UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 20072008

OR

For the transition period from              to             

Commission File Number 0-19651

GENAERA CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (610) 941-4020

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES  ¨    NO  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    YES  ¨    NO  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ¨    NO x

The aggregate market value of common stock held by non-affiliates of the registrant was $48,962,563$23,784,986 as of June 30, 2007,2008, the last business day of the registrant’s most recently completed second fiscal quarter. Such aggregate market value was computed by reference to the closing price of the common stock as reported on the National Market System of The Nasdaq Stock Market on June 30, 2007.2008. For purposes of this calculation only, the registrant has defined affiliates as all directors and executive officers as of June 30, 20072008 and any stockholder whose ownership exceeds 10% of the common stock outstanding as of June 30, 2007.2008.

The number of shares of the registrant’s common stock outstanding as of March 31, 2008February 26, 2009 was 17,464,630.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Definitive Proxy Statement for the Registrant’s 2008 Annual Meeting of Stockholders to be filed within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K are incorporated by reference into Part III of this Form 10-K.

GENAERA CORPORATION

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 20072008

INDEX

PART I

ITEM 1. BUSINESS

FORWARD-LOOKING STATEMENTS

Our disclosure and analysis in this Annual Report on Form 10-K contains some forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements since they do not relate strictly to historical or current facts. Such statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “hope” and other words and terms of similar meaning. In particular, these include, among others, statements relating to present or anticipated scientific progress, development of potential pharmaceutical products, future revenues, capital expenditures, research and development expenditures, future financings and collaborations, personnel, manufacturing requirements and capabilities, the impact of new accounting pronouncements and other statements regarding matters that are not historical facts or statements of current condition.

There are important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements.

We undertake no obligation (and expressly disclaim any such obligation) to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. You are advised, however, to review any further disclosures we make on related subjects in our filings with the United States Securities and Exchange Commission (“SEC”(the “SEC”), all of which are available in the SEC EDGAR database at www.sec.gov and from us.

OVERVIEW

Genaera Corporation is a biopharmaceutical company committed to developing medicines to address substantial unmet medical needs in major pharmaceutical markets.focused on advancing the science and treatment of metabolic diseases. We were first incorporated in the state of Delaware in 1987 and are headquartered in Plymouth Meeting, Pennsylvania. Our current research and development efforts are focused on metabolic disorders. Our lead clinical drug candidate, trodusquemine (“MSI-1436”), is being developed to treat obesity and type 2 diabetes. In addition to MSI-1436, we have a collaborative agreement with MedImmune, Inc., a wholly-owned subsidiary of Astra Zeneca plc (“MedImmune”), to develop and commercialize therapies related to our anti-interleukin-9 (“IL9”) program for the treatment of asthma.

We have no products available for sale and have incurred losses since our inception. Because substantially all of our potential products currently are in research, preclinical development or the early or middle stages of clinical testing, revenues from product sales of any products will not occur for at least the next several years, if at all. We believe our cash, cash equivalents and short-term investments at December 31, 20072008 are sufficient to fund operations and meet our research and development goals into the fourthsecond quarter of 2008.2009. We have commenced a cost savings initiative and plan to reducereduced our projected operating expenses in 2008. However, we will also need to raise additional funds and are currently exploring alternatives, such as equity or debt financing and/or the licensing of the rights to one or more of our product candidates. If additional funds are raised by issuing equity securities, substantial dilution to existing shareholders may result. If we engage in collaborations, we may receive lower consideration upon commercialization of such products than if we had not entered into such arrangements, or if we entered into such arrangements at later stages in the product development process. IfIn light of our known and contingent financial obligations, if we fail to obtain capital when required,in the immediate future, we may be required to delay, scale back, or eliminate some or all of our research and development programs.programs, consider various strategic alternatives including a merger or sale of the Company or cease operations.

DEVELOPMENT PROGRAMS

Obesity Therapeutic Program

Trodusquemine (also referred to in scientific literature as MSI-1436) is a small molecule that has demonstrated the ability to prevent abnormal weight gain or induce weight reduction in several animal models. Our researchers have shown that animal food intake can be regulated in a reversible manner, leading to changes in body weight. Preclinical data on trodusquemine demonstrate that it is a potent appetite suppressant with the ability to normalize fasting blood sugar independent of its ability to induce weight loss. Additionally, trodusquemine has been shown to reduce elevated levels of cholesterol and triglycerides in obese animals. Our

preclinical studies with trodusquemine support a mixed mechanism of action that suppresses appetite and increases insulin sensitivity by selective inhibition of both central and peripheral protein tyrosine phosphatase 1B (“PTP1B”). The ability of trodusquemine to induce weight loss in several animal models (rodent, rabbit, dog and monkey) makemakes it an excellent candidate for evaluation in clinical studies. We beganTo date, we have completed two phase 1 clinical studies with MSI-1436and began a third phase 1 study in the secondfourth quarter of 2007.2008.

With trodusquemine, we are targeting the approximately 10 to 12 million Americans who are classified medically as significantly obese and the approximately 21 million Americans with type 2 diabetes. While the trodusquemine molecule is very different in function, it has a similar chemical structure to squalamine lactate (“squalamine”), a compound that we previously developed, squalamine lactate (“squalamine”), which would enable us to make more efficient use of internal and external resources utilized in the manufacture of squalamine. We filed an Investigational New Drug (“IND”) application with the United States Food and Drug Administration (“FDA”(the “FDA”) for the use of trodusquemine in the treatment of obesity in the first quarter of 2007. We filed an additional IND application for the use of trodusquemine in the treatment of type 2 diabetes in the fourth quarter of 2007.

IL9 Antibody Therapeutics

The anti-IL9IL9 program is a genomics-based program focused on the development of a blocking antibody to IL9 to treat a root cause of asthma. Our functional genomic studies demonstrated the broad role of IL9 as an etiologic agent in asthma. The IL9 gene varies in structure and function among individuals and as a result may have an important role in a genetic predisposition to asthma and allergic reactions. Our scientific studies and independent peer-reviewed publications indicate that IL9 controls other well-known factors involved in promoting lung inflammation in asthma, including a group of proteins that modulate the growth and functional activities of immune cells. We have developed a patent position around IL9, having first discovered and documented a role for this cytokine in asthma. Our patent position includes patents licensed exclusively from the Ludwig Institute for Cancer Research (“LICR”) as well as patents owned jointly with LICR.

In April 2001, we entered into a collaborative agreement with MedImmune to develop and commercialize therapies related to our IL9 program. Pursuant to the agreement, MedImmune provided funding of $2.5 million for research and development activities over a two-year period from April 2001 through April 2003. By the end of the two-year period, licensed technology had been transferred to MedImmune, which assumed responsibility for development and commercialization efforts on the IL9 program. In addition to the research and development funding, MedImmune agreed to reimburse us for certain external costs we incurred in connection with the IL9 program. Under the agreement, we received $1.0 million based on the completion of contractual milestones and we could also receive up to $54.0 million based on the successful completion of future milestones. We are also entitled to royalties on sales of commercial products resulting from the collaboration. As a result of our limited control over the development plan and the timing of milestones, we cannot estimate the timing or receipt of milestone payments and may not receive a substantial portion of these milestone payments within the next five years. Each party has the right to terminate the agreement upon notice to the other party. In August 2008, MedImmune reported that it had voluntarily suspended three ongoing phase 2 studies of MEDI-528, the compound developed using the technology licensed under the collaborative agreement, and that its IND application for MEDI-528 for the treatment of asthma was placed on clinical hold by the FDA.

Squalamine Lactate

Squalamine is a unique, first-in-class, synthetic small molecule administered systemically that directly interrupts and reverses multiple facets of “angiogenesis,” a fundamental process by which new blood vessels are formed, and is considered an “anti-angiogenic” substance. Working within activated endothelial cells, squalamine, an aminosterol, inhibits growth factor signaling including vascular endothelial growth factor signaling, thereby resulting in endothelial cell inactivation and, in certain cases, apoptosis. Squalamine has exhibited reproducible anti-angiogenic properties in a number ofin vitro andin vivo assays, including animal cancer and eye disease models, across independent laboratories. In 2007, we discontinued our clinical development of squalamine for age-related macular degeneration (“AMD”) and in prostate cancer, and are actively pursuing licensing of squalamine for both oncology and wet AMD.

LOMUCIN™ (talniflumate)

One of our genomics-based programs has focused on the fundamental biology of mucus over-production in patients with chronic respiratory disease. Efforts to identify specific gene targets and validate these targets for therapeutic development have led to the identification of small molecules to inhibit the over-production of mucin, or “mucoregulators.” Our scientists have identified hCLCA1, a chloride channel found in humans, and demonstrated a relationship between hCLCA1 and abnormal mucus production.

LOMUCIN^™LOMUCIN™ (talniflumate) is an orally available, small molecule inhibitor of the hCLCA1 channel and potential mucoregulator. LOMUCIN™ is a compound that was discovered, developed and marketed as an anti-inflammatory drug by Laboratorios Bago of Buenos Aires, Argentina, an independent pharmaceutical company. We have an exclusive license with Laboratorios Bago to develop and commercialize talniflumate as a mucoregulator drug in all major pharmaceutical markets, including the United States, Europe and Japan. In October of 2007, we completed our phase 2 clinical trial program for LOMUCIN™ and are currently pursuing licensing of the compound and the hCLCA1 franchise.

Infectious Disease Program

Prior to 2000, LOCILEX (pexiganan) Cream, a topical cream antibiotic for the treatment of infection in diabetic foot ulcers, had been our lead product development candidate. In July 1999, LOCILEX Cream failed to obtain approval from the FDA, and we have since terminated our manufacturing agreements required to further develop this product candidate and refocused our near-term product development efforts on our other programs. In October 2007, we entered into an agreement to license the exclusive worldwide rights for use of pexiganan as a drug to MacroChem Corporation (“MacroChem”). Under the terms of the license agreement, MacroChem has agreed to paypaid us an initial fee of $1.0 million. The terms of the agreement also include up to $7.0 million in milestone payments to us based upon the achievement of clinical milestones, including the start of phase 3 clinical trials and regulatory approval. The agreement also includes sales-based milestones of up to $35.0 million and 10% royalty payments on net sales. As a result of the license agreement, MacroChem has assumed all clinical development, manufacturing, regulatory and regulatorycommercialization activities for pexiganan.pexiganan as a drug. As a result of our limited control over the development plan and the timing of milestones, we cannot estimate the timing or receipt of milestone payments.

RESEARCH AND DEVELOPMENT COSTS

We incurred costs of $13.1$11.7 million and $17.7$13.1 million for research and development in the years ended December 31, 20072008 and 2006,2007, respectively. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8. Financial Statements and Supplementary Data” for additional information.

COMMERCIAL ARRANGEMENTS

We believe collaborations allow us to leverage our scientific and financial resources and gain access to markets and technologies that would not otherwise be available to us. In the long term, development and marketing arrangements with established companies in the markets in which our potential products will compete may provide us with more efficient development and marketing abilities and may, accordingly, conserve our resources. We expect that we will seek additional development and marketing arrangements for most of the products we may develop. From time to time, we hold discussions with potential collaborators.

CONTRACT MANUFACTURING

We have no current plans to establish a commercial manufacturing facility. We depend upon various contract manufacturers for clinical trial manufacturing of our proposed products and expect to continue to rely on third parties for any commercial-scale manufacturing. We require that all of our third-party manufacturers produce our active pharmaceutical ingredients and finished products in accordance with all applicable regulatory standards.

GOVERNMENT REGULATION

Our development, manufacture and potential sale of therapeutics are subject to extensive regulation by United States and foreign governmental authorities.

Regulation of Pharmaceutical Products in the United States

The FDA regulates our product candidates currently being developed as drugs or biologics in the United States. New drugs are subject to regulation under the Federal Food, Drug, and Cosmetic Act, and biological products, in addition to being subject to certain provisions of that Act, are regulated under the Public Health Service Act. Both statutes and the regulations promulgated thereunder, govern, among other things, the testing, manufacturing, safety, efficacy, labeling, storage, record keeping, and advertising and other promotional practices involving biologics or new drugs, as the case may be. FDA approval or other clearances must be obtained before clinical testing of, and before manufacturing and marketing of, new biologics and drugs.

Obtaining FDA approval historically has been a costly and time-consuming process. Generally, in order to gain FDA pre-market approval, a developer first must conduct preclinical studies in the laboratory and in animal model systems to gain preliminary information on an agent’s effectiveness and to identify any safety problems. The results of these studies are submitted as a part of an IND application for a drug or biologic which the FDA must review before human clinical trials of an investigational drug can begin. The IND application includes a detailed description of the clinical investigations to be undertaken.

