                         |    |   |   |   |   |   |   |   |   |   |
| Depreciation      and amortization                                                           |   |                         | 592     |   |   |   | 492 |   |   |   | 407 |   |
| Employee      stock-based compensation                                                       |   |                         | 399     |   |   |   | 403 |   |   |   | 309 |   |
| Excess      tax benefit from stock-based compensation arrangements                           |   |                         | (140    | ) |   |   | (193 | ) |   |   | (179 | ) |
| Acquired      in-process research and development                                            |   |                         | – |   |   |   | 77 |   |   |   | – |   |
| Gain      on acquisition                                                                     |   |                         | – |   |   |   | (121 | ) |   |   | – |   |
| Deferred      income taxes                                                                   |   |                         | 90      |   |   |   | (234 | ) |   |   | (112 | ) |
| Deferred      revenue                                                                        |   |                         | 41      |   |   |   | (68 | ) |   |   | (3 | ) |
| Litigation-related      special items                                                        |   |                         | (260    | ) |   |   | 51 |   |   |   | 51 |   |
| Gain      on sales of securities available-for-sale and other                                |   |                         | (124    | ) |   |   | (27 | ) |   |   | (94 | ) |
| Loss      on sales and write-downs of securities available-for-sale and      other           |   |                         | 149     |   |   |   | 58 |   |   |   | 5 |   |
| Loss      on fixed asset dispositions                                                        |   |                         | 26      |   |   |   | 32 |   |   |   | 23 |   |
| Changes      in assets and liabilities:                                                      |   |                         |    |   |   |   |   |   |   |   |   |   |
| Receivables      and other assets                                                            |   |                         | (132    | ) |   |   | 38 |   |   |   | (628 | ) |
| Inventories                                                                                  |   |                         | 209     |   |   |   | (310 | ) |   |   | (408 | ) |
| Investments      in trading securities                                                       |   |                         | 82      |   |   |   | (360 | ) |   |   | (29 | ) |
| Accounts      payable, other accrued liabilities, and other long-term      liabilities       |   |                         | 72      |   |   |   | 623 |   |   |   | 683 |   |
| Accrued      litigation                                                                      |   |                         | (476    | ) |   |   | – |   |   |   | – |   |
| Net      cash provided by operating activities                                               |   |                         | 3,955   |   |   |   | 3,230 |   |   |   | 2,138 |   |
| Cash      flows from investing activities                                                    |   |                         |    |   |   |   |   |   |   |   |   |   |
| Purchases      of securities available-for-sale                                              |   |                         | (2,980  | ) |   |   | (1,152 | ) |   |   | (1,036 | ) |
| Proceeds      from sales of securities available-for-sale                                    |   |                         | 1,770   |   |   |   | 651 |   |   |   | 256 |   |
| Proceeds      from maturities of securities available-for-sale                               |   |                         | 279     |   |   |   | 486 |   |   |   | 357 |   |
| Capital      expenditures                                                                    |   |                         | (751    | ) |   |   | (977 | ) |   |   | (1,214 | ) |
| Change      in other intangible and long-term assets                                         |   |                         | 15      |   |   |   | (40 | ) |   |   | 9 |   |
| Acquisition      and related costs, net                                                      |   |                         | – |   |   |   | (833 | ) |   |   | – |   |
| Transfer      to restricted cash, net                                                        |   |                         | – |   |   |   | – |   |   |   | (53 | ) |
| Net      cash used in investing activities                                                   |   |                         | (1,667  | ) |   |   | (1,865 | ) |   |   | (1,681 | ) |
| Cash      flows from financing activities                                                    |   |                         |    |   |   |   |   |   |   |   |   |   |
| Stock      issuances                                                                         |   |                         | 680     |   |   |   | 452 |   |   |   | 385 |   |
| Stock      repurchases and prepaid share repurchase deposits                                 |   |                         | (780    | ) |   |   | (1,345 | ) |   |   | (996 | ) |
| Excess      tax benefit from stock-based compensation arrangements                           |   |                         | 140     |   |   |   | 193 |   |   |   | 179 |   |
| Proceeds      from (maturities of) commercial paper, net                                     |   |                         | (99     | ) |   |   | 599 |   |   |   | – |   |
| Construction      financing and other related payments                                       |   |                         | (210    | ) |   |   | – |   |   |   | – |   |
| Net      cash used in financing activities                                                   |   |                         | (269    | ) |   |   | (101 | ) |   |   | (432 | ) |
| Net      increase in cash and cash equivalents                                               |   |                         | 2,019   |   |   |   | 1,264 |   |   |   | 25 |   |
| Cash      and cash equivalents at beginning of year                                          |   |                         | 2,514   |   |   |   | 1,250 |   |   |   | 1,225 |   |
| Cash      and cash equivalents at end of year                                                |   | $                            | 4,533   |   |   | $ | 2,514 |   |   | $ | 1,250 |   |
| Supplemental      cash flow data                                                             |   |                         |    |   |   |   |   |   |   |   |   |   |
| Cash      paid during the year for:                                                          |   |                         |    |   |   |   |   |   |   |   |   |   |
| Interest                                                                                     |   | $                            | 74      |   |   | $ | 60 |   |   | $ | 68 |   |
| Income      taxes                                                                            |   |                         | 1,779   |   |   |   | 1,673 |   |   |   | 1,038 |   |
| Non-cash      investing and financing activities                                             |   |                         |    |   |   |   |   |   |   |   |   |   |
| Capitalization      of construction in progress related to financing lease      transactions |   |                         | 117     |   |   |   | 203 |   |   |   | 128 |   |
| Sale      of subsidiary in exchange for note receivable                                      |   |                         | – |   |   |   | – |   |   |   | 135 |   |
| Transfer      of restricted cash to short-term investments                                   |   |                         | 788     |   |   |   | – |   |   |   | – |   |
| Transfer      of trading securities to available-for-sale                                    |   |                         | 122     |   |   |   | – |   |   |   | – |   |

