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Executives

Kathee Littrell - Senior Director, Investor Relations

Arthur D. Levinson Ph.D. - Chairman of the Board, Chief Executive Officer

Ian T. Clark - Executive Vice President, Commercial Operations

Susan D. Desmond-Hellmann - President, Product Development

David A. Ebersman - Chief Financial Officer, Executive Vice President

Analysts

Eric Schmidt - Cowen & Company

Geoffrey Meacham - J.P. Morgan

Geoffrey Porges - Sanford C. Bernstein

Joel Sendek - Lazard Capital Markets

Jim Birchenough - Lehman Brothers

May-Kin Ho - Goldman Sachs

Katherine Kim - Banc of America Securities

Mark Schoenebaum - Deutsche Bank

Michael Aberman - Credit Suisse

Steven Harr - Morgan Stanley

Mike King - Rodman & Renshaw

Maged Shenouda - UBS

William Tanner - Leerink Swann

Jason Kantor - RBC Capital Markets

Genentech, Inc. (DNA) Q2 2008 Earnings Call July 14, 2008 4:45 PM ET

Operator

Good afternoon, ladies and gentlemen. My name is Gerald and I will be your conference operator. At this time, I would like to welcome everyone to the Genentech second quarter 2008 earnings conference. (Operator Instructions) It is now my pleasure to introduce your host, Ms. Kathee Littrell, Vice President of Investor Relations. Ms. Littrell, you may begin.

Kathee Littrell

Thank you, Gerald. Good afternoon, everyone and thank you so much for joining us for our Q2 2008 earnings call. We have posted an earnings call slide set on our website as per our usual on www.gene.com. This call is being electronically recorded and is copyrighted by Genentech. No reproductions, retransmissions, or copies of this conference call can be made without the written permission of Genentech.

We’ll be making forward-looking statements and the actual results may vary materially from the statements made. Please see the risk factors section of our Form 10-Q for the period ending March 31, 2008 that’s on file with the Securities and Exchange Commission for a discussion of the risk factors that could cause material variations from the forward-looking statements that will be made during this conference call.

We’ll be discussing financial information that includes non-GAAP financial measures in our call today and unless otherwise noted, the financial figures in David Ebersman’s comments are non-GAAP numbers which exclude the effects of recurring charges related to the 1999 Roche redemption, litigation related and similar special items, employee stock compensation expense, and accounting for our acquisition of Tanox.

Please refer to our website at www.gene.com under the investor tab; if you click on financials, you can see the most directly comparable GAAP financial measures with a reconciliation to the non-GAAP financial measures discussed today.

Today, I am joined by Dr. Art Levinson, Chairman and Chief Executive Officer; Ian Clark, Executive Vice President of Commercial Operations; Dr. Sue Hellmann, President of Product Development; and David Ebersman, Executive Vice President and Chief Financial Officer. Now I’ll turn the call over to Art.

Arthur D. Levinson Ph.D.

Thank you, Kathee. Good afternoon, everyone. On the financial front for the first six months of 2008, our non-GAAP total operating revenues were $6.3 billion, increasing 8% from 2007. Our non-GAAP earnings per share were $1.66, up 9% from 2007. During the first half of 2008, we also successfully achieved many of our key business goals by obtaining accelerated approval of Avastin for metastatic breast cancer and by initiating five Phase I trials and three Phase II trials.

In the short-term, our continued growth will depend upon our ability to increase sales for our currently marketed products. We are focused on the challenges of successful commercial execution to drive penetration and share of our key product, which is Avastin for the breast cancer market.

We have an excellent team in place and are focused on dealing with what has become a more difficult competitive and reimbursement environment. Our short-term growth will also be affected by our ability to obtain approvals for new indications, in particular for Avastin, Lucentis, and Rituxan. Potential near-term growth opportunities for Avastin include label expansions in brain and kidney cancer, as well as potential future opportunities in adjuvant colon cancer, second line non-small cell lung cancer, ovarian cancer, and hormone refractory prostate cancer.

We also anticipate an sBLA submission for Rituxan in earlier RA later this year and Phase III Lucentis retinal vein occlusion data in 2009.

Finally, our short-term financial performance will also be driven by continued focus on remaining disciplined and managing our spend across the business and continued efforts to drive expansion of our pretax and after-tax margins.

Regarding long-term growth, we’ve discussed our oncology road map for several years now, focusing on new mechanisms such as Apoptosis, new platform technologies such as in our antibody drug conjugate program, and new pathways that are implicated in malignant cell division. We continue to make progress in each area and believe these new approaches have the potential to lead to more effective therapies and treatment of cancer.

Many relevant cancer targets reside within the cell and therefore we have focused about a third of our research effort in this area on small molecules. Our development pipeline includes 15 oncology hematology new molecular entities among the 23 new molecules we are investing in.

An important component of advancing the standard of care in oncology will be continuing to develop therapies and overcome resistance or mutation by working at multiple points in signaling pathways. Towards this effort, we were encouraged by the results of the Phase II Herceptin plus Pertuzumab study in breast cancer presented at ASCO where we saw an objective response rate of 24%, including five complete responses in a heavily pre-treated population. We also look forward to the results of the BETA lung study investigating a combination of Tarceva and Avastin without chemotherapy.

Through our antibody drug conjugate program, we combine an antibody with a [slight intoxication] that is delivered directly to the tumor cell. Our team DM1 program is an important prudent concept for this technology and based on positive response rate data presented at ASCO, we recently decided to broaden the program by adding two additional Phase II trials in patients with HER2-positive metastatic breast cancer. Additionally, in Q208 we submitted an IND for a second antibody drug conjugate.

Although oncology is our most advanced focus area, our immunology, tissue growth and neuroscience pipeline is growing with 8 NMEs in Phase I. Immunology is a particularly difficult field due to limited safety margin, heterogeneous patient populations, and significant competition. Though we were disappointed with the recent results from the Phase III Rituxan trials in SLE and primary progressive MS, we continue to work in many interesting and promising areas in immunology, including anti-CD20 therapy for multiple sclerosis and novel approaches to targets, such as beta 7, [inaudible], and ZD4. We expect to see progress in the next few years in each of our new therapeutic areas of neuroscience and infectious disease.

Earlier this year, we submitted an IND for our anti-A beta molecule in Alzheimer’s Disease. Our pre-clinical work suggests that our anti-A beta molecule has the potential to be best-in-class when considering the efficacy and safety issues of these antibodies. We are also pleased with the progress of our basic scientific research in the emerging area of neuroscience.

