================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                 ---------------

                                    FORM 10-Q

        (MARK ONE)
           [x]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934.

               FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002.

                                       OR

           [ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934.

            FOR THE TRANSITION PERIOD FROM ___________ TO __________.

                           COMMISSION FILE NO. 0-19651
                                 ---------------

                               GENAERA CORPORATION
             (Exact name of registrant as specified in its charter)


              DELAWARE                                         13-3445668
              --------                                         ----------
   (State or other jurisdiction of                           (IRS Employer
    incorporation or organization)                        Identification Number)

          5110 CAMPUS DRIVE
    PLYMOUTH MEETING, PENNSYLVANIA                                 19462
    ------------------------------                                 -----
 (Address of principal executive offices)                       (ZIP Code)


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


     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  Exchange  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 [ ]

     The number of  outstanding  shares of the  Registrant's  Common Stock,  par
value $.002 per share, on November 12, 2002 was 35,666,491.

================================================================================


<PAGE>




                               GENAERA CORPORATION
                          QUARTERLY REPORT ON FORM 10-Q
                    FOR THE QUARTER ENDED SEPTEMBER 30, 2002

                                TABLE OF CONTENTS

                                                                           PAGE
                                                                           ----

PART I    -       FINANCIAL INFORMATION

   ITEM 1. Financial Statements (unaudited):

        Balance Sheets as of September 30, 2002 and December 31, 2001 .......3

        Statements of Operations for the three- and nine-month periods ended

                September 30, 2002 and 2001 .................................4

        Statements of Cash Flows for the nine-month periods ended

                September 30, 2002 and 2001 .................................5

        Notes to Financial Statements .......................................6

   ITEM 2. Management's Discussion and Analysis of Financial Condition

                and Results of Operations ..................................11

   ITEM 3. Quantitative and Qualitative Disclosures about Market Risk ......23

   ITEM 4. Controls and Procedures .........................................23



PART II   -       OTHER INFORMATION



   ITEM 1. Legal Proceedings ...............................................24

   ITEM 2. Changes in Securities and Use of Proceeds .......................24

   ITEM 3. Defaults Upon Senior Securities .................................24

   ITEM 4. Submission of Matters to a Vote of Security Holders .............24

   ITEM 5. Other Information ...............................................24

   ITEM 6. Exhibits and Reports on Form 8-K ................................24



SIGNATURES .................................................................25

CERTIFICATIONS .............................................................26







                                       2
<PAGE>



PART I - FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                                          GENAERA CORPORATION
                                                            BALANCE SHEETS
                                             (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)


                                                                           SEPTEMBER 30, 2002   DECEMBER 31, 2001
                                                                           ------------------   -----------------
                                                                               (UNAUDITED)
                                                    ASSETS

Current assets:
<S>                                                                              <C>               <C>
   Cash and cash equivalents ................................................... $  1,172          $   1,973
   Short-term investments (NOTE 2) .............................................   10,769             14,105
   Prepaid expenses and other current assets ...................................      302                218
                                                                                 --------          ---------

     Total current assets ......................................................   12,243             16,296

Fixed assets, net ..............................................................    1,554              1,456
Other assets ...................................................................       64                 64
                                                                                 --------          ---------

       Total assets ............................................................ $ 13,861          $  17,816
                                                                                 ========          =========

                                     LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable and accrued expenses ....................................... $  2,174          $   2,521
   Note payable (NOTE 2) .......................................................    2,500              2,500
   Accrued development expense - short-term (NOTE 6) ...........................       --                480
   Other current liabilities ...................................................       60                 82
                                                                                 --------          ---------

     Total current liabilities .................................................    4,734              5,583

Accrued development expense - long-term (NOTE 6) ...............................    1,529              1,529
Other liabilities ..............................................................      170                 50

Series A redeemable convertible preferred stock (liquidation value
    of $1,098 and $1,044 at September 30, 2002 and December 31, 2001,
    respectively) (NOTE 4) .....................................................    1,098              1,044

Commitments, contingencies and other matters (NOTE 6) ..........................

Stockholders' equity (NOTE 3):
Preferred stock - $.001 par value per share; 9,211 shares authorized;
    0.9 shares issued and outstanding as Series A redeemable convertible
    preferred stock at September 30, 2002 and December 31, 2001; 10.0
    shares issued and outstanding as Series B convertible preferred stock
    at September 30, 2002 and December 31, 2001 (liquidation value of
    $10,000) ...................................................................       --                 --
Common stock - $.002 par value per share; 75,000 shares authorized; 35,666
    shares and 32,864 shares issued and outstanding at September 30, 2002 and
    December 31, 2001, respectively ............................................       71                 66
Additional paid-in capital .....................................................  187,238            180,112
Accumulated other comprehensive income - unrealized gain on investments ........        1                 23
Accumulated deficit ............................................................ (180,980)          (170,591)
                                                                                ---------          ---------

     Total stockholders' equity ................................................    6,330              9,610
                                                                                 --------           --------

       Total liabilities and stockholders' equity .............................. $ 13,861           $ 17,816
                                                                                 ========           ========


                                            See accompanying notes to financial statements.

