----

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| (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, 2008 |
|--------------------------------------------------------|
|                                                   |
| or                                                     |

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

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

| Large      accelerated filer þ                                                  | Accelerated      filer o    |
|-------------------------------------------------------------------------------------------|----------------------------------|
| Non-accelerated      filer o (Do not      check if a smaller reporting company) | Smaller      reporting company o |

| Class                             | Number of Shares  Outstanding                     |
|-----------------------------------|---------------------------------------------------|
| Common      Stock $0.02 par value | 1,052,033,529      Outstanding at October 31,2008 |

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|          |                                                                                                                                         | 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, 2008 and      2007 |  3    |
|          |                                                                                                                                         |                      |
|          | Condensed      Consolidated Statements of Cash Flows—for      the nine months ended September 30, 2008 and 2007                        |  4    |
|          |                                                                                                                                         |                      |
|          | Condensed      Consolidated Balance Sheets—September      30, 2008 and December 31, 2007                                          |  5    |
|          |                                                                                                                                         |                      |
|          | Notes      to Condensed Consolidated Financial Statements                                                                          | 6-19       |
|          |                                                                                                                                         |                      |
|          | Report      of Independent Registered Public Accounting Firm                                                                            | 20         |
|          |                                                                                                                                         |                      |
| Item      2.  | Management’s      Discussion and Analysis of Financial Condition and Results of      Operations                                        | 21-51      |
|          |                                                                                                                                         |                      |
| Item      3.  | Quantitative and Qualitative      Disclosures About Market Risk                                                                    | 52         |
|          |                                                                                                                                         |                      |
| Item      4.  | Controls      and Procedures                                                                                                            | 52         |
|          |                                                                                                                                         |                      |
|          | PART      II—OTHER INFORMATION                                                                                                         |                      |
|          |                                                                                                                                         |                      |
| Item      1.  | Legal      Proceedings                                                                                                                       | 53         |
|          |                                                                                                                                         |                      |
| Item      1A. | Risk      Factors                                                                                                                            | 53-67      |
|          |                                                                                                                                         |                      |
| Item      2.  | Unregistered      Sales of Equity Securities and Use of Proceeds                                                                             | 67         |
|          |                                                                                                                                         |                      |
| Item      6.  | Exhibits                                                                                                                                     | 68         |
|          |                                                                                                                                         |                      |
| SIGNATURES    | 69                                                                                                                            |

----

—FINANCIAL INFORMATION

| Item      1. | Financial      Statements |
|--------------|---------------------------|

CONDENSED CONSOLIDATED STATEMENTS OFINCOME

|                                                                                                                                                                                                                                                                                                                                                                                                                       |   | Three      MonthsEnded      September 30, |    |   | Nine      MonthsEnded      September 30, |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|---------|--------|------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                       |   | 2008                                      |    |   | 2007                                     |   |   | 2008 |   |   | 2007 |   |
| Revenue                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                      |    |   |                                     |   |   |   |   |   |   |   |
| Product      sales (including amounts from related parties:three      months—2008–$148; 2007–$137;nine      months—2008–$435; 2007–$659)                                                                                                                                                                                                                                               |   | $                                         | 2,634   |   |                                     | $      | 2,321 |   |   | $ | 7,549 |   |   | $ | 7,094 |   |
| Royalties      (including amounts from related parties:three      months—2008–$459; 2007–$357;nine      months—2008–$1,333; 2007–$914)                                                                                                                                                                                                                                                 |   |                                      | 687     |   |                                     |   | 524 |   |   |   | 1,932 |   |   |   | 1,427 |   |
| Contract      revenue (including amounts from related parties:three      months—2008–$53; 2007–$30;nine      months—2008–$119; 2007–$134)                                                                                                                                                                                                                                              |   |                                      | 91      |   |                                     |   | 63 |   |   |   | 230 |   |   |   | 234 |   |
| Total      operating revenue                                                                                                                                                                                                                                                                                                                                                                                               |   |                                      | 3,412   |   |                                     |   | 2,908 |   |   |   | 9,711 |   |   |   | 8,755 |   |
| Costs      and expenses                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                      |    |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Cost      of sales (including amounts for related parties:three      months—2008–$94; 2007–$100;nine      months—2008–$251; 2007–$365)                                                                                                                                                                                                                                                 |   |                                      | 409     |   |                                     |   | 406 |   |   |   | 1,240 |   |   |   | 1,227 |   |
| Research      and development (including amounts from programs where related parties      share costs:three      months—2008–$95; 2007–$75;nine      months—2008–$264; 2007–$222)(including      amounts for which reimbursement was recorded as contract      revenue:three      months—2008–$57; 2007–$49;nine      months—2008–$154; 2007–$154) |   |                                      | 777     |   |                                     |   | 615 |   |   |   | 2,043 |   |   |   | 1,828 |   |
| Marketing,      general and administrative                                                                                                                                                                                                                                                                                                                                                                                 |   |                                      | 611     |   |                                     |   | 541 |   |   |   | 1,687 |   |   |   | 1,564 |   |
| Collaboration      profit sharing (including related party amounts:three      months—2008–$49; 2007–$47;nine      months—2008–$138; 2007–$143)                                                                                                                                                                                                                                         |   |                                      | 315     |   |                                     |   | 276 |   |   |   | 907 |   |   |   | 805 |   |
| Write-off      of in-process research and development related to    acquisition                                                                                                                                                                                                                                                                                                                                            |   |                                      | – |   |                                     |   | 77 |   |   |   | – |   |   |   | 77 |   |
| Gain      on acquisition                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                      | – |   |                                     |   | (121 | ) |   |   | – |   |   |   | (121 | ) |
| Recurring      amortization charges related to redemption and acquisition                                                                                                                                                                                                                                                                                                                                                  |   |                                      | 43      |   |                                     |   | 38 |   |   |   | 129 |   |   |   | 90 |   |
| Special      items: litigation-related                                                                                                                                                                                                                                                                                                                                                                                |   |                                      | 40      |   |                                     |   | 14 |   |   |   | (260 | ) |   |   | 41 |   |
| Total      costs and expenses                                                                                                                                                                                                                                                                                                                                                                                              |   |                                      | 2,195   |   |                                     |   | 1,846 |   |   |   | 5,746 |   |   |   | 5,511 |   |
| Operating      income                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                      | 1,217   |   |                                     |   | 1,062 |   |   |   | 3,965 |   |   |   | 3,244 |   |
| Other      income (expense):                                                                                                                                                                                                                                                                                                                                                                                               |   |                                      |    |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Interest      and other income (expense), net                                                                                                                                                                                                                                                                                                                                                                              |   |                                      | (33     | )      |                                     |   | 84 |   |   |   | 133 |   |   |   | 233 |   |
| Interest      expense                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                      | (25     | )      |                                     |   | (18 | ) |   |   | (57 | ) |   |   | (53 | ) |
| Total      other income (expense), net                                                                                                                                                                                                                                                                                                                                                                                     |   |                                      | (58     | )      |                                     |   | 66 |   |   |   | 76 |   |   |   | 180 |   |
| Income      before taxes                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                      | 1,159   |   |                                     |   | 1,128 |   |   |   | 4,041 |   |   |   | 3,424 |   |
| Income      tax provision                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                      | 428     |   |                                     |   | 443 |   |   |   | 1,546 |   |   |   | 1,286 |   |
| Net      income                                                                                                                                                                                                                                                                                                                                                                                                            |   | $                                         | 731     |   |                                     | $      | 685 |   |   | $ | 2,495 |   |   | $ | 2,138 |   |
| Earnings      per share                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                      |    |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                                                                                                                                                                                                                                                                                                                      |   | $                                         | 0.69    |   |                                     | $      | 0.65 |   |   | $ | 2.37 |   |   | $ | 2.03 |   |
| Diluted                                                                                                                                                                                                                                                                                                                                                                                                                    |   | $                                         | 0.68    |   |                                     | $      | 0.64 |   |   | $ | 2.34 |   |   | $ | 2.00 |   |
| Shares      used to compute basic earnings per share                                                                                                                                                                                                                                                                                                                                                                       |   |                                      | 1,055   |   |                                     |   | 1,053 |   |   |   | 1,053 |   |   |   | 1,053 |   |
| Shares      used to compute diluted earnings per share                                                                                                                                                                                                                                                                                                                                                                     |   |                                      | 1,071   |   |                                     |   | 1,069 |   |   |   | 1,067 |   |   |   | 1,070 |   |