Beyond research and development, I’ll now comment on other potential business issues. In June, we announced a settlement with MedImmune involving the Cabilly patent and that case is now fully resolved and dismissed. We will not update our royalty revenue guidance as a result of the settlement and it has no impact on the separate Cabilly reexamination ongoing at the U.S. patent and trademark office. Regarding the Cabilly re-exam, in June we filed a response to the U.S. PTO’s final office action rejecting the patentability of Cabilly and we anticipate a response within the next several months.

Many of you have asked for our thoughts on mergers and acquisitions and business development. Regarding BD, we intend to be aggressive in our efforts to pursue collaborations that give Genentech access to novel products and technologies that enhance our internal programs and supplement our internal pipeline. This is a core part of our business strategy.

Regarding M&A, we regularly assess all companies that might be a good fit for our business and help us achieve our scientific and financial goals, actively seeking opportunities while setting a high bar, recognizing that most acquisitions fail to create shareholder value.

Our strategy is to position ourselves to take advantage of favorable conditions, such as when equity market valuations for small and mid-cap biotechnology companies decline while our overall business performs well.

In considering M&A, we remain mindful of the importance of protecting and evolving our unique culture, which is a critical element of our success. We remain convinced that making Genentech a great place to work, capable of attracting and retaining the top talent in science and other fields, is one of the most important responsibilities of our management team.

In the coming year, we will continue to follow closely the presidential candidates’ position on healthcare as they focus on issues such as the cost of healthcare, [follow-on] biologics, imperative effective, and patient access. Genentech has a track record of success working with both political parties and we will continue to advocate for policies that promote medical innovation, patient access, and a market-based healthcare system. Obviously it is too soon to understand the impact that the 2008 elections will have on the industry. We will continue to track this with interest.

In closing, we remain confident in our approach to running the business. We have a number of compelling new molecular entities in our pipeline and believe that one or more of these new molecules may make a major impact on clinical practice and patient care. We will continue to make decisions that take into consideration the complexity and risk inherent in drug development and commercialization and we look forward to reaping the benefits of the many new scientific developments helping us to better understand the biology underlying important human diseases.

Now let me turn the call over to Ian.

Ian T. Clark

Thank you, Art and good afternoon to everybody. U.S. sales in the quarter were $2.35 billion, up 9% from Q2 last year.

Moving to products and starting with oncology and first of all Avastin; U.S. Avastin sales were $650 million in the quarter, a 15% over Q2 2007. Year-over-year growth resulted from increased sales in metastatic breast cancer, which was approved in the U.S. on Feb 2nd of this year, as well as from increased sales in first-line metastatic non-small cell lung cancer. In breast cancer, overall penetration in the first-line HER2-negative metastatic breast cancer was approximately 35% in Q2, an increase over the approximate 25% adoption rate reported in Q1.

Awareness among physicians of the E2100 study continues to increase and over 90% have used Avastin in at least one metastatic breast cancer patient. With respect to dose, approximately 75% of Avastin use in breast cancer in Q2 was at the 10 mgs/kg Q2 weekly approved dose, which was in line with Q1.

As you know, data from the AVADO study was presented at ASCO last month and while this study was not designed to allow for direct comparison between the different doses, positive trends were seen across the primary and secondary endpoints at the higher dose, which we believe should give physicians greater comfort when using the U.S. label dose.

We’re launching in breast cancer without the use of commercial material pending DDMAC review. However, since June 30th, our representatives have used the New England Journal of Medicine reprint of the pivotal E2100 study when communicating with physicians. We will work through the DDMAC process to make additional promotional materials available to our representatives.

Commercial efforts in Q3 will continue to emphasize Avastin’s broad eligibility in breast cancer consistent with our label and to emphasize the label dose.

In metastatic lung cancer, recall that we estimate approximately 50% to 60% first line patients are eligible for Avastin. We estimate the penetration into this Avastin eligible population is now approximately 65%, an increase over the approximately 60% reported in previous quarters. The percentage of lung cancer patients receiving the standard 15 mgs/kg [three weekly] dose of Avastin remains unchanged with the number reported in Q1.

Finally, penetration in first and second line colorectal cancer remains stable.

Moving to Herceptin, U.S. sales of Herceptin were $338 million in Q2, a 3% increase over the same quarter last year. On May 22nd, we received two additional FDA label expansions for Herceptin in HER2-positive adjuvant breast cancer. One of those added the use of a new treatment option for Herceptin in combination with Docetaxel and Carboplatin and provides for a shorter, less cardio-toxic regimen for patients. Overall penetration in HER2-positive adjuvant breast cancer was approximately 85% in Q2, an increase over the same quarter last year. Herceptin’s penetration in HER2-positive metastatic setting also increased in the same period to approximately 75%. The pattern of use continues to be limited to later lines of metastatic disease.

Next is Tarceva; U.S. sales of Tarceva were $119 million in the quarter, a 17% increase compared to the same quarter last year. Our tracking data indicates that second line lung cancer penetration has remained stable compared to Q2 of ’07. Front-line pancreatic cancer penetration has increased to 40% compared to the levels seen in Q2 of ’07.

Now on to Rituxan, total U.S. sales of Rituxan were solid in the quarter at $651 million, representing a 12% increase over the same quarter of last year. The second quarter has historically been a strong quarter for Rituxan.

In hematology, sales growth continues to be driven primarily by use of Rituxan following first line therapy in indolent non-Hodgkin's lymphoma. Rituxan’s overall adoption in other areas of NHL and CLL remain steady.

Moving to our immunology portfolio and starting with Rituxan for rheumatoid arthritis, Q2 performance for Rituxan NRA was strong and was driven by our new slowing progression of joint damage claim. Our primary goal of the launch of this claim was to move Rituxan earlier in the treatment algorithm after one anti-TNF, and our quarterly tracking data suggests this has happened.

On to Xolair, U.S. sales of Xolair were $129 million in the quarter, an increase of 8% over the same period last year. We believe we are beginning to see the first positive signs of the impact of six months of on-label promotional efforts based on Xolair’s placement in the IH asthma guidelines.

Completing immunology, U.S. sales of Raptiva were $28 million in Q2, a 4% increase over last year.

Now on to our tissue growth and repair products and starting with Lucentis; at $216 million, Q2 sales were up 3% over the same quarter in 2007 and up 9% versus Q1 of this year. Our latest market research indicates that new patient share is at approximately 45%, compared to the approximate 40% we saw in Q1 of this year. The launch of improved patient access programs, a revised promotional campaign, and enhanced distribution option for Lucentis, along with a more stable market situation all contributed we believe to the positive sales picture and the modest increase in new and total patient share in Q2 compared to Q1 of this year. However, we believe it a little too early to call this performance a trend. Also, it’s sensible to be cautious by interpreting the sales trend of a product during changes to its distribution.