</TABLE>



                                       3
<PAGE>


<TABLE>
<CAPTION>

                                                          GENAERA CORPORATION
                                                       STATEMENTS OF OPERATIONS
                                                              (UNAUDITED)
                                             (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)


                                                       THREE MONTHS ENDED                NINE MONTHS ENDED
                                                          SEPTEMBER 30,                    SEPTEMBER 30,
                                                   --------------------------       --------------------------
                                                      2002            2001             2002            2001
                                                      ----            ----             ----            ----

<S>                                                <C>            <C>               <C>            <C>
Collaborative research agreement revenues .........$       349    $       455       $     1,202    $       705
                                                   -----------    -----------       -----------    -----------

Costs and expenses:
   Research and development .......................      2,686          3,601             9,234          8,156
   General and administrative .....................        657            755             2,395          2,478
                                                   -----------    -----------       -----------    -----------
                                                         3,343          4,356            11,629         10,634
                                                   -----------    -----------       -----------    -----------
Loss from operations ..............................     (2,994)        (3,901)          (10,427)        (9,929)
Interest income ...................................         61            197               214            713
Interest expense ..................................        (36)           (44)             (122)          (197)
                                                   -----------    -----------       -----------    -----------

Net loss ..........................................     (2,969)        (3,748)          (10,335)        (9,413)
Dividends on preferred stock ......................         19             20                54             82
                                                   -----------    -----------       -----------    -----------

Net loss applicable to common stockholders ........$    (2,988)   $    (3,768)      $   (10,389)   $    (9,495)
                                                   ===========    ===========       ===========    ===========

Net loss applicable to common stockholders
         per share -- basic and diluted ...........$     (0.08)   $     (0.11)      $     (0.30)   $     (0.29)
                                                   ===========    ===========       ===========    ===========

Weighted average shares outstanding --
         basic and diluted ........................     35,652         32,841            34,634         32,660
                                                   ===========    ===========       ===========    ===========




























                                            See accompanying notes to financial statements.

</TABLE>


                                       4
<PAGE>



                                              GENAERA CORPORATION
                                           STATEMENTS OF CASH FLOWS
                                                  (UNAUDITED)
                                            (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                                   NINE MONTHS ENDED SEPTEMBER 30,
                                                                                   -------------------------------
                                                                                        2002             2001
                                                                                     ---------        ---------

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                               <C>              <C>
   Net loss ....................................................................  $   (10,335)     $    (9,413)
   Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization .............................................          387              647
     Amortization of investment discounts/premiums .............................         (191)            (537)
     Compensation expense on option grants and equity awards ...................          183              261
     Receipt and retirement of Series A redeemable convertible
         preferred stock .......................................................           --             (300)
   Changes in operating assets and liabilities:
     (Increase) decrease in prepaid expenses and other .........................          (84)              60
     Increase (decrease) in accounts payable and accrued expenses ..............         (347)             938
     Decrease in accrued development expenses ..................................         (480)          (1,350)
     Increase in other liabilities .............................................           98               47
                                                                                  -----------      -----------

Net cash used in operating activities ..........................................      (10,769)          (9,647)
                                                                                  -----------      -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of investments .....................................................      (20,695)         (30,198)
   Proceeds from maturities of investments .....................................       24,200           31,179
   Capital expenditures ........................................................         (485)            (736)
                                                                                  -----------      -----------

Net cash provided by investing activities ......................................        3,020              245
                                                                                  -----------      -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of Series B convertible preferred stock ..............           --            9,908
   Proceeds from issuance of common stock ......................................        6,943               --
   Proceeds from exercise of stock options .....................................            5              849
                                                                                  -----------      -----------

Net cash provided by financing activities ......................................        6,948           10,757
                                                                                  -----------      -----------

Net increase (decrease) in cash and cash equivalents ...........................         (801)           1,355
Cash and cash equivalents at beginning of period ...............................        1,973              599
                                                                                  -----------      -----------

Cash and cash equivalents at end of period .....................................  $     1,172      $     1,954
                                                                                  ===========      ===========

SUPPLEMENTAL CASH FLOW INFORMATION:

Cash paid during the period for interest .......................................  $       125      $       160
                                                                                  ===========      ===========




                                See accompanying notes to financial statements.