----

|                                                                                                                                                            |   | December      31, |    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|
|                                                                                                                                                            |   | 2008              |    |   | 2007 |   |
| Assets                                                                                                                                                          |   |              |    |   |   |   |
| Current      assets                                                                                                                                             |   |              |    |   |   |   |
| Cash      and cash equivalents                                                                                                                                  |   | $                 | 4,533   |   |   | $ | 2,514 |   |
| Short-term      investments                                                                                                                                     |   |              | 1,665   |   |   |   | 1,461 |   |
| Restricted      cash and investments                                                                                                                            |   |              | – |   |   |   | 788 |   |
| Accounts      receivable—product sales (net of allowances:2008-$157;      2007-$116; including amounts from related parties:2008-$203;      2007-$2) |   |              | 1,039   |   |   |   | 847 |   |
| Accounts      receivable—royalties (including amounts from related      parties:2008-$564;      2007-$463)                                           |   |              | 680     |   |   |   | 620 |   |
| Accounts      receivable—other (including amounts from related parties:2008-$122;      2007-$233)                                                         |   |              | 222     |   |   |   | 299 |   |
| Inventories                                                                                                                                                     |   |              | 1,299   |   |   |   | 1,493 |   |
| Deferred      tax assets                                                                                                                                        |   |              | 500     |   |   |   | 614 |   |
| Prepaid      expenses and other current assets                                                                                                                  |   |              | 135     |   |   |   | 117 |   |
| Total      current assets                                                                                                                                       |   |              | 10,073  |   |   |   | 8,753 |   |
| Long-term      marketable debt and equity securities                                                                                                            |   |              | 3,347   |   |   |   | 2,090 |   |
| Property,      plant and equipment, net                                                                                                                         |   |              | 5,404   |   |   |   | 4,986 |   |
| Goodwill                                                                                                                                                        |   |              | 1,590   |   |   |   | 1,577 |   |
| Other      intangible assets                                                                                                                                    |   |              | 1,008   |   |   |   | 1,168 |   |
| Other      long-term assets                                                                                                                                     |   |              | 365     |   |   |   | 366 |   |
| Total      assets                                                                                                                                               |   | $                 | 21,787  |   |   | $ | 18,940 |   |
| Liabilities      and stockholders’ equity                                                                                                                 |   |              |    |   |   |   |   |   |
| Current      liabilities                                                                                                                                        |   |              |    |   |   |   |   |   |
| Accounts      payable (including amounts to related parties:2008-$23;      2007-$2)                                                                             |   |              | 228     |   |   | $ | 420 |   |
| Commercial      paper                                                                                                                                           |   |              | 500     |   |   |   | 599 |   |
| Deferred      revenue (including amounts from related parties:2008-$81;      2007-$63)                                                                          |   |              | 88      |   |   |   | 73 |   |
| Accrued      litigation                                                                                                                                         |   |              | – |   |   |   | 776 |   |
| Other      accrued liabilities (including amounts to related      parties:2008-$180;      2007-$230)                                                       |   |              | 2,279   |   |   |   | 2,050 |   |
| Total      current liabilities                                                                                                                                  |   |              | 3,095   |   |   |   | 3,918 |   |
| Long-term      debt                                                                                                                                             |   |              | 2,329   |   |   |   | 2,402 |   |
| Deferred      revenue (including amounts from related parties:2008-$380;      2007-$384)                                                                        |   |              | 444     |   |   |   | 418 |   |
| Other      long-term liabilities                                                                                                                                |   |              | 248     |   |   |   | 297 |   |
| Total      liabilities                                                                                                                                          |   |              | 6,116   |   |   |   | 7,035 |   |
| Commitments      and contingencies (Note 9)                                                                                                                     |   |              |    |   |   |   |   |   |
| Stockholders’      equity                                                                                                                                 |   |              |    |   |   |   |   |   |
| Preferred      stock, $0.02 par value; authorized: 100 shares; none      issued                                                                            |   |              | – |   |   |   | – |   |
| Common      Stock, $0.02 par value; authorized: 3,000 shares;outstanding: 2008-1,053      shares; 2007-1,052 shares                                   |   |              | 21      |   |   |   | 21 |   |
| Additional      paid-in capital                                                                                                                                 |   |              | 12,044  |   |   |   | 10,695 |   |
| Accumulated      other comprehensive income                                                                                                                     |   |              | 124     |   |   |   | 197 |   |
| Retained      earnings, since June 30, 1999                                                                                                                     |   |              | 3,482   |   |   |   | 992 |   |
| Total      stockholders’ equity                                                                                                                           |   |              | 15,671  |   |   |   | 11,905 |   |
| Total      liabilities and stockholders’ equity                                                                                                           |   | $                 | 21,787  |   |   | $ | 18,940 |   |

----

|                                                                                      |   |              |    |   |    |   |    |         |   |   | Retained      |   |   | Accumulated |    |   |   |   |
|-------------------------------------------------------------------------------------------|--------|-------------------|---------|--------|---------|--------|---------|--------------|--------|--------|---------------|--------|--------|-------------|---------|--------|--------|--------|
|                                                                                      |   |              |    |   |    |   |    | Additional   |   |   | Earnings      |   |   | Other       |    |   |   |   |
|                                                                                      |   | Common      Stock |    |   | Paid-in |   |    | (Accumulated |   |   | Comprehensive |   |   |        |    |
|                                                                                      |   | Shares            |    |   | Amounts |   |    | Capital      |   |   | Deficit)      |   |   | Income      |    |   | Total  |   |
| 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 |   |
| Comprehensive      income                                                                 |   |              |    |   |    |   |    |         |   |   |          |   |   |        |    |   |   |   |   |   |   |   |   |   |
| Net      income                                                                           |   |              | – |   |    |   | – |         |   |   | –       |   |   |        | 3,427   |   |   |   | – |   |   |   | 3,427 |   |
| Decrease      in unrealized gain on securities available-for-sale, net of      tax        |   |              | – |   |    |   | – |         |   |   | –       |   |   |        | – |   |   |   | (79 | ) |   |   | (79 | ) |
| Changes      in fair value of cash flow hedges, net of tax                                |   |              | – |   |    |   | – |         |   |   | –       |   |   |        | – |   |   |   | 5 |   |   |   | 5 |   |
| Change      in post-retirement benefit obligation, net of tax                             |   |              | – |   |    |   | – |         |   |   | –       |   |   |        | – |   |   |   | 1 |   |   |   | 1 |   |
| Comprehensive      income                                                                 |   |              |    |   |    |   |    |         |   |   |          |   |   |        |    |   |   |   |   |   |   |   | 3,354 |   |
| Issuance      of stock upon exercise of options                                           |   |              | 13      |   |    |   | – |         |   |   | 572           |   |   |        | – |   |   |   | – |   |   |   | 572 |   |
| Income      tax benefits realized from employee stock option exercises                    |   |              | – |   |    |   | – |         |   |   | 124           |   |   |        | – |   |   |   | – |   |   |   | 124 |   |
| Issuance      of stock under employee stock purchase plan                                 |   |              | 2       |   |    |   | – |         |   |   | 108           |   |   |        | – |   |   |   | – |   |   |   | 108 |   |
| Stock-based      compensation expense                                                     |   |              | – |   |    |   | – |         |   |   | 388           |   |   |        | – |   |   |   | – |   |   |   | 388 |   |
| Repurchase      of Common Stock and settlement of prepaid stock repurchase      agreement |   |              | (14     | )      |    |   | – |         |   |   | 157           |   |   |        | (937    | )      |   |   | – |   |   |   | (780 | ) |
| Balance      December 31, 2008                                                            |   |              | 1,053   |   |    | $      | 21      |         |   | $      | 12,044        |   |   | $           | 3,482   |   |   | $      | 124 |   |   | $ | 15,671 |   |

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

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

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| Ÿ   | Nonrefundable      up-front 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   | 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 continue 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. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

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

----

----

|                                                                                              |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|---------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Numerator:                                                                                        |   |   |   |   |   |   |   |   |   |
| Net      income                                                                                   |   | $      | 3,427  |   |   | $      | 2,769  |   |   | $ | 2,113 |   |
| Denominator:                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted-average      shares outstanding used to compute basic EPS                                |   |   | 1,053  |   |   |   | 1,053  |   |   |   | 1,053 |   |
| Effect      of dilutive stock options                                                             |   |   | 14     |   |   |   | 16     |   |   |   | 20 |   |
| Weighted-average      shares outstanding and dilutive securities used to compute diluted      EPS |   |   | 1,067  |   |   |   | 1,069  |   |   |   | 1,073 |   |

----

|                                                       |   | 2008   |   |   | 2007   |   |
|------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Net      unrealized gains on securities available-for-sale |   | $      | 140    |   |   | $      | 219 |   |
| Net      unrealized losses on cash flow hedges             |   |   | (9     | )      |   |   | (14 | ) |
| Change      in post-retirement benefit obligation          |   |   | (7     | )      |   |   | (8 | ) |
| Accumulated      other comprehensive income                |   | $      | 124    |   |   | $      | 197 |   |

|                                                                                                                                                                      |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Decrease      in unrealized gains on securities available-for-sale (net of      tax: 2008-$(59); 2007-$(7); 2006-$(11))                                              |   | $      | (83    | )      |   | $      | (10    | )      |   | $ | (13 | ) |
| Reclassification      adjustment for net losses (gains) on securities available-for-sale      included in net income (net of tax: 2008-$3; 2007-$10;      2006-$(2)) |   |   | 4      |   |   |   | 15     |   |   |   | (3 | ) |
| Decrease      in unrealized gains on cash flow hedges (net of tax: 2008-$(17);      2007-$(8); 2006-$(12))                                                           |   |   | (26    | )      |   |   | (12    | )      |   |   | (18 | ) |
| Reclassification      adjustment for net losses (gains) on cash flow hedges included in net      income (net of tax: 2008-$20; 2007-$2; 2006-$(6))                   |   |   | 31     |   |   |   | 2      |   |   |   | (9 | ) |
| Change      in post-retirement benefit obligation (net of tax: 2008-$0; 2007-$(1);      2006-$(4))                                                                        |   |   | 1      |   |   |   | (2     | )      |   |   | (6 | ) |
| Other      comprehensive loss                                                                                                                                             |   | $      | (73    | )      |   | $      | (7     | )      |   | $ | (49 | ) |

| Note      3. | RETENTION      PLANS AND EMPLOYEE STOCK-BASEDCOMPENSATION |
|--------------|-----------------------------------------------------------|

