<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, 1998.

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


                           Commission File Number
                                    1-9813

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

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

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

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

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

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

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

Callable Putable Common Stock $.02 par value  49,791,860
(Special Common Stock)                        Outstanding at September 30, 1998














<PAGE>
                                 GENENTECH, INC.
                                      INDEX
<TABLE>
<CAPTION>

PART I.     FINANCIAL INFORMATION                                    PAGE NO.
<S>                                                                  <C>
Condensed Consolidated Statements of Income -
for the three months and nine months ended 
September 30, 1998 and 1997                                             3

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

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

Notes to Condensed Consolidated Financial Statements                  6-9

Independent Accountants' Review Report                                 10

Financial Review                                                    11-20

PART II.     OTHER INFORMATION                                         21

SIGNATURES                                                             22


</TABLE>

































                                    Page 2
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements

                                 GENENTECH, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                      (thousands, except per share amounts)
                                   (unaudited)
<TABLE>
<CAPTION>
                                               Three Months          Nine Months
                                           Ended September 30,    Ended September 30,
                                          ---------------------  ---------------------
                                             1998        1997       1998        1997
                                          ---------   ---------  ---------   ---------
<S>                                       <C>         <C>        <C>         <C>
Revenues:
  Product sales (including amounts 
    from related parties: three months -
    1998-$8,122; 1997-$5,720; nine 
    months - 1998-$21,295; 1997-$14,718)  $ 163,100   $ 142,306  $ 504,082   $ 441,537
  Royalties (including amounts from
    related parties: three months -
    1998-$9,167; 1997-$5,385; nine 
    months - 1998-$25,048; 1997-$18,408)     60,725      59,632    182,606     180,323
  Contract and other (including 
    amounts from related parties: 
    three months - 1998-$43,010; 
    1997-$29,910; nine months - 
    1998-$58,658; 1997-$56,311)              66,113      29,385     95,034      67,453
  Interest                                   23,992      17,594     64,920      50,382
                                          ---------   ---------  ---------   ---------
     Total revenues                         313,930     248,917    846,642     739,695

Costs and expenses:
  Cost of sales (including amounts 
    from related parties: three months -
    1998-$5,596; 1997-$4,750; nine 
    months - 1998-$17,368; 1997-$12,313)     35,351      26,565    106,122      79,817
  Research and development (including
    contract related: three months -
    1998-$6,825; 1997-$29,910; nine
    months - 1998-$26,566; 1997-$56,311)     99,862     118,146    291,013     351,779
  Marketing, general and administrative      89,544      65,450    245,137     190,504
  Interest                                    1,148         542      3,302       2,446
                                          ---------   ---------  ---------   ---------
    Total costs and expenses                225,905     210,703    645,574     624,546

Income before taxes                          88,025      38,214    201,068     115,149
 
Income tax provision                         24,647       6,092     56,299      27,634
                                          ---------   ---------  ---------   ---------
Net income                                $  63,378   $  32,122  $ 144,769   $  87,515
                                          =========   =========  =========   =========
Earnings per share 

  Basic                                   $    0.50   $    0.26  $    1.15   $    0.71
                                          =========   =========  =========   =========
  Diluted                                 $    0.49   $    0.25  $    1.12   $    0.69
                                          =========   =========  =========   =========
Weighted average shares used to 
  compute diluted earnings per share        129,948     126,677    129,510     126,120
                                          =========   =========  =========   =========
</TABLE>
              See Notes to Condensed Consolidated Financial Statements.

