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**UNITED        STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**________________________**

**FORM      10-Q**

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

| **For                the quarterly period ended September 30,                2007** |
|------------------------------------------------------------------------------------------|
|                                                                                     |
| or                                                                                       |

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

**For      the transition period      from                to               .**

**Commission      File Number: 1-9813**

**GENENTECH,      INC.**

| **Delaware**(State                or other jurisdiction of incorporation or organization) | **94-2347624**(I.R.S.                Employer Identification Number) |
|-------------------------------------------------------------------------------------------|----------------------------------------------------------------------|

**1 DNA      Way, South San Francisco,      California  94080-4990**

**(650) 225-1000**

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

| **Class**                                   | **Number                of Shares Outstanding**                   |
|---------------------------------------------|-------------------------------------------------------------------|
| Common                Stock $0.02 par value | 1,053,091,492 Outstanding                at October 26, 2007 |

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**GENENTECH,      INC.**

**TABLE      OF CONTENTS**

|                    |                                                                                                                                                                                      | Page                No.             |
|-------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------|
|                    | PART                I—FINANCIAL INFORMATION                                                                                                                                         |                                |
|                    |                                                                                                                                                                                      |                                |
| Item                1.  | Financial                Statements                (unaudited)                                                                                                                            | 3               |
|                    |                                                                                                                                                                                      |                                |
|                    | Condensed                Consolidated Statements                of Income—for                the three months and nine months ended                September 30, 2007 and 2006 |  3         |
|                    |                                                                                                                                                                                      |                                |
|                    | Condensed                Consolidated Statements of Cash                Flows—for                the nine months ended September 30, 2007                and 2006                   |  4         |
|                    |                                                                                                                                                                                      |                                |
|                    | Condensed                Consolidated Balance                Sheets—September                30, 2007 and December 31,                2006                                     |  5         |
|                    |                                                                                                                                                                                      |                                |
|                    | Notes                to Condensed Consolidated Financial                Statements                                                                                              | 6–15      |
|                    |                                                                                                                                                                                      |                                |
|                    | Report                of Independent Registered                Public Accounting Firm                                                                                                | 16              |
|                    |                                                                                                                                                                                      |                                |
| Item                2.  | Management’s                Discussion and Analysis of                Financial Condition and Results of Operations                                                                 | 16–41     |
|                    |                                                                                                                                                                                      |                                |
| Item                3.  | Quantitative and Qualitative                Disclosures                About Market Risk                                                                                        | 42              |
|                    |                                                                                                                                                                                      |                                |
| Item                4.  | Controls                and Procedures                                                                                                                                               | 42              |
|                    |                                                                                                                                                                                      |                                |
|                    | PART                II—OTHER INFORMATION                                                                                                                                            |                                |
|                    |                                                                                                                                                                                      |                                |
| Item                1.  | Legal                Proceedings                                                                                                                                                          | 43              |
|                    |                                                                                                                                                                                      |                                |
| Item                1A. | Risk                Factors                                                                                                                                                               | 43–55     |
|                    |                                                                                                                                                                                      |                                |
| Item                2.  | Unregistered                Sales of Equity Securities and Use of                Proceeds                                                                                                 | 55              |
|                    |                                                                                                                                                                                      |                                |
| Item                6.  | Exhibits                                                                                                                                                                                  | 56              |
|                    |                                                                                                                                                                                      |                                |
| SIGNATURES              | 57                                                                                                                                                                    |

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**PART      I—FINANCIAL INFORMATION**

**Item      1. Financial Statements**

**GENENTECH,      INC.**

**CONDENSED      CONSOLIDATED STATEMENTS OF      INCOME**

*(In      millions, except per share amounts)*

*(Unaudited)*

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | **Three                Months****Ended                  September 30,** |   |   | **Nine                Months****Ended                  September 30,** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------|--------|--------|------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | **2007**                                                                |   |   | **2006**                                                               |   |   | **2007** |   |   | **2006** |   |
| **Revenue**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                                    |   |   |                                                                   |   |   |   |   |   |   |   |
| Product                sales (including amounts from related parties:  three                months—2007–$137;                2006–$87;  nine                months—2007–$659; 2006–$220)                                                                                                                                                                                                                                                                                              |   | $                                                                       | 2,321  |   |                                                                   | $      | 1,941 |   |   | $ | 7,094 |   |   | $ | 5,395 |   |
| Royalties                (including amounts from related parties:  three                months—2007–$357; 2006–$230;  nine                months—2007–$914; 2006–$603)                                                                                                                                                                                                                                                                                                                |   |                                                                    | 524    |   |                                                                   |   | 364 |   |   |   | 1,427 |   |   |   | 966 |   |
| Contract                revenue (including amounts from related parties:  three                months—2007–$30; 2006–$52;  nine                months—2007–$134; 2006–$114)                                                                                                                                                                                                                                                                                                           |   |                                                                    | 63     |   |                                                                   |   | 79 |   |   |   | 234 |   |   |   | 208 |   |
| **Total                operating revenue**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                                                    | 2,908  |   |                                                                   |   | 2,384 |   |   |   | 8,755 |   |   |   | 6,569 |   |
| **Costs                and expenses**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                                                    |   |   |                                                                   |   |   |   |   |   |   |   |   |   |   |   |
| Cost                of sales (including amounts for related parties:  three                months—2007–$100; 2006–$63;  nine                months—2007–$365; 2006–$178)                                                                                                                                                                                                                                                                                                              |   |                                                                    | 406    |   |                                                                   |   | 297 |   |   |   | 1,227 |   |   |   | 843 |   |
| Research                and development (associated                with related party collaborations:  three                months—2007–$75; 2006–$62;  nine                months—2007–$222; 2006–$179)  (including                amounts                where reimbursement was recorded as contract revenue:  three                months—2007–$49; 2006–$48;  nine                months—2007–$154; 2006–$135) |   |                                                                    | 615    |   |                                                                   |   | 454 |   |   |   | 1,828 |   |   |   | 1,218 |   |
| Marketing,                general and administrative                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                                                    | 541    |   |                                                                   |   | 501 |   |   |   | 1,564 |   |   |   | 1,414 |   |
| Collaboration                profit sharing (including related party amounts:  three                months—2007–$47; 2006–$46;  nine                months—2007–$143; 2006–$137)                                                                                                                                                                                                                                                                                                 |   |                                                                    | 276    |   |                                                                   |   | 250 |   |   |   | 805 |   |   |   | 735 |   |
| Write-off                of in-process research and development related to                acquisition                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                                                    | 77     |   |                                                                   |   | – |   |   |   | 77 |   |   |   | – |   |
| Gain                on acquisition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                    | (121   | )      |                                                                   |   | – |   |   |   | (121 | ) |   |   | – |   |
| Recurring                charges related to redemption and acquisition                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                                                    | 38     |   |                                                                   |   | 26 |   |   |   | 90 |   |   |   | 79 |   |
| Special                items: litigation related                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                                                    | 14     |   |                                                                   |   | 13 |   |   |   | 41 |   |   |   | 40 |   |
| **Total                costs and expenses**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                                    | 1,846  |   |                                                                   |   | 1,541 |   |   |   | 5,511 |   |   |   | 4,329 |   |
| Operating                income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                                    | 1,062  |   |                                                                   |   | 843 |   |   |   | 3,244 |   |   |   | 2,240 |   |
| Other                income (expense):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                                                    |   |   |                                                                   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                and other income, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                                                    | 84     |   |                                                                   |   | 74 |   |   |   | 233 |   |   |   | 249 |   |
| Interest                expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                                    | (18    | )      |                                                                   |   | (19 | ) |   |   | (53 | ) |   |   | (56 | ) |
| Total                other income, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                                                    | 66     |   |                                                                   |   | 55 |   |   |   | 180 |   |   |   | 193 |   |
| Income                before taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                    | 1,128  |   |                                                                   |   | 898 |   |   |   | 3,424 |   |   |   | 2,433 |   |
| Income                tax provision                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                                    | 443    |   |                                                                   |   | 330 |   |   |   | 1,286 |   |   |   | 914 |   |
| **Net                income**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | $                                                                       | 685    |   |                                                                   | $      | 568 |   |   | $ | 2,138 |   |   | $ | 1,519 |   |
| **Earnings                per share**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                                                    |   |   |                                                                   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | $                                                                       | 0.65   |   |                                                                   | $      | 0.54 |   |   | $ | 2.03 |   |   | $ | 1.44 |   |
| Diluted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | $                                                                       | 0.64   |   |                                                                   | $      | 0.53 |   |   | $ | 2.00 |   |   | $ | 1.41 |   |
| Shares                used to compute basic earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                                                    | 1,053  |   |                                                                   |   | 1,053 |   |   |   | 1,053 |   |   |   | 1,053 |   |
| Shares                used to compute diluted earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                    | 1,069  |   |                                                                   |   | 1,072 |   |   |   | 1,070 |   |   |   | 1,074 |   |

