<PAGE>


                                UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                            Washington, DC  20549

                                  FORM 10-Q

(Mark One)

X   Quarterly report pursuant to Section 13 or 15(d) of the Securities
    Exchange Act of 1934.  For the quarterly period ended September 30, 2001.

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


                            Commission File Number
                                    1-9813

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

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

             1 DNA Way, South San Francisco, California 94080-4990
             (Address of principal executive offices and zip code)

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

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

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

Class                                       Number of Shares Outstanding
-----                                       ---------------------------------
Common Stock $0.02 par value                527,203,090
                                            Outstanding at September 30, 2001




<PAGE>


                               GENENTECH, INC.
                                    INDEX

<TABLE>
<CAPTION>

                                                                                     PAGE NO.
<S>                                                                                  <C>

PART I.  FINANCIAL INFORMATION

         Item 1.  Financial Statements

             Condensed Consolidated Statements of Operations -
             for the three months and nine months ended
             September 30, 2001 and 2000...........................................       3

             Condensed Consolidated Statements of Cash Flows -
             for the nine months ended September 30, 2001 and 2000.................       4

             Condensed Consolidated Balance Sheets -
             September 30, 2001 and December 31, 2000..............................       5

             Notes to Condensed Consolidated Financial Statements..................    6-15

             Independent Accountants' Review Report................................      16

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

             Financial Review......................................................   17-37

         Item 3.  Quantitative and Qualitative Disclosures About Market Risk.......      38


PART II. OTHER INFORMATION

         Item 1.  Legal Proceedings................................................      39

         Item 6.  Exhibits and Reports on Form 8-K.................................      39

         Signatures................................................................      40

</TABLE>

In this report, "Genentech," "we," "us" and "our" refer to Genentech, Inc.
"Common Stock" refers to Genentech's common stock, par value $0.02 per share,
"Special Common Stock" refers to Genentech's callable putable common stock,
par value $0.02 per share.  All numbers related to the number of shares,
price per share and per share amounts of Common Stock and Special Common
Stock give effect to the two-for-one split of our Common Stock that was
effected in October 2000.

We own or have rights to various copyrights, trademarks and trade names used
in our business including the following: Actimmune, registered trademark,
interferon gamma-1b; Activase, registered trademark, (Alteplase, recombinant)
tissue-plasminogen activator; Avastin, trademark, (Bevacizumab) anti-VEGF
antibody; Cathflo, trademark, (Alteplase for catheter clearance); Herceptin,
registered trademark, (Trastuzumab) anti-HER2 antibody; Nutropin, registered
trademark, (somatropin (rDNA origin) for injection) growth hormone; Nutropin
AQ, registered trademark, (somatropin (rDNA origin) injection) liquid
formulation growth hormone; Nutropin AQ Pen, trademark, (pen injector for
Nutropin AQ); Nutropin Depot, registered trademark, (somatropin (rDNA origin)
for injectable suspension) encapsulated sustained-release growth hormone;
Protropin, registered trademark, (somatrem for injection) growth hormone;
Pulmozyme, registered trademark, (dornase alfa, recombinant) inhalation
solution; TNKase, trademark, (Tenecteplase) single-bolus thrombolytic agent;
Xanelim, trademark, (Efalizumab) anti-CD11a antibody.  Rituxan, registered
trademark, (Rituximab) anti-CD20 antibody is a registered trademark of IDEC
Pharmaceuticals Corporation; Tarceva, trademark, (Erlotinib) is a trademark
of OSI Pharmaceuticals, Inc.; Tracleer, trademark, (Bosentan) is a trademark
of Actelion Ltd; Xolair, trademark, (Omalizumab) anti-Ige antibody is a
trademark of Novartis AG; Veletri, trademark, (Tezosentan) is a trademark of
Actelion Ltd.  This report also includes trademarks, service marks and trade
names of other companies.



                                    Page 2

<PAGE>


                        PART I.  FINANCIAL INFORMATION

Item 1.    Financial Statements

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                   (in thousands, except per share amounts)
                                  (unaudited)

<TABLE>
<CAPTION>

                                                                       Three Months            Nine Months
                                                                    Ended September 30,    Ended September 30,
                                                                    -------------------    -----------------------
                                                                      2001       2000         2001         2000
                                                                    --------   --------    ----------   ----------
                                                                              (Restated)                (Restated)
<S>                                                                 <C>        <C>         <C>          <C>
Revenues:
  Product sales (including amounts from related parties:
    three months - 2001-$16,550; 2000-$15,794;
    nine months - 2001-$54,852; 2000-$57,560)                       $448,700   $334,173    $1,250,862   $  926,765
  Royalties (including amounts from related parties:
    three months - 2001-$18,462; 2000-$11,242;
    nine months - 2001-$59,882; 2000-$33,068)                         66,051     51,818       193,128      148,805
  Contract and other (including amounts from related parties:
    three months - 2001-$913; 2000-$417;
    nine months - 2001-$3,598; 2000-$2,478)                            8,941     35,637        68,359      105,998
  Interest                                                            32,473     25,712        99,772       69,448
                                                                    --------   --------    ----------   ----------
     Total revenues                                                  556,165    447,340     1,612,121    1,251,016

Costs and expenses:
  Cost of sales (including amounts from related parties:
    three months - 2001-$13,831; 2000-$13,412;
    nine months - 2001-$45,883; 2000-$48,740)                         96,030     91,356       256,013      295,148
  Research and development (including contract related:
    three months - 2001-$1,457; 2000-$2,686;
    nine months - 2001-$7,172; 2000-$13,357)                         128,195    113,636       387,984      340,605
  Marketing, general and administrative                              109,365     94,087       345,084      263,960
  Collaboration profit sharing                                        65,796     37,639       170,077       86,870
  Recurring charges related to redemption                             79,404     97,780       242,411      294,399
  Interest                                                             1,719      1,175         4,554        3,701
                                                                    --------   --------    ----------   ----------
    Total costs and expenses                                         480,509    435,673     1,406,123    1,284,683

Income (loss) before taxes and cumulative effect of
  accounting change                                                   75,656     11,667       205,998      (33,667)
Income tax provision (benefit)                                        32,915      5,907        92,220       (1,951)
                                                                    --------   --------    ----------   ----------
Income (loss) before cumulative effect of accounting change           42,741      5,760       113,778      (31,716)
Cumulative effect of accounting change, net of tax                         -          -        (5,638)     (57,800)
                                                                    --------   --------    ----------   ----------
Net income (loss)                                                   $ 42,741   $  5,760    $  108,140   $  (89,516)
                                                                    ========   ========    ==========   ==========
Earnings (loss) per share:
    Basic: Earnings (loss) before cumulative effect of
             accounting change                                      $   0.08   $   0.01    $     0.22   $    (0.06)
           Cumulative effect of accounting change, net of tax              -          -         (0.01)       (0.11)
                                                                    --------   --------    ----------   ----------
           Net earnings (loss) per share                            $   0.08   $   0.01    $     0.21   $    (0.17)
                                                                    ========   ========    ==========   ==========
    Diluted: Earnings (loss) before cumulative effect of
             accounting change                                      $   0.08   $   0.01    $     0.21   $    (0.06)
           Cumulative effect of accounting change, net of tax              -          -         (0.01)       (0.11)
                                                                    --------   --------    ----------   ----------
           Net earnings (loss) per share                            $   0.08   $   0.01    $     0.20   $    (0.17)
                                                                    ========   ========    ==========   ==========
Weighted average shares used to compute earnings (loss) per share:
    Basic                                                            527,328    522,928       526,709      521,097
                                                                    ========   ========    ==========   ==========
    Diluted                                                          533,670    541,483       534,783      521,097
                                                                    ========   ========    ==========   ==========

</TABLE>

           See Notes to Condensed Consolidated Financial Statements.



                                    Page 3

<PAGE>


               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (thousands)
                                  (unaudited)


<TABLE>
<CAPTION>

                                                                     Nine Months
                                                                 Ended September 30,
                                                                ---------------------
                                                                   2001        2000
                                                                ---------   ---------
                                                                            (Restated)
<S>                                                             <C>         <C>
Cash flows from operating activities:
  Net income (loss)                                             $ 108,140   $ (89,516)
  Adjustments to reconcile net income (loss) to net
   cash provided by (used in) operating activities:
     Depreciation and amortization                                318,895     358,325
     Deferred income taxes                                         20,834    (150,828)
     Gain on sales of securities available-for-sale               (27,494)    (84,046)
     Loss on sales of securities available-for-sale                 1,989       2,570
     Write-down of securities available-for-sale                   22,180           -
     Loss on property and equipment dispositions                    1,006         129

  Changes in assets and liabilities:
     Investments in trading securities                            (83,840)    (13,884)
     Receivables and other current assets                         (40,715)    (35,893)
     Inventories, including inventory write-up effect in 2000     (71,531)     37,412
     Accounts payable, other current liabilities and other
       long-term liabilities                                       68,302      40,447
                                                                ---------   ---------
  Net cash provided by operating activities                       317,766      64,716

Cash flows from investing activities:
  Purchases of securities available-for-sale                   (1,022,169)   (453,077)
  Proceeds from sales of securities available-for-sale            696,500     389,165
  Purchases of non-marketable equity securities                   (10,830)     (4,855)
  Capital expenditures                                           (118,753)    (78,999)
  Change in other assets                                              311     (20,935)
  Transfer to restricted cash included in other assets            (61,417)          -
                                                                ---------   ---------
  Net cash used in investing activities                          (516,358)   (168,701)

Cash flows from financing activities:
  Stock issuances                                                  73,771     150,388
  Stock repurchases                                               (34,034)          -
                                                                ---------   ---------
  Net cash provided by financing activities                        39,737     150,388
                                                                ---------   ---------
Net (decrease) increase in cash and cash equivalents             (158,855)     46,403
  Cash and cash equivalents at beginning of period                551,384     337,682
                                                                ---------   ---------
  Cash and cash equivalents at end of period                    $ 392,529   $ 384,085
                                                                =========   =========

</TABLE>


          See Notes to Condensed Consolidated Financial Statements.



                                    Page 4

<PAGE>


                    CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (thousands)

<TABLE>
<CAPTION>

                                                      September 30,    December 31,
                                                           2001           2000(1)
                                                       (unaudited)
                                                      -------------    ------------
<S>                                                   <C>              <C>
ASSETS
Current assets:
  Cash and cash equivalents                           $    392,529     $    551,384
  Short-term investments                                 1,107,914          642,475
  Accounts receivable, net (including amounts
      from related party: 2001-$49,550; 2000-$36,299)      309,054          261,682
  Inventories                                              340,069          265,830
  Deferred tax assets                                       42,379           40,619
  Prepaid expenses and other current assets                 38,540           26,821
                                                      ------------     ------------
     Total current assets                                2,230,485        1,788,811

Long-term marketable securities                          1,022,419        1,265,515
Property, plant and equipment (net of accumulated          797,146          752,892
  depreciation: 2001-$669,202; 2000-$604,332)
Goodwill (net of accumulated amortization:
  2001-$958,458; 2000-$843,494)                          1,340,814        1,455,778
Other intangible assets (net of accumulated
  amortization: 2001-$1,414,289; 2000-$1,282,090)        1,154,469        1,280,359
Other long-term assets                                     320,300          168,458
                                                      ------------     ------------
Total assets                                          $  6,865,633     $  6,711,813
                                                      ============     ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term debt                   $    149,692     $          -
  Accounts payable                                          24,304           34,503
  Other accrued liabilities (including amounts to
    related party: 2001-$6,989; 2000-$12,265)              469,793          414,178
                                                      ------------     ------------
     Total current liabilities                             643,789          448,681

Long-term debt                                                   -          149,692
Deferred tax liabilities                                   344,062          349,848
Other long-term liabilities                                 69,935           89,389
                                                      ------------     ------------
     Total liabilities                                   1,057,786        1,037,610

Commitments and contingencies

Stockholders' equity:
  Preferred stock                                                -                -
  Common stock                                              10,544           10,510
  Additional paid-in capital                             6,741,038        6,651,428
  Accumulated deficit, since June 30, 1999              (1,235,011)      (1,319,353)
  Accumulated other comprehensive income                   291,276          331,618
                                                      ------------     ------------
     Total stockholders' equity                          5,807,847        5,674,203
                                                      ------------     ------------
Total liabilities and stockholders' equity            $  6,865,633     $  6,711,813
                                                      ============     ============

</TABLE>

(1) Amounts obtained from audited financial statements.