                                    Page 3
<PAGE>

                                   GENENTECH, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                     (thousands)
                                     (unaudited)
<TABLE>
<CAPTION>
                                                                   Nine Months
                                                                Ended September 30,
                                                              ----------------------
                                                                 1998        1997
                                                              ----------  ----------
<S>                                                           <C>         <C>
Cash flows from operating activities:
  Net income                                                  $  144,769  $   87,515
  Adjustments to reconcile net income to net cash 
   provided by operating activities:
   Depreciation and amortization                                  57,417      49,887
   Deferred income taxes                                          (4,677)     (4,445)
   Gain on sales of securities available-for-sale                 (5,839)     (6,641)
   Loss on sales of securities available-for-sale                    669       1,821
   Write down of securities available-for-sale                    14,550           -
   Loss on fixed asset dispositions                                  730         318
  Changes in assets and liabilities:
     Investments in trading securities                           (23,028)   (107,150)
     Receivables and other current assets                         59,116     (10,301)
     Inventories                                                  (7,860)     (6,950)
     Accounts payable, other current liabilities 
       and other long-term liabilities                            43,334      32,067
                                                              ----------  ----------
  Net cash provided by operating activities                      279,181      36,121

Cash flows from investing activities:
  Purchases of securities held-to-maturity                      (327,690)   (360,698)
  Proceeds from maturities of securities held-to-maturity        353,029     396,543
  Purchases of securities available-for-sale                    (586,328)   (297,730)
  Proceeds from sales of securities available-for-sale           321,573     301,507
  Purchases of non-marketable equity securities                  (13,575)          -
  Capital expenditures                                           (61,740)   (121,350)
  Change in other assets                                         (11,291)    (33,822)
                                                              ----------  ----------
  Net cash used in investing activities                         (326,022)   (115,550)

Cash flows from financing activities:
  Stock issuances                                                 81,638      67,116
                                                              ----------  ----------
  Net cash provided by financing activities                       81,638      67,116
                                                              ----------  ----------
Net increase (decrease) in cash and cash equivalents              34,797     (12,313)
  Cash and cash equivalents at beginning of period               244,469     207,264
                                                              ----------  ----------
  Cash and cash equivalents at end of period                  $  279,266  $  194,951
                                                              ==========  ==========

</TABLE>
              See Notes to Condensed Consolidated Financial Statements.







                                    Page 4
<PAGE>

                                   GENENTECH, INC.
                        CONDENSED CONSOLIDATED BALANCE SHEETS
                                     (thousands)
                                     (unaudited)
<TABLE>
<CAPTION>
                                                      September 30,    December 31,
                                                          1998             1997
                                                      ------------     ------------
<S>                                                   <C>              <C>
ASSETS
Current assets:
  Cash and cash equivalents                           $    279,266     $    244,469
  Short-term investments                                   708,519          588,853
  Accounts receivable, net (including amounts
    from related party: 1998-$23,360
    1997-$44,386)                                          135,127          189,245
  Inventories                                              123,886          116,026
  Prepaid expenses and other current assets                 55,135           55,325
                                                      ------------     ------------
     Total current assets                                1,301,933        1,193,918

Long-term marketable securities                            566,052          453,188
Property, plant and equipment, less accumulated
  depreciation (1998-$426,702; 1997-$376,091)              692,876          683,304
Other assets                                               187,391          177,202
                                                      ------------     ------------
Total assets                                          $  2,748,252     $  2,507,612
                                                      ============     ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                    $     30,125     $     48,992
  Income taxes payable                                      79,982           40,293
  Accrued liabilities - related party                       13,996           15,427
  Other accrued liabilities                                193,067          184,845
                                                      ------------     ------------
     Total current liabilities                             317,170          289,557

Long-term debt                                             150,000          150,000
Other long-term liabilities                                 33,001           36,830
                                                      ------------     ------------
     Total liabilities                                     500,171          476,387

Commitments and contingencies
Stockholders' equity:
  Preferred stock                                                -                -
  Special Common Stock                                         996              952
  Common Stock                                               1,532            1,532
  Additional paid-in capital                             1,545,362        1,463,768
  Retained earnings                                        655,910          511,141
  Net unrealized gain on securities
     available-for-sale                                     44,281           53,832
                                                      ------------     ------------
     Total stockholders' equity                          2,248,081        2,031,225
                                                      ------------     ------------
Total liabilities and stockholders' equity            $  2,748,252     $  2,507,612
                                                      ============     ============

</TABLE>
            See Notes to Condensed Consolidated Financial Statements.