----

|                                       |   | 2008   |   |
|--------------------------------------------|--------|--------|--------|
| Research      and development              |   | $      | 66     |   |
| Marketing,      general and administrative |   |   | 69     |   |
| Total      retention plan costs            |   | $      | 135    |   |

|                                                                     |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|--------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Cost      of sales                                                       |   | $      | 82     |   |   | $      | 71     |   |   | $ | – |   |
| Research      and development                                            |   |   | 152    |   |   |   | 153    |   |   |   | 140 |   |
| Marketing,      general and administrative                               |   |   | 165    |   |   |   | 179    |   |   |   | 169 |   |
| Total      employee stock-based compensation expense                     |   |   | 399    |   |   |   | 403    |   |   |   | 309 |   |
| Tax      benefit related to employee stock-based compensation    expense |   |   | (137   | )      |   |   | (143   | )      |   |   | (127 | ) |
| Net      effect on net income                                            |   | $      | 262    |   |   | $      | 260    |   |   | $ | 182 |   |

----

|                                                                                                                           |   | 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   |   |

|                         |   | 2008   |   |                | 2007   |   |   | 2006                |   |
|------------------------------|--------|--------|--------|---------------------|--------|--------|--------|---------------------|--------|
| Risk-free      interest rate |   |   | 2.8    | %    |   |   | 4.3    | %    |   |   | 4.6 | %    |
| Dividend      yield          |   |   | 0.0    | %    |   |   | 0.0    | %    |   |   | 0.0 | %    |
| Expected      volatility     |   |   | 24.1   | %    |   |   | 25.1   | %    |   |   | 27.2 | %    |
| Expected      term (years)   |   |   | 5.0    |                |   |   | 5.0    |                |   |   | 4.6 |   |

----

|                   |   |                            |    |   | Options      Outstanding |   |
|------------------------|--------|---------------------------------|---------|--------|--------------------------|--------|
|                   |   | Shares      Available for Grant |    |   | Number      of Shares    |   |   | Weighted-Average      Exercise 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 |   |   |   | 54.53 |   |
| Grants                 |   |                            | (18     | )      |                     |   | 18 |   |   |   | 79.40 |   |
| Exercises              |   |                            | – |   |                     |   | (10 | ) |   |   | 32.76 |   |
| Cancellations          |   |                            | 4       |   |                     |   | (4 | ) |   |   | 76.45 |   |
| December      31, 2007 |   |                            | 56      |   |                     |   | 92 |   |   |   | 60.94 |   |
| Grants                 |   |                            | (1      | )      |                     |   | 1 |   |   |   | 79.23 |   |
| Exercises              |   |                            | – |   |                     |   | (13 | ) |   |   | 44.83 |   |
| Cancellations          |   |                            | 3       |   |                     |   | (3 | ) |   |   | 80.52 |   |
| December      31, 2008 |   |                            | 58      |   |                     |   | 77 |   |   | $ | 63.06 |   |

|                              |                 |   | 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   |   |                            |   | 0.2    |                                                          |   |   | 6.39 |   |   | $ | 6.81 |   |   |   | 0.2 |   |   |   | 6.39 |   |   | $ | 6.81 |   |
|                              | $10.00      - $14.35 |   |                            |   | 6.2    |                                                          |   |   | 2.85 |   |   | $ | 13.68 |   |   |   | 6.2 |   |   |   | 2.85 |   |   | $ | 13.68 |   |
|                              | $15.04      - $22.39 |   |                            |   | 4.5    |                                                          |   |   | 2.35 |   |   | $ | 20.89 |   |   |   | 4.5 |   |   |   | 2.35 |   |   | $ | 20.89 |   |
|                              | $22.88      - $33.00 |   |                            |   | 0.1    |                                                          |   |   | 2.52 |   |   | $ | 26.08 |   |   |   | 0.1 |   |   |   | 2.52 |   |   | $ | 26.08 |   |
|                              | $35.63      - $53.23 |   |                            |   | 20.3   |                                                          |   |   | 4.76 |   |   | $ | 47.11 |   |   |   | 20.3 |   |   |   | 4.76 |   |   | $ | 47.11 |   |
|                              | $53.95      - $75.90 |   |                            |   | 2.0    |                                                          |   |   | 7.85 |   |   | $ | 68.03 |   |   |   | 0.9 |   |   |   | 6.56 |   |   | $ | 63.31 |   |
|                              | $75.99      - $82.79 |   |                            |   | 29.4   |                                                          |   |   | 8.21 |   |   | $ | 79.48 |   |   |   | 12.6 |   |   |   | 8.06 |   |   | $ | 79.49 |   |
|                              | $83.02      - $98.80 |   |                            |   | 14.7   |                                                          |   |   | 6.82 |   |   | $ | 86.38 |   |   |   | 11.2 |   |   |   | 6.77 |   |   | $ | 86.28 |   |
|                              |                 |   |                            |   | 77.4   |                                                          |   |   |   |   |   |   |   |   |   |   | 56.0 |   |   |   |   |   |   |   |   |   |

----

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

| December 31, 2008                        |   | AmortizedCost |   |   | GrossUnrealizedGains |   |    | GrossUnrealizedLosses |   |   | EstimatedFairValue |   |
|------------------------------------------|--------|---------------|--------|--------|----------------------|--------|---------|-----------------------|--------|--------|--------------------|--------|
| Total      trading securities            |   | $             | 889    |   |                 | $      | 13      |                  |   | $      | (105               | )      |   | $ | 797 |   |
| Securities      available-for-sale:      |   |          |   |   |                 |   |    |                  |   |   |               |   |   |   |   |   |
| Equity      securities                   |   | $             | 31     |   |                 | $      | 257     |                  |   | $      | (1                 | )      |   | $ | 287 |   |
| Preferred      stock                     |   |          | 30     |   |                 |   | – |                  |   |   | (7                 | )      |   |   | 23 |   |
| Debt      securities maturing:           |   |          |   |   |                 |   |    |                  |   |   |               |   |   |   |   |   |
| within      1 year                       |   |          | 3,118  |   |                 |   | 1       |                  |   |   | (5                 | )      |   |   | 3,114 |   |
| between      1-5 years                   |   |          | 2,437  |   |                 |   | 32      |                  |   |   | (26                | )      |   |   | 2,443 |   |
| between      5-10 years                  |   |          | 632    |   |                 |   | 20      |                  |   |   | (35                | )      |   |   | 617 |   |
| Total      securities available-for-sale |   | $             | 6,248  |   |                 | $      | 310     |                  |   | $      | (74                | )      |   | $ | 6,484 |   |

| December 31, 2007                        |   | AmortizedCost |   |   | GrossUnrealizedGains |   |    | GrossUnrealizedLosses |   |   | EstimatedFairValue |   |
|------------------------------------------|--------|---------------|--------|--------|----------------------|--------|---------|-----------------------|--------|--------|--------------------|--------|
| Total      trading securities            |   | $             | 984    |   |                 | $      | 30      |                  |   | $      | (13                | )      |   | $ | 1,001 |   |
| Securities      available-for-sale:      |   |          |   |   |                 |   |    |                  |   |   |               |   |   |   |   |   |
| Equity      securities                   |   | $             | 33     |   |                 | $      | 389     |                  |   | $      | (6                 | )      |   | $ | 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 |   | $             | 3,773  |   |                 | $      | 417     |                  |   | $      | (45                | )      |   | $ | 4,145 |   |

