<PAGE>

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC  20549

                                     FORM 10-Q

(Mark One)

  /X/  Quarterly report pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934. For the quarterly period ended June 30, 1998.

       Transition report pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934. For the transition period from   to   .


                              Commission File Number
                                       1-9813

                                  GENENTECH, INC.
               (Exact name of registrant as specified in its charter)

           Delaware                                         94-2347624
(State or other jurisdiction of                          (I.R.S. employer
incorporation or organization)                        identification number)

                 1 DNA Way, South San Francisco, California  94080
                (Address of principal executive offices and zip code)

                                   (650) 225-1000
                 (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports), and (2) has been subject to 
such filing requirements for the past 90 days.  Yes  X     No

Indicate the number of shares outstanding of each of the issuer's classes of 
common stock, as of the latest practicable date.

Class                                           Number of Shares Outstanding
-----                                           ----------------------------
Common Stock $.02 par value                     76,621,009
(Common Stock)                                  Outstanding at June 30, 1998

Callable Putable Common Stock $.02 par value    49,223,128
(Special Common Stock)                          Outstanding at June 30, 1998















<PAGE>

                                  GENENTECH, INC.
                                       INDEX
<TABLE>
<CAPTION>

PART I.     FINANCIAL INFORMATION                                   PAGE NO.
<S>                                                                 <C>

Condensed Consolidated Statements of Income -
for the three months and six months ended 
June 30, 1998 and 1997                                                  3

Condensed Consolidated Statements of Cash Flows -
for the six months ended June 30, 1998 and 1997                         4

Condensed Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997                                     5

Notes to Condensed Consolidated Financial Statements                  6-9

Independent Accountants' Review Report                                 10

Financial Review                                                    11-19

PART II.     OTHER INFORMATION                                         20

SIGNATURES                                                             22


</TABLE>































                                     Page 2
<PAGE>

PART I.  FINANCIAL INFORMATION

                                  GENENTECH, INC.
                    CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                        (thousands, except per share amounts)
                                     (unaudited)
<TABLE>
<CAPTION>
                                               Three Months           Six Months
                                              Ended June 30,        Ended June 30,
                                          ---------------------  ---------------------
                                             1998        1997       1998        1997
                                          ---------   ---------  ---------   ---------
<S>                                       <C>         <C>        <C>         <C>
Revenues:
  Product sales (including amounts 
    from related parties: three months -
    1998-$6,566; 1997-$4,504; six 
    months - 1998-$13,173; 1997-$8,998)   $ 176,263   $ 145,018  $ 340,982   $ 299,231
  Royalties (including amounts from
    related parties: three months -
    1998-$8,752; 1997-$6,225; six 
    months - 1998-$15,881; 1997-$13,023)     57,388      55,379    121,881     120,691
  Contract and other (including 
    amounts from related parties: 
    three months - 1998-$7,850; 
    1997-$10,695; six months - 
    1998-$15,648; 1997-$26,401)              14,056      16,659     28,921      38,068
  Interest                                   20,305      16,437     40,928      32,788
                                          ---------   ---------  ---------   ---------
     Total revenues                         268,012     233,493    532,712     490,778

Costs and expenses:
  Cost of sales (including amounts 
    from related parties: three months -
    1998-$5,747; 1997-$3,664; six 
    months - 1998-$11,772; 1997-$7,563)      37,150      25,567     70,771      53,252
  Research and development (including
    contract related: three months -
    1998-$10,679; 1997-$10,695; six
    months - 1998-$19,741; 1997-$26,401      92,949     110,890    191,151     233,633
  Marketing, general and administrative      80,643      63,073    155,593     125,054
  Interest                                    1,195         916      2,154       1,904
                                          ---------   ---------  ---------   ---------
    Total costs and expenses                211,937     200,446    419,669     413,843

Income before taxes                          56,075      33,047    113,043      76,935
 
Income tax provision                         15,701       9,253     31,652      21,542
                                          ---------   ---------  ---------   ---------
Net income                                $  40,374   $  23,794  $  81,391   $  55,393
                                          =========   =========  =========   =========
Earnings per share 

  Basic                                   $    0.32   $    0.19  $    0.65   $    0.45
                                          =========   =========  =========   =========
  Diluted                                 $    0.31   $    0.19  $    0.63   $    0.44
                                          =========   =========  =========   =========
Weighted average shares used to 
  compute diluted earnings per share        129,775     126,425    129,291     125,842
                                          =========   =========  =========   =========
</TABLE>

              See Notes to Condensed Consolidated Financial Statements.


                                     Page 3
<PAGE>

                                  GENENTECH, INC.
                     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    (thousands)
                                    (unaudited)
<TABLE>
<CAPTION>
                                                                   Six Months
                                                                  Ended June 30,
                                                              ----------------------
                                                                 1998        1997
                                                              ----------  ----------
<S>                                                           <C>         <C>
Cash flows from operating activities:
  Net income                                                  $   81,391  $   55,393
  Adjustments to reconcile net income to net cash 
   provided by (used in) operating activities:
   Depreciation and amortization                                  37,246      33,568
   Deferred income taxes                                          (8,480)     (4,445)
   Gain on sales of securities available-for-sale                 (5,835)     (5,836)
   Loss on sales of securities available-for-sale                    389       1,217
   Write down of securities available-for-sale                     7,193           -
   Loss on fixed asset dispositions                                    -          83
  Changes in assets and liabilities:
     Investments in trading securities                           (16,263)   (101,631)
     Receivables and other current assets                         12,458     (17,618)
     Inventories                                                    (814)     (7,724)
     Accounts payable, other current liabilities 
       and other long-term liabilities                            (7,281)      6,064
                                                              ----------  ----------
  Net cash provided by (used in) operating activities            100,004     (40,929)

Cash flows from investing activities:
  Purchases of securities held-to-maturity                      (177,416)   (213,523)
  Proceeds from maturities of securities held-to-maturity        152,182     281,045
  Purchases of securities available-for-sale                    (302,359)   (204,141)
  Proceeds from sales of securities available-for-sale           162,945     237,383
  Purchases of non-marketable equity securities                   (5,425)          -
  Capital expenditures                                           (43,331)    (76,454)
  Change in other assets                                          (2,568)    (34,334)
                                                              ----------  ----------
  Net cash used in investing activities                         (215,972)    (10,024)

Cash flows from financing activities:
  Stock issuances                                                 61,451      51,420
                                                              ----------  ----------
  Net cash provided by financing activities                       61,451      51,420
                                                              ----------  ----------
Net (decrease) increase in cash and cash equivalents             (54,517)        467
  Cash and cash equivalents at beginning of period               244,469     207,264
                                                              ----------  ----------
  Cash and cash equivalents at end of period                  $  189,952  $  207,731
                                                              ==========  ==========

</TABLE>

              See Notes to Condensed Consolidated Financial Statements.





