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**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**________________________**

**FORM      10-Q**

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

| **For                the quarterly period ended September 30,                2006** |
|-------------------------------------------------------------------------------------|

| 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 | 1,054,000,743** **Outstanding                at October 27, 2006 |

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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 and nine months ended September 30, 2006 and                2005                    | 3                                    |
|                    |                                                                                                                                                                                                  |                                 |
|                    | Condensed                Consolidated                Statements                of Cash Flows—for                the nine months                ended September 30, 2006                and 2005 | 4                                    |
|                    |                                                                                                                                                                                                  |                                 |
|                    | Condensed                Consolidated Balance                Sheets—September                30, 2006 and                December 31,                2005                                  | 5                                    |
|                    |                                                                                                                                                                                                  |                                 |
|                    | Notes                to Condensed Consolidated Financial                Statements                                                                                                          | 6-19                                 |
|                    |                                                                                                                                                                                                  |                                 |
|                    | Report                of Independent Registered                Public                Accounting                Firm                                                                              | 20                                   |
|                    |                                                                                                                                                                                                  |                                 |
| Item                2.  | Management’s                Discussion                and Analysis of Financial                Condition and Results of Operations                                                              | 21-42                                |
|                    |                                                                                                                                                                                                  |                                 |
| Item                3.  | Quantitative and Qualitative                Disclosures                About Market                Risk                                                                                     | 43                                   |
|                    |                                                                                                                                                                                                  |                                 |
| Item                4.  | Controls                and Procedures                                                                                                                                                           | 43                                   |
|                    |                                                                                                                                                                                                  |                                 |
|                    | PART                II—OTHER                INFORMATION                                                                                                                                         |                                 |
|                    |                                                                                                                                                                                                  |                                 |
| Item                1.  | Legal                Proceedings                                                                                                                                                                      | 44                                   |
|                    |                                                                                                                                                                                                  |                                 |
| Item                1A. | Risk                Factors                                                                                                                                                                           | 44-56                                |
|                    |                                                                                                                                                                                                  |                                 |
| Item                2.  | Unregistered                Sales of Equity Securities                and                Use of Proceeds                                                                                              | 56                                   |
|                    |                                                                                                                                                                                                  |                                 |
| Item                6.  | Exhibits                                                                                                                                                                                              | 57                                   |
|                    |                                                                                                                                                                                                  |                                 |
| SIGNATURES              | 58                                                                                                                                                                                                    |

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

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

**GENENTECH,      INC.**

**CONDENSED      CONSOLIDATED STATEMENTS OF INCOME**

*(In      millions, except per share amounts)*

*(Unaudited)*

|                                                                                                                                                                                                                                                                                                                                                         |   | **Three                Months****Ended                September 30,** |   | **Nine                Months****Ended                September 30,** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                         |   | **2006**                                                              |   | **2005**                                                             |   | **2006** |   | **2005** |   |
| **Revenues**                                                                                                                                                                                                                                                                                                                                                 |   |                                                                  |   |                                                                 |   |   |   |   |   |
| Product                sales (including amounts from related parties:three                months—2006-$87; 2005-$58; nine                months—2006-$220; 2005-$140)                                                                                                                                                                            |   | $                                                                     | 1,941  |                                                                 | $      | 1,451 |   | $ | 5,395 |   | $ | 3,911 |   |
| Royalties                (including amounts from related parties:three                months—2006-$230; 2005-$123; nine                months—2006-$603; 2005-$336)                                                                                                                                                                              |   |                                                                  | 364    |                                                                 |   | 238 |   |   | 966 |   |   | 670 |   |
| Contract                revenue (including amounts from related parties:three                months—2006-$52; 2005-$37; nine                months—2006-$114; 2005-$94)                                                                                                                                                                          |   |                                                                  | 79     |                                                                 |   | 63 |   |   | 208 |   |   | 159 |   |
| **Total                operating revenues**                                                                                                                                                                                                                                                                                                                  |   |                                                                  | 2,384  |                                                                 |   | 1,752 |   |   | 6,569 |   |   | 4,740 |   |
| **Costs                and expenses**                                                                                                                                                                                                                                                                                                                        |   |                                                                  |   |                                                                 |   |   |   |   |   |   |   |   |   |
| Cost                of sales (including related party amounts: three                months—2006-$63; 2005-$45;nine                months—2006-$178; 2005-$134)                                                                                                                                                                                   |   |                                                                  | 297    |                                                                 |   | 236 |   |   | 843 |   |   | 766 |   |
| Research                and development (including                related party amounts: three                months—2006-$93; 2005-$55; nine                months—2006-$238; 2005-$150)(including                contract related: three                months—2006-$48; 2005-$47;nine                months—2006-$135; 2005-$111) |   |                                                                  | 454    |                                                                 |   | 329 |   |   | 1,218 |   |   | 850 |   |
| Marketing,                general and administrative                                                                                                                                                                                                                                                                                                         |   |                                                                  | 501    |                                                                 |   | 343 |   |   | 1,414 |   |   | 1,006 |   |
| Collaboration                profit sharing (including amounts from related party:three                months—2006-$46; 2005-$41; nine                months—2006-$137; 2005-$93)                                                                                                                                                                |   |                                                                  | 250    |                                                                 |   | 220 |   |   | 735 |   |   | 595 |   |
| Recurring                charges related to redemption                                                                                                                                                                                                                                                                                                       |   |                                                                  | 26     |                                                                 |   | 27 |   |   | 79 |   |   | 96 |   |
| Special                items: litigation-related                                                                                                                                                                                                                                                                                                        |   |                                                                  | 13     |                                                                 |   | 14 |   |   | 40 |   |   | 44 |   |
| **Total                costs and expenses**                                                                                                                                                                                                                                                                                                                  |   |                                                                  | 1,541  |                                                                 |   | 1,169 |   |   | 4,329 |   |   | 3,357 |   |
| Operating                income                                                                                                                                                                                                                                                                                                                              |   |                                                                  | 843    |                                                                 |   | 583 |   |   | 2,240 |   |   | 1,383 |   |
| Other                income (expense):                                                                                                                                                                                                                                                                                                                       |   |                                                                  |   |                                                                 |   |   |   |   |   |   |   |   |   |
| Interest                and other income, net                                                                                                                                                                                                                                                                                                                |   |                                                                  | 74     |                                                                 |   | 42 |   |   | 249 |   |   | 98 |   |
| Interest                expense                                                                                                                                                                                                                                                                                                                              |   |                                                                  | (19    | )                                                                    |   | (20 | ) |   | (56 | ) |   | (27 | ) |
| Total                other income, net                                                                                                                                                                                                                                                                                                                       |   |                                                                  | 55     |                                                                 |   | 22 |   |   | 193 |   |   | 71 |   |
| Income                before taxes                                                                                                                                                                                                                                                                                                                           |   |                                                                  | 898    |                                                                 |   | 605 |   |   | 2,433 |   |   | 1,454 |   |
| Income                tax provision                                                                                                                                                                                                                                                                                                                          |   |                                                                  | 330    |                                                                 |   | 246 |   |   | 914 |   |   | 514 |   |
| **Net                income**                                                                                                                                                                                                                                                                                                                                |   | $                                                                     | 568    |                                                                 | $      | 359 |   | $ | 1,519 |   | $ | 940 |   |
| **Earnings                per share**                                                                                                                                                                                                                                                                                                                        |   |                                                                  |   |                                                                 |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                                                                                                                                                                                                                                                        |   | $                                                                     | 0.54   |                                                                 | $      | 0.34 |   | $ | 1.44 |   | $ | 0.89 |   |
| Diluted                                                                                                                                                                                                                                                                                                                                                      |   | $                                                                     | 0.53   |                                                                 | $      | 0.33 |   | $ | 1.41 |   | $ | 0.87 |   |
| Shares                used to compute basic earnings per share                                                                                                                                                                                                                                                                                               |   |                                                                  | 1,053  |                                                                 |   | 1,061 |   |   | 1,053 |   |   | 1,055 |   |
| Shares                used to compute diluted earnings per share                                                                                                                                                                                                                                                                                             |   |                                                                  | 1,072  |                                                                 |   | 1,087 |   |   | 1,074 |   |   | 1,081 |   |