----

|                   |   | Less      Than 12 Months |   |   | 12      Months or Greater |   |   | Total     |   |
|------------------------|--------|--------------------------|--------|--------|---------------------------|--------|--------|-----------|--------|
| December 31, 2008      |   | FairValue                |   |   | UnrealizedLosses          |   |   | FairValue |   |   | UnrealizedLosses |   |   | FairValue |   |   | UnrealizedLosses |   |
| Equity      securities |   | $                        | 4      |   |                      | $      | (1     | )         |   | $ | – |   |   | $ | – |   |   | $ | 4 |   |   | $ | (1 | ) |
| Preferred      stock   |   |                     | 1      |   |                      |   | (2     | )         |   |   | 14 |   |   |   | (5 | ) |   |   | 15 |   |   |   | (7 | ) |
| Debt      securities   |   |                     | 1,164  |   |                      |   | (39    | )         |   |   | 422 |   |   |   | (27 | ) |   |   | 1,586 |   |   |   | (66 | ) |
| Total                  |   | $                        | 1,169  |   |                      | $      | (42    | )         |   | $ | 436 |   |   | $ | (32 | ) |   | $ | 1,605 |   |   | $ | (74 | ) |

|                   |   | Less      Than 12 Months |   |   | 12      Months or Greater |   |   | Total     |   |
|------------------------|--------|--------------------------|--------|--------|---------------------------|--------|--------|-----------|--------|
| December 31, 2007      |   | FairValue                |   |   | UnrealizedLosses          |   |   | FairValue |   |   | UnrealizedLosses |   |   | FairValue |   |   | UnrealizedLosses |   |
| Equity      securities |   | $                        | 20     |   |                      | $      | (6     | )         |   | $ | – |   |   | $ | – |   |   | $ | 20 |   |   | $ | (6 | ) |
| Preferred      stock   |   |                     | 86     |   |                      |   | (18    | )         |   |   | 24 |   |   |   | (6 | ) |   |   | 110 |   |   |   | (24 | ) |
| Debt      securities   |   |                     | 1,004  |   |                      |   | (12    | )         |   |   | 182 |   |   |   | (3 | ) |   |   | 1,186 |   |   |   | (15 | ) |
| Total                  |   | $                        | 1,110  |   |                      | $      | (36    | )         |   | $ | 206 |   |   | $ | (9 | ) |   | $ | 1,316 |   |   | $ | (45 | ) |

| Security                                                       |   | 2008   |    |   | 2007   |   |
|----------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Cash                                                           |   | $      | 2,264   |   |   | $      | 1,706 |   |
| Cash      equivalents                                          |   |   | 2,269   |   |   |   | 808 |   |
| Total      cash and cash equivalents                           |   | $      | 4,533   |   |   | $      | 2,514 |   |
|                                                           |   |   |    |   |   |   |   |   |
| Trading      securities                                        |   | $      | 797     |   |   | $      | 1,001 |   |
| Securities      available-for-sale maturing within one year    |   |   | 845     |   |   |   | 321 |   |
| Preferred      stock                                           |   |   | 23      |   |   |   | 139 |   |
| Total      short-term investments                              |   | $      | 1,665   |   |   | $      | 1,461 |   |
|                                                           |   |   |    |   |   |   |   |   |
| Securities      available-for-sale maturing after one year     |   | $      | 3,060   |   |   | $      | 1,674 |   |
| Equity      securities                                         |   |   | 287     |   |   |   | 416 |   |
| Total      long-term marketable debt and equity securities     |   | $      | 3,347   |   |   | $      | 2,090 |   |
|                                                           |   |   |    |   |   |   |   |   |
| Cash                                                           |   | $      | – |   |   | $      | 1 |   |
| Securities      available-for-sale maturing within one year    |   |   | – |   |   |   | 41 |   |
| Securities      available-for-sale maturing between 1-10 years |   |   | – |   |   |   | 746 |   |
| Total      restricted cash and investments                     |   | $      | – |   |   | $      | 788 |   |

----

----

|                                    |   | 2008   |    |   | 2007   |   |
|-----------------------------------------|--------|--------|---------|--------|--------|--------|
| Assets:                                 |   |   |    |   |   |   |
| Foreign      exchange options           |   | $      | 20      |   |   | $      | – |   |
| Equity      forwards                    |   |   | 40      |   |   |   | 24 |   |
| Interest      rate swap agreements      |   |   | 23      |   |   |   | 6 |   |
| Liabilities:                            |   |   |    |   |   |   |   |   |
| Foreign      exchange options           |   |   | 31      |   |   |   | 14 |   |
| Foreign      exchange forward contracts |   |   | – |   |   |   | 5 |   |

----

| Note      5. | FAIR      VALUE MEASUREMENTS |
|--------------|------------------------------|

|                                           |   | December      31, 2008 |    |   | December      31, 2007 |   |
|------------------------------------------------|--------|------------------------|---------|--------|------------------------|--------|
| (In      millions)                             |   | Assets                 |    |   | Liabilities            |   |   | Assets |   |   | Liabilities |   |
| Cash      and cash equivalents                 |   | $                      | 4,533   |   |                   | $      | – |   |   | $ | 2,514 |   |   | $ | – |   |
| Restricted      cash                           |   |                   | – |   |                   |   | – |   |   |   | 788 |   |   |   | – |   |
| Short-term      investments                    |   |                   | 1,665   |   |                   |   | – |   |   |   | 1,461 |   |   |   | – |   |
| Long-term      marketable debt securities |   |                   | 3,060   |   |                   |   | – |   |   |   | 1,674 |   |   |   | – |   |
| Total      fixed income investment portfolio   |   |                   | 9,258   |   |                   |   | – |   |   |   | 6,437 |   |   |   | – |   |
|                                           |   |                   |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term      marketable equity securities    |   |                   | 287     |   |                   |   | – |   |   |   | 416 |   |   |   | – |   |
| Total      derivative financial instruments    |   |                   | 83      |   |                   |   | 31 |   |   |   | 30 |   |   |   | 19 |   |
| Total                                          |   | $                      | 9,628   |   |                   | $      | 31 |   |   | $ | 6,883 |   |   | $ | 19 |   |

|                                     |   | Level      1 |    |   | Level      2 |   |    | Level      3 |   |   | Total   |   |
|------------------------------------------|--------|--------------|---------|--------|--------------|--------|---------|--------------|--------|--------|---------|--------|
| Assets                                   |   |         |    |   |         |   |    |         |   |   |    |   |
| Cash      and cash equivalents           |   | $            | 2,876   |   |         | $      | 1,657   |         |   | $      | – |   |   | $ | 4,533 |   |
| Trading      securities                  |   |         | 170     |   |         |   | 627     |         |   |   | – |   |   |   | 797 |   |
| Securities      available-for-sale       |   |         | 515     |   |         |   | 3,268   |         |   |   | 145     |   |   |   | 3,928 |   |
| Equity      securities                   |   |         | 287     |   |         |   | – |         |   |   | – |   |   |   | 287 |   |
| Derivative      financial instruments    |   |         | 40      |   |         |   | 43      |         |   |   | – |   |   |   | 83 |   |
| Total                                    |   | $            | 3,888   |   |         | $      | 5,595   |         |   | $      | 145     |   |   | $ | 9,628 |   |
|                                     |   |         |    |   |         |   |    |         |   |   |    |   |   |   |   |   |
| Liabilities                              |   |         |    |   |         |   |    |         |   |   |    |   |   |   |   |   |
| Derivative      financial instruments(1) |   | $            | – |   |         | $      | 31      |         |   | $      | – |   |   | $ | 31 |   |

