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**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**________________________**

**FORM      10-Q**

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

| **For                the quarterly period ended March 31, 2007** |
|-----------------------------------------------------------------------|
|                                                                  |
| or                                                                    |

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

**For      the transition period from  **
**            **
**  to  **
**           **
**  .**

**Commission      File Number: 1-9813**

**GENENTECH,      INC.**

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

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

**(650) 225-1000**

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

| **Class**                                   | **Number                of Shares Outstanding**                               |
|---------------------------------------------|-------------------------------------------------------------------------------|
| Common                Stock $0.02 par value | 1,053,169,937** **Outstanding                at April 27, 2007** ** |

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**GENENTECH,      INC.**

**TABLE      OF CONTENTS**

|                    |                                                                                                                                                                                               | Page                No.         |
|-------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------|
|                    | PART                I—FINANCIAL                INFORMATION                                                                                                                                   |                            |
|                    |                                                                                                                                                                                               |                            |
| Item                1.  | Financial                Statements                                                                                                                                                                | 3           |
|                    |                                                                                                                                                                                               |                            |
|                    | Condensed                Consolidated                Statements of Income—for                the three months ended March 31, 2007 and 2006                                             |  3     |
|                    |                                                                                                                                                                                               |                            |
|                    | Condensed                Consolidated                Statements                of Cash Flows—for                the three months                ended March 31, 2007                and 2006 |  4     |
|                    |                                                                                                                                                                                               |                            |
|                    | Condensed                Consolidated Balance                Sheets—March 31,                2007 and                December 31,                2006                              |  5     |
|                    |                                                                                                                                                                                               |                            |
|                    | Notes                to Condensed Consolidated Financial                Statements                                                                                                       | 6-13        |
|                    |                                                                                                                                                                                               |                            |
|                    | Report                of Independent Registered                Public                Accounting                Firm                                                                           | 14          |
|                    |                                                                                                                                                                                               |                            |
| Item                2.  | Management’s                Discussion                and Analysis of Financial                Condition and Results of Operations                                                           | 15-36       |
|                    |                                                                                                                                                                                               |                            |
| Item                3.  | Quantitative and Qualitative                Disclosures                About Market                Risk                                                                                  | 37          |
|                    |                                                                                                                                                                                               |                            |
| Item                4.  | Controls                and Procedures                                                                                                                                                        | 37          |
|                    |                                                                                                                                                                                               |                            |
|                    | PART                II—OTHER                INFORMATION                                                                                                                                      |                            |
|                    |                                                                                                                                                                                               |                            |
| Item                1.  | Legal                Proceedings                                                                                                                                                                   | 38          |
|                    |                                                                                                                                                                                               |                            |
| Item                1A. | Risk                Factors                                                                                                                                                                        | 38-49       |
|                    |                                                                                                                                                                                               |                            |
| Item                2.  | Unregistered                Sales of Equity Securities                and                Use of Proceeds                                                                                           | 49          |
|                    |                                                                                                                                                                                               |                            |
| Item                6.  | Exhibits                                                                                                                                                                                           | 50          |
|                    |                                                                                                                                                                                               |                            |
| SIGNATURES              | 51                                                                                                                                                                             |

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**PART      I**
**—FINANCIAL      INFORMATION**

**Item      1.  **
**Financial      Statements**

**GENENTECH,      INC.**

**CONDENSED      CONSOLIDATED STATEMENTS OF INCOME**

*(In      millions, except per share amounts)*

*(Unaudited)*

|                                                                                                                                                                               |   | **Three                Months****Ended                March 31,** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|
|                                                                                                                                                                               |   | **2007**                                                          |   | **2006** |   |
| **Revenues**                                                                                                                                                                       |   |                                                              |   |   |   |
| Product                sales (including amounts from related parties: 2007-$266;                2006-$59)                                                                          |   | $                                                                 | 2,329  |   | $ | 1,644 |   |
| Royalties                (including amounts from related parties: 2007-$260;                2006-$167)                                                                             |   |                                                              | 419    |   |   | 286 |   |
| Contract                revenue (including amounts from related parties: 2007-$70;                2006-$28)                                                                        |   |                                                              | 95     |   |   | 56 |   |
| **Total                operating revenues**                                                                                                                                        |   |                                                              | 2,843  |   |   | 1,986 |   |
|                                                                                                                                                                               |   |                                                              |   |   |   |   |   |
| **Costs                and expenses**                                                                                                                                              |   |                                                              |   |   |   |   |   |
| Cost                of sales (including amounts for related parties: 2007-$124;                2006-$50)                                                                           |   |                                                              | 392    |   |   | 262 |   |
| Research                and development (including amounts for related parties: 2007-$68;                2006-$53) (including                contract related: 2007-$46; 2006-$36) |   |                                                              | 610    |   |   | 374 |   |
| Marketing,                general and administrative                                                                                                                               |   |                                                              | 491    |   |   | 441 |   |
| Collaboration                profit sharing (including amounts for a related party: 2007-$47;                2006-$43)                                                             |   |                                                              | 252    |   |   | 226 |   |
| Recurring                charges related to redemption                                                                                                                             |   |                                                              | 26     |   |   | 26 |   |
| Special                items: litigation-related                                                                                                                              |   |                                                              | 13     |   |   | 13 |   |
| **Total                costs and expenses**                                                                                                                                        |   |                                                              | 1,784  |   |   | 1,342 |   |
|                                                                                                                                                                               |   |                                                              |   |   |   |   |   |
| Operating                income                                                                                                                                                    |   |                                                              | 1,059  |   |   | 644 |   |
| Other                income (expense):                                                                                                                                             |   |                                                              |   |   |   |   |   |
| Interest                and other income (expense), net                                                                                                                            |   |                                                              | 74     |   |   | 53 |   |
| Interest                expense                                                                                                                                                    |   |                                                              | (18    | ) |   | (19 | ) |
| Total                other income, net                                                                                                                                             |   |                                                              | 56     |   |   | 34 |   |
| Income                before taxes                                                                                                                                                 |   |                                                              | 1,115  |   |   | 678 |   |
| Income                tax provision                                                                                                                                                |   |                                                              | 409    |   |   | 257 |   |
| **Net                income**                                                                                                                                                      |   | $                                                                 | 706    |   | $ | 421 |   |
|                                                                                                                                                                               |   |                                                              |   |   |   |   |   |
| **Earnings                per share**                                                                                                                                              |   |                                                              |   |   |   |   |   |
| Basic                                                                                                                                                                              |   | $                                                                 | 0.67   |   | $ | 0.40 |   |
| Diluted                                                                                                                                                                            |   | $                                                                 | 0.66   |   | $ | 0.39 |   |
|                                                                                                                                                                               |   |                                                              |   |   |   |   |   |
| Shares                used to compute basic earnings per share                                                                                                                     |   |                                                              | 1,053  |   |   | 1,054 |   |
| Shares                used to compute diluted earnings per share                                                                                                                   |   |                                                              | 1,071  |   |   | 1,075 |   |