                                     Page 4
<PAGE>

                                   GENENTECH, INC.
                        CONDENSED CONSOLIDATED BALANCE SHEETS
                                     (thousands)
                                     (unaudited)
<TABLE>
<CAPTION>
                                                        June 30,        December 31,
                                                          1998             1997
                                                      ------------     ------------
<S>                                                   <C>              <C>
ASSETS
Current assets:
  Cash and cash equivalents                           $    189,952     $    244,469
  Short-term investments                                   731,361          588,853
  Accounts receivable, net (including amounts
    from related party: 1998-$36,238;
    1997-$44,386)                                          180,086          189,245
  Inventories                                              116,840          116,026
  Prepaid expenses and other current assets                 53,878           55,325
                                                      ------------     ------------
     Total current assets                                1,272,117        1,193,918

Long-term marketable securities                            466,963          453,188
Property, plant and equipment, less accumulated      
  depreciation (1998-$409,351; 1997-$376,091)              693,375          683,304
Other assets                                               174,240          177,202
                                                      ------------     ------------
Total assets                                          $  2,606,695     $  2,507,612
                                                      ============     ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                    $     29,859     $     48,992
  Income taxes payable                                      57,032           40,293
  Accrued liabilities - related party                       14,468           15,427
  Other accrued liabilities                                165,882          184,845
                                                      ------------     ------------
     Total current liabilities                             267,241          289,557

Long-term debt                                             150,000          150,000
Other long-term liabilities                                 30,435           36,830
                                                      ------------     ------------
     Total liabilities                                     447,676          476,387

Commitments and contingencies
Stockholders' equity:
  Preferred stock                                                -                -
  Special Common Stock                                         985              952
  Common Stock                                               1,532            1,532
  Additional paid-in capital                             1,525,186        1,463,768
  Retained earnings                                        592,532          511,141
  Net unrealized gain on securities
     available-for-sale                                     38,784           53,832
                                                      ------------     ------------
     Total stockholders' equity                          2,159,019        2,031,225
                                                      ------------     ------------
Total liabilities and stockholders' equity            $  2,606,695     $  2,507,612
                                                      ============     ============
</TABLE>

            See Notes to Condensed Consolidated Financial Statements.




                                     Page 5
<PAGE>

                                GENENTECH, INC.
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (unaudited)


Note 1.     Statement of Accounting Presentation

In the opinion of Genentech, Inc. (the Company), the accompanying unaudited 
condensed consolidated financial statements have been prepared in accordance 
with generally accepted accounting principles for interim financial 
information and with the instructions to Form 10-Q and Article 10 of 
Regulation S-X.  Accordingly, they do not include all of the information and 
footnotes required by generally accepted accounting principles for complete 
financial statements.  In the opinion of management, all adjustments 
(consisting only of adjustments of a normal recurring nature) considered 
necessary for a fair presentation have been included.  Operating results for 
the three- and six-month periods ended June 30, 1998 and 1997 are not 
necessarily indicative of the results that may be expected for the year 
ending December 31, 1998.  The condensed consolidated balance sheet as of 
December 31, 1997 has been derived from the audited financial statements as 
of that date.  For further information, refer to the consolidated financial 
statements and notes thereto included in the Company's Annual Report to 
Stockholders for the year ended December 31, 1997.

The preparation of financial statements in conformity with generally accepted 
accounting principles requires management to make estimates and assumptions 
that affect the amounts reported in the financial statements and accompanying 
notes. Actual results could differ from those estimates.


Note 2.     New Accounting Standards

The Company adopted Statement of Financial Accounting Standards (FAS) No. 
128, "Earnings Per Share," for the year ended December 31, 1997.  All 
earnings per share (EPS) and share amounts for all periods presented have 
been restated to comply with FAS 128.  The following is a reconciliation of 
the numerator and denominators of the basic and diluted EPS computations for 
the three- and six-month periods ended June 30, 1998 and 1997 (in thousands).

<TABLE>
<CAPTION>
                                      Three Months          Six Months
                                     Ended June 30,        Ended June 30,
                                   ------------------    -------------------
                                      1998      1997        1998       1997
                                   --------  --------    --------  ---------
<S>                                <C>       <C>         <C>       <C>
Numerator:
 Net income - numerator for 
  basic and diluted EPS:           $ 	40,374  $ 	23,794    $ 81,391  $ 55,393
                                   --------  --------    --------  --------
Denominator:
 Denominator for basic EPS--
  weighted-average shares           125,601   122,808	     125,179	   122,389

 Effect of dilutive securities:
  Stock options                       4,174     3,617	       4,112     3,453
                                   --------  --------    --------  --------
 Denominator for diluted EPS
 --adjusted weighted-average 
   shares and assumed conversions   	129,775   126,425	     129,291	   125,842
                                   ========  ========    ========  ========
</TABLE>


                                     Page 6
<PAGE>

Options to purchase 1,580,150 shares of Special Common Stock between $68.19 
per share and $68.38 per share were outstanding in the six-month period ended 
June 30, 1998, and options to purchase 147,900 shares of Special Common Stock 
at $58.38 per share and 182,105 shares of Special Common Stock between $57.38 
per share and $58.38 per share were outstanding in the three- and six-month 
periods ended June 30, 1997, respectively, but were not included in the 
computations of diluted EPS because the options were anti-dilutive.

In the three- and six-month periods ended June 30, 1998 and 1997, the Company 
had convertible subordinated debentures that were convertible to 1,013,514 
shares of Special Common Stock, but were not included in the computations of 
diluted EPS because they were anti-dilutive.