| (1) | Our      Level 2 liabilities consisted of derivative financial instruments      including currency forward contracts and currency option      contracts. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                     |   | December      31, 2008                        |    |
|------------------------------------------|--------|-----------------------------------------------|---------|
|                                     |   | Structured      Investment Vehicle Securities |    |   | Auction-Rate      Securities |   |   | Preferred      Securities |   |
| Beginning      balance December 31, 2007 |   | $                                             | 7       |   |   | $ | – |   |   | $ | – |   |
| Transfer      into Level 3          |   |                                          | – |   |   |   | 174 |   |   |   | 21 |   |
| Impairment      charges                  |   |                                          | – |   |   |   | – |   |   |   | (21 | ) |
| Unrealized      losses(1)                |   |                                          | (1      | ) |   |   | (26 | ) |   |   | – |   |
| Purchases,      issuances, settlement    |   |                                          | (6      | ) |   |   | (3 | ) |   |   | – |   |
| Ending      balance                      |   | $                                             | – |   |   | $ | 145 |   |   | $ | – |   |

| (1) | The      unrealized losses of $27 million in 2008 were included in OCI as of      December 31, 2008. |
|-----|------------------------------------------------------------------------------------------------------|

| Note      6. | CONSOLIDATED      FINANCIAL STATEMENT DETAIL |
|--------------|----------------------------------------------|

|                            |   | 2008   |   |   | 2007   |   |
|---------------------------------|--------|--------|--------|--------|--------|--------|
| Raw      materials and supplies |   | $      | 122    |   |   | $      | 119 |   |
| Work-in-process                 |   |   | 937    |   |   |   | 1,062 |   |
| Finished      goods             |   |   | 240    |   |   |   | 312 |   |
| Total                           |   | $      | 1,299  |   |   | $      | 1,493 |   |

----

|                                                 |   | 2008   |   |   | 2007   |   |
|------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| At      cost:                                        |   |   |   |   |   |   |
| Land                                                 |   | $      | 418    |   |   | $      | 418 |   |
| Land      improvements                               |   |   | 50     |   |   |   | 48 |   |
| Buildings                                            |   |   | 2,949  |   |   |   | 1,914 |   |
| Equipment                                            |   |   | 2,803  |   |   |   | 2,318 |   |
| Leasehold      improvements                          |   |   | 410    |   |   |   | 285 |   |
| Construction-in-progress                             |   |   | 834    |   |   |   | 1,675 |   |
|                                                 |   |   | 7,464  |   |   |   | 6,658 |   |
| Less:      accumulated depreciation and amortization |   |   | 2,060  |   |   |   | 1,672 |   |
| Net      property, plant and equipment               |   | $      | 5,404  |   |   | $      | 4,986 |   |

|                                                                                                |   | 2008   |   |   | 2007   |   |
|-----------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Accrued      compensation                                                                           |   | $      | 634    |   |   | $      | 450 |   |
| Accrued      royalties                                                                              |   |   | 283    |   |   |   | 270 |   |
| Accrued      clinical and other studies (including to relatedparties:2008-$94;      2007-$106) |   |   | 303    |   |   |   | 357 |   |
| Accrued      marketing and promotion costs                                                          |   |   | 175    |   |   |   | 181 |   |
| Taxes      payable                                                                                  |   |   | 180    |   |   |   | 173 |   |
| Accrued      collaborations (including to a related party:2008-$57;      2007-$50)             |   |   | 313    |   |   |   | 267 |   |
| Other      (including to related parties:2008-$29;      2007-$74)                                   |   |   | 391    |   |   |   | 352 |   |
| Total      other accrued liabilities                                                                |   | $      | 2,279  |   |   | $      | 2,050 |   |

|                                                         |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|--------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Gains      on sales of biotechnology equity securities, net  |   | $      | 109    |   |   | $      | 22     |   |   | $ | 93 |   |
| Write-downs      of biotechnology debt and equity securities |   |   | (16    | )      |   |   | (20    | )      |   |   | (4 | ) |
| Interest      income                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Investment      income                                       |   |   | 157    |   |   |   | 300    |   |   |   | 230 |   |
| Impairment      charges                                      |   |   | (67    | )      |   |   | (30    | )      |   |   | – |   |
| Other      miscellaneous income                              |   |   | 1      |   |   |   | 1      |   |   |   | 6 |   |
| Total      interest and other income, net                    |   | $      | 184    |   |   | $      | 273    |   |   | $ | 325 |   |

----

| Note      7. | OTHER      INTANGIBLE ASSETS |
|--------------|------------------------------|

|                                     |                            |   | 2008                |   |   | 2007                    |   |
|------------------------------------------|---------------------------------|--------|---------------------|--------|--------|-------------------------|--------|
|                                     | WeightedAverageUseful      Life |   | GrossCarryingAmount |   |   | AccumulatedAmortization |   |   | NetCarryingAmount |   |   | GrossCarryingAmount |   |   | AccumulatedAmortization |   |   | NetCarryingAmount |   |
| Developed      product technology        | 12      years                   |   | $                   | 1,974  |   |                    | $      | 1,248 |   |   | $ | 726 |   |   | $ | 1,974 |   |   | $ | 1,106 |   |   | $ | 868 |   |
| Core      technology                     | 12      years                   |   |                | 478    |   |                    |   | 437 |   |   |   | 41 |   |   |   | 478 |   |   |   | 414 |   |   |   | 64 |   |
| Trade      names                         | 12      years                   |   |                | 144    |   |                    |   | 105 |   |   |   | 39 |   |   |   | 144 |   |   |   | 98 |   |   |   | 46 |   |
| Patents      and other intangible assets | 12      years                   |   |                | 370    |   |                    |   | 168 |   |   |   | 202 |   |   |   | 331 |   |   |   | 141 |   |   |   | 190 |   |
| Total                                    |                            |   | $                   | 2,966  |   |                    | $      | 1,958 |   |   | $ | 1,008 |   |   | $ | 2,927 |   |   | $ | 1,759 |   |   | $ | 1,168 |   |

|                                                    |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|---------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Acquisition-related      intangible assets amortization |   | $      | 172    |   |   | $      | 132    |   |   | $ | 105 |   |
| Patents      and other intangible assets amortization   |   |   | 27     |   |   |   | 26     |   |   |   | 23 |   |
| Total      amortization expense                         |   | $      | 199    |   |   | $      | 158    |   |   | $ | 128 |   |

| For the Year Ending December      31,          |   |   |   |
|------------------------------------------------|--------|--------|--------|
| 2009                                           |   | $      | 152    |   |
| 2010                                           |   |   | 102    |   |
| 2011                                           |   |   | 101    |   |
| 2012                                           |   |   | 100    |   |
| 2013                                           |   |   | 98     |   |
| Thereafter                                     |   |   | 455    |   |
| Total      expected future annual amortization |   | $      | 1,008  |   |

| Note      8. | DEBT |
|--------------|------|

----

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

| Note      9. | LEASES,      COMMITMENTS, AND CONTINGENCIES |
|--------------|---------------------------------------------|

|                  |   | 2009   |   |   | 2010   |   |   | 2011   |   |   | 2012 |   |   | 2013   |   |   | Thereafter |   |   | Total  |   |
|-----------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|------|--------|--------|--------|--------|--------|------------|--------|--------|--------|--------|
| Operating      leases |   | $      | 27     |   |   | $      | 27     |   |   | $      | 25   |   |   | $      | 21     |   |       | $      | 21     |   |   | $ | 69 |   |   | $ | 190 |   |
| HCP      leases       |   |   | 36     |   |   |   | 37     |   |   |   | 39   |   |   |   | 40     |   |       |   | 41     |   |   |   | 298 |   |   |   | 491 |   |
| Total                 |   | $      | 63     |   |   | $      | 64     |   |   | $      | 64   |   |   | $      | 61     |   |       | $      | 62     |   |   | $ | 367 |   |   | $ | 681 |   |

