What we don’t yet know could change everything. - Genentech we don’t yet know could change everything. Genentech 2002 Annual Report. ... anemia, and cancer. It has spawned a robust and growing industry, with more

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<ul><li><p>What we dont yet know could change everything.Genentech 2002 Annual Report</p></li><li><p>The acceleration of scientific knowledge over time has been profound and it is ceaseless.</p><p>Today, the span of time between great discoveries in medicine gets smaller and smaller due in partto the relatively new field of biotechnology. Andthe number of breakthroughs and new approachesto disease continues to grow. At Genentech, webelieve we have only just begun to scratch thesurface of biotechnologys potential. Without adoubt, future discoveries will dramatically changeour understanding of serious illnesses and potentialtreatments. Even more importantly, science islikely to create dramatic change at a more personallevelincreasing the length and quality of life for our loved ones and ourselves.</p></li><li><p>PG 1</p><p>What if one day everyone could survive cancer?</p><p>Cancer is the second leading cause of death in the United States behind heart disease, with over 1.2 million new casesdiagnosed per year. Some predict it will become number one in the next 10 years. Curing cancer is our ultimate goal,but if we are able to keep cancer in check, extend patients lives and improve their quality of life, that will be amajor victory over the disease. Genentech developed the first two therapeutic antibodies for cancer in the UnitedStates, Rituxan (Rituximab), which was co-developed with IDEC Pharmaceuticals, and Herceptin (Trastuzumab) both of which attack malignant cells without causing extensive damage to healthy tissues. Rituxan and Herceptinare different from chemotherapy in that, although they are serious medicines, they tend to have relatively few sideeffects and can sometimes be taken for prolonged periods to stave off the disease. With this new approach to cancertreatment, it becomes more and more of a reality that someday cancer could be something you manage like diabetesor high blood pressure. Something you live with, grow old with and tell your grandchildren about.</p></li><li><p>PG 2</p><p>What if cancer research helped discover new therapies for arthritis?</p><p>The amazing thing about science is that every idea can be challenged. Our fundamental understanding of illness ischanging based on new discoveries about the relationships between the causes of cancer and the immune system which opens the doorway to new potential treatments in both areas. Genentech has long used products of theimmune system, antibodies, to fight cancer, but we are now also looking at ways in which our research in cancerand genomics might shed light on immune-related disorders. For instance, ongoing clinical work on Rituxan, a drugfor non-Hodgkins lymphoma, led to the groundbreaking discovery that Rituxan may also help patients withrheumatoid arthritis, an immunological disorder. Our scientists continue to explore the relationship between oncologyand immunology at a molecular level in the hopes of finding more unexpected connections between different kindsof cellular functions, illnesses and treatments.</p></li><li><p>PG 3</p><p>The top 100 drugs target only 45 molecules. With approximately 30,000 genes left to explore, the opportunities are vast.</p><p>A map of the human genome was completed in 2000, but we have only just begun to tap its potential for medicine. Thefirst phase of genomics was about identifying, sorting and screening genes, and we are now in a position to fully explore theirtherapeutic possibilities. At Genentech, our cross-disciplinary genomics initiatives have provided a tremendous reservoirof potential targets, which we will be investigating for the next decade or more. Our Tumor Antigen Program, for instance,has been focusing on targets overexpressed on the surface of tumor cells which can be important in tumor growth. The over-all goal of this program is to develop antibodies to these targets (or antigens) that might eventually serve as therapeutics inthe treatment of cancer. There are vast opportunities buried in the human genome that will come to light over time opportunities for whole new approaches to fighting disease, new kinds of medicine, and new leases on life.</p></li><li><p>PG 4</p><p>There is no one magic bullet.</p><p>For many years, scientists hoped for a single magic bullet to attack cancer. However, research has shown that canceris not one disease but a collection of diseases for which different kinds of therapies targeting multiple gene productsmay need to be developed. Genentechs Herceptin, which targets a particular form of metastatic breast cancer, HER2-overexpressing, led the way in changing the paradigm in cancer treatment and set the stage for the developmentof other targeted approaches to cancer. Weve also discovered that these targeted therapies may prove even morepowerful in combination with other anti-cancer agents in a cocktail approach that fights the cancer on manydifferent fronts. In the last decade, biotechnology has revolutionized our thinking about cancer. Only time will tellwhat other assumptions will be challenged and what other mysteries solved.