The Financial Accounting Standards Board (the FASB) issued FAS 130, 
"Reporting Comprehensive Income," and FAS 131, "Disclosures about Segments of 
an Enterprise and Related Information," in June 1997, which require 
additional disclosures to be adopted by December 31, 1998.  Under FAS 130, 
the Company is required to display comprehensive income and its components as 
part of the Company's full set of financial statements.  Comprehensive income 
is comprised of net income and other comprehensive income.  The measurement 
and presentation of net income will not change.  Other comprehensive income 
includes certain changes in equity of the Company that are excluded from net 
income.  Specifically, FAS 130 requires unrealized holding gains and losses 
on the Company's available-for-sale securities, which are currently reported 
separately in stockholders' equity, to be included in other comprehensive 
income.  For the three months ended June 30, 1998 and 1997, total 
comprehensive income was $20.2 million and $20.0 million, respectively.  For 
the six months ended June 30, 1998 and 1997, total comprehensive income was 
$66.3 million and $45.7 million, respectively.

FAS 131 requires that the Company report financial and descriptive 
information about its reportable operating segments.  The Company is 
evaluating the impact on its disclosures.

In June 1998, the FASB issued FAS 133, "Accounting for Derivative Instruments 
and Hedging Activities, " effective beginning in the first quarter of 2000.  
FAS 133 establishes accounting and reporting standards for derivative 
instruments, including certain derivative instruments embedded in other 
contracts, and for hedging activities.  It requires companies to recognize 
all derivatives as either assets or liabilities on the balance sheet and 
measure those instruments at fair value.  Gains or losses resulting from 
changes in the values of those derivatives would be accounted for depending 
on the use of the derivative and whether it qualifies for hedge accounting 
under FAS 133.  The Company is currently evaluating the impact of FAS 133 on 
its financial position and results of operations.


Note 3.     Relationship with Roche Holdings, Inc.

On October 25, 1995, the Company and Roche Holdings, Inc. (Roche) entered 
into a new agreement (the Agreement) to extend until June 30, 1999, Roche's 
option to cause the Company to redeem (call) the outstanding Special Common 
Stock of the Company at predetermined prices.  Should the call be exercised, 
Roche will concurrently purchase from the Company a like number of shares of 
Common Stock for a price equal to the Company's cost to redeem the Special 
Common Stock.  During the quarter beginning July 1, 1998, the call price is 
$78.00 per share and increases by $1.50 per share each quarter through the 
end of the option period on June 30, 1999, on which date the price will be 
$82.50 per share.  If Roche does not cause the redemption as of June 30, 
1999, the Company's stockholders will have the option (the put) to cause the 


                                     Page 7
<PAGE>

Company to redeem none, some or all of their shares of Special Common Stock 
at $60.00 per share (and Roche will concurrently provide the necessary 
redemption funds to the Company by purchasing a like number of shares of 
Common Stock at $60.00 per share) within thirty business days commencing July 
1, 1999.  Roche Holding Ltd, a Swiss corporation, has guaranteed Roche's 
obligation under the put.

In the event that sufficient shares of the Company's Special Common Stock 
are tendered pursuant to the put to result in Roche owning at least 85% of 
the total outstanding shares of the Company's outstanding equity, the 
Company has in place an Incentive Units Program (the Program) that would 
result in amounts becoming payable to eligible employees if specified 
performance benchmarks are achieved by the Company during the term of the 
Program.  These amounts would vary depending on which benchmarks are 
achieved.  At June 30, 1998, no such amounts were payable under the Program. 

In conjunction with the Agreement and revisions agreed upon in principle in 
the second quarter of 1997, F. Hoffmann-La Roche Ltd (HLR) was granted an 
option for ten years for licenses to use and sell certain of the Company's 
products in non-U.S. markets (the License Agreement).  Under the License 
Agreement, HLR may exercise its option to license any such future product of 
the Company either when the Company determines to move such product into 
development or at the end of Phase II clinical trials.  The License Agreement 
provides that the Company and HLR will share the U.S. and European 
development costs regardless of the location or purpose of studies.

Under the Agreement, independent of its right to cause the Company to redeem 
the Special Common Stock, Roche may increase its ownership of the Company up 
to 79.9% by making purchases on the open market.  Roche held approximately 
66.0% of the outstanding common equity of the Company as of June 30, 1998.

Contract revenue for the reimbursement of ongoing development expenses for 
nerve growth factor (NGF), for which HLR exercised its development option 
under the License Agreement in 1996, was $4.2 million and $8.8 million for 
the three- and six-month periods ended June 30, 1998.


Note 4.     Legal Proceedings

The Company is a party to various legal proceedings, including patent 
infringement cases involving human growth hormone products and Activase, 
registered trademark, product liability cases involving Protropin, registered 
trademark, and other matters.  In July 1997, an action was filed in the U.S. 
District Court for the Northern District of California alleging that the 
Company's manufacture, use and sale of its Nutropin, registered trademark, 
human growth hormone products infringed a patent (the Goodman Patent) owned 
by the Regents of the University of California (UC).  This action is 
substantially the same as a previous action filed in 1990 against the Company 
by UC alleging that the Company's manufacture, use and sale of its Protropin 
human growth hormone products infringed the Goodman Patent.  The 1997 case 
has been stayed pending the conclusion of the 1990 case, which is expected to 
commence trial on February 1, 1999.  In 1995, the Company received and 
responded to grand jury document subpoenas from the U.S. District Court for 
the Northern District of California for documents relating to the Company's 
past clinical, sales and marketing activities associated with human growth 
hormone.  In February 1997 and February 1998, the Company received grand jury 
document subpoenas from the same court related to the same subject matter.  
The government is actively investigating this matter, and the Company 
believes that it is a subject of that investigation.  Certain employees and 


                                     Page 8
<PAGE>

an ex-employee received letters from the government informing them that they 
are targets of the investigation.

Based upon the nature of the claims made and the investigations completed to 
date by the Company and its counsel, the Company believes the outcome of 
these actions will not have a material adverse effect on the financial 
position, results of operations or cash flows of the Company.  However, were 
an unfavorable ruling to occur in any quarterly period, there exists the 
possibility of a material impact on the net income of that period.  


Note 5.     Inventories

Inventories are summarized below:

<TABLE>
<CAPTION>
                                           June 30,       December 31,
                                            1998              1997
                                        ------------      ------------
                                                  (thousands)
<S>                                     <C>               <C>
         Raw materials and supplies     $  13,152          $  17,544
         Work in process                   91,660             84,831
         Finished goods                    12,028             13,651
                                        ---------          ---------
                Total                   $ 116,840          $ 116,026
                                        =========          =========
</TABLE>

Note 6.     Subsequent Events

On July 6, 1998, the Company entered into an agreement with HLR to provide 
HLR exclusive marketing rights outside of the U.S. for Herceptin, registered 
trademark, (Trastuzumab).  Under the agreement, HLR paid a $40.0 million up-
front fee and has agreed to pay cash milestones tied to product development 
activities, to contribute equally with the Company on global development 
costs and to make royalty payments on product sales.