*See      Notes to Condensed Consolidated Financial Statements.*

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**GENENTECH,      INC. **

**CONDENSED      CONSOLIDATED STATEMENTS OF CASH FLOWS**

*(In      millions)*

*(Unaudited)*

|                                                                                                             |   | **Three                Months****Ended                March 31,** |   |
|------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|
|                                                                                                             |   | **2007**                                                          |   | **2006** |   |
| **Cash                flows from operating activities**                                                          |   |                                                              |   |   |   |
| Net                income                                                                                        |   | $                                                                 | 706    |   | $ | 421 |   |
| Adjustments                to reconcile net income to net cash provided by operating                activities:  |   |                                                              |   |   |   |   |   |
| Depreciation                and amortization                                                                     |   |                                                              | 106    |   |   | 96 |   |
| Employee                stock-based compensation                                                                 |   |                                                              | 100    |   |   | 74 |   |
| Deferred                income taxes                                                                             |   |                                                              | (81    | ) |   | (50 | ) |
| Deferred                revenue                                                                                  |   |                                                              | (15    | ) |   | 10 |   |
| Litigation-related                liabilities                                                                    |   |                                                              | 13     |   |   | 13 |   |
| Excess                tax benefit from stock-based compensation arrangements                                     |   |                                                              | (99    | ) |   | (49 | ) |
| Gain                on sales of securities available-for-sale and other, net                                     |   |                                                              | (8     | ) |   | (3 | ) |
| Write-down                of securities available-for-sale and other                                             |   |                                                              | 3      |   |   | - |   |
| Loss                on property and equipment dispositions                                                       |   |                                                              | 11     |   |   | - |   |
| Changes                in assets and liabilities:                                                                |   |                                                              |   |   |   |   |   |
| Receivables                and other current assets                                                              |   |                                                              | (31    | ) |   | (96 | ) |
| Inventories                                                                                                      |   |                                                              | (115   | ) |   | (86 | ) |
| Investments                in trading securities                                                                 |   |                                                              | (9     | ) |   | (7 | ) |
| Accounts                payable, other accrued liabilities, and other long-term                liabilities       |   |                                                              | 179    |   |   | 139 |   |
| **Net                cash provided by operating activities**                                                     |   |                                                              | 760    |   |   | 462 |   |
|                                                                                                             |   |                                                              |   |   |   |   |   |
| **Cash                flows from investing activities**                                                          |   |                                                              |   |   |   |   |   |
| Purchases                of securities available-for-sale                                                        |   |                                                              | (122   | ) |   | (454 | ) |
| Proceeds                from sales of securities available-for-sale                                              |   |                                                              | 37     |   |   | 75 |   |
| Proceeds                from maturities of securities available-for-sale                                         |   |                                                              | 126    |   |   | 118 |   |
| Capital                expenditures                                                                              |   |                                                              | (209   | ) |   | (253 | ) |
| Change                in other intangible and long-term assets                                                   |   |                                                              | 31     |   |   | (13 | ) |
| **Net                cash used in investing activities**                                                         |   |                                                              | (137   | ) |   | (527 | ) |
|                                                                                                             |   |                                                              |   |   |   |   |   |
| **Cash                flows from financing activities**                                                          |   |                                                              |   |   |   |   |   |
| Stock                issuances                                                                                   |   |                                                              | 174    |   |   | 89 |   |
| Stock                repurchases                                                                                 |   |                                                              | (392   | ) |   | (227 | ) |
| Excess                tax benefit from stock-based compensation arrangements                                     |   |                                                              | 99     |   |   | 49 |   |
| **Net                cash used in financing activities**                                                         |   |                                                              | (119   | ) |   | (89 | ) |
| Net                increase (decrease) in cash and cash equivalents                                              |   |                                                              | 504    |   |   | (154 | ) |
| Cash                and cash equivalents at beginning of period                                                  |   |                                                              | 1,250  |   |   | 1,225 |   |
| **Cash                and cash equivalents at end of period**                                                    |   | $                                                                 | 1,754  |   | $ | 1,071 |   |
|                                                                                                             |   |                                                              |   |   |   |   |   |
| **Supplemental                cash flow data**                                                                   |   |                                                              |   |   |   |   |   |
| Cash                paid during the period for:                                                                  |   |                                                              |   |   |   |   |   |
| Interest                                                                                                         |   | $                                                                 | 42     |   | $ | 42 |   |
| Income                taxes                                                                                      |   |                                                              | 163    |   |   | 6 |   |
| Non-cash                investing and financing activities                                                       |   |                                                              |   |   |   |   |   |
| Capitalization                of construction in progress related to financing lease                transactions |   |                                                              | 57     |   |   | 27 |   |

*See      Notes to Condensed Consolidated Financial Statements.*

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**GENENTECH,      INC.**

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

*(In      millions)*

*(Unaudited)*

|                                                                                                                                                                                           |   | **March                31,****2007** |   | **December                31,****2006** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|-----------------------------------------|--------|
| **Assets**                                                                                                                                                                                     |   |                                 |   |                                    |   |
| Current                assets                                                                                                                                                                  |   |                                 |   |                                    |   |
| Cash                and cash equivalents                                                                                                                                                       |   | $                                    | 1,754  |                                    | $      | 1,250 |   |
| Short-term                investments                                                                                                                                                          |   |                                 | 1,149  |                                    |   | 1,243 |   |
| Accounts                receivable—product sales (net of allowances: 2007-$94;                2006-$92; including amounts from related parties: 2007-$113;                2006-$56) |   |                                 | 1,077  |                                    |   | 965 |   |
| Accounts                receivable—royalties (including amounts from related parties:                2007-$340;                2006-$316)                                           |   |                                 | 481    |                                    |   | 453 |   |
| Accounts                receivable—other (including amounts from related parties: 2007-$56;                2006-$150)                                                                    |   |                                 | 134    |                                    |   | 248 |   |
| Inventories                                                                                                                                                                                    |   |                                 | 1,297  |                                    |   | 1,178 |   |
| Deferred                tax assets                                                                                                                                                             |   |                                 | 293    |                                    |   | 278 |   |
| Prepaid                expenses and other current assets                                                                                                                                       |   |                                 | 100    |                                    |   | 89 |   |
| Total                current assets                                                                                                                                                            |   |                                 | 6,285  |                                    |   | 5,704 |   |
| Long-term                marketable debt and equity securities                                                                                                                                 |   |                                 | 1,889  |                                    |   | 1,832 |   |
| Property,                plant and equipment, net                                                                                                                                              |   |                                 | 4,353  |                                    |   | 4,173 |   |
| Goodwill                                                                                                                                                                                       |   |                                 | 1,315  |                                    |   | 1,315 |   |
| Other                intangible assets                                                                                                                                                         |   |                                 | 449    |                                    |   | 476 |   |
| Restricted                cash and investments                                                                                                                                                 |   |                                 | 788    |                                    |   | 788 |   |
| Other                long-term assets                                                                                                                                                          |   |                                 | 609    |                                    |   | 554 |   |
| **Total                assets**                                                                                                                                                                |   | $                                    | 15,688 |                                    | $      | 14,842 |   |
|                                                                                                                                                                                           |   |                                 |   |                                    |   |   |   |
| **Liabilities                and stockholders’ equity**                                                                                                                                  |   |                                 |   |                                    |   |   |   |
| Current                liabilities                                                                                                                                                             |   |                                 |   |                                    |   |   |   |
| Accounts                payable (including amounts to related parties: 2007-$15;                2006-$7)                                                                                       |   | $                                    | 420    |                                    | $      | 346 |   |
| Deferred                revenue                                                                                                                                                                |   |                                 | 57     |                                    |   | 62 |   |
| Taxes                payable                                                                                                                                                                   |   |                                 | 338    |                                    |   | 111 |   |
| Other                accrued liabilities (including amounts to related parties:                2007-$126;                2006-$136)                                                       |   |                                 | 1,263  |                                    |   | 1,491 |   |
| Total                current liabilities                                                                                                                                                       |   |                                 | 2,078  |                                    |   | 2,010 |   |
| Long-term                debt                                                                                                                                                                  |   |                                 | 2,267  |                                    |   | 2,204 |   |
| Deferred                revenue                                                                                                                                                                |   |                                 | 189    |                                    |   | 199 |   |
| Litigation-related                and other long-term liabilities                                                                                                                              |   |                                 | 1,006  |                                    |   | 951 |   |
| Total                liabilities                                                                                                                                                               |   |                                 | 5,540  |                                    |   | 5,364 |   |
| Commitments                and contingencies                                                                                                                                                   |   |                                 |   |                                    |   |   |   |
| Stockholders’                equity                                                                                                                                                      |   |                                 |   |                                    |   |   |   |
| Common                stock                                                                                                                                                                    |   |                                 | 21     |                                    |   | 21 |   |
| Additional                paid-in capital                                                                                                                                                      |   |                                 | 10,422 |                                    |   | 10,091 |   |
| Accumulated                other comprehensive income                                                                                                                                          |   |                                 | 212    |                                    |   | 204 |   |
| Accumulated                deficit, since June 30, 1999                                                                                                                                        |   |                                 | (507   | )                                       |   | (838 | ) |
| Total                stockholders’ equity                                                                                                                                                |   |                                 | 10,148 |                                    |   | 9,478 |   |
| **Total                liabilities and stockholders’ equity**                                                                                                                            |   | $                                    | 15,688 |                                    | $      | 14,842 |   |