In order to commercialize any products, we or our collaborators must sponsor and file an IND application and be responsible for initiating and overseeing the clinical studies to demonstrate the safety, effectiveness and quality that are necessary to obtain FDA approval of any such products. For IND applications sponsored by us or our collaborators, we or our collaborators will be required to select qualified investigators (usually physicians) to supervise the administration of the products, and ensure that the investigations are conducted and monitored in accordance with FDA regulations, including the general investigational plan and protocols contained in the IND application.

Clinical trials of drugs normally are done in three phases, although the phases may overlap. Phase 1 trials are concerned primarily with the safety of the drug, involve a small group typically ranging from 15 – 40 subjects, and may take from six months to over one year to complete. Phase 2 trials typically involve 30 – 200 patients and are designed primarily to demonstrate safety and preliminary effectiveness in treating or diagnosing the disease or condition for which the drug is intended, although short-term side effects and risks in people

whose health is impaired may also be examined. Phase 3 trials are expanded clinical trials with larger numbers of patients that are intended to evaluate the overall benefit-risk relationship of the drug and to gather additional information for proper dosage and labeling of the drug. Phase 3 clinical trials generally take two to five years to complete, but may take longer. The FDA receives reports on the progress of each phase of clinical testing, and it may require the modification, suspension or termination of clinical trials if it concludes that an unwarranted risk is presented to patients or, in phase 2 and 3, if it concludes that the study protocols are deficient in design to meet their stated objectives.

If clinical trials of a new product are completed successfully, the sponsor of the product may seek FDA marketing approval. If the product is regulated as a biologic, the FDA will require the submission and approval of a Biologics License Application (“BLA”) before commercial marketing of the biologic. If the product is classified as a new drug, an applicant must file a New Drug Application (“NDA”) with the FDA and receive approval before commercial marketing of the drug. The BLA or NDA must include detailed information about the product and its manufacture and the results of product development, preclinical studies and clinical trials.

The testing and approval processes described above require substantial time and effort and there can be no assurance that any approval will be granted on a timely basis, if at all. BLAs and NDAs submitted to the FDA

can take more than one to two years to receive approval. If questions arise during the FDA review process, approval can take more than five years. Notwithstanding the submission of relevant data, the FDA may ultimately decide that the BLA or NDA does not satisfy its regulatory criteria for approval and as a result may deny approval, require additional clinical studies or require demonstration of compliance with Good Manufacturing Practices (“GMPs”). In addition, the FDA may condition marketing approval on the conduct of specific post-marketing studies to further evaluate safety and effectiveness. Even if FDA regulatory clearances are obtained, a marketed product is subject to continual regulatory requirements and review relating to GMPs, adverse event reporting, promotion and advertising and other matters. Later discovery of previously unknown problems or failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product or withdrawal of the product from the market as well as possible civil or criminal sanctions.

Regulation of Pharmaceutical Products Outside of the United States

The development and commercialization of our product candidates outside of the United States is subject to foreign local and national regulatory requirements. The requirements that we must satisfy to obtain regulatory approval by governmental agencies in other countries prior to commercialization of our products in such countries can be as rigorous, costly and uncertain as those that are encountered in the United States.

Other

In addition to the foregoing, our business is and will be subject to regulation under various state and federal environmental laws, including the Occupational Safety and Health Act, the Resource Conservation and Recovery Act and the Toxic Substance Control Act. These and other laws govern our use, handling and disposal of various biological, chemical and radioactive substances used in and wastes generated by our operations. We cannot predict whether state or federal regulators and agencies will impose new regulatory restrictions on the marketing of biotechnology products.

PATENTS, LICENSES AND PROPRIETARY RIGHTS

We actively seek to protect our product candidates and proprietary information by means of United States and foreign patents, trademarks and contractual arrangements. Our success depends, in part, on our ability to develop and maintain a strong patent position for our products and technologies both in the United States and in certain other countries where patent laws are enforced and pharmaceutical markets are deemed to be meaningful to us and our current and future collaborators. As with most biotechnology and pharmaceutical companies, our patent position is highly uncertain and involves complex legal and factual questions.

To date, we own, co-own or have licensed on an exclusive basis a total of 82 patent applications and issued patents in the United States, 68 of which we own or co-own and 14 that we license on an exclusive basis. We own, co-own or have licensed on an exclusive basis a total of 142148 patent applications and issued patents in countries other than the United States.

We own patents covering methods and intermediates in the manufacturing process of squalamine and trodusquemine that expire in 2017 and 2018. We own a composition of matter patent for the trodusquemine compound, which expires in 2014. We also own a patent for the use of trodusquemine as an anti-obesity agent and other indications that expires in 2015.2015, and we own a U.S. patent that covers the use of trodusquemine to lower serum cholesterol and glucose levels that expires in 2025. We own two patents for the use of anti-IL9 or anti-IL9 receptor antibodies for the treatment of asthma and related disorders that expire in 2016. We also own several patents and patent applications for the use of squalamine as an anti-angiogenic, including methods for the treatment of cancer and for neovascularization in the eye. One of these patents is to the compound’s combination therapy with other anti-cancer agents and will expire in 2017, while another patent covers the treatment of age-related macular degeneration,AMD, retinopathy of prematurity and diabetic retinopathy and will expire in 2015. We also have U.S. patents covering the composition of matter for a mucoregulator target and another patent covering methods for screening for mucoregulator compounds, both of which expire in 2019. We own a patent on the use of

talniflumate and related mucoregulator compounds for treating various conditions where mucus is overproduced, which expires in 2021.

The expiration date of each of these patents is subject to extension depending upon the future research and development program timelines. We have filed several other applications across our research and development programs and intend to file additional applications, as appropriate, for patents on new compounds, products or processes discovered or developed through the application of our technology.

We have rights to several patents and patent applications under certain license agreements pursuant to which we expect to owe royalties on sales of products that incorporate issued valid patent claims. In particular, we have licensed from LICR specific technologies related to our IL9 program, the earliest of which expires in 2009. In addition, we have licensed from the Children’s Hospital of Philadelphia the composition of matter patent for the squalamine compound, which expires in 2012. These patents are subject to extensions by their owners depending upon the future research and development program timelines. Additionally, certain of these agreements also provide that if we elect not to pursue the commercial development of any licensed technology, or do not adhere to an acceptable schedule of commercialization, then our exclusive rights to such technology may terminate. We also conduct or collaborate on research at certain institutions, and these relationships may provide us with technology that is owned, licensed or for which we have an option to license.

In addition, our patents on anti-IL9 and anti-IL9 receptor, as well as the patents that we license from LICR, have been licensed to MedImmune. We expect to receive certain milestone payments during the development of this technology and will receive royalty payments on sales of any approved drugs. In addition, we rely on unpatented proprietary technologies, unpatentable skills, knowledge and experience of our scientific and technical personnel, as well as those of our advisors, consultants and other contractors and other intellectual property (collectively “know-how”) in the development of our product candidates. To help protect our proprietary know-how that is not patentable, and for inventions for which patents may be difficult to enforce, we rely on trade secret protection and confidentiality agreements to protect our interests. To this end, we require employees, consultants and advisors to enter into agreements that prohibit the disclosure of our confidential information and, where applicable, require disclosure and assignment to us of the ideas, developments, discoveries and inventions that arise from their activities for us. These confidentiality agreements also require that our employees, consultants and advisors do not bring to us, or use without proper authorization, any third-party’s proprietary technology.

COMPETITION

The pharmaceutical industry is characterized by intense competition. Many companies, research institutions and universities are conducting research and development activities in a number of areas similar to our fields of interest. Most of these entities have substantially greater financial, technical, manufacturing, marketing, distribution and other resources. We also may face competition from companies using different or advanced techniques that could render our products obsolete.

We expect technological developments in the biopharmaceutical field to occur at a rapid rate and expect competition to intensify as advances in this field are made. Colleges, universities, governmental agencies and other public and private research organizations are becoming more active in seeking patent protection and licensing arrangements to collect royalties for use of technology that they have developed, some of which may be directly competitive with our technology. In addition, these institutions, along with pharmaceutical and specialized biotechnology companies, can be expected to compete with us in recruiting highly qualified scientific personnel.

Many companies are working to develop and market products intended for the disease areas we are targeting, including obesity, type 2 diabetes and respiratory diseases. A number of major pharmaceutical companies have significant franchises in these disease areas and can be expected to invest heavily to protect their

interests. With respect to obesity, products are being developed at a number of biopharmaceutical companies, including but not limited to, Abbott Laboratories, Alizyme plc, Amylin Pharmaceuticals, Inc., Arena Pharmaceuticals, Inc., Bristol-Myers Squibb Company, F. Hoffman-La Roche, Ltd., Merck and sanofi-aventis Group.Co., Inc., Orexigen Therapeutics, Inc. and Vivus, Inc. With respect to type 2 diabetes, products are being developed at a number of biopharmaceutical companies, including but not limited to, Abbott Laboratories, Amylin Pharmaceuticals, Inc., AstraZeneca PLC, Eli Lilly & Company, GlaxoSmithKline PLC, Johnson & Johnson, Novartis AG and Novo Nordisk A/S. In the respiratory field, other biopharmaceutical companies also have reported the discovery of genes relating to asthma and other respiratory diseases, including Amgen, Inc., Genentech, Inc. and Vertex Pharmaceuticals, Inc., as well as other large pharmaceutical companies.

EXECUTIVE OFFICERS

Our current executive officers are as follows:

Mr. Armstrong has served as our President and Chief Executive Officer since January 2006. Prior to that, Mr. Armstrong had served as our President and Chief Operating Officer since July 2005. In July 2004, Mr. Armstrong was promoted to our Executive Vice President and Chief Operating Officer. Prior to that, he had served as our Executive Vice President since joining us in October 2003. Mr. Armstrong has over forty years of increasing responsibility in the pharmaceutical industry, with a manufacturing emphasis. Prior to joining us, he served as Chief Executive Officer of Mills Biopharmaceuticals, a subsidiary of UroCor, Inc. (“UroCor”), and as Vice President of Business Development at UroCor from December 1999 to November 2001. Prior to that, Mr. Armstrong served as President and Chief Operating Officer at Oread, Inc. from February 1998 to August 1999. Mr. Armstrong spent from 1991 to 1998 with DuPont Merck Pharmaceutical Company, where he served in various executive positions, including as President of ENDO Laboratories, and President of the global manufacturing/quality division. Prior to that, Mr. Armstrong served in numerous roles of increasing responsibility in manufacturing operations at Merck, Sharp and Dohme, Stuart Pharmaceuticals and Marion Merrell Dow. Mr. Armstrong earned his MBA from Century University in 1993.

Dr. Gast was promoted to Executive Vice President and Chief Medical Officer onin October 1, 2007. Prior to that, Dr. Gast had served as our Executive Vice President of Clinical Research and Development since November 2006, having rejoined us in March 2006 as Senior Vice President, Clinical Research and Development. Dr. Gast initially served as our Executive Vice President and Chief Medical Officer from February 2005 through July 31, 2005. Dr. Gast worked for us as a consultant from August 1, 2005 until he rejoined us in 2006. Prior to joining us, Dr. Gast spent ten years at Wyeth, most recently serving as Vice President, Scientific Affairs within Wyeth Global Medical Affairs, where he was responsible for oversight of phase 4 clinical research programs. Previously at Wyeth, Dr. Gast served as Vice President, Women’s Health Clinical Research and Development. Prior to that, Dr. Gast spent twenty-one years at the Washington University School of Medicine. During his tenure on the faculty at the Washington University Department of Obstetrics and Gynecology, Dr. Gast served as Director of the Division of Reproductive Endocrinology and Infertility and Director of the Endocrine Clinical Laboratories. Dr. Gast received his MD from The Ohio State University College of Medicine in 1973 and his PhD in Molecular Biology from Washington University in 1981.

Dr. Wolfewas promoted to Executive Vice President and Chief Scientific Officer onin October 1, 2007. Prior to that, Dr. Wolfe had served as our Senior Vice President of Business Development and Research and

Development since November 2006. Dr. Wolfe was promoted to Vice President of Business Development in January 2006. Prior to that, he served as our Executive Director of Business Development. Dr. Wolfe has twenty-five years of experience in the biotechnology and pharmaceutical industry. Prior to joining us, he was Vice President of Research & Development at Targeted Diagnostics and Therapeutics, Inc. Prior to that, Dr. Wolfe served in various management positions inrelating to the discovery and development of therapeutic and in vivo imaging products with Nycomed Amersham, plc (now GE Healthcare), Sterling Winthrop Pharmaceuticals and E.I. Dupont deNemours Co. Dr. Wolfe received his PhD in Molecular Pharmacology and Structural Biology from Thomas Jefferson University in 2006 and is the author of more than 40 patents and peer-reviewed publications.