----

----

----

----

| Note      10. | RELATIONSHIP      WITH ROCHE HOLDINGS, INC. AND RELATED PARTY  TRANSACTIONS |
|---------------|-----------------------------------------------------------------------------|

| Ÿ   | Roche      may exercise its option to license our products upon the occurrence of any      of the following: (1) the filing of the first IND for a product; (2) the      date by which Genentech has clinical trial data and other information      sufficient to enable the first Phase III trial in the U.S. (Phase II      Completion) for a product; or (3) provided Roche has paid a fee of $10      million (Option Extension Fee) within a certain time following its      decision not to exercise the option in (2) above, the date by which the      first Phase III Trial for a product is completed and the results are      known, available, analyzed and, in Genentech’s reasonable judgment, enable      a U.S. BLA/NDA filing; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Ÿ   | Roche’s      options expire on October 25, 2015 except that Roche maintains: (1) a      Phase II Completion option for those products for which Genentech has      filed an IND prior to October 25, 2015, but which have not reached Phase      II Completion; and (2) an option at Phase III completion for those      products for which Roche had paid the Option Extension Fee at the Phase II      Completion prior to October 25,2015; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 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 half 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      sharing development costs for an additional indication for a product for      which Roche exercised its option, but could “opt-back-in” within 30 days      of the other party’s 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      licensing 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 that  product; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Ÿ   | Roche      will pay, for each product for which Roche exercises its licensing 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, the second half of the Option Extension Fee paid by      Roche related to a product 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 in Roche’s licensed territory. Once      Genentech is no longer obligated to pay a royalty to Biogen Idec on      sales of such products in each country, 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. During the fourth quarter of      2008, our obligation to pay a royalty to Biogen Idec on sales of Rituxan      ended in certain countries. The shift from the 20% royalty on Rituxan to      the lower 8% to 10% royalty rate will occur in certain countries during      2009 and beyond. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

|                                                                                             |   | 2008   |   |
|--------------------------------------------------------------------------------------------------|--------|--------|--------|
| Retention      plan costs(1)                                                                     |   |   |   |
| Research      and development                                                                    |   | $      | 66     |   |
| Marketing,      general and administrative                                                       |   |   | 69     |   |
| Total      retention plan costs                                                                  |   |   | 135    |   |
| Third-party      legal and advisory costs incurred by us on behalf of the Special      Committee |   |   | 14     |   |
| Other      third-party legal and advisory costs                                                  |   |   | 4      |   |
| Total      retention plan costs and legal and advisory costs                                     |   | $      | 153    |   |

| (1) | In      2008, an additional $27 million of retention plan costs were capitalized      into inventory, which will be recognized as COS as products that were      manufactured after the initiation of the retention plans are estimated to      be sold. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                    |   | 2008   |   |   | 2007   |   |    | 2006   |   |
|-------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|---------|--------|--------|
| Product      sales to Roche                                             |   | $      | 868    |   |   | $      | 768     |   |   | $ | 359 |   |
|                                                                    |   |   |   |   |   |   |    |   |   |   |   |   |
| Royalties      earned from Roche                                        |   | $      | 1,544  |   |   | $      | 1,206   |   |   | $ | 846 |   |
|                                                                    |   |   |   |   |   |   |    |   |   |   |   |   |
| Contract      revenue from Roche                                        |   | $      | 138    |   |   | $      | 95      |   |   | $ | 125 |   |
|                                                                    |   |   |   |   |   |   |    |   |   |   |   |   |
| Cost      of sales on product sales to Roche                            |   | $      | 472    |   |   | $      | 422     |   |   | $ | 268 |   |
|                                                                    |   |   |   |   |   |   |    |   |   |   |   |   |
| R&D      expenses incurred on joint development projects with Roche |   | $      | 336    |   |   | $      | 259     |   |   | $ | 213 |   |
|                                                                    |   |   |   |   |   |   |    |   |   |   |   |   |
| In-licensing      expenses to Roche                                     |   | $      | 145    |   |   |   | – |   |   |   | – |   |

----

|                                                                          |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|-------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Product      sales to Novartis                                                |   | $      | 12     |   |   | $      | 10     |   |   | $ | 5 |   |
|                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Royalties      earned from Novartis                                           |   | $      | 241    |   |   | $      | 95     |   |   | $ | 3 |   |
|                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Contract      revenue from Novartis                                           |   | $      | 60     |   |   | $      | 70     |   |   | $ | 40 |   |
|                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost      of sales on product sales to Novartis                               |   | $      | 9      |   |   | $      | 10     |   |   | $ | 4 |   |
|                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| R&D      expenses incurred on joint development projects with    Novartis |   | $      | 43     |   |   | $      | 43     |   |   | $ | 38 |   |
|                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Collaboration      profit sharing expense to Novartis                         |   | $      | 189    |   |   | $      | 185    |   |   | $ | 187 |   |

----

| Note      11. | ACQUISITION      OF TANOX, INC. |
|---------------|---------------------------------|

| (In      millions)                            |   |   |   |
|-----------------------------------------------|--------|--------|--------|
| Assets                                        |   |   |   |
| Cash                                          |   | $      | 100    |   |
| Investments                                   |   |   | 102    |   |
| Working      capital and other, net           |   |   | 54     |   |
| In-process      research and development      |   |   | 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      12. | CAPITAL      STOCK |
|---------------|--------------------|

----

| Note      13. | INCOME      TAXES |
|---------------|-------------------|

|                            |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|---------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Current:                        |   |   |   |   |   |   |   |   |   |
| Federal                         |   | $      | 1,744  |   |   | $      | 1,729  |   |   | $ | 1,306 |   |
| State                           |   |   | 170    |   |   |   | 162    |   |   |   | 96 |   |
| Total      current              |   |   | 1,914  |   |   |   | 1,891  |   |   |   | 1,402 |   |
| Deferred:                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal                         |   |   | 84     |   |   |   | (251   | )      |   |   | (155 | ) |
| State                           |   |   | 6      |   |   |   | 17     |   |   |   | 43 |   |
| Total      deferred             |   |   | 90     |   |   |   | (234   | )      |   |   | (112 | ) |
| Total      income tax provision |   | $      | 2,004  |   |   | $      | 1,657  |   |   | $ | 1,290 |   |

|                                               |   | 2008   |    |   | 2007   |   |    | 2006   |   |
|----------------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
| Tax      at U.S. statutory rate                    |   |   | 35.0    | %      |   |   | 35.0    | %      |   |   | 35.0 | % |
| Research      and other credits                    |   |   | (1.7    | )      |   |   | (2.1    | )      |   |   | (2.3 | ) |
| In-process      research and development           |   |   | – |   |   |   | 0.6     |   |   |   | – |   |
| Prior      years’ items                      |   |   | 0.3     |   |   |   | – |   |   |   | 0.9 |   |
| Export      sales benefit                          |   |   | – |   |   |   | – |   |   |   | (0.3 | ) |
| State      taxes                                   |   |   | 3.9     |   |   |   | 4.8     |   |   |   | 5.0 |   |
| Deduction      for qualified production activities |   |   | (1.2    | )      |   |   | (1.2    | )      |   |   | (0.7 | ) |
| Tax-exempt      investment income                  |   |   | (0.1    | )      |   |   | (0.2    | )      |   |   | (0.2 | ) |
| Other                                              |   |   | 0.7     |   |   |   | 0.5     |   |   |   | 0.5 |   |
| Effective      tax rate                            |   |   | 36.9    | %      |   |   | 37.4    | %      |   |   | 37.9 | % |