*See      Notes to Condensed Consolidated Financial Statements.*

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**GENENTECH,      INC.**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

***(Unaudited)***

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

***Basis      of Presentation***

***Principles      of Consolidation***

***Use      of Estimates and Reclassifications***

***Recent      Accounting Pronouncements***

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

*Accounting      for Uncertainty in Income Taxes*

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***Revenue      Recognition***

***Earnings      Per Share***

*(in      millions)*

|                                                                                                                                 |   | **Three                Months****Ended                March 31,** |   |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|
|                                                                                                                                 |   | **2007**                                                          |   | **2006** |   |
| **Numerator:**                                                                                                                       |   |                                                              |   |   |   |
| Net                income                                                                                                            |   | $                                                                 | 706    |   | $ | 421 |   |
| **Denominator:**                                                                                                                     |   |                                                              |   |   |   |   |   |
| Weighted-average                shares outstanding used to compute basic earnings per                share                           |   |                                                              | 1,053  |   |   | 1,054 |   |
| Effect                of dilutive stock options                                                                                      |   |                                                              | 18     |   |   | 21 |   |
| Weighted-average                shares outstanding and dilutive securities used to compute diluted                earnings per share |   |                                                              | 1,071  |   |   | 1,075 |   |

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***Comprehensive      Income***

*(in      millions)*

|                                                                 |   | **March                31, 2007** |   | **December                31, 2006** |   |
|----------------------------------------------------------------------|--------|-----------------------------------|--------|--------------------------------------|--------|
| Net                unrealized gains on securities available-for-sale |   | $                                 | 219    |                                 | $      | 214 |   |
| Net                unrealized losses on cash flow hedges             |   |                              | (1     | )                                    |   | (4 | ) |
| Post-retirement                benefit obligation                    |   |                              | (6     | )                                    |   | (6 | ) |
| Accumulated                other comprehensive income                |   | $                                 | 212    |                                 | $      | 204 |   |

*(in      millions)*

|                                                                         |   | **Three                Months****Ended                March 31,** |   |
|------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|
|                                                                         |   | **2007**                                                          |   | **2006** |   |
| Net                income                                                    |   | $                                                                 | 706    |   | $ | 421 |   |
| Increase                in unrealized gains on securities available-for-sale |   |                                                              | 5      |   |   | 3 |   |
| Increase                (decrease) in unrealized gains on cash flow hedges   |   |                                                              | 3      |   |   | (1 | ) |
| Comprehensive                income, net of income taxes                     |   | $                                                                 | 714    |   | $ | 423 |   |

***Derivative      Instruments***

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

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

*(in      millions, except for per share data):*

|                                                           |   | **Three                Months****Ended                March 31,** |   |
|----------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|
|                                                           |   | **2007**                                                          |   | **2006** |   |
| Cost                of sales (or “COS”)            |   | $                                                                 | 16     |   | $ | - |   |
| Research                and development                        |   |                                                              | 38     |   |   | 33 |   |
| Marketing,                general and administrative           |   |                                                              | 46     |   |   | 41 |   |
| Total                employee stock-based compensation expense |   | $                                                                 | 100    |   | $ | 74 |   |

----

** **

***Valuation      Assumptions***

|                                   |   | **Three                Months****Ended                March 31,** |   |
|----------------------------------------|--------|-------------------------------------------------------------------|--------|
|                                   |   | **2007**                                                          |   | **2006** |   |
| Risk-free                interest rate |   |                                                              | 4.6    | % |   | 4.6 | % |
| Dividend                yield          |   |                                                              | 0.0    | % |   | 0.0 | % |
| Expected                volatility     |   |                                                              | 27.0   | % |   | 29.0 | % |
| Expected                term (years)   |   |                                                              | 4.6    |   |   | 4.2 |   |

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

***Inventories***

*(in      millions)*

|                                      |   | **March                31, 2007** |   | **December                31, 2006** |   |
|-------------------------------------------|--------|-----------------------------------|--------|--------------------------------------|--------|
| Raw                materials and supplies |   | $                                 | 117    |                                 | $      | 116 |   |
| Work                in process            |   |                              | 889    |                                 |   | 818 |   |
| Finished                goods             |   |                              | 291    |                                 |   | 244 |   |
| Total                                     |   | $                                 | 1,297  |                                 | $      | 1,178 |   |

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

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

***Roche’s      Ability to Maintain Its Percentage Ownership Interest in Our      Stock***
** **

**Related      Party Transactions **

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

***Hoffmann-La      Roche***

*(in      millions)*

|                                                                       |   | **Three                Months****Ended                March 31,** |   |
|----------------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|
|                                                                       |   | **2007**                                                          |   | **2006** |   |
| Ex-U.S.                product sales to Hoffmann-La Roche                  |   | $                                                                 | 264    |   | $ | 58 |   |
|                                                                       |   |                                                              |   |   |   |   |   |
| Royalties                earned from Hoffmann-La Roche                     |   | $                                                                 | 255    |   | $ | 167 |   |
|                                                                       |   |                                                              |   |   |   |   |   |
| Cost                of sales on ex-U.S. product sales to Hoffmann-La Roche |   | $                                                                 | 121    |   | $ | 49 |   |
|                                                                       |   |                                                              |   |   |   |   |   |
| Contract                revenue from Hoffmann-La Roche                     |   | $                                                                 | 30     |   | $ | 18 |   |

----

***Novartis***

*(in      millions)*

|                                                              |   | **Three                Months****Ended                March 31,** |   |
|-------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|
|                                                              |   | **2007**                                                          |   | **2006** |   |
| Ex-U.S.                product sales to Novartis                  |   | $                                                                 | 2      |   | $ | 1 |   |
|                                                              |   |                                                              |   |   |   |   |   |
| Royalties                earned from Novartis                     |   | $                                                                 | 5      |   | $ | - |   |
|                                                              |   |                                                              |   |   |   |   |   |
| Cost                of sales on ex-U.S. product sales to Novartis |   | $                                                                 | 3      |   | $ | 1 |   |
|                                                              |   |                                                              |   |   |   |   |   |
| Contract                revenue from Novartis                     |   | $                                                                 | 40     |   | $ | 10 |   |
|                                                              |   |                                                              |   |   |   |   |   |
| Collaboration                profit sharing expense to Novartis   |   | $                                                                 | 47     |   | $ | 43 |   |

| **Note                6.** | **Income                Taxes** |
|----------------------------|---------------------------------|

