Genentech: Investors: GAAP vs. Non-GAAP 2005

Revenues:
			GENENTECH, INC. CONSOLIDATED STATEMENTS OF INCOME DATA (in thousands, except per share amounts) (unaudited)
			Three Months Ended December 31,

			2005			2004

			GAAP⁽¹⁾	Difference	Non-GAAP⁽²⁾	GAAP⁽¹⁾	Difference	Non-GAAP⁽²⁾
	Product sales		$ 1,576,964		$ 1,576,964	$ 1,066,302		$ 1,066,302
	Royalties		265,099		265,099	181,220		181,220
	Contract revenue and other		51,032		51,032	67,778		67,778
Total operating revenues			1,893,095		1,893,095	1,315,300		1,315,300

Costs and expenses:
	Cost of sales		244,914		244,914	205,373		205,373
	Research and development		411,610		411,610	310,196		310,196
	Marketing, general and administrative		429,357		429,357	299,495		299,495
	Collaboration profit sharing		228,417		228,417	170,070		170,070
	Recurring charges related to redemption		26,591	$ (26,591)⁽³⁾	-	34,534	$ (34,534)⁽³⁾	-
	Special items: litigation-related		13,483	(13,483)⁽⁴⁾	-	(3,189)	3,189⁽⁴⁾	-
Total costs and expenses			1,354,372	(40,074)	1,314,298	1,016,479	(31,345)	985,134

Operating income			538,723	40,074	578,797	298,821	31,345	330,166

Other income (expense):
	Interest and other income, net⁽⁵⁾		43,743		43,743	24,041		24,041
	Interest expense		(23,035)		(23,035)	(2,718)		(2,718)
Total other income, net			20,708		20,708	21,323		21,323

Income before taxes			559,431	40,074	599,505	320,144	31,345	351,489
Income tax provision			220,192	16,029	236,221	113,560	12,540	126,100
Net income			$ 339,239	$ 24,045	$ 363,284	$ 206,584	$ 18,805	$ 225,389

Earnings per share:
		Basic	$ 0.32	$ 0.02	$ 0.34	$ 0.20	$ 0.01	$ 0.21
		Diluted	$ 0.31	$ 0.03	$ 0.34	$ 0.19	$ 0.02	$ 0.21

Weighted average shares used to compute earnings per share:
	Basic		1,054,724		1,054,724	1,049,700		1,049,700
	Diluted		1,080,152		1,080,152	1,070,708		1,070,708

(1) Reflects operating results in accordance with U.S. generally accepted accounting principles (or GAAP).

(2) Non-GAAP amounts exclude litigation-related special items and recurring charges related to the 1999 redemption of Genentech's Special Common Stock, net of tax effects.

(3) Represents the amortization of other intangible assets related to the 1999 redemption of Genentech's Special Common Stock.

(4) Includes accrued interest and bond costs related to the City of Hope trial judgment in Q4 2005 and 2004, net of a released accrual in Q4 2004 on a litigation matter.

(5) "Interest and other income, net" includes interest income, net realized gains from the sale of certain biotechnology equity securities and write-downs for other-than-temporary impairments in the fair value of certain biotechnology debt and equity securities. For further detail, refer to our web site at www.gene.com.

2006 Reconciliation of GAAP and Non-GAAP EPS
Our 2006 non-GAAP EPS estimate does not include: (i) recurring amortization charges related to the 1999 redemption of our stock by Roche, which are estimated to be approximately $105 million on a pretax basis in 2006, (ii) litigation-related special items for accrued interest and associated bond costs on the City of Hope judgment and net amounts paid on other litigation settlements, which are currently estimated to be approximately $52 million on a pretax basis in 2006, and (iii) stock compensation expense associated with Genentech's adoption of Statement of Financial Accounting Standards No. 123R on January 1, 2006, which we expect the net of tax diluted EPS impact to be in the range of $0.15 to $0.17 per share for 2006. Our 2006 GAAP EPS would include the items listed above as well as any other potential special charges related to existing or future litigation or its resolution, or changes in accounting principles, all of which may be significant.

