Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.

We prepared the Condensed Consolidated Financial Statements following the requirements of the United States (U.S.) Securities and Exchange Commission for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. generally accepted accounting principles (GAAP) can be condensed or omitted. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2007. In the opinion of management, the financial statements include all adjustments, consisting only of normal and recurring adjustments, considered necessary for the fair presentation of our financial position and operating results.

Revenue, expenses, assets, and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those expectedreported for the full year or any future period.

The consolidated financial statements include the accounts of Genentech and all of our wholly owned subsidiaries. Material intercompany accounts and transactions have been eliminated.

The preparation of financial statements in conformity with GAAP requires management to make judgments, assumptions, and estimates that affect the amounts reported in our Condensed Consolidated Financial Statements and accompanying notes. Actual results could differ materially from the estimates.

We recognize revenue from the sale of our products, royalties earned, and contract arrangements. Certain of our revenue arrangements that contain multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered element has stand-alonestandalone value to the customer and whether there is objective

and reliable evidence of the fair value of the undelivered items. The consideration we receive is allocated among the separate units based on their respective fair values, and the applicable revenue recognition criteria are

The Avastin Patient Assistance Program is a voluntary program that enables eligible patients who have received 10,000 milligrams (mg) of Avastin in a 12-month period to receive free Avastin in excess of the 10,000 mg during the remainder of the 12-month period. Based on the current wholesale acquisition cost, 10,000 mg is valued at $55,000 in gross revenue. We defer a portion of our gross Avastin product sales revenue that is sold through normal commercial channels to reflect our estimate of the commitment to supply free Avastin to patients who elect to enroll in the program. To calculate our deferred revenue, we estimate several factors, most notably: the number of patients who are currently being treated for U.S. Food and Drug Administration (FDA)-approved indications and the start date of their treatment regimen, the extent to which patients may elect to enroll in the program, the number of patients who meet the financial eligibility requirements of the program, and the duration and extent of treatment for the FDA-approved indications, among other factors. We will continue to update our estimates for each reporting period as new information becomes available. Based on these estimates, we defer a portion of the Avastin revenue on product vials sold through normal commercial channels. The deferred revenue is recognized when free Avastin vials are delivered or after the associated patient eligibility period has passed.

Basic earnings per share (EPS) are computed based on the weighted-average number of shares of our Common Stock outstanding. Diluted EPS are computed based on the weighted-average number of shares of our Common Stock and other dilutive securities.stock options.

Outstanding employee stock options to purchase approximately 4917 million and 48 million shares of our Common Stock were excluded from the computation of diluted EPS for the third quarter and first quarternine months of 2008, respectively, because the effect would have been anti-dilutive.

Comprehensive income comprises net income and other comprehensive income (OCI). OCI includes certain changes in stockholders’ equity that are excluded from net income. Specifically, we include in OCI changes in the estimated fair value of derivatives designated as effective cash flow hedges, andnet unrealized gains and losses on our securities available-for-sale. Theavailable-for-sale, and gains or losses and prior service costs or credits related to our post-retirement benefit plan that arise during the period but are not recognized as components of net periodic benefit cost, have also been recognized in OCI.cost.

The increase in net unrealized lossesgains on cash flow hedges during the third quarter and first quarternine months of 2008 was primarily due to the weakeningstrengthening of the U.S. dollar during this period. However,these periods compared to the same periods in 2007. In the periods in which thesethe hedged transaction affects earnings, any gains or losses on cash flow hedges expire, the losses will be offset by revenue denominated in the underlying foreign currency.

The fair value of our financial instruments reflects the amounts that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The fair value estimates presented in this report reflect the information available to us as of March 31,September 30, 2008 and December 31, 2007. See Note 4, “Fair Value Measurements.”

Our derivative instruments designated asconsist of cash flow and fair value hedges. Our cash flow hedges consist of foreign currency exchange options and forwards. As of March 31,September 30, 2008, unrealized net losses of $87approximately $12 million arewere expected to be reclassified from accumulated OCI to earnings within the next 12 months. If realized, these amounts are expected to be reflected primarily as a reduction ofoffset by increases in the underlying foreign-currency-denominated royalty revenue over this same 12-month period. Our fair value hedges consist of interest rate swap instruments and equity hedges which are recorded against the assets and liabilities being hedged.