          See Notes to Condensed Consolidated Financial Statements.



                                    Page 5

<PAGE>


             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 (unaudited)


Note 1.     Statement of Accounting Presentation and Significant Accounting
            Policies

Basis of Presentation

In the opinion of management, the accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X.  Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in the
United States for complete financial statements.  In the opinion of
management, all adjustments (consisting only of adjustments of a normal
recurring nature) considered necessary for a fair presentation have been
included.  Operating results for the three- and nine-month periods ended
September 30, 2001 and 2000 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2001.  The condensed
consolidated balance sheet as of December 31, 2000 has been derived from the
audited financial statements as of that date.  For further information, refer
to the consolidated financial statements and notes thereto included in our
Annual Report to Stockholders on Form 10-K for the year ended December 31,
2000.

Collaboration Profit Sharing:  Collaboration profit sharing includes the net
operating profit sharing with IDEC Pharmaceuticals Corporation on Rituxan
sales, and the sharing of costs with collaborators related to the
commercialization and development of future products.

Other Assets:  Under certain lease agreements, we may be required from time
to time to set aside cash as collateral.  At September 30, 2001, other assets
included $118.0 million of restricted cash related to such lease agreements.

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

Changes in Accounting Principles

Securities and Exchange Commission's Staff Accounting Bulletin No. 101 (SAB
101):  We adopted the Securities and Exchange Commission's Staff Accounting
Bulletin No. 101 on revenue recognition in the fourth quarter of 2000,
effective January 1, 2000, and recorded a $57.8 million charge, net of tax,
as a cumulative effect of the change in accounting principle.  The cumulative
effect was recorded as deferred revenue that will be recognized as revenue
over the remaining term of the research and development collaboration or
distribution agreements, as appropriate.  The results for the three- and
nine-months ended September 30, 2000 were restated to reflect the effects of
the accounting change.  For the quarter ended September 30, 2000, the impact
of the change in accounting principle was to increase net income by $1.3
million (net of tax) of the related deferred revenue recognized as revenue
during the quarter (less than $0.01 per share).  For the nine months ended
September 30, 2000, the impact of the change in accounting principle was to



                                    Page 6

<PAGE>


increase net loss by $53.9 million, or ($0.10) per share, comprised of the
$57.8 million cumulative effect of the change (net of tax) as described above
($0.11 per share), net of $3.9 million of the related deferred revenue (net
of tax) that was recognized as revenue during the nine months ended September
30, 2000 ($0.01 per share). For the three- and nine-month periods ended
September 30, 2001, we recognized $2.3 million (net of tax) and $10.5 million
(net of tax) respectively, of the related deferred revenue.

Statement of Financial Accounting Standards No. 133 (FAS 133):  In June 1998,
the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities."  FAS 133
requires us to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through
income.  If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives are either offset against the change
in fair value of assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized
in earnings.  The ineffective portion of a derivative's change in fair value
will be immediately recognized in earnings.  The adoption of FAS 133 on
January 1, 2001 resulted in a $5.6 million charge, net of tax, ($0.01 per
share) as a cumulative effect of an accounting change in the statement of
operations and an increase of $5.0 million, net of tax, in other
comprehensive income.

Derivative and Hedging Activities

Accounting Policy for Derivative Instruments:  We use derivatives to
partially offset our market exposure to foreign currencies, U.S. interest
rates and marketable equity investments.  We record all derivatives on the
balance sheet at fair value.  For derivative instruments that are designated
and qualify as a fair value hedge (i.e., hedging the exposure to changes in
the fair value of an asset or a liability or an identified portion thereof
that is attributable to a particular risk), the gain or loss on the
derivative instrument as well as the offsetting loss or gain on the hedged
item attributable to the hedged risk is recognized in current earnings during
the period of the change in fair values.  For derivative instruments that are
designated and qualify as a cash flow hedge (i.e., hedging the exposure to
variability in expected future cash flows that is attributable to a
particular risk), the effective portion of the gain or loss on the derivative
instrument is reported as a component of other comprehensive income and
reclassified into earnings in the same period or periods during which the
hedged transaction affects earnings.  The remaining gain or loss on the
derivative instrument in excess of the cumulative change in the present value
of future cash flows of the hedged item, if any, is recognized in current
earnings during the period of change.  For derivative instruments not
designated as hedging instruments, the gain or loss is recognized in current
earnings during the period of change.

Fair Value Hedging Strategy:  Our marketable equity securities portfolio
consists primarily of investments in biotechnology companies whose risk of
market fluctuations is greater than the stock market in general.  To manage a
portion of this risk, we enter into derivative instruments such as costless
collar instruments and forward contracts to hedge equity securities against
changes in market value.  No collars were outstanding at September 30, 2001.

     In the nine months ended September 30, 2001, we recognized a net gain of
$10.0 million related to the change in the time value of certain hedging



                                    Page 7

<PAGE>


instruments.  In the third quarter of 2001, we had no such gains or losses.
We record gains in contract and other revenues, and losses in marketing,
general and administrative expenses in the statement of operations.

Cash Flow Hedging Strategy:  To protect against currency exchange risks on
forecasted foreign currency cash flows from royalties to be received from
licensees' international product sales over the next one to three years and
expenses related to our foreign facility and our collaboration development
expenses denominated in foreign currencies, we have instituted a foreign
currency cash flow hedging program.  We hedge portions of our forecasted
foreign currency revenues with option contracts and we hedge our foreign
currency expenses from our foreign facility with forward contracts.  When the
dollar strengthens significantly against the foreign currencies, the decline
in value of future foreign currency revenues or expenses is offset by gains
or losses, respectively, in the value of the option or forward contracts
designated as hedges.  Conversely, when the dollar weakens, the increase in
the value of future foreign currency expenses is offset by gains in the value
of the forward contracts.  In accordance with FAS 133, hedges related to
anticipated transactions are designated and documented at hedge inception as
cash flow hedges and evaluated for hedge effectiveness at least quarterly.

     We enter into interest-rate swap agreements to limit our exposure to
fluctuations in U.S. interest rates.  Our material interest bearing assets,
or interest bearing portfolio, consisted of cash equivalents, restricted
cash, short-term investments, convertible preferred stock investments,
convertible loans and long-term investments as of December 31, 2000 and
September 30, 2001.  Our interest-rate swap agreements effectively convert a
portion of our short-term investments in our interest bearing portfolio to a
fixed-rate basis over the next two years, thus reducing the impact of
interest-rate changes on future interest income.  Our interest-rate swaps
meet the criteria for accounting under the short-cut method defined in FAS
133 for cash flow hedges.  Interest income from approximately $200.0 million
of our interest bearing portfolio was designated as the hedged item to
interest-rate swap agreements at September 30, 2001.

     During the quarter ended September 30, 2001 and the first nine months of
2001, the ineffective portion of our hedging instruments was not material.
Gains and losses related to option and forward contracts that hedge future
cash flows are recorded against the hedged revenues or expenses in the
statement of operations.  Gains and losses related to early termination of
interest rate swaps are included in interest income in the statement of
operations.

     At September 30, 2001, we expect to reclassify $1.6 million of net gains
on derivative instruments from accumulated other comprehensive income to
earnings during the next twelve months due to the receipt of net revenues
denominated in foreign currencies.



                                    Page 8

<PAGE>


Derivative Activity in Accumulated Other Comprehensive Income

    The following table summarizes activity in other comprehensive income
related to derivatives, net of taxes, held by us during the third quarter and
first nine months of 2001 (in thousands):

<TABLE>
<CAPTION>

                                                     Three Months Ended     Nine Months Ended
                                                     September 30, 2001    September 30, 2001
                                                     ------------------    ------------------
<S>                                                        <C>                  <C>
Cumulative effect of adopting FAS 133                      $    -               $ 5,020
Changes in fair value of derivatives                        1,648                 6,535
Gains reclassified from other comprehensive income           (433)               (2,172)
                                                           ------               -------
Accumulated derivative gains                               $1,215               $ 9,383
                                                           ======               =======

</TABLE>


Note 2.     Redemption of Our Special Common Stock

On June 30, 1999, we redeemed all of our outstanding Special Common Stock
held by stockholders other than Roche Holdings, Inc., commonly known as
Roche, with funds deposited by Roche for that purpose.  This event, referred
to as the "Redemption," caused Roche to own 100% of our common stock on that
date.  The Redemption was reflected as a purchase of a business which under
U.S. generally accepted accounting principles required push-down accounting
to reflect in our financial statements the amount paid for our stock in
excess of our net book value plus Roche's transaction costs at June 30, 1999.
In 1990 and 1991 through 1997 Roche purchased 60% and 5%, respectively, of
the outstanding stock of Genentech.

Push-Down Accounting Adjustments

The following is a description of accounting adjustments that reflect push-
down accounting in our financial statements.  These adjustments were based on
management's estimates of the value of the tangible and intangible assets
acquired:

-  The estimated useful life of an inventory adjustment to fair value
   resulting from the Redemption was approximately one year based upon the
   expected time to sell inventories on hand at June 30, 1999.  Those
   inventories have been sold as of December 31, 2000.  We recorded expense
   of $15.8 million in cost of sales in the third quarter of 2000 and $90.4
   million in the first nine months of 2000 related to the inventory
   adjustment.

-  We recorded $1,091.2 million of goodwill less accumulated amortization of
   $613.6 million through June 30, 1999, as a result of Roche's 1990 through
   1997 purchases.  We also recorded $1,208.1 million of goodwill as a result
   of the Redemption.

-  We recorded $1,040.0 million of other intangible assets less accumulated
   amortization of $911.5 million through June 30, 1999, as a result of
   Roche's 1990 through 1997 purchases.  We also recorded $1,370.5 million of
   other intangible assets as a result of the Redemption.

-  We recorded amortization expense related to goodwill and other intangible
   assets of $79.4 million and $95.3 million during the third quarter of 2001
   and 2000, respectively, and $238.2 million and $285.8 million in the first
   nine months of 2001 and 2000, respectively.



                                    Page 9

<PAGE>


-  In connection with the Redemption, options under the 1996 Stock
   Option/Stock Incentive Plan, or the Plan, were cancelled.  Alternative
   arrangements were provided for certain holders of some of the unvested
   options under the Plan.  We recorded compensation expense related to these
   alternative arrangements of $2.5 million in the third quarter of 2000 and
   $4.2 million and $8.6 million in the first nine months of 2001 and 2000,
   respectively.


Note 3.     Relationship with Roche

Roche's Right to Maintain Its Percentage Ownership Interest in Our Stock

We expect from time to time to issue additional shares of common stock in
connection with our stock option and stock purchase plans, and we may issue
additional shares for other purposes.  Our affiliation agreement with Roche
provides, among other things, that we will establish a stock repurchase
program designed to maintain Roche's percentage ownership interest in our
common stock.  The affiliation agreement provides that we will repurchase a
sufficient number of shares pursuant to this program such that, with respect
to any issuance of common stock by Genentech in the future, the percentage of
Genentech common stock owned by Roche immediately after such issuance will be
no lower than Roche's lowest percentage ownership of Genentech common stock
at any time after the offering of common stock occurring in July 1999 and
prior to the time of such issuance, except that Genentech may issue shares up
to an amount that would cause Roche's lowest percentage ownership to be no
more than 2% below the "Minimum Percentage."  The Minimum Percentage equals
the lowest number of shares of Genentech common stock owned by Roche since
the July 1999 offering (to be adjusted in the future for dispositions of
shares of Genentech common stock by Roche as well as for stock splits or
stock combinations) divided by 509,194,352 (to be adjusted in the future for
stock splits or stock combinations), which is the number of shares of
Genentech common stock outstanding at the time of the July 1999 offering, as
adjusted for the two-for-one splits of Genentech common stock in October 2000
and November 1999.  As long as Roche's percentage ownership is greater than
50%, prior to issuing any shares, the affiliation agreement provides that we
will repurchase a sufficient number of shares of our common stock such that,
immediately after our issuance of shares, Roche's percentage ownership will
be greater than 50%.  The affiliation agreement also provides that, upon
Roche's request, we will repurchase shares of our common stock to increase
Roche's ownership to the Minimum Percentage.  In addition, Roche will have a
continuing option to buy stock from us at prevailing market prices to
maintain its percentage ownership interest.  On September 30, 2001, Roche's
percentage ownership of our common stock was 58.15%, which was 2.06% below
the Minimum Percentage.  Genentech and Roche are in discussion concerning the
matter.