The reconciliation above contains forward-looking statements regarding charges related to the 1999 Roche redemption of Genentech's stock, the City of Hope litigation and stock compensation. Such statements are predictions and involve risks and uncertainties and actual results may differ materially. Among other things, such charges could be affected by a number of factors including a re-valuation of certain intangible assets, greater than expected litigation-related costs, the number of options granted to employees, Genentech's stock price and certain valuation assumptions concerning Genentech stock. Please also refer to Genentech's periodic reports filed with the Securities and Exchange Commission. Genentech disclaims, and does not undertake, any obligation to update or revise any forward-looking statements in this reconciliation.

Revenues:
			GENENTECH, INC. CONSOLIDATED STATEMENTS OF INCOME DATA (in thousands, except per share amounts) (unaudited)
			Year Ended December 31,

			2005			2004

			GAAP⁽¹⁾	Difference	Non-GAAP⁽²⁾	GAAP⁽¹⁾	Difference	Non-GAAP⁽²⁾
	Product sales		$ 5,488,058		$ 5,488,058	$ 3,748,879		$ 3,748,879
	Royalties		935,112		935,112	641,119		641,119
	Contract revenue and other		210,202		210,202	231,159		231,159
Total operating revenues			6,633,372		6,633,372	4,621,157		4,621,157

Costs and expenses:
	Cost of sales⁽⁶⁾		1,011,069		1,011,069	672,526		672,526
	Research and development		1,261,824		1,261,824	947,513		947,513
	Marketing, general and administrative		1,435,025		1,435,025	1,088,111		1,088,111
	Collaboration profit sharing		823,083		823,083	593,616		593,616
	Recurring charges related to redemption		122,746	$ (122,746)⁽³⁾	-	145,485	$ (145,485)⁽³⁾	-
	Special items: litigation-related		57,774	(57,774)⁽⁴⁾	-	37,087	(37,087)⁽⁴⁾	-
Total costs and expenses			4,711,521	(180,520)	4,531,001	3,484,338	(182,572)	3,301,766

Operating income			1,921,851	180,520	2,102,371	1,136,819	182,572	1,319,391

Other income (expense):
	Interest and other income, net⁽⁵⁾		140,927		140,927	89,997		89,997
	Interest expense		(49,929)		(49,929)	(7,400)		(7,400)
Total other income, net			90,998		90,998	82,597		82,597

Income before taxes			2,012,849	180,520	2,193,369	1,219,416	182,572	1,401,988
Income tax provision			733,858	72,207	806,065	434,600	73,031	507,631
Net income			$ 1,278,991	$ 108,313	$ 1,387,304	$ 784,816	$ 109,541	$ 894,357

Earnings per share:
		Basic	$ 1.21	$ 0.11	$ 1.32	$ 0.74	$ 0.11	$ 0.85
		Diluted	$ 1.18	$ 0.10	$ 1.28	$ 0.73	$ 0.10	$ 0.83

Weighted average shares used to compute earnings per share:
	Basic		1,054,952		1,054,952	1,055,165		1,055,165
	Diluted		1,080,949		1,080,949	1,079,209		1,079,209

(1) Reflects operating results in accordance with U.S. generally accepted accounting principles (or GAAP).

(2) Non-GAAP amounts exclude litigation-related special items and recurring charges related to the 1999 redemption of Genentech's Special Common Stock, net of tax effects.

(3) Represents the amortization of other intangible assets related to the 1999 redemption of Genentech's Special Common Stock.

(4) Includes accrued interest and bond costs related to the City of Hope trial judgment in 2005 and 2004 and net amounts paid in 2005 related to other litigation settlements, net of a released accrual in 2004 on a litigation matter.

(6) Certain minor amounts for the nine months ended September 30, 2005 have been reclassified to conform to the current year-end presentation.