Finally, on to our other tissue growth and repair products, U.S. sales of Nutropin were $89 million in the quarter, a 5% decrease compared to Q2 of last year. Thrombolytics products U.S. sales were $68 million in Q2, up 1%; and finally for Pulmozyme, U.S. sales were $63 million in Q2, up 15%.

In summary, this was a successful quarter but it’s important to note that we are facing commercial challenges, particularly in terms of reimbursement and competition. Reimbursement environment continues to evolve in 2008 with meaningful trends toward higher patient co-pays and more co-insurance, and these trends create challenges for specialty high-price biotech products. We see numerous examples of this, instances of this; for example, lower penetration of Avastin in lung cancer amongst patients lacking supplemented Medicare insurance as compared to penetration amongst patients with private insurance or supplemental coverage, or higher script rejection rate for Tarceva once co-pays reach a certain level.

High levels of competition is also a factor and most of our [inaudible] in various guises, a slew of new products in oncology, high levels of promotional expenditure in the TNF led RA biologics market, or follow-on biologics in the case of [growth hormones]. However, we are confident we have the right strategy in place to combat these challenges and focus continuously on execution. Our oncology sales forces and our reimbursement support services continue to rank number one in various third-party surveys. We believe this is a testament to our team and their efforts, as are we believe our quarter two results.

I’ll now turn the call over to Sue.

Susan D. Desmond-Hellmann

Thanks, Ian. This quarter we made significant progress in our clinical pipeline, completing enrolment in nine studies and initiating enrolment in six others. I’m going to take a few minutes to highlight some of our recent key activities, starting with Avastin.

In the second half of 2008, we expect to submit two supplemental BLAs, one in first line metastatic renal cell carcinoma and the second for accelerated approval in relapsed glioblastoma multiforme. We are also planning to initiate a global Phase III study in newly diagnosed patients with KBM in the first half of 2009 that will evaluate the standard of care of chemotherapy and radiation plus or minus Avastin.

The interim safety data presented at ASCO on our adjuvant colon cancer study, CO8, looked encouraging and we expect the final analysis of this study to be in 2009. We continue our effort with the FDA to gain full approval of Avastin in first line metastatic breast cancer. Data from the RIBBON-1 study is expected in the second half of 2008. This trial not only has the potential to further support the clinical benefit of Avastin but also to expand our understanding of how Avastin combines with various chemotherapy regimens, including Taxane and non-Taxane regimens.

The primary analysis of progression-free survival based on investigator tumor assessment will be analyzed separately in two cohorts. First, Taxane anthrocyclene-based chemotherapy cohort and secondly, the capecitabine cohort. The study is designed to provide robust efficacy data for both cohorts. A secondary endpoint of the trial will be the determination of PFS based on tumor assessments from an independent review committee. Subjects who complete or discontinued from the study will be followed for survival and subsequent anti-cancer therapies.

By mid-2009, we plan to submit an efficacy supplement report to the FDA for full approval of Avastin in first-line metastatic breast cancer based on data from both AVADO and RIBBON-1.

We are further evaluating use of Avastin in HER2-positive and HER2-negative breast cancer in multiple lines of therapy. In metastatic disease, the Phase III second line RIBBON-2 study investigating physician’s choice of chemotherapy plus or minus Avastin has completed enrolment, with results expected in 2009. The Phase III first line CALGB 40503 study investigating hormone therapy plus or minus Avastin is expected to begin enrolment in Q3 of this year.

In adjuvant disease, BETH, the Avastin and Herceptin HER2-positive breast cancer study, began enrolling patients this quarter. BETH is our third trial in adjuvant breast cancer. BEATRICE and the ECOG 1503 investigate HER2-negative breast cancer and are actively enrolling patients.

We submitted a supplement to the FDA with results of the safety review of the PASSPORT and ATLAS data presented at ASCO investigating the use of Avastin for lung patients with previously treated brain metastases. In the review, only one out of 83 Avastin treated patients developed a symptomatic grade two CNS hemorrhage. Given this promising initial data, we are in discussions with the FDA about next steps required to further evaluate safety and potentially expand the label to include these patients.

There has been a lot of recent discussion regarding K-ras mutation data and we are aware that some countries may require K-ras testing. In the U.S., we anticipate that many patients will receive this testing before undergoing treatment for colorectal cancer. A retrospective analysis of the pivotal E2107 study demonstrated that Avastin provides a significant overall survival benefit for metastatic colorectal cancer patients independent of K-ras status. We believe that Avastin data supports its use as the key biologic agent in front-line colorectal cancer regardless of K-ras status.

Because of our commitment to patient safety, Genentech and Roche distributed a “Dear Healthcare Provider” letter describing the previously reported findings of microangiopathic hemolytic anemia, or MAHA, in patients treated with Avastin and Sutent in two metastatic renal cell cancer trials, an investigator sponsored trial and the SABRE-R clinical trail.

These events were reversible upon discontinuation of Avastin and Sutent and to date, MAHA has only been observed in Avastin treatment when combined with Sutent. All of our SABRE studies evaluating this combination have been discontinued.

We continue our effort to explore the use of Avastin in new indications. We have expanded our Phase II study in relapsed platinum sensitive ovarian cancer into a Phase III registrational study called OCEAN, and now expect final data in 2010.

Now turning to our HER-2 pathway program, our understanding of the HER-2 pathway continues to grow. We saw at ASCO additional evidence of the value of Herceptin as treatment of HER2-positive breast cancer across multiple lines of therapy. Despite advances in the treatment of HER2-positive breast cancer with Herceptin, some patients ultimately progressed and we are evaluating agents and regimens that may provide even better outcomes for patients. Two new therapies in our pipeline, Trastuzumab DM1 and Pertuzumab, may have the potential to provide additional treatment options for these patients.

Art already discussed the encouraging results from the Phase II Herceptin and Pertuzumab study in late stage HER2-positive metastatic breast cancer presented at ASCO. This study was of particular interest since there was no chemotherapy in the treatment regimen and there were no significant cardiac events observed. This study served as a basis for our ongoing Phase III CLEOPATRA study investigating Herceptin, Pertuzumab, and chemotherapy in first line metastatic breast cancer.

TDM1 may also be important in HER2-positive breast cancer as a potential new treatment option for patients. It is also the first clinical candidate in our antibody drug conjugate program, a platform of great interest to us. Our Phase II study of TDM1 in patients who have progressed on HER2 directed therapy completed enrolment in Q2 2008 and we expect to submit interim data for presentation to the ASCO breast cancer symposium in September this year.