*See      Notes to Condensed Consolidated Financial Statements.*

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**GENENTECH,      INC.**

**CONDENSED      CONSOLIDATED STATEMENTS OF CASH      FLOWS**

*(In      millions)*

*(Unaudited)*

|                                                                                                             |   | **Nine                  Months****Ended                  September 30,** |    |
|------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|---------|
|                                                                                                             |   | **2007**                                                                 |    |   | **2006** |   |
| **Cash                flows from operating activities**                                                          |   |                                                                     |    |   |   |   |
| Net                income                                                                                        |   | $                                                                        | 2,138   |   |   | $ | 1,519 |   |
| Adjustments                to reconcile net income to net cash provided by operating                activities:  |   |                                                                     |    |   |   |   |   |   |
| Depreciation                and amortization                                                                     |   |                                                                     | 345     |   |   |   | 298 |   |
| Employee                stock-based compensation                                                                 |   |                                                                     | 300     |   |   |   | 225 |   |
| In-process                research and development                                                               |   |                                                                     | 77      |   |   |   | – |   |
| Gain                on acquisition                                                                               |   |                                                                     | (121    | ) |   |   | – |   |
| Deferred                income taxes                                                                             |   |                                                                     | (116    | ) |   |   | (86 | ) |
| Deferred                revenue                                                                                  |   |                                                                     | (50     | ) |   |   | (13 | ) |
| Litigation-related                liabilities                                                                    |   |                                                                     | 39      |   |   |   | 39 |   |
| Excess                tax benefit from stock-based compensation arrangements                                     |   |                                                                     | (160    | ) |   |   | (142 | ) |
| Gain                on sales of securities available-for-sale and other, net                                     |   |                                                                     | (15     | ) |   |   | (76 | ) |
| Write-down                of securities available-for-sale and other                                             |   |                                                                     | 4       |   |   |   | 1 |   |
| Loss                on property and equipment dispositions                                                       |   |                                                                     | 30      |   |   |   | – |   |
| Changes                in assets and liabilities:                                                                |   |                                                                     |    |   |   |   |   |   |
| Receivables                and other current assets                                                              |   |                                                                     | (236    | ) |   |   | (423 | ) |
| Inventories                                                                                                      |   |                                                                     | (238    | ) |   |   | (311 | ) |
| Investments                in trading securities                                                                 |   |                                                                     | (140    | ) |   |   | (26 | ) |
| Accounts                payable, other accrued liabilities, and other long-term                liabilities       |   |                                                                     | 216     |   |   |   | 311 |   |
| **Net                cash provided by operating activities**                                                     |   |                                                                     | 2,073   |   |   |   | 1,316 |   |
|                                                                                                             |   |                                                                     |    |   |   |   |   |   |
| **Cash                flows from investing activities**                                                          |   |                                                                     |    |   |   |   |   |   |
| Purchases                of securities available-for-sale                                                        |   |                                                                     | (622    | ) |   |   | (1,078 | ) |
| Proceeds                from sales of securities available-for-sale                                              |   |                                                                     | 482     |   |   |   | 366 |   |
| Proceeds                from maturities of securities available-for-sale                                         |   |                                                                     | 358     |   |   |   | 297 |   |
| Capital                expenditures                                                                              |   |                                                                     | (692    | ) |   |   | (888 | ) |
| Change                in other intangible and long-term assets                                                   |   |                                                                     | (39     | ) |   |   | 24 |   |
| Transfer                to restricted cash                                                                       |   |                                                                     | – |   |   |   | (53 | ) |
| Acquisition                and related costs, net                                                                |   |                                                                     | (833    | ) |   |   | – |   |
| **Net                cash used in investing activities**                                                         |   |                                                                     | (1,346  | ) |   |   | (1,332 | ) |
|                                                                                                             |   |                                                                     |    |   |   |   |   |   |
| **Cash                flows from financing activities**                                                          |   |                                                                     |    |   |   |   |   |   |
| Stock                issuances                                                                                   |   |                                                                     | 381     |   |   |   | 286 |   |
| Stock                repurchases                                                                                 |   |                                                                     | (815    | ) |   |   | (758 | ) |
| Excess                tax benefit from stock-based compensation arrangements                                     |   |                                                                     | 160     |   |   |   | 142 |   |
| **Net                cash used in financing activities**                                                         |   |                                                                     | (274    | ) |   |   | (330 | ) |
| Net                increase (decrease) in cash and cash equivalents                                              |   |                                                                     | 453     |   |   |   | (346 | ) |
| Cash                and cash equivalents at beginning of period                                                  |   |                                                                     | 1,250   |   |   |   | 1,225 |   |
| **Cash                and cash equivalents at end of period**                                                    |   | $                                                                        | 1,703   |   |   | $ | 879 |   |
|                                                                                                             |   |                                                                     |    |   |   |   |   |   |
| **Supplemental                cash flow data**                                                                   |   |                                                                     |    |   |   |   |   |   |
| Cash                paid during the period for:                                                                  |   |                                                                     |    |   |   |   |   |   |
| Interest                                                                                                         |   | $                                                                        | 71      |   |   | $ | 77 |   |
| Income                taxes                                                                                      |   |                                                                     | 1,277   |   |   |   | 851 |   |
| Non-cash                investing and financing activities                                                       |   |                                                                     |    |   |   |   |   |   |
| Capitalization                of construction in progress related to financing lease                transactions |   |                                                                     | 156     |   |   |   | 84 |   |
| Deferral                of royalty revenue associated with the acquisition of Tanox,                Inc.         |   |                                                                     | (185    | ) |   |   | – |   |

*See      Notes to Condensed Consolidated Financial Statements.*

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**GENENTECH,      INC.**

**CONDENSED      CONSOLIDATED BALANCE      SHEETS**

*(In      millions)*

*(Unaudited)*

|                                                                                                                                                                                                                                            |   | **September                  30,****2007** |   |   | **December                  31,****2006** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|--------|-------------------------------------------|--------|
| **Assets**                                                                                                                                                                                                                                      |   |                                       |   |   |                                      |   |
| Current                assets                                                                                                                                                                                                                   |   |                                       |   |   |                                      |   |
| Cash                and cash equivalents                                                                                                                                                                                                        |   | $                                          | 1,703  |   |                                      | $      | 1,250 |   |
| Short-term                investments                                                                                                                                                                                                           |   |                                       | 1,217  |   |                                      |   | 1,243 |   |
| Accounts                receivable—product sales (net of allowances of:  2007–$109;                2006–$92; including amounts from related parties:  2007–$42;                2006–$57) |   |                                       | 1,012  |   |                                      |   | 965 |   |
| Accounts                receivable—royalties (including amounts from related                parties:  2007–$581;                2006–$316)                                                                     |   |                                       | 716    |   |                                      |   | 453 |   |
| Accounts                receivable—other (including amounts from related parties:  2007–$123;                2006–$150)                                                                                             |   |                                       | 185    |   |                                      |   | 248 |   |
| Inventories                                                                                                                                                                                                                                     |   |                                       | 1,425  |   |                                      |   | 1,178 |   |
| Deferred                tax assets                                                                                                                                                                                                              |   |                                       | 292    |   |                                      |   | 278 |   |
| Prepaid                expenses and other current assets                                                                                                                                                                                        |   |                                       | 121    |   |                                      |   | 89 |   |
| Total                current assets                                                                                                                                                                                                             |   |                                       | 6,671  |   |                                      |   | 5,704 |   |
| Long-term                marketable debt and equity securities                                                                                                                                                                                  |   |                                       | 1,952  |   |                                      |   | 1,832 |   |
| Property,                plant and equipment, net                                                                                                                                                                                               |   |                                       | 4,758  |   |                                      |   | 4,173 |   |
| Goodwill                                                                                                                                                                                                                                        |   |                                       | 1,574  |   |                                      |   | 1,315 |   |
| Other                intangible assets                                                                                                                                                                                                          |   |                                       | 1,208  |   |                                      |   | 476 |   |
| Restricted                cash and investments                                                                                                                                                                                                  |   |                                       | 788    |   |                                      |   | 788 |   |
| Other                long-term assets                                                                                                                                                                                                           |   |                                       | 493    |   |                                      |   | 554 |   |
| **Total                assets**                                                                                                                                                                                                                 |   | $                                          | 17,444 |   |                                      | $      | 14,842 |   |
|                                                                                                                                                                                                                                            |   |                                       |   |   |                                      |   |   |   |
| **Liabilities                and stockholders’ equity**                                                                                                                                                                                   |   |                                       |   |   |                                      |   |   |   |
| Current                liabilities                                                                                                                                                                                                              |   |                                       |   |   |                                      |   |   |   |
| Accounts                payable (including amounts to related parties:  2007–$8;                2006–$7)                                                                                                                  |   | $                                          | 283    |   |                                      | $      | 346 |   |
| Deferred                revenue                                                                                                                                                                                                                 |   |                                       | 44     |   |                                      |   | 62 |   |
| Taxes                payable                                                                                                                                                                                                                    |   |                                       | 67     |   |                                      |   | 111 |   |
| Other                accrued liabilities (including amounts to related                parties:  2007–$220;                2006–$136)                                                                                 |   |                                       | 1,662  |   |                                      |   | 1,491 |   |
| Total                current liabilities                                                                                                                                                                                                        |   |                                       | 2,056  |   |                                      |   | 2,010 |   |
| Long-term                debt                                                                                                                                                                                                                   |   |                                       | 2,346  |   |                                      |   | 2,204 |   |
| Deferred                revenue                                                                                                                                                                                                                 |   |                                       | 353    |   |                                      |   | 199 |   |
| Litigation-related                and other long-term liabilities                                                                                                                                                                               |   |                                       | 1,057  |   |                                      |   | 951 |   |
| Total                liabilities                                                                                                                                                                                                                |   |                                       | 5,812  |   |                                      |   | 5,364 |   |
| Commitments                and contingencies                                                                                                                                                                                                    |   |                                       |   |   |                                      |   |   |   |
| Stockholders’                equity                                                                                                                                                                                                       |   |                                       |   |   |                                      |   |   |   |
| Common                stock                                                                                                                                                                                                                     |   |                                       | 21     |   |                                      |   | 21 |   |
| Additional                paid-in capital                                                                                                                                                                                                       |   |                                       | 10,842 |   |                                      |   | 10,091 |   |
| Accumulated                other comprehensive income                                                                                                                                                                                           |   |                                       | 212    |   |                                      |   | 204 |   |
| Retained                earnings (accumulated deficit) since June 30, 1999                                                                                                                                                                      |   |                                       | 557    |   |                                      |   | (838 | ) |
| Total                stockholders’ equity                                                                                                                                                                                                 |   |                                       | 11,632 |   |                                      |   | 9,478 |   |
| **Total                liabilities and stockholders’ equity**                                                                                                                                                                             |   | $                                          | 17,444 |   |                                      | $      | 14,842 |   |