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**Report      of Independent Registered Public Accounting Firm**

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

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

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

**GENENTECH,      INC.**

**FINANCIAL      REVIEW**

**Overview**

***The      Company***

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

***Our      Strategy and Goals***

----

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

-  We          face significant competition in the diseases of interest to us from          pharmaceutical companies and biotechnology companies. The introduction          of new          competitive products or follow-on biologics, and/or new information about          existing products or pricing decisions by us or our competitors, may result          in          lost market share for us, reduced utilization of our products, lower prices,          and/or reduced product sales, even for products protected by          patents. 
- Our        near-term growth will depend on our ability to execute on recent product        approvals, including Lucentis for the treatment of neovascular (wet)        age-related macular degeneration (or “AMD”) and Avastin for the treatment of        non-small cell lung cancer, and to successfully obtain U.S. Food and Drug        Administration (or “FDA”) approvals for potential new indications for our        existing products such as Avastin for the treatment of metastatic breast        cancer and Rituxan for the treatment of immunological disorders.
-  Our            long-term business growth depends upon our ability to continue to successfully            develop and commercialize important novel therapeutics to treat unmet            medical            needs, such as cancer. We recognize that the successful development of            biotherapeutics is highly difficult and uncertain and that it will be            challenging for us to continue to discover and develop innovative treatments.            Our business requires significant investment in R&D over many years, often            for products that fail during the R&D process. Once a product receives FDA            approval, it remains subject to ongoing FDA regulation, including changes            to            the product label, new or revised regulatory requirements for manufacturing            practices, written advisement to physicians, and/or product recalls or            withdrawals. 
-  We                believe our business model is only sustainable with appropriate pricing                and                reimbursement for our products to offset the costs and risks of drug                development. The pricing of our products has received negative press                coverage                and public scrutiny. We will continue to meet with patient groups,                payers and                other stakeholders in the healthcare system to understand their issues                and                concerns. The future reimbursement environment for our products is                uncertain. 
-  As                  the Medicare and Medicaid programs are the largest payers for our                  products,                  rules relating to coverage and reimbursement continue to represent                  an                  important area of focus. New regulations relating to hospital and                  physician                  payment continue to be implemented annually. To date, we have not                  seen any                  detectable effects of the new rules on our product sales, and we                  anticipate                  minimal effects on our revenues in 2007. 
-  Manufacturing                    biotherapeutics is difficult and complex, and requires facilities                    specifically                    designed and validated to run biotechnology production processes.                    The                    manufacture of a biotherapeutic requires developing and maintaining                    a process                    to reliably manufacture and formulate the product at an appropriate                    scale,                    obtaining regulatory approval to manufacture the product, and                    is subject to                    changes in regulatory requirements or standards that may require                    modifications                    to the manufacturing process. 
-  Our                      ability to attract and retain highly qualified and talented                      people in all                      areas of the company, and our ability to maintain our unique                      culture, will be                      critical to our success over the long-term. We are working                      diligently across                      the company to make sure that we successfully hire, train and                      integrate new                      employees into the Genentech culture and                      environment. 
-  Intellectual                        property protection of our products is crucial to our business.                        Loss of                        effective intellectual property protection on one or more                        products could                        result in lost sales to competing products and may negatively                        affect our                        sales, royalty revenues 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. 

----

**Marketed      Products **

*Avastin*

*Rituxan      *

- The        treatment of patients with relapsed or refractory, low-grade or follicular,        CD20-positive, B-cell non-Hodgkin’s lymphoma, including retreatment and bulky        disease;
-  The          first-line treatment of patients with diffuse large B-cell, CD20-positive,          non-Hodgkin’s lymphoma in combination with CHOP (cyclophosphamide,          doxorubicin, vincristine and prednisone) or other anthracycline-based          chemotherapy; 
-  The          first-line treatment of previously untreated patients with follicular,          CD20-positive, B-cell non-Hodgkin’s lymphoma in combination with CVP          (cyclophosphamide, vincristine and prednisone) chemotherapy          regimens; 
-  The          treatment of patients with low-grade, CD20-positive, B-cell non-Hodgkin’s          lymphoma in patients with stable disease or who achieve a partial or complete          response following first-line treatment with CVP chemotherapy;          and 
-  Use          in combination with methotrexate for reducing signs and symptoms in adult          patients with moderately-to-severely active rheumatoid arthritis (or “RA”) who          have had an inadequate response to one or more tumor necrosis factor          antagonist therapies. 

*Herceptin      *

*Lucentis*

*Xolair*

*Tarceva      *

*Nutropin      *
*Nutropin      AQ *

----

*Activase      *

*TNKase      *

*Cathflo      Activase *

*Pulmozyme      *

*Raptiva*

**Licensed      Products**

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

**Available      Information**

-  our          annual report on Form 10-K, quarterly reports on Form 10-Q, current reports          on          Form 8-K, and all amendments to those reports as soon as reasonably          practicable after such material is electronically filed with the Securities          and Exchange Commission;  
-  our            policies related to corporate governance, including Genentech’s Principles of            Corporate Governance, Good Operating Principles (Genentech’s code of ethics            applying to Genentech’s directors, officers and employees) as well as            Genentech’s Code of Ethics applying to our CEO, CFO and senior financial            officials; and 
-  the              charters of the Audit Committee and the Compensation Committee of our              Board of              Directors.  

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

----

***Contingencies***

** **
** **

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

***Product      Sales Allowances***

----

-  Rebate          allowances and accruals are comprised of both direct and indirect rebates.          Direct rebates are contractual price adjustments payable to direct customers,          mainly to wholesalers and specialty pharmacies, that purchase products          directly from us. Indirect rebates are contractual price adjustments payable          to healthcare providers and organizations such as clinics, hospitals,          pharmacies, Medicaid and group purchasing organizations that do not purchase          products directly from us; 
-  Prompt          pay sales discounts are credits granted to wholesalers for remitting payment          on their purchases within established cash payment incentive          periods; 
-  Product          return allowances are established in accordance with our Product Returns          Policy. Our returns policy allows product returns within the period beginning          two months prior to and six months following product expiration; 
-  Wholesaler          inventory management allowances are credits granted to wholesalers for          compliance with various contractually-defined inventory management programs.          These programs were created to align purchases with underlying demand for          our          products and to maintain consistent inventory levels, typically at two          to          three weeks of sales depending on the product; and 
-  Healthcare          provider contractual chargebacks are the result of contractual commitments          by          us to provide products to healthcare providers at specified prices or          discounts. 