Also in July 1998, the Company and Novo Nordisk A/S (Novo) agreed to settle a 
lawsuit brought in October 1997 by Novo in the U.S. District Court for the 
District of New Jersey alleging infringement of a patent held by Novo 
relating to the Company's manufacture, use and sale of its Nutropin human 
growth hormone products, and a lawsuit brought by the Company in the U.S. 
District Court for the Southern District of New York relating to the 
Company's patents for human growth hormone and insulin.  Under the settlement 
agreement, Novo and the Company will cross-license worldwide certain patents 
relating to human growth hormone.  At the end of August 1998, Novo will 
receive a worldwide license under the Company patents relating to insulin and 
the Company will receive certain payments.














                                     Page 9
<PAGE>

                   INDEPENDENT ACCOUNTANTS' REVIEW REPORT



The Board of Directors and Stockholders
Genentech, Inc.


We have reviewed the accompanying condensed consolidated balance sheet of 
Genentech, Inc. as of June 30, 1998, and the related condensed consolidated 
statements of income for the three-month and six-month periods ended June 30, 
1998 and 1997, and the condensed consolidated statements of cash flows for 
the six-month periods ended June 30, 1998 and 1997.  These financial 
statements are the responsibility of the Company's management.

We conducted our reviews in accordance with standards established by the 
American Institute of Certified Public Accountants.  A review of interim 
financial information consists principally of applying analytical procedures 
to financial data, and making inquiries of persons responsible for financial 
and accounting matters.  It is substantially less in scope than an audit 
conducted in accordance with generally accepted auditing standards, which 
will be performed for the full year with the objective of expressing an 
opinion regarding the financial statements taken as a whole.  Accordingly, we 
do not express such opinion.

Based on our reviews, we are not aware of any material modifications that 
should be made to the accompanying condensed consolidated financial 
statements referred to above for them to be in conformity with generally 
accepted accounting principles.

We have previously audited, in accordance with generally accepted auditing 
standards, the consolidated balance sheet of Genentech, Inc. as of December 
31, 1997, and the related consolidated statements of income, stockholders' 
equity, and cash flows for the year then ended (not presented herein) and in 
our report dated January 20, 1998, we expressed an unqualified opinion on 
those consolidated financial statements.  In our opinion, the information set 
forth in the accompanying condensed consolidated balance sheet as of December 
31, 1997, is fairly stated, in all material respects, in relation to the 
consolidated balance sheet from which it has been derived.





                                             ERNST & YOUNG LLP

San Jose, California 
July 10, 1998












                                    Page 10
<PAGE>

                                  GENENTECH, INC.
                                 FINANCIAL REVIEW


RELATIONSHIP WITH ROCHE HOLDINGS, INC.

On October 25, 1995, Genentech, Inc. (the Company) and Roche Holdings, Inc.  
(Roche) entered into a new agreement (the Agreement) to extend until June 30, 
1999, Roche's option to cause the Company to redeem (call) the outstanding 
callable putable common stock (Special Common Stock) of the Company at 
predetermined prices.  Should the call be exercised, Roche will concurrently 
purchase from the Company a like number of shares of the Company's common 
stock (the Common Stock) for a price equal to the Company's cost to redeem 
the Special Common Stock.  If Roche does not cause the redemption as of June 
30, 1999, the Company's stockholders will have the option to cause the 
Company to redeem none, some or all of their shares of Special Common Stock 
at $60.00 per share (and Roche will concurrently provide the necessary 
redemption funds to the Company by purchasing a like number of shares of 
Common Stock at $60.00 per share) within thirty business days commencing July 
1, 1999.

In conjunction with the Agreement and revisions agreed upon in principle in 
the second quarter of 1997, F. Hoffmann-La Roche Ltd (HLR) was granted an 
option for ten years for licenses to use and sell certain of the Company's 
products in non-U.S. markets (the License Agreement).  The License Agreement 
provides that the Company and HLR will share the U.S. and European 
development costs regardless of the location or purpose of studies.  Under 
the License Agreement, HLR may exercise its option to license any such future 
products of the Company either when the Company determines to move such 
product into development or at the end of Phase II clinical trials.  See the 
Relationship with Roche Holdings, Inc. note in the Notes to Condensed 
Consolidated Financial Statements for further information.

As a result of the License Agreement, contract revenue for the quarter ended 
June 30, 1998, and on a year-to-date basis totaled $4.2 million and $8.8 
million for the reimbursement of ongoing development expenses related to 
nerve growth factor (NGF), for which HLR exercised its development option 
under the License Agreement in 1996.

<TABLE>
<CAPTION>

RESULTS OF OPERATIONS
(dollars in millions, except per share amounts)

                               Three Months Ended              Six Months Ended
                                     June 30,                      June 30,
                               ------------------             ------------------
REVENUES                         1998       1997    % Change    1998       1997   % Change
----------------------------   -------    -------  --------   -------    -------  --------
<S>                            <C>        <C>      <C>        <C>        <C>      <C>
Revenues                       $ 268.0    $ 233.5     15%     $ 532.7    $ 490.8       9%
                               =======    =======  ========   =======    =======  ========
PRODUCT SALES
----------------------------
Activase                       $  54.1    $  68.3    (21)%    $ 109.8    $ 143.3     (23)%
Protropin, Nutropin 
  and Nutropin AQ                 62.3       55.6     12        113.2      111.5       2
Pulmozyme                         24.1       20.2     19         43.6       42.5       3
Rituxan                           34.8        -        -         72.5        -         -
Actimmune                          1.0        0.9     11          1.9        1.9       0
                               -------    -------  --------   -------    -------  --------
  Total product sales          $ 176.3    $ 145.0     22%     $ 341.0    $ 299.2      14%
                               =======    =======  ========   =======    =======  ========
</TABLE>

                                    Page 11
<PAGE>

Rituxan, trademark, (Rituximab) was approved by the FDA in November 1997 for 
the treatment of patients with relapsed or refractory low-grade or 
follicular, CD20-positive B-cell non-Hodgkin's lymphoma, a cancer of the 
immune system.  Net sales of Rituxan were $34.8 million and $37.7 million in 
the first and second quarter of 1998, respectively.  Although not enough time 
has passed for these figures to be indicative of the future trend of Rituxan 
sales, the Company believes that the initial pent-up demand reflected in 
sales for the fourth quarter of 1997 and the first quarter of 1998 is being 
replaced by demand from increased use.  Rituxan was co-developed by the 
Company and IDEC Pharmaceuticals Corporation (IDEC), from whom the Company 
licenses Rituxan.  