*See      Notes to Condensed Consolidated Financial Statements*

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**GENENTECH,      INC. **

**CONDENSED      CONSOLIDATED STATEMENTS OF CASH FLOWS**

*(In      millions)*

*(Unaudited)*

|                                                                                                            |   | **Nine                Months****Ended                September 30,** |   |
|-----------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
|                                                                                                            |   | **2006**                                                             |   | **2005** |   |
| **Cash                flows from operating activities**                                                         |   |                                                                 |   |   |   |
| Net                income                                                                                       |   | $                                                                    | 1,519  |   | $ | 940 |   |
| Adjustments                to reconcile net income to net cash provided by operating                activities: |   |                                                                 |   |   |   |   |   |
| Depreciation                and amortization                                                                    |   |                                                                 | 298    |   |   | 276 |   |
| Employee                stock-based compensation                                                                |   |                                                                 | 225    |   |   | - |   |
| Deferred                income taxes                                                                            |   |                                                                 | (86    | ) |   | (67 | ) |
| Deferred                revenue                                                                                 |   |                                                                 | (13    | ) |   | (33 | ) |
| Litigation-related                liabilities                                                                   |   |                                                                 | 39     |   |   | 39 |   |
| Tax                benefit from employee stock options                                                          |   |                                                                 | -      |   |   | 480 |   |
| Excess                tax benefit from stock-based compensation arrangements                                    |   |                                                                 | (142   | ) |   | - |   |
| Gain                on sales of securities available-for-sale and other                                         |   |                                                                 | (76    | ) |   | (4 | ) |
| Write-down                of securities available-for-sale and other                                            |   |                                                                 | 1      |   |   | 5 |   |
| Changes                in assets and liabilities:                                                               |   |                                                                 |   |   |   |   |   |
| Receivables                and other assets                                                                     |   |                                                                 | (423   | ) |   | (74 | ) |
| Inventories                                                                                                     |   |                                                                 | (311   | ) |   | (31 | ) |
| Investments                in trading securities                                                                |   |                                                                 | (26    | ) |   | (13 | ) |
| Accounts                payable, other accrued liabilities, and other long-term                liabilities      |   |                                                                 | 311    |   |   | 131 |   |
| **Net                cash provided by operating activities**                                                    |   |                                                                 | 1,316  |   |   | 1,649 |   |
|                                                                                                            |   |                                                                 |   |   |   |   |   |
| **Cash                flows from investing activities**                                                         |   |                                                                 |   |   |   |   |   |
| Purchases                of securities available-for-sale                                                       |   |                                                                 | (1,078 | ) |   | (694 | ) |
| Proceeds                from sales and maturities of securities available-for-sale                              |   |                                                                 | 663    |   |   | 575 |   |
| Capital                expenditures                                                                             |   |                                                                 | (888   | ) |   | (1,107 | ) |
| Change                in other assets                                                                           |   |                                                                 | 24     |   |   | (25 | ) |
| Transfer                to restricted cash                                                                      |   |                                                                 | (53    | ) |   | (53 | ) |
| **Net                cash used in investing activities**                                                        |   |                                                                 | (1,332 | ) |   | (1,304 | ) |
|                                                                                                            |   |                                                                 |   |   |   |   |   |
| **Cash                flows from financing activities**                                                         |   |                                                                 |   |   |   |   |   |
| Stock                issuances under employee stock plans                                                       |   |                                                                 | 286    |   |   | 634 |   |
| Stock                repurchases                                                                                |   |                                                                 | (758   | ) |   | (1,090 | ) |
| Excess                tax benefit from stock-based compensation arrangements                                    |   |                                                                 | 142    |   |   | - |   |
| Repayment                of long-term debt and noncontrolling interests                                         |   |                                                                 | -      |   |   | (425 | ) |
| Proceeds                from issuance of long-term debt                                                         |   |                                                                 | -      |   |   | 1,988 |   |
| **Net                cash (used in) provided by financing activities**                                          |   |                                                                 | (330   | ) |   | 1,107 |   |
|                                                                                                            |   |                                                                 |   |   |   |   |   |
| Net                (decrease) increase in cash and cash equivalents                                             |   |                                                                 | (346   | ) |   | 1,452 |   |
| Cash                and cash equivalents at beginning of period                                                 |   |                                                                 | 1,225  |   |   | 270 |   |
| **Cash                and cash equivalents at end of period**                                                   |   | $                                                                    | 879    |   | $ | 1,722 |   |
|                                                                                                            |   |                                                                 |   |   |   |   |   |
| **Supplemental                cash flow data**                                                                  |   |                                                                 |   |   |   |   |   |
| Cash                paid during the period for:                                                                 |   |                                                                 |   |   |   |   |   |
| Interest                                                                                                        |   | $                                                                    | 96     |   | $ | 9 |   |
| Income                taxes                                                                                     |   |                                                                 | 851    |   |   | 309 |   |
| Non-cash                investing and financing activities                                                      |   |                                                                 |   |   |   |   |   |
| Capitalization                of construction in progress related to financing lease                transaction |   |                                                                 | 84     |   |   | 94 |   |
| Exchange                of note receivable for a prepaid royalty and other long-term                asset       |   |                                                                 | -      |   |   | 29 |   |

