July 18, 2003 Dear Stockholder -

It's been an exciting spring for Genentech, with our research and development investments delivering on many fronts. In May, the clinically and statistically significant results of the Avastin™ (bevacizumab, rhuMAb-VEGF) first-line metastatic colorectal cancer study provided the first Phase III validation of the long-pursued anti-angiogenesis hypothesis. Then, in June, Xolair® (Omalizumab) was granted approval by the U.S. Food and Drug Administration (FDA) and became the first humanized therapeutic antibody for the treatment of moderate-to-severe persistent asthma. In June, we also received Fast Track designation status for Avastin. The transforming events of these last few months have positioned us for significant growth ahead, with the potential to deliver multiple novel biotherapeutics to patients in the next few years.

Total product sales increased 23 percent to $644.3 million compared to $523.5 million in the second quarter of 2002, driven primarily by growth in the combined sales of Rituxan® (Rituximab) and Herceptin® (Trastuzumab), which made up 73% of Genentech's second quarter 2003 total net product sales.

Although we've had a strong start for the first half of the year, we caution against annualizing these results, as we expect higher expenses in the second half of this year. Expenses will trend higher — in particular, marketing and sales expenses in preparation for the launch of Xolair and pre-launch preparation for other potential product approvals. Research and development (R&D) will also trend higher in support of our pipeline products.

Genentech's solid second-quarter performance reflects our ability to drive strong sales and earnings and is directly in line with our corporate strategy for seeking both near- and long-term growth. For 2003, we expect that our operating revenues could grow to more than $3 billion, and we also continue to expect a minimum of 20 percent non-GAAP earnings-per-share (EPS) growth. We expect to deliver this EPS growth while at the same time we both prepare for potential product launches and invest in innovative R&D to keep our pipeline full.

Genentech and alliance companies Novartis Pharmaceuticals Corporation, an affiliate of Novartis AG, and Tanox, Inc. were very pleased with the FDA approval of Xolair on June 20, 2003 for the treatment of adults and adolescents (12 years of age and above) with moderate-to-severe persistent asthma who are inadequately controlled with inhaled corticosteroids. Xolair is the first approved therapy to target the antibody IgE and the first protein biologic for asthma with an allergic component. Xolair drug shipment began on July 7, 2003, and the salesforce will begin making physician calls next week. We have committed to conducting post-approval studies to monitor Xolair's safety profile, as is our practice with new therapeutics. We are also actively evaluating the utility of several other development programs for Xolair, including pediatric asthma, food allergy and other IgE-mediated diseases.

The second quarter was also a busy and exciting time for product development and product operations. With respect to Avastin, we had a clinical pre-Biologics License Application (BLA) meeting with the FDA recently and were very pleased with the collaborative spirit of the meeting. We are continuing to work out details on the BLA with the FDA. Our goal for filing the complete BLA is the end of September 2003. As I've already mentioned, we received a Fast Track designation status for Avastin, and we will also seek a priority review for Avastin in colorectal cancer (CRC). The Fast Track designation allows us to submit a rolling BLA, while the priority review would mean that the FDA would review the BLA within six months. We can provide more detail on the FDA Prescription Drug User Fee Act (PDUFA) date once we complete the filing of the BLA, but if we achieve our goal of filing by the end of the third quarter of 2003, then we anticipate FDA action no later than the end of the first quarter of 2004. We will have an additional meeting with the FDA to clarify the BLA strategy for manufacturing later this month. We anticipate that this aspect of the filing will fit within the same timelines. Finally, in another development for Avastin this past quarter, Roche notified us that they were exercising their opt-in for Avastin development and commercialization ex-United States.

Following the positive news around Xolair and Avastin, there have been some questions related to our manufacturing capacity for antibody production. Genentech has a track record of successfully aligning demand with capacity through the construction of new facilities, acquisition of existing plants and third-party arrangements. We have approximately 240,000L capacity, with 40,000L in development in Porriño, Spain. As part of our planning, we evaluate sites around the country and around the world to support our growth and expansion so that we are best positioned to continue our mission of delivering life-improving and life-extending therapies to patients. Genentech has sufficient capacity on-line or under construction to meet our current forecasted product demands.

Turning now to our pipeline, I'll begin with our oncology projects. The Avastin program is broad, and we continue to study the molecule in multiple tumor types, including non-small cell lung, renal cell, breast and pancreatic cancers, as well as in combination strategies with other targeted therapies. Some of the studies that we plan to pursue include two first-line metastatic CRC studies and a Phase III renal cell carcinoma study that will begin in the second half of this year. I would like to note that while we are very excited about the prospects of Avastin for patients with cancer, what we know today is that Avastin significantly improves overall survival in patients with metastatic colorectal cancer without adding significant toxicities. While we have some preliminary promising results in other tumor types, we do not have definitive Phase III data in those cancers, and we therefore believe it is prudent to be cautious about the ultimate size of the market until more is known.

We have completed enrollment of all four major Phase III trials for Tarceva™ (erlotinib HCl), involving approximately 3,500 patients. We are anticipating results of the Phase III first-line non-small cell lung cancer (NSCLC) studies in the second half of 2003. Data for the OSI Pharmaceuticals 2nd/3rd-line NSCLC study is also expected in the fourth quarter of 2003 or the first quarter of 2004. The results of the OSI Phase III trial in pancreatic cancer are anticipated in mid-2004. Finally, Genentech, in conjunction with the Accelerate Brain Cancer Cure (ABC²) clinical network, plans to start a Phase II study of Tarceva in glioblastoma multiforme in the third quarter of 2003.