*See      Notes to Condensed Consolidated Financial Statements.*

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**GENENTECH,      INC.**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL      STATEMENTS**

***(Unaudited)***

| **Note                1.** | **Summary                of Significant Accounting                Policies** |
|----------------------------|------------------------------------------------------------------------------|

***Basis      of Presentation***

***Principles      of Consolidation***

***Use      of Estimates and Reclassifications***

***Recent      Accounting Pronouncements***

*“*
*Accounting for Sabbatical Leave and Other Similar Benefits      Pursuant to FASB Statement No. 43, Accounting for Compensated      Absences*
*”*

*“*
*Accounting for Uncertainty in Income      Taxes*
*”*

----

** **

***Revenue      Recognition***

***Earnings      Per Share***

*(in millions)*

|                                                                                                                                 |   | **Three                  Months****Ended                  September 30,** |   |   | **Nine                  Months****Ended                  September 30,** |   |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|--------|--------------------------------------------------------------------------|--------|
|                                                                                                                                 |   | **2007**                                                                  |   |   | **2006**                                                                 |   |   | **2007** |   |   | **2006** |   |
| **Numerator:**                                                                                                                       |   |                                                                      |   |   |                                                                     |   |   |   |   |   |   |   |
| Net                income                                                                                                            |   | $                                                                         | 685    |   |                                                                     | $      | 568 |   |   | $ | 2,138 |   |   | $ | 1,519 |   |
| **Denominator:**                                                                                                                     |   |                                                                      |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| Weighted-average                shares outstanding used to compute basic earnings per                share                           |   |                                                                      | 1,053  |   |                                                                     |   | 1,053 |   |   |   | 1,053 |   |   |   | 1,053 |   |
| Effect                of dilutive stock options                                                                                      |   |                                                                      | 16     |   |                                                                     |   | 19 |   |   |   | 17 |   |   |   | 21 |   |
| Weighted-average                shares outstanding and dilutive securities used to compute diluted                earnings per share |   |                                                                      | 1,069  |   |                                                                     |   | 1,072 |   |   |   | 1,070 |   |   |   | 1,074 |   |

----

***Comprehensive      Income***

*“*
*Employers*
*’*
* Accounting for Defined Benefit      Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87,      88, 106, and 132(R),*
*”*

*(in millions)*

|                                                                 |   | **September                  30, 2007** |   |   | **December                  31, 2006** |   |
|----------------------------------------------------------------------|--------|-----------------------------------------|--------|--------|----------------------------------------|--------|
| Net                unrealized gains on securities available-for-sale |   | $                                       | 224    |   |                                   | $      | 214 |   |
| Net                unrealized losses on cash flow hedges             |   |                                    | (6     | )      |                                   |   | (4 | ) |
| Post-retirement                benefit obligation                    |   |                                    | (6     | )      |                                   |   | (6 | ) |
| Accumulated                other comprehensive income                |   | $                                       | 212    |   |                                   | $      | 204 |   |

*(in      millions)*

|                                                                                                   |   | **Three                  Months****Ended                  September 30,** |   |   | **Nine                  Months****Ended                  September 30,** |   |
|--------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|--------|--------------------------------------------------------------------------|--------|
|                                                                                                   |   | **2007**                                                                  |   |   | **2006**                                                                 |   |   | **2007** |   |   | **2006** |   |
| Net                income                                                                              |   | $                                                                         | 685    |   |                                                                     | $      | 568 |   |   | $ | 2,138 |   |   | $ | 1,519 |   |
| Increase                (decrease) in unrealized gains on securities                available-for-sale |   |                                                                      | 19     |   |                                                                     |   | 16 |   |   |   | 10 |   |   |   | (24 | ) |
| (Decrease)                increase in unrealized gains on cash flow hedges                             |   |                                                                      | (13    | )      |                                                                     |   | 1 |   |   |   | (2 | ) |   |   | (19 | ) |
| Comprehensive                income, net of income taxes                                               |   | $                                                                         | 691    |   |                                                                     | $      | 585 |   |   | $ | 2,146 |   |   | $ | 1,476 |   |

***Derivative      Instruments***

| **Note                2.** | **Employee                Stock-Based Compensation** |
|----------------------------|------------------------------------------------------|

***Stock-Based      Compensation Expense under FAS 123R***

*“*
*Share-Based Payment*
*”*

*(in millions):*

|                                                           |   | **Three                  Months****Ended                  September 30,** |   |   | **Nine                  Months****Ended                  September 30,** |   |
|----------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|--------|--------------------------------------------------------------------------|--------|
|                                                           |   | **2007**                                                                  |   |   | **2006**                                                                 |   |   | **2007** |   |   | **2006** |   |
| Cost                of sales                                   |   | $                                                                         | 16     |   |                                                                     | $      | – |   |   | $ | 49 |   |   | $ | – |   |
| Research                and development                        |   |                                                                      | 37     |   |                                                                     |   | 35 |   |   |   | 114 |   |   |   | 101 |   |
| Marketing,                general and administrative           |   |                                                                      | 44     |   |                                                                     |   | 41 |   |   |   | 137 |   |   |   | 124 |   |
| Total                employee stock-based compensation expense |   | $                                                                         | 97     |   |                                                                     | $      | 76 |   |   | $ | 300 |   |   | $ | 225 |   |

----

** **
** **

***Valuation      Assumptions***

|                                   |   | **Three                  Months****Ended                  September 30,** |   |   | **Nine                  Months****Ended                  September 30,** |   |
|----------------------------------------|--------|---------------------------------------------------------------------------|--------|--------|--------------------------------------------------------------------------|--------|
|                                   |   | **2007**                                                                  |   |   | **2006**                                                                 |   |   | **2007** |   |   | **2006** |   |
| Risk-free                interest rate |   |                                                                      | 4.3    | %      |                                                                     |   | 4.6 | % |   |   | 4.3 | % |   |   | 4.6 | % |
| Dividend                yield          |   |                                                                      | 0.0    | %      |                                                                     |   | 0.0 | % |   |   | 0.0 | % |   |   | 0.0 | % |
| Expected                volatility     |   |                                                                      | 25.0   | %      |                                                                     |   | 27.0 | % |   |   | 25.0 | % |   |   | 27.0 | % |
| Expected                term (years)   |   |                                                                      | 5.0    |   |                                                                     |   | 4.6 |   |   |   | 5.0 |   |   |   | 4.6 |   |

| **Note                3.** | **Condensed                Consolidated Financial Statement                Detail** |
|----------------------------|-------------------------------------------------------------------------------------|

***Inventories***

*(in millions)*

|                                      |   | **September                  30, 2007** |   |   | **December                  31, 2006** |   |
|-------------------------------------------|--------|-----------------------------------------|--------|--------|----------------------------------------|--------|
| Raw                materials and supplies |   | $                                       | 131    |   |                                   | $      | 116 |   |
| Work                in process            |   |                                    | 933    |   |                                   |   | 818 |   |
| Finished                goods             |   |                                    | 361    |   |                                   |   | 244 |   |
| Total                                     |   | $                                       | 1,425  |   |                                   | $      | 1,178 |   |

| **Note                4.** | **Contingencies** |
|----------------------------|-------------------|

----

----

| **Note                5.** | **Relationship                with Roche Holdings, Inc. and Related Party                Transactions** |
|----------------------------|---------------------------------------------------------------------------------------------------------|

***Roche      Holdings, Inc.**’**s Ability to Maintain Percentage Ownership      Interest in Our Stock***

----

**Related      Party Transactions**

*“*
*Reporting Revenue Gross as      a Principal versus Net as an Agent*
*”*

***Roche***

*(in      millions)*

|                                                                                                                        |   | **Three                  Months****Ended                  September 30,** |   |   | **Nine                  Months****Ended                  September 30,** |   |
|-----------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|--------|--------------------------------------------------------------------------|--------|
|                                                                                                                        |   | **2007**                                                                  |   |   | **2006**                                                                 |   |   | **2007** |   |   | **2006** |   |
| Product                sales to Roche                                                                                       |   | $                                                                         | 135    |   |                                                                     | $      | 86 |   |   | $ | 651 |   |   | $ | 217 |   |
|                                                                                                                        |   |                                                                      |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| Royalties                earned from Roche                                                                                  |   | $                                                                         | 317    |   |                                                                     | $      | 230 |   |   | $ | 855 |   |   | $ | 602 |   |
|                                                                                                                        |   |                                                                      |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| Contract                revenue from Roche                                                                                  |   | $                                                                         | 21     |   |                                                                     | $      | 37 |   |   | $ | 81 |   |   | $ | 76 |   |
|                                                                                                                        |   |                                                                      |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| Cost                of sales on product sales to Roche                                                                      |   | $                                                                         | 98     |   |                                                                     | $      | 60 |   |   | $ | 356 |   |   | $ | 173 |   |
|                                                                                                                        |   |                                                                      |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| Research                and development (R&D) expenses incurred on joint development projects                with Roche |   | $                                                                         | 64     |   |                                                                     | $      | 52 |   |   | $ | 192 |   |   | $ | 147 |   |