*See      Notes to Condensed Consolidated Financial Statements.*

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**GENENTECH,      INC.**

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

*(In      millions)*

*(Unaudited)*

|                                                                                                                                                                                         |   | **September                30,****2006** |   | **December                31,****2005** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|-----------------------------------------|--------|
| **Assets**                                                                                                                                                                                   |   |                                     |   |                                    |   |
| Current                assets                                                                                                                                                                |   |                                     |   |                                    |   |
| Cash                and cash equivalents                                                                                                                                                     |   | $                                        | 879    |                                    | $      | 1,225 |   |
| Short-term                investments                                                                                                                                                        |   |                                     | 1,224  |                                    |   | 1,140 |   |
| Accounts                receivable—product sales (net of allowances: 2006-$86;                2005-$83; including amounts from related parties: 2006-$12;                2005-$4) |   |                                     | 790    |                                    |   | 554 |   |
| Accounts                receivable—royalties (including amounts from related parties:                2006-$287;                2005-$173)                                         |   |                                     | 415    |                                    |   | 297 |   |
| Accounts                receivable—other (including amounts from related parties: 2006-$169;                2005-$132)                                                                 |   |                                     | 234    |                                    |   | 199 |   |
| Inventories                                                                                                                                                                                  |   |                                     | 1,063  |                                    |   | 703 |   |
| Prepaid                expenses and other current assets                                                                                                                                     |   |                                     | 300    |                                    |   | 268 |   |
| Total                current assets                                                                                                                                                          |   |                                     | 4,905  |                                    |   | 4,386 |   |
| Long-term                marketable debt and equity securities                                                                                                                               |   |                                     | 1,787  |                                    |   | 1,449 |   |
| Property,                plant and equipment, net                                                                                                                                            |   |                                     | 4,047  |                                    |   | 3,349 |   |
| Goodwill                                                                                                                                                                                     |   |                                     | 1,315  |                                    |   | 1,315 |   |
| Other                intangible assets                                                                                                                                                       |   |                                     | 499    |                                    |   | 574 |   |
| Restricted                cash and investments                                                                                                                                               |   |                                     | 788    |                                    |   | 735 |   |
| Other                long-term assets                                                                                                                                                        |   |                                     | 511    |                                    |   | 339 |   |
| **Total                assets**                                                                                                                                                              |   | $                                        | 13,852 |                                    | $      | 12,147 |   |
|                                                                                                                                                                                         |   |                                     |   |                                    |   |   |   |
| **Liabilities                and stockholders’ equity**                                                                                                                                |   |                                     |   |                                    |   |   |   |
| Current                liabilities                                                                                                                                                           |   |                                     |   |                                    |   |   |   |
| Accounts                payable (including amounts to related parties: 2006-$21;                2005-$1)                                                                                     |   | $                                        | 279    |                                    | $      | 339 |   |
| Deferred                revenue                                                                                                                                                              |   |                                     | 42     |                                    |   | 44 |   |
| Taxes                payable                                                                                                                                                                 |   |                                     | 90     |                                    |   | 62 |   |
| Other                accrued liabilities (including amounts to related parties:                2006-$164;                2005-$132)                                                     |   |                                     | 1,394  |                                    |   | 1,215 |   |
| Total                current liabilities                                                                                                                                                     |   |                                     | 1,805  |                                    |   | 1,660 |   |
| Long-term                debt                                                                                                                                                                |   |                                     | 2,164  |                                    |   | 2,083 |   |
| Deferred                revenue                                                                                                                                                              |   |                                     | 209    |                                    |   | 220 |   |
| Litigation-related                and other long-term liabilities                                                                                                                            |   |                                     | 784    |                                    |   | 714 |   |
| Total                liabilities                                                                                                                                                             |   |                                     | 4,962  |                                    |   | 4,677 |   |
| Commitments                and contingencies                                                                                                                                                 |   |                                     |   |                                    |   |   |   |
| Stockholders’                equity                                                                                                                                                    |   |                                     |   |                                    |   |   |   |
| Common                stock                                                                                                                                                                  |   |                                     | 21     |                                    |   | 21 |   |
| Additional                paid-in capital                                                                                                                                                    |   |                                     | 9,881  |                                    |   | 9,263 |   |
| Accumulated                other comprehensive income                                                                                                                                        |   |                                     | 210    |                                    |   | 253 |   |
| Accumulated                deficit, since June 30, 1999                                                                                                                                      |   |                                     | (1,222 | )                                       |   | (2,067 | ) |
| Total                stockholders’ equity                                                                                                                                              |   |                                     | 8,890  |                                    |   | 7,470 |   |
| **Total                liabilities and stockholders’ equity**                                                                                                                          |   | $                                        | 13,852 |                                    | $      | 12,147 |   |

*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***

***Revenue      Recognition***

| ·   | We                recognize revenue from product sales when there is persuasive evidence                that an arrangement exists, title passes, the price is fixed and                determinable, and collectibility is reasonably assured. Allowances                are                established for estimated                rebates, healthcare provider contractual chargebacks, prompt pay                sales                discounts, product returns, wholesaler inventory management incentives,                and bad debts.                In our domestic commercial collaboration agreements, we have primary                responsibility for the United States (or “U.S.”) product sales                commercialization efforts, including selling and marketing, customer                service, order entry, distribution, shipping and billing. We record                net                product sales and related production and selling cost in our income                statement line items on a gross basis since we have the manufacturing                risk                and/or inventory risk, and credit risk, and meet the criteria as                a                principal under Emerging Issues Task Force (or “EITF”)                Issue No. 99-19, *“Reporting                Revenue Gross as a Principal Versus Net as an Agent”*                (or “EITF 99-19”). |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | We                recognize revenue from royalties based on licensees’ sales of our products                or technologies. Royalties are recognized as earned in accordance                with the                contract terms when royalties from licensees can be reasonably estimated                and collectibility is reasonably assured. For the majority of our                royalty                revenues, estimates are made using historical and forecasted sales                trends                and used as a basis to record amounts in advance of amounts                collected. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Contract                revenue generally includes upfront and continuing licensing fees,                manufacturing fees, milestone payments and net reimbursements from                collaborators on development, post-marketing and commercial costs.                Most of                our contract arrangements with up-front license fees were entered                into                prior to the effective date of July 1, 2003 for EITF Issue No. 00-21                *“Revenue                Arrangements with Multiple Deliverables”*                (or “EITF 00-21”). Accordingly, our accounting policy on contract revenue,                as described below, is focused on describing transactions entered                into                prior to the effective date of EITF 00-21. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Nonrefundable                upfront fees, including product opt-ins, for which no further performance                obligations exist, are recognized as revenue on the earlier of when                payments are received or collection is                assured. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Nonrefundable                upfront licensing fees, including product opt-ins, and certain guaranteed,                time-based payments that require our continuing involvement in the                form of                development, manufacturing or other commercialization efforts by                us are                recognized as revenue: |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | ratably                over the development period if development risk is significant,                or |
|--------------------|----------------------------------------------------------------------------------------------------------|

| ·   | ratably                over the manufacturing period or estimated product useful life if                development risk has been substantially                eliminated. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Upfront                manufacturing fees are recognized as revenue as the related manufacturing                services are rendered, generally on a straight-line basis over the                performance period of the longer of the manufacturing obligation                period or                the expected product life. Manufacturing profit is recognized when                the                product is shipped and title                passes. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Fees                associated with substantive milestones, which are contingent upon                future                events for which there is reasonable uncertainty as to their achievement                at the time the agreement was entered into, are                recognized as revenue when these milestones, as defined in the contract,                are achieved. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Multiple                element agreements, or amendments to such agreements, entered into                after                July 1, 2003, are evaluated under the provisions of EITF 00-21. We                evaluate whether there is stand-alone value for the delivered elements                and                objective evidence of fair value to allocate revenue to each element                in                multiple element agreements. When the delivered element does not                have                stand-alone value or there is insufficient evidence of fair value                for the                undelivered element(s), we recognize the consideration for the combined                unit of accounting in the same manner as the revenue is recognized                for the                final deliverable, which is generally ratably over the longest period                of                involvement. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Commercial                collaborations resulting in a net reimbursement of development,                post-marketing and commercial costs are recognized as revenue as                the                related costs are incurred. The corresponding development and                post-marketing expenses are included in research and development                (or                “R&D”) expenses and the corresponding commercial costs are included in                marketing, general and administrative expenses in the Condensed                Consolidated Statements of Income. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Product      Sales Allowances***