----

***Royalties***

***Income      Taxes***

*Accounting      for Uncertainty in Income Taxes*

***Inventories***

----

***Employee      Stock-Based Compensation***

----

**Results      of Operations**

*(In      millions)*

|                                                                              |   | **Three                Months****Ended                March 31,** |   |     |   |
|-----------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|----------|--------|
|                                                                              |   | **2007**                                                          |   | **2006** |   | **%                Change** |   |
| Product                sales                                                      |   | $                                                                 | 2,329  |     | $      | 1,644 |   |   | 42 | % |
| Royalties                                                                         |   |                                                              | 419    |     |   | 286 |   |   | 47 |   |
| Contract                revenue                                                   |   |                                                              | 95     |     |   | 56 |   |   | 70 |   |
| Total                operating revenues                                           |   |                                                              | 2,843  |     |   | 1,986 |   |   | 43 |   |
|                                                                              |   |                                                              |   |     |   |   |   |   |   |   |
| Cost                of sales                                                      |   |                                                              | 392    |     |   | 262 |   |   | 50 |   |
| Research                and development                                           |   |                                                              | 610    |     |   | 374 |   |   | 63 |   |
| Marketing,                general and administrative                              |   |                                                              | 491    |     |   | 441 |   |   | 11 |   |
| Collaboration                profit sharing                                       |   |                                                              | 252    |     |   | 226 |   |   | 12 |   |
| Recurring                charges related to redemption                            |   |                                                              | 26     |     |   | 26 |   |   | - |   |
| Special                items: litigation-related                             |   |                                                              | 13     |     |   | 13 |   |   | - |   |
| Total                costs and expenses                                           |   |                                                              | 1,784  |     |   | 1,342 |   |   | 33 |   |
|                                                                              |   |                                                              |   |     |   |   |   |   |   |   |
| Operating                income                                                   |   |                                                              | 1,059  |     |   | 644 |   |   | 64 |   |
|                                                                              |   |                                                              |   |     |   |   |   |   |   |   |
| Other                income (expense):                                            |   |                                                              |   |     |   |   |   |   |   |   |
| Interest                and other income, net                                     |   |                                                              | 74     |     |   | 53 |   |   | 40 |   |
| Interest                expense                                                   |   |                                                              | (18    | )        |   | (19 | ) |   | (5 | ) |
| Total                other income, net                                            |   |                                                              | 56     |     |   | 34 |   |   | 65 |   |
| Income                before taxes                                                |   |                                                              | 1,115  |     |   | 678 |   |   | 64 |   |
| Income                tax provision                                               |   |                                                              | 409    |     |   | 257 |   |   | 59 |   |
| Net                income                                                         |   | $                                                                 | 706    |     | $      | 421 |   |   | 68 |   |
|                                                                              |   |                                                              |   |     |   |   |   |   |   |   |
| Earnings                per share:                                                |   |                                                              |   |     |   |   |   |   |   |   |
| Basic                                                                             |   | $                                                                 | 0.67   |     | $      | 0.40 |   |   | 68 |   |
| Diluted                                                                           |   | $                                                                 | 0.66   |     | $      | 0.39 |   |   | 69 |   |
|                                                                              |   |                                                              |   |     |   |   |   |   |   |   |
| Cost                of sales as a % of product sales                              |   |                                                              | 17     | %        |   | 16 | % |   |   |   |
| Research                and development as a % of operating revenues              |   |                                                              | 21     |     |   | 19 |   |   |   |   |
| Marketing,                general and administrative as a % of operating revenues |   |                                                              | 17     |     |   | 22 |   |   |   |   |
| Pretax                operating margin                                            |   |                                                              | 37     |     |   | 32 |   |   |   |   |
| Tax                rate                                                           |   |                                                              | 37     |     |   | 38 |   |   |   |   |

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

***Total      Operating Revenues***

----

***Total      Product Sales***

*(In      millions)*

|                                              |   | **Three                Months****Ended                March 31,** |   |     |   |
|---------------------------------------------------|--------|-------------------------------------------------------------------|--------|----------|--------|
|                                              |   | **2007**                                                          |   | **2006** |   | **%                Change** |   |
| Net                U.S. Product Sales             |   |                                                              |   |     |   |   |   |
| Avastin                                           |   | $                                                                 | 533    |     | $      | 398 |   |   | 34 | % |
| Rituxan                                           |   |                                                              | 535    |     |   | 477 |   |   | 12 |   |
| Herceptin                                         |   |                                                              | 311    |     |   | 290 |   |   | 7 |   |
| Lucentis                                          |   |                                                              | 211    |     |   | - |   |   | * |   |
| Xolair                                            |   |                                                              | 111    |     |   | 95 |   |   | 17 |   |
| Tarceva                                           |   |                                                              | 102    |     |   | 93 |   |   | 10 |   |
| Nutropin                products                  |   |                                                              | 91     |     |   | 87 |   |   | 5 |   |
| Thrombolytics                                     |   |                                                              | 68     |     |   | 59 |   |   | 15 |   |
| Pulmozyme                                         |   |                                                              | 52     |     |   | 49 |   |   | 6 |   |
| Raptiva                                           |   |                                                              | 24     |     |   | 21 |   |   | 14 |   |
| Total                U.S. product sales(1)        |   | $                                                                 | 2,037  |     | $      | 1,569 |   |   | 30 |   |
|                                              |   |                                                              |   |     |   |   |   |   |   |   |
| Net                product sales to collaborators |   |                                                              | 292    |     |   | 75 |   |   | 289 |   |
| Total                product sales                |   | $                                                                 | 2,329  |     | $      | 1,644 |   |   | 42 |   |

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

** **
** **

*Avastin*

** **

----

*Rituxan*

** **

*Herceptin*

----

*Lucentis*

*Xolair*

*Tarceva*

*Nutropin      Products*

*Thrombolytics*

----

*Pulmozyme*

*Raptiva*

*Sales      to Collaborators*

***Royalties***

***Contract      Revenues***

----

***Cost      of Sales***

***Research      and Development***

** **

*(in      millions)*

|                                                          |   | **Three                Months****Ended                March 31,** |   |     |   |
|---------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|----------|--------|
| **Research                and Development**                   |   | **2007**                                                          |   | **2006** |   | **%                Change** |   |
| Product                development (including post-marketing) |   | $                                                                 | 390    |     | $      | 283 |   |   | 38 | % |
| Research                                                      |   |                                                              | 89     |     |   | 74 |   |   | 20 |   |
| In-licensing                                                  |   |                                                              | 131    |     |   | 17 |   |   | 671 |   |
| Total                R&D                                  |   | $                                                                 | 610    |     | $      | 374 |   |   | 63 |   |

***Marketing,      General and Administrative***

----

***Collaboration      Profit Sharing***

*(in      millions)*

|                                                          |   | **Three                Months****Ended                March 31,** |   |     |   |
|---------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|----------|--------|
|                                                          |   | **2007**                                                          |   | **2006** |   | **%                Change** |   |
| U.S.                Rituxan profit sharing expense            |   | $                                                                 | 166    |     | $      | 151 |   |   | 10 | % |
| U.S.                Tarceva profit sharing expense            |   |                                                              | 39     |     |   | 32 |   |   | 22 |   |
| U.S.                and ex-U.S. Xolair profit sharing expense |   |                                                              | 47     |     |   | 43 |   |   | 9 |   |
| Total                collaboration profit sharing expense     |   | $                                                                 | 252    |     | $      | 226 |   |   | 12 |   |

*(in      millions)*

|                                                                                                                                                              |   | **Three                Months****Ended                March 31,** |   |     |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|----------|--------|
|                                                                                                                                                              |   | **2007**                                                          |   | **2006** |   | **%                Change** |   |
| Product                sales, net                                                                                                                                 |   | $                                                                 | 535    |     | $      | 477 |   |   | 12 | % |
| Combined                commercial and manufacturing costs and expenses                                                                                           |   |                                                              | 130    |     |   | 115 |   |   | 13 |   |
| Combined                co-promotion profits                                                                                                                      |   | $                                                                 | 405    |     | $      | 362 |   |   | 12 |   |
| Amount                due to Biogen Idec for their share of co-promotion profits - included                in                collaboration profit sharing expense |   | $                                                                 | 166    |     | $      | 151 |   |   | 10 |   |