Genentech and alliance company Roche have begun enrollment in three out of four Omnitarg™ (pertuzumab) Phase II trials in ovarian, prostate and breast cancers. We plan on beginning enrollment in the Phase II NSCLC study early in the third quarter of 2003.

Moving onto our pipeline projects for immunological diseases, we filed the safety supplement for the RAPTIVA® (Efalizumab) BLA, which now contains approximately 2,700 patients and is the largest psoriasis database of any biologic therapy. As with most biologics, an advisory committee discussion will likely take place sometime in the third quarter of 2003, and we continue to expect FDA action in late 2003. In May 2003, Genentech and XOMA Ltd. announced that we have discontinued the testing of Raptiva for rheumatoid arthritis (RA) based on an evaluation that suggested no overall net clinical benefit in patients receiving the study drug. We continue to study Raptiva in psoriatic arthritis.

Genentech and alliance company Roche have begun enrollment in our Rituxan Phase IIb study in patients with RA. Alliance company IDEC Pharmaceuticals Corporation has begun enrollment in their Phase III study of Rituxan in RA patients with inadequate response to anti-TNF alpha therapy.

In terms of vascular medicine, we began enrollment in our second Phase III study of Lucentis™ (ranibizumab), formerly known as rhuFab V2, in predominantly classic age-related macular degeneration (AMD) in June 2003. Our first Phase III study in minimally classic and occult forms of wet AMD is enrolling well, and we anticipate completion of enrollment of the approximately 720 patients by the end of 2003. Preliminary six-month positive data from our Phase Ib/II study were presented at the Association for Research in Vision and Ophthalmology (ARVO) meeting in May.

We made positive progress in both our early- and late-stage pipeline in the first quarter of 2003, laying the groundwork for the potential of multiple product launches over the next few years and building momentum for future growth.

Mergers and acquisitions (M&A) have been a topic of interest recently. As you know, we have a high bar for M&A activity, and we believe we are well positioned to achieve our short- and long-term goals without a merger or acquisition. In light of this, we will continue to follow our strategy of in-licensing, which has been highly successful, and strive to be the alliance company of choice in our collaborations. The strategy of adding high-value therapeutics to our portfolio through both our research group and through strategic alliances is a model that we believe is highly successful and avoids many of the business distractions that can surround mergers and acquisitions.

In May 2003, Genentech announced the promotion of Corsee Sanders to vice president, Biometrics and Business Operations, Medical Affairs.

The energies of the management team at Genentech are focused on the critical activities of the business at hand, as well as long-range planning for growth in the 2006 through 2010 timeframe. We are focusing on the priorities that will allow us to deliver on our goals. In our planning for the remainder of the decade, we are striving to become the world leader in revolutionizing the treatment of patients with cancer, immunological diseases and angiogenic disorders. We plan to continue to deliver products that can change the practice of medicine and improve and extend patients' lives. We are also well positioned to fulfill our EPS growth trajectory of double-digit growth for 2006 through 2010. As we grow, it is important that we scale our unique culture so that Genentech remains a great place to work. In closing, we continue to manage our business with the primary intent of delivering breakthrough therapies to patients while building sustainable, short- and long-term growth and continuing to increase shareholder value.

Sincerely,

Arthur D. Levinson, Ph.D.
Chairman and Chief Executive Officer

The statements made in this letter relating to the potential launch of multiple new products over the next several years, the initiation of enrollment in an Omnitarg Phase II trial (non-small cell lung cancer), the timing of completion of enrollment in a Lucentis Phase III trial, the initiation of a Tarceva Phase II trial (glioblastoma multiforme) and an Avastin Phase III trial (renal cell carcinoma), the timing of data availability from Tarceva Phase III trials (second/third-line non-small cell lung cancer, first-line lung cancer and pancreatic cancer), the Avastin BLA filing time frame and the corresponding FDA action, the timing of an advisory panel and the corresponding FDA action on Raptiva, and Genentech's growth in EPS and revenues for 2003 and future growth in EPS from 2006 to 2010 are forward-looking and actual results could differ materially. For a discussion of the risks and uncertainties associated with the potential multiple product launches, the timing of initiation, enrollment and completion of enrollment of clinical trials, the timing of data availability from clinical trials, the regulatory filing time frames and timing of FDA response and advisory panels, see "The Successful Development of Biotherapeutics is Highly Uncertain," "We May Be Unable to Retain Skilled Personnel and Maintain Key Relationships," "Protecting Our Proprietary Rights Is Difficult and Costly," We May Be Unable to Obtain or Maintain Regulatory Approvals for Our Products," "Difficulties or Delays in Product Manufacturing Could Harm Our Business," and "The Outcome of, and Costs Relating to, Pending Litigation Are Uncertain" discussed in the "Forward-Looking Information and Cautionary Factors That May Affect Future Results" section of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 ("Forward-Looking Information"); and for Genentech's growth in EPS and revenues, see all of the risk factors discussed in Forward-Looking Information. Genentech has no intention, and disclaims any obligation, to update or revise any forward-looking statements in this letter.