In the second half of this year, we expect to initiate two other Phase II TDM1 studies, one in the first line and another in third line HER2-positive metastatic breast cancer. Should the Phase II third line study yield compelling data, we plan to discuss an earlier approval path with the FDA.

Finally, we plan to make a Phase III go/no-go decision for TDM1 in the second line setting in the second half of this year.

We are pleased with this emerging data, as we are committed to evaluating therapies and regimens that may advance the standard of care and provide additional clinical benefit for patients with HER2-positive metastatic breast cancer.

Now turning to Tarceva, our programs continue as planned and the second half of 2008 will provide important data for this program. The Phase III SATURN study investigating Tarceva following platinum-based chemotherapy in first line non-small cell lung cancer will also assess the potential biomarkers such as EGFR expression to predict clinical outcome. We also anticipate data from BETA LUNG, the Phase III Tarceva plus Avastin second line non-small cell lung cancer study. This study is our first Phase III oncology study testing the combination of two targeted agents without concombitant chemotherapy. If positive, we will discuss with FDA the possibility of submitting an sBLA to expand the Avastin label to include second line non-small lung cancer and another to add language to the Tarceva label regarding the Avastin and Tarceva combination in second line non-small lung cancer.

Now turning to immunology and tissue growth and repair programs, Rituxan and our second generation anti-CD20, we expect to submit an sBLA to the FDA for the use of Rituxan in rheumatoid arthritis patients who have had an inadequate response to Demar therapies such as methotrexate, in the second half of this year.

We expect to initiate our Phase II trial of our second generation anti-CD20 molecule in relapsing remitting MS in quarter three this year. An objective of this study is to identify the optimal dose for the Phase III RRMS study.

As mentioned, OLYMPUS, our Phase II/III study of Rituxan in PPMS did not meet its primary endpoint. However, we were encouraged by evidence of biologic activity in a subset of patients and we are evaluating next steps and whether we can incorporate our learnings into the second generation anti-CD20 MS program.

We were disappointed by the negative results of the Rituxan SLE study, EXPLORER, and have terminated the second generation anti-CD20 study called BEGIN. Results from the Phase III Rituxan Lupus Nephritis study called LUNAR are expected in Q1 2009. LUNAR is important because it will evaluate a different patient population then that of EXPLORER. We believe that Lupus Nephritis patients may be more representative of the patients in the published case series that suggested Rituxan is active in Lupus patients.

As previously mentioned, in early June we received a report of a fatal PML case in a patient who received Rituxan in the REFLUX trial and extension study. The final course of Rituxan was completed 18 months prior to the development of PML. The patient had multiple confounding factors associated with immuno-suppression, including long-term RA treatment, chemotherapy nine months prior to the onset of PML, and concombitant diagnoses of Shogun’s Syndrome and RA overlap syndrome with Lupus like features.

Immunology investigators have been informed and we continue to work with the FDA to discuss whether additional steps need to be taken.

Let me finish by highlighting additional potential data expected in the second half of 2008: BRIDGE, the Avastin study in squamous non-small cell lung cancer; we expect potential overall survival data from the two Avastin renal call carcinoma trials, AVOREN and CALGB 90206; IMAGE, the Rituxan radiographic study in rheumatoid arthritis; RESOLVE, the Lucentis Phase II study and diabetic macular edema; and PASSPORT, the Avastin Phase II first line non-squamous non-small cell lung cancer study of patients with treated brain metastases.

For a thorough review of the upcoming events, please see our webcast slides, and now let me turn the call over to David.

David A. Ebersman

Okay, thank you, Sue. I’ll start today with the revenue components of the income statement. Sales to collaborators were $185 million this quarter, a 37% decrease from Q2 2007 due to lower sales of Herceptin and Avastin to Roche related to different quarterly timing for Roche’s orders compared to last year. For the full year 2008, we continue to forecast sales to collaborators to increase by approximately 10% to 15%.

Non-GAAP royalty revenue was $625 million this quarter, a 29% increase over Q2 2007, primarily due to growth in ex-U.S. sales of our products by Roche and Novartis. The increase was also influenced by approximately $45 million in foreign exchange related benefits of the weaker dollar compared to Q2 last year.

We are now forecasting royalties for 2008 to grow by approximately 20% to 30% over 2007, but as we’ve previously discussed, royalties are very difficult to forecast due to multiple factors, including the number of products involved, ongoing contractual and intellectual property issues, and foreign exchange volatility.

Contract and other revenues was $71 million this quarter, an 8% decrease over Q2 2007, and we now forecast contract revenue to remain generally flat in 2008 relative to 2007. Total operating revenue was approximately $3.2 billion this quarter, an 8% increase over Q2 2007.

Turning now to the expense items, non-GAAP cost of sales was $423 million this quarter, or 17% of net product sales. Our cost of sales in Q2 2008 included an unplanned charge of approximately $50 million related to sales [lost] from a manufacturing start-up campaign at one of our facilities. We are confident that this manufacturing event will not lead to any product supply disruptions.

Cost of sales this quarter also include small charges related to the ongoing effect of our voluntary severance program and related to the fact that we are now carrying some excess manufacturing capacity in our bulk network.

For 2008, we continue to forecast cost of sales to be approximately 15% of product sales, assuming no additional unplanned inventory or manufacturing issues.

Non-GAAP R&D expenses were $611 million this quarter, an 8% increase compared to Q2 2007. R&D expense was 19% of operating revenues this quarter, flat compared to last year.

Consistent with our historical spending patterns, we forecast a ramp-up of our R&D spend in the second half of this year and for 2008, we continue to forecast R&D expense to be approximately 20% of revenues, though actual results will depend on the cost of new in-licensing deals and progress in our internal pipeline.

Non-GAAP MG&A expenses were $518 million this quarter, a 7% increase over Q2 2007, primarily due to higher royalty expenses. MG&A as a percentage of operating revenues was 16% this quarter, flat with Q2 2007. For the full year 2008, we continue to forecast MG&A as a percent of revenues to be approximately 16%.

Collaborator profit sharing expenses were $313 million this quarter, an increase of 13% over Q2 2007, primarily related to an increase in sales of Rituxan.

Non-GAAP pretax operating margin as a percentage of total revenues was 42% this quarter, flat with Q2 2007. For 2008, we now forecast an operating margin of about 42%.

Other income net was $78 million this quarter, a 34% increase compared to Q2 2007, as a reduction in our interest income due to lower rates was more than offset by unplanned gains in our biotech investment portfolio from an acquisition of a company in which we held a meaningful equity position. In 2008, we now forecast other income net to be generally flat relative to 2007.