During the first quarter of 1998, the Company received FDA approval for the 
large-scale (12,000-liter) manufacture of Rituxan.  The Rituxan that the 
Company manufactures will supplement the Rituxan manufactured by IDEC for the 
Company.  During the second quarter, the Company's and IDEC's partner HLR 
received approval from the European Commission to market Rituxan under the 
tradename MabThera, trademark, for marketing in the European Union.  MabThera 
was approved for treating non-Hodgkin's lymphoma patients who have had two or 
more relapses or are resistant to chemotherapy.  HLR holds marketing rights 
for MabThera outside of the U.S. and Japan.  HLR has agreed to pay to the 
Company royalties and a mark-up on MabThera supplied to HLR.  

Net sales of Activase, registered trademark, (Alteplase, recombinant), a 
tissue plasminogen activator (t-PA), decreased in the three- and six-month 
periods ended June 30, 1998 from the comparable periods in 1997.  These 
decreases were primarily due to a decline in market share as a result of 
competition from Centocor, Inc.'s (Centocor) Retavase, registered trademark.  
These decreases also resulted, to a lesser extent, from a decline in the size 
of the thrombolytic market due to increasing use of angioplasty and from a 
decrease in the available commercial market due to patients receiving therapy 
through two large ongoing Phase III clinical trials.  Even though Activase's 
market share and the thrombolytic market size declined from the prior year, 
the market share and size during 1998 have remained constant.

In March 1998, the Company received two new patents related to variant forms 
of t-PA.  Based on these patents, the Company filed an infringement action 
against Centocor in the Northern District of California which alleges that 
Centocor's sale, offer for sale, use in, and importation into, the U.S. of 
Retavase (Reteplase, recombinant), a t-PA, infringes these two new patents of 
the Company.  The Company is seeking a permanent injunction and damages.

In early July 1998, the Company and partner Boehringer Ingelheim GmbH 
announced preliminary findings from the European Cooperative Acute Stroke 
Study II (ECASS II) in stroke patients presenting within 0 to 6 hours of 
symptom onset.  This study failed to show a statistically significant 
clinical benefit in stroke patients treated with Actilyse, registered 
trademark, (the European tradename for Alteplase, recombinant) compared to 
placebo.  The Company's Activase (the U.S. tradename for Alteplase, 
recombinant) is approved for the treatment of acute ischemic stroke within 3 
hours of symptom onset.

Also in July 1998, the Company announced that the Data Safety Monitoring 
Board (DSMB) of its U.S. clinical trial ATLANTIS (Alteplase ThromboLysis for 
Acute Noninterventional Therapy in Ischemic Stroke), recommended termination 
of the study.  ATLANTIS is a placebo-controlled, double-blinded pivotal study 
observing Activase in acute ischemic stroke patients three to five hours from 
symptom onset.  As a result of the DSMB's recommendation, the Company has 
decided not to file for a label extension for Activase in acute ischemic 
stroke beyond the currently approved three-hour window.


                                    Page 12
<PAGE>

Net sales of the Company's three growth hormone products - Protropin, 
registered trademark, (somatrem for injection), Nutropin, registered 
trademark, [somatropin (rDNA origin) for injection] and Nutropin AQ, 
registered trademark, [somatropin (rDNA origin) injection] - increased in the 
three- and six-month periods ended June 30, 1998 from the comparable periods 
in 1997.  These increases primarily reflect fluctuations in distributors' 
ordering patterns and treatment of new adult patients with growth hormone 
deficiency following regulatory approval of Nutropin and Nutropin AQ for this 
indication in December 1997.

Net sales of Pulmozyme, registered trademark, (dornase alfa) increased in the 
three- and six-month periods ended June 30, 1998 from the comparable periods 
in 1997 primarily due to fluctuations in ordering patterns and new patients 
in all age groups, including very young patients following regulatory 
approval for this age group.  In February 1998, the Company received approval 
from the U.S. Food and Drug Administration (FDA) for a label extension for 
Pulmozyme.  With this revised labeling, Pulmozyme may now also be used to 
treat very young children with cystic fibrosis, ages three months to four 
years, adding to the product's previous approvals for patients five years of 
age and older.

During the quarter ended June 30, 1998, the Company licensed U.S. marketing 
and development rights to interferon gamma, including Actimmune, registered 
trademark, (Interferon gamma-1b), to Connetics Corporation.  Following a 
transition period, the Company will no longer sell Actimmune.

<TABLE>
<CAPTION>
                              Three Months Ended               Six Months Ended
                                    June 30,                       June 30,
ROYALTIES, CONTRACT AND       ------------------              ------------------
OTHER, AND INTEREST INCOME      1998       1997    % Change     1998       1997    % Change
----------------------------  -------    -------   --------   -------    -------   --------
<S>                           <C>        <C>       <C>        <C>        <C>       <C>
Royalties                     $  57.4    $  55.4        4%    $ 121.9    $ 120.7        1%
Contract and other               14.0       16.7      (16)       28.9       38.1      (24)
Interest income                  20.3       16.4       24        40.9       32.8       25
</TABLE>

Royalty revenues increased in the second quarter of 1998 from the second 
quarter of 1997 due to higher royalties from HLR.  On a year-to-date basis, 
royalty revenues were comparable to last year.  Although royalty revenues in 
1998 were higher than last year due to higher licensee sales, this increase 
was offset by the reversal of reserves against certain royalty revenues in 
the first quarter of 1997.  See also above discussion of Rituxan and new 
Roche royalties related to Rituxan.

Contract and other revenues decreased in the second quarter of 1998 from the 
comparable period in 1997 due to higher gains on the sale of biotechnology 
equity securities in the second quarter of 1997 partly offset by higher 
contract revenues from collaborators in 1998.  On a year-to-date basis 
compared to last year, contract and other revenues were lower primarily as a 
result of fluctuations in contract revenues from HLR.  Two projects, Rituxan 
and IGF-I, for which HLR exercised its development option in 1996, have wound 
down.  Rituxan was commercialized in the fourth quarter of 1997 and IGF-I in 
Type I and II diabetes mellitus was discontinued in September 1997.