                                    Page 10

<PAGE>


Note 4.     Comprehensive Income

Comprehensive income is comprised of net income (loss) and other
comprehensive income.  Other comprehensive income includes certain changes in
stockholders' equity that are excluded from net income.  Other comprehensive
income includes changes in fair value of derivatives designated as and
effective as cash flow hedges and unrealized gains and losses on our
available-for-sale securities.  Comprehensive income and its components for
the three- and nine-month periods ended September 30, 2001 and 2000 are as
follows (in thousands):

<TABLE>
<CAPTION>

                                                      Three Months           Nine Months
                                                   Ended September 30,    Ended September 30,
                                                   -------------------    -------------------
                                                     2001       2000        2001       2000
                                                   --------   --------    --------   --------
                                                             (Restated)             (Restated)
<S>                                                <C>        <C>         <C>        <C>
Net income (loss)                                  $ 42,741   $  5,760    $108,140   $(89,516)
Changes in unrealized (loss) gain on securities
  available-for-sale, net of tax                    (40,782)   103,328     (49,725)   167,139
Changes in fair value of derivative instruments,
  net of tax                                          1,215         -        9,383          -
                                                   --------   --------    --------   --------
Comprehensive income                               $  3,174   $109,088    $ 67,798   $ 77,623
                                                   ========   ========    ========   ========

</TABLE>

The components of accumulated other comprehensive income, net of related
taxes, are as follows (in thousands):

<TABLE>
<CAPTION>

                                                       September 30, 2001    December 31, 2000
                                                       ------------------    -----------------
<S>                                                         <C>                  <C>
Unrealized gains on securities available-for-sale           $281,893             $331,618
Unrealized gains on derivatives instruments                    9,383                    -
                                                            --------             --------
Accumulated other comprehensive income                      $291,276             $331,618
                                                            ========             ========

</TABLE>



                                    Page 11

<PAGE>


Note 5.     Earnings (Loss) Per Share

The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings (loss) per share (EPS) computations for the three-
and nine-month periods ended September 30, 2001 and September 30, 2000 (in
thousands):

<TABLE>
<CAPTION>

                                           Three Months            Nine Months
                                        Ended September 30,    Ended September 30,
                                        -------------------    --------   --------
                                          2001       2000        2001       2000
                                        --------   --------    --------   --------
                                                  (Restated)             (Restated)
<S>                                     <C>        <C>         <C>        <C>
Numerator:
  Net income (loss) - numerator
    for basic and diluted earnings
    (loss) per share:                   $ 42,741   $  5,760    $108,140   $(89,516)
                                        ========   ========    ========   ========

Denominator:
  Denominator for basic earnings
    (loss) per share - weighted-
    average shares                       527,328    522,928     526,709    521,097

  Effect of dilutive securities:
    Stock options                          6,342     18,555       8,074          -
                                        --------   --------    --------   --------
  Denominator for diluted earnings
    (loss) per share - adjusted
    weighted-average shares and
    assumed conversions                  533,670    541,483     534,783    521,097
                                        ========   ========    ========   ========

</TABLE>

Options to purchase 9,971,552 shares of common stock between $44.06 and
$95.66 per share were outstanding in the third quarter of 2001, and options
to purchase 9,736,102 shares of common stock between $50.55 and $95.66 per
share were outstanding in the first nine months of 2001, but were not
included in the computation of diluted EPS because the options were anti-
dilutive.


Note 6.     Legal Proceedings

We are a party to various legal proceedings, including patent infringement
litigation relating to our antibody products, one of our thrombolytic
products, as well as licensing and contract disputes, and other matters.

On May 28, 1999, GlaxoSmithKline plc (formerly Glaxo Wellcome, Inc.), or
Glaxo, filed a patent infringement lawsuit against us in the U.S. District
Court in Delaware.  The suit asserts that we infringe four U.S. patents owned
by Glaxo.  Two of the patents relate to the use of specific kinds of
antibodies for the treatment of human disease, including cancer.  The other
two patents asserted against us relate to preparations of specific kinds of
antibodies which are made more stable and the methods by which such
preparations are made.  Although the complaint failed to specify which of our
products or methods of manufacture are allegedly infringing the four patents
at issue, we believe that the suit relates to the manufacture, use and sale
of our Herceptin and Rituxan antibody products.  On July 19, 1999, we filed
our answer to Glaxo's complaint, and in our answer we also stated
counterclaims against Glaxo.  The trial of this suit began on April 17, 2001.



                                    Page 12

<PAGE>


On May 4, 2001 the jury hearing the lawsuit unanimously found that Herceptin
and Rituxan do not infringe the patents and therefore that Genentech is not
required to pay royalties to Glaxo.  The jury also unanimously found that all
of the patent claims that Glaxo asserted against Genentech were invalid.  On
May 31, 2001, Glaxo filed a notice of appeal of the jury's verdict with the
U.S. Court of Appeals for the Federal Circuit.  No date has been set for the
argument of the appeal.  Proceedings in connection with Genentech's claim
against Glaxo for inequitable conduct and other related issues are still
pending before the district court.

On September 14, 2000, Glaxo filed another patent infringement lawsuit
against us in the U.S. District Court in Delaware, alleging that we are
infringing U.S. Patent No. 5,633,162 owned by Glaxo.  The patent relates to
specific methods for culturing Chinese Hamster Ovary cells.  The complaint
fails to specify which of our products or methods of manufacture are
allegedly infringing that patent.  However, the complaint makes a general
reference to Genentech's making, using, and selling "monoclonal antibodies,"
and so we believe that the suit relates to our Herceptin and Rituxan antibody
products.  On October 4, 2000, we filed our answer to Glaxo's complaint, and
in our answer we also stated counterclaims against Glaxo.  The trial of this
suit has been rescheduled to begin on June 17, 2002.  This lawsuit is
separate from and in addition to the Glaxo suit mentioned above.

We and the City of Hope Medical Center are parties to a 1976 agreement
relating to work conducted by two City of Hope employees, Arthur Riggs and
Keiichi Itakura, and patents that resulted from that work, which are referred
to as the "Riggs/Itakura Patents."  Since that time, Genentech has entered
into license agreements with various companies to make, use and sell the
products covered by the Riggs/Itakura Patents.  On August 13, 1999 the City
of Hope filed a complaint against us in the Superior Court in Los Angeles
County, California, alleging that we owe royalties to the City of Hope in
connection with these license agreements, as well as product license
agreements that involve the grant of licenses under the Riggs/Itakura
Patents.  The complaint states claims for declaratory relief, breach of
contract, breach of implied covenant of good faith and fair dealing, and
breach of fiduciary duty.  On December 15, 1999, we filed our answer to the
City of Hope's complaint.  On or about December 22, 2000, City of Hope filed
a dismissal of its declaratory relief claims.  On January 4, 2001, we filed a
motion to dismiss the case for lack of subject matter jurisdiction.  The
judge denied the motion on February 1, 2001. Jury selection for the trial
began on August 28, 2001, and the trial is currently ongoing.  City of Hope
is seeking compensatory damages in the amount of approximately $445.0 million
(including interest) and special damages.

On June 7, 2000, Chiron Corporation filed a patent infringement suit against
us in the U.S. District Court in the Eastern District of California
(Sacramento), alleging that the manufacture, use, sale and offer for sale of
our Herceptin antibody product infringes Chiron's U.S. Patent No. 6,054,561.
This patent relates to certain antibodies that bind to breast cancer cells
and/or other cells.  On August 4, 2000, we filed our answer to Chiron's
complaint, and in our answer we also stated counterclaims against Chiron.
The judge has scheduled the trial of this suit to begin on June 25, 2002.

On March 13, 2001, Chiron filed another patent infringement lawsuit against
us in the U.S. District Court in the Eastern District of California, alleging
that the manufacture, use, sale, and/or offer for sale of our Herceptin
antibody product infringes Chiron's U.S. Patent No. 4,753,894.  Genentech
filed a motion to dismiss this second lawsuit, which was denied.  The judge



                                    Page 13

<PAGE>


has scheduled the trial of this suit to begin in March 2003.  This lawsuit is
separate from and in addition to the Chiron suit mentioned above.

We and Pharmacia AB (formerly Pharmacia & Upjohn AB) are parties to a 1978
agreement relating to Genentech's development of recombinant human growth
hormone products, under which Pharmacia is obligated to pay Genentech
royalties on sales of Pharmacia's growth hormone products throughout the
world.  On January 5, 1999, Pharmacia filed a Request for Arbitration with
the International Chamber of Commerce ("ICC") to resolve several disputed
issues between Genentech and Pharmacia under the 1978 agreement.  One of the
claims made by Pharmacia is for a refund of some of the royalties previously
paid to Genentech for sales of Pharmacia's growth hormone products in certain
countries.  The ICC has not yet given a decision on that claim.

On March 13, 2001, Genentech filed a complaint in the United States District
Court in Delaware against Genzyme Corporation seeking a declaratory judgment
that Genentech does not infringe Genzyme's U.S. Patent No. 5,344,773 and that
Genentech has not breached a 1992 Patent License and Interference Settlement
Agreement between Genentech and Genzyme relating to that patent.  Genentech's
filing followed communications earlier in 2001 from Genzyme claiming that
Genentech's TNKase product infringes Genzyme's patent.  Genentech is seeking
a declaration that Genzyme's patent is not infringed by any Genentech
product, that the patent is invalid, that Genzyme be enjoined from further
legal action against Genentech regarding the patent, and that Genentech has
not breached the 1992 Agreement.  On May 2, 2001, Genzyme filed its answer to
our complaint.

On or about April 6, 2001, Genzyme filed a complaint in the same court
against Genentech alleging that our TNKase product infringes the Genzyme
patent and that Genentech is in breach of the 1992 Agreement referred to
above.  Genzyme's complaint also alleges willful infringement and reckless
breach of contract by Genentech.  Genzyme filed an amended complaint on or
about April 11, 2001, that added no new substantive allegations or new
claims.  Genzyme is seeking to enjoin Genentech from infringing the patent,
and also is seeking attorneys fees and costs.  On May 3, 2001, we filed our
answer to Genzyme's complaint.  The court has consolidated this lawsuit and
the declaratory judgement lawsuit suit referred to above for further
proceedings.  The trial of this consolidated lawsuit is scheduled to begin on
January 21, 2003.

Based upon the nature of the claims made and the information available to
date to us and our counsel through investigations and otherwise, we believe
the outcome of these actions is not likely to have a material adverse effect
on our financial position, result of operations or cash flows.  However, were
an unfavorable ruling to occur in any quarterly period, there exists the
possibility of a material impact on the operating results of that period.


Note 7.     Inventories

In anticipation of the launch of Xolair, we have built approximately $34.3
million of Xolair inventory, net of amounts paid by collaborators and
inventory reserves.  Due to the launch delay of Xolair, we will continually
assess the recoverability of our Xolair inventory based on an expected U.S.
Food and Drug Administration approval date and sales.



                                    Page 14

<PAGE>


Inventories are summarized below (in thousands):

<TABLE>
<CAPTION>

                                 September 30, 2001     December 31, 2000
                                 ------------------     -----------------
<S>                                   <C>                   <C>
Raw materials and supplies            $ 25,279              $ 17,621
Work in process                        296,224               233,121
Finished goods                          18,566                15,088
                                      --------              --------
                Total                 $340,069              $265,830
                                      ========              ========

</TABLE>


Note 8.     Capital Stock

In August 2001, we repurchased 800,000 shares of our common stock at an
average price of approximately $42.50 per share.