</TABLE>



                                       5
<PAGE>



                               GENAERA CORPORATION

                    NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

--------------------------------------------------------------------------------

NOTE 1.  BASIS OF PRESENTATION

     The accompanying  financial statements of Genaera Corporation ("Genaera" or
the "Company")  are unaudited and have been prepared by the Company  pursuant to
the rules and regulations of the U.S. Securities and Exchange Commission ("SEC")
for interim  financial  statements.  The  December  31, 2001  balance  sheet was
derived from audited  financial  statements,  however,  certain  information and
footnote  disclosures  normally included in annual financial statements prepared
in accordance with accounting principles generally accepted in the United States
of America have been condensed or omitted pursuant to SEC rules and regulations.
The Company believes that the financial  statements include all adjustments of a
normal  and  recurring  nature  necessary  to  present  fairly  the  results  of
operations,  financial position,  changes in stockholders' equity and cash flows
for the periods  presented.  Results of operations  for interim  periods are not
necessarily  indicative  of those to be achieved  for full fiscal  years.  These
financial statements should be read in conjunction with the financial statements
and notes thereto  included in the Company's  Annual Report on Form 10-K for the
year ended December 31, 2001.  There have been no material changes in accounting
policies from those stated in the  Company's  Annual Report on Form 10-K for the
year ended December 31, 2001.

NOTE 2.  NOTE PAYABLE

     The Company refinanced its $2,500,000 note payable in the second quarter of
2002.  Under  the  terms of the new note  payable,  the  Company  makes  monthly
interest-only  payments at an annual rate of 5.346%,  with principal due in June
2003. The Company  maintained  investments  with an approximate  market value of
$2,791,000  at the bank as  collateral  for the note payable as of September 30,
2002.

NOTE 3.  STOCKHOLDERS' EQUITY

     The changes in stockholders' equity from December 31, 2001 to September 30,
2002 are summarized as follows (in thousands):

<TABLE>
<CAPTION>


                                                                            ACCUMULATED
                                             COMMON STOCK                      OTHER                    TOTAL
                                          ------------------   ADDITIONAL      COMPRE-                  STOCK-
                                            NUMBER              PAID-IN        HENSIVE   ACCUMULATED   HOLDERS'
                                           OF SHARES  AMOUNT    CAPITAL        INCOME      DEFICIT      EQUITY
                                           ---------  ------    -------        ------      -------      ------
<S>                 <C> <C>                 <C>       <C>       <C>           <C>         <C>           <C>
Balance at December 31, 2001 .............  32,864    $  66     $180,112      $   23      $(170,591)  $  9,610
   Exercise of stock options and
     compensation expense on
     option grants and stock awards ......      43       --          188          --             --        188
   Common stock issued pursuant to
     private placement ...................   2,759        5        6,938          --             --      6,943
   Dividends on preferred stock ..........      --       --           --          --            (54)       (54)
   Comprehensive loss:
         Net loss ........................      --       --           --          --        (10,335)   (10,335)
         Carrying value adjustment .......      --       --           --         (22)            --        (22)
                                           -------    -----    ---------      ------     ----------   --------
   Total comprehensive loss ..............      --       --           --          --             --    (10,357)
                                           -------    -----    ---------      ------     ----------   --------

Balance at September 30, 2002 ............  35,666    $  71     $187,238      $    1      $(180,980)  $  6,330
                                           =======    =====     ========      ======      =========   ========

</TABLE>


                                       6
<PAGE>

                              GENAERA CORPORATION

                    NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

--------------------------------------------------------------------------------

     On April 10, 2002,  the Company  completed the sale of 2,758,855  shares of
its common stock at $2.75 per share. The shares were sold to three of its larger
current  institutional  shareholders:  Wellington  Management Company,  LLC, the
State of Wisconsin Investment Board ("SWIB"), and Caxton Associates,  LLC. Wells
Fargo  Securities,  LLC acted as a placement  agent for  1,813,400 of the shares
sold. Net proceeds from the offering,  after deducting  placement agent fees and
offering expenses,  were $6,943,000.  Warrants to purchase 100,000 shares of the
Company's common stock at an exercise price of $2.75 per share will be issued to
the placement  agent in connection  with this  transaction.  When issued,  these
warrants  will be  exercisable  and have a term of 5 years  from the date of the
transaction.  The gross  proceeds from this offering are considered a "financing
activity" for the purposes of the 1999 Abbott  Settlement (as described in "NOTE
6.  Commitments,  Contingencies,  and Other  Matters.") As a condition of SWIB's
purchase of its shares,  the Company agreed to, and subsequently  did, amend its
outstanding  stock  option  plans and its  corporate  by-laws  to,  in  general,
prohibit the Company  from,  among other things,  issuing  options with exercise
prices below fair market  value,  from  reducing the exercise  price of options,
from canceling and re-granting options at lower exercise prices and from issuing
certain convertible securities, each without requisite stockholder approval.