----

|                                                  |   | 2008   |    |   | 2007   |   |
|-------------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Deferred      tax liabilities:                        |   |   |    |   |   |   |
| Depreciation                                          |   | $      | (241    | )      |   | $      | (147 | ) |
| Unrealized      gain on securities available-for-sale |   |   | (84     | )      |   |   | (136 | ) |
| Intangibles—Roche      transaction              |   |   | (34     | )      |   |   | (75 | ) |
| Other      intangible assets                          |   |   | (325    | )      |   |   | (361 | ) |
| Other                                                 |   |   | (33     | )      |   |   | (14 | ) |
| Total      deferred tax liabilities                   |   |   | (717    | )      |   |   | (733 | ) |
| Deferred      tax assets:                             |   |   |    |   |   |   |   |   |
| Capitalized      R&D costs                        |   |   | 8       |   |   |   | 11 |   |
| State      income taxes                               |   |   | 51      |   |   |   | – |   |
| Employee      stock-based compensation costs          |   |   | 291     |   |   |   | 217 |   |
| Expenses      not currently deductible                |   |   | 419     |   |   |   | 598 |   |
| Deferred      revenue                                 |   |   | 208     |   |   |   | 195 |   |
| Investment      basis difference                      |   |   | 217     |   |   |   | 204 |   |
| Net      operating loss carryforwards                 |   |   | 13      |   |   |   | 33 |   |
| Other                                                 |   |   | – |   |   |   | 5 |   |
| Total      deferred tax assets                        |   |   | 1,207   |   |   |   | 1,263 |   |
| Total      net deferred tax assets                    |   | $      | 490     |   |   | $      | 530 |   |

|                                                              |   | 2008   |   |   | 2007   |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Balance      at beginning of year                                 |   | $      | 153    |   |   | $      | 147 |   |
| Additions      based on tax positions related to the current year |   |   | 9      |   |   |   | 1 |   |
| Additions      for tax positions of prior years                   |   |   | 62     |   |   |   | 5 |   |
| Reductions      for tax positions of prior years                  |   |   | (13    | )      |   |   | – |   |
| Settlements                                                       |   |   | (75    | )      |   |   | – |   |
| Balance      at end of year                                       |   | $      | 136    |   |   | $      | 153 |   |

----

| Note      14. | SEGMENT,      SIGNIFICANT CUSTOMER AND GEOGRAPHICINFORMATION |
|---------------|--------------------------------------------------------------|

| Product Sales                                 |   | 2008   |    |   | 2007   |   |    | 2006   |   |
|-----------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
| Net      U.S. Product Sales                   |   |   |    |   |   |   |    |   |   |
| Avastin                                       |   | $      | 2,686   |   |   | $      | 2,296   |   |   | $ | 1,746 |   |
| Rituxan                                       |   |   | 2,587   |   |   |   | 2,285   |   |   |   | 2,071 |   |
| Herceptin                                     |   |   | 1,382   |   |   |   | 1,287   |   |   |   | 1,234 |   |
| Lucentis                                      |   |   | 875     |   |   |   | 815     |   |   |   | 380 |   |
| Xolair                                        |   |   | 517     |   |   |   | 472     |   |   |   | 425 |   |
| Tarceva                                       |   |   | 457     |   |   |   | 417     |   |   |   | 402 |   |
| Nutropin      products                        |   |   | 358     |   |   |   | 371     |   |   |   | 378 |   |
| Thrombolytics                                 |   |   | 275     |   |   |   | 268     |   |   |   | 243 |   |
| Pulmozyme                                     |   |   | 257     |   |   |   | 223     |   |   |   | 199 |   |
| Raptiva                                       |   |   | 108     |   |   |   | 107     |   |   |   | 90 |   |
| Total      net U.S. product sales             |   | $      | 9,503   |   |   |   | 8,540   |   |   |   | 7,169 |   |
|                                          |   |   |    |   |   |   |    |   |   |   |   |   |
| Net      Product Sales to Collaborators       |   |   |    |   |   |   |    |   |   |   |   |   |
| Avastin                                       |   | $      | 222     |   |   | $      | 157     |   |   | $ | 107 |   |
| Rituxan                                       |   |   | 264     |   |   |   | 230     |   |   |   | 181 |   |
| Herceptin                                     |   |   | 437     |   |   |   | 417     |   |   |   | 96 |   |
| Lucentis                                      |   |   | 12      |   |   |   | 10      |   |   |   | 1 |   |
| Xolair                                        |   |   | – |   |   |   | – |   |   |   | 4 |   |
| Nutropin      products                        |   |   | 17      |   |   |   | 12      |   |   |   | 8 |   |
| Thrombolytics                                 |   |   | 11      |   |   |   | 20      |   |   |   | 16 |   |
| Pulmozyme                                     |   |   | 48      |   |   |   | 43      |   |   |   | 45 |   |
| Raptiva                                       |   |   | 17      |   |   |   | 12      |   |   |   | 14 |   |
| Total      net product sales to collaborators |   |   | 1,028   |   |   |   | 903     |   |   |   | 471 |   |
| Total      net product sales                  |   | $      | 10,531  |   |   | $      | 9,443   |   |   | $ | 7,640 |   |

----

|                               |   | 2008   |   |   | 2007   |   |   | 2006 |   |
|------------------------------------|--------|--------|--------|--------|--------|--------|--------|------|--------|
| AmerisourceBergen      Corporation |   |   | 49     | %      |   |   | 55     | %    |   |   | 50 | % |
| McKesson      Corporation          |   |   | 23     | %      |   |   | 17     | %    |   |   | 17 | % |
| Cardinal      Health, Inc.         |   |   | 14     | %      |   |   | 13     | %    |   |   | 18 | % |

|                           |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|--------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Switzerland                    |   | $      | 1,129  |   |   | $      | 983    |   |   | $ | 561 |   |
| Other      foreign countries   |   |   | 2,241  |   |   |   | 1,327  |   |   |   | 885 |   |
| Total      net foreign revenue |   | $      | 3,370  |   |   | $      | 2,310  |   |   | $ | 1,446 |   |

|                                           |   | 2008   |   |   | 2007   |   |    | 2006   |   |
|------------------------------------------------|--------|--------|--------|--------|--------|--------|---------|--------|--------|
| United      States                             |   | $      | 4,959  |   |   | $      | 4,753   |   |   | $ | 4,153 |   |
| Singapore                                      |   |   | 442    |   |   |   | 233     |   |   |   | 20 |   |
| United      Kingdom                            |   |   | 3      |   |   |   | – |   |   |   | – |   |
| Total      property, plant, and equipment, net |   | $      | 5,404  |   |   | $      | 4,986   |   |   | $ | 4,173 |   |

----

|                                 |   | 2008 Quarter Ended(1) |   |
|--------------------------------------|--------|-----------------------|--------|
|                                 |   | December 31      |   |   | September 30 |   |   | June 30 |   |   | March 31 |   |
| Total      operating revenue         |   | $                     | 3,707  |   |   | $ | 3,412 |   |   | $ | 3,236 |   |   | $ | 3,063 |   |
| Product      sales                   |   |                  | 2,981  |   |   |   | 2,634 |   |   |   | 2,536 |   |   |   | 2,379 |   |
| Gross      margin from product sales |   |                  | 2,478  |   |   |   | 2,225 |   |   |   | 2,095 |   |   |   | 1,990 |   |
| Net      income                      |   |                  | 931    |   |   |   | 731 |   |   |   | 782 |   |   |   | 983 |   |
| Earnings      per share:             |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                |   |                  | 0.88   |   |   |   | 0.69 |   |   |   | 0.74 |   |   |   | 0.93 |   |
| Diluted                              |   |                  | 0.87   |   |   |   | 0.68 |   |   |   | 0.73 |   |   |   | 0.92 |   |

|                                 |   | 2007 Quarter Ended(1) |   |
|--------------------------------------|--------|-----------------------|--------|
|                                 |   | 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                      |   |                  | 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 |   |

| (1) | The      2008 and 2007 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 |
|---------------|------------------------------|

----

|   | /s/ Ernst      & Young LLP |
|--------|-------------------------------------|