                                    Page 5
<PAGE>

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


Note 1.     Statement of Accounting Presentation

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

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


Note 2.     New Accounting Standards

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

<TABLE>
<CAPTION>
                                      Three Months          Nine Months
                                   Ended September 30,   Ended September 30,
                                   ------------------    ------------------
                                      1998      1997        1998      1997
                                   --------  --------    --------  --------
<S>                                <C>       <C>         <C>       <C>
Numerator:
 Net income - numerator for 
  basic and diluted EPS:           $ 63,378  $ 	32,122    $144,769  $ 87,515
                                   --------  --------    --------  --------
Denominator:
 Denominator for basic EPS--
  weighted-average shares           126,080   123,415	     125,480	   122,731

 Effect of dilutive securities:
  Stock options                       3,868     3,262	       4,030     3,389
                                   --------  --------    --------  --------
 Denominator for diluted EPS
 --adjusted weighted-average 
   shares and assumed conversions   129,948   126,677	     129,510	   126,120
                                   ========  ========    ========  ========
</TABLE>


                                    Page 6
<PAGE>

Options to purchase 1,563,950 shares of Special Common Stock between $68.19 
per share and $68.38 per share were outstanding in the nine-month period ended 
September 30, 1998, and options to purchase 147,900 shares of Special Common 
Stock at $58.38 per share and 182,905 shares of Special Common Stock between 
$57.38 per share and $58.38 per share were outstanding in the three- and nine-
month periods ended September 30, 1997, respectively, but were not included in 
the computations of diluted EPS because the options were anti-dilutive.

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

The Financial Accounting Standards Board (the FASB) issued FAS 130, "Reporting 
Comprehensive Income," and FAS 131, "Disclosures about Segments of an 
Enterprise and Related Information," in June 1997, which require additional 
disclosures to be adopted by December 31, 1998.  Under FAS 130, the Company is 
required to display comprehensive income and its components as part of the 
Company's full set of financial statements.  Comprehensive income is comprised 
of net income and other comprehensive income.  The measurement and 
presentation of net income will not change.  Other comprehensive income 
includes certain changes in equity of the Company that are excluded from net 
income.  Specifically, FAS 130 requires unrealized holding gains and losses on 
the Company's available-for-sale securities, which are currently reported 
separately in stockholders' equity, to be included in other comprehensive 
income.  For the three-month periods ended September 30, 1998 and 1997, total 
comprehensive income was $68.9 million and $57.1 million, respectively.  For 
the nine-month periods ended September 30, 1998 and 1997, total comprehensive 
income was $135.2 million and $102.8 million, respectively.

FAS 131 establishes annual and interim reporting standards for an enterprise's 
operating segments and related disclosures about its products, services, 
geographic areas and major customers.  The impact of FAS 131 will be limited 
to the form and content of the Company's disclosures.

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


Note 3.     Relationship with Roche Holdings, Inc.

On October 25, 1995, the Company and Roche Holdings, Inc. (Roche) entered into 
a new agreement (the Agreement) to extend until June 30, 1999, Roche's option 
to cause the Company to redeem (call) the outstanding Special Common Stock of 
the Company at predetermined prices.  Should the call be exercised, Roche will 
concurrently purchase from the Company a like number of shares of Common Stock 
for a price equal to the Company's cost to redeem the Special Common Stock.  
During the quarter beginning October 1, 1998, the call price is $79.50 per 
share and increases by $1.50 per share each quarter through the end of the 
option period on June 30, 1999, on which date the price will be $82.50 per 
share.  If Roche does not cause the redemption as of June 30, 


                                    Page 7
<PAGE>

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

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

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

Under the Agreement, independent of its right to cause the Company to redeem 
the Special Common Stock, Roche may increase its ownership of the Company up 
to 79.9% by making purchases on the open market.  Roche held approximately 
65.7% of the outstanding common equity of the Company as of September 30, 
1998.