----

CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS

|                                                                                         |   | Nine      MonthsEnded      September 30, |    |
|----------------------------------------------------------------------------------------------|--------|------------------------------------------|---------|
|                                                                                         |   | 2008                                     |    |   | 2007 |   |
| Cash      flows from operating activities                                                    |   |                                     |    |   |   |   |
| Net      income                                                                              |   | $                                        | 2,495   |   |   | $ | 2,138 |   |
| Adjustments      to reconcile net income to net cash provided by operating      activities:  |   |                                     |    |   |   |   |   |   |
| Depreciation      and amortization                                                           |   |                                     | 433     |   |   |   | 345 |   |
| Employee      stock-based compensation                                                       |   |                                     | 311     |   |   |   | 300 |   |
| Excess      tax benefit from stock-based compensation arrangements                           |   |                                     | (119    | ) |   |   | (160 | ) |
| In-process      research and development                                                     |   |                                     | – |   |   |   | 77 |   |
| Gain      on acquisition                                                                     |   |                                     | – |   |   |   | (121 | ) |
| Deferred      income taxes                                                                   |   |                                     | 207     |   |   |   | (116 | ) |
| Deferred      revenue                                                                        |   |                                     | (15     | ) |   |   | (50 | ) |
| Litigation-related      special items                                                        |   |                                     | (260    | ) |   |   | 39 |   |
| Gain      on sales of securities available-for-sale and other                                |   |                                     | (76     | ) |   |   | (15 | ) |
| Impairment      of preferred securities                                                      |   |                                     | 67      |   |   |   | – |   |
| Write-downs      of and losses on securities available-for-sale and other                    |   |                                     | 48      |   |   |   | 4 |   |
| Loss      on property and equipment dispositions and other                                   |   |                                     | 24      |   |   |   | 30 |   |
| Changes      in assets and liabilities:                                                      |   |                                     |    |   |   |   |   |   |
| Receivables      and other current assets                                                    |   |                                     | (31     | ) |   |   | (236 | ) |
| Inventories                                                                                  |   |                                     | 88      |   |   |   | (238 | ) |
| Investments      in trading securities                                                       |   |                                     | (2      | ) |   |   | (140 | ) |
| Accounts      payable, other accrued liabilities, and other long-term      liabilities       |   |                                     | (214    | ) |   |   | 216 |   |
| Accrued      litigation                                                                      |   |                                     | (476    | ) |   |   | – |   |
| Net      cash provided by operating activities                                               |   |                                     | 2,480   |   |   |   | 2,073 |   |
|                                                                                         |   |                                     |    |   |   |   |   |   |
| Cash      flows from investing activities                                                    |   |                                     |    |   |   |   |   |   |
| Purchases      of securities available-for-sale                                              |   |                                     | (1,314  | ) |   |   | (622 | ) |
| Proceeds      from sales of securities available-for-sale                                    |   |                                     | 1,018   |   |   |   | 482 |   |
| Proceeds      from maturities of securities available-for-sale                               |   |                                     | 192     |   |   |   | 358 |   |
| Capital      expenditures                                                                    |   |                                     | (569    | ) |   |   | (692 | ) |
| Change      in other intangible and long-term assets                                         |   |                                     | 22      |   |   |   | (39 | ) |
| Acquisition      and related costs, net                                                      |   |                                     | – |   |   |   | (833 | ) |
| Net      cash used in investing activities                                                   |   |                                     | (651    | ) |   |   | (1,346 | ) |
|                                                                                         |   |                                     |    |   |   |   |   |   |
| Cash      flows from financing activities                                                    |   |                                     |    |   |   |   |   |   |
| Stock      issuances                                                                         |   |                                     | 632     |   |   |   | 381 |   |
| Stock      repurchases                                                                       |   |                                     | (756    | ) |   |   | (815 | ) |
| Excess      tax benefit from stock-based compensation arrangements                           |   |                                     | 119     |   |   |   | 160 |   |
| Maturities      of commercial paper                                                          |   |                                     | (63     | ) |   |   | – |   |
| Net      cash used in financing activities                                                   |   |                                     | (68     | ) |   |   | (274 | ) |
| Net      increase in cash and cash equivalents                                               |   |                                     | 1,761   |   |   |   | 453 |   |
| Cash      and cash equivalents at beginning of period                                        |   |                                     | 2,514   |   |   |   | 1,250 |   |
| Cash      and cash equivalents at end of period                                              |   | $                                        | 4,275   |   |   | $ | 1,703 |   |
|                                                                                         |   |                                     |    |   |   |   |   |   |
| Supplemental      cash flow data                                                             |   |                                     |    |   |   |   |   |   |
| Cash      paid during the period for:                                                        |   |                                     |    |   |   |   |   |   |
| Income      taxes                                                                            |   | $                                        | 1,337   |   |   | $ | 1,277 |   |
| Interest                                                                                     |   |                                     | 77      |   |   |   | 71 |   |
| Non-cash      investing and financing activities                                             |   |                                     |    |   |   |   |   |   |
| Capitalization      of construction in progress related to financing lease      transactions |   |                                     | 104     |   |   |   | 156 |   |
| Transfer      of restricted cash to short-term investments                                   |   |                                     | 788     |   |   |   | – |   |

----

CONDENSED CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                                      |   | September      30,2008 |    |   | December      31,2007 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|---------|--------|-----------------------|--------|
| Assets                                                                                                                                                                                    |   |                   |    |   |                  |   |
| Current      assets                                                                                                                                                                       |   |                   |    |   |                  |   |
| Cash      and cash equivalents                                                                                                                                                            |   | $                      | 4,275   |   |                  | $      | 2,514 |   |
| Short-term      investments                                                                                                                                                               |   |                   | 1,657   |   |                  |   | 1,461 |   |
| Restricted      cash and investments                                                                                                                                                      |   |                   | – |   |                  |   | 788 |   |
| Accounts      receivable—product sales (net of allowances of:2008–$158;      2007–$116; including amounts from related parties:2008–$53;      2007–$2) |   |                   | 862     |   |                  |   | 847 |   |
| Accounts      receivable—royalties (including amounts from related      parties:2008–$541;      2007–$463)                                                         |   |                   | 734     |   |                  |   | 620 |   |
| Accounts      receivable—other (including amounts from related parties:2008–$115;      2007–$233)                                                                       |   |                   | 232     |   |                  |   | 299 |   |
| Inventories                                                                                                                                                                               |   |                   | 1,408   |   |                  |   | 1,493 |   |
| Deferred      tax assets                                                                                                                                                                  |   |                   | 395     |   |                  |   | 614 |   |
| Prepaid      expenses                                                                                                                                                                     |   |                   | 94      |   |                  |   | 100 |   |
| Other      current assets                                                                                                                                                                 |   |                   | 34      |   |                  |   | 17 |   |
| Total      current assets                                                                                                                                                                 |   |                   | 9,691   |   |                  |   | 8,753 |   |
| Long-term      marketable debt and equity securities                                                                                                                                      |   |                   | 2,606   |   |                  |   | 2,090 |   |
| Property,      plant and equipment, net                                                                                                                                                   |   |                   | 5,320   |   |                  |   | 4,986 |   |
| Goodwill                                                                                                                                                                                  |   |                   | 1,590   |   |                  |   | 1,577 |   |
| Other      intangible assets                                                                                                                                                              |   |                   | 1,046   |   |                  |   | 1,168 |   |
| Other      long-term assets                                                                                                                                                               |   |                   | 358     |   |                  |   | 366 |   |
| Total      assets                                                                                                                                                                         |   | $                      | 20,611  |   |                  | $      | 18,940 |   |
|                                                                                                                                                                                      |   |                   |    |   |                  |   |   |   |
| Liabilities      and stockholders’ equity                                                                                                                                           |   |                   |    |   |                  |   |   |   |
| Current      liabilities                                                                                                                                                                  |   |                   |    |   |                  |   |   |   |
| Accounts      payable (including amounts to related parties:2008–$5;      2007–$2)                                                                                            |   | $                      | 235     |   |                  | $      | 420 |   |
| Commercial      paper                                                                                                                                                                     |   |                   | 536     |   |                  |   | 599 |   |
| Deferred      revenue (including amounts from related parties:2008–$70;      2007–$63)                                                                                        |   |                   | 81      |   |                  |   | 73 |   |
| Taxes      payable                                                                                                                                                                        |   |                   | 79      |   |                  |   | 173 |   |
| Accrued      litigation                                                                                                                                                                   |   |                   | – |   |                  |   | 776 |   |
| Other      accrued liabilities (including amounts to related      parties:2008–$285;      2007–$230)                                                                     |   |                   | 1,905   |   |                  |   | 1,877 |   |
| Total      current liabilities                                                                                                                                                            |   |                   | 2,836   |   |                  |   | 3,918 |   |
| Long-term      debt                                                                                                                                                                       |   |                   | 2,504   |   |                  |   | 2,402 |   |
| Deferred      revenue (including amounts from related parties:2008–$367;      2007–$384)                                                                                      |   |                   | 397     |   |                  |   | 418 |   |
| Other      long-term liabilities                                                                                                                                                          |   |                   | 248     |   |                  |   | 297 |   |
| Total      liabilities                                                                                                                                                                    |   |                   | 5,985   |   |                  |   | 7,035 |   |
| Commitments      and contingencies                                                                                                                                                        |   |                   |    |   |                  |   |   |   |
| Stockholders’      equity                                                                                                                                                           |   |                   |    |   |                  |   |   |   |
| Common      stock                                                                                                                                                                         |   |                   | 21      |   |                  |   | 21 |   |
| Additional      paid-in capital                                                                                                                                                           |   |                   | 11,897  |   |                  |   | 10,695 |   |
| Accumulated      other comprehensive income                                                                                                                                               |   |                   | 137     |   |                  |   | 197 |   |
| Retained      earnings                                                                                                                                                                    |   |                   | 2,571   |   |                  |   | 992 |   |
| Total      stockholders’ equity                                                                                                                                                     |   |                   | 14,626  |   |                  |   | 11,905 |   |
| Total      liabilities and stockholders’ equity                                                                                                                                     |   | $                      | 20,611  |   |                  | $      | 18,940 |   |