Ms. Kellywas promoted to Senior Vice President and Chief Financial Officer onin May 1, 2007. Prior to that, Ms. Kelly had served as Senior Vice President of Corporate Communications since November 2006. Prior to that, she had served as Vice President, Finance since January 2006 and Controller since December 2002. Ms. Kelly also served as our Interim Chief Financial Officer in 2003 and Controller since December 2002.2003. Prior to joining us, Ms. Kelly was Controller of Lamina Ceramics, Inc. Ms. Kelly also served as Senior Financial Analyst and SEC Accountant at Luminant Worldwide Corporation and Senior Auditor with KPMG LLP. Ms. Kelly holds a CPA certificate from the Pennsylvania State Board of Accountancy and is a member of the Pennsylvania Institute of Certified Public Accountants.

Officers are elected or appointed by the board of directors to serve until the appointment or election and qualification of their successors or their earlier termination or resignation.

EMPLOYEES

As of December 31, 2007,2008, we had 2416 full-time employees. No employees are covered by collective bargaining agreements and we consider relations with our employees to be good.

AVAILABLE INFORMATION

We make available free of charge on our internet website,www.genaera.com, our Annual ReportReports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

ITEM 2. PROPERTIES

We lease approximately 21,000 square feet of office and laboratory space in a single building in Plymouth Meeting, Pennsylvania. This lease provides for minimum annual payments of approximately $0.5$0.4 million in 2008 and is subject to a 4% increase in December 2008.2009. The lease expires in November 2009.

ITEM 3. LEGAL PROCEEDINGS

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock currently trades on the Nasdaq Capital Market under the symbol “GENR.” From December 12, 1991, the date of our initial public offering, until March 9, 2001, our common stock was included for quotation on the Nasdaq National Market under the symbol “MAGN.” On March 9, 2001, we changed our name to Genaera Corporation and on March 12, 2001, our common stock began quotation on the Nasdaq National Market under the symbol “GENR.” Our common stock was included for quotation on the Nasdaq National Market through October 30, 2002, when we elected to begin trading on the Nasdaq SmallCap Market effective with the opening of trading on October 31, 2002. The Nasdaq SmallCap Market was renamed the Nasdaq Capital Market in 2005.

The quarterly ranges of high and low closing bid prices per share of our common stock are shown below, after giving effect to a one-for-six reverse split of our common stock effected on May 11, 2007.

As of March 26, 2008,February 27, 2009, the last reported bid price for our common stock on the Nasdaq Capital Market was $1.48$0.19 per share.

Dividends

We have not paid any cash dividends on our common stock since our inception and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. It is the present policy of the board of directors to retain all earnings, if any, to finance the development of our business.

Number of Holders of Common Stock

At March 26, 2008,February 27, 2009, there were 334330 stockholders of record.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Genaera Corporation is a biopharmaceutical company focused on advancing the science and treatment of metabolic diseases. Our research and development efforts are focused on obesity and type 2 diabetes. In addition, we have a fully out-licensed partnership with MedImmune for the development and commercialization of respiratory therapies related to our IL9 program.

Since commencing operations in 1988, we have not generated any revenue from product sales. We have funded operations primarily from the proceeds of public and private placements of securities, research and development collaboration payments and related equity investments. We have incurred a loss in each year since our inception and we expect to incur substantial additional losses for at least the next several years. We expect that future losses may fluctuate and that such fluctuations may be substantial. At December 31, 2007,2008, our accumulated deficit was $276.5$292.5 million. We believe our cash, cash equivalents and short-term investments at December 31, 20072008 are sufficient to fund operations and meet our research and development goals into the fourthsecond quarter of 2008.2009. However, we will also need to raise additional funds and are currently exploring alternatives, such as equity or debt financing and/or the licensing of the rights to one or more of our product candidates. If additional funds are raised by issuing equity securities, substantial dilution to existing shareholders may result. If we engage in collaborations, we may receive lower consideration upon commercialization of such products than if we had not entered into such arrangements, or if we entered into such arrangements at later stages in the product development process. IfIn light of our known and contingent financial obligations, if we fail to obtain capital when required,in the immediate future, we may be required to delay, scale back, or eliminate some or all of our research and development programs.programs, consider various strategic alternatives including a merger or sale of the Company or cease operations.

The following discussion is included to describe our financial position and results of operations for each of the years ended December 31, 20062008 and 2007. The financial statements and notes thereto included elsewhere herein contain detailed information that should be referred to in conjunction with this discussion.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of our financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Actual results could differ materially from those estimates. The following are critical accounting policies that are important to our financial condition and results of operations and require management to make judgments, assumptions and estimates that are inherently uncertain.

Revenue Recognition

Contract revenue for research and development is recorded as earned based on the performance requirements of the contract. Non-refundable contract fees for which no further performance obligations exist, and for which there is no continuing involvement by us, are recognized at the earlier of when the payments are received or when collection is assured. Revenue from non-refundable upfront license fees and certain guaranteed payments where we have continuing involvement through development collaboration is recognized on a straight-line basis over the development period. Revenue associated with performance milestones is recognized based upon the achievement of the milestones as defined in the respective agreements. Revenue under research and development cost reimbursement contracts is recognized as the related costs are incurred. Advance payments received in excess of amounts earned are classified as liabilities until earned. Payments received that are refundable also are classified as liabilities until the refund provision expires. We make an estimate as to the appropriate deferral period for recognition of revenue on any collaborative development programs. Changes in these estimates due to the evolution of the development program can have a significant effect on the timing of when revenue is recorded.

Research and Development Expenses

Research and development expenses include related salaries, contractor fees and facility costs. Research and development expenses consist of independent research and development contract costs, contract manufacturing

costs and costs associated with collaborative research and development arrangements. In addition, we fund research and development at other research institutions under agreements that are generally cancelable. Research and development expenses also include external activities, such as investigator-sponsored trials. All such costs are charged to research and development expense systematically as incurred, which may be measured by patient enrollment or the passage of time. At the initiation of certain contracts, we must make an estimate as to the duration and expected completion date of the contract, which may require a change due to accelerations, delays or other adjustments to the contract period or work performed. Changes in these estimates could have a significant effect on the amount of research and development costs in a specific period. While we have historically made changes to the estimates underlying our research and developments costs, none of those changes were material for any historical period. Future changes in these estimates could have a significant effect on the amount of research and development costs in a specific period.

Stock-Based Compensation

We account for stock-based employee compensation using the modified prospective method set forth by Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004),Share-Based Payment (“SFAS 123R”). SFAS 123R requires that compensation cost for all stock-based awards be measured at fair value on the date of grant and recognized over the requisite service period for awards expected to vest. The fair value of stock option grants is determined using the Black-Scholes valuation model. Such amounts, net of estimated forfeitures, are recognized as compensation expense over the requisite service period using the accelerated method under SFAS 123R.

RESULTS OF OPERATIONS—20072008 vs. 20062007

Revenues

We recognized revenue of $2.7$1.5 million and $0.9$2.7 million in the years ended December 31, 20072008 and 2006,2007, respectively. We have received no revenues to date from product sales. Revenues recorded to date have consisted principally of revenues recognized under collaborations with third parties.

In April 2001, we entered into a research collaboration and licensing agreement with MedImmune to develop and commercialize therapies related to our IL9 program. MedImmune provided funding of $2.5 million, payable in eight equal quarterly installments through April 2003. In addition, MedImmune reimburses external costs for certain research and development activities and for patent prosecution expenses. We could also receive up to $54.0 million of additional funding based on successful completion of future milestones. InFor the year ended December 2006,31, 2008, we received a milestone payment of $0.5recognized $0.2 million as a result of the initiation of phase 2 clinical trials.revenue related to external cost reimbursements. For the year ended December 31, 2007, we recognized $0.5 million as revenue related to external cost reimbursements of which $0.2 million related to reimbursement for expenses incurred in prior periods. The revenue and expense amounts related to a prior period were determined to be immaterial to the current and prior periods. For the year ended December 31, 2006, we recognized $0.7 million as revenue related to external cost reimbursements ($0.2 million) and milestone payments ($0.5 million).

In September 2001, we received a contingent award of up to $1.7 million from Cystic Fibrosis Foundation Therapeutics (“CFFT”), an affiliate of the Cystic Fibrosis Foundation, to support early clinical evaluation of LOMUCIN™ involving subjects with cystic fibrosis. In April 2005, the award was increased to $2.9 million, consisting of $0.5 million previously received in connection with our initial phase 2 trial of LOMUCINLOMUCIN™ and up to $2.35 million in milestone-driven matching funds from CFFT to support a multi-center, randomized, double-blind, placebo-controlled phase 2 clinical trial of LOMUCIN.LOMUCIN™. After consultation with CFFT, the protocol for this trial was amended in June 2006 to decrease the number of evaluable subjects to be enrolled in the trial from 200 to 80. As a result of the decrease in the number of evaluable subjects, the total contract funding for our phase

2 clinical evaluation of LOMUCINLOMUCIN™ was reduced from $2.9 million to $2.52 million or $2.45 million, depending upon the final milestone achieved. In June 2007, we and CFFT agreed, for reasons of futility, to discontinue the phase 2 trial of LOMUCINLOMUCIN™ and terminated the award agreement. As a result of the termination, we recognized revenue of $2.1 million in the year ended December 31, 2007, of which $1.7 million was recorded as a long-term liability at December 31, 2006.

In April 2004, we received a phase 1 Small Business Innovative Research (“SBIR”) program grant from the National Institute of Diabetes and Digestive and Kidney Diseases of the National Institutes of Health (“NIH”) in the amount of $0.1 million to support our trodusquemine program. The grant extended over a one-year period which ended in March 2005. In March 2005, we notified the NIH of a no-cost extension to the original budget period by twelve months. As a result of the notification, the grant was extended to March 2006. We recognized $0.1 million of revenue related to this grant in the year ended December 31, 2006.

In September 2004, we received a phase 1 SBIR program grant from the National Eye Institute of the NIH in the amount of $0.1 million to support our aminosterols for AMD program. The grant extended over a one-year period, which ended in August 2005. In August 2005, we notified the NIH of a no-cost extension to the original budget period by twelve months. As a result of the notification, the grant was extended to August 2006. We recognized $0.1 million of revenue related to this grant in the year ended December 31, 2006.

In February 2006, we entered into an agreement to provide pexiganan cream to a research facility for its conduct of a research study. As a result of this agreement, we recognized $15,000 as revenue in the year ended December 31, 2006.2007.

In May 2007, we received a one-time payment as a result of the licensing by LICR of certain patents jointly owned by LICR and Genaera pursuant to the Second Research Agreement between LICR and Genaera dated December 20, 1999. We recognized the payment of $0.1 million, which related to a prior period, as revenue in the year ended December 31, 2007. The revenue amount related to a prior period was determined to be immaterial to the currentapplicable periods.

In July 2007, we granted an option to acquire exclusive license rights for drug uses of pexiganan to MacroChem in exchange for a payment of $0.3 million. The option agreement gave MacroChem a 90-day right to enter into a license agreement. In October 2007, MacroChem exercised its option and prior periods.acquired the exclusive worldwide license rights for use of pexiganan as a drug. Under the terms of the license agreement, MacroChem paid us an initial fee of $1.0 million in several installments. The terms of the agreement also include milestone payments to us of up to $7.0 million based upon the achievement of clinical milestones, including the start of phase 3 clinical trials and regulatory approval, sales-based milestones of up to $35.0 million and royalty payments of 10% on net sales of commercial products resulting from the license agreement. As a result of the license agreement, MacroChem assumed responsibility for all clinical development, manufacturing, regulatory and commercialization activities for pexiganan as a drug. Receipt of future milestones and royalties is dependent upon a number of factors, including favorable results from clinical trials to be conducted by MacroChem. As of March 31, 2008, our performance obligations under the license agreement were fulfilled. As a result, we recognized $1.3 million as revenue related to the option and license agreements in the year ended December 31, 2008. In addition, MacroChem reimburses the Company for incurred external costs for patent prosecution expenses. During the year ended December 31, 2008, the Company recognized $17,000 as revenue related to external cost reimbursements.