Contract revenue for the reimbursement of ongoing development expenses for 
nerve growth factor (NGF), for which HLR exercised its development option 
under the License Agreement in 1996, was $2.9 million and $11.7 million for 
the three- and nine-month periods ended September 30, 1998, respectively.

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


Note 4.     Legal Proceedings 

The Company is a party to various legal proceedings, including patent 
infringement cases involving human growth hormone products and Activase, 
registered trademark, and other matters.

In July 1997, an action was filed in the U.S. District Court for the Northern 
District of California alleging that the Company's manufacture, use and sale 
of its Nutropin, registered trademark, human growth hormone products infringed 
a patent (the Goodman Patent) owned by the Regents of the University of 
California (UC).  This action is substantially the same as a previous action 
filed in 1990 against the Company by UC alleging that the 


                                    Page 8
<PAGE>

Company's manufacture, use and sale of its Protropin, registered trademark, 
human growth hormone products infringed the Goodman Patent.  The 1997 case has 
been stayed pending the conclusion of the 1990 case, which is expected to 
commence trial in April 1999.

In 1995, the Company received and responded to grand jury document subpoenas 
from the U.S. District Court for the Northern District of California for 
documents relating to the Company's past clinical, sales and marketing 
activities associated with human growth hormone.  In February 1997 and 
February 1998, the Company received grand jury document subpoenas from the 
same court related to the same subject matter.  The government is actively 
investigating this matter, and the Company believes that it is a subject of 
that investigation.  Certain employees and an ex-employee received letters 
from the government informing them that they are targets of the investigation.

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


Note 5.     Inventories

Inventories are summarized below:

<TABLE>
<CAPTION>
                                        September 30,     December 31,
                                            1998              1997
                                        -------------     ------------
                                                  (thousands)
<S>                                     <C>               <C>
         Raw materials and supplies      $  17,121         $  17,544
         Work in process                    90,834            84,831
         Finished goods                     15,931            13,651
                                         ---------         ---------
                Total                    $ 123,886         $ 116,026
                                         =========         =========

</TABLE>







                                    Page 9
<PAGE>

                   INDEPENDENT ACCOUNTANTS' REVIEW REPORT



The Board of Directors and Stockholders
Genentech, Inc.


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

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

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

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





                                             ERNST & YOUNG LLP

San Jose, California 
October 9, 1998











                                    Page 10
<PAGE>

Item 2.  FINANCIAL REVIEW


RELATIONSHIP WITH ROCHE HOLDINGS, INC.

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

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

As a result of the License Agreement, contract revenue for the three- and 
nine-month periods ended September 30, 1998, totaled $2.9 million and $11.7 
million, respectively, for the reimbursement of ongoing development expenses 
related to nerve growth factor (NGF), for which HLR exercised its development 
option under the License Agreement in 1996.

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















                                    Page 11
<PAGE>

<TABLE>
<CAPTION>

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

                               Three Months Ended             Nine Months Ended
                                 September 30,                  September 30,
                               ------------------             ------------------
REVENUES                         1998       1997    % Change    1998       1997   % Change
----------------------------   -------    -------  --------   -------    -------  --------
<S>                            <C>        <C>      <C>        <C>        <C>      <C>
Revenues                       $ 313.9    $ 248.9      26%    $ 846.6    $ 739.7      14%
                               =======    =======  ========   =======    =======  ========
PRODUCT SALES
----------------------------
Activase                       $  45.1    $  60.7     (26)%   $ 154.9    $ 204.0     (24)%
Protropin, Nutropin 
  and Nutropin AQ                 52.9       57.0      (7)      166.1      168.5      (1)
Pulmozyme                         24.7       23.8       4        68.3       66.3       3
Rituxan                           39.4        -         -       111.9        -         -
Actimmune                          1.0        0.8      25         2.9        2.7       7
                               -------    -------  --------   -------    -------  --------
  Total product sales          $ 163.1    $ 142.3      15%    $ 504.1    $ 441.5      14%
                               =======    =======  ========   =======    =======  ========
</TABLE>