On taxes, our non-GAAP tax rate was 40% this quarter compared to 37% in Q2 2007. The tax rate was higher than planned due to a $33 million one-time settlement with the IRS of a tax issue related to our 1999 agreement with Roche. We now forecast our tax rate for the full year 2008 to be about 37%, assuming that the federal R&D tax credit will be reinstated before the end of the year.

Non-GAAP net income this quarter was $871 million, or $0.82 per share, a 4% increase in net income and a 5% increase in EPS over Q2 last year.

Employee stock-based compensation expense was approximately $97 million on a pretax basis, $64 million after taxes, or approximately $0.06 per share this quarter, flat compared to Q2 2007.

Now turning to some cash metrics, cash from operations in the quarter excluding the after-tax effect of a payment related to the City of Hope litigation, was approximately $500 million, decreased from $700 million in Q2 2007 due mainly to the size of tax outlays which occurred in the second quarter of 2008.

Cash used for capital expenditures in Q208 was approximately $200 million and we now anticipate that CapEx for 2008 will total approximately $850 million.

Our free cash flow for Q2 was approximately $300 million.

In Q2 2008, we repurchased 3.6 million shares for $256 million, offset by $74 million of cash inflows from option exercises and the associated tax benefits.

Two additional items impacted our ending cash position. First, at the end of Q2, we made a prepayment of $500 million under an accelerated share repurchase program for shares we expect to receive in the third quarter of 2008.

Second, as a result of our litigation with City of Hope, our Q2 cash position was impacted by a $475 million payment to City of Hope, which net of the tax benefit reduced our cash and investments portfolio by approximately $300 million.

Including all of these transactions, our unrestricted cash and investments portfolio totaled approximately $6.4 billion at June 30, 2008. However, please note that in addition to the $6.4 billion in unrestricted cash, we have $788 million in cash that was still classified on our June balance sheet as restricted in connection with the City of Hope litigation. Shortly after quarter end, we received the court’s final administrative order that the judgment has been fully satisfied and as a result, since we already paid City of Hope out of other funds, the entirety of the $788 million will become unrestricted cash on our balance sheet and available for operating use in Q3.

As a final note on cash, I noted at our March investor meeting that we were in the process of working on a near-term cash strategy and I’d like to give you an update on our current status. Based on our estimate of the optimal cash level for the business and our belief that we’ve been able to generate and will continue to generate cash that will put us in a cash position in excess of optimal levels, we recommended to the board a strategy to repurchase shares beyond our current practice of offsetting dilution from stock option exercises, and the board approved this proposal.

We plan to manage this program opportunistically and are not committed to repurchase a specific amount over a set time horizon, though we have committed $500 million for our prepaid share repurchase program in Q3, as I noted earlier. Going forward from there, the size of our repurchases will vary depending upon such factors as our internal view of our stock valuation and our perspective on the M&A marketplace and the probably that we can put our cash to work investing in other companies.

In closing, we’re now forecasting full year 2008 non-GAAP EPS of $3.40 to $3.50 per share. We’ve achieved many of our key goals through the first six months of the year and believe we are well-positioned for continued progress in our commercial pipeline and other business activities through the rest of 2008.

As always, we’ll continue to look for opportunities to create value for the company over the long-term and to deliver on the promise we made to patients, employees, and investors.

Now I’ll turn the call back over to Kathee.

Kathee Littrell

Thank you, David. Operator, we’re going to start the question-and-answer session. However, I would like to ask that as per our usual practice, we limit it to one question per person so we can take as many questions as possible. Thank you. Operator.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Eric Schmidt with Cowen & Company.

Eric Schmidt - Cowen & Company

Good morning. A question for Sue on the [inaudible] -- just wondering if you could provide a little bit more detail behind the change in your thoughts on timing and specifically whether or not Genentech knows exactly how many events have transpired and is therefore sort of modeling out the future of that study, or whether you just heard from the NSAVP itself that their estimates for timing have changed.

Susan D. Desmond-Hellmann

We heard from the NSAVP itself that their estimates for time had changed. There were two things that appear to reflect their reasons for changing their estimate. Once is the proportion of patients who are stage 3 versus stage 2 patients, and secondly their monitoring and how they bring in data, so the pace of bringing an event seems to be a little bit quicker than we had anticipated when we did our planning for the study, and that’s the reason for their current expectation of 2009 rather than 2010 for the final study analysis.

Eric Schmidt - Cowen & Company

Thank you.

Operator

Your next question comes from Geoffrey Meacham with J.P. Morgan.

Geoffrey Meacham - J.P. Morgan

A question for you on the impact that you expect from CMS reimbursement using MCC guidelines. This is obviously for Avastin and its indications that are not official, like GBM, renal cell, ovarian, adjuvant color without resection.

Ian T. Clark

Let me try and -- I think we saw it generally as a positive move, not least because we’ve been in somewhat of a kind of abeyance period prior to that announcement. I still think there is some confusion about the exact interpretation with all the sort of two As and two Bs and all the different levels. But as you said, it does appear that we are going to get some listing past potential reimbursement in GBM, renal cell, and maybe ovarian.

I don’t see any of them being particularly huge at the moment. GBM is likely to be refractory. Renal cell, we have some usage; ovarian of course has been -- there was the negative study in ovarian, so I think it’s generally a positive move but in terms of the impact to sales, at least in the short-term, not very significant. You might want to comment on it. I don’t think historically people have adopted drugs in the adjuvant setting until they’ve seen the final studies because of the whole risk factor calculation. That one I wouldn’t see having impact either.

Geoffrey Meacham - J.P. Morgan

Thank you.

Operator

Your next question comes from Geoffrey Porges with Sanford C. Bernstein.

Geoffrey Porges - Sanford C. Bernstein

Sue, could you just talk a little bit about -- you mentioned that you’ve got to initiate a Phase III trial of a potential event for DM1 in the second half of the year. Could you talk a little bit about that? And then possibly for the potential you see -- whether that drug would ever be something you would move into a front line study and what that might look like. Thanks.

Susan D. Desmond-Hellmann

I don’t want to give too many details on the Phase III until we get there, but let me give you our general thinking on TDM1. Up until now, I would say that the product has met or exceeded our expectations. We are seeing important activity and very importantly for this class of approach, we’re seeing a nice therapeutic index.

That said, we have a very limited number of patients and so some of the decisions that we’ll need to make for ourselves is how to position TDM1 as compared to Pertuzumab, which is also performing well, and as we are seeing Herceptin’s benefit in multiple lines of therapy, generally we see Pertuzumab as a compound we can use together with Herceptin and TDM1 will move earlier in the treatment of metastatic breast cancer as we see data that suggests the therapeutic index, if it’s as good as what we’ve seen in prior trials, we will want to move it earlier in the treatment of HER2-positive metastatic breast cancer.

