Our Commitment Genentech relies on a plentiful supply of high-quality water for use in our manufacturing, laboratory and other operations. As a significant industrial user of water, we have a responsibility to make efficient use of this precious natural resource. In 2004, we publicly committed to the following goal:

Improve water efficiency* by 10 percent by the year 2010, compared to 2004.

* Water efficiency is measured as total water use divided by units of marketed product produced.

Our Progress We are pleased to report that we are on track to meet our water goal, based on trended water usage and production patterns.

In 2005 alone, our water use per unit of production dropped by 13 percent compared to 2004. Further efficiencies were gained in 2006, when our water use per unit of production was 20 percent lower than our 2004 baseline. If we maintain our current level of water efficiency, we will have achieved our goal by 2010. We will continue to track this metric and report progress towards our goal.

Behind the Numbers We experienced significant growth in production in both 2005 and 2006. In 2005, our productivity grew by more than 16 percent over 2004 levels. However, our total water use increased by only 0.5 percent. In fact, water use during 2005 at our South San Francisco facility was slightly less than in 2004. A small increase in total company water use, offset by such a large increase in production, resulted in a 13 percent improvement in water efficiency across the company in 2005.

While our water use grew in 2006 with usage levels 23 percent higher than the 2004 baseline, the increase in water consumption was outpaced by the growth in production. In 2006 our production totals were 54 percent higher than in 2004, and consequently our water efficiency in 2006 represented a 20 percent improvement over 2004 levels.

Traditionally, water use is tied closely to production. So why did water use in 2005 and 2006 not rise commensurate with production? There were two drivers for this divergence:

Manufacturing Efficiency Gains: Manufacturing efficiency improved due to both an improved success rate¹ as well as higher yield². These efficiency gains reflect the continual improvement of Genentech's manufacturing processes. The biotherapeutic manufacturing process is extremely complex — subtle differences in conditions and processes can lead to significantly different outcomes in production yields. Genentech has systems in place to learn from experience; improvements in our manufacturing efficiency reflect the accumulation of knowledge over time.

Water Conservation Projects: Water conservation projects were undertaken in 2005 and 2006. Enhancements to the delivery systems and operational changes to the chiller plant in a number of our South San Francisco buildings resulted in a reduction of leaks. These projects are estimated to save about 5.5 million gallons of water each year. An example of one of the projects implemented in 2006 is the replacement of vacuum pump cooling systems with closed loop systems, saving approximately 300,000 gallons per year.

Looking forward, in 2007 we will be replacing double mechanical seals on our manufacturing water pumps with single mechanical seals. This project alone is anticipated to save 600,000 gallons each year. At our Vacaville plant we are focusing on a state-of-the-art water purification system for the plant's expansion. Although this system will not be operational for several more years, it is expected to save tens of millions of gallons of water each year. The Vacaville facility continues to evaluate other means of reducing water use, such as a computer-controlled irrigation management system that has the potential to save significant amounts of irrigation water.

We look forward to reporting progress on these and other water saving projects in subsequent reports.

¹ Percentage of production runs which result in successful output of product.
² The amount of product obtained at the end of a successful production run.