The employee stock-based compensation expense recognized under FAS 123R was determined using the Black-Scholes option valuation model. Option valuation models require the input of subjective assumptions, and these assumptions can vary over time. The weighted-average assumptions used were as follows:

Due to the redemption of our Special Common Stock in June 1999 by Roche Holdings, Inc. (RHI), there is limited historical information available to support our estimate of certain assumptions required to value our employee stock options. In developing our estimate of expected term, we have assumed that our recent historical stock option exercise experience is a relevant indicator of future exercise patterns. We base our determination of expected volatility predominantly on the implied volatility of our traded options with consideration of our historical volatilities and the volatilities of comparable companies.

Included in work-in-process as of March 31,September 30, 2008 arewere approximately $46$77 million of Rituxan inventories that were manufactured throughusing a manufacturing process that is awaiting regulatory licensure.

On January 1, 2008, we adopted FAS 157, which established a framework for measuring fair value inunder GAAP and clarified the definition of fair value within that framework. FAS 157 does not require assets and liabilities that were previously recorded at cost to be recorded at fair value. For assets and liabilities that are already required to be disclosed at fair value, FAS 157 introduced, or reiterated, a number of key concepts whichthat form the foundation of the fair value measurement approach to be used for financial reporting purposes. The fair value of our financial instruments reflects the amounts that we estimate towe would receive in connection with the sale of an asset or paidthat we would pay in connection with the transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). FAS 157 also established a fair value hierarchy that prioritizes the use of inputs used in valuation techniques into the following three levels:

The adoption of FAS 157 did not have an effect on our financial condition or results of operations, but FAS 157 introduced new disclosures about how we value certain assets and liabilities. Much of the disclosure is focusedfocuses on the inputs used to measure fair value, particularly in instances wherein which the measurement uses significant unobservable (Level 3) inputs. TheA substantial majority of our financial instruments are valued using quoted prices in active markets or based on other observable inputs.Level 1 and Level 2 assets.

The following table sets forth the fair value of our financial assets and liabilities measured on a recurring basis, including those that are pledged as collateral or are restricted. Assets and liabilities are measured on a recurring basis if they are remeasured at least annually.

Our Level 13 assets include cash, money market instruments, U.S. Treasuryincluded student loan auction-rate securities, marketable equitystructured investment vehicle securities, and equity forwards. Level 2 assets include other government and agency securities, commercial paper, corporate bonds, asset-backed securities, municipal bonds,the preferred securities and other derivatives.of an insolvent company. As of March 31,September 30, 2008, we held $163$155 million of investments, which were measured using unobservable (Level 3) inputs, representing approximately 2% of our total fair value investmentsinvestment portfolio. The assets include $161 million of studentStudent loan auction-rate securities and $2of $154 million ofand structured investment vehicle

securities for which fair value was determinedof $1 million were valued based on broker-provided valuations, which approximate fair value.valuation models. In February 2008,addition, our Level 3 assets included preferred securities in a financial institution that declared bankruptcy during the auction-ratethird quarter of 2008. We recorded the full carrying amount of $21 million as an impairment charge, because we do not expect to recover the value of these assets during the bankruptcy proceedings. We also transferred the financial institution preferred securities market experiencedto Level 3 assets from Level 2 assets, since we recorded the investment at zero value rather than a number of failed auctions for student loan-backed securities, including those we held and continue to hold, which severely limited the liquidity for these securities. Due to market liquidity constraints related to the failed auctions, we classified the auction-rate securities as non-current assets consistent with the long-term maturity dates of the underlying student loans. As of March 31, 2008, we believe the unrealized losses in the auction-rate securities are temporary and we have the ability to hold the assets to maturity. All of our auction-rate securities are AAA/Aaa-rated and are collateralized by student loans which are guaranteed by the U.S. government to be repaid at no less than 95% of par value.value based on an observable input.

We are a party to various legal proceedings, including licensing and contract disputes, and other matters.