----

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

----

|                                                                                                             |   | Three      MonthsEnded      September 30, |   |   | Nine      MonthsEnded      September 30, |   |
|------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|--------|------------------------------------------|--------|
|                                                                                                             |   | 2008                                      |   |   | 2007                                     |   |   | 2008 |   |   | 2007 |   |
| Numerator:                                                                                                       |   |                                      |   |   |                                     |   |   |   |   |   |   |   |
| Net      income                                                                                                  |   | $                                         | 731    |   |                                     | $      | 685 |   |   | $ | 2,495 |   |   | $ | 2,138 |   |
| Denominator:                                                                                                     |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Weighted-average      shares outstanding used to compute basic earnings pershare                                 |   |                                      | 1,055  |   |                                     |   | 1,053 |   |   |   | 1,053 |   |   |   | 1,053 |   |
| Effect      of dilutive stock options                                                                            |   |                                      | 16     |   |                                     |   | 16 |   |   |   | 14 |   |   |   | 17 |   |
| Weighted-average      shares outstanding and dilutive securities used to compute diluted      earnings per share |   |                                      | 1,071  |   |                                     |   | 1,069 |   |   |   | 1,067 |   |   |   | 1,070 |   |

----

|                                                           |   | September      30, 2008 |   |   | December      31, 2007 |   |
|----------------------------------------------------------------|--------|-------------------------|--------|--------|------------------------|--------|
| Net      unrealized gains on securities available-for-sale     |   | $                       | 136    |   |                   | $      | 219 |   |
| Net      unrealized gains (losses) on cash flow hedges         |   |                    | 9      |   |                   |   | (14 | ) |
| Accumulated      changes in post-retirement benefit obligation |   |                    | (8     | )      |                   |   | (8 | ) |
| Accumulated      other comprehensive income                    |   | $                       | 137    |   |                   | $      | 197 |   |

|                                                                             |   | Three      MonthsEnded      September 30, |   |   | Nine      MonthsEnded      September 30, |   |
|----------------------------------------------------------------------------------|--------|-------------------------------------------|--------|--------|------------------------------------------|--------|
|                                                                             |   | 2008                                      |   |   | 2007                                     |   |   | 2008 |   |   | 2007 |   |
| Net      income                                                                  |   | $                                         | 731    |   |                                     | $      | 685 |   |   | $ | 2,495 |   |   | $ | 2,138 |   |
| (Decrease)      increase in unrealized gains on securities    available-for-sale |   |                                      | (20    | )      |                                     |   | 19 |   |   |   | (83 | ) |   |   | 10 |   |
| Increase      (decrease) in unrealized gains on cash flow hedges                 |   |                                      | 52     |   |                                     |   | (13 | ) |   |   | 23 |   |   |   | (2 | ) |
| Comprehensive      income, net of income taxes                                   |   | $                                         | 763    |   |                                     | $      | 691 |   |   | $ | 2,435 |   |   | $ | 2,146 |   |

| Note      2. | Retention      Plans and Employee Stock-BasedCompensation |
|--------------|----------------------------------------------------------------|

----

|                                                 |   | Three      MonthsEnded      September 30, |   |   | Nine      MonthsEnded      September 30, |   |
|------------------------------------------------------|--------|-------------------------------------------|--------|--------|------------------------------------------|--------|
|                                                 |   | 2008                                      |   |   | 2007                                     |   |   | 2008 |   |   | 2007 |   |
| Cost      of sales                                   |   | $                                         | 20     |   |                                     | $      | 16 |   |   | $ | 62 |   |   | $ | 49 |   |
| Research      and development                        |   |                                      | 39     |   |                                     |   | 37 |   |   |   | 119 |   |   |   | 114 |   |
| Marketing,      general and administrative           |   |                                      | 44     |   |                                     |   | 44 |   |   |   | 130 |   |   |   | 137 |   |
| Total      employee stock-based compensation expense |   | $                                         | 103    |   |                                     | $      | 97 |   |   | $ | 311 |   |   | $ | 300 |   |

|                         |   | Three      MonthsEnded      September 30, |   |                | Nine      MonthsEnded      September 30, |   |
|------------------------------|--------|-------------------------------------------|--------|---------------------|------------------------------------------|--------|
|                         |   | 2008                                      |   |                | 2007                                     |   |   | 2008 |   |   | 2007 |   |
| Risk-free      interest rate |   |                                      | 3.1    | %    |                                     |   | 4.3 | %    |   |   | 3.0 | %    |   |   | 4.3 | %    |
| Dividend      yield          |   |                                      | 0.0    | %    |                                     |   | 0.0 | %    |   |   | 0.0 | %    |   |   | 0.0 | %    |
| Expected      volatility     |   |                                      | 23.0   | %    |                                     |   | 25.0 | %    |   |   | 24.0 | %    |   |   | 25.0 | %    |
| Expected      term (years)   |   |                                      | 5.0    |                |                                     |   | 5.0 |   |   |   | 5.0 |   |   |   | 5.0 |   |

----

| Note      3. | Condensed      Consolidated Financial StatementDetail |
|--------------|-------------------------------------------------------|

|                            |   | September      30, 2008 |   |   | December      31, 2007 |   |
|---------------------------------|--------|-------------------------|--------|--------|------------------------|--------|
| Raw      materials and supplies |   | $                       | 116    |   |                   | $      | 119 |   |
| Work-in-process                 |   |                    | 1,096  |   |                   |   | 1,062 |   |
| Finished      goods             |   |                    | 196    |   |                   |   | 312 |   |
| Total                           |   | $                       | 1,408  |   |                   | $      | 1,493 |   |

| Note      4. | Fair      Value Measurements |
|--------------|------------------------------|

----

|                                           |   | September      30, 2008 |    |   | December      31, 2007 |   |
|------------------------------------------------|--------|-------------------------|---------|--------|------------------------|--------|
| (In      millions)                             |   | Assets                  |    |   | Liabilities            |   |   | Assets |   |   | Liabilities |   |
| Cash      and cash equivalents                 |   | $                       | 4,275   |   |                   | $      | – |   |   | $ | 2,514 |   |   | $ | – |   |
| Restricted      cash                           |   |                    | – |   |                   |   | – |   |   |   | 788 |   |   |   | – |   |
| Short-term      investments                    |   |                    | 1,657   |   |                   |   | – |   |   |   | 1,461 |   |   |   | – |   |
| Long-term      marketable debt securities |   |                    | 2,266   |   |                   |   | – |   |   |   | 1,674 |   |   |   | – |   |
| Total      fixed income investment portfolio   |   |                    | 8,198   |   |                   |   | – |   |   |   | 6,437 |   |   |   | – |   |
|                                           |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term      marketable equity securities    |   |                    | 340     |   |                   |   | – |   |   |   | 416 |   |   |   | – |   |
| Total      derivative financial instruments    |   |                    | 72      |   |                   |   | 12 |   |   |   | 30 |   |   |   | 19 |   |
| Total                                          |   | $                       | 8,610   |   |                   | $      | 12 |   |   | $ | 6,883 |   |   | $ | 19 |   |

|                                     |   | Level      1 |    |   | Level      2 |   |    | Level      3 |   |   | Total   |   |
|------------------------------------------|--------|--------------|---------|--------|--------------|--------|---------|--------------|--------|--------|---------|--------|
| Assets                                   |   |         |    |   |         |   |    |         |   |   |    |   |
| Cash      and cash equivalents           |   | $            | 2,158   |   |         | $      | 2,117   |         |   | $      | – |   |   | $ | 4,275 |   |
| Trading      securities                  |   |         | 88      |   |         |   | 914     |         |   |   | 1       |   |   |   | 1,003 |   |
| Securities      available-for-sale       |   |         | 159     |   |         |   | 2,607   |         |   |   | 154     |   |   |   | 2,920 |   |
| Equity      securities                   |   |         | 340     |   |         |   | – |         |   |   | – |   |   |   | 340 |   |
| Derivative      financial instruments    |   |         | 33      |   |         |   | 39      |         |   |   | – |   |   |   | 72 |   |
| Total                                    |   | $            | 2,778   |   |         | $      | 5,677   |         |   | $      | 155     |   |   | $ | 8,610 |   |
|                                     |   |         |    |   |         |   |    |         |   |   |    |   |   |   |   |   |
| Liabilities                              |   |         |    |   |         |   |    |         |   |   |    |   |   |   |   |   |
| Derivative      financial instruments(1) |   | $            | – |   |         | $      | 12      |         |   | $      | – |   |   | $ | 12 |   |