** **

***Novartis***

*“*
*Related      Party Disclosures,*
*”*

----

*(in millions)*

|                                                                                                |   | **Three                  Months****Ended                  September 30,** |   |   | **Nine                  Months****Ended                  September 30,** |   |
|-----------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|--------|--------------------------------------------------------------------------|--------|
|                                                                                                |   | **2007**                                                                  |   |   | **2006**                                                                 |   |   | **2007** |   |   | **2006** |   |
| Product                sales to Novartis                                                            |   | $                                                                         | 2      |   |                                                                     | $      | 1 |   |   | $ | 8 |   |   | $ | 3 |   |
|                                                                                                |   |                                                                      |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| Royalties                earned from Novartis                                                       |   | $                                                                         | 40     |   |                                                                     | $      | – |   |   | $ | 59 |   |   | $ | 1 |   |
|                                                                                                |   |                                                                      |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| Contract                revenue from Novartis                                                       |   | $                                                                         | 9      |   |                                                                     | $      | 15 |   |   | $ | 53 |   |   | $ | 38 |   |
|                                                                                                |   |                                                                      |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| Cost                of sales on product sales to Novartis                                           |   | $                                                                         | 2      |   |                                                                     | $      | 3 |   |   | $ | 9 |   |   | $ | 5 |   |
|                                                                                                |   |                                                                      |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| R&D                expenses incurred on joint development projects with                Novartis |   | $                                                                         | 11     |   |                                                                     | $      | 10 |   |   | $ | 30 |   |   | $ | 32 |   |
|                                                                                                |   |                                                                      |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| Collaboration                profit sharing expense to Novartis                                     |   | $                                                                         | 47     |   |                                                                     | $      | 46 |   |   | $ | 143 |   |   | $ | 137 |   |

** **

| **Note                6.** | **Acquisition                of Tanox, Inc.** |
|----------------------------|-----------------------------------------------|

----

| *(In                millions)*                                 |   |   |   |
|----------------------------------------------------------------|--------|--------|--------|
| **Assets**                                                     |   |   |   |
| Cash                                                           |   | $      | 100    |   |
| Investments                                                    |   |   | 102    |   |
| Working                capital and other, net                  |   |   | 56     |   |
| In-process                research and development (IPR&D) |   |   | 77     |   |
| Developed                product technology                    |   |   | 780    |   |
| Core                technology                                 |   |   | 34     |   |
| Goodwill                                                       |   |   | 259    |   |
| 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  |   |

*“Business Combinations” *

*, *
*“Goodwill and Other Intangible Assets,”*

----

*“*
*Accounting for Preexisting Relationships between the      Parties to a Business Combination*
*”*
* *

| **Note                7.** | **Income                Taxes** |
|----------------------------|---------------------------------|

| **Note                8.** | **Subsequent                Event** |
|----------------------------|-------------------------------------|

----

**Report      of Independent Registered Public Accounting      Firm**

*The      Board of Directors and Stockholders of Genentech, Inc.*

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

----

**Item      2. Management’s Discussion and      Analysis of      Financial Condition and Results of Operations**

**GENENTECH,      INC.**

**FINANCIAL      REVIEW**

**Overview**

***The      Company***

***Major      Developments in the Third Quarter of 2007***

*“*
*Accounting for Preexisting Relationships between the Parties      to a      Business Combination*
*”*
* *

***Our      Strategy and Goals***

----

***Economic,      Industry-wide, and Other Factors***

-  We          face significant competition in the diseases of interest to us from          pharmaceutical companies and biotechnology companies. The introduction          of new          competitive products or follow-on biologics, and/or new information about          existing products, and/or pricing decisions by us or our competitors, may          result in lost market share for us, reduced utilization of our products,          lower          prices, and/or reduced product sales, even for products protected by          patents. 
-  Our            long-term business growth depends upon our ability to continue to successfully            develop and commercialize important novel therapeutics to treat unmet            medical            needs, such as cancer. We recognize that the successful development of            biotherapeutics is highly difficult and uncertain, and that it will be            challenging for us to continue to discover and develop innovative treatments.            Our business requires significant investment in research and development            (R&D) over many years, often for products that fail during the R&D            process. Once a product receives FDA approval, it remains subject to            ongoing            FDA regulation, including changes to the product label, new or revised            regulatory requirements for manufacturing practices, written advisement            to            physicians, and/or product recalls or withdrawals. 
-  Our              near-term growth will depend on our ability to execute on recent product              approvals, including Lucentis for the treatment of neovascular (wet)              age-related macular degeneration (AMD) and Avastin for the treatment              of              non-small cell lung cancer, and to successfully obtain FDA approvals              for              potential new indications for our existing products such as Avastin              for the              treatment of metastatic BC and anti-CD20 molecules for the treatment              of              immunological disorders. 
-  Our                business model requires appropriate pricing and reimbursement for                our products                to offset the costs and risks of drug development. The pricing and                distribution of our products have received negative press coverage                and public                scrutiny. We will continue to meet with patient groups, payers, and                other                stakeholders in the healthcare system to understand their issues                and concerns.                The reimbursement environment for our products may change in the                future and                become more challenging. 
-  As                  the Medicare and Medicaid programs are the largest payers for our                  products,                  rules related to coverage and reimbursement continue to represent                  an important                  issue for our business. New regulations related to hospital and                  physician                  payment continue to be implemented annually. To date, we have not                  seen any                  detectable effects of the new rules on our product sales. As a                  result of the                  Deficit Reduction Act, new regulations will take effect in the                  fourth quarter                  of 2007 that will impact the discounted price for our products                  paid by                  Medicaid and government-affiliated customers. While pricing continues                  to be an                  important area of focus, we anticipate minimal impact on our revenue                  for the                  remainder of 2007. 
-  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 may negatively affect our sales, royalty                    revenue, and                    operating results. We are often involved in disputes over contracts                    and                    intellectual property, and we work to resolve these disputes                    in confidential                    negotiations or litigation. We expect legal challenges in this                    area to                    continue. We plan to continue to build upon and defend our intellectual                    property position. 

----

-  Manufacturing          biotherapeutics is difficult and complex, and requires facilities specifically          designed and validated to run biotechnology production processes. The          manufacture of a biotherapeutic requires developing and maintaining a process          to reliably manufacture and formulate the product at an appropriate scale,          obtaining regulatory approval to manufacture the product, and is subject          to          changes in regulatory requirements or standards that may require modifications          to the manufacturing process. Additionally, we may have an excess of available          capacity, which could lead to an idling of a portion of our manufacturing          facilities and incurring unabsorbed or idle plant charges, or other excess          capacity charges, resulting in an increase in our cost of sales. 
-  Our            ability to attract and retain highly qualified and talented people in            all            areas of the company, and our ability to maintain our unique culture,            will be            critical to our success over the long-term. We are working diligently            across            the company to make sure that we successfully hire, train, and integrate            new            employees into the Genentech culture and            environment. 

**Marketed        Products**

*Avastin*

*Rituxan      *

*Herceptin      *

*Lucentis*

*Xolair*

*Tarceva      *

----

*Nutropin      *
*Nutropin AQ *

*Activase      *

*TNKase      *

*Cathflo      Activase *

*Pulmozyme      *

*Raptiva*

**Licensed      Products**

-  Herceptin,          Pulmozyme, and Avastin outside the U.S.; 
-  Rituxan            outside the U.S., excluding Japan; and 
-  Nutropin              products, Activase, and TNKase in Canada. 

**Available      Information**

-  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 reasonably          practicable after such material is electronically filed with the U.S.          Securities and Exchange Commission; 
-  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 
-  The              charters of the Audit Committee and the Compensation Committee of our              Board of              Directors. 

----

**Critical      Accounting Policies and the Use of Estimates**

***Contingencies***

***Revenue      Recognition – Avastin U.S. Product Sales***

----

***Product      Sales Allowances***

-  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          from          us; 
-  Prompt-pay              sales discounts are credits granted to wholesalers for remitting payment              on              their purchases within established cash payment incentive              periods; 
-  Product                return allowances are established in accordance with our Product                Returns                Policy. Our returns policy allows product returns within the period                beginning                two months prior to and six months following product                expiration; 
-  Wholesaler                  inventory management allowances are credits granted to wholesalers                  for                  compliance with various contractually defined inventory management                  programs.                  These programs were created to align purchases with underlying                  demand for our                  products and to maintain consistent inventory levels, typically                  at two to                  three weeks of sales depending on the product;                  and 
-  Healthcare                    provider contractual chargebacks are the result of contractual                    commitments by                    us to provide products to healthcare providers at specified prices                    or                    discounts. 