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| ·   | Rebate                allowances and accruals are comprised of both direct and indirect                rebates.                Direct rebates are contractual price adjustments payable to wholesalers                and specialty pharmacies that purchase products directly from us.                Indirect                rebates are contractual price adjustments payable to healthcare providers                and organizations, such as clinics, hospitals, pharmacies and group                purchasing organizations that do not purchase products directly from                us.                Both types of allowances are based upon definitive contractual agreements                or legal requirements (such as Medicaid) related to the dispensing                of the                product by a pharmacy, clinic or hospital to a benefit plan participant.                Rebate accruals are recorded in the same period the related revenue                is                recognized resulting in a reduction to product sales revenue and                the                recognition of a contra asset (if due to a wholesaler or specialty                pharmacy) or a liability (if due to a third party, such as a healthcare                provider) as appropriate, which are included in accounts receivable                allowances or other accrued liabilities, respectively. Rebates are                estimated using historical and other data, including patient usage,                customer buying patterns, applicable contractual rebate rates and                contract                performance by the benefit providers. Rebate estimates are evaluated                quarterly and may require adjustments to better align our estimates                with                actual results. As part of this evaluation, we review changes to                Medicaid                legislation, changes to state rebate contracts, changes in the level                of                discounts, and changes in product sales trends. Although rebates                are                accrued at the time of sale, rebates are typically paid out, on average,                up to six months after the sale. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Healthcare                provider contractual chargebacks are the result of contractual commitments                by us to provide products to healthcare providers at specified prices                or                discounts. These contracted health care providers include (i) hospitals                that service a disproportionately high share of economically indigent                and                Medicaid patients for which they receive little or no reimbursement                (i.e.                Disproportionate Share Hospitals or “DSH”), (ii) government-owned                hospitals that receive discounts, and (iii) hospitals that have contract                pricing for certain products usually by way of a group purchasing                agreement. Chargebacks occur when a contracted health care provider                purchases our products through an intermediary wholesaler at fixed                contract prices that are lower than the list prices we charge the                wholesalers. The wholesaler, in turn, charges us back for the difference                between the price initially paid by the wholesaler and the contract                price                paid to the wholesaler by the healthcare providers. Chargebacks are                accrued at the time of sale and are estimated based on historical                trends,                which closely approximate actual results as we generally issue credits                within a few weeks of the time of                sale. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Prompt                pay sales discounts are credits granted to wholesalers for remitting                payment on their purchases within contractually defined cash repayment                incentive periods. The contractually defined cash repayment periods                are                generally 30 days; however, for newly launched products, we have                offered                and we may offer in the future, for a limited period of time, extended                payment terms to wholesalers. In connection with the launch of Lucentis                we                have offered an extended payment terms program to certain of our                wholesalers. This program will be in effect for 12 months ending                June 30,                2007. Based upon our experience that it is rare that a wholesaler                does not                comply with the contractual terms to earn the prompt pay sales discount,                we accrue, at the time of original sale 100% of the prompt pay discounts                related to the sale. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | Wholesaler                inventory management allowances are credits granted to wholesalers                for                compliance with various contractually-defined inventory management                programs. These programs provide monetary incentives in the form                of a                credit for wholesalers to maintain consistent inventory levels at                approximately two to three weeks of sales depending on the product.                These                wholesaler inventory management credits are calculated based on quarterly                product purchases multiplied by a factor to determine the maximum                possible                credit for a product for the preceding quarter. Adjustments to reduce                the                maximum credit are made if the wholesaler does not meet and/or comply                with                the contractually defined metrics. These metrics include data timeliness,                completeness and accuracy and deviations outside of the contracted                inventory days on hand for each product. The maximum credits are                accrued                at the time of sale, and are typically granted to wholesaler accounts                within 90 days after the sale. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Product                returns allowances are established in accordance with our returns                policy,                which allows buyers to return our products within two months prior                to and                six months following product expiration. Most of our products are                sold to                our wholesalers with at least six months of dating prior to expiration.                As                part of our estimation process, we calculate historical return data                on a                production lot basis. Historical rates of return are determined by                product                and are adjusted for known or expected changes in the marketplace                specific                to each product. In addition, we review expiration dates to determine                the                remaining shelf life of each product not yet returned. Although product                return allowances are accrued at the time of sale, the majority of                returns                take place up to two years after the                sale. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Bad                debt allowances are based on our estimated uncollectible accounts                receivable. Given our historical experience with bad debts, combined                with                our credit management policies and practices, we do not presently                maintain                significant bad debt allowances. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Commercial      Collaboration Accounting***

----

***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.”*
*“Accounting      for Income Taxes,”*

***Earnings      Per Share***

*(in      millions)*

|                                                                                                                  |   | **Three                Months****Ended                September 30,** |   | **Nine                Months****Ended                September 30,** |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
|                                                                                                                  |   | **2006**                                                              |   | **2005**                                                             |   | **2006** |   | **2005** |   |
| **Numerator:**                                                                                                        |   |                                                                  |   |                                                                 |   |   |   |   |   |
| Net                income                                                                                             |   | $                                                                     | 568    |                                                                 | $      | 359 |   | $ | 1,519 |   | $ | 940 |   |
| **Denominator:**                                                                                                      |   |                                                                  |   |                                                                 |   |   |   |   |   |   |   |   |   |
| Weighted-average                shares outstanding used to compute basic EPS                                          |   |                                                                  | 1,053  |                                                                 |   | 1,061 |   |   | 1,053 |   |   | 1,055 |   |
| Effect                of dilutive stock options                                                                       |   |                                                                  | 19     |                                                                 |   | 26 |   |   | 21 |   |   | 26 |   |
| Weighted-average                shares outstanding and dilutive securities used to compute diluted                EPS |   |                                                                  | 1,072  |                                                                 |   | 1,087 |   |   | 1,074 |   |   | 1,081 |   |

***Comprehensive      Income***

----

*(in      millions)*

|                                                                       |   | **September                30, 2006** |   | **December                31, 2005** |   |
|----------------------------------------------------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|
| Net                unrealized gains on securities available-for-sale       |   | $                                     | 206    |                                 | $      | 230 |   |
| Net                unrealized gains on cash flow hedges                    |   |                                  | 4      |                                 |   | 23 |   |
| Accumulated                other comprehensive income, net of income taxes |   | $                                     | 210    |                                 | $      | 253 |   |

*(in      millions)*

|                                                                                                   |   | **Three                Months****Ended                September 30,** |   | **Nine                Months****Ended                September 30,** |   |
|--------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
|                                                                                                   |   | **2006**                                                              |   | **2005**                                                             |   | **2006** |   | **2005** |   |
| Net                income                                                                              |   | $                                                                     | 568    |                                                                 | $      | 359 |   | $ | 1,519 |   | $ | 940 |   |
| Increase                (decrease) in unrealized gains on securities                available-for-sale |   |                                                                  | 16     |                                                                 |   | (12 | ) |   | (24 | ) |   | (67 | ) |
| Increase                (decrease) in unrealized gains on cash flow hedges                             |   |                                                                  | 1      |                                                                 |   | (1 | ) |   | (19 | ) |   | 35 |   |
| Comprehensive                income, net of income taxes                                               |   | $                                                                     | 585    |                                                                 | $      | 346 |   | $ | 1,476 |   | $ | 908 |   |

***Derivative      Financial Instruments***

***401(k)      Plan***

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

*“Share-Based      Payment”*
*“Accounting      for Stock Issued to Employees”*

*“Transition      Election Related to Accounting for the Tax Effects of Share-Based Payment      Awards.”*

----

*“Accounting      for Stock-Based Compensation”*

***Employee      Stock Plans***

***Adoption      of FAS 123R***

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

|                                                                                           |   | **Three                Months****Ended****September                30, 2006** |   | **Nine                Months****Ended****September                30, 2006** |   |
|------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------|--------|
| Research                and development                                                        |   | $                                                                             | 35     |                                                                         | $      | 101 |   |
| Marketing,                general and administrative                                           |   |                                                                          | 41     |                                                                         |   | 124 |   |
| Total                employee stock-based compensation expense                                 |   |                                                                          | 76     |                                                                         |   | 225 |   |
| Tax                benefit related to employee stock-based compensation                expense |   |                                                                          | (30    | )                                                                            |   | (84 | ) |
| Net                effect on net income                                                        |   | $                                                                             | 46     |                                                                         | $      | 141 |   |
| Effect                on earnings per share:                                                   |   |                                                                          |   |                                                                         |   |   |   |
| Basic                                                                                          |   | $                                                                             | 0.04   |                                                                         | $      | 0.13 |   |
| Diluted                                                                                        |   | $                                                                             | 0.04   |                                                                         | $      | 0.13 |   |