Research and Development Expenses

Our active research and development programs include trodusquemine (“MSI-1436”)(MSI-1436) for the treatment of obesity and type 2 diabetes anti-IL9 antibody, LOMUCIN™ (talniflumate) and other programs consisting of other aminosterolsresearch compounds for the treatment of inflammatory disorders, squalamine lactatemetabolic disorders. Programs for oncologywhich we have entered into collaborative and/or license agreements include the IL9 program for the treatment of asthma and wet AMD, and LOCILEX (pexiganan) Creampexiganan (LOCILEX Cream) for the treatment of infectious disease.diseases. Programs for which we have ceased research and development activities and are looking to out-license include squalamine for oncology, EVIZON™ (squalamine) for the treatment of wet AMD and LOMUCIN™ (talniflumate) for the treatment of cystic fibrosis. The following table illustrates our research and development projects and the stage to which each has been developed:

MedImmune has assumed responsibility for development and commercialization efforts on the IL9 program.

(2)	In June 2007, we closed enrollment in our LOMUCIN™ clinical development program for the treatment of cystic fibrosis. Final data collection and evaluation will continue throughout the first half of 2008.

(3)	In July 2007, we announced the termination of our squalamine clinical development program for the treatment of prostate cancer.

(4)	In January 2007, we announced the termination of our EVIZON™ clinical development program for the treatment of wet AMD.

(5)	In October 2007, we entered into an agreement to license the exclusive worldwide rights for use of pexiganan as a drug to MacroChem.

Research and development expenses for each of our projects consist of both direct and indirect expenses. Direct expenses include salaries and other costs of personnel, raw materials and supplies for each project. We also may incur third-party costs related to these projects, such as contract research, clinical development and manufacturing costs and consulting costs. Indirect expenses include depreciation expense and the costs of operating and maintaining our facilities, property and equipment to the extent used for our research and development projects, as well as the costs of general management of our research and development projects.

We recognized research and development expenses of $11.7 million and $13.1 million in 2008 and $17.7 million in 2007, and 2006, respectively. The following table illustrates research and development expenses (in thousands) incurred during the years ended December 31, 20072008 and 20062007 for our significant groups of research and development projects:projects (in thousands):

Research and development expenses decreased in the year ended December 31, 2007,2008, as compared to the same period a year ago, due to decreases in clinical trial costs ($5.4 million), personnel costs ($3.6 million), third-party contract research costs ($0.1 million), manufacturing expenses ($0.7 million), and personnel costs for consulting and supplies ($0.40.6 million) related to our squalaminetrodusquemine program for the treatment of wet AMDtype 2 diabetes and obesity and decreases in clinical trial costs ($0.6 million), personnel costs ($0.4 million), third-party contract research ($0.2 million) and manufacturing expenses ($0.10.2 million) as a result of the discontinuation of our squalamine and LOMUCIN™ programs in 2007. Expenses related to our LOMUCIN™ program.IL9 program and the development of other preclinical compounds decreased as a result of decreases in third-party contract research ($0.2 million) and personnel expenses ($0.2 million). Indirect expenses decreased as a result of decreases in realignment costs ($0.2 million), personnel costs ($0.2 million), equipment rental and maintenance expenses ($0.2 million), depreciation expense ($0.2 million) and travel expenses ($0.1 million). These decreases were partially offset by increases in clinical trial costs ($0.9 million), personnel costs ($2.1 million), manufacturing expenses ($1.30.7 million), third-party contract research ($0.90.6 million) and costs for consulting and suppliesexpense ($0.30.2 million) related to our trodusquemine obesity therapeutic program, as well as increases in clinical trial costs ($0.2 million) related to our LOMUCIN™ program and increases in personnel costs ($0.1 million) and third-party contract research costs ($0.4 million) related to our IL9 program. In addition, indirect expenses decreased primarily due to decreased consultingas a result of an increase in stock-based compensation expense ($0.3 million), temporary labor ($0.3 million) and other indirect costs ($0.2 million), partially offset by increases in indirect personnel costs ($0.1 million) and realignment costs associated with the 2007 reductions in force ($0.41.1 million).

The costs incurred to date on each of our development projects are not reasonably estimable because work on one program often supports or enhances another program. For example, it is not possible to separate the time and resources spent in development of squalamine lactate as a product candidate to treat wet AMD and as a product candidate to treat cancer because: (i) early research and development efforts devoted to cancer research led to the development of our product candidate squalamine lactate (trade name EVIZON™) for wet AMD;

(ii) clinical trial work pursuant to our IND application for cancer forms part of the safety data base for the IND application we filed with the FDA for wet AMD; (iii) our manufacturing development for squalamine lactate supports both the wet AMD and cancer programs; (iv) trodusquemine and squalamine are synthesized from the same starting material and a significant number of steps in the synthesis are identical; and (v) nonclinical testing conducted supports all regulatory filings and proposed indications for squalamine.

The level of research and development expenses in future periods will depend principally upon the progress of our research and development programs and our capital resources. Due to the significant risks and uncertainties inherent in the preclinical and clinical studies associated with each of our research and development programs, the cost to complete such programs, as well as the period in which net cash inflows from significant programs are expected to commence, are not reasonably estimable. Preclinical and clinical studies may yield

varying results that could delay, limit or prevent a program’s advancement through the various stages of product development and significantly impact the costs to be incurred and the time involved in bringing a program to completion. Such delays, limitations or prevention of a program’s advancement could harm our financial condition and operating results and inhibit our ability to raise additional funds to support ongoing operations.

The nature of costs incurred in the future will also vary depending upon the stage of the product candidate’s development. Product candidates in the research stage often require significant laboratory work to develop and prepare the product candidate for preclinical testing and for testing in humans. Costs for such work typically include our staff, our facilities, lab supplies and equipment and fees to contract research facilities supervised by our personnel. All products to be tested in humans require preclinical testing and often require additional nonclinical testing while clinical trials are in process to fulfill regulatory requirements. Preclinical and nonclinical work requires expenditures for staffing and facilities. Costs will also be incurred for work done by contract research facilities under our supervision. Early stage products require development of manufacturing methods, supporting analytical and research work and qualifying vendors, including contract manufacturers. Products in human testing, particularly later stage trials, require manufacturing more significant quantities of product. The costs of conducting clinical trials include fees to contract research organizations to conduct the trials, payments to physicians and research centers, and payments for a wide range of services to prepare for clinical trials, support the trials and manage data gathered in the trials. Internal costs for clinical trials include staffing and infrastructure to design, adapt and manage the trials, as well as managing vendors providing supporting services. Smaller but continuing costs throughout the clinical trials process also include quality control and regulatory compliance activities conducted by our staff and through contractors under our supervision.

General and Administrative Expenses

We recognized general and administrative expenses of $6.5 million and $6.8 million in 2008 and $6.0 million in 2007, and 2006, respectively. General and administrative expenses consist principally of personnel costs, professional fees and public company expenses.expenses incurred to maintain our status as a publicly traded company. General and administrative costs increaseddecreased in the year ended December 31, 2007,2008, as compared to the same period a year ago, due principally to decreases in bonus expense ($0.4 million), legal and accounting fees ($0.3 million), personnel expenses ($0.2 million), realignment costs ($0.2 million), investor and public relations expense ($0.2 million), public company expenses ($0.1 million), consulting fees ($0.1 million) and depreciation expense ($0.1 million) primarily as a result of cost cutting initiatives implemented in May 2008. These decreases were partially offset by increases in stock-based compensation expense ($0.1 million), bonus expense ($0.21.2 million) and realignment costs associated with the 2007 reductions in force ($0.3 million). There were also increases in legal fees ($0.3 million) associated with our strategic review in 2007. These increases were partially offset by a decrease in consultantsubscription and dues expenses ($0.1 million).

Interest Income and Other

We recognized interest income of $0.4 million and $1.3 million in 2008 and $1.5 million in 2007, and 2006, respectively. Interest income is primarily comprised of income generated from cash and investments. Interest income decreased during the year ended December 31, 2007,2008, as compared to the same period a year ago, due to lower average investment balances.balances and interest rates.

Income Tax Benefit

We recognized an income tax benefit of $0.3 million and $0.1 million in 2008 and 2007, respectively, as a result of the sale of Pennsylvania research and development tax credit carryforwards to a third party pursuant to Pennsylvania Act 7 of 1997 and Pennsylvania Act 46 of 2003.

LIQUIDITY AND CAPITAL RESOURCES

Cash, cash equivalents and short-term investments were $8.1 million at December 31, 2008 as compared to $20.9 million at December 31, 2007 as compared to $33.8 million at December 31, 2006.2007. The primary use of cash was to fund our research and development operations.

Current liabilities increaseddecreased by $1.0$2.3 million from $2.4 million at December 31, 2006 to $3.4 million at December 31, 2007 to $1.0 million at December 31, 2008, due to an increase inthe recognition of current deferred revenue associated with the licensing of pexiganan to MacroChem.MacroChem ($1.0 million) and decreases in the accrual of expenses related to bonuses ($0.6 million), research and development expenses ($0.5 million), professional fees ($0.2 million) and restructuring costs ($0.1 million) as a result of cost-cutting initiatives implemented in 2008 and the discontinuation of our squalamine and LOMUCIN™ programs in 2007.

Our capital expenditure requirements depend upon numerous factors, including the progress of our research and development programs, the time and cost required to obtain regulatory approvals, our ability to enter into

additional collaborative arrangements, the demand for products based on our technology, if and when such products are approved, and possible acquisitions of products, technologies and companies. We had no significant capital commitments as of December 31, 2007.2008.

Our goal is to conduct significant research, pre-clinical development, clinical testing and manufacturing activities over the next several years. We expect that these activities, together with projected general and administrative expenses, will result in continued and significant losses.

Since inception, we have funded our operations primarily from the proceeds of public and private placements of our securities, totaling approximately $253.3 million since our initial public offering in December 1991, including the proceeds from a private placement of our securities, net of costs, of $23.2 million in June 2006.1991.

In addition to the above, we have funded our operations from contract and grant revenues, research and development expense reimbursements, the sale of Pennsylvania research and development tax credit carryforwards and interest income.

We regularly explore alternative means of financing our operations and seek funding through various sources, including public and private securities offerings, collaborative arrangements with third parties and other strategic alliances and business transactions. We currently do not have any commitments to obtain additional funds and may be unable to obtain sufficient funding in the future on acceptable terms, if at all. If we cannot obtain funding, we will need to delay, scale back or eliminate research and development programs or enter into collaborations with third parties to commercialize potential products or technologies that we might otherwise seek to develop or commercialize ourselves, or seek other arrangements. If we engage in collaborations, we may receive lower consideration upon commercializationWe are exploring alternative means of such products than if we had not entered into such arrangements, or if we entered into such arrangements at later stages in the product development process.

We have preparedfinancing our financial statements assuming that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. We have incurred net losses since inception and we expect to generate losses from operations, for the foreseeable future primarily due to research and development costs for MSI-1436. We believe our cash, cash equivalents and short-term investments at December 31, 2007 are sufficient to fund operations and meet our research and development goals into the fourth quarter of 2008. We have commenced a cost savings initiative and plan to reduce our projected operating expenses in 2008. However, we will also need to raise additional funds and are currently exploring alternatives, such as equity or debt financing and/or the licensing of the rights to one or more of our product candidates. If additional funds are raised by issuing equity securities, substantial dilution to existing shareholdersstockholders may result. If we engage in collaborations, we may receive lower consideration upon commercialization of such products than if we had not entered into such arrangements, or if we entered into such arrangements at later stages in the product development process. If we fail tocannot obtain capital when required,funding in the immediate future, we may be requiredwill need to delay, scale back, or eliminate some or all of our research and development programs.programs, consider various strategic alternatives including a merger of sale of the Company or cease operations.

We have prepared our financial statements assuming that we will continue as a going concern, which contemplates realization of our assets and the satisfaction of our liabilities in the normal course of business. We have incurred net losses since inception and we expect to generate losses from operations for the foreseeable future primarily due to research and development costs for our trodusquemine (MSI-1436) program for the treatment of obesity and type 2 diabetes. In May 2008, we announced the implementation of a restructuring plan

to augment our cost savings initiatives, which included the elimination of certain research and development efforts, in order to preserve cash and enable us to reach critical milestones in the development program for MSI-1436 (the “Restructuring Plan”). Under the Restructuring Plan, executive base pay was reduced by 10% and executives voluntarily forfeited cash incentives, including salary increases and bonus awards for 2008. Additionally, we reduced our workforce by approximately 40%. As a result of these initiatives, we believe our cash, cash equivalents and short-term investments at December 31, 2008 are sufficient to fund operations and meet our research and development goals into the second quarter of 2009.