*(in      millions)*

|                                                                                                                                           |   | **Three                Months****Ended                March 31,** |   |     |   |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|----------|--------|
|                                                                                                                                           |   | **2007**                                                          |   | **2006** |   | **%                Change** |   |
| Contract                revenue from Biogen Idec (R&D reimbursement)                                                                       |   | $                                                                 | 21     |     | $      | 17 |   |   | 24 | % |
|                                                                                                                                           |   |                                                              |   |     |   |   |   |   |   |   |
| Royalty                expense on ex-U.S. sales of Rituxan and other patent costs - included                in                MG&A expense |   | $                                                                 | 56     |     | $      | 35 |   |   | 60 |   |

----

***Recurring      Charges Related to Redemption***

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

***Operating      Income***

** **

***Other      Income (Expense)***

*(in      millions)*

|                                                                          |   | **Three                Months****Ended                March 31,** |   |     |   |
|-------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|----------|--------|
| **Other                Income, Net**                                          |   | **2007**                                                          |   | **2006** |   | **%                Change** |   |
| Gains                on sales of biotechnology equity securities and other    |   | $                                                                 | 8      |     | $      | 3 |   |   | 167 | % |
| Write-downs                of biotechnology debt, equity securities and other |   |                                                              | (3     | )        |   | - |   |   | - |   |
| Interest                income                                                |   |                                                              | 69     |     |   | 49 |   |   | 41 |   |
| Interest                expense                                               |   |                                                              | (18    | )        |   | (19 | ) |   | (5 | ) |
| Other                miscellaneous income                                     |   |                                                              | -      |     |   | 1 |   |   | (100 | ) |
| Total                other income, net                                        |   | $                                                                 | 56     |     | $      | 34 |   |   | 65 |   |

***Income      Tax Provision***

----

**Liquidity      and Capital Resources**

*(In      millions)*

|                                                                                                                                                                                          |   | **March 31,****2007** |   | **December 31,****2006** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|--------|-------------------------------|--------|
| Unrestricted                cash, cash equivalents, short-term investments and long-term marketable                debt and equity securities                                                 |   | $                          | 4,792  |                          | $      | 4,325 |   |
| Net                receivable - equity hedge instruments                                                                                                                                      |   |                       | 64     |                          |   | 50 |   |
| Total                unrestricted cash, cash equivalents, short-term investments, long-term                marketable debt and equity securities, and equity hedge                instruments |   | $                          | 4,856  |                          | $      | 4,375 |   |
| Working                capital                                                                                                                                                                |   | $                          | 4,207  |                          | $      | 3,694 |   |
| Current                ratio                                                                                                                                                                  |   |                       | 3.0:1  |                          |   | 2.8:1 |   |

***Cash      Provided by Operating Activities***

----

***Cash      Used in Investing Activities***

***Cash      Used in Financing Activities***

*      (shares in millions)*

|                               |   | **Total                Number of Shares Purchased** |   | **Average                Price Paid per Share** |   |
|------------------------------------|--------|-----------------------------------------------------|--------|-------------------------------------------------|--------|
| January                1-31, 2007  |   |                                                | 3.0    |                                            | $      | 87.33 |   |
| February                1-28, 2007 |   |                                                | 0.9    |                                            |   | 86.54 |   |
| March                1-31, 2007    |   |                                                | 0.6    |                                            |   | 82.33 |   |
| Total                              |   |                                                | 4.5    |                                            | $      | 86.47 |   |

**Off-Balance      Sheet Arrangements**

----

***Contractual      Obligations***

**Contingencies**

**Relationship      with Roche**

***Roche’s      Ability to Maintain Its Percentage Ownership Interest in Our      Stock***

**Related      Party Transactions**

*Reporting      Revenue Gross as a Principal Versus Net as an Agent*

***Hoffmann-La      Roche***

----

*(in      millions)*

|                                                                       |   | **Three                Months****Ended                March 31,** |   |
|----------------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|
|                                                                       |   | **2007**                                                          |   | **2006** |   |
| Ex-U.S.                product sales to Hoffmann-La Roche                  |   | $                                                                 | 264    |   | $ | 58 |   |
|                                                                       |   |                                                              |   |   |   |   |   |
| Royalties                earned from Hoffmann-La Roche                     |   | $                                                                 | 255    |   | $ | 167 |   |
|                                                                       |   |                                                              |   |   |   |   |   |
| Cost                of sales on ex-U.S. product sales to Hoffmann-La Roche |   | $                                                                 | 121    |   | $ | 49 |   |
|                                                                       |   |                                                              |   |   |   |   |   |
| Contract                revenue from Hoffmann-La Roche                     |   | $                                                                 | 30     |   | $ | 18 |   |

***Novartis***

*(in      millions)*

|                                                              |   | **Three                Months****Ended                March 31,** |   |
|-------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|
|                                                              |   | **2007**                                                          |   | **2006** |   |
| Ex-U.S.                product sales to Novartis                  |   | $                                                                 | 2      |   | $ | 1 |   |
|                                                              |   |                                                              |   |   |   |   |   |
| Royalties                earned from Novartis                     |   | $                                                                 | 5      |   | $ | - |   |
|                                                              |   |                                                              |   |   |   |   |   |
| Cost                of sales on ex-U.S. product sales to Novartis |   | $                                                                 | 3      |   | $ | 1 |   |
|                                                              |   |                                                              |   |   |   |   |   |
| Contract                revenue from Novartis                     |   | $                                                                 | 40     |   | $ | 10 |   |
|                                                              |   |                                                              |   |   |   |   |   |
| Collaboration                profit sharing expense to Novartis   |   | $                                                                 | 47     |   | $ | 43 |   |

----

**Stock      Options**

***Option      Program Description***

***General      Option Information***

***Summary      of Option Activity***

*(Shares      in millions)*

|                                                    |   |                                                                |   | **Options                  Outstanding** |   |
|---------------------------------------------------------|--------|---------------------------------------------------------------------|--------|------------------------------------------|--------|
|                                                    |   | **Shares                  Available****for                  Grant** |   | **Number                  of****Shares** |   | **Weighted-Average****Exercise                  Price** |   |
| **December 31,                  2005**             |   |                                                                | 83.7   |                                     |   | 82.8 |   | $ | 46.64 |   |
| Grants                                                  |   |                                                                | (17.5  | )                                        |   | 17.5 |   |   | 79.85 |   |
| Exercises                                               |   |                                                                | -      |                                     |   | (9.5 | ) |   | 30.42 |   |
| Cancellations                                           |   |                                                                | 2.5    |                                     |   | (2.5 | ) |   | 62.09 |   |
| **December 31,                  2006**             |   |                                                                | 68.7   |                                     |   | 88.3 |   | $ | 54.53 |   |
| Grants                                                  |   |                                                                | (0.3   | )                                        |   | 0.3 |   |   | 84.72 |   |
| Exercises                                               |   |                                                                | -      |                                     |   | (4.8 | ) |   | 30.75 |   |
| Cancellations                                           |   |                                                                | 0.6    |                                     |   | (0.6 | ) |   | 71.63 |   |
| **March 31,                  2007 (Year to date)** |   |                                                                | 69.0   |                                     |   | 83.2 |   | $ | 55.88 |   |

