Exhibit 10.1

CONFIDENTIAL

March 9, 2006

Michael J. Gast, MD, PhD

111 Augusta Drive

West Chester, PA 19382

Dear Michael:

I am pleased to offer you the position of Senior Vice President, Clinical
Research and Development with Genaera Corporation, reporting to John L.
Armstrong, Jr., President and Chief Executive Officer. Your base salary will be
$25,000.00 per month ($300,000/year). Bonuses are awarded to officers at the
discretion of the Compensation Committee of the Board of Directors. In the event
a Chief Medical Officer (CMO) is hired, it is anticipated that you will report
to the CMO at that time.

Contingent upon your acceptance of this offer, it is expected that the
Compensation Committee of the Board of Directors will grant to you at its next
meeting options to purchase 100,000 shares of Genaera Common Stock, and a grant
of 50,000 shares of restricted stock. The exercise price of your stock options
will be set at the fair market value of the underlying common stock on the later
of the date of the Board of Directors grants the options (typically its next
meeting) or your start date. These stock options will have a term of 10 years
and vest at the rate of 33.33% per year. The restricted stock will vest at the
rate of 25% every six months over two years. As with all Genaera options, the
grant will be subject to execution of a stock option agreement in the form
specified by the Compensation Committee.

If Genaera terminates your employment without cause (“cause” is defined in
Genaera’s 2004 Stock Based Incentive Compensation Plan, referred to as the
“Plan”) after you are employed, you will receive your monthly base salary for
(12) twelve months following your termination date or until you secure full time
employment elsewhere, whichever period is shorter. “Cause” pursuant to
subsection (iv) of Section 2.4 of the Plan relating to breach of an employment
or consulting agreement shall be interpreted to constitute cause for purposes of
this letter agreement only if the breach remains uncured after reasonable
written notice to you of the breach or if the breach by its nature is not
curable, then no cure period shall be required.

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Michael Gast

Page 2

In the event your employment is involuntarily terminated as a result of a Change
in Control of the Company, you will be eligible to receive severance payments as
approved by the Genaera Board of Directors provided under separate cover.

As conditions of receiving any severance benefits from Genaera, you must:
(a) not be in breach of any agreement executed with Genaera as part of your
employment, including, the Company’s Proprietary Information Agreement (includes
Non-Solicitation Clause), Code of Business Conduct and Ethics Policy, Statement
on Insider Information and Insider Trading, Conflict of Interest Policy, Sexual
Harassment Policy and the Drug Free Workplace Policy; and (b) sign a general
release, including a non-disparagement clause, in a form acceptable to Genaera.

Upon the commencement of your employment with the Company, you will be expected
to execute the Company’s Drug-Free Workplace Policy, Proprietary Information
Agreement, Policy Statement on Insider Information and Insider Trading, Sexual
Harassment Policy, and Conflicts of Interest Policy, each in the form provided
in this packet. Genaera may have already provided you with certain of its
confidential business or scientific information, which it expects you to keep
confidential, and to use only to further Genaera’s legitimate business
interests. Just as Genaera expects you to keep confidential its business or
scientific information, Genaera also expects you to honor your obligations to
your former employers with respect to maintaining the confidentiality of their
business or scientific information. You have disclosed to Genaera that Wyeth has
asked you to write several scientific papers and attend certain meetings. You
also mentioned that communications related to completion of these matters may
continue on an occasional basis thereafter. For the avoidance of doubt, Genaera
acknowledges that these activities do not constitute a conflict of interest for
purposes of Genaera’s policies and do not constitute an inappropriate
relationship with a competitor under Genaera’s Code of Business Conduct and
Ethics.

You will be eligible for twenty-five (25) vacation days per year starting in
2006. Vacation accrues proportionate to months employed. Employees are
encouraged to take their vacations yearly. However, up to five (5) days of
unused vacation time can be carried over into next year with supervisor
approval. In addition, you will be eligible for the benefits package available
to all employees. Enclosed is a summary of benefits.

You are being hired as a Section 16 Officer of Genaera, and as such will be
included in indemnification provided pursuant to the Corporation’s Bylaws and
Certificate of Corporation. You will also be a covered person under Genaera’s
Director and Officers insurance coverage.

All the terms and conditions of this Agreement shall be binding upon and inure
to the benefit and be enforceable by the respective heirs, representative heirs,
representatives, successors (including any successor as a result of a merger or
similar reorganization) and assigns of the parties hereto, except that your
duties and responsibilities hereunder are of a personal nature and shall not be
assignable in whole or in part by you.

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Michael Gast

Page 3

We look forward to your joining us at Genaera Corporation. Please indicate your
acceptance of this offer, which is for at will employment, by your signature
below. In addition, please note that in conjunction with this offer of
employment, Genaera will be conducting a background check. Please complete the
attached forms and return with your signed offer letter.

We have agreed that your start date will be Monday, March 20, 2006; however,
this is flexible. Please do not hesitate to speak with me concerning any
questions you may have.

 

Sincerely,

/s/ John L. Armstrong, Jr.

John L. Armstrong, Jr. President and Chief Executive Officer

 

JLA/jlb   Accepted:  

/s/ Michael J. Gast

Date: March 19, 2006