RECENTLY ISSUED ACCOUNTING STANDARDS

In September 2006, the Financial Accounting Standards Board (“FASB”(the “FASB”) issued SFAS No. 157,Fair Value Measurements (“SFAS 157”). SFAS 157 definesclarifies the definition of fair value, establishes a framework for the measurement ofmeasuring fair value and enhancesexpands disclosures abouton fair value measurements. SFAS 157 doesis effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years; however, the FASB did provide a one year deferral for the implementation of SFAS 157 for certain nonfinancial assets and liabilities. The adoption of SFAS 157 did not requirehave any new fair value measures. impact on our results of operations and financial position.

In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. Both SFAS 157 andspecified election dates. Under SFAS 159, any unrealized holding gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. If elected, the fair value option (1) may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method; (2) is irrevocable (unless a new election date occurs); and (3) is applied only to entire instruments and not to portions of instruments. SFAS 159 is effective for our quarterly reporting period ending March 31, 2008, however in February 2008, the FASB issued FASB Staff Position No. FAS 157-2,Effective Date of FASB Statement No. 157to partially delay the effective date of SFAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, until fiscal years beginning after November 15, 2008. We do not anticipate that the2007. The adoption of SFAS 157 and SFAS 159 willdid not have anany impact on our results of operations and financial position.position, as we did not elect to apply the fair value option to any eligible financial instruments.

In DecemberJune 2007, the Emerging Issues Task Force (“EITF”) issued EITF Issue No. 07-01,Accounting for Collaborative Arrangements(“EITF 07-01”), which provides guidance concerning determining whether an arrangement constitutes a collaborative arrangement within the scope of the Issue, how costs incurred and revenue generated on sales to third parties and payments between participants pursuant to a collaboration agreement should be presented in the results of operations and what participants should disclose in the notes to the financial statements about a collaborative arrangement. EITF 07-01 will be adopted in 2009. We are currently evaluating the impact that the adoption of EITF 07-01 will have, if any, on our financial statements.

In June 2007, the EITF issued EITF Issue No. 07-03,07-3,Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities (“EITF 07-03”07-3”). EITF 07-0307-3 provides guidance concerning the accounting for nonrefundable advance payments made by a research and development entity for future research and development activities. The EITF concluded that an entity must defer and capitalize nonrefundable advance payments made for research and development activities and expense these amounts as the related goods are delivered or the related services are performed. If an entity does not expect the goods to be delivered or services to be rendered, the capitalized advance payment should be charged to expense. The adoption of EITF 07-0307-3 did not have any impact on our results of operations and financial position.

In December 2007, the EITF issued EITF Issue No. 07-1,Accounting for Collaborative Arrangements(“EITF 07-1”), which provides guidance concerning determining whether an arrangement constitutes a collaborative arrangement within the scope of the Issue, how costs incurred and revenue generated on sales to third parties and payments between participants pursuant to a collaboration agreement should be presented in the results of operations and what participants should disclose in the notes to the financial statements about a collaborative arrangement. EITF 07-1 will be adopted in 2008.2009. We are currently evaluating the impact that the adoption of EITF 07-0307-1 will have, if any, on our financial statements.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the Financial Statements beginning on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A(T). CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

For the year ended December 31, 2007,2008, we carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Executive Officer (the principal executive officer) and our Senior Vice President and Chief Financial Officer (the principal financial and accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon this evaluation, our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer concluded that, as of December 31, 2007,2008, our disclosure controls and procedures have been designed and are being operated in a manner that provides reasonable assurance that the information required to be disclosed by us in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. A control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are being met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Management’s Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act. Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can only provide reasonable assurance with respect to financial statement preparation and presentation.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2007.2008. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on its assessment, management believes that, as of December 31, 2007,2008, our internal control over financial reporting was effective based on those criteria.

This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control over financial reporting during the quarter ended December 31, 20072008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

None.

PART III

This Part III incorporates certain information from our Proxy Statement for the 2008 Annual Meeting of Stockholders to be filed with the SEC not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. Notwithstanding such incorporation, the section of our 2008 Proxy Statement entitled “Compensation Committee Report” shall not be deemed to be filed as part of this Annual Report on Form 10-K.

Information required by this item is incorporated herein by reference to the sections entitled “Nominees for Election”, “CodeBOARD OF DIRECTORS

The current members of Ethics”, “Corporate Governance” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our Proxy Statement for the 2008 Annual MeetingBoard of Stockholders.Directors are as follows:

Name of Director		Age		Year First Became Director		Principal Occupations During at Least the Past Five Years and Certain Directorships
Osagie O. Imasogie		47		2004		Mr. Imasogie has served as a director of the Company since January 2004. Since 2004, Mr. Imasogie has served as the Executive Vice President of Global Corporation Development for Dr. Reddy’s Laboratories, Inc. and a Senior Managing Partner of Phoenix IP Ventures. From 2000 until January 2004, Mr. Imasogie served as the Vice President and a Director of the Genetics and Discovery Venture at GlaxoSmithKline Research and Development (“R&D”). In 2000, Mr. Imasogie served as Vice President and Director of Product Development Strategy at SmithKline Beecham R&D. From 1997 to 2000, Mr. Imasogie served as Senior Vice President of Business Development, General Counsel and Secretary of Endo Pharmaceuticals. Previously, Mr. Imasogie served as Vice President of Dupont Merck Pharmaceutical Company and as a Corporate Finance Partner at PriceWaterhouse.
Mitchell D. Kaye		40		2007		Mr. Kaye has served as a director of the Company since September 2007. As Chief Executive Officer and founding partner of Xmark Opportunity Partners, LLC, Mr. Kaye has been responsible for overseeing all life sciences investments for the firm since 1996.
Robert F. Shapiro		74		1996		Mr. Shapiro has served as a director of the Company since September 1996. Since 1997, Mr. Shapiro has been the Vice Chairman and a Partner of Klingenstein, Fields and Co., LLC, an investment management firm. Prior to that, Mr. Shapiro served as President and Co-Chairman of Wertheim Schroder & Co., Inc. and Chairman of New Street Capital Corporation, investment banking firms. Mr. Shapiro is also a director of The TJX Companies, Inc.
Paul K. Wotton, Ph.D.		49		2008		Dr. Wotton has served as a director of the Company since June 2008. Dr. Wotton has been President and CEO of Antares Pharma, Inc. since October 2008. Previously, Dr. Wotton served as CEO of Topigen Pharmaceuticals Inc. Prior to joining Topigen, Dr. Wotton served as Head of Global Business Development at SkyePharma PLC., and also held senior level positions at Eurand International BV, Penwest Pharmaceuticals, Abbott Laboratories and Merck, Sharp and Dohme. He is also a director of Antares Pharma, Inc.

Information required by this item concerning our executive officers is included in Part I, Item 1 of this Annual Report on Form 10-K.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company’s directors and executive officers and persons who own more than ten percent of a registered class of the Company’s equity securities to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of common stock and other equity securities. Officers, directors and greater-than-ten-percent stockholders are required by Securities and Exchange Commission regulations to furnish the Company with copies of all Section 16(a) forms they file. Based solely on the review of the copies of such reports received by the Company and written representations from certain reporting persons, the Company believes that during the year ended December 31, 2008, all filing requirements applicable to the Company’s officers, directors and ten-percent stockholders were satisfied, with the exception of the failure: of Mitchell D. Kaye to timely report on Form 4 his purchases of common stock on

December 20, 2007 and December 21, 2007, both of which were subsequently reported on May 16, 2008, his purchases of common stock on May 14, 2008, which were subsequently reported on May 19, 2008, his purchases of common stock on May 16, 2008 and May 19, 2008, both of which were subsequently filed on May 23, 2008, his purchases of common stock on June 18, 2008, which were subsequently filed on June 23, 2008 and his voluntary surrender for no value of warrants to purchase shares of common stock of the Company for $3.6606 per share on December 24, 2008, which was subsequently filed on February 23, 2009.

CODE OF ETHICS

The Board of Directors is committed to ethical business practices. The Company adopted a Code of Business Conduct and Ethics in December 2003. This corporate code of ethics applies to all of the Company’s employees and directors and includes the code of ethics for the Company’s principal executive officer, principal financial officer and principal accounting officer within the meaning of the Securities and Exchange Commission’s regulations adopted under the Sarbanes-Oxley Act of 2002. The Company’s corporate code of ethics is posted under the Investors section of its website athttp://www.genaera.com. Please note that none of the information on the Company’s website is incorporated by reference in this Annual Report on Form 10-K.

AUDIT COMMITTEE

The Audit Committee operates under a written charter adopted by the Board of Directors, which is available on the Company’s website under the Investors section athttp://www.genaera.com. The principal functions of the Audit Committee are to serve as an independent and objective party to monitor the integrity of the Company’s financial reporting process and systems of internal financial controls regarding finance and accounting compliance; monitor the independence and performance of the Company’s independent registered public accounting firm; and provide an open avenue of communication among the independent registered public accounting firm members, management and the Board of Directors. The Audit Committee also has the responsibility to select or replace the independent registered public accounting firm. The Audit Committee held five (5) meetings during 2008. The current members of the Audit Committee are Dr. Horovitz (Chairman) and Messrs. Imasogie and Shapiro. Each of the members of the Audit Committee is independent under Rule 4200(a)(15) of the listing standards of the NASDAQ and as that term is used in Section 10A(m)(3) of the Exchange Act. All Audit Committee members satisfy NASDAQ Rule 4350(d)(2)(A) (the “Rule”) regarding fundamental understanding of financial statements and both Messrs. Shapiro and Imasogie fulfill the Rule’s specific requirement that at least one Audit Committee member possess “past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities.” The Board has not designated an audit committee financial expert, as defined in Rule 407(d)(5)(ii) of Regulation S-K promulgated under the Securities Act of 1933, as amended (the “Securities Act”). The Board believes the cumulative financial sophistication and experience of the Audit Committee members allow the Committee to perform its role effectively, given the nature of the Company’s current activities.

ITEM 11.

EXECUTIVE COMPENSATION

Information required by this item is incorporated herein by referenceEXECUTIVE COMPENSATION OVERVIEW

Introduction

This Compensation Overview provides a summary of the Company’s executive compensation program together with a description of material factors considered in determining the compensation provided to the sectionsCompany’s Chief Executive Officer (“CEO”) and certain other executive officers (collectively, the named executive officers (“NEOs”)).

Compensation Committee

The Compensation Committee (the “Committee”) of the Board of Directors is composed of three non-employee directors, all of whom are independent directors under the listing standards of the NASDAQ and the Securities and Exchange Commission rules. The Committee has responsibility for determining and implementing the Company’s philosophy with respect to executive compensation. Accordingly, the Committee has overall responsibility for approving and evaluating the various components of the Company’s executive compensation program. Semiannually, the Committee evaluates the performance of and determines the compensation of the NEOs. All of the actions of the Committee are reported to the Board in the form of copies of Committee minutes distributed to Board members in advance of regularly scheduled Board meetings. In establishing and reviewing the CEO’s base salary, the Committee looks at information from published biotechnology industry compensation surveys. In setting compensation for NEOs other than the CEO, the Committee requests, reviews and acts on recommendations of the CEO. Currently, the Committee does not engage a compensation consultant.

Executive Compensation Philosophy and Objectives

The Committee’s goals in structuring the Company’s compensation program for its NEOs are to:

To achieve these goals, the Committee strives to associate a substantial portion of executives’ overall compensation potential to short-term operational goals, such as achieving progress in the Company’s research and drug development programs, strengthening of the Company’s financial position, raising the capital needed for the Company’s operations and succeeding in entering into appropriate business collaborations. The Committee further believes that the achievement of these short-term goals will contribute to the long-term success of the Company. In light of the Company’s need to develop its technology into viable products, progress toward achievement of research and development objectives is the most significant factor considered in determining compensation levels.

The Committee has determined that the executive compensation packages provided by the Company to its executives should include both cash and stock-based compensation that reward performance as measured against established objectives. In order to attract and retain qualified executives, the Committee attempts to create a balanced compensation package by combining components based upon the achievement of long-term value for stockholders with components based upon the achievement of short-term strategic goals. The Committee believes that the achievement of both short- and long-term objectives over the next few years will place considerable demands on the executive team and that their retention and motivation are crucial to building long-term corporate value.

Setting Executive Compensation

Based on the compensation philosophy and objectives mentioned above, the Committee has structured the Company’s executive compensation program to motivate NEOs to achieve the objectives developed for the Company by management and approved by the Board of Directors and reward NEOs for achieving such objectives. The Board reviews the Company’s progress on these objectives throughout the year.