----

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

----

| Item      10. | DIRECTORS,      EXECUTIVE OFFICERS AND CORPORATEGOVERNANCE |
|---------------|------------------------------------------------------------|

| Item      11. | EXECUTIVE      COMPENSATION |
|---------------|-----------------------------|

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

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

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

----

| 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 by    reference.      |
| 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 by    reference.      |

----

| 4.1  | 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.                                                                       |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.2  | 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.                                                                       |
| 4.3  | 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.                                                                       |
| 4.4  | 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.                                                                       |
| 4.5  | 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.                                                                       |
| 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. 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.                    |
| 10.13 | 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.                |
| 10.14 | 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.                |
| 10.15 | 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.                    |
| 10.16 | Form      of Genentech, Inc. 2004 Equity Incentive Plan Nonqualified Stock Option      Grant Agreement (Employee Version) † | Filed      as an exhibit to our Annual Report on Form 10-K for the year ended      December 31, 2007 filed with the Commission and incorporated herein by      reference.                       |
| 10.17 | 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.                                                                |
| 10.18 | 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.                                                                  |
| 10.19 | Amendment      No. 1 to the Genentech, Inc. Supplemental Plan                                                                     | Filed      herewith                                                                                                                                                                             |
| 10.20 | Amendment      No. 2 to the Genentech, Inc. Supplemental Plan                                                                     | Filed      herewith                                                                                                                                                                             |
| 10.21 | Amendment      No. 3 to the Genentech, Inc. Supplemental Plan                                                                     | Filed      herewith                                                                                                                                                                             |
| 10.22 | Genentech,      Inc. 1991 Employee Stock Plan, as amended                                                                         | Filed      as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended      June 30, 2008, filed with the Commission on August 5, 2008, and      incorporated herein by reference. |
| 10.23 | Bonus      Program †                                                                                                        | Incorporated      by reference to the description under “Bonus Program” in the Current      Report on Form 8-K filed with the Commission on February 19,      2009.                 |
| 10.24 | 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.                    |
| 10.25 | Genentech,      Inc. Executive Retention Plan                                                                                     | Filed      on a Current Report on Form 8-K with the Commission on August 21, 2008,      and incorporated herein by reference.                                                                   |
| 10.26 | Genentech,      Inc. Executive Severance Plan                                                                                     | Filed      on a Current Report on Form 8-K with the Commission on August 21, 2008,      and incorporated herein by reference.                                                                   |
| 10.27 | 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.                       |

----

| 10.28 | 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 | Second      Amendment to Master Lease Agreement between Genentech and HCP SSF, LLC      (formerly Slough SSF, LLC) dated April 8, 2008                                                        | Filed      as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended      June 30, 2008, filed with the Commission on August 5, 2008, and      incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.30 | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.31 | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.32 | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.33 | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

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|   |                               |   | GENENTECH,      INC.Registrant |
|--------|------------------------------------|--------|--------------------------------|
|   |                               |   |
|   |                               |   |                           |   |
|   |                               |   |                           |   |
| Date:  |   February      19, 2009 |   | By:                            | /s/      ROBERT E. ANDREATTA |
|   |                               |   |                           | Robert      E. Andreatta |
|   |                               |   |                           | Vice      President, Controller andChief      Accounting Officer |

| Signature                          |   | Title                                     |   | Date                   |
|------------------------------------|--------|-------------------------------------------|--------|------------------------|
|                               |   |                                      |   |                   |
| Principal      Executive Officer:  |   |                                      |   |                   |
|                               |   |                                      |   |                   |
|                               |   |                                      |   |                   |
| /s/      ARTHUR D. LEVINSON        |   | Chairman      and Chief Executive Officer |   | February      19, 2009 |
| Arthur      D. Levinson            |   |                                      |   |                   |
|                               |   |                                      |   |                   |
|                               |   |                                      |   |                   |
| Principal      Financial Officer:  |   |                                      |   |                   |
|                               |   |                                      |   |                   |
|                               |   |                                      |   |                   |
| /s/      DAVID A. EBERSMAN         |   | Executive      Vice President and         |   | February      19, 2009 |
| David      A. Ebersman             |   | Chief      Financial Officer              |   |                   |
|                               |   |                                      |   |                   |
|                               |   |                                      |   |                   |
| Principal      Accounting Officer: |   |                                      |   |                   |
|                               |   |                                      |   |                   |
|                               |   |                                      |   |                   |
| /s/      ROBERT E. ANDREATTA       |   | Vice      President, Controller and       |   | February      19, 2009 |
| Robert      E. Andreatta           |   | Chief      Accounting Officer        |   |                   |

----

| Signature                      |   | Title    |   | Date                   |
|--------------------------------|--------|----------|--------|------------------------|
|                           |   |     |   |                   |
| Directors:                     |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
| /s/      HERBERT W. BOYER      |   | Director |   | February      19, 2009 |
| Herbert      W. Boyer          |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
| /s/      WILLIAM M. BURNS      |   | Director |   | February      19, 2009 |
| William      M. Burns          |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
| /s/      ERICH HUNZIKER        |   | Director |   | February      19, 2009 |
| Erich      Hunziker            |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
| /s/      JONATHAN K.C. KNOWLES |   | Director |   | February      19, 2009 |
| Jonathan      K.C. Knowles     |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
| /s/      DEBRA L. REED         |   | Director |   | February      19, 2009 |
| Debra      L. Reed             |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
|                           |   |     |   |                   |
| /s/      CHARLES A. SANDERS    |   | Director |   | February      19, 2009 |
| Charles      A. Sanders        |   |     |   |                   |

----

|                                 |   | Balance      atBeginningof      Period |   |   | AdditionCharged      toCost      Expenses,and Revenue(1) |   |   | Deductions(2) |   |   | Balance      atEnd      ofPeriod |   |
|--------------------------------------|--------|----------------------------------------|--------|--------|----------------------------------------------------------|--------|--------|---------------|--------|--------|----------------------------------|--------|
| Accounts      receivable allowances: |   |                                   |   |   |                                                     |   |   |          |   |   |                             |   |
| Year      ended December 31, 2008:   |   | $                                      | 116    |   |                                                     | $      | 612    |          |   | $      | (571                             | )      |   | $ | 157 |   |
| Year      ended December 31, 2007:   |   | $                                      | 92     |   |                                                     | $      | 521    |          |   | $      | (497                             | )      |   | $ | 116 |   |
| Year      ended December 31, 2006:   |   | $                                      | 84     |   |                                                     | $      | 415    |          |   | $      | (407                             | )      |   | $ | 92 |   |
| Inventory      reserves:             |   |                                   |   |   |                                                     |   |   |          |   |   |                             |   |   |   |   |   |
| Year      ended December 31, 2008:   |   | $                                      | 62     |   |                                                     | $      | 80     |          |   | $      | (52                              | )      |   | $ | 90 |   |
| Year      ended December 31, 2007:   |   | $                                      | 71     |   |                                                     | $      | 41     |          |   | $      | (50                              | )      |   | $ | 62 |   |
| Year      ended December 31, 2006:   |   | $                                      | 57     |   |                                                     | $      | 50     |          |   | $      | (36                              | )      |   | $ | 71 |   |
| Rebate      accruals:                |   |                                   |   |   |                                                     |   |   |          |   |   |                             |   |   |   |   |   |
| Year      ended December 31, 2008:   |   | $                                      | 60     |   |                                                     | $      | 180    |          |   | $      | (163                             | )      |   | $ | 77 |   |
| Year      ended December 31, 2007:   |   | $                                      | 47     |   |                                                     | $      | 144    |          |   | $      | (131                             | )      |   | $ | 60 |   |
| Year      ended December 31, 2006:   |   | $                                      | 38     |   |                                                     | $      | 113    |          |   | $      | (104                             | )      |   | $ | 47 |   |

| (1) | Additions      to rebate accruals are netted against the related  revenue.                                            |
|-----|-----------------------------------------------------------------------------------------------------------------------|
| (2) | Represents      amounts written off or returned against the allowance or reserves, or      returned against earnings. |

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