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

----

|                                  |   | Three      MonthsEnded      September 30, 2008 |    |   | Nine      MonthsEnded      September 30, 2008 |   |
|---------------------------------------|--------|------------------------------------------------|---------|--------|-----------------------------------------------|--------|
|                                  |   | Structured      Investment Vehicle Securities  |    |   | Auction-Rate      Securities                  |   |   | Preferred      Securities |   |   | Structured      Investment Vehicle Securities |   |   | Auction-Rate      Securities |   |   | Preferred      Securities |   |
| Beginning      balance                |   | $                                              | 2       |   |                                          | $      | 155 |   |   | $ | – |   |   | $ | 7 |   |   | $ | – |   |   | $ | – |   |
| Transfer      into Level 3(1)    |   |                                           | – |   |                                          |   | – |   |   |   | 21 |   |   |   | – |   |   |   | 174 |   |   |   | 21 |   |
| Impairment      charges               |   |                                           | – |   |                                          |   | – |   |   |   | (21 | ) |   |   | – |   |   |   | – |   |   |   | (21 | ) |
| Unrealized      losses(2)             |   |                                           | – |   |                                          |   | – |   |   |   | – |   |   |   | (1 | )  |   |   | (16 | )  |   |   | – |   |
| Purchases,      issuances, settlement |   |                                           | (1      | )      |                                          |   | (1 | ) |   |   | – |   |   |   | (5 | ) |   |   | (4 | ) |   |   | – |   |
| Ending      balance                   |   | $                                              | 1       |   |                                          | $      | 154 |   |   | $ | – |   |   | $ | 1 |   |   | $ | 154 |   |   | $ | – |   |

| (1) | In      the third quarter of 2008, we transferred $21 million of preferred      securities into Level 3 assets. In the first nine months of 2008, we      transferred $195 million of auction-rate securities and preferred      securities into Level 3 assets. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | The      unrealized losses of $17 million in the first nine months of 2008 were      included in OCI as of September 30,2008.                                                                                                                                         |

| Note      5. | Contingencies |
|--------------|---------------|

----

----

----

| Note      6. | Relationship      with Roche Holdings, Inc. and Related Party  Transactions |
|--------------|-----------------------------------------------------------------------------|

----

|                                                                                             |   | Three      MonthsEnded      September 30, |   |   | Nine      MonthsEnded      September 30, |   |
|--------------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|--------|------------------------------------------|--------|
|                                                                                             |   | 2008                                      |   |   | 2007                                     |   |   | 2008 |   |   | 2007 |   |
| Retention      plan costs(1)                                                                     |   |                                      |   |   |                                     |   |   |   |   |   |   |   |
| Research      and development                                                                    |   | $                                         | 22     |   |                                     | $      | – |   |   | $ | 22 |   |   | $ | – |   |
| Marketing,      general and administrative                                                       |   |                                      | 22     |   |                                     |   | – |   |   |   | 22 |   |   |   | – |   |
| Total      retention plan costs                                                                  |   |                                      | 44     |   |                                     |   | – |   |   |   | 44 |   |   |   | – |   |
| Third-party      legal and advisory costs incurred by us on behalf of the Special      Committee |   |                                      | 6      |   |                                     |   | – |   |   |   | 6 |   |   |   | – |   |
| Other      third-party legal and advisory costs                                                  |   |                                      | 3      |   |                                     |   | – |   |   |   | 3 |   |   |   | – |   |
| Total      retention plan costs and legal and advisory costs                                     |   | $                                         | 53     |   |                                     | $      | – |   |   | $ | 53 |   |   | $ | – |   |

| (1) | During      the third quarter of 2008, $9 million of retention plan costs were      capitalized into inventory, which will be recognized as COS as products      that were manufactured after the initiation of the retention plans are      estimated to be sold. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                          |   | Three      MonthsEnded      September 30, |   |   | Nine      MonthsEnded      September 30, |   |
|-----------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|--------|------------------------------------------|--------|
|                                                                                          |   | 2008                                      |   |   | 2007                                     |   |   | 2008 |   |   | 2007 |   |
| Product      sales to Roche                                                                   |   | $                                         | 144    |   |                                     | $      | 135 |   |   | $ | 425 |   |   | $ | 651 |   |
|                                                                                          |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Royalties      earned from Roche                                                              |   | $                                         | 381    |   |                                     | $      | 317 |   |   | $ | 1,142 |   |   | $ | 855 |   |
|                                                                                          |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Contract      revenue from Roche                                                              |   | $                                         | 35     |   |                                     | $      | 21 |   |   | $ | 75 |   |   | $ | 81 |   |
|                                                                                          |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Cost      of sales on product sales to Roche                                                  |   | $                                         | 90     |   |                                     | $      | 98 |   |   | $ | 242 |   |   | $ | 356 |   |
|                                                                                          |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Research      and development expenses incurred on joint development projects with      Roche |   | $                                         | 84     |   |                                     | $      | 64 |   |   | $ | 232 |   |   | $ | 192 |   |
|                                                                                          |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| In-licensing      expenses to Roche                                                           |   | $                                         | 105    |   |                                     | $      | – |   |   | $ | 140 |   |   | $ | – |   |

----

|                                                                                             |   | Three      MonthsEnded      September 30, |   |   | Nine      MonthsEnded      September 30, |   |
|--------------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|--------|------------------------------------------|--------|
|                                                                                             |   | 2008                                      |   |   | 2007                                     |   |   | 2008 |   |   | 2007 |   |
| Product      sales to Novartis                                                                   |   | $                                         | 4      |   |                                     | $      | 2 |   |   | $ | 10 |   |   | $ | 8 |   |
|                                                                                             |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Royalties      earned from Novartis                                                              |   | $                                         | 78     |   |                                     | $      | 40 |   |   | $ | 191 |   |   | $ | 59 |   |
|                                                                                             |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Contract      revenue from Novartis                                                              |   | $                                         | 18     |   |                                     | $      | 9 |   |   | $ | 44 |   |   | $ | 53 |   |
|                                                                                             |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Cost      of sales on product sales to Novartis                                                  |   | $                                         | 4      |   |                                     | $      | 2 |   |   | $ | 9 |   |   | $ | 9 |   |
|                                                                                             |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Research      and development expenses incurred on joint development projects with      Novartis |   | $                                         | 11     |   |                                     | $      | 11 |   |   | $ | 32 |   |   | $ | 30 |   |
|                                                                                             |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Collaboration      profit sharing expense to Novartis                                            |   | $                                         | 49     |   |                                     | $      | 47 |   |   | $ | 138 |   |   | $ | 143 |   |

----

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

----

Report of Independent Registered Public AccountingFirm

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

----

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

----

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

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

----

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

| Ÿ   | As      the Medicare and Medicaid programs are the largest payers for our      products, rules related to the programs’ coverage and reimbursement      continue to represent an important issue for our business. New regulations      related to hospital and physician payment continue to be implemented      annually. As a result of the Deficit Reduction Act of 2005, regulations      became effective in the fourth quarter of 2007 that have affected and will      continue to affect the reimbursement for our products paid by      Medicare, Medicaid, and other public payers. We consider these rules as we      plan our business and as we work to present our point of view to the      legislators and payers. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| Ÿ   | Manufacturing      pharmaceutical products is difficult and complex, and requires facilities      specifically designed and validated to run biotechnology production      processes. Difficulties or delays in product manufacturing or in obtaining      materials from our suppliers, or difficulties in accurately forecasting      manufacturing capacity needs or complying with regulatory requirements,      could negatively affect our business. Additionally, we have had, and may      continue to have, an excess of available capacity, which could lead to      idling of a portion of our manufacturing facilities, during which      time we would incur unabsorbed or idle plant charges or other excess      capacity charges, resulting in an increase in our COS. We use integrated      demand management and manufacturing processes to optimize our production      processes. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

----

----

| Ÿ   | Herceptin,      Pulmozyme, and Avastin outside theU.S.; |
|--------------------|---------------------------------------------------------|

| Ÿ   | Rituxan      outside the U.S., excluding Japan;and |
|--------------------|----------------------------------------------------|

| Ÿ   | Nutropin      products, Activase, and TNKase inCanada. |
|--------------------|--------------------------------------------------------|

| Ÿ   | Our      Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current      Reports on Form 8-K, and all amendments to those reports as soon as is      reasonably practicable after such material is electronically filed with      the U.S. Securities and ExchangeCommission; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