In making decisions regarding the CEO’s base salary, the Committee reviews published market data regarding base pay paid by other similar sized corporations in the biotechnology industry, including Aon’s Radford Biotechnology Survey and the Top Five Report on Executive Compensation in the Biopharmaceutical Industry (collectively, the “collected market data”). The Company utilizes the Radford data for (i) companies with under 50 employees, (ii) companies with 50-149 employees, and (iii) all companies presented in the survey, calculating the average compensation at the 75^th percentile across the three subcategories (the “75^th Percentile Average”) and the 50^th percentile across the three subcategories (the “50^th Percentile Average”) and then selecting a CEO base salary target somewhere between the 75^th Percentile Average and the 50^th Percentile Average.

Compensation for all NEOs is weighted more toward base salaries than variable pay and/or equity awards in order to motivate and retain executive officers. Compensation is also set at levels to enable the Company to compete for qualified personnel with similar biotechnology companies in the Company’s geographic area.

The Company conducts semi-annual reviews of all its employees in the middle and end of each calendar year. Modification of the various elements of compensation of the NEOs may be triggered by either of the following events: (1) promotion or other change of duties; and (2) year-end performance reviews.

Base Salaries

The Company provides NEOs with base salaries to compensate them for services rendered during the fiscal year. While the Committee’s philosophy targets the CEO’s base salary between the 75^th Percentile Average and the 50^th Percentile Average, the Committee retains the discretion to deviate from this target based on the CEO’s performance, the Company’s historical practices and any other relevant factors. The Committee sets base salaries for the other NEOs at levels which aim to motivate and retain executive officers. The Committee also considers the Company’s historical practices and other relevant factors, such as the Company’s ability to compete for qualified personnel with similar biotechnology companies in the Company’s geographic area.

During its review of base salaries for executives, the Committee primarily considers:

In the absence of a promotion or special circumstances, the Committee reviews executive salaries once annually. In light of the Company’s efforts to conserve cash, NEO base salaries were reduced by 10% effective June 1, 2008 and NEOs voluntarily forfeited salary increases for 2008.

Discretionary Bonuses

Annual cash bonuses are included as part of the executive compensation program because the Committee believes that a significant portion of each NEO’s compensation should be contingent on the annual performance of the Company, as well as the individual contribution of the NEO.

At the end of each year, the CEO provides the Committee with written recommendations of the actual bonus awards to be granted to the other NEOs, which the Committee then reviews and discusses with the CEO. The CEO’s bonus is similarly determined by the Committee without the CEO’s participation. Bonuses are paid to the NEOs shortly after the Company’s fiscal year-end.

In light of the Company’s efforts to conserve cash, the NEOs voluntarily forfeited discretionary bonus awards for 2008.

Long-Term Equity Incentives

The Committee believes that the NEOs should be compensated in part with equity interests in the Company in order to more closely align the long-term interests of stockholders and executives. The Committee also believes that equity awards are an important means of attracting and retaining qualified executives. Accordingly, the Committee provides long-term incentives by means of periodic grants of stock options and restricted stock awards under the Company’s equity compensation plans.

Stock awards are made pursuant to the 1998 Equity Compensation Plan, as amended (the “1998 Plan”) and the 2004 Stock-Based Incentive Compensation Plan, as amended (the “2004 Plan” and collectively, the “Equity Plans”). Stock options generally have exercise prices equal to the fair market value of the underlying common stock and expire ten years from the date of grant. The stock options and restricted stock granted to employees vest over a term that ranges from eighteen months to four years. The Committee believes that this vesting range serves to motivate and retain qualified executives, providing continuing benefits to the Company beyond those achieved in the year of grant.

All grants of equity compensation to NEOs are made by the Committee. The CEO recommends equity grants for the NEOs other than the CEO based upon the Company’s and each individual’s performance. In addition, the Company’s Senior Vice President, Human Resources prepares, under the supervision of the Committee Chairman, a recommendation of equity awards for the CEO, also based on the Company’s and his individual performance. The Chairman reviews and discusses this recommendation with the Committee without the CEO’s participation. Mid-year and year-end grant recommendations are based on the progress that the Company and each NEO has made toward previously established Company and individual objectives. The Committee considers these recommendations, long-term incentive grants previously given to the NEOs, long-term incentive grants given to other executive officers throughout the Company’s history and Committee members’ experience with similar companies in the biotechnology industry in determining the level of equity compensation made to the NEOs.

Other Compensation and Perquisite Benefits

In addition to the principal categories of compensation described above, the Company provides its NEOs with coverage under its broad-based health and welfare benefits plans, including medical, dental, disability and life insurance. The Company also sponsors a 401(k) plan, in which all employees, including the NEOs, are eligible to participate.

The Company’s NEOs are not generally entitled “Compensation Discussion and Analysis”to benefits that are not otherwise available to all of the Company’s employees. In this regard, it should be noted that the Company does not provide pension arrangements (other than the 401(k) plan), “Compensation Committee Interlocks and Insider Participation”, “Compensation Committee Report”, “Executivepostretirement health coverage or similar benefits for its executives. Occasionally, individual executives separately negotiate other benefits in addition to the 401(k) plan benefits described above, such as certain life insurance benefits, reimbursement of living expenses or automobile allowances, all of which are included in the “All Other Compensation”, “Compensation column of Directors” and “Directorthe Summary Compensation Table” in our Proxy StatementTable shown below.

The following table summarizes the total compensation paid to or earned by the Company’s Chief Executive Officer and the NEOs for the fiscal years ended December 31, 2008 and 2007.

The Company grants equity awards pursuant to the 2004 Plan, which was originally approved by the Company’s stockholders on May 11, 2004. Under each of the Equity Plans, the Compensation Committee of the Company’s Board of Directors has the authority to determine the terms of the awards including the timing and type of the award, the duration of any applicable exercise or restriction period, the number of shares subject to the award and the value of the award.

Narrative Disclosure to Summary Compensation Table

Employment Letter Agreements

The Company currently has employment letter agreements with all of the NEOs. Pursuant to the terms of such agreements, each named executive officer was entitled to the following payments and benefits in 2008:

Mr. Armstrong

Pursuant to Mr. Armstrong’s employment agreement, he is entitled to an annual base salary, currently $414,000. No bonuses were awarded in fiscal year 2008. Under his employment agreement, Mr. Armstrong is entitled to up to 30 vacation days per year and is eligible to receive benefits under the Company’s benefit plans available to all employees. Mr. Armstrong’s potential severance and change in control payments are discussed under the heading “Additional Narrative Disclosure” below.

Dr. Gast

Pursuant to Dr. Gast’s employment agreement, he is entitled to an annual base salary, currently $300,000. No bonuses were awarded in fiscal year 2008. Under his employment agreement, Dr Gast is entitled to up to 25 vacation days per year and is eligible to receive benefits under the Company’s benefit plans available to all employees. Dr. Gast’s potential severance and change in control payments are discussed under the heading “Additional Narrative Disclosure” below.

Dr. Wolfe

Pursuant to Dr. Wolfe’s employment agreement, he is entitled to an annual base salary, currently $225,000. No bonuses were awarded in fiscal year 2008. Under his employment agreement, Dr Wolfe is entitled to up to 20 vacation days per year and is eligible to receive benefits under the Company’s benefit plans available to all employees. Dr. Wolfe’s potential severance and change in control payments are discussed under the heading “Additional Narrative Disclosure” below.

2008 Equity Compensation

In 2008, the Company granted options to each NEO set forth in the following table, which also includes the vesting dates of such options. Pursuant to the Company’s Equity Plans, these options will vest in full upon a change in control of the Company, as discussed more fully under the heading “Additional Narrative Disclosure” below. None of these options provide for any repricing, tandem features or reload features.

Outstanding Equity Awards at 2008 Fiscal Year-End

The following table provides information on the NEOs’ holdings of Company stock option and stock awards as of December 31, 2008. This table includes unexercised option awards and unvested restricted stock. Each equity grant is shown separately for each NEO.

Additional Narrative Disclosure

Severance and Change in Control Benefits

As discussed in the “Compensation Overview” above, NEOs are entitled to certain payments upon termination of employment for various reasons. In addition, each NEO is entitled to enhanced severance benefits if his employment is terminated after or in connection with a change in control.

Pursuant to the employment agreements with actively-employed NEOs, if their employment is terminated “without cause” (as defined in the agreements) they are entitled to receive severance compensation in a lump-sum payment equal to the sum of one times their highest base salary in effect during their employment with the Company. Each NEO is entitled, pursuant to their respective individual employment agreements with the Company, to receive severance payments in the event that their employment is terminated without “cause” (as defined in their employment agreements), or, in the case of Mr. Armstrong, his voluntary termination of employment for “good reason” (as defined in his employment agreement). In addition, pursuant to the NEOs’ current employment agreements, all of their unvested options to purchase Company securities shall automatically vest on the date of their termination of employment and their outstanding options shall remain exercisable for the shorter of twelve (12) months following such termination and the original option term, or in the case of Mr. Armstrong, the shorter of five (5) years following such termination and the original option term. As a condition to receiving their respective severance benefits, Dr. Gast and Dr. Wolfe must execute a general release, including a mutual non-disparagement clause, in a form acceptable to the Company. Furthermore, the employment agreements convey the Company’s expectation that the executives will maintain the confidentiality of any business or scientific information which they receive during the course of their employment.

Mr. Armstrong is also entitled, pursuant to his change in control agreement with the Company, to receive enhanced severance payments in the event his employment is terminated without “cause” (as defined in the change in control agreement) after a change in control or if he voluntarily terminates his employment with the Company for “good reason” (as defined in the change in control agreement) after a change in control. In such instances, he will receive severance compensation equal to the sum of (a) a prorated bonus based on the highest bonus he received in the three years immediately preceding such termination date (the “Highest Bonus”); (b) two (2) times the sum of his base salary plus the Highest Bonus; and (c) health and welfare benefits for the shorter of twenty-four (24) months following the date of termination, until he secures full time employment elsewhere, or his normal retirement date determined in accordance with the Company’s retirement policy. In addition, if Mr. Armstrong becomes subject to the “golden parachute” excise tax under section 4999 of the Internal Revenue Code (the “Code”), he will receive an additional payment in an amount sufficient to offset the effects of the excise tax on an after-tax basis. For purposes of these arrangements, a change in control is deemed to have occurred prior to the executive’s termination of employment, his removal from material duties or positions with the Company or a reduction in his base salary if such termination, removal or reduction occurs after the commencement of discussions with any person that may ultimately result in a change in control.

Similarly, Dr. Gast and Dr. Wolfe are each entitled, pursuant to their respective change in control agreements with the Company, to receive enhanced severance payments in the event their employment is terminated without “cause” (as defined in the change in control agreements) within the twelve (12) months immediately following a change in control or if they voluntarily terminate their employment with the Company for “good reason” (as defined in the change in control agreements) within the six (6) months immediately following a change in control. In such instances, they will receive severance compensation in a lump-sum payment equal to the sum of one times their total base salary plus the bonus they received for the calendar year in which the sum of such salary and bonus was the highest. In addition, if they becomes subject to the “golden parachute” excise tax under section 4999 of the Code, they will receive an additional payment in an amount sufficient to offset the effects of the excise tax on an after-tax basis. For purposes of these agreements, a change in control is deemed to have occurred prior to the executive’s termination of employment, his removal from his material duties or positions with the Company or a reduction in his base salary if such termination, removal or reduction occurs after the commencement of discussions with any person that may ultimately result in a change

in control. Dr. Gast and Dr. Wolfe are each required to deliver to the Company a general release of liability to the Company and its officers and directors in a form reasonably satisfactory to the Company.

In addition, under their change of control agreements, all of the NEOs are entitled to full vesting of their unvested restricted stock and option awards in the event of a change in control and such options shall remain exercisable for the original term.

Retirement Benefits

As discussed under the “Compensation Overview” above, the Company sponsors a 401(k) plan. The Company’s 401(k) plan is a tax-qualified retirement savings plan pursuant to which all employees, including the NEOs, are able to contribute to the 401(k) plan up to the limit prescribed by the Internal Revenue Code (the “Code”) on a pre-tax basis. The Company makes a matching contribution of 50% of the first 6% of pay contributed by the employee to the 401(k), for a maximum match of $2,400, annually. All contributions made by a participant vest immediately and matching contributions made by the Company vest over the employee’s first five years of service with the Company. Once the employee has completed five years of service with the Company, all Company contributions are fully vested when made.

COMPENSATION OF DIRECTORS

All non-employee directors receive an annual retainer fee of $15,000 for their services to the Company as directors, with the exception of the Lead Director who receives an annual fee of $22,500, pro rated in accordance with the period served, and grants of stock options for 3,333 shares of common stock annually. These grants are made automatically on the date of the Annual Meeting of Stockholders to each director elected at such meeting pursuant to Section 8.2 of the 2004 Stock-Based Incentive Compensation Plan adopted at the 2004 Annual Meeting of Stockholders. If a “change in control,” as defined in that plan, were to occur, these options would become immediately exercisable in full. The options granted to directors are non-qualified stock options to acquire shares of common stock with a stated term of ten years, vesting in four equal annual installments beginning one year after the date of grant.