----

***Royalties***

***Income      Taxes***

----

*“*
*Accounting for Uncertainty in      Income Taxes*
*”*

***Inventories***

***Valuation      of Acquired Intangible Assets***

***Employee      Stock-Based Compensation***

*“*
*Share-Based Payment*
*”*

----

**Results      of Operations**

*(In      millions, except per share amounts)*

|                                                                                                  |   | **Three                Months****Ended                September 30,** |   |   |     |   |    | **Nine                Months****Ended                September 30,** |   |   |     |   |
|-------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|--------|----------|--------|---------|----------------------------------------------------------------------|--------|--------|----------|--------|
|                                                                                                  |   | **2007**                                                              |   |   | **2006** |   |    | **% Change**                                                    |   |   | **2007** |   |   | **2006** |   |   | **% Change** |   |
| Product                sales                                                                          |   | $                                                                     | 2,321  |   |     | $      | 1,941   |                                                                 |   |   | 20       | %      |   | $ | 7,094 |   |   | $ | 5,395 |   |   |   | 31 | % |
| Royalties                                                                                             |   |                                                                  | 524    |   |     |   | 364     |                                                                 |   |   | 44       |   |   |   | 1,427 |   |   |   | 966 |   |   |   | 48 |   |
| Contract                revenue                                                                       |   |                                                                  | 63     |   |     |   | 79      |                                                                 |   |   | (20      | )      |   |   | 234 |   |   |   | 208 |   |   |   | 13 |   |
| Total                operating revenue                                                                |   |                                                                  | 2,908  |   |     |   | 2,384   |                                                                 |   |   | 22       |   |   |   | 8,755 |   |   |   | 6,569 |   |   |   | 33 |   |
|                                                                                                  |   |                                                                  |   |   |     |   |    |                                                                 |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost                of sales                                                                          |   |                                                                  | 406    |   |     |   | 297     |                                                                 |   |   | 37       |   |   |   | 1,227 |   |   |   | 843 |   |   |   | 46 |   |
| Research                and development                                                               |   |                                                                  | 615    |   |     |   | 454     |                                                                 |   |   | 35       |   |   |   | 1,828 |   |   |   | 1,218 |   |   |   | 50 |   |
| Marketing,                general and administrative                                                  |   |                                                                  | 541    |   |     |   | 501     |                                                                 |   |   | 8        |   |   |   | 1,564 |   |   |   | 1,414 |   |   |   | 11 |   |
| Collaboration                profit sharing                                                           |   |                                                                  | 276    |   |     |   | 250     |                                                                 |   |   | 10       |   |   |   | 805 |   |   |   | 735 |   |   |   | 10 |   |
| Write-off                of in-process research and development related to                acquisition |   |                                                                  | 77     |   |     |   | – |                                                                 |   |   | –  |   |   |   | 77 |   |   |   | – |   |   |   | – |   |
| Gain                on acquisition                                                                    |   |                                                                  | (121   | )      |     |   | – |                                                                 |   |   | –  |   |   |   | (121 | ) |   |   | – |   |   |   | – |   |
| Recurring                charges related to redemption and acquisition                                |   |                                                                  | 38     |   |     |   | 26      |                                                                 |   |   | 46       |   |   |   | 90 |   |   |   | 79 |   |   |   | 14 |   |
| Special                items: litigation-related                                                      |   |                                                                  | 14     |   |     |   | 13      |                                                                 |   |   | 8        |   |   |   | 41 |   |   |   | 40 |   |   |   | 3 |   |
| Total                costs and expenses                                                               |   |                                                                  | 1,846  |   |     |   | 1,541   |                                                                 |   |   | 20       |   |   |   | 5,511 |   |   |   | 4,329 |   |   |   | 27 |   |
|                                                                                                  |   |                                                                  |   |   |     |   |    |                                                                 |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating                income                                                                       |   |                                                                  | 1,062  |   |     |   | 843     |                                                                 |   |   | 26       |   |   |   | 3,244 |   |   |   | 2,240 |   |   |   | 45 |   |
|                                                                                                  |   |                                                                  |   |   |     |   |    |                                                                 |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other                income (expense):                                                                |   |                                                                  |   |   |     |   |    |                                                                 |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                and other income, net                                                         |   |                                                                  | 84     |   |     |   | 74      |                                                                 |   |   | 14       |   |   |   | 233 |   |   |   | 249 |   |   |   | (6 | ) |
| Interest                expense                                                                       |   |                                                                  | (18    | )      |     |   | (19     | )                                                                    |   |   | (5       | )      |   |   | (53 | ) |   |   | (56 | ) |   |   | (5 | ) |
| Total                other income, net                                                                |   |                                                                  | 66     |   |     |   | 55      |                                                                 |   |   | 20       |   |   |   | 180 |   |   |   | 193 |   |   |   | (7 | ) |
|                                                                                                  |   |                                                                  |   |   |     |   |    |                                                                 |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                before taxes                                                                    |   |                                                                  | 1,128  |   |     |   | 898     |                                                                 |   |   | 26       |   |   |   | 3,424 |   |   |   | 2,433 |   |   |   | 41 |   |
| Income                tax provision                                                                   |   |                                                                  | 443    |   |     |   | 330     |                                                                 |   |   | 34       |   |   |   | 1,286 |   |   |   | 914 |   |   |   | 41 |   |
| Net                income                                                                             |   | $                                                                     | 685    |   |     | $      | 568     |                                                                 |   |   | 21       |   |   | $ | 2,138 |   |   | $ | 1,519 |   |   |   | 41 |   |
|                                                                                                  |   |                                                                  |   |   |     |   |    |                                                                 |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings                per share:                                                                    |   |                                                                  |   |   |     |   |    |                                                                 |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                 |   | $                                                                     | 0.65   |   |     | $      | 0.54    |                                                                 |   |   | 20       |   |   | $ | 2.03 |   |   | $ | 1.44 |   |   |   | 41 |   |
| Diluted                                                                                               |   | $                                                                     | 0.64   |   |     | $      | 0.53    |                                                                 |   |   | 21       | %      |   | $ | 2.00 |   |   | $ | 1.41 |   |   |   | 42 | % |
|                                                                                                  |   |                                                                  |   |   |     |   |    |                                                                 |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost                of sales as a % of product sales                                                  |   |                                                                  | 17     | %      |     |   | 15      | %                                                                    |   |   |     |   |   |   | 17 | % |   |   | 16 | % |   |   |   |   |
| Research                and development as a % of operating revenue                                   |   |                                                                  | 21     |   |     |   | 19      |                                                                 |   |   |     |   |   |   | 21 |   |   |   | 19 |   |   |   |   |   |
| Marketing,                general and administrative as a % of operating revenue                      |   |                                                                  | 19     |   |     |   | 21      |                                                                 |   |   |     |   |   |   | 18 |   |   |   | 22 |   |   |   |   |   |
| Pretax                operating margin                                                                |   |                                                                  | 37     |   |     |   | 35      |                                                                 |   |   |     |   |   |   | 37 |   |   |   | 34 |   |   |   |   |   |
| Effective                income tax rate                                                              |   |                                                                  | 39     | %      |     |   | 37      | %                                                                    |   |   |     |   |   |   | 38 | % |   |   | 38 | % |   |   |   |   |

----

***Total      Operating Revenue***

***Total      Product Sales***

*(In      millions)*

|                                              |   | **Three                Months****Ended                  September 30,** |   |   |     |   |   | **Nine                Months****Ended                  September 30,** |   |   |     |   |
|---------------------------------------------------|--------|-------------------------------------------------------------------------|--------|--------|----------|--------|--------|------------------------------------------------------------------------|--------|--------|----------|--------|
|                                              |   | **2007**                                                                |   |   | **2006** |   |   | **% Change**                                                      |   |   | **2007** |   |   | **2006** |   |   | **% Change** |   |
| Net                U.S. product sales             |   |                                                                    |   |   |     |   |   |                                                                   |   |   |     |   |   |   |   |   |   |   |
| Avastin                                           |   | $                                                                       | 597    |   |     | $      | 435    |                                                                   |   |   | 37       | %      |   | $ | 1,694 |   |   | $ | 1,256 |   |   |   | 35 | % |
| Rituxan                                           |   |                                                                    | 572    |   |     |   | 509    |                                                                   |   |   | 12       |   |   |   | 1,689 |   |   |   | 1,511 |   |   |   | 12 |   |
| Herceptin                                         |   |                                                                    | 320    |   |     |   | 302    |                                                                   |   |   | 6        |   |   |   | 960 |   |   |   | 912 |   |   |   | 5 |   |
| Lucentis                                          |   |                                                                    | 198    |   |     |   | 153    |                                                                   |   |   | 29       |   |   |   | 618 |   |   |   | 163 |   |   |   | 279 |   |
| Xolair                                            |   |                                                                    | 121    |   |     |   | 107    |                                                                   |   |   | 13       |   |   |   | 352 |   |   |   | 307 |   |   |   | 15 |   |
| Tarceva                                           |   |                                                                    | 101    |   |     |   | 100    |                                                                   |   |   | 1        |   |   |   | 304 |   |   |   | 296 |   |   |   | 3 |   |
| Nutropin                products                  |   |                                                                    | 93     |   |     |   | 92     |                                                                   |   |   | 1        |   |   |   | 278 |   |   |   | 277 |   |   |   | 0 |   |
| Thrombolytics                                     |   |                                                                    | 67     |   |     |   | 60     |                                                                   |   |   | 12       |   |   |   | 202 |   |   |   | 181 |   |   |   | 12 |   |
| Pulmozyme                                         |   |                                                                    | 57     |   |     |   | 50     |                                                                   |   |   | 14       |   |   |   | 164 |   |   |   | 146 |   |   |   | 12 |   |
| Raptiva                                           |   |                                                                    | 29     |   |     |   | 23     |                                                                   |   |   | 26       |   |   |   | 80 |   |   |   | 66 |   |   |   | 21 |   |
| Total                U.S. product sales(1)        |   |                                                                    | 2,155  |   |     |   | 1,830  |                                                                   |   |   | 18       |   |   |   | 6,341 |   |   |   | 5,116 |   |   |   | 24 |   |
|                                              |   |                                                                    |   |   |     |   |   |                                                                   |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                product sales to collaborators |   |                                                                    | 166    |   |     |   | 111    |                                                                   |   |   | 50       |   |   |   | 753 |   |   |   | 280 |   |   |   | 169 |   |
| Total                product sales                |   | $                                                                       | 2,321  |   |     | $      | 1,941  |                                                                   |   |   | 20       | %      |   | $ | 7,094 |   |   | $ | 5,395 |   |   |   | 31 | % |

| (1) | The                totals may not appear to sum due to                rounding. |
|-----|---------------------------------------------------------------------------------|

** **

*Avastin*

** **

----

*Rituxan*

** **

*Herceptin*

** **

----

*Lucentis*

*Xolair*

** **

*Tarceva*

** **

*Nutropin      Products*

** **

----

*Thrombolytics*

*Pulmozyme*

*Raptiva*

*Sales      to Collaborators*

** **

***Royalties***

** **

----

*(in      millions)*

|                                                              |   | **Three                  Months Ended****September                  30, 2007** |   |   | **Nine                  Months Ended****September                  30, 2007** |   |
|-------------------------------------------------------------------|--------|--------------------------------------------------------------------------------|--------|--------|-------------------------------------------------------------------------------|--------|
| Royalty                revenue                                    |   | $                                                                              | 75     |   |                                                                          | $      | 183 |   |
|                                                              |   |                                                                           |   |   |                                                                          |   |   |   |
| Gross                expenses(1)                                  |   | $                                                                              | 30     |   |                                                                          | $      | 87 |   |
|                                                              |   |                                                                           |   |   |                                                                          |   |   |   |
| Net                of tax effect of Cabilly patent on diluted EPS |   | $                                                                              | 0.03   |   |                                                                          | $      | 0.06 |   |