----

*(In      millions, except for per share data)*

|                                                                                                                                                              |   | **Three                Months****Ended****September                30, 2006** |   | **Nine                Months****Ended****September                30, 2006** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------|--------|
| Net                income as reported                                                                                                                             |   | $                                                                             | 568    |                                                                         | $      | 1,519 |   |
| Deduct: Total                employee stock-based compensation expense includable in cost of sales,                net                of related tax effects |   |                                                                          | (8     | )                                                                            |   | (24 | ) |
| Pro                forma net income                                                                                                                               |   | $                                                                             | 560    |                                                                         | $      | 1,495 |   |
| Earnings                per share:                                                                                                                                |   |                                                                          |   |                                                                         |   |   |   |
| Basic-as                reported                                                                                                                                  |   | $                                                                             | 0.54   |                                                                         | $      | 1.44 |   |
| Basic-pro                forma                                                                                                                                    |   | $                                                                             | 0.53   |                                                                         | $      | 1.42 |   |
|                                                                                                                                                              |   |                                                                          |   |                                                                         |   |   |   |
| Diluted-as                reported                                                                                                                                |   | $                                                                             | 0.53   |                                                                         | $      | 1.41 |   |
| Diluted-pro                forma                                                                                                                                  |   | $                                                                             | 0.52   |                                                                         | $      | 1.39 |   |

***Pro      Forma Information for Periods Prior to Adoption of FAS      123R***

*(In      millions, except for per share data)*

|                                                                                                                                                                                              |   | **Three                Months****Ended****September                30, 2005** |   | **Nine                Months****Ended****September                30, 2005** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------|--------|
| Net                income as reported                                                                                                                                                             |   | $                                                                             | 359    |                                                                         | $      | 940 |   |
| Deduct: Total                employee stock-based compensation expense determined under the fair                value                based method for all awards, net of related tax effects |   |                                                                          | (43    | )                                                                            |   | (126 | ) |
| Pro                forma net income                                                                                                                                                               |   | $                                                                             | 316    |                                                                         | $      | 814 |   |
| Earnings                per share:                                                                                                                                                                |   |                                                                          |   |                                                                         |   |   |   |
| Basic-as                reported                                                                                                                                                                  |   | $                                                                             | 0.34   |                                                                         | $      | 0.89 |   |
| Basic-pro                forma                                                                                                                                                                    |   | $                                                                             | 0.30   |                                                                         | $      | 0.77 |   |
|                                                                                                                                                                                              |   |                                                                          |   |                                                                         |   |   |   |
| Diluted-as                reported                                                                                                                                                                |   | $                                                                             | 0.33   |                                                                         | $      | 0.87 |   |
| Diluted-pro                forma                                                                                                                                                                  |   | $                                                                             | 0.29   |                                                                         | $      | 0.75 |   |

----

***Valuation      Assumptions***

|                                   | **Three                Months****Ended                September 30,** |   | **Nine                Months****Ended                September 30,** |
|----------------------------------------|-----------------------------------------------------------------------|--------|----------------------------------------------------------------------|
|                                   | **2006**                                                              |   | **2005**                                                             |   | **2006** |   | **2005** |
| Risk-free                interest rate | 4.6%                                                   |   | 4.2%                                                  |   | 4.6%    |   | 4.2%    |
| Dividend                yield          | 0.0%                                                   |   | 0.0%                                                  |   | 0.0%    |   | 0.0%    |
| Expected                volatility     | 27%                                                    |   | 29%                                                   |   | 27%    |   | 29%    |
| Expected                term (years)   | 4.6                                |   | 4.2                               |   | 4.6        |   | 4.2        |

***Stock      Option Activity***

*(shares      in millions)*

|                                      |   |                                                |   | **Options                Outstanding** |   |
|-------------------------------------------|--------|-----------------------------------------------------|--------|----------------------------------------|--------|
|                                      |   | **Shares****Available****for                Grant** |   | **Number                of****Shares** |   | **Weighted-****Average****Exercise                Price** |   |
| **December 31,                2005** |   |                                                | 84     |                                   |   | 83 |   | $ | 46.64 |   |
| Grants                                    |   |                                                | (17    | )                                      |   | 17 |   |   | 79.75 |   |
| Exercises                                 |   |                                                | -      |                                   |   | (7 | ) |   | 30.17 |   |
| Cancellations                             |   |                                                | 2      |                                   |   | (2 | ) |   | 60.42 |   |
| **September                30, 2006**     |   |                                                | 69     |                                   |   | 91 |   | $ | 53.80 |   |

----

*(in      millions, except exercise price data)*

|                                                          |   | **Options                Outstanding**                |   | **Options                Exercisable**                                                        |
|---------------------------------------------------------------|--------|-------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------|
| **Range                of****Exercise                Prices** |   | **Number****of                Shares****Outstanding** |   | **Weighted-Average****Remaining****Contractual                Life**(in                years) |   | **Weighted-Average****Exercise                Price** |   | **Number****of                Shares****Outstanding** |   | **Weighted-Average****Remaining****Contractual                Life**(in                years) |   | **Weighted-Average****Exercise                Price** |
| $6.27                - $8.89                                  |   | 0.5                                              |   | 5.15                                                                                     |   | $7.66  |   | 0.5  |   | 5.16  |   | $7.66  |
| $10.00                - $14.35                                |   | 12.0                                             |   | 5.14                                                                                     |   | $13.70  |   | 12.0  |   | 5.15  |   | $13.70  |
| $15.04                - $22.39                                |   | 8.2                                              |   | 4.59                                                                                     |   | $20.84  |   | 8.1  |   | 4.57  |   | $20.87  |
| $22.88                - $33.00                                |   | 0.3                                              |   | 4.72                                                                                     |   | $26.66  |   | 0.3  |   | 4.72  |   | $26.66  |
| $35.63                - $53.23                                |   | 34.0                                             |   | 7.03                                                                                     |   | $46.83  |   | 20.5  |   | 6.62  |   | $45.24  |
| $53.95                - $75.90                                |   | 1.4                                              |   | 8.03                                                                                     |   | $59.22  |   | 0.7  |   | 7.97  |   | $58.30  |
| $78.99                - $98.80                                |   | 34.6                                             |   | 9.44                                                                                     |   | $82.95  |   | 4.3  |   | 8.97  |   | $85.81  |
|                                                          |   | 91.0                                             |   |                                                                                          |   |   |   | 46.4  |   |   |   |   |

***Stock      Repurchase Program***

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

***Inventories***

*(in      millions)*

|                                      |   | **September                30, 2006** |   | **December                31, 2005** |   |
|-------------------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|
| Raw                materials and supplies |   | $                                     | 107    |                                 | $      | 79 |   |
| Work                in process            |   |                                  | 712    |                                 |   | 438 |   |
| Finished                goods             |   |                                  | 244    |                                 |   | 186 |   |
| Total                                     |   | $                                     | 1,063  |                                 | $      | 703 |   |

----

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

----

----

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

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

**Related      Party Transactions **

***Hoffmann-La      Roche***

----

***Novartis***

*“Related      Party Disclosures”*

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

----

**Report      of Independent Registered Public Accounting Firm**

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

|   | /s/ ERNST                & YOUNG LLP |
|--------|-----------------------------------------------|

----

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

**GENENTECH,      INC.**

**FINANCIAL      REVIEW**

**Overview**

***The      Company***

***Major      Developments in the Third Quarter of 2006***

*“Share-Based      Payment”*
** **

*We      received the following U.S. Food and Drug Administration (or “FDA”)      approvals:*

| ·   | Rituxan                for the first-line treatment of previously untreated patients with                follicular,                CD20-positive, B-cell non-Hodgkin’s                lymphoma in combination with CVP (cyclophosphamide, vincristine,                prednisone) chemotherapy; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Rituxan                for the treatment of 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 |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Avastin                for use in combination with carboplatin and paclitaxel chemotherapy                for                the first-line treatment of patients with unresectable, locally advanced,                recurrent or metastatic non-squamous, non-small cell lung cancer                (or                “NSCLC”), which was approved on October 11,                2006. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