Members of the Audit, Compensation and Nominating Committees receive additional compensation for attendance at committee meetings at the rate of $500 per minuted meeting, but not to exceed $500 per calendar quarter. The Chairman of the Audit Committee receives an additional $1,000 for a total of $1,500 per minuted committee meeting attended, not to exceed $1,500 per calendar quarter. The Chairmen of the Compensation and Nominating Committees receive an additional $500 per minuted meeting of the committees they chair for a total of $1,000 per minuted meeting, not to exceed $1,000 per calendar quarter. Directors are also reimbursed for expenses incurred in connection with the attendance of meetings of the Board of Directors.

The table below summarizes fees earned by the Company’s non-employee directors for the fiscal year ended December 31, 2008.

(2)	Reflects annual retainers, committee meeting fees and Committee Chairman fees for fiscal 2008 as described above.

(3)

Amounts are calculated in accordance with the provisions of SFAS 123R. See “Note 8. Stock-Based Compensation” for information regarding assumptions underlying the valuation of equity awards. The full grant date fair value of the stock options awarded to each non-employee director to purchase shares of the Company’s common stock, computed in accordance with SFAS 123R, excludes the effect of estimated forfeitures. The full grant date fair value of the stock options awarded to each of R. Frank Ecock, Dr. Zola Horovitz, Osagie O. Imasogie, Mitchell D. Kaye and Robert F. Shapiro on May 29, 2008 to purchase shares of the Company’s common stock was $4,471. The full grant date fair value of the stock options awarded to Paul K. Wotton on June 26, 2008 to purchase shares of the Company’s common stock was $3,719. The full grant date fair value of the stock options awarded to each of R. Frank Ecock, Dr. Zola Horovitz, Osagie O. Imasogie, Mitchell D. Kaye and Robert F. Shapiro on August 13, 2008 to purchase shares of the Company’s common stock was $32,893. The full grant date fair value of the stock options awarded to Paul K. Wotton on August 13, 2008 to purchase shares of the Company’s common stock was $16,446. At December 31, 2008, the aggregate number of stock options outstanding for each director was as follows: R. Frank Ecock, 63,338; Dr. Zola Horovitz, 65,004; Osagie O. Imasogie, 56,669; Mitchell D. Kaye, 41,666; Dr. Peter J. Savino, none; Robert F. Shapiro, 65,004; Dr. Paul K. Wotton, 20,833; and Dr. James B. Wyngaarden, 21,010.

Information required by this item is incorporated herein by reference to the section entitled “Security Ownership of Certain Beneficial Owners and Management” in our Proxy Statement for the 2008 Annual Meeting of Stockholders.

Equity Compensation Plan InformationEQUITY COMPENSATION PLAN INFORMATION

The following table provides aggregate information, as of December 31, 2007,2008, regarding our equity compensation plans, including the Amended 2004 Stock-Based Incentive Compensation Plan, the Amended 1998 Equity Compensation Plan (the “1998 Plan”) and the 1992 Stock Option Plan (the “1992 Plan”). As a result of the expiration of the 1992 Plan in 2002 and the 1998 Plan in February 2008, no additional option grants will be made under those plans.

		(a)		(b)			(c)
Plan Category		Number of securities to be issued upon exercise of outstanding options and rights		Weighted-average exercise price of outstanding options and rights			Number of securities remaining available for future issuances under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders		6,157,069		$	3.39		154,139
Equity compensation plans not approved by security holders		—			—		—
Total		6,157,069		$	3.39		154,139

See “Item 8. Financial Statements and Supplementary Data” and “Note 9.8. Stock-Based Compensation” in the notes to the Company’s financial statements for additional information regarding ourthe Company’s equity compensation plans.

ITEM 13. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of December 31, 2008 (except as otherwise noted) regarding the ownership of common stock (i) by each person known by the Company to be the beneficial owner of more than five percent of the outstanding common stock, (ii) by each director and director nominee of the Company, (iii) by each executive officer of the Company named in the Summary Compensation Table included elsewhere in this Annual Report on Form 10-K and (iv) by all current executive officers and directors of the Company as a group.

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS AND DIRECTOR

No reportable transactions with related persons occurred during fiscal 2008 or fiscal 2007.

DIRECTOR INDEPENDENCE

Information required by this item is incorporated herein by reference toThe Board of Directors has determined that the sections entitled “Certain Relationshipsfollowing directors are independent under the listing standards of the NASDAQ: R. Frank Ecock, Zola P. Horovitz, Ph.D., Osagie O. Imasogie, Robert F. Shapiro and Related Person Transactions” and “Corporate Governance” in our Proxy Statement for the 2008 Annual Meeting of Stockholders.Paul K. Wotton, Ph.D.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information requiredKPMG LLP has audited the Company’s financial statements since their appointment in 1999. The following table sets forth the aggregate fees billed by this item is incorporated herein by referenceKPMG LLP to the section entitled “Proposal No. 2—RatificationCompany for:

The Audit Committee’s policy is to pre-approve the engagement of Selection of KPMG LLP as our Independent Registered Public Accounting Firm” in our Proxy Statementaccountants to render all audit and tax services for the 2008 Annual MeetingCompany, as well as any changes to the terms of Stockholders.the engagement. The Audit Committee will also pre-approve all non-audit related services proposed to be provided by the Company’s independent registered public accounting firm. The Audit Committee reviews the terms of the engagement, a description of the engagement and a budget for the engagement. The request for services must be specific as to the particular services to be provided. Requests are aggregated and submitted to the Audit Committee in one of the following ways: requesting approval of services at a meeting of the Audit Committee; through a written consent; or by a designated member of the Audit Committee. The details of any services approved under this delegation must be reported to the full Audit Committee at the next Audit Committee meeting.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as a part of this Annual Report on Form 10-K:

1. Index to Financial Statements

2. Financial Statement Schedules

All schedules have been omitted because they are not applicable or not required or the information is shown in the Financial Statements or Notes thereto.

3. Exhibits

The following is a list of exhibits filed as part of this Annual Report on Form 10-K. Where so indicated, exhibits that were previously filed are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated parenthetically.

Exhibit No.
3.9		Amendment to the By-laws of Genaera Corporation, as Amended and Restated on November 29, 2007 (Incorporated by reference to Exhibit 10.13.1 filed with the Company’s Current Report on Form 8-K filed with the SEC on December 5, 2007)
4.1		Specimen copy of stock certificate for shares of Common Stock of Genaera Corporation (Incorporated by reference to Exhibit 4.1 filed with the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2001)
10.1#		1992 Stock Option Plan of the Registrant, as Amended (Incorporated by reference to Exhibit A filed with the Company’s Proxy Statement for the 1996 Annual Meeting of Stockholders)
10.2#		Amended 1998 Equity Compensation Plan, as Amended and Restated on July 22, 2002 (Incorporated by reference to Exhibit 3.2 filed with the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2002)
10.3#		Amended 2004 Stock-Based Incentive Plan (Incorporated by reference to Exhibit 10.1 filed with the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2006)
10.4#		Form of Stock Option Agreement under Stock Option Plans (Incorporated by reference to Exhibit 4.6 filed with the Company’s Registration Statement No. 33-43579 on Form S-1)
10.5#		Employment Agreement between the Company and John L. Armstrong, Jr. (Incorporated by reference to Exhibit 10.36 filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2003)
10.6#		Form and Schedule of Stock Awards to Executive Officers (Incorporated by reference to Exhibit 4.7 filed with the Company’s Registration Statement No. 333-62073 on Form S-8)
10.7#		Change in Control Agreement between the Company and John L. Armstrong, Jr. (Incorporated by reference to Exhibit 10.2 filed with the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2004)
10.8#		Change in Control Agreement between the Company and John A. Skolas (Incorporated by reference to Exhibit 10.3 filed with the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2004)
10.9#		Employment Agreement between the Company and Michael J. Gast, M.D. (Incorporated by reference to Exhibit 10.42 filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2004)
10.10#		Amendment to the Letter Agreement between the Company and John L. Armstrong, Jr. dated December 1, 2005 (Incorporated by reference to Exhibit 10.1 filed with the Company’s Current Report on Form 8-K filed with the SEC on December 6, 2005)
10.11		Lease with respect to Plymouth Meeting, Pennsylvania office and laboratory space dated December 13, 2001 (Incorporated by reference to Exhibit 10.12 filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2001)
10.12		Amended Patent License Agreement and Sponsored Research Agreement with The Children’s Hospital of Philadelphia (Incorporated by reference to Exhibit 10.1 filed with the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2003)
10.13		License Agreement with Multiple Peptide Systems, Inc. (Incorporated by reference to Exhibit 10.12 filed with the Company’s Registration Statement No. 33-43579 on Form S-1)
10.14		Second Amendment to License Agreement with Multiple Peptide Systems, Inc. (Incorporated by reference to Exhibit 10.30 filed with the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 1996)

Exhibit No.
10.15+		Assignment Agreement between Magainin Pharmaceuticals Inc., Roy C. Levitt, M.D. and GeneQuest, Inc. (Incorporated by reference to Exhibit 10.25 filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 1995)
10.16+		Development, Supply and Distribution Agreement, effective as of February 12, 1997, with SmithKline Beecham Corporation (Incorporated by reference to Exhibit 10.29 filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 1996)
10.17		Settlement and Termination Agreement between Abbott Laboratories Inc. and Magainin Pharmaceuticals Inc., effective September 8, 1999 (Incorporated by reference to Exhibit 99.1 filed with the Company’s Current Report on Form 8-K filed with the SEC on September 28, 1999)
10.18		Registration Rights Agreement between Magainin Pharmaceuticals Inc. and Genentech, Inc. dated April 28, 2000 (Incorporated by reference to Exhibit 10.4 filed with the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2000)
10.19+		Amended License Agreement between Magainin Pharmaceuticals Inc. and Ludwig Institute for Cancer Research dated December 20, 1999 (Incorporated by reference to Exhibit 10.1 filed with the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2001)
10.20+		Second Research Agreement between Magainin Pharmaceuticals Inc. and Ludwig Institute for Cancer Research dated December 20, 1999 (Incorporated by reference to Exhibit 10.2 filed with the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2001)
10.21+		Notice of Renewal of Second Research Agreement between Genaera Corporation and Ludwig Institute for Cancer Research dated October 31, 2001 (Incorporated by reference to Exhibit 10.22 filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2001)
10.22		Settlement Agreement between Genaera Corporation and Genentech, Inc. dated April 18, 2001 (Incorporated by reference to Exhibit 10.3 filed with the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2001)
10.23+		Collaboration and License Agreement between Genaera Corporation and MedImmune, Inc. dated April 19, 2001 (Incorporated by reference to Exhibit 10.4 filed with the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2001)
10.24		Amendment to Collaboration and License Agreement between Genaera Corporation and MedImmune, Inc. effective April 19, 2001 (Incorporated by reference to Exhibit 10.25 filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2001)
10.25		Preferred Stock Purchase Agreement between Genaera Corporation and MedImmune, Inc. dated April 19, 2001 (Incorporated by reference to Exhibit 10.5 filed with the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2001)
10.26		Warrants to purchase shares of Genaera Corporation Common Stock by Ladenburg Thalmann dated December 12, 2001 (Incorporated by reference to Exhibit 10.27 filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2001)
10.27		Placement Agency Agreement dated April 5, 2002 by and between Genaera Corporation and Wells Fargo Securities, LLC (Incorporated by reference to Exhibit 10.1 filed with the Company’s Current Report on Form 8-K filed with the SEC on April 8, 2002)
10.28+		License, Development and Commercialization Agreement Between Genaera Corporation and Laboratorios Bago SA (Incorporated by reference to Exhibit 10.1 filed with the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2002)
10.29		Placement Agency Agreement between Genaera Corporation and Fortis Securities Inc. dated as of November 11, 2003 (Incorporated by reference to Exhibit 99.2 filed with the Company’s Current Report on Form 8-K filed with the SEC on November 14, 2003)