On October 4, 2004, we received a subpoena from the U.S. Department of Justice requesting documents related to the promotion of Rituxan, a prescription treatment now approved for five indications. We are cooperating with the associated investigation, which is both civil and criminal in nature, and throughinvestigation. Through counsel we are having discussions with government representatives about the status of their investigation and Genentech’s views on this matter, including potential resolution. ThePreviously, the investigation had been both criminal and civil in nature. We have been informed by the criminal prosecutor handling this matter that the government has called, and may continuedeclined to call, former and current Genentech employees to appear before a grand juryprosecute the company criminally in connection with this investigation. The civil matter is still ongoing. The outcome of this matter cannot be determined at this time.

We and the City of Hope National Medical Center (COH) are parties to a 1976 agreement related to work conducted by two COH employees, Arthur Riggs and Keiichi Itakura, and patents that resulted from that work whichthat are referred to as the “Riggs/Itakura Patents.” Since that time, we have entered into license agreements with various companies to manufacture, use, and sell the products covered by the Riggs/Itakura Patents. On August 13, 1999, COH filed a complaint against us in the Superior Court in Los Angeles County, California, alleging that we owe royalties to COH in connection with these license agreements, as well as product license agreements that involve the grant of licenses under the Riggs/Itakura Patents. On June 10, 2002, a jury voted to award COH approximately $300 million in compensatory damages. On June 24, 2002, a jury voted to award COH an additional $200 million in punitive damages. Such amounts were accrued as an expense in the second quarter of 2002 and are included2002. Included within current liabilities in “Accrued litigation” in the accompanying Condensed Consolidated Balance Sheets in “Accrued litigation”Sheet at March 31, 2008 and December 31, 2007.2007 was $776 million, which represented our estimate of the costs for the resolution of the COH matter as of that reporting date. We filed a notice of appeal of the verdict and damages awards with the California Court of Appeal. On

Court heard our appeal on this matter on February 5, 2008, and on April 24, 2008 overturned the award of $200 million in punitive damages to COH but upheld the award of $300 million in compensatory damages. We expect to pay approximately $477paid $476 million to COH in the second quarter of 2008, reflecting the amount of compensatory damages awarded plus interest thereon from the date of the original decision, June 10, 2002.

On May 13, 2005, a request was filed by a third party for reexamination of the Cabilly patent. The request sought reexamination on the basis of non-statutory double patenting over U.S. Patent No. 4,816,567. On July 7, 2005, the U.S. Patent and Trademark Office (Patent Office) ordered reexamination of the Cabilly patent. On September 13, 2005, the Patent Office mailed an initial non-final Patent Office action rejecting all 36 claims of the Cabilly patent. We filed our response to the Patent Office action on November 25, 2005. On December 23, 2005, a second request for reexamination of the Cabilly patent was filed by another third party, and on January 23, 2006, the Patent Office granted that request. On June 6, 2006, the two reexaminations were merged into one proceeding. On August 16, 2006, the Patent Office mailed a non-final Patent Office action in the merged proceeding rejecting all the claims of the Cabilly patent based on issues raised in the two reexamination requests. We filed our response to the Patent Office action on October 30, 2006. On February 16, 2007, the Patent Office mailed a final Patent Office action

of the Cabilly patent remain valid and enforceable throughout the reexamination and appeals processes. Because the above-described proceeding is ongoing, theThe outcome of this matter cannot be determined at this time.

On June 28, 2003, Mr. Ubaldo Bao Martinez filed a lawsuit against the Porriño Town Council and Genentech España S.L. in the Contentious Administrative Court Number One of Pontevedra, Spain. The lawsuit challenges the Town Council’s decision to grant licenses to Genentech España S.L. for the construction and operation of a warehouse and biopharmaceutical manufacturing facility in Porriño, Spain. On January 16, 2008, the Administrative Court ruled in favor of Mr. Bao on one of the claims in the lawsuit and ordered the closing and demolition of the facility, subject to certain further legal proceedings. On February 12, 2008, we and the Town Council filed appeals of the Administrative Court decision at the High Court in Galicia, Spain. In addition, we are evaluating withthrough legal counsel in Spain whether there may bewe are pursing other administrative remedies availableto try to overcome the Administrative Court’s ruling. We sold the assets of Genentech España S.L., including the Porriño facility, to Lonza Group Ltd. (Lonza) in December 2006, and Lonza has operated the facility since that time. Under the terms of that sale, we retained control of the defense of this lawsuit and agreed to indemnify Lonza against certain contractually defined liabilities up to a specified limit, which is currently estimated to be approximately $100 million. The outcome of this matter and our indemnification obligation to Lonza, if any, cannot be determined at this time.