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

***Contract      Revenue***

** **

***Cost      of Sales***

----

***Research      and Development***

** **

** **

*(in      millions)*

|                                                          |   | **Three                Months****Ended                September 30,** |   |   |     |   |   | **Nine                Months****Ended                September 30,** |   |   |     |   |
|---------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|--------|----------|--------|--------|----------------------------------------------------------------------|--------|--------|----------|--------|
| **Research                and Development**                   |   | **2007**                                                              |   |   | **2006** |   |   | **% Change**                                                    |   |   | **2007** |   |   | **2006** |   |   | **% Change** |   |
| Product                development (including post-marketing) |   | $                                                                     | 479    |   |     | $      | 316    |                                                                 |   |   | 52       | %      |   | $ | 1,277 |   |   | $ | 900 |   |   |   | 42 | % |
| Research                                                      |   |                                                                  | 109    |   |     |   | 83     |                                                                 |   |   | 31       |   |   |   | 304 |   |   |   | 232 |   |   |   | 31 |   |
| In-licensing                (up-front and ongoing fees)       |   |                                                                  | 27     |   |     |   | 55     |                                                                 |   |   | (51      | )      |   |   | 247 |   |   |   | 86 |   |   |   | 187 |   |
| Total                R&D                                  |   | $                                                                     | 615    |   |     | $      | 454    |                                                                 |   |   | 35       | %      |   | $ | 1,828 |   |   | $ | 1,218 |   |   |   | 50 | % |

***Marketing,      General and Administrative***

** **

***Collaboration      Profit Sharing***

** **

*(in      millions)*

|                                                      |   | **Three                Months****Ended                September 30,** |   |   |     |   |   | **Nine                Months****Ended                September 30,** |   |   |     |   |
|-----------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|--------|----------|--------|--------|----------------------------------------------------------------------|--------|--------|----------|--------|
|                                                      |   | **2007**                                                              |   |   | **2006** |   |   | **% Change**                                                    |   |   | **2007** |   |   | **2006** |   |   | **% Change** |   |
| U.S.                Rituxan profit sharing expense        |   | $                                                                     | 187    |   |     | $      | 165    |                                                                 |   |   | 13       | %      |   | $ | 541 |   |   | $ | 490 |   |   |   | 10 | % |
| U.S.                Tarceva profit sharing expense        |   |                                                                  | 42     |   |     |   | 39     |                                                                 |   |   | 8        |   |   |   | 121 |   |   |   | 108 |   |   |   | 12 |   |
| Total                Xolair profit sharing expense        |   |                                                                  | 47     |   |     |   | 46     |                                                                 |   |   | 2        |   |   |   | 143 |   |   |   | 137 |   |   |   | 4 |   |
| Total                collaboration profit sharing expense |   | $                                                                     | 276    |   |     | $      | 250    |                                                                 |   |   | 10       | %      |   | $ | 805 |   |   | $ | 735 |   |   |   | 10 | % |

----

*(in millions)*

|                                                                                                                                                     |   | **Three                Months****Ended                September 30,** |   |   |     |   |   | **Nine                Months****Ended                September 30,** |   |   |     |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|--------|----------|--------|--------|----------------------------------------------------------------------|--------|--------|----------|--------|
|                                                                                                                                                     |   | **2007**                                                              |   |   | **2006** |   |   | **% Change**                                                    |   |   | **2007** |   |   | **2006** |   |   | **% Change** |   |
| Product                sales, net                                                                                                                        |   | $                                                                     | 572    |   |     | $      | 509    |                                                                 |   |   | 12       | %      |   | $ | 1,689 |   |   | $ | 1,511 |   |   |   | 12 | % |
| Combined                commercial and manufacturing costs and expenses                                                                                  |   |                                                                  | 129    |   |     |   | 120    |                                                                 |   |   | 8        |   |   |   | 405 |   |   |   | 351 |   |   |   | 15 |   |
| Combined                co-promotion profits                                                                                                             |   | $                                                                     | 443    |   |     | $      | 389    |                                                                 |   |   | 14       |   |   | $ | 1,284 |   |   | $ | 1,160 |   |   |   | 11 |   |
| Amount                due to Biogen Idec for their share of co-promotion profits – included in                collaboration profit sharing expense |   | $                                                                     | 187    |   |     | $      | 165    |                                                                 |   |   | 13       | %      |   | $ | 541 |   |   | $ | 490 |   |   |   | 10 | % |

*(in millions)*

|                                                                                                                                                   |   | **Three                Months****Ended                September 30,** |   |   |     |   |   | **Nine                Months****Ended                September 30,** |   |   |     |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|--------|----------|--------|--------|----------------------------------------------------------------------|--------|--------|----------|--------|
|                                                                                                                                                   |   | **2007**                                                              |   |   | **2006** |   |   | **% Change**                                                    |   |   | **2007** |   |   | **2006** |   |   | **% Change** |   |
| Contract                revenue from Biogen Idec (R&D reimbursement)                                                                               |   | $                                                                     | 27     |   |     | $      | 20     |                                                                 |   |   | 35       | %      |   | $ | 83 |   |   | $ | 59 |   |   |   | 41 | % |
|                                                                                                                                                   |   |                                                                  |   |   |     |   |   |                                                                 |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Royalty                expense on sales of Rituxan by Roche and to Zenyaku, and other patent                costs – included in MG&A expense |   | $                                                                     | 69     |   |     | $      | 46     |                                                                 |   |   | 50       | %      |   | $ | 175 |   |   | $ | 126 |   |   |   | 39 | % |

***Write-off      of In-process Research and Development Related to      Acquisition***

----

***Gain      on Acquisition***

***Recurring      Charges Related to Redemption and Acquisition***

***Special      Items: Litigation-Related***

***Operating      Income***

----

***Other      Income (Expense)***

*(in      millions)*

|                                                                      |   | **Three                Months****Ended                September 30,** |    |   |     |   |    | **Nine                Months****Ended                September 30,** |   |   |     |   |
|---------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|---------|--------|----------|--------|---------|----------------------------------------------------------------------|--------|--------|----------|--------|
| **Other                Income, Net**                                      |   | **2007**                                                              |    |   | **2006** |   |    | **% Change**                                                    |   |   | **2007** |   |   | **2006** |   |   | **% Change** |   |
| Gains                on sales of biotechnology equity securities, net     |   | $                                                                     | 5       |   |     | $      | 11      |                                                                 |   |   | (55      | )%     |   | $ | 17 |   |   | $ | 81 |   |   |   | (79 | )% |
| Write-downs                   of biotechnology debt and equity securities |   |                                                                  | – |   |     |   | (1      | )                                                                    |   |   | (100     | )      |   |   | (4 | ) |   |   | (1 | ) |   |   | 300 |   |
| Interest                income                                            |   |                                                                  | 80      |   |     |   | 64      |                                                                 |   |   | 25       |   |   |   | 219 |   |   |   | 166 |   |   |   | 32 |   |
| Interest                expense                                           |   |                                                                  | (18     | )      |     |   | (19     | )                                                                    |   |   | (5       | )      |   |   | (53 | ) |   |   | (56 | ) |   |   | (5 | ) |
| Other                miscellaneous income (expense)                       |   |                                                                  | (1      | )      |     |   | – |                                                                 |   |   | –  |   |   |   | 1 |   |   |   | 3 |   |   |   | (67 | ) |
| Total                other income, net                                    |   | $                                                                     | 66      |   |     | $      | 55      |                                                                 |   |   | 20       | %      |   | $ | 180 |   |   | $ | 193 |   |   |   | (7 | )% |

***Income      Tax Provision***

**Liquidity      and Capital Resources**

*(In      millions)*

|                                                                                                                                                                                          |   | **September                  30,****2007** |   |   | **December 31,****2006** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|--------|-------------------------------|--------|
| Unrestricted                cash, cash equivalents, short-term investments, and long-term marketable                debt and equity securities                                                |   | $                                          | 4,872  |   |                          | $      | 4,325 |   |
| Net                receivable equity hedge instruments                                                                                                                                        |   |                                       | 4      |   |                          |   | 50 |   |
| Total                unrestricted cash, cash equivalents, short-term investments, long-term                marketable debt and equity securities, and equity hedge                instruments |   | $                                          | 4,876  |   |                          | $      | 4,375 |   |
| Working                capital                                                                                                                                                                |   | $                                          | 4,615  |   |                          | $      | 3,694 |   |
| Current                ratio                                                                                                                                                                  |   | 3.2:1                                      |   |   | 2.8:1                         |   |

----

***Cash      Provided by Operating Activities***

***Cash      Used in Investing Activities***

** **

***Cash      Used in Financing Activities***

----

** **

*      (shares in millions)*

|                                      |   | **Total                  Number of Shares Purchased** |   |   | **Average                  Price Paid per Share** |   |
|-------------------------------------------|--------|-------------------------------------------------------|--------|--------|---------------------------------------------------|--------|
| January                1–31, 2007   |   |                                                  | 3.0    |   |                                              | $      | 87.33 |   |
| February                1–28, 2007  |   |                                                  | 0.9    |   |                                              |   | 86.54 |   |
| March                1–31, 2007     |   |                                                  | 0.6    |   |                                              |   | 82.33 |   |
| April                1–30, 2007     |   |                                                  | 0.8    |   |                                              |   | 82.14 |   |
| May                1–31, 2007       |   |                                                  | 1.4    |   |                                              |   | 79.65 |   |
| June                1–30, 2007      |   |                                                  | 1.3    |   |                                              |   | 75.84 |   |
| August                1–31, 2007    |   |                                                  | 0.8    |   |                                              |   | 73.66 |   |
| September                1–30, 2007 |   |                                                  | 1.2    |   |                                              |   | 78.67 |   |
| Total                                     |   |                                                  | 10.0   |   |                                              | $      | 81.90 |   |