Note 9.     New Accounting Pronouncement

In July 2001, the Financial Accounting Standards Board, or FASB, issued two
statements as a result of its deliberations on the business combinations
project, Statement of Financial Accounting Standards No. 141, or FAS 141, on
Business Combinations and FAS 142 on Goodwill and Other Intangible Assets.
FAS 141 will be effective for any business combinations initiated after June
30, 2001 and also includes the criteria for the recognition of intangible
assets separately from goodwill.  FAS 142 will be effective for fiscal years
beginning after December 15, 2001 and will require that goodwill not be
amortized, but rather be subject to an impairment test at least annually.
Separately identified and recognized intangible assets resulting from
business combinations completed before July 1, 2001 that do not meet the new
criteria for separate recognition of intangible assets will be subsumed into
goodwill upon adoption.  In addition, the useful lives of recognized
intangible assets acquired in transactions completed before July 1, 2001 will
be reassessed and the remaining amortization periods adjusted accordingly.

     The adoption of FAS 141 and 142 is not expected to have a significant
impact on our financial position at transition.  We expect that the
elimination of goodwill amortization related to push-down accounting would
have a positive impact on reported net income in 2002 of at least $150.0
million.



                                    Page 15

<PAGE>


                    INDEPENDENT ACCOUNTANTS' REVIEW REPORT



The Board of Directors and Stockholders
Genentech, Inc.


We have reviewed the accompanying condensed consolidated balance sheet of
Genentech, Inc. as of September 30, 2001, and the related condensed
consolidated statements of operations for the three-month and nine-month
periods ended September 30, 2001 and 2000 and the condensed consolidated
statements of cash flows for the nine-month periods ended September 30, 2001
and 2000.  These financial statements are the responsibility of Genentech's
management.

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

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

We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of Genentech,
Inc. as of December 31, 2000, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended (not
presented herein) and in our report dated January 17, 2001, we expressed an
unqualified opinion on those consolidated financial statements.  In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 2000, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has
been derived.





                                             ERNST & YOUNG LLP

Palo Alto, California
October 8, 2001



                                    Page 16

<PAGE>


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


                               GENENTECH, INC.
                              FINANCIAL REVIEW

Overview

Genentech, Inc. is a leading biotechnology company using human genetic
information to discover, develop, manufacture and market human
pharmaceuticals that address significant unmet medical needs.  Fifteen of the
approved products of biotechnology stem from or are based on our science.  We
manufacture and market ten protein-based pharmaceuticals listed below, and
license several additional products to other companies.

-  Herceptin (trastuzumab) antibody for the treatment of certain patients
   with metastatic breast cancer whose tumors overexpress the human epidermal
   growth factor receptor2, or HER2, protein;

-  Rituxan (rituximab) antibody which we market together with IDEC
   Pharmaceuticals Corporation, commonly known as IDEC, for the treatment of
   patients with relapsed or refractory low-grade or follicular, CD20-
   positive, B-cell non-Hodgkin's lymphoma;

-  TNKase (tenecteplase) single-bolus thrombolytic agent for the treatment of
   acute myocardial infarction;

-  Activase (alteplase, recombinant) tissue plasminogen activator, or t-PA,
   for the treatment of acute myocardial infarction, acute ischemic stroke
   within three hours of the onset of symptoms and acute massive pulmonary
   embolism;

-  Cathflo Activase (alteplase, recombinant) tissue plasminogen activator, or
   t-PA, approved for the restoration of function to central venous access
   devises that have become occluded due to a blood clot;

-  Nutropin Depot [somatropin (rDNA origin) for injectable suspension] long-
   acting growth hormone for the treatment of growth failure associated with
   pediatric growth hormone deficiency;

-  Nutropin AQ [somatropin (rDNA origin) injection] liquid formulation growth
   hormone for the same indications as Nutropin;

-  Nutropin [somatropin (rDNA origin) for injection] growth hormone for the
   treatment of growth hormone deficiency in children and adults, growth
   failure associated with chronic renal insufficiency prior to kidney
   transplantation and short stature associated with Turner syndrome;

-  Protropin (somatrem for injection) growth hormone for the treatment of
   inadequate endogenous growth hormone secretion, or growth hormone
   deficiency, in children; and

-  Pulmozyme (dornase alfa, recombinant) inhalation solution for the
   treatment of cystic fibrosis.

We receive royalties on sales of rituximab outside of the United States
(excluding Japan), on sales of Pulmozyme and Herceptin outside of the United
States and on sales of certain products in Canada from F. Hoffmann-La Roche



                                    Page 17

<PAGE>


Ltd, an affiliate of Roche Holdings, Inc., that is commonly known as
Hoffmann-La Roche.  We receive royalties on sales of growth hormone products
and t-PA outside of the United States and Canada, and on sales of
tenecteplase outside of the United States (excluding Japan and Canada).  We
will receive royalties on sales of rituximab in Japan through other
licensees.  We also receive worldwide royalties on seven additional licensed
products that are marketed by other companies.  Six of these products
originated from our technology.

Redemption of Our Special Common Stock

On June 30, 1999, we redeemed all of our outstanding Special Common Stock
held by stockholders other than Roche Holdings, Inc., commonly known as
Roche.  This event, referred to as the "Redemption," caused Roche to own 100%
of our common stock on that date.  Consequently, under U.S. generally
accepted accounting principles, we were required to use push-down accounting
to reflect in our financial statements the amounts paid for our stock in
excess of our net book value.  Push-down accounting required us to record
$1,685.7 million of goodwill and $1,499.0 million of other intangible assets
onto our balance sheet on June 30, 1999.  For more information about push-
down accounting, you should read the "Redemption of Our Special Common Stock"
note in the Notes to Condensed Consolidated Financial Statements.

Roche's Right to Maintain Its Percentage Ownership Interest in Our Stock

We expect from time to time to issue additional shares of common stock in
connection with our stock option and stock purchase plans, and we may issue
additional shares for other purposes.  Our affiliation agreement with Roche
provides, among other things, that we will establish a stock repurchase
program designed to maintain Roche's percentage ownership interest in our
common stock.  The affiliation agreement provides that we will repurchase a
sufficient number of shares pursuant to this program such that, with respect
to any issuance of common stock by Genentech in the future, the percentage of
Genentech common stock owned by Roche immediately after such issuance will be
no lower than Roche's lowest percentage ownership of Genentech common stock
at any time after the offering of common stock occurring in July 1999 and
prior to the time of such issuance, except that Genentech may issue shares up
to an amount that would cause Roche's lowest percentage ownership to be no
more than 2% below the "Minimum Percentage."  The Minimum Percentage equals
the lowest number of shares of Genentech common stock owned by Roche since
the July 1999 offering (to be adjusted in the future for dispositions of
shares of Genentech common stock by Roche as well as for stock splits or
stock combinations) divided by 509,194,352 (to be adjusted in the future for
stock splits or stock combinations), which is the number of shares of
Genentech common stock outstanding at the time of the July 1999 offering, as
adjusted for the two-for-one splits of Genentech common stock in November
1999 and October 2000.  As long as Roche's percentage ownership is greater
than 50%, prior to issuing any shares, the affiliation agreement provides
that we will repurchase a sufficient number of shares of our common stock
such that, immediately after our issuance of shares, Roche's percentage
ownership will be greater than 50%.  The affiliation agreement also provides
that, upon Roche's request, we will repurchase shares of our common stock to
increase Roche's ownership to the Minimum Percentage.  In addition, Roche
will have a continuing option to buy stock from us at prevailing market
prices to maintain its percentage ownership interest.  On September 30, 2001,
Roche's percentage ownership of our common stock was 58.15%, which was 2.06%
below the Minimum Percentage.  Genentech and Roche are in discussion
concerning the matter.



                                    Page 18

<PAGE>


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

<TABLE>
<CAPTION>

                           Three Months                      Nine Months
                        Ended September 30,              Ended September 30,
                        ------------------               --------------------
REVENUES                 2001        2000    % Change      2001        2000     % Change
-------------------     ------      ------   --------    --------    --------   --------
                                  (Restated)                       (Restated)
<S>                     <C>         <C>          <C>     <C>         <C>            <C>
Revenues                $556.1      $447.3       24%     $1,612.1    $1,251.0       29%
                        ======      ======   ========    ========    ========   ========

</TABLE>


Revenues increased 24% in the third quarter and 29% in the first nine months
of 2001 from the comparable periods in 2000 primarily as a result of higher
product sales, royalty income and interest income.  These increases were
partially offset by lower contract and other revenues.  These revenue changes
are further discussed below.

<TABLE>
<CAPTION>

                               Three Months                      Nine Months
                            Ended September 30,              Ended September 30,
                            ------------------               ------------------
PRODUCT SALES                2001        2000    % Change      2001       2000    % Change
-----------------------     ------      ------   --------    --------    ------   --------
<S>                         <C>         <C>          <C>     <C>         <C>          <C>
Herceptin                   $ 83.9      $ 72.6       16%     $  244.0    $208.0       17%
Rituxan                      212.8       117.9       80         572.6     305.8       87
Activase/TNKase/Cathflo       48.6        50.7       (4)        152.3     155.0       (2)
Growth Hormone                67.7        61.1       11         185.7     166.1       12
Pulmozyme                     32.8        30.0        9          90.9      89.1        2
Actimmune                      2.9         1.9       53           5.4       2.8       93
                            ------      ------   --------    --------    ------   --------
Total product sales         $448.7      $334.2       34%     $1,250.9    $926.8       35%
                            ======      ======   ========    ========    ======   ========

</TABLE>


Total product sales increased 34% in the third quarter and 35% in the first
nine months of 2001 from the comparable periods in 2000 primarily as a result
of higher sales from our bio-oncology products, Rituxan and Herceptin, and
higher sales from our Growth Hormone products.

Herceptin: Net sales of Herceptin increased 16% in the third quarter and 17%
in the first nine months of 2001 from the comparable periods in 2000. An
increase in penetration into the metastatic breast cancer market has
contributed to a positive sales trend.

Rituxan: Net sales of Rituxan increased 80% in the third quarter and 87% in
the first nine months of 2001 from the comparable periods in 2000.  This
increase was primarily due to increased use of the product in the treatment
of B-cell non-Hodgkin's lymphoma.

Activase/TNKase/Cathflo:  Combined net sales of our three cardiovascular
products, Activase, TNKase and Cathflo Activase, decreased 4% in the third
quarter of 2001 and were slightly lower in the first nine months of 2001
compared to the same periods last year.  These decreases reflect the
continued decline in the overall size of the thrombolytic therapy market due
to increasing use of mechanical reperfusion and competition from Centocor,
Inc.'s Retavase, registered trademark, (reteplase).  Cathflo Activase
received U.S. Food and Drug Administration, or FDA, approval in early
September 2001 and was launched in late September 2001.  TNKase received FDA
approval in early June 2000 and was launched in mid-June 2000.



                                    Page 19

<PAGE>


Growth Hormone:  Net sales of our four growth hormone products, Nutropin
Depot, Nutropin AQ, Nutropin and Protropin, increased 11% in the third
quarter and 12% in the first nine months of 2001 from the comparable periods
in 2000.  This net sales growth primarily reflects an increase in market
penetration and the effects of a price increase for these products.

Pulmozyme:  Net sales of Pulmozyme increased 9% in the third quarter of 2001
and were slightly higher in the first nine months of 2001 compared to the
same periods last year.  These increases primarily reflect fluctuations in
distributor ordering patterns.