----

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

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

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

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

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

----

----

----

----

----

|                                                                            |   | Three      MonthsEnded      September 30, |    |   |   |   |   | Nine      MonthsEnded      September 30, |   |   |    |   |
|---------------------------------------------------------------------------------|--------|-------------------------------------------|---------|--------|--------|--------|--------|------------------------------------------|--------|--------|---------|--------|
|                                                                            |   | 2008                                      |    |   | 2007   |   |   | % Change                            |   |   | 2008    |   |   | 2007 |   |   | % Change |   |
| Product      sales                                                              |   | $                                         | 2,634   |   |   | $      | 2,321  |                                     |   |   | 13      | %      |   | $ | 7,549 |   |   | $ | 7,094 |   |   |   | 6 | % |
| Royalties                                                                       |   |                                      | 687     |   |   |   | 524    |                                     |   |   | 31      |   |   |   | 1,932 |   |   |   | 1,427 |   |   |   | 35 |   |
| Contract      revenue                                                           |   |                                      | 91      |   |   |   | 63     |                                     |   |   | 44      |   |   |   | 230 |   |   |   | 234 |   |   |   | (2 | ) |
| Total      operating revenue                                                    |   |                                      | 3,412   |   |   |   | 2,908  |                                     |   |   | 17      |   |   |   | 9,711 |   |   |   | 8,755 |   |   |   | 11 |   |
|                                                                            |   |                                      |    |   |   |   |   |                                     |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost      of sales                                                              |   |                                      | 409     |   |   |   | 406    |                                     |   |   | 1       |   |   |   | 1,240 |   |   |   | 1,227 |   |   |   | 1 |   |
| Research      and development                                                   |   |                                      | 777     |   |   |   | 615    |                                     |   |   | 26      |   |   |   | 2,043 |   |   |   | 1,828 |   |   |   | 12 |   |
| Marketing,      general and administrative                                      |   |                                      | 611     |   |   |   | 541    |                                     |   |   | 13      |   |   |   | 1,687 |   |   |   | 1,564 |   |   |   | 8 |   |
| Collaboration      profit sharing                                               |   |                                      | 315     |   |   |   | 276    |                                     |   |   | 14      |   |   |   | 907 |   |   |   | 805 |   |   |   | 13 |   |
| Write-off      of in-process research and development related to    acquisition |   |                                      | – |   |   |   | 77     |                                     |   |   | – |   |   |   | – |   |   |   | 77 |   |   |   | – |   |
| Gain      on acquisition                                                        |   |                                      | – |   |   |   | (121   | )                                        |   |   | – |   |   |   | – |   |   |   | (121 | ) |   |   | – |   |
| Recurring      amortization charges related to redemption and acquisition       |   |                                      | 43      |   |   |   | 38     |                                     |   |   | 13      |   |   |   | 129 |   |   |   | 90 |   |   |   | 43 |   |
| Special      items: litigation-related                                          |   |                                      | 40      |   |   |   | 14     |                                     |   |   | 186     |   |   |   | (260 | ) |   |   | 41 |   |   |   | (734 | ) |
| Total      costs and expenses                                                   |   |                                      | 2,195   |   |   |   | 1,846  |                                     |   |   | 19      |   |   |   | 5,746 |   |   |   | 5,511 |   |   |   | 4 |   |
|                                                                            |   |                                      |    |   |   |   |   |                                     |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      income                                                           |   |                                      | 1,217   |   |   |   | 1,062  |                                     |   |   | 15      |   |   |   | 3,965 |   |   |   | 3,244 |   |   |   | 22 |   |
|                                                                            |   |                                      |    |   |   |   |   |                                     |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      income (expense):                                                    |   |                                      |    |   |   |   |   |                                     |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      and other income (expense), net                                   |   |                                      | (33     | )      |   |   | 84     |                                     |   |   | (139    | )      |   |   | 133 |   |   |   | 233 |   |   |   | (43 | ) |
| Interest      expense                                                           |   |                                      | (25     | )      |   |   | (18    | )                                        |   |   | 39      |   |   |   | (57 | ) |   |   | (53 | ) |   |   | 8 |   |
| Total      other income (expense), net                                          |   |                                      | (58     | )      |   |   | 66     |                                     |   |   | (188    | )      |   |   | 76 |   |   |   | 180 |   |   |   | (58 | ) |
|                                                                            |   |                                      |    |   |   |   |   |                                     |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income      before taxes                                                        |   |                                      | 1,159   |   |   |   | 1,128  |                                     |   |   | 3       |   |   |   | 4,041 |   |   |   | 3,424 |   |   |   | 18 |   |
| Income      tax provision                                                       |   |                                      | 428     |   |   |   | 443    |                                     |   |   | (3      | )      |   |   | 1,546 |   |   |   | 1,286 |   |   |   | 20 |   |
| Net      income                                                                 |   | $                                         | 731     |   |   | $      | 685    |                                     |   |   | 7       |   |   | $ | 2,495 |   |   | $ | 2,138 |   |   |   | 17 |   |
|                                                                            |   |                                      |    |   |   |   |   |                                     |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings      per share:                                                        |   |                                      |    |   |   |   |   |                                     |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                           |   | $                                         | 0.69    |   |   | $      | 0.65   |                                     |   |   | 6       | %      |   | $ | 2.37 |   |   | $ | 2.03 |   |   |   | 17 | % |
| Diluted                                                                         |   | $                                         | 0.68    |   |   | $      | 0.64   |                                     |   |   | 6       |   |   | $ | 2.34 |   |   | $ | 2.00 |   |   |   | 17 |   |
|                                                                            |   |                                      |    |   |   |   |   |                                     |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost      of sales as a % of product sales                                      |   |                                      | 16      | %      |   |   | 17     | %                                        |   |   |    |   |   |   | 16 | % |   |   | 17 | % |   |   |   |   |
| Research      and development as a % of operating revenue                       |   |                                      | 23      |   |   |   | 21     |                                     |   |   |    |   |   |   | 21 |   |   |   | 21 |   |   |   |   |   |
| Marketing,      general and administrative as a % of operating revenue          |   |                                      | 18      |   |   |   | 19     |                                     |   |   |    |   |   |   | 17 |   |   |   | 18 |   |   |   |   |   |
|                                                                            |   |                                      |    |   |   |   |   |                                     |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Pretax      operating margin                                                    |   |                                      | 36      | %      |   |   | 37     | %                                        |   |   |    |   |   |   | 41 | % |   |   | 37 | % |   |   |   |   |
|                                                                            |   |                                      |    |   |   |   |   |                                     |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Effective      income tax rate                                                  |   |                                      | 37      | %      |   |   | 39     | %                                        |   |   |    |   |   |   | 38 | % |   |   | 38 | % |   |   |   |   |

| Percentages      in this table and throughout the discussion and analysis of our financial      condition and results of operations may reflect rounding      adjustments. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                    |   | Three      MonthsEnded      September 30, |   |   |   |   |   | Nine      MonthsEnded      September 30, |   |   |   |   |
|-----------------------------------------|--------|-------------------------------------------|--------|--------|--------|--------|--------|------------------------------------------|--------|--------|--------|--------|
|                                    |   | 2008                                      |   |   | 2007   |   |   | % Change                            |   |   | 2008   |   |   | 2007 |   |   | % Change |   |
| Net      U.S. product sales             |   |                                      |   |   |   |   |   |                                     |   |   |   |   |   |   |   |   |   |   |
| Avastin                                 |   | $                                         | 704    |   |   | $      | 597    |                                     |   |   | 18     | %      |   | $ | 1,954 |   |   | $ | 1,694 |   |   |   | 15 | % |
| Rituxan                                 |   |                                      | 655    |   |   |   | 572    |                                     |   |   | 15     |   |   |   | 1,911 |   |   |   | 1,689 |   |   |   | 13 |   |
| Herceptin                               |   |                                      | 368    |   |   |   | 320    |                                     |   |   | 15     |   |   |   | 1,046 |   |   |   | 960 |   |   |   | 9 |   |
| Lucentis                                |   |                                      | 225    |   |   |   | 198    |                                     |   |   | 14     |   |   |   | 639 |   |   |   | 618 |   |   |   | 3 |   |
| Xolair                                  |   |                                      | 136    |   |   |   | 121    |                                     |   |   | 12     |   |   |   | 382 |   |   |   | 352 |   |   |   | 9 |   |
| Tarceva                                 |   |                                      | 110    |   |   |   | 101    |                                     |   |   | 9      |   |   |   | 340 |   |   |   | 304 |   |   |   | 12 |   |
| Nutropin      products                  |   |                                      | 95     |   |   |   | 93     |                                     |   |   | 2      |   |   |   | 269 |   |   |   | 278 |   |   |   | (3 | ) |
| Thrombolytics                           |   |                                      | 66     |   |   |   | 67     |                                     |   |   | (1     | )      |   |   | 200 |   |   |   | 202 |   |   |   | (1 | ) |
| Pulmozyme                               |   |                                      | 65     |   |   |   | 57     |                                     |   |   | 14     |   |   |   | 185 |   |   |   | 164 |   |   |   | 13 |   |
| Raptiva                                 |   |                                      | 28     |   |   |   | 29     |                                     |   |   | (3     | )      |   |   | 82 |   |   |   | 80 |   |   |   | 3 |   |
| Total      U.S. product sales(1)        |   |                                      | 2,452  |   |   |   | 2,155  |                                     |   |   | 14     |   |   |   | 7,008 |   |   |   | 6,341 |   |   |   | 11 |   |
|                                    |   |                                      |   |   |   |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      product sales to collaborators |   |                                      | 182    |   |   |   | 166    |                                     |   |   | 10     |   |   |   | 541 |   |   |   | 753 |   |   |   | (28 | ) |
| Total      product sales                |   | $                                         | 2,634  |   |   | $      | 2,321  |                                     |   |   | 13     |   |   | $ | 7,549 |   |   | $ | 7,094 |   |   |   | 6 |   |

| (1) | The      totals may not appear to equal the sum of the individual line items due to      rounding. |
|-----|----------------------------------------------------------------------------------------------------|