***Our      Strategy and Goals***

***Economic      and Industry-wide Factors***

| ·   | Our                long-term business growth, commercial performance and clinical success                depend upon our ability to continue to develop and commercialize                important                novel therapeutics to treat unmet medical needs, such as cancer.                We                recognize that the successful development of biotherapeutics is highly                difficult and uncertain and that it will be challenging for us to                continue                to discover and develop innovative treatments. Our business requires                significant investment in research and development (or “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. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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, new information                about                existing products or pricing decisions made by us or our competitors                may                result in lost market share for us, reduced utilization of our products,                and/or lower prices, even for products protected by                patents. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | 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. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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 2006. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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. However, the future reimbursement                environment for our products is                uncertain. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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.                In                keeping with our desire to maintain and protect our culture, we have                continued our broad-based stock option program in                2006. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**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      *

*Tarceva      *

*Xolair*

*Raptiva*

*Lucentis*

*Nutropin      *
*Nutropin      AQ *

*Activase      *

*TNKase      *

*Cathflo      Activase *

*Pulmozyme      *

**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, Genentech’s                Good Operating Principles (Genentech’s code of ethics applying to our                directors, officers and employees) as well as Genentech’s Code of Ethics                applying to our CEO, CFO and senior financial officials                and; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the                charter of the Audit Committee of our Board of Directors. |
|--------------------|------------------------------------------------------------------------------|

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

***Contingencies***

** **
** **

***Revenue      Recognition***

----

***Product      Sales Allowances***

| ·   | Rebate                allowances and accruals are comprised of both direct and indirect                rebates.                Direct rebates are contractual price adjustments payable to wholesalers                and specialty pharmacies that purchase products directly from us.                Indirect                rebates are contractual price adjustments payable to healthcare providers                and organizations such as clinics, hospitals, pharmacies 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 repayment 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; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Healthcare                provider contractual chargebacks are the result of contractual commitments                by us to provide products to healthcare providers at specified prices                or                discounts; and |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Bad                debt allowances are based on our estimated uncollectible accounts                receivable. |
|--------------------|-----------------------------------------------------------------------------------------------------------------|

----

***Royalties***

***Income      Taxes***

***Inventories***

----

***Employee      Stock-Based Compensation—Adoption of FAS 123R***

----

**Results      of Operations**

*(In      millions, except for per share data)*

|                                                                              |   | **Three                Months****Ended                September 30,** |   |     |   |  **Nine                Months****Ended                September 30,** |   |           |   |
|-----------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|----------|--------|----------------------------------------------------------------------------|--------|----------------|--------|
|                                                                              |   | **2006**                                                              |   | **2005** |   | **% Change**                                                          |   |  **2006** |   | **2005** |   | **% Change** |   |
| Product                sales                                                      |   | $                                                                     | 1,941  |     | $      | 1,451                                                                      |   |           | 34     | % | $ | 5,395 |   | $ | 3,911 |   |   | 38 | % |
| Royalties                                                                         |   |                                                                  | 364    |     |   | 238                                                                        |   |           | 53     |   |   | 966 |   |   | 670 |   |   | 44 |   |
| Contract                revenue                                                   |   |                                                                  | 79     |     |   | 63                                                                         |   |           | 25     |   |   | 208 |   |   | 159 |   |   | 31 |   |
| Total                operating revenues                                           |   |                                                                  | 2,384  |     |   | 1,752                                                                      |   |           | 36     |   |   | 6,569 |   |   | 4,740 |   |   | 39 |   |
|                                                                              |   |                                                                  |   |     |   |                                                                       |   |           |   |   |   |   |   |   |   |   |   |   |   |
| Cost                of sales                                                      |   |                                                                  | 297    |     |   | 236                                                                        |   |           | 26     |   |   | 843 |   |   | 766 |   |   | 10 |   |
| Research                and development                                           |   |                                                                  | 454    |     |   | 329                                                                        |   |           | 38     |   |   | 1,218 |   |   | 850 |   |   | 43 |   |
| Marketing,                general and administrative                              |   |                                                                  | 501    |     |   | 343                                                                        |   |           | 46     |   |   | 1,414 |   |   | 1,006 |   |   | 41 |   |
| Collaboration                profit sharing                                       |   |                                                                  | 250    |     |   | 220                                                                        |   |           | 14     |   |   | 735 |   |   | 595 |   |   | 24 |   |
| Recurring                charges related to redemption                            |   |                                                                  | 26     |     |   | 27                                                                         |   |           | (4     | ) |   | 79 |   |   | 96 |   |   | (18 | ) |
| Special                items: litigation-related                             |   |                                                                  | 13     |     |   | 14                                                                         |   |           | (7     | ) |   | 40 |   |   | 44 |   |   | (9 | ) |
| Total                costs and expenses                                           |   |                                                                  | 1,541  |     |   | 1,169                                                                      |   |           | 32     |   |   | 4,329 |   |   | 3,357 |   |   | 29 |   |
|                                                                              |   |                                                                  |   |     |   |                                                                       |   |           |   |   |   |   |   |   |   |   |   |   |   |
| Operating                income                                                   |   |                                                                  | 843    |     |   | 583                                                                        |   |           | 45     |   |   | 2,240 |   |   | 1,383 |   |   | 62 |   |
|                                                                              |   |                                                                  |   |     |   |                                                                       |   |           |   |   |   |   |   |   |   |   |   |   |   |
| Other                income (expense):                                            |   |                                                                  |   |     |   |                                                                       |   |           |   |   |   |   |   |   |   |   |   |   |   |
| Interest                and other income, net                                     |   |                                                                  | 74     |     |   | 42                                                                         |   |           | 76     |   |   | 249 |   |   | 98 |   |   | 154 |   |
| Interest                expense                                                   |   |                                                                  | (19    | )        |   | (20                                                                        | )      |           | (5     | ) |   | (56 | ) |   | (27 | ) |   | 107 |   |
| Total                other income, net                                            |   |                                                                  | 55     |     |   | 22                                                                         |   |           | 150    |   |   | 193 |   |   | 71 |   |   | 172 |   |
|                                                                              |   |                                                                  |   |     |   |                                                                       |   |           |   |   |   |   |   |   |   |   |   |   |   |
| Income                before taxes                                                |   |                                                                  | 898    |     |   | 605                                                                        |   |           | 48     |   |   | 2,433 |   |   | 1,454 |   |   | 67 |   |
| Income                tax provision                                               |   |                                                                  | 330    |     |   | 246                                                                        |   |           | 34     |   |   | 914 |   |   | 514 |   |   | 78 |   |
| Net                income                                                         |   | $                                                                     | 568    |     | $      | 359                                                                        |   |           | 58     |   | $ | 1,519 |   | $ | 940 |   |   | 62 |   |
|                                                                              |   |                                                                  |   |     |   |                                                                       |   |           |   |   |   |   |   |   |   |   |   |   |   |
| Earnings                per share:                                                |   |                                                                  |   |     |   |                                                                       |   |           |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                             |   | $                                                                     | 0.54   |     | $      | 0.34                                                                       |   |           | 59     |   | $ | 1.44 |   | $ | 0.89 |   |   | 62 |   |
| Diluted                                                                           |   | $                                                                     | 0.53   |     | $      | 0.33                                                                       |   |           | 61     |   | $ | 1.41 |   | $ | 0.87 |   |   | 62 |   |
|                                                                              |   |                                                                  |   |     |   |                                                                       |   |           |   |   |   |   |   |   |   |   |   |   |   |
| Pretax                operating margin                                            |   |                                                                  | 35     | %        |   | 33                                                                         | %      |           |   |   |   | 34 | % |   | 29 | % |   |   |   |
| Cost                of sales as a % of product sales                              |   |                                                                  | 15     |     |   | 16                                                                         |   |           |   |   |   | 16 |   |   | 20 |   |   |   |   |
| Research                and development as a % of operating revenues              |   |                                                                  | 19     |     |   | 19                                                                         |   |           |   |   |   | 19 |   |   | 18 |   |   |   |   |
| Marketing,                general and administrative as a % of operating revenues |   |                                                                  | 21     |     |   | 20                                                                         |   |           |   |   |   | 22 |   |   | 21 |   |   |   |   |
| Net                income as a % of operating revenues                            |   |                                                                  | 24     |     |   | 20                                                                         |   |           |   |   |   | 23 |   |   | 20 |   |   |   |   |