2006 Reconciliation of GAAP and Non-GAAP EP
Our 2006 non-GAAP EPS estimate does not include: (i) recurring amortization charges related to the 1999 redemption of our stock by Roche, which are estimated to be approximately $105 million on a pretax basis in 2006, (ii) litigation-related special items for accrued interest and associated bond costs on the City of Hope judgment and net amounts paid on other litigation settlements, which are currently estimated to be approximately $52 million on a pretax basis in 2006, and (iii) stock compensation expense associated with Genentech's adoption of Statement of Financial Accounting Standards No. 123R on January 1, 2006, which we expect the net of tax diluted EPS impact to be in the range of $0.15 to $0.17 per share for 2006. Our 2006 GAAP EPS would include the items listed above as well as any other potential special charges related to existing or future litigation or its resolution, or changes in accounting principles, all of which may be significant.

Selected balance sheet data:

GENENTECH, INC. CONSOLIDATED BALANCE SHEETS DATA (in thousands) (unaudited)
		December 31,

		2005	2004
	Cash, cash equivalents and short-term investments	$ 2,365,161	$ 1,665,105
	Accounts receivable - product sales, net	554,455	599,052
	Accounts receivable - royalties, net	296,664	217,482
	Accounts receivable - other, net	232,297	143,421
	Inventories	702,515	590,343
	Long-term marketable debt and equity securities	1,448,731	1,115,327
	Property, plant and equipment, net	3,349,352	2,091,404
	Goodwill	1,315,019	1,315,019
	Other intangible assets	573,779	668,391
	Other long-term assets	1,041,219	787,914
	Total assets	12,146,879	9,403,395
	Total current liabilities	1,659,832	1,238,030
	Total liabilities	4,677,295⁽⁴⁾	2,621,205
	Total stockholders' equity	7,469,584	6,782,190
Year-to-date:
Capital expenditures		$ 1,399,824⁽⁵⁾	$ 649,858

Total GAAP⁽¹⁾ depreciation and amortization expense		370,166	353,221
	Less: redemption related amortization expense⁽³⁾	(122,746)	(145,485)
Non-GAAP⁽²⁾ depreciation and amortization expense		$ 247,420	$ 207,736

(1) In accordance with U.S. generally accepted accounting principles (or GAAP).

(2) Non-GAAP amounts exclude amortization of other intangible assets related to the 1999 redemption of Genentech's Special Common Stock.

(3) Represents the amortization of other intangible assets related to the 1999 redemption of Genentech's Special Common Stock.

(4) Includes approximately $2 billion related to our debt issuance in July 2005.

(5) Excludes approximately $94 million in capitalized costs related to our accounting for a construction project which we are considered to be the owner of during the construction period. We have recognized a corresponding amount as a construction financing obligation in long-term debt.

Net U.S. Product Sales

GENENTECH, INC. NET PRODUCT SALES DETAIL (in thousands) (unaudited)
			Three Months Ended December 31,

			2005	2004
	Rituxan		$ 484,404	$ 429,184
	Herceptin		250,069	125,952
	Avastin		359,110	190,546
	Nutropin products		94,891	91,894
	Thrombolytics		58,389	47,300
	Pulmozyme		49,008	42,757
	Xolair		93,250	60,340
	Raptiva		20,453	16,421
	Tarceva		83,891	13,348
		Total U.S. product sales	1,493,465	1,017,742

Net product sales to collaborators			83,499	48,560
		Total Product Sales	$ 1,576,964	$ 1,066,302

			Year Ended December 31,

			2005	2004
Net U.S. Product Sales
	Rituxan		$ 1,831,529	$ 1,573,997
	Herceptin		747,274	478,948
	Avastin		1,132,805	544,680
	Nutropin products		370,461	348,790
	Thrombolytics		218,494	194,433
	Pulmozyme		186,490	157,097
	Xolair		320,433	187,672
	Raptiva		79,256	52,392
	Tarceva		274,884	13,348
		Total U.S. product sales	5,161,626	3,551,357

Net product sales to collaborators			326,432	197,522
		Total Product Sales	$ 5,488,058	$ 3,748,879