Rituxan, trademark, (Rituximab) was approved by the FDA in November 1997 for 
the treatment of patients with relapsed or refractory low-grade or follicular, 
CD20-positive B-cell non-Hodgkin's lymphoma, a cancer of the immune system.  
Net sales of Rituxan were $37.7 million, $34.8 million and $39.4 million in 
the first, second and third quarters of 1998, respectively. During the third 
quarter of 1998, the Company began shipping Rituxan to drug wholesalers rather 
than directly to customers.  The sales increase over the previous quarter 
resulted primarily from initial stocking by wholesalers.  Rituxan was co-
developed by the Company and IDEC Pharmaceuticals Corporation (IDEC), from 
whom the Company licenses Rituxan.

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

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

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


                                    Page 12
<PAGE>

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

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

Net sales of the Company's three growth hormone products - Protropin, 
registered trademark, (somatrem for injection), Nutropin, registered 
trademark, [somatropin (rDNA origin) for injection] and Nutropin AQ, 
registered trademark, [somatropin (rDNA origin) injection] - decreased in the 
three- and nine-month periods ended September 30, 1998 from the comparable 
periods in 1997.  These decreases primarily reflect fluctuations in 
distributors' ordering patterns. 

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

In September 1998, the Company received FDA approval to market Herceptin for 
use in patients with metastatic breast cancer who have tumors that overexpress 
the HER2 (human epidermal growth factor receptor2) protein.  Studies have 
shown that 25 to 30 percent of all women with metastatic breast cancer have 
HER2 overexpression, which is associated with more aggressive disease.  
Herceptin is the first humanized monoclonal antibody for the treatment of HER2 
overexpressing metastatic breast cancer and the second U.S. approval in this 
new class of biotherapeutic cancer drugs.  The first was Rituxan, which was 
approved in November of 1997.  Pursuant to an agreement entered into with the 
Company, HLR received exclusive marketing rights to Herceptin outside of the 
U.S.

During the quarter ended June 30, 1998, the Company licensed U.S. marketing 
and development rights to interferon gamma, including Actimmune, registered 
trademark, (Interferon gamma-1b), to Connetics Corporation.  Following a 
transition period, the Company will no longer sell Actimmune, but has agreed 
to supply bulk materials to Connetics Corporation at cost plus a mark-up.







                                    Page 13
<PAGE>
<TABLE>
<CAPTION>
                              Three Months Ended              Nine Months Ended
                                 September 30,                   September 30,
ROYALTIES, CONTRACT AND       ------------------              ------------------
OTHER, AND INTEREST INCOME      1998       1997    % Change     1998       1997    % Change
----------------------------  -------    -------   --------   -------    -------   --------
<S>                           <C>        <C>       <C>        <C>        <C>       <C>
Royalties                     $  60.7    $  59.6        2%    $ 182.6    $ 180.3        1%
Contract and other               66.1       29.4      125        95.0       67.5       41
Interest income                  24.0       17.6       36        64.9       50.4       29
</TABLE>


Royalty revenues in the three- and nine-month periods ended September 30, 1998 
increased slightly from the comparable periods of 1997.  See also above 
discussion of Rituxan royalties from HLR.

Contract and other revenues increased in the three- and nine-month periods 
ended September 30, 1998 from the comparable periods of 1997.  These increases 
were primarily due to the contract payment from HLR for exclusive marketing 
rights for Herceptin, as discussed above, and the patent infringement 
settlement with Novo Nordisk A/S (Novo), as discussed below, partly offset by 
lower revenues from HLR primarily due to the discontinuation of two clinical 
trials.

In July 1998, the Company and Novo agreed to settle a lawsuit brought in 
October 1997 by Novo in the U.S. District Court for the District of New Jersey 
alleging infringement of a patent held by Novo relating to the Company's 
manufacture, use and sale of its Nutropin human growth hormone products, and a 
lawsuit brought by the Company in the U.S. District Court for the Southern 
District of New York relating to the Company's patents for human growth 
hormone and insulin.  Under the settlement agreement, Novo and the Company 
agreed to cross-license worldwide certain patents relating to human growth 
hormone.  In August 1998, Novo received a worldwide license under the Company 
patents relating to insulin and the Company received certain payments which 
were recorded in contract revenues.