**Off-Balance      Sheet Arrangements**

----

***Contractual      Obligations***

**Contingencies**

**Relationship      with Roche Holdings, Inc.**

***Roche      Holdings, Inc.’s Ability to Maintain Percentage Ownership Interest in Our      Stock***

**Related      Party Transactions**

*“*
*Reporting Revenue Gross as      a Principal versus Net as an Agent*
*”*

----

***Roche***

*(in      millions)*

|                                                                              |   | **Three                  Months****Ended                  September 30,** |   |   | **Nine                  Months****Ended                  September 30,** |   |
|-----------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|--------|--------------------------------------------------------------------------|--------|
|                                                                              |   | **2007**                                                                  |   |   | **2006**                                                                 |   |   | **2007** |   |   | **2006** |   |
| Product                sales to Roche                                             |   | $                                                                         | 135    |   |                                                                     | $      | 86 |   |   | $ | 651 |   |   | $ | 217 |   |
|                                                                              |   |                                                                      |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| Royalties                earned from Roche                                        |   | $                                                                         | 317    |   |                                                                     | $      | 230 |   |   | $ | 855 |   |   | $ | 602 |   |
|                                                                              |   |                                                                      |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| Contract                revenue from Roche                                        |   | $                                                                         | 21     |   |                                                                     | $      | 37 |   |   | $ | 81 |   |   | $ | 76 |   |
|                                                                              |   |                                                                      |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| Cost                of sales on product sales to Roche                            |   | $                                                                         | 98     |   |                                                                     | $      | 60 |   |   | $ | 356 |   |   | $ | 173 |   |
|                                                                              |   |                                                                      |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| R&D                expenses incurred on joint development projects with Roche |   | $                                                                         | 64     |   |                                                                     | $      | 52 |   |   | $ | 192 |   |   | $ | 147 |   |

***Novartis***

*“*
*Related      Party Disclosures,*
*”*

----

*(in millions)*

|                                                                                                |   | **Three                  Months****Ended                  September 30,** |   |   | **Nine                  Months****Ended                  September 30,** |   |
|-----------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|--------|--------------------------------------------------------------------------|--------|
|                                                                                                |   | **2007**                                                                  |   |   | **2006**                                                                 |   |   | **2007** |   |   | **2006** |   |
| Product                sales to Novartis                                                            |   | $                                                                         | 2      |   |                                                                     | $      | 1 |   |   | $ | 8 |   |   | $ | 3 |   |
|                                                                                                |   |                                                                      |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| Royalties                earned from Novartis                                                       |   | $                                                                         | 40     |   |                                                                     | $      | – |   |   | $ | 59 |   |   | $ | 1 |   |
|                                                                                                |   |                                                                      |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| Contract                revenue from Novartis                                                       |   | $                                                                         | 9      |   |                                                                     | $      | 15 |   |   | $ | 53 |   |   | $ | 38 |   |
|                                                                                                |   |                                                                      |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| Cost                of sales on product sales to Novartis                                           |   | $                                                                         | 2      |   |                                                                     | $      | 3 |   |   | $ | 9 |   |   | $ | 5 |   |
|                                                                                                |   |                                                                      |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| R&D                expenses incurred on joint development projects with                Novartis |   | $                                                                         | 11     |   |                                                                     | $      | 10 |   |   | $ | 30 |   |   | $ | 32 |   |
|                                                                                                |   |                                                                      |   |   |                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| Collaboration                profit sharing expense to Novartis                                     |   | $                                                                         | 47     |   |                                                                     | $      | 46 |   |   | $ | 143 |   |   | $ | 137 |   |

**Stock      Options**

***Option      Program Description***

----

***General      Option Information***

***Summary      of Option Activity***

*(Shares      in millions)*

|                                                 |   |                                                                |    |   | **Options                  Outstanding** |   |
|------------------------------------------------------|--------|---------------------------------------------------------------------|---------|--------|------------------------------------------|--------|
|                                                 |   | **Shares                  Available****for                  Grant** |    |   | **Number                  of****Shares** |   |   | **Weighted-Average****Exercise                  Price** |   |
| **December                31, 2005**                 |   |                                                                | 83.7    |   |                                     |   | 82.8 |   |   | $ | 46.64 |   |
| Grants                                               |   |                                                                | (17.5   | )      |                                     |   | 17.5 |   |   |   | 79.85 |   |
| Exercises                                            |   |                                                                | – |   |                                     |   | (9.5 | ) |   |   | 30.42 |   |
| Cancellations                                        |   |                                                                | 2.5     |   |                                     |   | (2.5 | ) |   |   | 62.09 |   |
| **December                31, 2006**                 |   |                                                                | 68.7    |   |                                     |   | 88.3 |   |   | $ | 54.53 |   |
| Grants                                               |   |                                                                | (17.4   | )      |                                     |   | 17.4 |   |   |   | 79.55 |   |
| Exercises                                            |   |                                                                | – |   |                                     |   | (8.9 | ) |   |   | 32.31 |   |
| Cancellations                                        |   |                                                                | 2.5     |   |                                     |   | (2.5 | ) |   |   | 75.51 |   |
| **September                30, 2007 (Year to Date)** |   |                                                                | 53.8    |   |                                     |   | 94.3 |   |   | $ | 60.69 |   |

***In-the-Money      and Out-of-the-Money Option Information***

*(Shares      in millions)*

|                                        |   | **Exercisable** |   |   | **Unexercisable**                         |   |   | **Total**  |   |
|---------------------------------------------|--------|-----------------|--------|--------|-------------------------------------------|--------|--------|------------|--------|
| **As                of September 30, 2007** |   | **Shares**      |   |   | **Weighted-Average****Exercise****Price** |   |   | **Shares** |   |   | **Weighted-Average****Exercise****Price** |   |   | **Shares** |   |   | **Weighted-Average****Exercise****Price** |   |
| In-the-Money                                |   |            | 40     |   |                                      | $      | 34.85  |       |   |   | 5 |   |   | $ | 55.55 |   |   |   | 45 |   |   | $ | 37.20 |   |
| Out-of-the-Money(1)                         |   |            | 12     |   |                                      |   | 83.97  |       |   |   | 37 |   |   |   | 81.09 |   |   |   | 49 |   |   |   | 81.81 |   |
| Total                Options Outstanding    |   |            | 52     |   |                                      |   |   |       |   |   | 42 |   |   |   |   |   |   |   | 94 |   |   |   |   |   |

| (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, $78.02, at the close                of                business on September 28, 2007. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Dilutive      Effect of Options***

** **

***Equity      Compensation Plan Information***

----

----

**Item      3. Quantitative and Qualitative Disclosures      About Market      Risk**

**Item      4. Controls and      Procedures**

*Evaluation      of Disclosure Controls and Procedures*

*Changes      in Internal Controls over Financial Reporting*

----

**PART      II—OTHER INFORMATION**

**Item      1. Legal Proceedings**

**Item      1A. Risk Factors**

**The      successful development of biotherapeutics is highly uncertain and requires      significant expenditures and time.**

-  Preclinical          tests may show the product to be toxic or lack efficacy in animal          models. 
-  Clinical            trial results may show the product to be less effective than desired            or to            have harmful or problematic side effects. 
-  Failure              to receive the necessary 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 Biologic License              Application              (BLA) preparation; discussions with the United States (U.S.) Food and              Drug              Administration (FDA); FDA requests for additional preclinical or clinical              data; analyses or changes to study design; or unexpected safety, efficacy,              or              manufacturing issues. 
-  Difficulties                in formulating the product, scaling the manufacturing process, or                getting                approval for manufacturing. 
-  Manufacturing                  costs, pricing or reimbursement issues, or other factors may make                  the product                  uneconomical. 
-  The                    proprietary rights of others and their competing products and                    technologies may                    prevent the product from being developed or                    commercialized. 
-  The                      contractual rights of our collaborators or others may prevent                      the product from                      being developed or                      commercialized. 

----

-  The          number of and the outcome of clinical trials currently being conducted          by us          and/or our collaborators. For example, our R&D expenses may increase based          on the number of late-stage clinical trials being conducted by us and/or          our          collaborators. 
-  The            number of products entering into development from late-stage research.            For            example, there is no guarantee that internal research efforts will succeed            in            generating a sufficient number of product candidates that are ready to            move            into development or that will be available for in-licensing on terms            acceptable to us and permitted under the anti-trust laws. 
-  Decisions              by Roche Holding AG and affiliates (Roche) whether to exercise its              options to              develop and sell our future products in non-U.S. markets, and the timing              and              amount of any related development cost              reimbursements. 
-  Our                ability to in-license projects of interest to us, and the timing                and amount of                related development funding or milestone payments for such licenses.                For                example, we may enter into agreements requiring us to pay a significant                up-front fee for the purchase of in-process R&D, which we may record as an                R&D expense. 
-  Participation                  in a number of collaborative research arrangements. On many of                  these                  collaborations, our share of expenses recorded in our financial                  statements is                  subject to volatility based on our collaborators’ spending activities as well                  as the mix and timing of activities between the                  parties. 
-  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.” 
-  Future                      levels of revenue. 

**We      may be unable to obtain or maintain regulatory approvals for our      products.**

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

----

-  Loss          of, or changes to, previously obtained approvals, including those resulting          from post-approval safety or efficacy issues. 
-  Failure            to comply with existing or future regulatory requirements. 
-  Changes              to manufacturing processes, manufacturing process standards or Good              Manufacturing Practices (GMP) following approval or changing interpretations              of these factors. 