<TABLE>
<CAPTION>

                                Three Months                      Nine Months
                              Ended September 30,              Ended September 30,
ROYALTIES, CONTRACT AND       ------------------               ------------------
OTHER, AND INTEREST INCOME     2001        2000    % Change     2001        2000    % Change
--------------------------    ------      ------   --------    ------      ------   --------
                                        (Restated)                       (Restated)
<S>                           <C>         <C>         <C>      <C>         <C>         <C>
Royalties                     $ 66.0      $ 51.8       27%     $193.1      $148.8       30%
Contract and other               8.9        35.6      (75)       68.3       106.0      (36)
Interest income                 32.5        25.7       26        99.8        69.4       44

</TABLE>

Royalties:  Royalty income increased 27% in the third quarter and 30% in the
first nine months of 2001 from the comparable periods in 2000.  These
increases were primarily due to higher third-party sales from Roche and
various licensees, offset in part by lower sales from several licensees
including one that has been addressing manufacturing issues which has
temporarily impacted their ability to produce product for sales.

Contract and Other Revenues:  Contract and other revenues decreased 75% in
the third quarter and 36% in the first nine months of 2001 from the
comparable periods in 2000.  The decrease in the third quarter was primarily
due to lower gains from the sale of biotechnology equity securities.  The
decrease in the first nine months of 2001 was attributable to lower gains
from the sale of biotechnology equity securities partially offset by higher
contract revenues and the recognition of $10.0 million in gains related to
the change in the time value of certain hedging instruments in the first
quarter of 2001.  (See Note 1, "Statement of Accounting Presentation and
Significant Accounting Policies," of the Notes to Condensed Consolidated
Financial Statements for more information on our derivative and hedging
activities.)  The increase in contract revenues in the first nine months of
2001 was primarily due to the recognition of revenues from third-party
collaborators that were previously deferred under the Securities and Exchange
Commission's Staff Accounting Bulletin No. 101.  (See the "Changes in
Accounting Principles" section of Note 1, "Statement of Accounting
Presentation and Significant Accounting Policies," of the Notes to Condensed
Consolidated Financial Statements.)

Interest Income:  Interest income increased 26% in the third quarter and 44%
in the first nine months of 2001 from the comparable periods in 2000.  The
increase in the third quarter of 2001 was due to a higher portfolio balance,
offset in part by a lower portfolio yield.  The increase in the first nine
months of 2001 was primarily due to a higher portfolio balance.



                                    Page 20

<PAGE>


<TABLE>
<CAPTION>

                                              Three Months                      Nine Months
                                           Ended September 30,              Ended September 30,
                                           ------------------               --------------------
COSTS AND EXPENSES                          2001        2000    % Change      2001        2000     % Change
---------------------------------------    ------      ------   --------    --------    --------   --------
<S>                                        <C>         <C>         <C>      <C>         <C>          <C>
Cost of sales                              $ 96.0      $ 91.4        5%     $  256.0    $  295.1     (13)%
Research and development                    128.2       113.6       13         388.0       340.6      14
Marketing, general and administrative       109.4        94.1       16         345.1       264.0      31
Collaboration profit sharing                 65.8        37.6       75         170.1        86.9      96
Recurring charges related to redemption      79.4        97.8      (19)        242.4       294.4     (18)
Interest expense                              1.7         1.2       42           4.5         3.7      22
                                           ------      ------   --------    --------    --------   --------
Total costs and expenses                   $480.5      $435.7       10%     $1,406.1    $1,284.7       9%
                                           ======      ======   ========    ========    ========   ========

</TABLE>

Cost of Sales: Cost of sales in the third quarter of 2001 increased to $96.0
million compared to $91.4 million in the third quarter of 2000 and decreased
to $256.0 million in the first nine months of 2001 compared to $295.1 million
in the first nine months of 2000.  Cost of sales as a percent of product
sales decreased to 21% in the third quarter of 2001 from 27% in the prior
year.  Cost of sales as a percent of product sales decreased to 20% in the
first nine months of 2001 from 32% in the prior year.  The decrease in the
ratios primarily reflects a decline in the costs recognized on the sale of
inventory that was written up at the Redemption due to push-down accounting.
This inventory was sold by December 31, 2000.

Research and Development:  Research and development, or R&D, expenses
increased 13% in the third quarter and 14% in the first nine months of 2001
from the comparable periods in 2000.  The increase in the third quarter of
2001 was largely due to higher expenses related to late-stage clinical trials
and increased in-licensing expenses.  The increase in the first nine months
of 2001 was primarily due to higher expenses related to late-stage clinical
trials and costs related to the termination of a collaboration agreement.
R&D expenses included $19.0 million in the first nine months of 2001 and
$15.0 million in the comparable period of 2000 of upfront payments for the
purchase of in-process research and development, or IPR&D, under in-licensing
agreements with collaborators.  We determined that the acquired IPR&D was not
yet technologically feasible and that it had no future alternative uses.

Marketing, General and Administrative:  Overall marketing, general and
administrative, or MG&A, expenses increased 16% in the third quarter and 31%
in the first nine months of 2001 from the comparable periods in 2000.  The
increase in the third quarter of 2001 was primarily due to increased royalty
expenses associated with higher sales by licensees, higher marketing and
selling expenses primarily in support of the continued growth of our bio-
oncology products and commercial development of pipeline products and higher
corporate expenses.  The increase in the first nine months of 2001 was driven
by higher marketing and selling expenses in support of commercial development
of pipeline products and the continued growth of our bio-oncology products,
the write-down of certain biotechnology investments, higher royalty expenses
and higher legal and other corporate expenses.

Collaboration Profit Sharing:  Collaboration profit sharing includes the net
operating profit sharing with IDEC on Rituxan sales, and the sharing of costs
with collaborators related to the commercialization and development of future
products.  Collaboration profit sharing expenses increased to $65.8 million
in the third quarter of 2001 from $37.6 million in the third quarter of 2000.
Collaboration profit sharing expenses increased to $170.1 million in the
first nine months of 2001 from $86.9 million in the first nine months of
2000.  These increases were primarily due to increased Rituxan profit sharing
with IDEC due to higher Rituxan sales.



                                    Page 21

<PAGE>


Recurring Charges Related to Redemption:  We began recording recurring
charges related to the Redemption and push-down accounting in the third
quarter of 1999.  These charges include the amortization of intangibles and
goodwill, and compensation expense related to alternative arrangements
provided at the time of the Redemption for certain holders of some of the
unvested options under the 1996 Stock Option/Stock Incentive Plan.  Recurring
charges related to the Redemption decreased to $79.4 million in the third
quarter of 2001 compared to $97.8 million in the same period of 2000 and
decreased to $242.4 million in the first nine months of 2001 compared to
$294.4 million in the same period of 2000.  These decreases were primarily
due to lower amortization of intangibles and deferred compensation expense.
The deferred compensation was fully amortized at June 30, 2001.  (See Note 2,
"Redemption of Our Special Common Stock," of the Notes to Condensed
Consolidated Financial Statements.)

Interest Expense:  Interest expense will fluctuate depending on the amount of
capitalized interest related to the amount of construction projects.
Interest expense, net of amounts capitalized, relates to interest on our 5%
convertible subordinated debentures.

<TABLE>
<CAPTION>

INCOME (LOSS) BEFORE TAXES AND             Three Months                      Nine Months
CUMULATIVE EFFECT OF ACCOUNTING         Ended September 30,              Ended September 30,
CHANGE, INCOME TAXES AND CUMULATIVE     ------------------               ------------------
EFFECT OF ACCOUNTING CHANGE              2001        2000    % Change     2001        2000    % Change
-----------------------------------     ------      ------   --------    ------      ------   --------
                                                  (Restated)                       (Restated)
<S>                                     <C>         <C>         <C>      <C>         <C>       <C>
Income (loss) before taxes and
  cumulative effect of accounting
  change                                $75.6       $ 11.7      546%     $206.0      $(33.7)     711%
Income tax provision (benefit)           32.9          5.9      458        92.2        (2.0)   4,710
Income (loss) before cumulative
  effect of  accounting change           42.7          5.8      636       113.8       (31.7)     459
Cumulative effect of accounting
  change, net of tax                        -            -        -        (5.6)      (57.8)      90

</TABLE>

Changes in Accounting Principles:  We adopted the Statement of Financial
Accounting Standards No. 133, or FAS 133, "Accounting for Derivatives and
Hedging Activities," on January 1, 2001. Upon adoption, we recorded a $5.6
million charge, net of tax, as a cumulative effect of a change in accounting
principle and an increase of $5.0 million, net of tax, in other comprehensive
income related to recording derivative instruments at fair value.  See Note
1, "Statement of Accounting Presentation and Significant Accounting Policies"
in the Notes to Condensed Consolidated Financial Statements for further
information on our adoption of FAS 133.

     We adopted the Securities and Exchange Commission's Staff Accounting
Bulletin No. 101, or SAB 101, on revenue recognition effective January 1,
2000 and recorded a $57.8 million charge, net of tax, as a cumulative effect
of a change in accounting principle related to contract revenues recognized
in prior periods.  The related deferred revenue is being recognized over the
term of the agreements.  For the quarter ended September 30, 2000, the impact
of the change in accounting principle was to increase net income by $1.3
million (net of tax) of the related deferred revenue recognized as revenue
during the quarter ended September 30, 2000 (less than $0.01 per share).  For
the nine months ended September 30, 2000, the impact of the change in
accounting principle was to increase net loss by $53.9 million, or ($0.10)
per share, comprised of the $57.8 million cumulative effect of the change
(net of tax) as described above ($0.11 per share), net of $3.9 million of the
related deferred revenue (net of tax) that was recognized as revenue during
the nine months ended September 30, 2000 ($0.01 per share).  For the three-



                                    Page 22

<PAGE>


and nine-month periods ended September 30, 2001, we recognized $2.3 million
(net of tax) and $10.5 million (net of tax) respectively, of the related
deferred revenue.  See Note 1, "Statement of Accounting Presentation and
Significant Accounting Policies," in the Notes to Condensed Consolidated
Financial Statements for further information on our adoption of SAB 101.

Income Tax:  The tax provision of $32.9 million for the third quarter of 2001
increased over the tax provision of $5.9 million for the third quarter of
2000.  The tax provision of $92.2 million for the first nine months of 2001
increased over the tax benefit of $2.0 million for the first nine months of
2000 primarily due to increased pretax income and decreased charges related
to the Redemption.

     Our effective tax rates were approximately 44% for the third quarter and
45% for the first nine months of 2001 and 50% for the third quarter and 6%
for the first nine months of 2000, which reflect the non-deductibility of
goodwill amortization.

     The effective tax rate of 32% in the third quarter and first nine months
of 2001 on pretax income, excluding charges related to the Redemption and
cumulative effect of accounting change, is higher than the comparative tax
rate of 31% in the third quarter and first nine months of 2000 primarily due
to decreased R&D tax credits.

<TABLE>
<CAPTION>

                                                 Three Months                     Nine Months
                                              Ended September 30,             Ended September 30,
                                              ------------------              ------------------
NET INCOME (LOSS)                              2001        2000   % Change     2001        2000   % Change
------------------------------------------    ------      ------  --------    ------      ------  --------
                                                        (Restated)                      (Restated)
<S>                                           <C>         <C>        <C>      <C>         <C>        <C>
Net income (loss)                             $ 42.7      $  5.8     636%     $108.2      $(89.5)    221%
Earnings (loss) per share:
  Basic: Earnings (loss) before cumulative
           effect of accounting change        $ 0.08      $ 0.01     700%     $ 0.22      $(0.06)    467%
         Cumulative effect of accounting
           change, net of tax                      -           -       -       (0.01)      (0.11)     91
                                              ------      ------  --------    ------      ------  -------
         Net earnings (loss) per share        $ 0.08      $ 0.01     700%     $ 0.21      $(0.17)    224%
                                              ======      ======  ========    ======      ======  =======
  Diluted: Earnings (loss) before cumulative
           effect of accounting change        $ 0.08      $ 0.01     700%     $ 0.21      $(0.06)    450%
         Cumulative effect of accounting
           change, net of tax                      -           -       -       (0.01)      (0.11)     91
                                              ------      ------  --------    ------      ------  --------
         Net earnings (loss) per share        $ 0.08      $ 0.01     700%     $ 0.20      $(0.17)    218%
                                              ======      ======  ========    ======      ======  ========

</TABLE>

Net Income (Loss): Net income of $42.7 million, or $0.08 per diluted share in
the third quarter of 2001 and net income of $108.2 million, or $0.20 per
diluted share in the first nine months of 2001, primarily reflect an increase
in product sales, royalties and interest income and a decrease in recurring
charges related to redemption and costs related to the sale of inventory
written up at the Redemption.  These favorable variances were offset in part
by increased MG&A, collaboration profit sharing and R&D expenses and a
decrease in contract and other revenues.