So we want to be data driven but we are enthusiastic based on the data we’ve seen so far.

Geoffrey Porges - Sanford C. Bernstein

Great. Thanks very much.

Operator

Your next question comes from Joel Sendek with Lazard Capital Markets.

Joel Sendek - Lazard Capital Markets

A follow-up on what you said, Ian, about the co-pay issue and the challenges there. Can you describe a little bit about what you are doing to address those?

Ian T. Clark

There are different challenges with different parts of our portfolio. If you’ll recall going back a year or two ago, I presented on all of our reimbursement support services, which we’ve now banded together under the banner of Access Solutions. So we try ensure that all eligible patients can get or patients needing can get Genentech drugs, whether it’s help with co-pay, whether it’s help with benefit investigations because they may be able to acquire insurance elsewhere, or whether or not it’s our access to care program that does provide free drugs to patients if they are below a certain income level.

So we try and address it every which way. I think we do it as well as anybody but I don’t -- that doesn’t mean to say this isn’t a difficult situation for us and companies with similar portfolios.

Joel Sendek - Lazard Capital Markets

Thanks.

Operator

Your next question comes from Jim Birchenough.

Kathee Littrell

Jim? Jim?

Operator

Mr. Birchenough, if you would please press star, one again, sir. All right. Your next question comes from Jim Birchenough with Lehman Brothers.

Jim Birchenough - Lehman Brothers

Sorry about that. Just following up on NCC and recommendations, we just saw a recommendation recently against second line use of Avastin in colorectal cancer in patients who had previously received and failed front-line Avastin. I’m trying to get a sense of what the commercial implications of that might be and just a related question for Sue; in lung cancer, in the BETA LUNG study, do you expect that to support Avastin second line use after front-line Avastin failure?

Ian T. Clark

Let me take the treatment in multiple lines Avastin and colorectal question first. So as you said, the data is a guideline listing, not a compendia. That does allow [both to interpret] that how they see fit. It is fair to say that we’ve got usage of patients sequentially between first and second line but it’s by no means the majority of patients. We have 70%, 75% first line and 40%, 45% the second line, so you do the math on everybody goes through.

We clearly do have an indication in both first and second line and to be candid with you, it’s relatively hard for people to kind of select out patients on a reimbursement basis depending on initial therapy. So we’re going to work with the folk on that and at the moment, my expectation is that the impact will be limited or very [small]. Sue.

Susan D. Desmond-Hellmann

Your question about the BETA LUNG, I would expect if that trial is positive that we’ll be in a situation for Avastin in lung cancer not dissimilar to the one Ian just described in colon cancer. If the study is positive, we’ll request an approval in addition to our label, so we would end up with data that supports first line use and data that supports second line use, but at this point we would not yet have data addressing the specific question of second line use following Avastin in the first line setting and will depend on our registries and subsequent trials to address that very specific question, which as you know takes longer and more data.

Jim Birchenough - Lehman Brothers

Great. Thanks very much.

Operator

(Operator Instructions) Your next question comes from May-Kin Ho with Goldman Sachs.

May-Kin Ho - Goldman Sachs

Sue, can you comment on -- can you hear me? Hello?

Susan D. Desmond-Hellmann

We can hear you, May-Kin.

May-Kin Ho - Goldman Sachs

Sorry. Can you comment on BETA LUNG? If that’s positive, how one should look at it vis-à-vis Alimta?

Susan D. Desmond-Hellmann

Well, BETA LUNG specifically would not address whether or not the Avastin/Tarceva approach is better than Alimta, so that’s not the study question. I think that it would be interesting and compelling to some, particularly those who are concerned about quality of life, to have a non-chemotherapy approach to the second line treatment of lung cancer. Patients who are getting therapy in the second line often have multiple additional medical problems and so avoiding the consequences of chemotherapy is compelling in some patients and for some oncologists.

We are moving with both Avastin and Tarceva to look more closely at Alimta in particular combinations or looking at the newer uses that we think could emerge from the use of Alimta given the data presented at ASCO. But I think BETA LUNG is compelling specifically because of our ability to avoid chemotherapy in patients with multiple medical problems who have lung cancer.

May-Kin Ho - Goldman Sachs

I asked that because the side effect profile of Alimta is actually pretty good.

Susan D. Desmond-Hellmann

I do agree that the side effect profile of Alimta is reasonable and we do believe, and Ian can comment on this further, we think Alimta is an important drug and will be used in lung cancer. And the question of how much it will be used, first line or in maintenance and whether or not Alimta will combined well with Avastin is an important question for the future.

May-Kin Ho - Goldman Sachs

Thank you.

Ian T. Clark

May-Kin, maybe another way of thinking about this is, as Sue just mentioned, there was the recent data that was in essentially the maintenance setting in the first line and the question that might beg is having used it and progressed, whether you would then use Alimta in the second line setting. My guess is less than likely, even though it is benign, and then that might open up opportunity in the second line, whether it was for Avastin and Tarceva consequent to BETA LUNG or just the Tarceva itself, so there actually may be a positive element to that story as well.

May-Kin Ho - Goldman Sachs

Thank you very much.

Operator

Your next question comes from Katherine Kim with Banc of America.

Katherine Kim - Banc of America Securities

Thanks for taking my question. My question is on Tarceva. Assuming that the BETA trial is positive, is there any reason to believe that the ATLAS trail, which is the front-line trial, would also have a good chance of being positive? And then just a follow-up, in the current setting based on the fact that Alimta is going to move front-line, do you expect the Tarceva penetration in second line to increase? Thank you.

Susan D. Desmond-Hellmann

I don’t believe that the BETA study is predictive of the ATLAS trial. I think they each stand independent and so we’ll see both of them in turn. Any study that demonstrates benefit of Tarceva in patients with non-small cell lung cancer I think is the net positive but I don’t believe the second line predicts the first line.

Ian T. Clark

As I just mentioned, I think there is a possibility that ALIMTA may get used more in this sort of first line oncology first line setting and if it’s therefore not repeated, there may well be an opportunity for Tarceva in second line but it’s a little early to make that definitive yet.

Operator

Your next question comes from Mark Schoenebaum with Deutsche Bank.

Mark Schoenebaum - Deutsche Bank

Thanks for taking my question. I have a question for Ian and Sue, if you don’t mind. It’s the same question though, so Kathee, don’t give me trouble. So disregarding Zolota use in first line breast, for Ian, how do you think the market is currently segmented in terms of first line chemo use for metastatic breast? What percent is Zolota currently roughly? And then for Sue, I’d just love to know your thoughts, you know, the totality of the data thus far, Avastin plus Zolota. Do you think that combination has additive activity, sufficient such that it can hit the endpoint in the trial?