Interest income increased in the three- and nine-month periods ended September 
30, 1998 from the comparable periods in 1997 primarily due to a higher 
portfolio balance.  The total investment portfolio, consisting of cash and 
cash equivalents, and short- and long-term marketable securities, increased to 
$1,553.8 million as of September 30, 1998 from $1,257.8 million as of 
September 30, 1997 and from $1,286.5 million as of December 31, 1997.

<TABLE>
<CAPTION>
                              Three Months Ended             Nine Months Ended
                                 September 30,                 September 30,
                              ------------------             ------------------
COSTS AND EXPENSES              1998       1997    % Change    1998       1997    % Change
----------------------------  -------    -------   --------  -------    -------   --------
<S>                           <C>        <C>       <C>       <C>        <C>       <C>
Cost of sales                 $  35.3    $  26.6       33%   $ 106.1    $  79.8       33%
Research and development         99.9      118.1      (15)     291.0      351.8      (17)
Marketing, general and
  administrative                 89.6       65.5       37      245.1      190.5       29
Interest expense                  1.1        0.5      120        3.3        2.4       38
                              -------    -------   --------  -------    -------   --------
  Total costs and expenses    $ 225.9    $ 210.7        7%   $ 645.5    $ 624.5        3%
                              =======    =======   ========  =======    =======   ========
</TABLE>

Cost of sales increased in the three- and nine-month periods ended September 
30, 1998 from the comparable periods in 1997 primarily as a result of a shift 
in the product mix, including the introduction of Rituxan.



                                    Page 14
<PAGE>

Research and development (R&D) expenses decreased in the three- and nine-month 
periods ended September 30, 1998 from the comparable periods in 1997 primarily 
due to the wind-down of large late-stage clinical trials and higher costs to 
license technology from collaborators in 1997.  For the nine-month period 
ended September 30, 1998, the Company invested approximately 34% of revenues 
in R&D compared to approximately 48% in the comparable period in 1997.  This 
percentage decrease reflects the Company's goal to decrease R&D spending as a 
percent of revenues as products progress through late-stage clinical trials 
and revenues increase.

Marketing, general and administrative (MG&A) expenses increased in the three- 
and nine-month periods ended September 30, 1998 from the comparable periods in 
1997.  The marketing and sales (M&S) increases were driven by the introduction 
of Rituxan and the resultant profit sharing with IDEC, launch preparations for 
Herceptin, and competitive conditions with other marketed products.  G&A 
expenses were higher as a result of the write-down of certain biotechnology 
equity securities and higher corporate expenses.

<TABLE>
<CAPTION>
                             Three Months Ended             Nine Months Ended
                               September 30,                 September 30,
                             ------------------            ------------------
INCOME TAXES                   1998       1997   % Change    1998       1997   % Change
---------------------------  -------    -------  --------  -------    -------  --------
<S>                          <C>        <C>      <C>       <C>        <C>      <C>
Income Taxes                 $  24.6    $   6.1     303%   $  56.3    $  27.6     104%
</TABLE>

The Company's effective tax rate was 28% for the three- and nine-month periods 
ended September 30, 1998, which was higher than the effective tax rates of 16% 
and 24%, respectively, for the comparable periods in 1997.  The tax rates for 
the 1997 periods reflect the legislative extension of research and development 
tax credits effective beginning in the third quarter of 1997.  The effective 
tax rate in the nine-month period ended September 30, 1998, was less than the 
U.S. statutory rate of 35% due in part to the research and development tax 
credits.