| 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                September 30,** |   |     |   |  **Nine                Months****Ended                September 30,** |   |           |   |
|---------------------------------------------------|--------|-----------------------------------------------------------------------|--------|----------|--------|----------------------------------------------------------------------------|--------|----------------|--------|
|                                              |   | **2006**                                                              |   | **2005** |   | **% Change**                                                          |   |  **2006** |   | **2005** |   | **% Change** |   |
| Net                U.S. Product Sales             |   |                                                                  |   |     |   |                                                                       |   |      |   |   |   |   |   |
| Avastin                                           |   | $                                                                     | 435    |     | $      | 325                                                                        |   |           | 34     | % | $ | 1,256 |   | $ | 774 |   |   | 62 | % |
| Rituxan                                           |   |                                                                  | 509    |     |   | 456                                                                        |   |           | 12     |   |   | 1,511 |   |   | 1,347 |   |   | 12 |   |
| Herceptin                                         |   |                                                                  | 302    |     |   | 215                                                                        |   |           | 40     |   |   | 912 |   |   | 497 |   |   | 84 |   |
| Lucentis                                          |   |                                                                  | 153    |     |   | -                                                                          |   |           | -      |   |   | 163 |   |   | - |   |   | - |   |
| Tarceva                                           |   |                                                                  | 100    |     |   | 73                                                                         |   |           | 37     |   |   | 296 |   |   | 191 |   |   | 55 |   |
| Xolair                                            |   |                                                                  | 107    |     |   | 82                                                                         |   |           | 30     |   |   | 307 |   |   | 227 |   |   | 35 |   |
| Raptiva                                           |   |                                                                  | 23     |     |   | 21                                                                         |   |           | 10     |   |   | 66 |   |   | 59 |   |   | 12 |   |
| Nutropin                products                  |   |                                                                  | 92     |     |   | 89                                                                         |   |           | 3      |   |   | 277 |   |   | 276 |   |   | 0 |   |
| Thrombolytics                                     |   |                                                                  | 60     |     |   | 58                                                                         |   |           | 3      |   |   | 181 |   |   | 160 |   |   | 13 |   |
| Pulmozyme                                         |   |                                                                  | 50     |     |   | 47                                                                         |   |           | 6      |   |   | 146 |   |   | 137 |   |   | 7 |   |
| Total                U.S. product sales           |   |                                                                  | 1,830  |     |   | 1,365                                                                      |   |           | 34     |   |   | 5,116 |   |   | 3,668 |   |   | 39 |   |
|                                              |   |                                                                  |   |     |   |                                                                       |   |           |   |   |   |   |   |   |   |   |   |   |   |
| Net                product sales to collaborators |   |                                                                  | 111    |     |   | 86                                                                         |   |           | 29     |   |   | 280 |   |   | 243 |   |   | 15 |   |
| Total                product sales                |   | $                                                                     | 1,941  |     |   | 1,451                                                                      |   |           | 34     |   | $ | 5,395 |   |   | 3,911 |   |   | 38 |   |

| The                values shown above are exact, which may lead to the appearance of                footing                errors. |
|------------------------------------------------------------------------------------------------------------------------------------|

** **

*Avastin*

----

*Rituxan*

*Herceptin*

*Lucentis*

----

*Tarceva*

*Xolair*

*Raptiva*

*Nutropin      Products*

*Thrombolytics*

*Pulmozyme*

*Sales      to Collaborators*

----

***Royalties***

***Contract      Revenues***

***Cost      of Sales***

----

***Research      and Development***

*(in      millions)*

|                                                          |   | **Three                Months****Ended                September 30,** |   |     |   |  **Nine                Months****Ended                September 30,** |   |           |   |
|---------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|----------|--------|----------------------------------------------------------------------------|--------|----------------|--------|
| **Research                and Development**                   |   | **2006**                                                              |   | **2005** |   | **% Change**                                                          |   |  **2006** |   | **2005** |   | **% Change** |   |
| Product                development (including post marketing) |   | $                                                                     | 316    |     | $      | 266                                                                        |   |           | 19     | % | $ | 900 |   | $ | 652 |   |   | 38 | % |
| Research                                                      |   |                                                                  | 83     |     |   | 51                                                                         |   |           | 63     |   |   | 232 |   |   | 160 |   |   | 45 |   |
| In-licensing                                                  |   |                                                                  | 55     |     |   | 12                                                                         |   |           | 358    |   |   | 86 |   |   | 38 |   |   | 126 |   |
| Total                R&D                                  |   | $                                                                     | 454    |     | $      | 329                                                                        |   |           | 38     |   | $ | 1,218 |   | $ | 850 |   |   | 43 |   |

***Marketing,      General and Administrative***

----

***Collaboration      Profit Sharing***

***Recurring      Charges Related to Redemption***

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

***Operating      Income***

***Other      Income, Net***

|                                                                       |   | **Three                Months****Ended                September 30,** |   |     |   |  **Nine                Months****Ended                September 30,** |   |           |   |
|----------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|----------|--------|----------------------------------------------------------------------------|--------|----------------|--------|
| **Other                Income, Net**                                       |   | **2006**                                                              |   | **2005** |   | **% Change**                                                          |   |  **2006** |   | **2005** |   | **% Change** |   |
|                                                                       |   | *(In                millions)*                                        |   |
| Gains                on sales of biotechnology equity securities and other |   | $                                                                     | 11     |     | $      | 4                                                                          |   |           | 175    | % | $ | 81 |   | $ | 4 |   |   | * | % |
| Write-downs                of biotechnology debt and equity securities     |   |                                                                  | (1     | )        |   | (2                                                                         | )      |           | (50    | ) |   | (1 | ) |   | (5 | ) |   | (80 | ) |
| Interest                income                                             |   |                                                                  | 64     |     |   | 40                                                                         |   |           | 60     |   |   | 166 |   |   | 99 |   |   | 68 |   |
| Interest                expense                                            |   |                                                                  | (19    | )        |   | (20                                                                        | )      |           | (5     | ) |   | (56 | ) |   | (27 | ) |   | 107 |   |
| Other                miscellaneous income                                  |   |                                                                  | -      |     |   | -                                                                          |   |           | -      |   |   | 3 |   |   | - |   |   | * |   |
| Total                other income, net                                     |   | $                                                                     | 55     |     | $      | 22                                                                         |   |           | 150    |   | $ | 193 |   | $ | 71 |   |   | 172 |   |

| * | Calculation                not meaningful. |
|---|--------------------------------------------|

----

***Income      Tax Provision***

**Liquidity      and Capital Resources**

| **Liquidity                and Capital Resources**                                                                                                                                            |   | **September                30,****2006** |   | **December 31,****2005** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|-------------------------------|--------|
|                                                                                                                                                                                          |   | *(In                millions)*           |   |
| Unrestricted                cash, cash equivalents, short-term investments and long-term marketable                debt and equity securities                                                 |   | $                                        | 3,891  |                          | $      | 3,814 |   |
| Net                receivable - equity hedge instruments                                                                                                                                      |   |                                     | 70     |                          |   | 73 |   |
| Total                unrestricted cash, cash equivalents, short-term investments, long-term                marketable debt and equity securities, and equity hedge                instruments |   | $                                        | 3,961  |                          | $      | 3,887 |   |
| Working                capital                                                                                                                                                                |   | $                                        | 3,100  |                          | $      | 2,726 |   |
| Current                ratio                                                                                                                                                                  |   |                                     | 2.7:1  |                          |   | 2.6:1 |   |