Ian T. Clark

Let me start with the -- maybe it’s a lot easier to follow the question. Our data suggests that approximately 20% of the first line breast cancer market is -- involves Zolota usage. It’s significant but not huge.

Susan D. Desmond-Hellmann

With regard to whether or not the Zolota arm of RIBBON-1 will be successful, I would tell you two things; first of all, the -- while we were able to double the response rate in our late line Avastin plus Zolota trials, we did not previously have an effect on progression free survival, so I think you have to slightly discount the likelihood of success for that prior negative trial. That said, that was a late line trial and I think it remains an important study question to ask whether or not Zolota in the first line can benefit from the addition of Avastin. Very importantly in that trial we can look independently at Taxane, Anthracycline, and at Zolota or the Capecitabine arm.

So I think we have managed to do two things; one is ask the question, which remains to be answered about first line use of Zolota, and secondly not negatively impact the Taxane Anthracycline question with the addition of the Zolota question. So I feel good about the RIBBON-1 study and we’ll see the data by the end of this year.

Mark Schoenebaum - Deutsche Bank

Okay, thanks a lot.

Operator

Your next question comes from Michael Aberman with Credit Suisse.

Michael Aberman - Credit Suisse

My question is on Rituxan; you had a pretty healthy growth both year over year and sequentially. I wonder if you can give us any further color on what’s happening in the marketplace. You mentioned some seasonality in Q2 being strong historically. Is that in the autoimmune setting or is it in the oncology setting?

Ian T. Clark

Let me start off with that one. So I wanted to make the comment about the quarterly sales to just temper thoughts a little bit. I think it’s probably -- I wouldn’t call it seasonality. It’s difficult to see quite what it would be [in these areas]. We should call it seasonal per se but there’s no doubt that if you look across maybe the last sort of three years you see that Rituxan grows in a somewhat step like fashion. We’ll have a really strong quarter maybe followed by a couple of flatter quarters but overall over time, it continues to grow. I just really want to draw people’s attention to that.

In terms of the growth, we are obviously very well-penetrated in terms of the hemog setting but we are still seeing some growth in the treatment after initial induction therapy, which we used to refer to as maintenance therapy.

It is worthwhile pointing out that it does appear that that maintenance therapy works really well and if you are maintained, you don’t then relapse, at least in the time scale that you would’ve been otherwise and therefore we are seeing some balance between the growth in maintenance and the size of the relapse market, but that’s a kind of by-the-way comment.

I think the other are we are definitely seeing growth is in the use in the rheumatoid arthritis setting. As I mentioned in the prepared remarks, we did get the indication or the additional aspect of the indication, the prevention of joint damage. I think the other aspect of Rituxan is that in spite of the single patient around the PML issue we have now had the drug used for a number of years and people are getting more comfortable with the safety profile, and we are seeing growth in the RA setting. I think that’s the larger engine of growth, certainly relative to the base of sales that we have today, if that helps.

Michael Aberman - Credit Suisse

Thanks.

Operator

Your next question comes from Steven Harr with Morgan Stanley.

Steven Harr - Morgan Stanley

David, you talked a little bit about the confidence you have in your forward cash flows and your cash position. You have $7.1 billion now in unrestricted cash and you are generating a significant amount. Five-hundred million dollars seems like a -- kind of barely sticking your little pinky toe in the water, so what would it take to get you guys to think about a dividend? Or what would lead you to take that number up to something that was a little bit more aggressive?

David A. Ebersman

Well, the first thing I would say is that $500 million covers three months, so when looked at from that light, we don’t consider it a small play but a big step in terms of increasing the size and scale for that program.

The second thing I would say is while we believe that share repurchases can be a useful tool if executed at the right time, they have a very low probability of being transformational or creating massive amounts of value for our shareholders, we want to make sure that we have the kind of cash position at all times that enables us to take advantage of something more important in terms of accessing products and technologies at other companies. So in terms of prioritization, we’d rather use our money that way if the opportunities were there.

In terms of the dividend, and it’s an important question for us, the consequence of a dividend, as you know, is that you really have to be committed to not just doing it once or for a year or two but to be doing it for the long-term. It’s very hard to back off from one, so it’s something you want to do when you feel like you have a pretty clear sense of where your business is going.

I think before we have the data from the Avastin adjuvant studies, there’s a reasonable amount of uncertainty about what this business is going to look like within three or five years. It will look different if those studies are successful as opposed to if they are not, so it doesn’t seem to me like now is the right time for us to undertake a program like that, given that level of relatively near-term uncertainty in terms of how big this business is going to be.

Steven Harr - Morgan Stanley

That’s very helpful, thanks.

Operator

Your next question comes from Mike King with Rodman & Renshaw.

Mike King - Rodman & Renshaw

Good afternoon, guys. Thanks for taking the question and congrats on the quarter. I wanted to ask -- we know what the statistical hurdles are for both BETA LUNG and SATURN. I’m just wondering, two questions; first, what do you believe as a company that both studies need to show as an outcome to gain maximum market penetration? Do you really believe you need to beat the existing chemotherapies out there or is having an option of a non-chemo regimen enough, especially in the case of BETA LUNG?

And second which, if you do your NPV calculations, is more valuable, SATURN or BETA LUNG? Thanks.

Susan D. Desmond-Hellmann

Well, let me take your first question and I’ll ask Ian to answer the NPV question. We tried with both of those studies to power them for a clinically important and meaningful difference and so obviously any time that you look at the magnitude of the difference, you hope for and certainly customers respond to a big magnitude. But I feel comfortable that these would be very important trials and important outcomes for patients with non-small cell lung cancer if we get P less than 0.05 for both of the trials.

Ian T. Clark

Let me kind of add to that. I mean, I think it probably -- it’s going to be a progressive thing. The better the outcome, the more share we’ll take but I agree with Sue; any statistically significant study will definitely be of great value.

I wouldn’t want to give you a precise answer around the NPV but I would draw your attention to of course the BETA LUNG, the excess sales in both Tarceva and Avastin with a consequent benefit of the EPS of Avastin.

Mike King - Rodman & Renshaw

And how much does having a regimen that docs get reimbursed for linked to Tarceva help you out in your mind?

Ian T. Clark

Do you want to say more?

Mike King - Rodman & Renshaw

Can you hear me?

Ian T. Clark

Yeah, I can. Can you just sort of expand on your question a little bit?