We issue 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 agreementAffiliation Agreement with RHI provides, among other things, that with respect to any issuance of our Common Stock in the future, we will repurchase a sufficient number of shares so that immediately after such issuance, the percentage of our Common Stock owned by RHI will be no lower than 2% below the “Minimum Percentage” (subject to certain conditions). The Minimum Percentage equals the lowest number of shares of Genentech Common Stock owned by RHI since theits July 1999 offering of our Common Stock (to be adjusted in the future for dispositions of shares of Genentech Common Stock by RHI as well as for stock splits or stock combinations) divided by 1,018,388,704 (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

We enter into transactions with our related parties, Roche Holding AG and affiliates (Roche), and Novartis AG and affiliates (Novartis). The accounting policies that we apply to our transactions with our related parties are consistent with those applied in transactions with independent third parties, and all related party agreements are negotiated on an arm’s-length basis.

We signed two product supply agreements with Roche in July 2006, each of which was amended in November 2007. The Umbrella Manufacturing Supply Agreement (Umbrella Agreement) supersedes our previous product supply agreements with Roche. The Short-Term Supply Agreement (Short-Term Agreement) supplements the terms of the Umbrella Agreement. Under the Short-Term Agreement, Roche has agreed to purchase specified amounts of Herceptin, Avastin, and Rituxan through 2008. Under the Umbrella Agreement, Roche has agreed to purchase specified amounts of Herceptin and Avastin through 2012, and on a perpetual basis, either party may order other collaboration products from the other party, including Herceptin and Avastin after 2012, pursuant to certain forecastforecasted terms. The Umbrella Agreement also provides that either party maycan terminate its obligation to purchase and/or supply Avastin and/or Herceptin with six yearsyears’ notice on or after December 31, 2007. To date, we have not received sucha notice of termination from Roche.

In December 2007, Roche opted-in to our trastuzumab drug conjugate products under terms similar to those ofUnder the existing anti-HER2 agreement. As part of the opt-in, Roche paid us $113 million and will pay 50% of subsequent development costs related to the trastuzumab drug conjugate products. In March 2008, Roche opted-in to our Avastin glioblastoma multiforme indication under the terms of our July 1999 amended and restated licensing and marketingcommercialization agreement, with Roche. As partRoche has the right to opt in to development programs that we undertake on our products at certain pre-defined stages of development. Previously, Roche also had the right to develop certain products under the July 1998 licensing and commercialization agreement related to anti-HER2 antibodies (including Herceptin, pertuzumab, and trastuzumab-DM1). When Roche opts in to a program, we record the opt-in Roche paid us $19 millionpayments that we receive as deferred revenue, which

we recognize over the expected development periods or product life, as appropriate. As of September 30, 2008, the amounts in short-term and will pay 75% of ongoing development costslong-term deferred revenue related to the Avastin glioblastoma multiforme indication. We recognized theopt-in payments received from Roche were $51 million and $191 million, respectively. For the third quarter and first nine months of 2008, we recognized $19 million and $43 million, respectively, as deferredcontract revenue which will berelated to opt-in payments previously received from Roche. For the third quarter and first nine months of 2007, we recognized over the expected development periods.$10 million and $33 million, respectively, as contract revenue related to opt-in payments previously received from Roche.

Late in the first quarter ofIn February 2008, Roche acquired Ventana Medical Systems, Inc. (Ventana), and as a result of the acquisition, Ventana is considered a related party. We have engaged in transactions with Ventana prior to and since the acquisition, but these transactions have not been material to our results of operations.