<TABLE>
<CAPTION>
                             Three Months Ended             Nine Months Ended
                               September 30,                 September 30,
                             ------------------            ------------------
NET INCOME                     1998       1997   % Change    1998       1997   % Change
--------------------------  --------    -------  --------  -------    -------  --------
<S>                         <C>         <C>      <C>       <C>        <C>      <C>
Net income                  $   63.4    $  32.1      98%   $ 144.8    $  87.5      65%
Earnings per share:
  Basic                     $   0.50    $  0.26      92%   $  1.15    $  0.71      62%
  Diluted                   $   0.49    $  0.25      96%   $  1.12    $  0.69      62%
</TABLE>

The increase in net income in the three- and nine-month periods ended 
September 30, 1998 from the comparable periods in 1997 was driven primarily by 
sales of Rituxan, higher contract and other revenues, higher interest income 
and lower R&D expenses; partially offset by higher MG&A expenses, higher 
income taxes, a decrease in Activase sales and higher cost of sales.

<TABLE>
<CAPTION>
LIQUIDITY AND CAPITAL
  RESOURCES                       September 30, 1998      December 31, 1997
---------------------------       ------------------      -----------------
<S>                               <C>                     <C>
Cash and cash equivalents,            $ 1,553.8               $ 1,286.5
  short-term investments
  and long-term marketable
  securities
Working capital                       $   984.8                   904.4
</TABLE>

                                    Page 15
<PAGE>

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

Cash and cash equivalents at September 30, 1998, were higher by $267.3 million 
compared to December 31, 1997, and working capital increased by $80.4 million.

Capital expenditures totaled $61.7 million in the nine-month period ended 
September 30, 1998 compared to $121.4 million in the comparable period of 
1997.  The decrease in 1998 compared to 1997 was due to the completion in 1997 
of certain construction projects to improve existing manufacturing and 
laboratory facilities, and a decreased level of construction activity related 
to office facilities in 1998.


FORWARD-LOOKING STATEMENTS

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

Product Sales:  The Company's product sales may vary from period to period for 
several reasons including, but not limited to:  the overall competitive 
environment for the Company's products; the amount of sales to customers in 
the U.S.; the amount and timing of the Company's sales to HLR; the timing and 
volume of bulk shipments to licensees; the availability of third-party 
reimbursements for the cost of therapy; the effectiveness and safety of the 
products; the rate of adoption and use of the Company's products for approved 
indications and additional indications; and the potential introduction of new 
products and additional indications for existing products in 1998 and beyond.

Competition:  The Company faces growing competition in two of its therapeutic 
markets.  Activase lost market share and could lose additional market share in 
the thrombolytic market to Centocor's Retavase and the resulting adverse 
effect on sales could be material.  Retavase received FDA approval in October 
1996 for the treatment of acute myocardial infarction (AMI).  In addition, 
there is an increasing use of angioplasty in lieu of thrombolytic therapy for 
the treatment of AMI, which is expected to continue.  In the growth hormone 
market, the Company continues to face increased competition from five other 
companies with growth hormone products.  Three of these competitors have also 
received approval to market their existing human growth hormone products for 
additional indications.  The Company expects that such competition could have 
an adverse effect on its sales of Protropin, Nutropin and Nutropin AQ and such 
effect could be material.

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

Royalty and Contract Revenues:  Royalty and contract revenues in future 


                                    Page 16
<PAGE>

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

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

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

In December 1997, the Company and Alteon Inc. (Alteon) entered into a 
collaborative agreement to develop and market pimagedine, an advanced 
glycosylation end-product formation inhibitor.  Based on the recommendations 
of an External Safety Monitoring Committee, with which the FDA and the Company 
concurred, in the first quarter of 1998, Alteon discontinued a Phase III 
clinical trial of pimagedine in Type II diabetics with progressive kidney 
disease and is continuing a Phase III trial of pimagedine in Type I diabetics 
with progressive kidney disease.  A third Phase III trial in diabetic patients 
with end-stage renal disease is ongoing.