</p></li><li><p>PG 5</p><p>There are more than 1,000 biotech companies focused onmedical therapeutics in the United States. Fewer than10 percent of them have brought a drug to market.</p><p>When we founded this industry, we stood alone. Twenty-seven years and 10 marketed products later, there are stillonly a few major players. Its no small feat to successfully bring a drug to market it takes a biotech or pharma-ceutical company, on average, 10 to 15 years and can cost up to $800 million. Biotech companies need to not only beable to make groundbreaking discoveries but also be able to transform them into safe and effective medicines forpatients. Partly because of our diverse product portfolio, Genentech has the biotech industrys most extensive trackrecord in all phases of the long and resource-intensive process of bringing new disease treatments to patients. By being a fully integrated drug development company, we are able to take the flicker of an idea in a lab and yearslater see it extend and enhance a patients life.</p></li><li><p>PG 6</p><p>This simple inspiration has driven our business for 27 years. Since Bob Swanson and Herb Boyer foundedGenentech in 1976, biotechnology has given us entirelynew ways of thinking about the human body, diseaseand potential treatments. It has given us breakthroughtherapies for a host of medical conditions, includingdiabetes, hemophilia, cystic fibrosis, growth hormonedeficiency, heart attack, stroke, anemia, and cancer. Ithas spawned a robust and growing industry, with morethan 1,400 biotech companies in the United States, ofwhich more than 340 are publicly held. </p><p>And, despite depressed stock prices and diminishingcapital investment, the momentum for the industry con-tinues to build. It was only in 1982 that the U.S. Food andDrug Administration (FDA) approved the first innovativebiotech medicine, recombinant human insulin, and sincethen it has approved 130 biotech drugs and vaccines.According to a recent industry study, more than 370biotech products targeting approximately 200 diseasesare in clinical trials. More than 100 of those products arein Phase III, which means the industry could produce</p><p>roughly as many medicines in the next few years as it hasduring the past 20. In addition, gene-based diagnosticsfor many major illnesses could be available in the nextseveral years, changing the way disease is diagnosed andfacilitating treatment with appropriate biotherapeutics. </p><p>As illustrated in the timeline which begins on the right,the last few decades are merely a small part of a muchlonger history of scientific discovery that began severalcenturies ago and will continue through our lifetimesand beyond. The pace of new discoveries over the lastquarter century has been particularly intense and willcontinue to increase, as we have only just begun toexplore the ways in which biotechnology will changemedicine. The science is still evolving dramatically, andthe learning curve remains steep in terms of the insightsthis new technology still has to offer.</p><p>By studying the human body at the molecular level andunderstanding better its most basic processes, researchersin biotechnology are already making important advance-ments in cancer treatment. Targeted therapies havetransformed cancer patient care in the last several</p><p>Dear Stockholders: The passion that drives our business is thebelief that the science of life biology holds the keys to solvelifes toughest health challenges.</p><p>Arthur D. Levinson, Ph.D.CHAIRMAN AND CHIEF EXECUTIVE OFFICER</p></li><li><p>PG 7</p><p>years, and I believe biotechnology has much more yet tocontribute to the war against this intractable disease.If targeted therapies continue to prove effective, as Ibelieve they will, oncologists would regularly begintreatment by analyzing a patients tumor, determiningits particular genetic makeup, and prescribing theappropriate biotherapeutic to attack the tumor. Targetedtherapies may also be taken in combination with eachother in a drug cocktail approach that fights tumorgrowth through several different mechanisms at once.This targeted approach tends to be less toxic thanchemotherapy and may allow cancer patients to livelonger and relatively symptom-free lives, eventuallyrendering cancer a disease that can be contained andmanaged. At present, over a dozen targeted therapies forcancer have been accepted by the FDA for expeditedreview, so there will likely be more such medicines onthe market in the near future.</p><p>Mapping the human genome was an enormous, historicalaccomplishment, but it was only the beginning. We arenow engaged in the real work of delving into the geneticinformation to find suitable targets and understandingthem well enough to develop medicines that successfullyaddress cancer and other serious and life-threateningillnesses. This process will not happen overnight butwill span many years, even decades. And, once a targethas been identified, the drug development process thentakes many years and hundreds of millions of dollars and is not always successful. In addition, only a handful</p><p>of biotech companies have the resources, expertise andexperience to undertake the long and costly process ofbringing a drug to market. So, while the potential ofgenomics and biotechnology is profound in the longterm, the progress will be incremental.