**We      face competition.**

*Avastin:*

*Rituxan:*

----

*Herceptin: *

*Lucentis:*

*Xolair: *

*Tarceva: *

*Nutropin:*

----

*Thrombolytics:*

*Pulmozyme: *

*Raptiva: *

**Decreases      in third-party reimbursement rates may affect our product sales, results of      operations, and financial condition.**

**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.**

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

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-  Equipment          obsolescence, malfunctions, or failures; 
-  Product            quality or contamination problems; 
-  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; 
-  Changes                in FDA regulatory requirements or standards that require modifications                to our                manufacturing processes; 
-  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; 
-  A                    contract manufacturer going out of business or failing to produce                    product as                    contractually required; 
-  Failure                      to maintain an adequate state of GMP compliance;                      and 
-  Implementation                        and integration of our new enterprise resource planning system,                        including the                        portions related to manufacturing and                        distribution. 

**Protecting      our proprietary rights is difficult and costly.**

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**If      there is an adverse outcome in our pending litigation or other legal actions,      our business may be harmed.**

**Other      factors could affect our product sales.**

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

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-  Government          and third-party payer reimbursement and coverage decisions that affect          the          utilization of our products and competing products. 
-  Negative            safety or efficacy data from new clinical studies conducted either in            the U.S.            or internationally by any party could cause the sales of our products            to            decrease or a product to be recalled or withdrawn. 
-  Negative              safety or efficacy data from post-approval marketing experience or              production-quality problems could cause sales of our products to decrease              or a              product to be recalled. 
-  Efficacy                data from clinical studies conducted by any party in the U.S. or                internationally, showing or perceived to show a similar or an improved                treatment benefit at a lower dose or shorter duration of therapy,                could cause                the sales of our products to decrease. 
-  The                  degree of patent protection afforded our products by patents granted                  to us and                  by the outcome of litigation involving our                  patents. 
-  The                    outcome of litigation involving patents of other companies concerning                    our                    products or processes related to production and formulation of                    those products                    or uses of those products. 
-  The                      increasing use and development of alternate                      therapies. 
-  The                        rate of market penetration by competing                        products. 
-  Our                          distribution strategy, including the termination of, or                          change in, an existing                          arrangement with any major wholesalers who supply our                          products. 
-  Our                            decision to no longer allow compounding pharmacies the                            ability to purchase                            Avastin directly from wholesale distributors, which could                            have a negative                            impact on Lucentis sales as a result of negative reaction                            by retinal                            specialists to our                            decision. 
-  Product                              returns and allowances greater than expected or historically                              experienced. 

**Our      results of operations are affected by our royalty and contract revenue, and      sales to collaborators.**

-  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. 
-  Variations            in Roche’s sales and other licensees’ sales of licensed            products. 
-  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. 
-  The                timing of non-U.S. approvals, if any, for products licensed to Roche                and other                licensees. 
-  Government                  and third-party payer reimbursement and coverage decisions that                  affect the                  utilization of our products and competing                  products. 
-  The                    initiation of new contractual arrangements with other                    companies. 

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-  Whether          and when contract milestones are achieved. 
-  The            failure or refusal of a licensee to pay royalties. 
-  The              expiration or invalidation of our patents or licensed intellectual              property.              For example, patent litigations, interferences, oppositions, and other              proceedings involving our patents often include claims by third parties              that              such patents are invalid, unenforceable, or unpatentable. If a court,              patent              office, or other authority were to determine that a patent (including,              for              example, the Cabilly patent) under which we receive royalties and/or              other              revenue is invalid, unenforceable, or unpatentable, that determination              could              cause us to suffer a loss of such royalties and/or revenue, and could              cause us              to incur other monetary damages. 
-  Decreases                in licensees’ sales of product due to competition, manufacturing difficulties,                or other factors that affect the sales of                product. 
-  Fluctuations                  in foreign currency exchange                  rates. 

**We              may be unable to manufacture certain of our products if there is BSE              contamination of our bovine source raw              material.**

**We      may be unable to retain skilled personnel and maintain key      relationships.**

**Our      affiliation agreement with Roche Holdings, Inc. could adversely affect our      cash      position.**

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**Our      affiliation agreement with Roche Holdings, Inc. could limit our ability to      make      acquisitions.**

-  Require          the approval of the directors designated by RHI to make any acquisition          or any          sale or disposal of all or a portion of our business representing 10 percent          or more of our assets, net income, or revenue. 
-  Enable            RHI to maintain its percentage ownership interest in our Common            Stock. 
-  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              5, “Relationship with Roche Holdings, Inc. and Related Party Transactions,” in              the Notes to Condensed Consolidated Financial Statements in Part I,              Item 1 of              this Form 10-Q. 

**Future      sales of our Common Stock by Roche Holdings, Inc. could cause the price of      our      Common Stock to decline.**

**Roche      Holdings, Inc., our controlling stockholder, may seek to influence our business      in a manner that is adverse to us or adverse to other stockholders who may      be      unable to prevent actions by Roche Holdings, Inc.**

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**We      may incur material product liability costs.**

**Insurance      coverage may be more difficult and costly to obtain or      maintain.**

**We      are subject to environmental and other risks.**

**Fluctuations      in our operating results could affect the price of our Common      Stock.**

-  The          overall competitive environment for our products, as described in “We face          competition” above. 
-  The            amount and timing of sales to customers in the U.S. For example, sales            of a            product may increase or decrease due to pricing changes, fluctuations            in            distributor buying patterns, or sales initiatives that we may undertake            from            time to time. 
-  The              amount and timing of our sales to Roche and our other collaborators              of              products for sale outside the U.S. and the amount and timing of sales              to their              respective customers, which directly affect both our product sales              and royalty              revenue. 
-  The                timing and volume of bulk shipments to                licensees. 
-  The                  availability and extent of government and private third-party reimbursements                  for the cost of therapy. 
-  The                    extent of product discounts extended to                    customers. 

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-  The            efficacy and safety of our various products as determined both in clinical            testing and by the accumulation of additional information on each product            after the FDA approves it for sale. 
-  The              rate of adoption by physicians and the use of our products for approved              indications and additional indications. Among other things, the rate              of              adoption by physicians and the use of our products may be affected              by the              results of clinical studies reporting on the benefits or risks of a              product. 
-  The                potential introduction of new products and additional indications                for existing                products. 
-  The                  ability to successfully manufacture sufficient quantities of any                  particular                  marketed product. 
-  Pricing                    decisions that we or our competitors have adopted or may adopt,                    as well as our                    Avastin Patient Assistance Program. 
-  Our                      distribution strategy, including the termination of, or change                      in, an existing                      arrangement with any major wholesalers who supply our                      products. 

**Our      integration of new information systems could disrupt our internal operations,      which could decrease our revenue and increase our      expenses.**

**Our      stock price, like that of many biotechnology companies, is      volatile.**

-  Announcements          of technological innovations or new commercial products by us or our          competitors. 
-  Publicity            regarding actual or potential medical results related to products under            development or being commercialized by us or our            competitors. 
-  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. 
-  Developments                or outcomes of litigation, including litigation regarding proprietary                and                patent rights. 
-  Regulatory                  developments or delays concerning our products in the U.S. and                  other                  countries. 
-  Issues                    concerning the efficacy or safety of our products or of biotechnology                    products                    generally. 
-  Economic                      and other external factors or a disaster or                      crisis. 

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-  Period-to-period          fluctuations in our financial results. 

**Our      effective income tax rate may vary significantly.**

**To      pay our indebtedness will require a significant amount of cash and may adversely      affect our operations and financial results.**

**Accounting      pronouncements may affect our future financial position and results of      operations.**

*“*
*Consolidation of Variable Interest      Entities*
*,*
*”*

**Item      2. Unregistered Sales of Equity Securities and      Use of      Proceeds.**

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* (shares      in millions)*

|                                      |   | **Total                  Number of****Shares                  Purchased** |   |   | **Average                  Price Paid****per                  Share** |   |   | **Total                  Number of****Shares                  Purchased as****Part                  of Publicly****Announced                  Plans or****Programs** |   |   | **Maximum                  Number****of                  Shares that May****Yet                  Be Purchased****Under                  the Plans or****Programs** |   |
|-------------------------------------------|--------|---------------------------------------------------------------------------|--------|--------|-----------------------------------------------------------------------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| August                1–31, 2007    |   |                                                                      | 0.8    |   |                                                                  |   | 73.66  |                                                                                                                                                                 |   |   |                                                                                                                                                               |   |   |   |
| September                1–30, 2007 |   |                                                                      | 1.2    |   |                                                                  |   | 78.67  |                                                                                                                                                                 |   |   |                                                                                                                                                               |   |   |   |
| Total                                     |   |                                                                      | 2.0    |   |                                                                  | $      | 76.69  |                                                                                                                                                                 |   |   | 72                                                                                                                                                                 |   |   |   | 28 |   |

**Item      6. Exhibits**

| **Exhibit                No.** | **Description**                                                                                                                                                                                                                            | **Location**                      |
|--------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------|
| 15.1                           | Letter                regarding Unaudited Interim Financial Information.                                                                                                                                                                   | Filed                herewith     |
| 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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**SIGNATURES**

|   |                              |   | GENENTECH,                INC.                                                                          |
|--------|-----------------------------------|--------|-------------------------------------------------------------------------------------------------------------------|
| Date:  | November                  2, 2007 |   | /s/ARTHUR                  D. LEVINSON                                                                            |
|   |                              |   | Arthur                D. Levinson, Ph.D.Chairman                and Chief Executive Officer                       |
|   |                              |   |                                                                                                              |
|   |                              |   |                                                                                                              |
| Date:  | November                  2, 2007 |   | /s/DAVID                  A. EBERSMAN                                                                             |
|   |                              |   | David                A. EbersmanExecutive                Vice President andChief                Financial Officer |
|   |                              |   |                                                                                                              |
|   |                              |   |                                                                                                              |
| Date:  | November                  2, 2007 |   | /s/ROBERT                  E. ANDREATTA                                                                           |
|   |                              |   | Robert                E. AndreattaController                and Chief Accounting Officer                          |

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