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

Uncertainties Surrounding Proprietary Rights:  The patent positions of 
pharmaceutical and biotechnology companies can be highly uncertain and 

                                    Page 17
<PAGE>

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

Year 2000:  The Company uses and relies on a wide variety of information 
technologies, computer systems and scientific and manufacturing equipment 
containing computer related components (such as programmable logic controllers 
and other embedded systems).  Some of the Company's older computer software 
programs and equipment use two digit fields rather than four digit fields to 
define the applicable year (i.e., "98" in the computer code refers to the year 
"1998").  As a result, time-sensitive functions of those software programs and 
equipment may misinterpret dates after January 1, 2000, to refer to the 
twentieth century rather than the twenty-first century (i.e., "02" could be 
interpreted as "1902" rather than "2002").  This could cause system or 
equipment shutdowns, failures or miscalculations resulting in inaccuracies in 
computer output or disruptions of operations, including, among other things, 
inaccurate processing of financial information and/or temporary inabilities to 
process transactions, manufacture products, or engage in similar normal 
business activities.

The Company has developed a strategy to address the potential exposures 
related to the impact on its computer systems for the Year 2000 and beyond.  
An inventory of key financial, informational and operational systems, 
including manufacturing control systems, has been completed.  Detailed plans 
for implementation and testing of any necessary modifications to these key 
computer systems and equipment to ensure they are Year 2000 compliant have 
been or are in the final stages of being developed on a department by 
department basis to address computer system and equipment problems as required 
by December 31, 1999.  The Company believes that with these detailed plans and 
completed modifications, the Year 2000 issue will not pose significant 
operational problems for its computer systems and equipment.  However, if such 
modifications and conversions are not made, or are not completed in a timely 
fashion, the Year 2000 issue could have a material impact on the operations of 
the Company, the precise degree of which cannot be known at this time.  The 
Company currently has no contingency plans to deal with major Year 2000 
failures, though such plans will be developed over the coming quarters.

In addition to risks associated with the Company's own computer systems and 
equipment, the Company has relationships with, and is to varying degrees 
dependent upon, a large number of third parties that provide information, 
goods and services to the Company.  These include financial institutions, 
suppliers, vendors, research partners and governmental entities.  If 
significant numbers of these third parties experience failures in their 
computer systems or equipment due to Year 2000 non-compliance, it could affect 
the Company's ability to process transactions, manufacture products, or engage 
in similar normal business activities.  While some of these risks 


                                    Page 18
<PAGE>

are outside the control of the Company, the Company has instituted programs, 
including internal records review and use of external questionnaires, to 
identify key third parties, assess their level of Year 2000 compliance, update 
contracts and address any non-compliance issues.

The total cost of the Year 2000 systems assessments and conversions is funded 
through operating cash flows and the Company is expensing these costs.  The 
Company has created a mechanism to trace certain of the costs related to the 
Year 2000 issue and budgeted funds to address the issues of assessment and 
conversion.  The financial impact of making the required systems changes 
cannot be known precisely at this time, but it is currently expected to be 
less than $10.0 million.  The actual financial impact could, however, exceed 
this estimate.  These costs are not expected to be material to the Company's 
financial position, results of operations or cash flows.

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

Roche Holdings, Inc.:  At September 30, 1998, Roche held approximately 65.7% 
of the Company's outstanding common equity.  The Company expects to continue 
to have material transactions with Roche, including royalty and contract 
revenues, product sales and joint product development costs.

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

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

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


                                    Page 19
<PAGE>

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

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

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

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

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





                                    Page 20
<PAGE>

PART II.  OTHER INFORMATION


Item 1.     Legal Proceedings

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

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

See also Item 1 of the Company's reports on Form 10-Q for the periods ended 
June 30, 1998 and March 31, 1998.

See also the Legal Proceedings note 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 re:   Unaudited Interim Financial Information

                 27.1   Financial Data Schedule


            (b)  Reports on Form 8-K

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


ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


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














                                    Page 21

<PAGE>
                                GENENTECH, INC.
                                  SIGNATURES


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


   Date:  October 15, 1998                       GENENTECH, INC.



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



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


































                                    Page 22