----

----

----

----

|                                                    |   | Three      MonthsEnded      September 30, |   |   | Nine      MonthsEnded      September 30, |   |
|---------------------------------------------------------|--------|-------------------------------------------|--------|--------|------------------------------------------|--------|
|                                                    |   | 2008                                      |   |   | 2007                                     |   |   | 2008 |   |   | 2007 |   |
| Royalty      revenue                                    |   | $                                         | 106    |   |                                     | $      | 75 |   |   | $ | 265 |   |   | $ | 183 |   |
|                                                    |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Gross      expenses(1)                                  |   | $                                         | 43     |   |                                     | $      | 30 |   |   | $ | 114 |   |   | $ | 87 |   |
|                                                    |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Net      of tax effect of Cabilly patent on diluted EPS |   | $                                         | 0.04   |   |                                     | $      | 0.03 |   |   | $ | 0.09 |   |   | $ | 0.06 |   |

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

----

----

|                                            |   | Three      MonthsEnded      September 30, |   |   |   |   |   | Nine      MonthsEnded      September 30, |   |   |   |   |
|-------------------------------------------------|--------|-------------------------------------------|--------|--------|--------|--------|--------|------------------------------------------|--------|--------|--------|--------|
|                                            |   | 2008                                      |   |   | 2007   |   |   | % Change                            |   |   | 2008   |   |   | 2007 |   |   | % Change |   |
| U.S.      Rituxan profit sharing expense        |   | $                                         | 221    |   |   | $      | 187    |                                     |   |   | 18     | %      |   | $ | 625 |   |   | $ | 541 |   |   |   | 16 | % |
| U.S.      Tarceva profit sharing expense        |   |                                      | 45     |   |   |   | 42     |                                     |   |   | 7      |   |   |   | 144 |   |   |   | 121 |   |   |   | 19 |   |
| Xolair      profit sharing expense              |   |                                      | 49     |   |   |   | 47     |                                     |   |   | 4      |   |   |   | 138 |   |   |   | 143 |   |   |   | (3 | ) |
| Total      collaboration profit sharing expense |   | $                                         | 315    |   |   | $      | 276    |                                     |   |   | 14     |   |   | $ | 907 |   |   | $ | 805 |   |   |   | 13 |   |

|                                                                                                                               |   | Three      MonthsEnded      September 30, |   |   |   |   |   | Nine      MonthsEnded      September 30, |   |   |   |   |
|------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|--------|--------|--------|--------|------------------------------------------|--------|--------|--------|--------|
|                                                                                                                               |   | 2008                                      |   |   | 2007   |   |   | % Change                            |   |   | 2008   |   |   | 2007 |   |   | % Change |   |
| Product      sales, net                                                                                                            |   | $                                         | 655    |   |   | $      | 572    |                                     |   |   | 15     | %      |   | $ | 1,911 |   |   | $ | 1,689 |   |   |   | 13 | % |
| Combined      commercial costs and expenses                                                                                        |   |                                      | 140    |   |   |   | 129    |                                     |   |   | 9      |   |   |   | 434 |   |   |   | 405 |   |   |   | 7 |   |
| Combined      co-promotion profits                                                                                                 |   | $                                         | 515    |   |   | $      | 443    |                                     |   |   | 16     |   |   | $ | 1,477 |   |   | $ | 1,284 |   |   |   | 15 |   |
| Amount      due to Biogen Idec for their share of co-promotion profits–included in      collaboration profit sharing expense |   | $                                         | 221    |   |   | $      | 187    |                                     |   |   | 18     | %      |   | $ | 625 |   |   | $ | 541 |   |   |   | 16 | % |

----

|                                                                                                                           |   | Three      MonthsEnded      September 30, |   |   |   |   |   | Nine      MonthsEnded      September 30, |   |   |   |     |
|--------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|--------|--------|--------|--------|------------------------------------------|--------|--------|--------|----------|
|                                                                                                                           |   | 2008                                      |   |   | 2007   |   |   | % Change                            |   |   | 2008   |     |   | 2007 |   |   | % Change |   |
| Contract      revenue from Biogen Idec (R&D reimbursement)                                                                 |   | $                                         | 26     |   |   | $      | 27     |                                     |   |   | (4     | )      % |   | $ | 91 |   |   | $ | 83 |   |   |   | 10 | % |
|                                                                                                                           |   |                                      |   |   |   |   |   |                                     |   |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |
| Co-promotion      profit sharing expense                                                                                       |   | $                                         | 221    |   |   | $      | 187    |                                     |   |   | 18     | %        |   | $ | 625 |   |   | $ | 541 |   |   |   | 16 | % |
|                                                                                                                           |   |                                      |   |   |   |   |   |                                     |   |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |
| Royalty      expense on sales of Rituxan outside the U.S. and other patent      costs–included in MG&A expenses |   | $                                         | 74     |   |   | $      | 69     |                                     |   |   | 7      | %        |   | $ | 219 |   |   | $ | 175 |   |   |   | 25 | % |

“Accounting for PreexistingRelationships between the Parties to a Business Combination” (EITF 04-1), a businesscombination between parties with a preexisting relationship should be evaluatedto determine if a settlement of that preexisting relationship exists. Theacquisition of Tanox is considered to include the settlement of our 1996 licensearrangement of certain intellectual property and rights from Tanox. Weevaluate whether the license arrangement is favorable for us, by comparing it toestimated pricing for current market transactions for intellectual propertyrights similar to Tanox’s intellectual property rights related to Xolair.In connection with the settlement of this license arrangement, we recorded again of $121 million on a pretax basis, in accordance with EITF 04-1 in thethird quarter of 2007.

----

|                                                         |   | Three      MonthsEnded      September 30, |    |   |   |   |    | Nine      MonthsEnded      September 30, |   |   |    |   |
|--------------------------------------------------------------|--------|-------------------------------------------|---------|--------|--------|--------|---------|------------------------------------------|--------|--------|---------|--------|
|                                                         |   | 2008                                      |    |   | 2007   |   |    | % Change                            |   |   | 2008    |   |   | 2007 |   |   | % Change |   |
| Gains      on sales of biotechnology equity securities, net  |   | $                                         | 22      |   |   | $      | 5       |                                     |   |   | 340     | %      |   | $ | 66 |   |   | $ | 17 |   |   |   | 288 | % |
| Write-downs      of biotechnology debt and equity securities |   |                                      | – |   |   |   | – |                                     |   |   | – |   |   |   | (1 | ) |   |   | (4 | ) |   |   | (75 | ) |
| Interest      income                                         |   |                                      |    |   |   |   |    |                                     |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Investment      income(1)                                    |   |                                      | 15      |   |   |   | 80      |                                     |   |   | (81     | )      |   |   | 134 |   |   |   | 219 |   |   |   | (39 | ) |
| Impairment      charges                                      |   |                                      | (67     | )      |   |   | – |                                     |   |   | – |   |   |   | (67 | ) |   |   | – |   |   |   | – |   |
| Interest      expense                                        |   |                                      | (25     | )      |   |   | (18     | )                                        |   |   | 39      |   |   |   | (57 | ) |   |   | (53 | ) |   |   | 8 |   |
| Other      miscellaneous income (expense)                    |   |                                      | (3      | )      |   |   | (1      | )                                        |   |   | 200     |   |   |   | 1 |   |   |   | 1 |   |   |   | - |   |
| Total      other income (expense), net                       |   | $                                         | (58     | )      |   | $      | 66      |                                     |   |   | (188    | )      |   | $ | 76 |   |   | $ | 180 |   |   |   | (58 | ) |