Interest income increased in the second quarter of 1998 and on a year-to-date 
basis from the comparable periods in 1997 primarily due to a higher portfolio 
balance.  The total investment portfolio, consisting of cash and cash


                                    Page 13
<PAGE>

equivalents, and short- and long-term marketable securities, increased to 
$1,388.3 million as of June 30, 1998 from $1,156.9 million as of June 30, 
1997 and from $1,286.5 million as of December 31, 1997.

<TABLE>
<CAPTION>
                              Three Months Ended              Six Months Ended
                                    June 30,                      June 30,
                              ------------------             ------------------
COSTS AND EXPENSES              1998       1997    % Change    1998       1997    % Change
----------------------------  -------    -------   --------  -------    -------   --------
<S>                           <C>        <C>       <C>       <C>        <C>       <C>
Cost of sales                 $  37.2    $  25.6       45%   $  70.8    $  53.3       33%
Research and development         92.9      110.9      (16)     191.1      233.6      (18)
Marketing, general and
  administrative                 80.6       63.0       28      155.5      125.0       24
Interest expense                  1.2        0.9       33        2.2        1.9       16
                              -------    -------   --------  -------    -------   --------
  Total costs and expenses    $ 211.9    $ 200.4        6%   $ 419.6    $ 413.8        1%
                              =======    =======   ========  =======    =======   ========
</TABLE>

Cost of sales increased in the second quarter of 1998 and on a year-to-date 
basis from the comparable periods in 1997 primarily as a result of a shift in 
the product mix, including the introduction of Rituxan and higher costs.

Research and development expenses decreased in the second quarter of 1998 and 
on a year-to-date basis from the comparable periods in 1997 primarily  due to 
fewer large late-stage clinical trials in 1998.  On a year-to-date basis for 
1998, the Company invested approximately 36% of revenues into R&D compared to 
48% in the comparable period in 1997.  This percentage decrease reflects the 
Company's goal to decrease R&D spending as a percent of revenues as products 
progress through late-stage clinical trials and revenues increase.

Marketing, general and administrative (MG&A) expenses increased in the second 
quarter of 1998 and on a year-to-date basis from the comparable periods in 
1997.  These increases were due to higher marketing and sales (M&S) expenses 
related to the introduction of Rituxan and the resultant profit sharing with 
IDEC and as a result of competitive conditions with other marketed products.

<TABLE>
<CAPTION>
                             Three Months Ended              Six Months Ended
                                   June 30,                      June 30,
                             ------------------            ------------------
INCOME TAXES                   1998       1997   % Change    1998       1997   % Change
---------------------------  -------    -------  --------  -------    -------  --------
<S>                          <C>        <C>      <C>       <C>        <C>      <C>
Income Taxes                 $  15.7    $   9.3      69%   $  31.7    $  21.6      47%
</TABLE>

The Company's effective income tax rate for the second quarter of 1998 and on 
a year-to-date basis was 28% which was the same as the comparable periods in 
1997. The effective tax rate in each period was less than the U.S. statutory 
rate of 35% primarily due to research and development tax credits.

<TABLE>
<CAPTION>
                             Three Months Ended             Six Months Ended
                                   June 30,                     June 30,
                             ------------------            ------------------
NET INCOME                     1998       1997   % Change    1998       1997   % Change
--------------------------  --------    -------  --------  -------    -------  --------
<S>                         <C>         <C>      <C>       <C>        <C>      <C>
Net income                  $   40.4    $  23.8      70%   $  81.4    $  55.4      47%
Earnings per share:
  Basic                     $   0.32    $  0.19            $  0.65    $  0.45
  Diluted                   $   0.31    $  0.19            $  0.63    $  0.44
</TABLE>



                                    Page 14
<PAGE>

The increase in net income in the second quarter of 1998 and on a year-to-
date basis from the comparable periods in 1997 was driven primarily by sales 
of Rituxan and lower R&D; partially offset by a decrease in Activase sales, 
higher M&S expenses and higher cost of sales.

<TABLE>
<CAPTION>
LIQUIDITY AND CAPITAL
  RESOURCES                         June 30, 1998        December 31, 1997
---------------------------      -------------------    -------------------
<S>                              <C>                    <C>
Cash and cash equivalents,            $ 1,388.3               $ 1,286.5
  short-term investments
  and long-term marketable
  securities

Working capital                       $ 1,004.9                   904.4
</TABLE>

Cash generated from operations, maturities of investments and stock issuances 
were used to make investments in marketable securities and capital additions.

Cash and cash equivalents at June 30, 1998, were higher by $101.8 million 
compared to December 31, 1997, and working capital increased by $100.5 
million in the first half of 1998.

Capital expenditures totaled $43.3 million in the first half of 1998 compared 
to $76.5 million in the comparable period of 1997.  The decrease in 1998 
compared to 1997 was due to the completion of certain construction projects 
to improve existing manufacturing, laboratory and office facilities.


FORWARD-LOOKING STATEMENTS

The following section contains forward-looking statements that are based on 
the Company's current expectations.  Because the Company's actual results may 
differ materially from these and any other forward-looking statements made by 
or on behalf of the Company, this section also includes a discussion of 
important factors that could affect the Company's actual future results, 
including its product sales, royalties, contract revenues, expenses and net 
income.

Product Sales:  The Company's product sales may vary from period to period 
for several reasons including, but not limited to:  the overall competitive 
environment for the Company's products; the amount of sales to customers in 
the U.S.; the amount and timing of the Company's sales to HLR; the timing and 
volume of bulk shipments to licensees; the availability of third-party 
reimbursements for the cost of therapy; the effectiveness and safety of the 
products; the rate of adoption and use of the Company's products for approved 
indications and additional indications; and the potential introduction of new 
products, including Herceptin, registered trademark, (Trastuzumab), which the 
Company filed during the quarter under Fast Track review for regulatory 
approval, and additional indications for existing products in 1998 and 
beyond.

Competition:  The Company faces growing competition in two of its therapeutic 
markets.  Activase lost market share and could lose additional market share 
in the thrombolytic market to Centocor's Retavase and the resulting adverse 
effect on sales could be material.  Retavase received FDA approval in October 
1996 for the treatment of acute myocardial infarction (AMI).  In addition, 
there is an increasing use of angioplasty in lieu of thrombolytic therapy for 
the treatment of AMI, which is expected to continue.  In the growth hormone 


                                    Page 15
<PAGE>

market, the Company continues to face increased competition from five other 
companies with growth hormone products.  Three of these competitors have also 
received approval to market their existing human growth hormone products for 
additional indications.  The Company expects that such competition could have 
an adverse effect on its sales of Protropin, Nutropin and Nutropin AQ and 
such effect could be material.