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

*(Shares      in millions)*

|                                     |   | **Exercisable** |   | **Unexercisable**                         |   | **Total**  |   |
|------------------------------------------|--------|-----------------|--------|-------------------------------------------|--------|------------|--------|
| **As                of March 31, 2007**  |   | **Shares**      |   | **Weighted-Average****Exercise****Price** |   | **Shares** |   | **Weighted-Average****Exercise****Price** |   | **Shares** |   | **Weighted-Average****Exercise****Price** |   |
| In-the-Money                             |   |            | 40     |                                      | $      | 33.70      |   |   | 25 |   | $ | 68.91 |   |   | 65 |   | $ | 47.42 |   |
| Out-of-the-Money(1)                      |   |            | 6      |                                      | $      | 86.25      |   |   | 12 |   | $ | 86.16 |   |   | 18 |   | $ | 86.19 |   |
| Total                Options Outstanding |   |            | 46     |                                      |   |       |   |   | 37 |   |   |   |   |   | 83 |   |   |   |   |

| (1) | Out-of-the-money                options are those options with an exercise price equal to or greater                than                the fair market value of Genentech Common Stock, $82.12, at the close                of                business on March 30, 2007. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Dilutive      Effect of Options***

** **
** **

----

***Equity      Compensation Plan Information***

----

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

**Item      4.  **
**Controls      and Procedures**

*Evaluation      of Disclosure Controls and Procedures*

*Changes      in Internal Controls over Financial Reporting*

----

**PART      II—OTHER INFORMATION**

**Item      1.  **
**Legal      Proceedings**

**Item      1A.  **
**Risk      Factors**

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

-  Preclinical          tests may show the product to be toxic or lack efficacy in animal          models. 
-  Clinical          trial results may show the product to be less effective than desired or          to          have harmful or problematic side effects. 
-  Failure          to receive the necessary regulatory approvals or a delay in receiving such          approvals. Among other things, such delays may be caused by slow enrollment          in          clinical studies, extended length of time to achieve study endpoints,          additional time requirements for data analysis or Biologic License Application          (or “BLA”) preparation, discussions with the U.S. Food and Drug Administration          (or “FDA”), FDA requests for additional preclinical or clinical data, analyses          or changes to study design, or unexpected safety, efficacy or manufacturing          issues. 
- Difficulties        formulating the product, scaling the manufacturing process or in getting        approval for manufacturing.
-  Manufacturing          costs, pricing or reimbursement issues, or other factors that make the          product          uneconomical. 
-  The          proprietary rights of others and their competing products and technologies          that may prevent the product from being developed or          commercialized. 
-  The          contractual rights of our collaborators or others that may prevent the          product          from being developed or commercialized. 

----

-  The          number of and the outcome of clinical trials currently being conducted          by us          and/or our collaborators. For example, our R&D expenses may increase based          on the number of late-stage clinical trials being conducted by us and/or          our          collaborators. 
-  The          number of products entering into development from late-stage research.          For          example, there is no guarantee that internal research efforts will succeed          in          generating a sufficient number of candidate products 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. 
-  Decisions          by F. Hoffmann-La Roche (or “Hoffmann-La Roche”) whether to exercise its          options to develop and sell our future products in non-U.S. markets and          the          timing and amount of any related development cost reimbursements. 
-  Our          ability to in-license projects of interest to us and the timing and amount          of          related development funding or milestone payments for such licenses. For          example, we may enter into agreements requiring us to pay a significant          upfront fee for the purchase of in-process R&D, which we may record as an          R&D expense. 
-  Participation          in a number of collaborative research arrangements. On many of these          collaborations, our share of expenses recorded in our financial statements          is          subject to volatility based on our collaborators’ spending activities as well          as the mix and timing of activities between the parties. 
-  Charges          incurred in connection with expanding our product manufacturing capabilities,          as described in “Difficulties or delays in product manufacturing or in          obtaining materials from our suppliers could harm our business and/or          negatively affect our financial performance” below. 
-  Future          levels of revenue. 

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

-  Significant          delays in obtaining or failing to obtain approvals as described in “The          successful development of biotherapeutics is highly uncertain and requires          significant expenditures and time” above. 
-  Loss          of, or changes to, previously obtained approvals, including those resulting          from post-approval safety or efficacy issues. 
-  Failure          to comply with existing or future regulatory          requirements. 

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-  Changes          to manufacturing processes, manufacturing process standards or Good          Manufacturing Practices (or “GMP”) following approval or changing          interpretations of these factors. 

**We      face competition**

*Avastin:*

*Rituxan:*

*Herceptin: *

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*Lucentis:*

*Xolair: *

*Tarceva: *

*Nutropin:*

*Thrombolytics:*

*Pulmozyme: *

*Raptiva: *

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

**Difficulties      or delays in product manufacturing or in obtaining materials from our suppliers      could harm our business and/or negatively affect our financial      performance**

-  the          inability of a supplier to provide raw materials used for manufacture of          our          products;  
-  equipment          obsolescence, malfunctions or failures; 
-  product          quality or contamination problems; 
-  damage          to a facility, including our warehouses and distribution facilities, due          to          natural disasters, including, but not limited to, earthquakes as our South          San          Francisco, Oceanside and Vacaville facilities are located in areas where          earthquakes occur; 
-  changes          in FDA regulatory requirements or standards that require modifications          to our          manufacturing processes; 
-  action          by the FDA or by us that results in the halting or slowdown of production          of          one or more of our products or products we make for others; 
-  a          contract manufacturer going out of business or failing to produce product          as          contractually required; 
-  failure          to maintain an adequate state of GMP compliance; and 
-  implementation          and integration of our new enterprise resource planning system, including          the          portions relating to manufacturing and distribution. 

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

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

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

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

**Other      factors could affect our product sales**

-  The          timing of FDA approval, if any, of competitive products. 
-  Our          pricing decisions, including a decision to increase or decrease the price          of a          product, the pricing decisions of our competitors, as well as our Avastin          Patient Assistance Program, which is a voluntary program that enables eligible          patients who have received 10,000 milligrams of Avastin in a 12-month period          to receive free Avastin in excess of the 10,000 milligrams during the          remainder of the 12-month period. 
-  Government          and third-party payer reimbursement and coverage decisions that affect          the          utilization of our products and competing products. 
-  Negative          safety or efficacy data from new clinical studies conducted either in the          U.S.          or internationally by any party could cause the sales of our products to          decrease or a product to be recalled or withdrawn. 
-  Negative            safety or efficacy data from post-approval marketing experience or production            quality problems could cause sales of our products to decrease or a product            to            be recalled. 
-  Efficacy              data from clinical studies conducted by any party in the U.S. or              internationally, showing or perceived to show, a similar or an improved              treatment benefit at a lower dose or shorter duration of therapy could              cause              the sales of our products to decrease. 

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-  The          degree of patent protection afforded our products by patents granted to          us and          by the outcome of litigation involving our patents. 
-  The          outcome of litigation involving patents of other companies concerning our          products or processes related to production and formulation of those products          or uses of those products. 
-  The            increasing use and development of alternate therapies. 
-  The              rate of market penetration by competing products. 
-  Our                distribution strategy, including the termination of, or change in,                an existing                arrangement with any major wholesalers who supply our                products. 