| (1) | Investment      income includes interest and dividend income, bond-related amortization,      realized gains and losses on available-for-sale securities and trading      securities, and changes in unrealized gains and losses on trading      securities. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                                           |   | September      30, 2008 |    |   | December      31, 2007 |   |
|------------------------------------------------|--------|-------------------------|---------|--------|------------------------|--------|
|                                           |   | Assets                  |    |   | Liabilities            |   |   | Assets |   |   | Liabilities |   |
| Cash      and cash equivalents                 |   | $                       | 4,275   |   |                   | $      | – |   |   | $ | 2,514 |   |   | $ | – |   |
| Restricted      cash                           |   |                    | – |   |                   |   | – |   |   |   | 788 |   |   |   | – |   |
| Short-term      investments                    |   |                    | 1,657   |   |                   |   | – |   |   |   | 1,461 |   |   |   | – |   |
| Long-term      marketable debt securities |   |                    | 2,266   |   |                   |   | – |   |   |   | 1,674 |   |   |   | – |   |
| Total      fixed income investment portfolio   |   | $                       | 8,198   |   |                   |   | – |   |   |   | 6,437 |   |   |   | – |   |
|                                           |   |                    |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term      marketable equity securities    |   |                    | 340     |   |                   |   | – |   |   |   | 416 |   |   |   | – |   |
| Total      derivative financial instruments    |   |                    | 72      |   |                   |   | 12 |   |   |   | 30 |   |   |   | 19 |   |
| Total                                          |   | $                       | 8,610   |   |                   | $      | 12 |   |   | $ | 6,883 |   |   | $ | 19 |   |

|                                                                                                                                                            |   | September      30, 2008 |   |   | December 31, 2007 |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|--------|--------|-----------------------------|--------|
| Unrestricted      cash, cash equivalents, short-term investments, and long-term marketable      debt and equity securities                                      |   | $                            | 8,538  |   |                        | $      | 6,065 |   |
| Net      receivable—equity hedge instruments                                                                                                              |   |                         | 33     |   |                        |   | 24 |   |
| Total      unrestricted cash, cash equivalents, short-term investments, long-term      marketable debt and equity securities, and equity hedge      instruments |   | $                            | 8,571  |   |                        | $      | 6,089 |   |
| Working      capital                                                                                                                                            |   | $                            | 6,855  |   |                        | $      | 4,835 |   |
| Current      ratio                                                                                                                                              |   | 3.4:1                        |   |   | 2.2:1                       |   |

----

----

|                            |   | Total      Number of Shares Purchased |    |   | Average      Price Paid per Share |   |
|---------------------------------|--------|---------------------------------------|---------|--------|-----------------------------------|--------|
| July      1–31, 2008      |   |                                  | – |   |                              |   | – |   |
| August      1–31, 2008    |   |                                  | – |   |                              |   | – |   |
| September      1–30, 2008 |   |                                  | 5.5     |   |                              | $      | 90.24 |   |
| Total                           |   |                                  | 5.5     |   |                              | $      | 90.24 |   |

----

----

|                                                                                             |   | Three      MonthsEnded      September 30, |   |   | Nine      MonthsEnded      September 30, |   |
|--------------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|--------|------------------------------------------|--------|
|                                                                                             |   | 2008                                      |   |   | 2007                                     |   |   | 2008 |   |   | 2007 |   |
| Retention      plan costs(1)                                                                     |   |                                      |   |   |                                     |   |   |   |   |   |   |   |
| Research      and development                                                                    |   | $                                         | 22     |   |                                     | $      | – |   |   | $ | 22 |   |   | $ | – |   |
| Marketing,      general and administrative                                                       |   |                                      | 22     |   |                                     |   | – |   |   |   | 22 |   |   |   | – |   |
| Total      retention plan costs                                                                  |   |                                      | 44     |   |                                     |   | – |   |   |   | 44 |   |   |   | – |   |
| Third-party      legal and advisory costs incurred by us on behalf of the Special      Committee |   |                                      | 6      |   |                                     |   | – |   |   |   | 6 |   |   |   | – |   |
| Other      third-party legal and advisory costs                                                  |   |                                      | 3      |   |                                     |   | – |   |   |   | 3 |   |   |   | – |   |
| Total      retention plan costs and legal and advisory costs                                     |   | $                                         | 53     |   |                                     | $      | – |   |   | $ | 53 |   |   | $ | – |   |

| (1) | During      the third quarter of 2008, $9 million of retention plan costs were      capitalized into inventory, which will be recognized as COS as      products that      were manufactured after the initiation of the retention plans are      estimated to be sold. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                                                                                          |   | Three      MonthsEnded      September 30, |   |   | Nine      MonthsEnded      September 30, |   |
|-----------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|--------|------------------------------------------|--------|
|                                                                                          |   | 2008                                      |   |   | 2007                                     |   |   | 2008 |   |   | 2007 |   |
| Product      sales to Roche                                                                   |   | $                                         | 144    |   |                                     | $      | 135 |   |   | $ | 425 |   |   | $ | 651 |   |
|                                                                                          |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Royalties      earned from Roche                                                              |   | $                                         | 381    |   |                                     | $      | 317 |   |   | $ | 1,142 |   |   | $ | 855 |   |
|                                                                                          |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Contract      revenue from Roche                                                              |   | $                                         | 35     |   |                                     | $      | 21 |   |   | $ | 75 |   |   | $ | 81 |   |
|                                                                                          |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Cost      of sales on product sales to Roche                                                  |   | $                                         | 90     |   |                                     | $      | 98 |   |   | $ | 242 |   |   | $ | 356 |   |
|                                                                                          |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Research      and development expenses incurred on joint development projects with      Roche |   | $                                         | 84     |   |                                     | $      | 64 |   |   | $ | 232 |   |   | $ | 192 |   |
|                                                                                          |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| In-licensing      expenses to Roche                                                           |   | $                                         | 105    |   |                                     | $      | – |   |   | $ | 140 |   |   | $ | – |   |

----

|                                                                                             |   | Three      MonthsEnded      September 30, |   |   | Nine      MonthsEnded      September 30, |   |
|--------------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|--------|------------------------------------------|--------|
|                                                                                             |   | 2008                                      |   |   | 2007                                     |   |   | 2008 |   |   | 2007 |   |
| Product      sales to Novartis                                                                   |   | $                                         | 4      |   |                                     | $      | 2 |   |   | $ | 10 |   |   | $ | 8 |   |
|                                                                                             |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Royalties      earned from Novartis                                                              |   | $                                         | 78     |   |                                     | $      | 40 |   |   | $ | 191 |   |   | $ | 59 |   |
|                                                                                             |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Contract      revenue from Novartis                                                              |   | $                                         | 18     |   |                                     | $      | 9 |   |   | $ | 44 |   |   | $ | 53 |   |
|                                                                                             |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Cost      of sales on product sales to Novartis                                                  |   | $                                         | 4      |   |                                     | $      | 2 |   |   | $ | 9 |   |   | $ | 9 |   |
|                                                                                             |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Research      and development expenses incurred on joint development projects with      Novartis |   | $                                         | 11     |   |                                     | $      | 11 |   |   | $ | 32 |   |   | $ | 30 |   |
|                                                                                             |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Collaboration      profit sharing expense to Novartis                                            |   | $                                         | 49     |   |                                     | $      | 47 |   |   | $ | 138 |   |   | $ | 143 |   |

----

|                                   |   |                                |    |   | Options      Outstanding |   |
|----------------------------------------|--------|-------------------------------------|---------|--------|--------------------------|--------|
|                                   |   | Shares      Availablefor      Grant |    |   | Number      ofShares     |   |   | Weighted-AverageExercise      Price |   |
| December      31, 2006                 |   |                                | 68.7    |   |                     |   | 88.3 |   |   | $ | 54.43 |   |
| Grants                                 |   |                                | (17.8   | )      |                     |   | 17.8 |   |   |   | 79.40 |   |
| Exercises                              |   |                                | – |   |                     |   | (10.4 | ) |   |   | 32.76 |   |
| Cancellations                          |   |                                | 3.5     |   |                     |   | (3.5 | ) |   |   | 76.45 |   |
| December      31, 2007                 |   |                                | 54.4    |   |                     |   | 92.2 |   |   | $ | 60.94 |   |
| Grants                                 |   |                                | (1.0    | )      |                     |   | 1.0 |   |   |   | 78.24 |   |
| Exercises                              |   |                                | – |   |                     |   | (12.2 | ) |   |   | 44.75 |   |
| Cancellations                          |   |                                | 3.0     |   |                     |   | (3.0 | ) |   |   | 80.41 |   |
| September      30, 2008 (Year to Date) |   |                                | 56.4    |   |                     |   | 78.0 |   |   | $ | 62.94 |   |

|                           |   | Exercisable |   |   | Unexercisable                 |   |   | Total  |   |
|--------------------------------|--------|-------------|--------|--------|-------------------------------|--------|--------|--------|--------|
| As      of September 30, 2008  |   | Shares      |   |   | Weighted-AverageExercisePrice |   |   | Shares |   |   | Weighted-AverageExercisePrice |   |   | Shares |   |   | Weighted-AverageExercisePrice |   |
| In-the-Money                   |   |        | 52.9   |   |                          | $      | 54.50  |   |   |   | 23.9 |   |   | $ | 80.00 |   |   |   | 76.8 |   |   | $ | 62.45 |   |
| Out-of-the-Money(1)            |   |        | 0.7    |   |                          |   | 92.19  |   |   |   | 0.5 |   |   |   | 93.36 |   |   |   | 1.2 |   |   |   | 92.66 |   |
| Total      Options Outstanding |   |        | 53.6   |   |                          |   |   |   |   |   | 24.4 |   |   |   |   |   |   |   | 78.0 |   |   |   |   |   |

| (1) | Out-of-the-money      options have an exercise price equal to or greater than the fair market      value of Genentech Common Stock, which was $88.68 at the close of business      on September 30, 2008. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| Item      3. | Quantitative      and Qualitative Disclosures About MarketRisk |
|--------------|----------------------------------------------------------------|

| Item      4. | Controls      and Procedures |
|--------------|------------------------------|