Other competitive factors affecting the Company's product sales include, but 
are not limited to:  the timing of FDA approval, if any, of additional 
competitive products, pricing decisions made by the Company, the degree of 
patent protection afforded to particular products, the outcome of litigation 
involving the Company's patents and patents of competing companies for 
products and processes related to production and formulation of those 
products, the increasing use and development of alternate therapies, and the 
rate of market penetration by competing products.

Royalty and Contract Revenues:  Royalty and contract revenues in future 
periods could vary significantly from 1997 levels.  Major factors affecting 
these revenues include, but are not limited to:  HLR's decisions to exercise 
or not to exercise its option to develop and sell the Company's future 
products in non-U.S. markets and the timing and amount of related development 
cost reimbursements, if any; variations in HLR's sales and other licensees' 
sales of licensed products; the expiration of royalties from Lilly beginning 
in August 1998, which contribute substantially to current royalty revenues; 
fluctuations in foreign currency exchange rates; the initiation of other new 
contractual arrangements with other companies; the timing of non-U.S. 
approvals, if any, for products licensed to HLR; whether and when contract 
benchmarks are achieved; and the conclusion of existing arrangements with 
other companies and HLR.

R&D:  The Company intends to continue to develop new products and is 
committed to aggressive R&D investment.  Successful pharmaceutical product 
development is highly uncertain and is dependent on numerous factors, many of 
which are beyond the Company's control. Products that appear promising in the 
early phases of development may fail to reach the market for numerous 
reasons: they may be found to be ineffective or to have harmful side effects 
in preclinical or clinical testing; they may fail to receive necessary 
regulatory approvals; they may turn out to be uneconomical because of 
manufacturing costs or other factors; or they may be precluded from 
commercialization by the proprietary rights of others or by competing 
products or technologies for the same indication.  Success in preclinical and 
early clinical trials does not ensure that large scale clinical trials will 
be successful.  Clinical results are frequently susceptible to varying 
interpretations that may delay, limit or prevent regulatory approvals.  The 
length of time necessary to complete clinical trials and to submit an 
application for marketing approval for a final decision by a regulatory 
authority varies significantly and may be difficult to predict.

The Company currently has several products in late-stage clinical testing and 
anticipates that its R&D expenses will continue at a high percentage of 
revenues over the short-term though they are expected to decline in 1998 from 
1997 levels.  Over the long-term, as revenues increase, R&D as a percent of 
revenues should decrease to the 20% to 25% range.  Factors affecting the 
Company's R&D expenses include, but are not limited to:  the outcome of 
clinical trials currently being conducted, the number of products entering 
into development from late-stage research, in-licensing activities, including 
the timing and amount of related development funding or milestone payments, 
and future levels of revenues.

In December 1997, the Company and Alteon Inc. (Alteon) entered into a 
collaborative agreement to develop and market pimagedine, an advanced 


                                    Page 16
<PAGE>

glycosylation end-product formation inhibitor.  Based on the recommendations 
of an External Safety Monitoring Committee, with which the FDA and the 
Company concurred, in the first quarter of 1998, Alteon discontinued a Phase 
III clinical trial of pimagedine in Type II diabetics with progressive kidney 
disease and is continuing a Phase III trial of pimagedine in Type I diabetics 
with progressive kidney disease.  A third Phase III trial in diabetic 
patients with end-stage renal disease is ongoing.

Income Tax Provision:  The Company expects its effective tax rate to be 
approximately 28% in 1998 and continue at or near 35% for the next several 
years dependent upon several factors.  These factors include, but are not 
limited to, changes in tax laws and rates, future levels of R&D spending, the 
outcome of clinical trials of certain development products, the Company's 
success in commercializing such products, and potential competition regarding 
the products.

Uncertainties Surrounding Proprietary Rights:  The patent positions of 
pharmaceutical and biotechnology companies can be highly uncertain and 
involve complex legal and factual questions.  Accordingly, the breadth of 
claims allowed in such companies' patents cannot be predicted. Patent 
disputes are frequent and can preclude commercialization of products.  The 
Company has in the past been, is currently, and may in the future be involved 
in material patent litigation.  Such litigation is costly in its own right 
and could subject the Company to significant liabilities to third-parties 
and, if decided adversely, the Company may need to obtain third-party 
licenses at a material cost or cease using the technology or product in 
dispute.  The presence of patents or other proprietary rights belonging to 
other parties may lead to the termination of R&D of a particular product.  
The Company believes it has strong patent protection or the potential for 
strong patent protection for a number of its products that generate sales and 
royalty revenue or that the Company is developing; however, the courts will 
determine the ultimate strength of patent protection of the Company's 
products and those on which the Company earns royalties.

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

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

In addition to risks associated with the Company's own computer systems, the 
Company has relationships with, and is to varying degrees dependent upon, a 


                                    Page 17
<PAGE>

large number of third parties that provide information, goods and services to 
the Company.  These include financial institutions, suppliers, vendors, 
research partners and governmental entities.  If large numbers of these third 
parties experience failures in their computer systems due to Year 2000 non-
compliance, it could affect the Company's ability to process transactions, 
manufacture products, or engage in similar normal business activities.  While 
some of these risks are outside the control of the Company, the Company has 
instituted a program to identify key third parties, update contracts and 
address any non-compliance issues.

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

Liquidity:  The Company believes that its cash, cash equivalents and short-
term investments, together with funds provided by operations and leasing 
arrangements, will be sufficient to meet its foreseeable operating cash 
requirements.  In addition, the Company believes it could access additional 
funds from the capital and debt markets.  Factors affecting the Company's 
cash position include, but are not limited to, future levels of the Company's 
product sales, royalty and contract revenues, expenses, in-licensing 
activities, including the timing and amount of related development funding or 
milestone payments, and capital expenditures.

Roche Holdings, Inc.:  At June 30, 1998, Roche held approximately 66.0% of 
the Company's outstanding common equity.  The Company expects to continue to 
have material transactions with Roche, including royalty and contract 
revenues, product sales and joint product development costs.