Mike King - Rodman & Renshaw

Well, what I mean is that the docs will get reimbursed to give Avastin in the second line setting, so that if BETA LUNG is successful, you will now link Tarceva to administration of Avastin. You don’t have that situation now with Tarceva as a standalone. Does that make sense?

Ian T. Clark

Yes, it does. I don’t think that will necessarily make a big difference. You will still have the individual reimbursement challenges per drug, whether they will link to each other or not. So I don’t think that will have a dramatic difference.

Mike King - Rodman & Renshaw

Okay, thanks very much.

Operator

Your next question comes from Maged Shenouda with UBS.

Maged Shenouda - UBS

Can you comment on the inventory stocking situation for Rituxan, Avastin, and Lucentis this quarter?

Ian T. Clark

I can do that. It was all in line with our targets and pretty much in line with the prior quarter, so no significant changes at all.

Maged Shenouda - UBS

Thank you.

Operator

Your next question comes from Bill Tanner with Leerink Swann.

William Tanner - Leerink Swann

Thanks for taking the question. Sue, just following up on the Rituxan PML, understanding it’s a pretty complicated case, I’m curious what’s known about the -- I guess the [Leuko-pedianet] patient, how it would compare with other patients that are being treated over a couple year period of time. And then you mentioned obviously the company working with the FDA, you know, it seems certainly like a label change or inclusion in the label would be in order. Can you contemplate other things that might be done?

Susan D. Desmond-Hellmann

Well, I think the big picture is that this patient is clearly an out-layer in terms of the degree to which he was affected with both cancer and a complex connective tissue disease, and so I think both in terms of her counts, her course, her entire medical history was very much an out-layer as compared to a more typical rheumatoid arthritis patient. And the deeper we dug into her clinical course, I would say that the net was a less worry. We’re always worried when patients have adverse events, so I certainly don’t want to under-play it at all but she was a very, very sick patient, very, very different than our typical RA patient.

I don’t want to speculate on our discussions with FDA and where we go. We have very good labeling regarding PML today in our Rituxan labels and so the discussion will be does that labeling adequately give physicians or prescribers counsel regarding the use of Rituxan, and we’ll have that discussion with FDA but I wouldn’t want to speculate on where we’ll come out on that.

William Tanner - Leerink Swann

Okay, thanks.

Kathee Littrell

Operator, two more questions.

Operator

Your next question comes from Jason Kantor with RBC Capital Markets.

Jason Kantor - RBC Capital Markets

Great. Thanks for including me on the call. My question is regards to the breast cancer launch and you’ve got a lot of experience with Avastin and colorectal and lung now. How much of this target market do you think you can penetrate? What are the drivers right now? What’s the resistance? Where are you getting traction? If you could just give us some sense of how that’s really going.

Ian T. Clark

You don’t want to know much, huh? So far I think we’re pleased. I would have expected this to be a promotionally insensitive market. We are not much more than four months in and as I said in the prepared remarks, we’ve seen a fairly significant increase in penetration.

Going forward, I think now that the sales force have the New England Journal, that’s another positive element to our position. It was a good study, all of the sub populations and the [inaudible], et cetera are in that publication, so that will help.

I said prospectively that this wasn’t going to be straightforward, that it is a fragmented market and we had the earlier question about the Zolota use but I think we are making progress. I think the two areas which we’re receiving most questions around are -- one is the benefit in sub populations, which is good. We just need to educate around that. This really is a -- this really was a study that worked pretty much everybody that was studied in the actual -- in the study itself.

And then the second one is I think we have some residual concerns around risk benefit that partly came from the ODAC debate and discussion. But we are finding as we go around and discuss this [implementation], we can get the majority of folk much more comfortable with that equation.

So those are the two broad areas, talking about sub populations and reassurance around risk benefit. And we also, as I mentioned in the prepared remarks, are talking about the value of [treated] at the label does.

So good progression to date but I expect it to be gradual, as I said in prior remarks.

Jason Kantor - RBC Capital Markets

And how important is the DDMAC material and what’s the timing on that?

Ian T. Clark

Well, what I was saying with the New England Journal is it’s very comprehensive as a paper and therefore I think that will take us most of the way to where we need to go from a promotional point of view, so DDMAC will be of value but not overwhelming. Timing is kind of hard. It’s sort of -- it’s a we’ll-push-you thing with them. They are not obliged to give a response by any particular date. The risk is we push too hard, we don’t get the material we want, so I can’t give you a definitive date but I don’t think it’s going to be in the next couple of weeks.

Jason Kantor - RBC Capital Markets

Thank you.

Operator

Your final question comes from Geoffrey Porges with Sanford Bernstein.

Geoffrey Porges - Sanford C. Bernstein

Just a question for Art and perhaps for Dave; you reiterated your 25% EPS guidance ’06 to ‘010, and clearly you -- at least taking your guidance for this year, there’s going to be a significant deceleration this year, which implies then a reacceleration to get to that 25% target by 2010. Can you do that without adjuvant or is adjuvant included in that reacceleration to get to that 25% hurdle? Thanks.

Arthur D. Levinson Ph.D.

I’ll let David take it and I’ll follow-up if necessary.

David A. Ebersman

I’ll speak on the [inaudible] and I’ll Art handle the bigger picture on this. I’m not sure I mathematically understand where you are coming from. The 25% CAGR off a certain base in 2005 sort of leads you to a fixed number in 2009 in theory, however you get there. So it doesn’t lead to mathematically an inclusion of any acceleration or anything like that.

What we said in March also, just to be clear, was that we felt like given where we are right now, we are well-positioned to exceed that goal and we didn’t get anymore specific at this time, primarily because the absence of the adjuvant result really makes it hard to forecast a couple of years out with any sort of precision.

So I think we are well-positioned to meet the goal as defined, to exceed the goal as defined. Exactly what the business is going to look like in 2010, I can’t say right now.

Arthur D. Levinson Ph.D.

And let me just chime in maybe more generally on the entire horizon 2010 goals. This is something we pay a lot of attention to. We evaluate it at least rigorously twice a year and as you know, in March as we discussed this the last time, we continue to believe that we are on track to meet all five of those goals. That doesn’t necessarily mean that we will hit five out of five. It could be four out of five, it could be three out of five or who knows what. But we are continuing to really feel very good about the prospects of going five for five and we certainly have nothing at this point that compels us or even suggests that we should deviate from a fair degree of optimism that we will go five for five.

Geoffrey Porges - Sanford C. Bernstein

Okay. Thanks very much.

Kathee Littrell

All right. Thank you all very much for joining us today.

Operator

Ladies and gentlemen, this does conclude today’s teleconference. You may now all disconnect.

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Source: Genentech Q2 2008 Earnings Call Transcript
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