In-Process Research and Development:  At June 30, 1999, the Redemption date,
we determined that the acquired in-process technology was not technologically
feasible and that the in-process technology had no future alternative uses.
As a result, $500.5 million of in-process research and development, or IPR&D,
related to Roche's 1990 through 1997 purchases of our common stock was



                                    Page 23

<PAGE>


charged to additional paid-in capital, and $752.5 million of IPR&D related to
the Redemption was charged to operations at June 30, 1999.

     Except as otherwise noted below, there have been no significant changes
to the projects since December 31, 2000.  We do not track all costs
associated with research and development on a project-by-project basis.
Therefore, we believe a calculation of cost incurred as a percentage of total
incurred project cost as of the FDA approval is not possible.  We estimate,
however, that the research and development expenditures that will be required
to complete the in-process projects will total at least $650.0 million, as
compared to $700.0 million as of the Redemption date.  This estimate reflects
costs incurred since the Redemption date, discontinued projects, and
decreases in cost to complete estimates for other projects, partially offset
by an increase in certain cost estimates related to early stage projects and
changes in expected completion dates.

     The following are significant changes that occurred during the first
nine months of 2001 to the projects included in the IPR&D charge at the
Redemption:

-  Dornase alfa AERx - project has been discontinued.
-  Herceptin antibody for non-small cell lung cancer (NSCLC) - project has
   been discontinued for this indication.
-  Activase t-PA for intravenous catheter clearance - project received FDA
   approval in September 2001.
-  Anti-IgE antibody for asthma and seasonal allergic rhinitis - FDA complete
   response letter received.  We plan to submit the data requested by the FDA
   in late 2002 or in early 2003.

<TABLE>
<CAPTION>

LIQUIDITY AND CAPITAL RESOURCES      September 30, 2001     December 31, 2000
---------------------------------    ------------------     -----------------
<S>                                       <C>                   <C>
Cash and cash equivalents,
  short-term investments and
  long-term marketable securities         $2,522.9              $2,459.4
Working capital                            1,586.7               1,340.1

</TABLE>

We used cash generated from operations, income from investments and proceeds
from stock issuances to fund operations, purchase marketable securities and
make capital and equity investments and stock repurchases.

Cash and cash equivalents, short-term investments and long-term marketable
securities at September 30, 2001 increased from December 31, 2000 by $63.5
million.  Working capital increased by $246.6 million in the third quarter of
2001 from December 31, 2000.

Capital expenditures totaled $118.8 million in the first nine months of 2001
compared to $79.0 million in the comparable period of 2000.  The increase in
2001 compared to 2000 was primarily due to an increase in machinery and
equipment and leasehold improvements.

We believe that our cash, cash equivalents and short-term investments,
together with funds provided by operations and leasing arrangements, will be
sufficient to meet our foreseeable operating cash requirements.  In addition,
we believe we could access additional funds from the debt and, under certain
circumstances, capital markets.  See also "Forward-Looking Information and
Cautionary Factors that May Affect Future Results - Future Stock Repurchases
Could Adversely Affect Our Cash Position" below for factors that could
negatively affect our cash position.



                                    Page 24

<PAGE>


FORWARD-LOOKING INFORMATION AND CAUTIONARY FACTORS THAT MAY AFFECT FUTURE
RESULTS

The following section contains forward-looking information based on our
current expectations.  Because our actual results may differ materially from
any forward-looking statements made by or on behalf of Genentech, this
section includes a discussion of important factors that could affect our
actual future results, including, but not limited to, our product sales,
royalties, contract revenues, expenses and net income.

Fluctuations in Our Operating Results Could Affect the Price of Our Common
Stock

Our operating results may vary from period to period for several reasons
including:

-  The overall competitive environment for our products.

   For example, sales of our Activase product decreased in the first nine
   months of 2001 and 2000 primarily due to competition from Centocor's
   Retavase and to a decreasing size of the thrombolytic marketplace as other
   forms of acute myocardial infarction treatment gain acceptance.

-  The amount and timing of sales to customers in the United States.

   For example, sales of our Growth Hormone products increased in 2000 due to
   fluctuations in distributor ordering patterns.

-  The amount and timing of our sales to Hoffmann-La Roche of products for
   sale outside of the United States and the amount and timing of its sales
   to its customers, which directly impact both our product sales and royalty
   revenues.

   For example, sales of Pulmozyme to Hoffmann-La Roche decreased in the
   third quarter and the first nine months of 2001 compared to the same
   periods last year.

   For example, in the third quarter of 2000, Hoffmann-La Roche's approval of
   Herceptin in Europe increased our sales of Herceptin product.

-  The timing and volume of bulk shipments to licensees.

-  The availability of third-party reimbursements for the cost of therapy.

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

-  The rate of adoption and use of our products for approved indications and
   additional indications.

   For example, sales of Rituxan increased in the last quarter of 2000 and
   the first nine months of 2001 due to the announcement at the American
   Society of Clinical Oncology of the results of a study conducted by the
   Groupe d'Etude des Lymphomes de l'Adulte, or GELA, reporting on the
   benefits of using Rituxan, combined with standard chemotherapy, for
   treating aggressive non-Hodgkin's lymphoma.



                                    Page 25

<PAGE>


-  The potential introduction of new products and additional indications for
   existing products in 2001 and beyond.

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

-  The number and size of any product price increases we may issue.

The Successful Development of Pharmaceutical Products Is Highly Uncertain

Successful pharmaceutical product development is highly uncertain and is
dependent on numerous factors, many of which are beyond our control.
Products that appear promising in the early phases of development may fail to
reach the market for several reasons including:

-  Preclinical and clinical trial results that may show the product to be
   less effective than desired or to have harmful problematic side effects.

   For example, in June 2000, we announced that the preliminary results from
   our 415-patient Phase II clinical trial of our recombinant humanized anti-
   CD18 monoclonal antibody fragment, which is known as rhuMAb CD18, for the
   treatment of myocardial infarction, more commonly known as a heart attack,
   did not meet its primary objectives.

   For example, in April 2001, we announced that a Phase III clinical trial
   of Veletri - an intravenous dual endothelin receptor antagonist for the
   treatment of symptoms (dyspnea, or shortness of breath) associated with
   acute heart failure (AHF)- did not meet its primary objectives.

   For example, in October 2001, the FDA requested inclusion of an additional
   pharmacokinetics study in the potential BLA submission for Xanelim which
   will result in the filing date occurring later than originally estimated.

-  Failure to receive the necessary regulatory approvals or delay in
   receiving such approvals.

   For example, in July 2001, we received a Complete Response letter from the
   FDA for the license application for Xolair that was filed with the FDA in
   2000.  The letter requests additional preclinical and clinical data, as
   well as pharmacokinetic information.  With the requirement of additional
   data, FDA approval of Xolair has been delayed beyond 2001.  It is also
   anticipated that the initial proposed label claim will likely be for only
   adult allergic asthma. The exact timing of resubmission to the FDA will be
   dependent on the scope of the discussions with the FDA but is expected to
   occur in 2002 or early 2003.  In anticipation of the launch of Xolair, we
   have built approximately $34.3 million of Xolair inventory, net of amounts
   paid by collaborators and inventory reserves.  Due to the launch delay of
   Xolair, we will continually assess the recoverability of our Xolair
   inventory based on an expected FDA approval date and sales.

-  Manufacturing costs 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 commercialized.

     Success in preclinical and early clinical trials does not ensure that
large-scale clinical trials will be successful.  Clinical results are
frequently susceptible to varying interpretations that may delay, limit or
prevent regulatory approvals.  The length of time necessary to complete



                                    Page 26

<PAGE>


clinical trials and to submit an application for marketing approval for a
final decision by a regulatory authority varies significantly and may be
difficult to predict.

Factors affecting our research and development, or R&D, expenses include, but
are not limited to:

-  The number of and the outcome of clinical trials currently being conducted
   by us and/or our collaborators.

   For example, we have experienced an increase in R&D expenses in the third
   quarter and first nine months of 2001 due to 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.  In the past, promising candidates have not
   yielded sufficiently positive preclinical results to meet our stringent
   development criteria.

-  Hoffmann-La Roche's decisions 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, in February 2000, we entered into an agreement with Actelion
   Ltd. for the purchase of rights for the development and co-promotion in
   the United States of Veletri and paid Actelion an upfront fee of $15.0
   million which was recorded as an R&D expense.

   For example, in January 2001, we entered into an agreement with OSI
   Pharmaceuticals, Inc. for the global co-development and commercialization
   of an anti-cancer drug, Tarceva, and paid OSI an upfront fee of $15.0
   million for the purchase of IPR&D which was recorded as an R&D expense.

-  As part of our strategy, we invest in R&D.  R&D as a percent of revenues
   can fluctuate with the changes in future levels of revenue.  Lower
   revenues can lead to more disciplined spending of R&D efforts.

-  Future levels of revenue.

Roche, Our Controlling Stockholder, May Have Interests That Are Adverse to
Other Stockholders

Roche, as our majority stockholder, controls the outcome of actions requiring
the approval of our stockholders.  Our bylaws provide, among other things,
that the composition of our board of directors shall consist of two Roche
directors, three independent directors nominated by a nominating committee
and one Genentech employee nominated by the nominating committee.  As long as
Roche owns in excess of 50% of our common stock, Roche directors will
comprise two of the three members of the nominating committee.  However, at
any time until Roche owns less than 5% of our stock, Roche will have the
right to obtain proportional representation on our board.  Roche intends to



                                    Page 27

<PAGE>

continue to allow our current management to conduct our business and
operations as we have done in the past.  However, we cannot assure
stockholders that Roche will not institute a new business plan in the future.
Roche's interests may conflict with minority shareholder interests.

Our Affiliation Agreement With Roche Could Limit Our Ability to Make
Acquisitions and Could Have a Material Negative Impact on Our Liquidity

The affiliation agreement between us and Roche contains provisions that:

-  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 3, "Relationship with Roche -- Roche's Right to
   Maintain Its Percentage Ownership Interest in Our Stock" in the Notes to
   Condensed Consolidated Financial Statements.

These provisions may have the effect of limiting our ability to make
acquisitions and while the dollar amounts associated with the stock
repurchase program cannot currently be estimated, these stock repurchases
could have a material adverse impact on our liquidity, credit rating and
ability to access capital in the financial markets.

Our Stockholders May Be Unable to Prevent Transactions That Are Favorable to
Roche but Adverse to Us

Our certificate of incorporation includes provisions relating to:

-  Competition by Roche with us.

-  Offering of corporate opportunities.

-  Transactions with interested parties.

-  Intercompany agreements.

-  Provisions limiting the liability of specified employees.

     Our certificate of incorporation provides that any person purchasing or
acquiring an interest in shares of our capital stock shall be deemed to have
consented to the provisions in the certificate of incorporation relating to
competition with Roche, conflicts of interest with Roche, the offer of
corporate opportunities to Roche and intercompany agreements with Roche.
This deemed consent may restrict your ability to challenge transactions
carried out in compliance with these provisions.

Potential Conflicts of Interest Could Limit Our Ability to Act on
Opportunities That Are Adverse to Roche

Persons who are directors and/or officers of Genentech and who are also
directors and/or officers of Roche may decline to take action in a manner



                                    Page 28

(PAGE>


that might be favorable to us but adverse to Roche.  Two of our directors,
Dr. Franz B. Humer and Dr. Jonathan K.C. Knowles, currently serve as
directors, officers and employees of Roche Holding Ltd and its affiliates.