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

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

     Interest Rates -  The Company's interest income is sensitive to changes 
in the general level of U.S. interest rates.  In this regard, changes in U.S. 
interest rates affect the interest earned on the Company's cash equivalents, 
short-term investments, convertible equity loans, preferred stock investments 
and long-term investments. To mitigate the impact of fluctuations in U.S. 
interest rates, the Company may enter into swap transactions, which involve 
the receipt of fixed rate interest and the payment of floating rate interest 
without the exchange of the underlying principal.  By investing the Company's 
cash in an amount equal to the notional amount of the swap contract, with a 


                                    Page 18
<PAGE>

maturity date equal to the maturity date of the floating rate obligation, the 
Company hedges itself from any potential earnings impact due to changes in 
interest rates.

     Foreign Currency Exchange Rates -  The Company receives royalty revenues 
from licensees selling products in countries throughout the world.  As a 
result, the Company's financial results could be significantly affected by 
factors such as changes in foreign currency exchange rates or weak economic 
conditions in the foreign markets in which the Company's licensed products 
are sold.  The Company is exposed to changes in exchange rates in Europe, 
Asia and Canada.  The Company's exposure to foreign exchange rates primarily 
exists with the German Mark.  When the U.S. dollar strengthens against the 
currencies in these countries, the U.S. dollar value of non-U.S. dollar-based 
revenue decreases; when the U.S. dollar weakens, the U.S. dollar value of the 
non-U.S. dollar-based revenues increases.  Accordingly, changes in exchange 
rates, and in particular a strengthening of the U.S. dollar, may adversely 
affect the Company's royalty revenues as expressed in U.S. dollars.  In 
addition, as part of its overall investment strategy, the Company has three 
portfolios that are managed by external money managers.  These portfolios 
consist primarily of non-dollar denominated investments.  As a result, the 
Company is exposed to changes in the exchanges rates of the countries in 
which these non-dollar denominated investments are made. 

To mitigate this risk, the Company hedges certain of its anticipated revenues 
by purchasing option contracts with expiration dates and amounts of currency 
that are based on 25% to 90% of probable future revenues so that the 
potential adverse impact of movements in currency exchange rates on the non-
dollar denominated revenues will be at least partly offset by an associated 
increase in the value of the option.  The duration of these options is 
generally one to four years.  The Company may also enter into foreign 
currency forward contracts (forward contracts) to lock in the dollar value of 
a portion of these anticipated revenues.  The duration of these forward 
contracts is generally less than one year.  Also, to hedge the non-dollar 
denominated investments in the externally managed portfolios, the external 
money managers also enter into forward contracts.

     Equity Investment Securities -  As part of its strategic alliance 
efforts, the Company invests in equity securities of biotechnology companies 
that are subject to fluctuations from market value changes in stock prices.  
To mitigate this risk, certain equity securities are hedged with costless 
collars.  A costless collar is a purchased put option and a written call 
option in which the cost of the purchased put and the proceeds of the written 
call offset each other; therefore, there is no initial cost or cash outflow 
for these instruments at the time of purchase.  The purchased put protects 
the Company from a decline in the market value of the security below a 
certain minimum level (the put "strike" level); while the call effectively 
limits the Company's potential to benefit from an increase in the market 
value of the security above a certain maximum level (the call "strike" 
level).  In addition, as part of its strategic alliance efforts, the Company 
has made interest bearing loans that are convertible into the equity 
securities of the debtor.

Credit Risk of Counterparties:  The Company could be exposed to losses 
related to the above financial instruments should one of its counterparties 
default.  This risk is mitigated through credit monitoring procedures.

Legal Proceedings:  The Company is a party to various legal proceedings, 
including patent infringement cases and various cases involving product 
liability and other matters. See the Legal Proceedings note in the Notes to 
Condensed Consolidated Financial Statements for further information.


                                    Page 19
<PAGE>

                                 GENENTECH, INC.
                           PART II.  OTHER INFORMATION


ITEM 1.     LEGAL PROCEEDINGS

Previously reported.

See Item 3 of the Company's report on Form 10-K for the period ended 
December 31, 1997.

See also Item 1 of the Company's report on Form 10-Q for the period ended 
March 31, 1998.

See also the Legal Proceedings and Subsequent Events notes in the Notes to 
Condensed Consolidated Financial Statements of Part I.


ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 

At the Company's Annual Meeting of Stockholders, held on April 30, 1998, two 
matters were voted upon.  A description of each matter and tabulation of 
votes follows:

   1.   Election of five directors:

                                                 Votes
                                     ----------------------------
                Nominee                   For          Withheld
        -----------------------      ------------     -----------

        Franz B. Humer                111,743,535       4,453,091
        Jonathan K.C. Knowles         115,522,912         673,714
        Arthur D. Levinson            115,693,449         503,177
        Donald L. Murfin              115,757,658         438,968
        John T. Potts, Jr.            115,744,089         452,537

        There were no abstentions or broker nonvotes. 

        The terms of directors Boyer, Fayne Levinson, Munro, Smith and Tappan
        continued after the Annual Meeting of Stockholders.


   2.   Ratification of Ernst & Young, LLP as the Company's 
        Independent Accountants for the year ending December 31, 1998:

                                  Votes
            ----------------------------------------
                For          Against       Abstain
            -----------    -----------   -----------
            116,039,036         57,247       100,343

        There were no broker nonvotes. 







                                    Page 20
<PAGE>

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

            (a)  Exhibits

                 15.1   Letter re:   Unaudited Interim Financial Information

                 27.1   Financial Data Schedule


            (b)  Reports on Form 8-K

                 There were no reports on Form 8-K filed during the quarter 
                 ended June 30, 1998.



ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


The Company's market risk disclosures set forth in the 1997 Annual Report to 
Stockholders have not changed significantly.







































                                    Page 21
<PAGE>

                                GENENTECH, INC.
                                  SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the 
registrant has duly caused this report to be signed on its behalf by the 
undersigned thereunto duly authorized.


   Date:  August 11, 1998                           GENENTECH, INC.



   /S/ARTHUR D. LEVINSON                         /S/LOUIS J. LAVIGNE, JR.
   -------------------------------------         ----------------------------
   Arthur D. Levinson, Ph.D.                     Louis J. Lavigne, Jr.
   President and Chief Executive Officer         Executive Vice President and
                                                 Chief Financial Officer



                                                 /S/JOHN M. WHITING
                                                 ----------------------------
                                                 John M. Whiting
                                                 Controller and
                                                 Chief Accounting Officer


































                                    Page 22