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

-  Hoffmann-La          Roche’s decisions whether to exercise its options and option extensions to          develop and sell our future products in non-U.S. markets and the timing          and          amount of any related development cost reimbursements. 
-  Variations          in Hoffmann-La Roche’s sales and other licensees’ sales of licensed          products. 
-  The          expiration or termination of existing arrangements with other companies          and          Hoffmann-La Roche, which may include development and marketing arrangements          for our products in the U.S., Europe and other countries outside the          U.S. 
-  The          timing of non-U.S. approvals, if any, for products licensed to Hoffmann-La          Roche and to other licensees. 
-  Government          and third-party payer reimbursement and coverage decisions that affect          the          utilization of our products and competing products. 
-  Fluctuations          in foreign currency exchange rates. 
-  The          initiation of new contractual arrangements with other companies. 
-  Whether          and when contract milestones are achieved. 
-  The          failure of or refusal of a licensee to pay royalties. 
-  The          expiration or invalidation of our patents or licensed intellectual property.          For example, patent litigations, interferences, oppositions, and other          proceedings involving our patents often include claims by third-parties          that          such patents are invalid, unenforceable, or unpatentable. If a court, patent          office, or other authority were to determine that a patent (including,          for          example, the Cabilly patent) under which we receive royalties and/or other          revenues is invalid, unenforceable, or unpatentable, that determination          could          cause us to suffer a loss of such royalties and/or revenues, and could          cause          us to incur other monetary damages. 
-  Decreases          in licensees’ sales of product due to competition, manufacturing difficulties          or other factors that affect the sales of product. 

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

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

-  Require          the approval of the directors designated by Roche to make any acquisition          or          any sale or disposal of all or a portion of our business representing 10%          or          more of our assets, net income or revenues. 
-  Enable          Roche to maintain its percentage ownership interest in our Common          Stock. 
-  Require          us to establish a stock repurchase program designed to maintain Roche’s          percentage ownership interest in our Common Stock based on an established          Minimum Percentage. For information regarding Minimum Percentage, see Note          5,          “Relationship with Roche and Related Party Transactions,” in the Notes to          Condensed Consolidated Financial Statements in Part I, Item 1 of this Form          10-Q.  

**Future      sales of our Common Stock by Roche could cause the price of our Common Stock      to      decline**

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

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**We      may incur material product liability costs**

**Insurance      coverage is increasingly more difficult and costly to obtain or      maintain**

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

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

-  The          overall competitive environment for our products as described in “We face          competition” above. 
-  The          amount and timing of sales to customers in the U.S. For example, sales          of a          product may increase or decrease due to pricing changes, fluctuations in          distributor buying patterns or sales initiatives that we may undertake          from          time to time. 

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-  The          amount and timing of our sales to Hoffmann-La Roche and our other          collaborators of products for sale outside of the U.S. and the amount and          timing of sales to their respective customers, which directly affects both          our          product sales and royalty revenues. 
-  The          timing and volume of bulk shipments to licensees. 
-  The          availability and extent of government and private third-party reimbursements          for the cost of therapy. 
-  The          extent of product discounts extended to customers. 
-  The          efficacy and safety of our various products as determined both in clinical          testing and by the accumulation of additional information on each product          after the FDA approves it for sale. 
-  The          rate of adoption by physicians and use of our products for approved          indications and additional indications. Among other things, the rate of          adoption by physicians and use of our products may be affected by results          of          clinical studies reporting on the benefits or risks of a product. 
-  The          potential introduction of new products and additional indications for existing          products. 
-  The          ability to successfully manufacture sufficient quantities of any particular          marketed product. 
-  Pricing          decisions that we or our competitors have adopted or may adopt, as well          as our          Avastin Patient Assistance Program. 

**Our      integration of new information systems could disrupt our internal operations,      which could harm our revenues and increase our expenses**

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

-  Announcements          of technological innovations or new commercial products by us or our          competitors.  
-  Publicity          regarding actual or potential medical results relating to products under          development or being commercialized by us or our competitors.  
-  Concerns          about the pricing of our products, or our pricing initiatives (including          our          Avastin Patient Assistance Program), and the potential effect of such on          their          utilization or our product sales. 
-  Developments          or outcome of litigation, including litigation regarding proprietary and          patent rights. 

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-  Regulatory          developments or delays concerning our products in the U.S. and foreign          countries.  
-  Issues          concerning the safety of our products or of biotechnology products generally.           
-  Economic          and other external factors or a disaster or crisis. 
-  Period          to period fluctuations in our financial results. 

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

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

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

*Consolidation      of Variable Interest Entities,*

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

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*      (shares in millions)*

|                               |   | **Total                Number of****Shares                Purchased** |   | **Average                Price Paid****per                Share** |   | **Total                Number of ****Shares                Purchased as****Part                of Publicly****Announced                Plans or****Programs** |   | **Maximum                Number****of                Shares that May****Yet                Be Purchased****Under                the Plans or****Programs** |   |
|------------------------------------|--------|-----------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| January                1-31, 2007  |   |                                                                  | 3.0    |                                                              | $      | 87.33                                                                                                                                                              |   |                                                                                                                                                       |   |   |   |   |   |
| February                1-28, 2007 |   |                                                                  | 0.9    |                                                              |   | 86.54                                                                                                                                                              |   |                                                                                                                                                       |   |   |   |   |   |
| March                1-31, 2007    |   |                                                                  | 0.6    |                                                              |   | 82.33                                                                                                                                                              |   |                                                                                                                                                       |   |   |   |   |   |
| Total                              |   |                                                                  | 4.5    |                                                              | $      | 86.47                                                                                                                                                              |   |                                                                                                                                                       | 67     |   |   | 33 |   |

**Item      6.  ****Exhibits**

| **Exhibit                No.** | **Description**                                                                                                                                                                                                                            | **Location**                        |
|--------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------|
| 10.1                           | Fourth                Amendment to the Manufacturing and Supply Agreement between Genentech                and                Lonza Biologics PLC, dated as of 2 February 2007.*                                                           | Filed                herewith  |
| 10.2                           | Amendment                No. 1 to the Genentech, Inc. Tax Reduction Investment Plan, as amended                and                restated.                                                                                                | Filed                herewith       |
| 10.3                           | Amendment                No. 2 to the Genentech, Inc. Tax Reduction Investment Plan, as amended                and                restated.                                                                                                | Filed                herewith       |
| 15.1                           | Letter                regarding Unaudited Interim Financial Information.                                                                                                                                                                   | Filed                herewith       |
| 31.1                           | Certification                of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a)                promulgated under the Securities Exchange Act of 1934, as                amended                                          | Filed                herewith       |
| 31.2                           | Certification                of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a)                promulgated under the Securities Exchange Act of 1934, as                amended                                          | Filed                herewith       |
| 32.1                           | Certifications                of Chief Executive Officer and Chief Financial Officer pursuant to                18                U.S.C. Section 1350, as adopted pursuant to Section 906 of the                Sarbanes-Oxley Act of 2002 | Furnished                herewith   |

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**SIGNATURES**

|   |                       |   | GENENTECH,                INC.                                                                               |
|--------|----------------------------|--------|-------------------------------------------------------------------------------------------------------------------|
| Date:  | May                3, 2007 |   | /s/ARTHUR                D. LEVINSON                                                                              |
|   |                       |   | Arthur                D. Levinson, Ph.D.Chairman                and Chief Executive Officer                       |
|   |                       |   |                                                                                                              |
|   |                       |   |                                                                                                              |
| Date:  | May                3, 2007 |   | /s/DAVID                A. EBERSMAN                                                                               |
|   |                       |   | David                A. EbersmanExecutive                Vice President andChief                Financial Officer |
|   |                       |   |                                                                                                              |
|   |                       |   |                                                                                                              |
| Date:  | May                3, 2007 |   | /s/ROBERT                ANDREATTA                                                                                |
|   |                       |   | Robert                AndreattaController                and Chief Accounting Officer                             |

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