We May Be Unable to Retain Skilled Personnel and Maintain Key Relationships

The success of our business depends, in large part, on our continued ability
to attract and retain highly qualified management, scientific, manufacturing
and sales and marketing personnel, and on our ability to develop and maintain
important relationships with leading research institutions and key
distributors.  Competition for these types of personnel and relationships is
intense.

     Roche has the right to maintain its percentage ownership interest in our
common stock.  Our affiliation agreement with Roche provides that, among
other things, we will establish a stock repurchase program designed to
maintain Roche's percentage ownership in our common stock if we issue or sell
any shares.  This right of Roche may limit our flexibility as to the number
of shares we are able to grant under our stock option plans.  We therefore
cannot assure you that we will be able to attract or retain skilled personnel
or maintain key relationships.

We Face Growing and New Competition

We face growing competition in two of our therapeutic markets and expect new
competition in a third market.  First, in the thrombolytic market, Activase
has lost market share and could lose additional market share to Centocor's
Retavase, either alone or in combination with the use of another Centocor
product, ReoPro, registered trademark, (abciximab) and to the use of
mechanical reperfusion therapies to treat acute myocardial infarction; the
resulting adverse effect on sales has been and could continue to be material.
Retavase received approval from the FDA in October 1996 for the treatment of
acute myocardial infarction. We expect that the use of mechanical reperfusion
in lieu of thrombolytic therapy for the treatment of acute myocardial
infarction will continue to grow.

     Second, in the growth hormone market, we continue to face increased
competition from four other companies currently selling growth hormone.  As a
result of that competition, we have experienced a loss in market share.  The
four competitors have also received approval to market their existing human
growth hormone products for additional indications.  As a result of this
competition, sales of our Growth Hormone products may decline, perhaps
significantly.

     Third, in the non-Hodgkin's lymphoma market, Corixa Corporation,
formerly Coulter Pharmaceutical, Inc., has filed a revised Biologics License
Application, or BLA, for Bexxar, trademark, (tositumomab and iodine I 131
tositumomab), which may potentially compete with our product Rituxan, and the
FDA's Oncologic Drugs Advisory Committee has recommended approval of IDEC's
BLA for Zevalin, trademark, (ibritumomab tiuxetan), a product which could
also potentially compete with Rituxan.  Both Bexxar and Zevalin are
radiolabeled molecules while Rituxan is not.  We are also aware of other
potentially competitive biologic therapies for non-Hodgkin's lymphoma in
development.

Other Competitive Factors Could Affect Our Product Sales

Other competitive factors that could affect our product sales include, but
are not limited to:



                                    Page 29

<PAGE>


-  The timing of FDA approval, if any, of competitive products.

   For example, in June 2000 one of our competitors, Novo Nordisk A/S,
   received FDA approval for a liquid formulation of its growth hormone
   product that will directly compete with our liquid formulation, Nutropin
   AQ. Also in June 2000, another of our competitors, Serono S.A., received
   FDA approval to deliver its competitive growth hormone product in a
   needle-free device.

-  Our pricing decisions and the pricing decisions of our competitors.

   For example, we raised the prices of Rituxan in May 2000 and Pulmozyme in
   June 2000 by approximately 5%.

   For example, we raised the prices of Herceptin by 3% and Growth Hormone
   Product by 5% in January 2001.

-  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.

   For example, as described in Note 6, "Legal Proceedings," in the Notes to
   Condensed Consolidated Financial Statements of Part I, several companies
   have filed patent infringement lawsuits against us alleging that the
   manufacture, use and sale of certain of our products infringe their
   patents.

-  The increasing use and development of alternate therapies.

   For example, the overall size of the market for thrombolytic therapies,
   such as our Activase product, continues to decline as a result of the
   increasing use of mechanical reperfusion.

-  The rate of market penetration by competing products.

   For example, in the past, we have lost market share to new competitors in
   the thrombolytic and growth hormone markets.

In Connection With the Redemption of Our Special Common Stock, We Recorded
Substantial Goodwill and Other Intangibles, the Amortization of Which May
Adversely Affect Our Earnings

As a result of the redemption of our Special Common Stock, Roche owned all of
our outstanding common stock.  Consequently, push-down accounting under
generally accepted accounting principles was required.  Push-down accounting
required us to establish a new accounting basis for our assets and
liabilities, based on Roche's cost in acquiring all of our stock.  In other
words, Roche's cost of acquiring Genentech was "pushed down" to us and
reflected on our financial statements.  Push-down accounting required us to
record goodwill and other intangible assets of approximately $1,685.7 million
and $1,499.0 million, respectively, on June 30, 1999.

     Effective for fiscal years beginning after December 15, 2001, the
adoption of the Financial Accounting Standards Board, or FASB, Statement of
Financial Accounting Standards No. 142, or FAS 142, will require that



                                    Page 30

<PAGE>


goodwill not be amortized, but rather be subject to an impairment test at
least annually.  Separately identified and recognized intangible assets
resulting from business combinations completed before July 1, 2001, that do
not meet the new criteria for separate recognition of intangible assets will
be subsumed into goodwill upon adoption.  In addition, the useful lives of
recognized intangible assets acquired in transactions completed before July
1, 2001, will be reassessed and the remaining amortization periods adjusted
accordingly.  We will continuously evaluate whether events and circumstances
have occurred that indicate the remaining balance of goodwill and other
intangible assets may not be recoverable.  If our evaluation of the assets
results in a possible impairment, we may have to reduce the carrying value of
our intangible assets.  This could have a material adverse effect on our
financial condition and results of operations during the periods in which we
recognize a reduction.  We may have to write down intangible assets in future
periods.  For more information about push-down accounting, see the Note 2,
"Redemption of Our Special Common Stock," in the Notes to Condensed
Consolidated Financial Statements of Part I.  For more information regarding
FAS 142, see "New Accounting Pronouncement Could Impact Our Financial
Position and Results of Operations" below.

Our Royalty and Contract Revenues Could Decline

Royalty and contract revenues in future periods could vary significantly.
Major factors affecting these revenues include, but are not limited to:

-  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 conclusion of existing arrangements with other companies and Hoffmann-
   La Roche.

   For example, in the second quarter of 2001, we reacquired from Schwarz
   Pharma AG the exclusive development and marketing rights for Nutropin AQ
   and Nutropin Depot in Europe and other countries outside the United
   States, Canada, China and Japan.

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

   For example, we expect the approval of Herceptin outside the United
   States, which occurred in the third quarter of 2000, to have a continuing
   positive impact on royalties.

-  Fluctuations in foreign currency exchange rates.

-  The initiation of new contractual arrangements with other companies.

-  Whether and when contract benchmarks are achieved.

-  The failure of or refusal of a licensee to pay royalties.

-  The expiration or invalidation of patents or licensed intellectual
   property.



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<PAGE>


-  Decreases in licensees' sales of product due to competition, manufacturing
   difficulties or other factors that affect sales of product.

Protecting Our Proprietary Rights Is Difficult and Costly

The patent positions of pharmaceutical and biotechnology companies can be
highly uncertain and involve complex legal and factual questions.
Accordingly, we cannot predict the breadth of claims allowed in these
companies' patents.  Patent disputes are frequent and can preclude the
commercialization of products.  We have in the past been, are currently, and
may in the future be, involved in material patent litigation.  Our current
patent litigation matters are discussed in Note 6, " Legal Proceedings," in
the Notes to Condensed Consolidated Financial Statements of Part I.  Patent
litigation is costly in its own right and could subject us to significant
liabilities to third parties.  In addition, an adverse decision could force
us to either obtain third-party licenses at a material cost or cease using
the technology or product in dispute.

     The presence of patents or other proprietary rights belonging to other
parties may lead to our termination of the R&D of a particular product.

     We believe that we have strong patent protection or the potential for
strong patent protection for a number of our products that generate sales and
royalty revenue or that we are developing.  However, the courts will
determine the ultimate strength of patent protection of our products and
those on which we earn royalties.

We May Incur Material Litigation Costs

Litigation to which we are currently or have been subjected relates to, among
other things, our patent and intellectual property rights, licensing
arrangements with other persons, product liability and financing activities.
We cannot predict with certainty the eventual outcome of pending litigation,
and we might have to incur substantial expense in defending these lawsuits.

We May Incur Material Product Liability Costs

The testing and marketing of medical products entail an inherent risk of
product liability.  Pharmaceutical product liability exposures could be
extremely large and pose a material risk.  Our business may be materially and
adversely affected by a successful product liability claim in excess of any
insurance coverage that we may have.

We May Be Unable to Obtain Regulatory Approvals for Our Products

The pharmaceutical industry is subject to stringent regulation with respect
to product safety and efficacy by various federal, state and local
authorities.  Of particular significance are the FDA's requirements covering
R&D, testing, manufacturing, quality control, labeling and promotion of drugs
for human use.  A pharmaceutical product cannot be marketed in the United
States until it has been approved by the FDA, and then can only be marketed
for the indications and claims approved by the FDA.  As a result of these
requirements, the length of time, the level of expenditures and the
laboratory and clinical information required for approval of a New Drug
Application, or NDA, or a BLA, are substantial and can require a number of
years.  In addition, after any of our products receive regulatory approval,
they remain subject to ongoing FDA regulation, including, for example,
changes to their label, written advisements to physicians and product recall.



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<PAGE>


     We cannot be sure that we can obtain necessary regulatory approvals on a
timely basis, if at all, for any of the products we are developing or that we
can maintain necessary regulatory approvals for our existing products, and
all of the following could have a material adverse effect on our business:

-  Significant delays in obtaining or failing to obtain required approvals.

   For example, see "The Successful Development of Pharmaceutical Products is
   Highly Uncertain" above for a description of the delay in receipt of FDA
   approval for Xolair.

-  Loss of or changes to previously obtained approvals.

   For example, in May 2000, we issued letters to physicians advising them of
   some serious adverse events associated with the administration of
   Herceptin.  In October 2000, we issued a new package insert for Herceptin
   including this information.

-  Failure to comply with existing or future regulatory requirements.

     Moreover, it is possible that the current regulatory framework could
change or additional regulations could arise at any stage during our product
development, which may affect our ability to obtain approval of our products.

Difficulties or Delays in Product Manufacturing Could Harm Our Business

We currently produce all of our products at our manufacturing facilities
located in South San Francisco, California and Vacaville, California or
through various contract manufacturing arrangements.  Problems with any of
our or our contractors' manufacturing processes could result in product
defects, which could require us to delay shipment of products, recall
products previously shipped or be unable to supply products at all.

     For example, in March 2000, we issued an important drug notification
regarding a defect in the packaging of our Pulmozyme product.  During a
quality assurance inspection, we had discovered that there was a defect in
the packaging of Pulmozyme which occasionally caused a small puncture in
ampules of that product.  We suspended shipping the product while we
determined the source and extent of the defect.  We ultimately recalled some
of the product.

     In April 2001, we issued another important drug notification regarding a
separate defect in the manufacture of a Pulmozyme product lot which was
causing a small puncture in a small number of ampules of the product.  We
suspended shipping the product upon discovery of this defect and recalled the
few cases of the product lot that had been distributed.

     On December 27, 2000, we received a Warning Letter from the FDA
regarding our quality control at our South San Francisco manufacturing plant.
The products cited were for Pulmozyme, Herceptin and Activase.  On February
7, 2001, we received a letter from the FDA accepting our responses and
corrective actions with respect to the Warning Letter.  If we were to
experience additional quality control or other related manufacturing problems
in the future, the FDA could take more significant action, including causing
us to cease manufacturing of one or more products for a period of time.

     In July 2001, we passed a full inspection by the FDA Team Biologics
confirming that Genentech is in a full state of manufacturing compliance.



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<PAGE>


     In addition, any prolonged interruption in the operations of our or our
contractors' manufacturing facilities could result in cancellations of
shipments or loss of product in the process of being manufactured.  A number
of factors could cause interruptions, including equipment malfunctions or
failures, or damage to a facility due to natural disasters, rolling blackouts
imposed by a utility such as Pacific Gas & Electric Company or otherwise.
Because our manufacturing processes and those of our contractors are highly
complex and are subject to a lengthy FDA approval process, alternative
qualified production capacity may not be available on a timely basis or at
all.  Difficulties or delays in our and our contractors' manufacturing of
existing or new products could increase our costs, cause us to lose revenue
or market share and damage our reputation.