----

***Cash      Provided by Operating Activities***

***Cash      Used in Investing Activities***

***Cash      Used in or Provided by Financing Activities***

----

*      (shares in millions)*

|                                |   | **Total                Number of SharesPurchased in 2006** |   | **Average                Price Paid****per                Share** |   |
|-------------------------------------|--------|------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|
| January                1-31, 2006   |   |                                                       | 0.9    |                                                              | $      | 88.37 |   |
| February                1-28, 2006  |   |                                                       | 0.7    |                                                              |   | 85.31 |   |
| March                1-31, 2006     |   |                                                       | 1.0    |                                                              |   | 84.24 |   |
| April                1-30, 2006     |   |                                                       | 0.7    |                                                              |   | 80.31 |   |
| May                1-31, 2006       |   |                                                       | 2.1    |                                                              |   | 78.83 |   |
| June                1-30, 2006      |   |                                                       | 1.2    |                                                              |   | 79.30 |   |
| July                1-31, 2006      |   |                                                       | 0.9    |                                                              |   | 79.39 |   |
| August                1-31, 2006    |   |                                                       | 0.9    |                                                              |   | 80.89 |   |
| September                1-30, 2006 |   |                                                       | 0.9    |                                                              |   | 79.84 |   |
| Total                               |   |                                                       | 9.3    |                                                              | $      | 81.38 |   |

**Off-Balance      Sheet Arrangements**

----

***Leases***

***Contractual      Obligations***

**Contingencies**

**Relationship      with Roche**

***Redemption      of Our Special Common Stock***

***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***

***Novartis***

*“Related      Party Disclosures”*

----

** **

**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,                2004**            |   |                                                            | 102    |                                   |   | 94 |   | $ | 32.32 |   |
| Grants                                               |   |                                                            | (20    | )                                      |   | 20 |   |   | 84.01 |   |
| Exercises                                            |   |                                                            | -      |                                   |   | (29 | ) |   | 25.88 |   |
| Cancellations                                        |   |                                                            | 2      |                                   |   | (2 | ) |   | 42.16 |   |
| **December 31,                2005**            |   |                                                            | 84     |                                   |   | 83 |   | $ | 46.64 |   |
| Grants                                               |   |                                                            | (17    | )                                      |   | 17 |   |   | 79.75 |   |
| Exercises                                            |   |                                                            | -      |                                   |   | (7 | ) |   | 30.17 |   |
| Cancellations                                        |   |                                                            | 2      |                                   |   | (2 | ) |   | 60.42 |   |
| **September                30, 2006 (Year to date)** |   |                                                            | 69     |                                   |   | 91 |   | $ | 53.80 |   |

----

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

*(Shares      in millions)*

|                                        |   | **Exercisable** |   | **Unexercisable**                         |   | **Total**  |   |
|---------------------------------------------|--------|-----------------|--------|-------------------------------------------|--------|------------|--------|
| **As                of September 30, 2006** |   | **Shares**      |   | **Weighted-Average****Exercise****Price** |   | **Shares** |   | **Weighted-Average****Exercise****Price** |   | **Shares** |   | **Weighted-Average****Exercise****Price** |   |
| In-the-Money                                |   |            | 42     |                                      | $      | 31.45      |   |   | 31 |   | $ | 65.47 |   |   | 73 |   | $ | 45.83 |   |
| Out-of-the-Money(1)                         |   |            | 4      |                                      | $      | 86.01      |   |   | 14 |   | $ | 86.38 |   |   | 18 |   | $ | 86.30 |   |
| Total                Options Outstanding    |   |            | 46     |                                      |   |       |   |   | 45 |   |   |   |   |   | 91 |   |   |   |   |

| (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, $82.70, at the close                of                business on September 29, 2006. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***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**

| ·   | 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                Licensing 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 sufficient data for us to make a positive development                decision or that an external candidate will be available on terms                acceptable to us. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | In-licensing                activities, including the timing and amount of related development                funding                or milestone payments. 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 required approvals as described                in “The successful development of biotherapeutics is highly uncertain                and                requires significant expenditures”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. |
|--------------------|--------------------------------------------------------------------------------------------------|

| ·   | Changes                to manufacturing processes, manufacturing process standards or Good                Manufacturing Practices following approval or changing interpretations                of                these factors. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**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                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 could                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 due                to                regulatory issues; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a                contract manufacturer going out of business or failing to produce                product                as contractually required; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | other                similar factors. |
|--------------------|---------------------------------------|

**We      face competition**

*Avastin:*

*Rituxan: *

----

*Herceptin: *

*Lucentis:*

*Tarceva: *

*Xolair: *

*Raptiva: *

*Nutropin:*

*Thrombolytics:*

*Pulmozyme: *

----

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

**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**

----

**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                program to cap the overall expense of Avastin to $55,000 per year                per                eligible patient for any FDA approved                indication. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| ·   | 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**

| ·   | 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. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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 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. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | Decreases                in licensees’ sales of product due to competition, manufacturing                difficulties or other factors that affect the sales of                product. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

**Our      affiliation agreement with Roche 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                effectiveness 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 we have adopted or may adopt, including our program to                cap the                overall expense of Avastin to $55,000 per year per eligible patient                for                any FDA-approved indication. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**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 program to cap the overall expense of Avastin to $55,000 per                year per                eligible patient for any FDA-approved indication), 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,”*

*“Share-Based      Payment”*

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

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

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

*      (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** |   |
|-------------------------------------|--------|-----------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| July                1-31, 2006      |   |                                                                  | 0.9    |                                                              | $      | 79.39                                                                                                                                                        |   |                                                                                                                                                       |   |   |   |   |   |
| August                1-31, 2006    |   |                                                                  | 0.9    |                                                              |   | 80.89                                                                                                                                                        |   |                                                                                                                                                       |   |   |   |   |   |
| September                1-30, 2006 |   |                                                                  | 0.9    |                                                              |   | 79.84                                                                                                                                                        |   |                                                                                                                                                       |   |   |   |   |   |
| Total                               |   |                                                                  | 2.7    |                                                              | $      | 80.06                                                                                                                                                        |   |                                                                                                                                                       | 59     |   |   | 41 |   |

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

| **Exhibit                No.** | **Description**                                                                                                                                                                                                                                  | **Location**                                                                                                                                                                                           |
|--------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1                      | Form                of Genentech, Inc. 2004 Equity Incentive Plan Nonqualified Stock                Option                Grant Agreement (Employee Version)                                                                                | Filed                on a Current Report on Form 8-K with the U.S. Securities and Exchange                Commission on September 26, 2006, and incorporated herein by                reference.  |
| 10.2                      | Form                of Genentech, Inc. 2004 Equity Incentive Plan Nonqualified Stock                Option                Grant Agreement (Director Version)                                                                                | Filed                on a Current Report on Form 8-K with the U.S. Securities and Exchange                Commission on September 26, 2006, and incorporated herein by                reference.  |
| 10.3                      | 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:  | October                30, 2006 |   | /s/ARTHUR                D. LEVINSON                                                                              |
|   |                            |   | Arthur                D. Levinson, Ph.D.Chairman                and Chief Executive Officer                       |
|   |                            |   |                                                                                                              |
|   |                            |   |                                                                                                              |
| Date:  | October                30, 2006 |   | /s/DAVID                A. EBERSMAN                                                                               |
|   |                            |   | David                A. EbersmanExecutive                Vice President andChief                Financial Officer |
|   |                            |   |                                                                                                              |
|   |                            |   |                                                                                                              |
| Date:  | October                30, 2006 |   | /s/JOHN                M. WHITING                                                                                 |
|   |                            |   | John                M. WhitingVice                President - Finance andChief                Accounting Officer  |

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