Exhibit No.
10.30		Consent Agreement to Amend and Restate the Certificates of Designations, Preferences and Rights for the Series C-1 Preferred Stock and Series C-2 Preferred Stock (Incorporated by reference to Exhibit 10.1 filed with the Company’s Current Report on Form 8-K filed with the SEC on June 12, 2003)
10.31		Series C-1 and C-2 Preferred Stock and Warrant Purchase Agreement dated May 23, 2003 (Incorporated by reference to Exhibit 10.1 filed with the Company’s Current Report on Form 8-K filed with the SEC on May 28, 2003)
10.32		Amendment No. 1 to Series C-1 and C-2 Preferred Stock and Warrant Purchase Agreement dated June 9, 2003 (Incorporated by reference to Exhibit 10.2 filed with the Company’s Current Report on Form 8-K filed with the SEC on June 12, 2003)
10.33		Form of Warrants to Purchase 250,000 Shares of Common Stock (Incorporated by reference to Exhibit 10.2 filed with the Company’s Current Report on Form 8-K filed with the SEC on May 28, 2003)
10.34		Form of Warrants to Purchase 83,334 Shares of Common Stock (Incorporated by reference to Exhibit 10.3 filed with the Company’s Current Report on Form 8-K filed with the SEC on May 28, 2003)
10.35		Placement Agency Agreement dated September 12, 2005 among Genaera Corporation, RBC Capital Markets Corporation and Fortis Securities LLC (Incorporated by reference to Exhibit 99.2 filed with the Company’s Current Report on Form 8-K/A filed with the SEC on September 15, 2005)
10.36		Securities Purchase Agreement dated September 9, 2005 by and between Genaera Corporation and Certain Purchasers (Incorporated by reference to Exhibit 99.1 filed with the Company’s Current Report on Form 8-K/A filed with the SEC on September 15, 2005)
10.37		Form of Warrants to Purchase 570,000 Shares of Common Stock (Incorporated by reference to Exhibit 10.42 filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2005)
10.38#		Employment Agreement between the Company and John A. Skolas (Incorporated by reference to Exhibit 10.35 filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2003)
10.39		Placement Agency Agreement dated June 28, 2006 among Genaera Corporation, Banc of America Securities LLC and Fortis Securities LLC (Incorporated by reference to Exhibit 1.1 filed with the Company’s Current Report on Form 8-K filed with the SEC on June 29, 2006)
10.40		Form of Purchase Agreement dated June 28, 2006 by and between Genaera Corporation and certain purchasers (Incorporated by reference to Exhibit 10.1 filed with the Company’s Current Report on Form 8-K filed with the SEC on June 29, 2006)
10.41		Form of Warrants to Purchase 4,448,747 Shares of Common Stock (Incorporated by reference to Exhibit 4.1 filed with the Company’s Current Report on Form 8-K filed with the SEC on June 29, 2006)
10.42		Letter terminating Development, Supply and Distribution Agreement with SmithKline Beecham Corporation (Incorporated by reference to Exhibit 10.1 filed with the Company’s Current Report on Form 8-K filed with the SEC on October 30, 2006)
10.43#		Amendment to employment agreement between the Company and John A. Skolas dated September 29, 2004 (Incorporated by reference to Exhibit 10.48 filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2006)

Exhibit No.
10.44		First Amendment to Lease Agreement with respect to Plymouth Meeting, Pennsylvania office and laboratory space dated February 6, 2004 (Incorporated by reference to Exhibit 10.49 filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2006)

Exhibit No.
10.45		Second Amendment to Lease Agreement with respect to Plymouth Meeting, Pennsylvania office and laboratory space dated August 30, 2006 (Incorporated by reference to Exhibit 10.50 filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2006)
10.46#		Consulting Agreement between the Company and John A. Skolas dated April 9, 2007 (Incorporated by reference to Exhibit 10.1 filed with the Company’s Current Report on Form 8-K filed with the SEC on April 12, 2007)
10.47#		Separation Agreement between the Company and John A. Skolas dated April 10, 2007 (Incorporated by reference to Exhibit 10.2 filed with the Company’s Current Report on Form 8-K filed with the SEC on April 12, 2007)
10.48#		Change in Control Agreement between the Company and Leanne M. Kelly dated May 18, 2007 (Incorporated by reference to Exhibit 10.1 filed with the Company’s Current Report on Form 8-K filed with the SEC on June 12, 2007)
10.49		Letter of Termination of Award Agreement between the Genaera Corporation and the Cystic Fibrosis Foundation Therapeutics dated June 28, 2007 (Incorporated by reference to Exhibit 10.1 filed with the Company’s Current Report on Form 8-K filed with the SEC on July 5, 2007)
10.50		Letter Agreement between the Genaera Corporation and MacroChem Corporation dated July 3, 2007 (Incorporated by reference to Exhibit 10.1 filed with the Company’s Current Report on Form 8-K filed with the SEC on July 10, 2007)
10.51#		Amendment to the Letter Agreement between the Company and John L. Armstrong, Jr. dated November 29, 2007 (Incorporated by reference to Exhibit 10.1 filed with the Company’s Current Report on Form 8-K filed with the SEC on December 5, 2007)
10.52#		Change in Control Agreement between the Company and Henry R. Wolfe dated March 26, 2008 (Incorporated by reference to Exhibit 10.1 filed with the Company’s Current Report on Form 8-K filed with the SEC on March 28, 2008)
10.53#		Amendment to Letter Agreement between the Company and Henry R. Wolfe, Ph.D., dated May 8, 2008 (Incorporated by reference to Exhibit 10.1 filed with the Company’s Current Report on Form 8-K filed with the SEC on May 13, 2008).
10.54#		Amendment to Letter Agreement between the Company and Leanne M. Kelly, dated May 8, 2008 (Incorporated by reference to Exhibit 10.2 filed with the Company’s Current Report on Form 8-K filed with the SEC on May 13, 2008)
10.55#		Amendment to Letter Agreement between the Company and John L. Armstrong, Jr., dated May 12, 2008 (Incorporated by reference to Exhibit 10.3 filed with the Company’s Current Report on Form 8-K filed with the SEC on May 13, 2008)
10.56#		Amendment to Letter Agreement between the Company and Michael J. Gast, M.D., Ph.D., dated May 12, 2008 (Incorporated by reference to Exhibit 10.4 filed with the Company’s Current Report on Form 8-K filed with the SEC on May 13, 2008)
10.57#		Amendment to the Agreement in the Event of a Change in Control of Genaera Corporation between the Company and Michael J. Gast, M.D., Ph.D., dated May 12, 2008 (Incorporated by reference to Exhibit 10.5 filed with the Company’s Current Report on Form 8-K filed with the SEC on May 13, 2008)

Exhibit No.
10.58#		Amendment to the Agreement in the Event of a Change in Control of Genaera Corporation between the Company and Henry R. Wolfe, Ph.D., dated May 12, 2008 (Incorporated by reference to Exhibit 10.6 filed with the Company’s Current Report on Form 8-K filed with the SEC on May 13, 2008)
10.58#		Amendment to the Agreement in the Event of a Change in Control of Genaera Corporation between the Company and Leanne M. Kelly, dated May 12, 2008 (Incorporated by reference to Exhibit 10.7 filed with the Company’s Current Report on Form 8-K filed with the SEC on May 13, 2008)
10.59#		Amended 2004 Stock-Based Incentive Plan (Incorporated by reference to Exhibit 10.1 filed with the Company’s Current Report on Form 8-K filed with the SEC on June 2, 2008)
10.60#		Letter Agreement between the Company and John L. Armstrong, Jr. dated May 27, 2008 (Incorporated by reference to Exhibit 10.1 filed with the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2008)
10.61#		Letter Agreement between the Company and Michael J. Gast, M.D., Ph.D. dated May 27, 2008 (Incorporated by reference to Exhibit 10.2 filed with the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2008)
10.62#		Letter Agreement between the Company and Leanne M. Kelly dated May 27, 2008 (Incorporated by reference to Exhibit 10.3 filed with the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2008)
10.63#		Letter Agreement between the Company and Henry R. Wolfe, Ph.D. dated May 27, 2008 (Incorporated by reference to Exhibit 10.4 filed with the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2008)
10.64#		Amendment to Letter Agreement, as amended, between the Company and Michael J. Gast, M.D., Ph.D., dated August 11, 2008 (Incorporated by reference to Exhibit 10.1 filed with the Company’s Current Report on Form 8-K filed with the SEC on August 13, 2008)
10.65#		Amendment to Letter Agreement, as amended, between the Company and Leanne M. Kelly, dated August 11, 2008 (Incorporated by reference to Exhibit 10.2 filed with the Company’s Current Report on Form 8-K filed with the SEC on August 13, 2008)
10.66#		Amendment to Letter Agreement, as amended, between the Company and Henry R. Wolfe, Ph.D., dated August 11, 2008 (Incorporated by reference to Exhibit 10.3 filed with the Company’s Current Report on Form 8-K filed with the SEC on August 13, 2008)
10.67#		Amendment to the Agreement in the Event of a Change in Control of Genaera Corporation, as amended, between the Company and John L. Armstrong, Jr., dated August 11, 2008 (Incorporated by reference to Exhibit 10.4 filed with the Company’s Current Report on Form 8-K filed with the SEC on August 13, 2008)
10.68#		Amendment to the Agreement in the Event of a Change in Control of Genaera Corporation, as amended, between the Company and Michael J. Gast, M.D., Ph.D., dated August 11, 2008 (Incorporated by reference to Exhibit 10.5 filed with the Company’s Current Report on Form 8-K filed with the SEC on August 13, 2008)
10.69#		Amendment to the Agreement in the Event of a Change in Control of Genaera Corporation, as amended, between the Company and Leanne M. Kelly, dated August 11, 2008 (Incorporated by reference to Exhibit 10.6 filed with the Company’s Current Report on Form 8-K filed with the SEC on August 13, 2008)
10.70#		Amendment to the Agreement in the Event of a Change in Control of Genaera Corporation, as amended, between the Company and Henry R. Wolfe, Ph.D., dated August 11, 2008 (Incorporated by reference to Exhibit 10.7 filed with the Company’s Current Report on Form 8-K filed with the SEC on August 13, 2008)

Exhibit No.
10.71#		Amendment to the Outstanding Option Grant Agreements between the Company and John L. Armstrong, Jr., dated August 11, 2008 (Incorporated by reference to Exhibit 10.8 filed with the Company’s Current Report on Form 8-K filed with the SEC on August 13, 2008)
10.72#		Amendment to the Outstanding Option Grant Agreements between the Company and Michael J. Gast, M.D., Ph.D., dated August 11, 2008 (Incorporated by reference to Exhibit 10.9 filed with the Company’s Current Report on Form 8-K filed with the SEC on August 13, 2008)
10.73#		Amendment to the Outstanding Option Grant Agreements between the Company and Leanne M. Kelly, dated August 11, 2008 (Incorporated by reference to Exhibit 10.10 filed with the Company’s Current Report on Form 8-K filed with the SEC on August 13, 2008)
10.74#		Amendment to the Outstanding Option Grant Agreements between the Company and Henry R. Wolfe, Ph.D., dated August 11, 2008 (Incorporated by reference to Exhibit 10.11 filed with the Company’s Current Report on Form 8-K filed with the SEC on August 13, 2008)
23.1*		Consent of KPMG LLP, Independent Registered Public Accounting Firm
24.1*		Power of Attorney (Included on signature page of this Annual Report on Form 10-K)
31.1*		Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002
31.2*		Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002
32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002

Explanation of Footnotes to Listing of Exhibits:

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

Each person whose signature appears below in so signing also makes, constitutes and appoints John L. Armstrong, Jr., President and Chief Executive Officer, his or her true and lawful attorney-in-fact, in his or her name, place and stead to execute and cause to be filed with the Securities and Exchange Commission any or all amendments to this report.

GENAERA CORPORATION

INDEX TO FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Genaera Corporation:

We have audited the accompanying balance sheets of Genaera Corporation as of December 31, 20072008 and 2006,2007, and the related statements of operations, changes in stockholders’ equity and comprehensive loss, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Genaera Corporation as of December 31, 20072008 and 2006,2007, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, has limited resources available to fund current research and development activities, and will require substantial additional financing to continue to fund its research and development activities. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ KPMG LLP

Philadelphia, Pennsylvania

March 31, 20083, 2009

GENAERA CORPORATION

BALANCE SHEETS

(In thousands, except per share data)

See accompanying notes to financial statements.

GENAERA CORPORATION

STATEMENTS OF OPERATIONS

(In thousands, except per share data)

See accompanying notes to financial statements.

GENAERA CORPORATION

STATEMENTS OF CHANGES IN STOCKHOLDERS’

EQUITY AND COMPREHENSIVE LOSS

(In thousands)

See accompanying notes to financial statements.

GENAERA CORPORATION

STATEMENTS OF CASH FLOWS

(In thousands)