Future Stock Repurchases Could Adversely Affect Our Cash Position

We have reviewed the practices of other companies in our and related
industries with respect to the use of share repurchases to offset the
dilution of stock options and employee stock purchase plan purchases.  Based
upon an ongoing review of such factors as current interest rates, current
market conditions, our current share price and also the share repurchase
provisions of our affiliation agreement with Roche, we may repurchase shares
of our common stock on the open market from time to time.

     While the dollar amounts associated with these future stock repurchases
cannot currently be estimated, these stock repurchases could have a material
adverse effect on our cash position, credit rating and ability to access
capital in the financial markets, and could limit our ability to use our
capital stock as consideration for acquisitions.

Our Stock Price, Like That of Many Biotechnology Companies, Is Highly
Volatile

The market prices for securities of biotechnology companies in general have
been highly volatile and may continue to be highly volatile in the future.
In addition, due to the absence of the put and call that were associated with
our Special Common Stock, the market price of our common stock has been and
may continue to be more volatile than our Special Common Stock was in the
past.  For example, our common stock reached a high of $122.50 per share in
March 2000 and decreased, as the biotech sector and stock market in general
decreased, to $38.65 per share in July 2001.

     In addition, the following factors may have a significant impact on the
market price of our common stock:

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

-  Developments concerning proprietary rights, including patents.

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

-  Regulatory developments concerning our products in the United States and
   foreign countries.

-  Issues concerning the safety of our products or of biotechnology products
   generally.



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<PAGE>


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

-  Period-to-period fluctuations in financial results.

Our Affiliation Agreement With Roche Could Adversely Affect Our Cash Position

Our affiliation agreement with Roche provides that we will 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 3, "Relationship with
Roche -- Roche's Right to Maintain Its Percentage Ownership Interest in Our
Stock" in the Notes to Condensed Consolidated Financial Statements.

     While the dollar amounts associated with these future stock repurchases
cannot currently be estimated, these stock repurchases could have a material
adverse effect on our cash position, and may have the effect of limiting our
ability to use our capital stock as consideration for acquisitions.

Future Sales by Roche Could Cause the Price of Our Common Stock to Decline

As of September 30, 2001, Roche owned 306,594,352 shares of our common stock
or approximately 58.15% of our outstanding shares.  All of our shares owned
by Roche are eligible for sale in the public market subject to compliance
with the applicable securities laws.  We have agreed that, upon Roche's
request, we will file one or more registration statements under the
Securities Act in order to permit Roche to offer and sell shares of our
common stock.  Sales of a substantial number of shares of our common stock by
Roche in the public market could adversely affect the market price of our
common stock.

We Are Exposed to Market Risk

We are exposed to market risk, including changes to interest rates, foreign
currency exchange rates and equity investment prices.  To reduce the
volatility relating to these exposures, we enter into various derivative
investment transactions pursuant to our investment and risk management
policies and procedures in areas such as hedging and counterparty exposure
practices.  We do not use derivatives for speculative purposes.

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

Our Interest Income is Subject to Fluctuations in Interest Rates

Our material interest bearing assets, or interest bearing portfolio,
consisted of cash equivalents, restricted cash, short-term investments,
convertible preferred stock investments, convertible loans and long-term
investments.  The balance of our interest bearing portfolio was $1,879.6
million or 28% of total assets at December 31, 2000.  Interest income related
to this portfolio was $90.4 million or 5% of total revenues at December 31,
2000.  Our interest income is sensitive to changes in the general level of



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<PAGE>


interest rates, primarily U.S. interest rates.  In this regard, changes in
U.S. interest rates affect the interest bearing portfolio.  To mitigate the
impact of fluctuations in U.S. interest rates, for a portion of our
portfolio, we have entered into swap transactions, which involve the receipt
of fixed rate interest and the payment of floating rate interest without the
exchange of the underlying principal.

We Are Exposed to Risks Relating to Foreign Currency Exchange Rates and
Foreign Economic Conditions

We receive royalty revenues from licensees selling products in countries
throughout the world.  As a result, our financial results could be
significantly affected by factors such as changes in foreign currency
exchange rates or weak economic conditions in the foreign markets in which
our licensed products are sold.  We are exposed to changes in exchange rates
in Europe, Asia (primarily Japan) and Canada.  Our exposure to foreign
exchange rates primarily exists with the Euro.  When the dollar strengthens
against the currencies in these countries, the dollar value of non-dollar-
based revenue decreases; when the dollar weakens, the dollar value of the
non-dollar-based revenues increases.  Accordingly, changes in exchange rates,
and in particular a strengthening of the dollar, may adversely affect our
royalty revenues as expressed in dollars.  Increasingly however, these
royalties are being offset by expenses arising from our foreign facility as
well as non-dollar expenses incurred in our collaborations.  Currently, our
foreign royalty revenues exceed our expenses.  In addition, as part of our
overall investment strategy, a portion of our portfolio is primarily in non-
dollar denominated investments.  As a result, we are exposed to changes in
the exchange rates of the countries in which these non-dollar denominated
investments are made.

     To mitigate our net foreign exchange exposure, our policy allows us to
hedge certain of our anticipated revenues by purchasing option contracts with
expiration dates and amounts of currency that are based on 25% to 90% of
probable future revenues so that the potential adverse impact of movements in
currency exchange rates on the non-dollar denominated revenues will be at
least partly offset by an associated increase in the value of the option.
Currently, the term of these options is generally one to two years.  To hedge
the non-dollar expenses arising from our foreign facility, we may enter into
forward contracts to lock in the dollar value of a portion of these
anticipated expenses.

Our Investments in Equity Securities Are Subject to Market Risks

As part of our strategic alliance efforts, we invest in equity instruments of
biotechnology companies.  Our biotechnology equity investment portfolio
totaled $652.7 million or 10% of total assets at December 31, 2000.  These
investments are subject to fluctuations from market value changes in stock
prices.  For example, in the first quarter of 2001, we took a significant
charge on an equity security investment that had an other than temporary
impairment.

     To mitigate the risk of market value fluctuation, certain equity
securities are hedged with costless collars and forward contracts.  A
costless collar is a purchased put option and a written call option in which
the cost of the purchased put and the proceeds of the written call offset
each other; therefore, there is no initial cost or cash outflow for these
instruments at the time of purchase.  The purchased put protects us from a
decline in the market value of the security below a certain minimum level



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<PAGE>


(the put "strike" level), while the call effectively limits our potential to
benefit from an increase in the market value of the security above a certain
maximum level (the call "strike" level).  A forward contract is a derivative
instrument where we pay the counterparty the total return of the security
above the current spot price and receive interest income on the notional
amount for the contract term.  The forward contract protects us from a
decline in the market value of the security below the spot price and limits
our potential benefit from an increase in the market value of the security
above the spot price.  In addition, as part of our strategic alliance
efforts, we hold dividend-bearing convertible preferred stock and have made
interest-bearing loans that are convertible into the equity securities of the
debtor.

We Are Exposed to Credit Risk of Counterparties

We could be exposed to losses related to the financial instruments described
above under "We Are Exposed to Market Risk" should one of our counterparties
default.  We attempt to mitigate this risk through credit monitoring
procedures.

New Accounting Pronouncement Could Impact Our Financial Position and Results
of Operations

In July 2001, the Financial Accounting Standards Board, or FASB, issued two
statements as a result of its deliberations on the business combinations
project, Statement of Financial Accounting Standards No. 141, or FAS 141, on
Business Combinations and FAS 142 on Goodwill and Other Intangible Assets.
FAS 141 will be effective for any business combinations initiated after June
30, 2001 and also includes the criteria for the recognition of intangible
assets separately from goodwill.  FAS 142 will be effective for fiscal years
beginning after December 15, 2001 and will require that goodwill not be
amortized, but rather be subject to an impairment test at least annually.
Separately identified and recognized intangible assets resulting from
business combinations completed before July 1, 2001 that do not meet the new
criteria for separate recognition of intangible assets will be subsumed into
goodwill upon adoption.  In addition, the useful lives of recognized
intangible assets acquired in transactions completed before July 1, 2001 will
be reassessed and the remaining amortization periods adjusted accordingly.

     The adoption of FAS 141 and 142 is not expected to have a significant
impact on our financial position at transition.  We expect that the
elimination of goodwill amortization related to push-down accounting would
have a positive impact on reported net income in 2002 of at least $150.0
million.



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<PAGE>


Item 3.    Quantitative and Qualitative Disclosures About Market Risk


Our market risks at September 30, 2001 have not changed significantly from
those discussed in Item 7A of our Form 10-K for the period ended December 31,
2000 on file with the Securities and Exchange Commission.  See also the
"Derivative and Hedging Activities" section of Note 1, "Statement of
Accounting Presentation and Significant Accounting Policies" of Item 1 and
the "Forward-Looking Information and Cautionary Factors That May Affect
Future Results--We Are Exposed to Market Risk" section of Item 2 of this Form
10-Q for additional discussions of our market risks.



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<PAGE>


                               GENENTECH, INC.
                         PART II.  OTHER INFORMATION


Item 1.     Legal Proceedings

In connection with the patent infringement lawsuit filed against us by
GlaxoSmithKline plc on May 28, 1999, the jury hearing the lawsuit unanimously
found that Herceptin and Rituxan do not infringe the Glaxo patents and
therefore that Genentech is not required to pay royalties to Glaxo.  The jury
also unanimously found that all of the patent claims that Glaxo asserted
against Genentech were invalid.  On May 31, 2001, Glaxo filed a notice of
appeal of the jury's verdict with the U.S. Court of Appeals for the Federal
Circuit.  No date has been set for the argument of the appeal.  Proceedings
in connection with Genentech's claim against Glaxo for inequitable conduct
and other related issues are still pending before the district court.

In connection with the declaratory judgement lawsuit filed by Genentech
against Genzyme Corporation on March 13, 2001, and the patent infringement
lawsuit filed by Genzyme against us on April 6, 2001, Genzyme filed its
answer to our complaint on May 2, 2001 and Genentech filed its answer to
Genzyme's complaint on May 3, 2001.  The court has consolidated these two
lawsuits for further proceedings.  The trial date of this consolidated suit
is scheduled to begin January 21, 2003.

In connection with the breach of contract lawsuit filed against us by City of
Hope Medical Center on August 13, 1999, jury selection for the trial began on
August 28, 2001, and the trial is currently ongoing.  City of Hope is seeking
compensatory damages in the amount of approximately $445.0 million (including
interest) and special damages.

See also Item 3 of our report on Form 10-K for the period ended December 31,
2000.

See also Item 1 of our reports on Form 10-Q for the periods ended March 31,
2001 and June 30, 2001.

See also Note 6, "Legal Proceedings," in the Notes to Condensed Consolidated
Financial Statements of Part I.


Item 6.     Exhibits and Reports on Form 8-K

            (a)  Exhibits

                 15.1  Letter regarding Unaudited Interim Financial
                       Information.

            (b)  Reports on Form 8-K

                 There were no reports on Form 8-K filed during the quarter
                 ended September 30, 2001.



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<PAGE>


                               GENENTECH, INC.
                                 SIGNATURES


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


                                         GENENTECH, INC.



   Date:  October 12, 2001               /s/ARTHUR D. LEVINSON
        ------------------               ------------------------------------
                                         Arthur D. Levinson, Ph.D.
                                         Chairman and Chief Executive Officer



   Date:  October 12, 2001               /s/LOUIS J. LAVIGNE, JR.
        ------------------               ------------------------------------
                                         Louis J. Lavigne, Jr.
                                         Executive Vice President and Chief
                                         Financial Officer



   Date:  October 12, 2001               /s/JOHN M. WHITING
        ------------------               ------------------------------------
                                         John M. Whiting
                                         Vice President, Controller and
                                         Chief Accounting Officer



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