We currently have no activecommercialized products subject to profit sharing arrangements with Roche.

We have an agreement with Novartis Pharma AG (a wholly owned subsidiary of Novartis AG; Novartis Pharma AG and affiliates are collectively referred to hereafter as Novartis) under which it has the exclusive right to develop and market Lucentis outside the U.S. for indications related to diseases or disorders of the eye. As part of this agreement, the parties will share the cost of certain of our ongoing development expenses for Lucentis.

We along withand Novartis are co-developing and co-promoting Xolair in the U.S and co-developing Xolair in both the U.S. and Europe. We record all sales, COS, and marketing and sales expenses in the U.S.; Novartis markets the product in and records all sales, COS, and marketing and sales expenses in Europe.Europe and also records marketing and sales expenses in the U.S. We and Novartis share the resulting U.S. and European operating profits according to prescribed profit sharing percentages. We record Novartis’s shareGenerally, we evaluate whether we are a net recipient or payer of the U.S. operating profitsfunds on an annual basis in our cost and profit sharing arrangements. Net amounts received on an annual basis under such arrangements are classified as contract revenue, and net amounts paid on an annual basis are classified as collaboration profit sharing expense. Our shareWith respect to the U.S. operating results, for the full year in 2007 we were a net payer to Novartis, and we anticipate that for the full year in 2008 we will be a net payer to Novartis. As a result, for the third quarters and first nine months of 2008 and 2007, the portion of the U.S. operating results that we owed to Novartis was recorded as collaboration profit sharing expense. With respect to the European operating results, for the full year in 2007 we were a net payer to Novartis, and we anticipate that for the full year in 2008 we will be a net recipient from Novartis. As a result, for the third quarter and first nine months of 2008, the portion of the European operating results that Novartis owed us was recorded as contract revenue. For the same periods in 2007, however, our portion of the European operating results was recorded as contract revenue in the first quarter of 2008 and collaboration profit sharing expense in the first quarter of 2007.expense. Effective with our acquisition of Tanox, Inc. on August 2, 2007, Novartis also makes: (1) additional profit sharing payments to us on U.S. sales of Xolair, which reduces our profit sharing expense; (2) royalty payments to us on sales of Xolair worldwide, which we record as royalty revenue; and (3) manufacturing service payments related to Xolair, which we record as contract revenue.

Contract revenue in the first quarternine months of 2007 included a $30 million milestone payment from Novartis for European Union approval of Lucentis for the treatment of neovascular (wet) age-related macular degeneration (AMD).

Our effective income tax rate was 37% in the third quarter of 2008 compared to 39% in the third quarter of 2007. The decrease was mainly due to the non-deductible in-process research and development charge in the third quarter of 2007 resulting from our acquisition of Tanox. Our effective income tax rate was 38% in the first nine months of 2008, which included a settlement with the Internal Revenue Service (IRS) in the second quarter of 2008 for an increase from 37%item related to prior years. Our effective income tax rate was 38% in the first nine months of 2007, which included the non-deductible in-process research and development charge resulting from our acquisition of Tanox.

The IRS continues to examine our U.S. income tax returns for 2002 through 2004, and has proposed adjustments related to research credits and other items, including the settlement reached in the second quarter of 2007, mainly due2008. We believe it is reasonably possible, that the unrecognized tax benefits, as of September 30, 2008, related to increased income before taxes as a resultthese items could decrease (by payment, release, or combination of both) in the April 24, 2008 COH decision.next twelve months by approximately $100 million.

We have reviewed the condensed consolidated balance sheet of Genentech, Inc. as of March 31,September 30, 2008, and the related condensed consolidated statements of income for the three-month and nine-month periods ended September 30, 2008 and 2007 and cash flows for the three-monthnine-month periods ended March 31,September 30, 2008 and 2007. These financial statements are the responsibility of the Company’scompany’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

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

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Genentech, Inc. as of December 31, 2007, 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 February 5, 2008, we expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph relating to the change in method of accounting for stock-based compensation in accordance with guidance provided in Statement of Financial Accounting Standards No. 123(R), “Share-based Payment.” In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2007, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.