</p><p>Genentech is well-positioned to do this kind of work, aswe have had a concerted effort over the past seven years inthe genomics and bioinformatics areas and have a historyof transforming powerful new technology into safe andefficacious medicines. Out of that effort, we have filedpatent applications on more than 1,200 full-length DNAsequences. We are continuing to understand the under-lying biology and therapeutic utility of these genes andthe proteins they express. Overall, Genentech holdsapproximately 4,300 patents worldwide and has close to5,000 patent applications pending, placing us in a strongposition in terms of intellectual property protection. </p><p>An ongoing context for the biotech industry is the regu-latory environment. I am pleased with some recent devel-opments at the FDA, which will help move the industryforward. Late in 2002, Dr. Mark McClellan was appointedFDA Commissioner, ending an 18-month period duringwhich the agency had no Commissioner. Also in 2002, ourindustry was successful in negotiating an extension of theFDA user fees to provide the agency with the resourcesnecessary to review biotechnology products in a timelymanner. Genentech supports all such efforts to speed thedelivery of safe and effective therapies to patients.</p><p>TIMELINE OF SCIENTIFIC MILESTONES</p><p>Cells first described by Hooke</p><p>1663 </p><p>The microscope invented by Janssen</p><p>1590</p><p>BEFORE 1800</p></li><li><p>PG 8</p><p>In 2002, Genentech continued to thrive as a profitablegrowth company while preparing for the potential ofmultiple product launches in the next several years andcultivating a strong and diverse pipeline with approxi-mately 20 projects in development. Our total revenuesfor 2002 were over $2.7 billion, with our total productsales topping $2 billion for the first time, driven by ouroncology products Rituxan (Rituximab) and Herceptin</p><p>(Trastuzumab). Our legacy products growth hormone andPulmozyme (dornase alfa) also achieved substantialgrowth during 2002. </p><p>In terms of progress in our pipeline during the year, weare pleased to report that in December 2002 Genentechand partners Novartis and Tanox filed an amendment tothe original Biologics License Application (BLA) forXolair (Omalizumab), a potential therapy for adultmoderate-to-severe allergic asthma. A few days later,Genentech and partner XOMA filed a BLA for Raptiva(Efalizumab), a potential treatment for moderate-to-severeplaque psoriasis. Depending on FDA approval, we planto launch these two highly innovative potential thera-pies for immunological diseases in 2003. </p><p>In other pipeline news, we have decided to moverhuFab V2 (ranibizumab) into a Phase III clinical trialfor age-related macular degeneration based on positivePhase Ib/II trial results reported in the third quarter of2002. Age-related macular degeneration is the leading</p><p>cause of blindness in those over the age of 65. We arecontinuing to develop potential anti-VEGF productssuch as rhuFab V2 and Avastin (bevacizumab,rhuMAb-VEGF) for various diseases with high unmetmedical needs. </p><p>As you may already know, we announced in September2002 that the primary endpoint in the Avastin relapsedmetastatic breast cancer study was not achieved.However, the results seen in earlier studies lead us tocontinue to believe in VEGF as a potentially importanttarget for cancer therapy, and we are developing additional data to better understand Avastins effect invarious tumor types. We look forward to data from our Phase III studies of Avastin in metastatic colorectalcancer, which are due in mid-2003. We also announcedin early 2003 that we are developing a Phase III programfor Avastin in renal cell carcinoma (kidney cancer) and plan on initiating this program in the first half of 2003. </p><p>We have decided to move 2C4, a humanized antibodytargeted to HER2, into Phase II clinical trials and will bestudying the molecule in prostate, ovarian, breast andnon-small cell lung cancers. We and partners OSI andRoche also completed enrollment ahead of schedule in2002 in both frontline Tarceva (erlotinib HCl) combi-nation survival studies in lung cancer and expect tohave the data by mid-2003. </p><p>1879 Fleming discoverschromosomes</p><p>1830 Proteins discovered</p><p>Mendel discoversthat genetic traitsare passed fromparents to offspring in a predictable way</p><p>1865 </p><p>1800</p><p>Escherichia coli(E. coli) bac-terium discovered(later becomes amajor tool forbiotechnology)</p><p>1885 </p></li><li><p>PG 9</p><p>In 2002, we celebrated an important anniversary mile-stone for our groundbreaking therapeutic antibody,Rituxan, which we developed and co-promote with IDEC Pharmaceuticals. When launched in 1997,Rituxan was the first new therapy for certain patientswith non-Hodgkins lymphoma (NHL) in more than adecade and was the first therapeutic antibody approvedfor cancer in the United States. To date, more than 300,000patients have been treated with Rituxan wo...</p></li></ul>