----

| Item      1. | Legal      Proceedings |
|--------------|------------------------|

| Item      1A. | Risk      Factors |
|---------------|-------------------|

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

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

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

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

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

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

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

----

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

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

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

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

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

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

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

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

----

----

----

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

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

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

----

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

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

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

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

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

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

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

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

| Ÿ   | A      supplier or contract manufacturer going out of business or failing to      produce product as contractuallyrequired. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------|

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

| Ÿ   | Problems      in integrating our new enterprise resource planning system, including the      portions related to manufacturing and  distribution. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

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

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

| Ÿ   | Require      us to establish a stock repurchase program designed to maintain RHI’s      percentage ownership interest in our Common Stock based on an established      Minimum Percentage. For information regarding the Minimum Percentage, see      Note 6, “Relationship with Roche Holdings, Inc. and Related Party      Transactions,” in the Notes to Condensed Consolidated Financial Statements      in Part I, Item 1 of this Quarterly Report on Form  10-Q. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

| Ÿ   | Our      pricing decisions, including a decision to increase or decrease the price      of a product; the pricing decisions of our competitors; as well as our      Avastin Patient Assistance Program. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

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

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

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

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

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

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

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

----

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

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

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

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

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

| Ÿ   | The      failure or refusal of a licensee to pay royalties or to make other      contractual payments, the termination of a contract under which we receive      royalties or other revenue, or changes to the terms of such a      contract. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Ÿ   | The      expiration or invalidation of our patents or licensed intellectual      property. See “Protecting our proprietary rights is difficult and      costly.” |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

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

----

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

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

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

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

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

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

| Ÿ   | The      timing and volume of product produced and bulk shipments to licensees      under contract manufacturingarrangements. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------|

----

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

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

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

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

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

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

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

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

----

| Ÿ   | The      Roche Proposal to acquire all of the outstanding shares of our Common      Stock not owned by Roche. Future developments related to the Roche      Proposal may result in further volatility in the price of our Common      Stock. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

| Ÿ   | Our      financial results. |
|--------------------|-----------------------------|

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

| Ÿ   | Developments      or outcomes of litigation, including litigation regarding proprietary and      patent rights (including, for example, the Cabilly patent discussed      in Note 5, “Contingencies,” in the Notes to Condensed Consolidated      Financial Statements in Part I, Item 1 of this Quarterly Report on Form      10-Q), and governmentalinvestigations. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

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

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

----

| Item 2. | Unregistered      Sales of Equity Securities and Use ofProceeds. |
|---------|------------------------------------------------------------------|

|                               |   | Total      Number of Shares      Purchased |    |   | Average      Price Paid per      Share |   |    | Total      Number of Shares      Purchased as Part      of Publicly Announced      Plans or Programs(2) |   |   | Maximum      Number of      Shares that May Yet      Be PurchasedUnder      the Plans or Programs(2) |   |
|------------------------------------|--------|--------------------------------------------|---------|--------|----------------------------------------|--------|---------|---------------------------------------------------------------------------------------------------------|--------|--------|------------------------------------------------------------------------------------------------------|--------|
| July      1–31, 2008         |   |                                       | – |   |                                   |   | – |                                                                                                    |   |   |                                                                                                 |   |   |   |
| August      1–31, 2008       |   |                                       | – |   |                                   |   | – |                                                                                                    |   |   |                                                                                                 |   |   |   |
| September      1–30, 2008(1) |   |                                       | 5.5     |   |                                   | $      | 90.24   |                                                                                                    |   |   |                                                                                                 |   |   |   |
| Total                              |   |                                       | 5.5     |   |                                   | $      | 90.24   |                                                                                                    |   |   | 88                                                                                                   |   |   |   | 62 |   |

| (1) | In      May 2008, we entered into a prepaid share repurchase arrangement with an      investment bank pursuant to which we delivered $500 million to the      investment bank. Under this arrangement, the investment bank delivered      approximately 5.5 million shares to us on September 30,    2008. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | As      of September 30, 2008, 88 million cumulative shares had been purchased      under our stock repurchase program for $6.5 billion, and a maximum of 62      million additional shares for amounts totaling up to $3.5 billion may be      purchased under the program through June 30,  2009.        |

----

| Item      6. | Exhibits. |
|--------------|-----------|

| Exhibit      No. | Description | Location |
|------------------|-------------|----------|
|             | 3.1         |     | Amended      and Restated Certificate of Incorporation | Filed      as an exhibit to our Current Report on Form 8-K filed with the U. S.      Securities and Exchange Commission (Commission) on July 28, 1999 and      incorporated herein by reference. |
|             | 3.2         |     | Certificate      of Amendment of Amended and Restated Certificate of      Incorporation | Filed      as an exhibit to our Annual Report on Form 10-K for the year ended      December 31, 2000 filed with      the Commission and incorporated herein by    reference. |
|             | 3.3         |     | Certificate      of Amendment of Amended and Restated Certificate of      Incorporation | Filed      as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended      June 30, 2001 filed with the Commission and incorporated herein by      reference. |
|             | 3.4         |     | Certificate      of Third Amendment of Amended and Restated Certificate of      Incorporation | Filed      as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended      June 30, 2004 filed with the Commission and incorporated herein by      reference. |
|             | 3.5         |     | Bylaws | Filed      as an exhibit to our Annual Report on Form 10-K for the year ended      December 31, 2005 filed with      the Commission and incorporated herein by    reference. |
|             | 4.1         |     | Form      of Common Stock Certificate | Filed      as an exhibit to Amendment No. 3 to our Registration Statement (No.      333-80601) on Form S-3 filed with the Commission on July 16, 1999 and      incorporated herein by reference. |
|             | 4.2         |     | Indenture,      dated as of July 18, 2005, between the Company and Bank of New York,      as trustee | Filed      on a Current Report on Form 8-K with the Commission on July 19, 2005 and      incorporated herein by reference. |
|             | 4.3         |     | Officers’      Certificate of Genentech, Inc. dated July 18, 2005, including forms      of the Company’s 4.40% Senior Notes due 2010, 4.75 Senior Notes due 2015      and 5.25% Senior Notes due 2035 | Filed      on a Current Report on Form 8-K with the Commission on July 19, 2005 and      incorporated herein by reference. |
|             | 4.4         |     | Form      of 4.40% Senior Note due 2010 | Filed      on a Current Report on Form 8-K with the Commission on July 19, 2005 and      incorporated herein by reference. |
|             | 4.5         |     | Form      of 4.75% Senior Note due 2015 | Filed      on a Current Report on Form 8-K with the Commission on July 19, 2005 and      incorporated herein by reference. |
|             | 4.6         |     | Form      of 5.25% Senior Note due 2035 | Filed      on a Current Report on Form 8-K with the Commission on July 19, 2005 and      incorporated herein by reference. |
|             | 4.7         |     | Registration      Rights Agreement, dated as of July 18, 2005, among Genentech, Inc.      and Citigroup Global Markets, Inc. and Goldman, Sachs & Co. as      representatives of the initial purchasers | Filed      on a Current Report on Form 8-K with the Commission on July 19, 2005 and      incorporated herein by reference. |
|             | 10.1        |     | Genentech,      Inc. Executive Retention Plan | Filed      on a Current Report on Form 8-K with the Commission on August 21, 2008 and      incorporated herein by reference. |
|             | 10.2        |     | Genentech,      Inc. Executive Severance Plan | Filed      on a Current Report on Form 8-K with the Commission on August 21, 2008 and      incorporated herein by reference. |
|             | 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 |

----

SIGNATURES

|   |                  |   | GENENTECH,      INC.                                                      |
|--------|-----------------------|--------|-------------------------------------------------------------------------------------|
| Date:  | November      3, 2008 |   | /s/ARTHUR      D. LEVINSON                                                          |
|   |                  |   | Arthur      D. Levinson, Ph.D.Chairman      and Chief Executive Officer             |
|   |                  |   |                                                                                |
|   |                  |   |                                                                                |
| Date:  | November      3, 2008 |   | /s/DAVID      A. EBERSMAN                                                           |
|   |                  |   | David      A. EbersmanExecutive      Vice President andChief      Financial Officer |
|   |                  |   |                                                                                |
|   |                  |   |                                                                                |
| Date:  | November      3, 2008 |   | /s/ROBERT      E. ANDREATTA                                                         |
|   |                  |   | Robert      E. AndreattaController      and Chief Accounting Officer                |

----