NOTE 4.  PREFERRED STOCK

     The Company's certificate of incorporation  provides the board of directors
the power to issue shares of preferred stock without stockholder approval.  This
preferred stock could have voting rights,  including voting rights that could be
superior to that of the Company's  common stock,  and the board of directors has
the power to  determine  these voting  rights.  As of  September  30, 2002,  the
Company's board of directors has designated  80,000 shares of preferred stock as
Series A redeemable convertible preferred stock (the "Series A Preferred Stock")
and 10,000  shares of preferred  stock as Series B convertible  preferred  stock
(the  "Series  B  Preferred  Stock").  In  connection  with  an  agreement  with
Genentech,  Inc.,  1,188 shares of Series A Preferred  Stock were issued  during
2000  and 888  shares  are  outstanding  as of  September  30,  2002.  Preferred
dividends of $210,000 have been accrued as of September 30, 2002 on the Series A
Preferred  Stock.  In  connection  with an agreement  with  MedImmune,  Inc. (as
described  in "NOTE 5.  Collaboration  Agreements"),  10,000  shares of Series B
Preferred  Stock were issued in April 2001 and are  outstanding  as of September
30, 2002.

NOTE 5.  COLLABORATION AGREEMENTS

     In April  2001,  the  Company  entered  into a research  collaboration  and
licensing  agreement  with  MedImmune  to develop  and  commercialize  therapies
related to the  Company's  IL9  program.  MedImmune is expected to fund at least
$2,500,000 for research and development  activities at the Company through April
2003 (the "R&D Funding"), which will be recognized by the Company as revenues on
a straight-line  basis over the two-year period. In addition to the R&D Funding,
MedImmune also will reimburse the Company for certain external costs incurred by
the Company in connection  with the IL9 research plan,  which will be recognized
by the  Company as revenues  when the related  expenses  are  incurred.  For the
three-month period ended September 30, 2002, the Company recognized  $349,000 as
revenue related to the R&D Funding  ($315,000) and external cost  reimbursements
($34,000).  For the  nine-month  period ended  September  30, 2002,  the Company
recognized  $1,202,000  as revenue  related to the R&D  Funding  ($935,000)  and
external  cost  reimbursements  ($267,000).  For the  three-month  period  ended
September 30, 2001, the Company  recognized  $455,000 as revenue  related to the
R&D Funding  ($315,000)  and external cost  reimbursements  ($140,000).  For the
nine-month period ended September 30, 2001, the Company  recognized  $705,000 as
revenue related to the R&D Funding  ($565,000) and external cost  reimbursements
($140,000).


                                       7
<PAGE>


                              GENAERA CORPORATION

                    NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

--------------------------------------------------------------------------------

     Due to the January 2002  implementation  of Emerging  Issues Task Force No.
01-14, Income Statement  Characterization of Reimbursements Received for 'Out of
Pocket'  Expenses  Incurred,   $140,000  previously  recorded  as  research  and
development  expense  offsets  for  the  three-  and  nine-month  periods  ended
September 30, 2001 has been reclassified as revenues in the current  comparative
financial statements.

     In  September  2001,  the  Company  received  a  contingent  award of up to
$1,700,000  from an  affiliate  of the  Cystic  Fibrosis  Foundation  ("CFF") to
support early clinical evaluation of LOMUCIN(TM)  involving patients with cystic
fibrosis. This award has been granted and shall be paid to the Company from time
to time upon the achievement of certain development  milestones.  Of this grant,
$125,000  has been  received  as of  September  30,  2002 and is  recorded  as a
long-term  liability.  The  Company  did not  recognize  this  amount as revenue
because it is  refundable to the CFF upon  marketing  approval by the FDA or, if
development  milestones are  satisfied,  the Company elects not to enter Phase 3
clinical  trials  or to  commercialize  the  product  within  two  years  of the
completion of milestone requirements.

NOTE 6. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

Manufacturing Agreement

     In January 1999 and prior, the Company entered into several agreements with
Abbott Laboratories  providing for the purchase of approximately  $10,000,000 of
bulk drug  substance  to be used in the  manufacturing  process for  LOCILEX(TM)
Cream.  As FDA  approval  of  LOCILEX(TM)  Cream  did  not  occur,  the  Company
renegotiated   this  agreement  with  Abbott  in  September  1999  (the  "Abbott
Settlement"),  paying  Abbott  $4,200,000  at that  time and  receiving  partial
delivery of material.  An additional $3,400,000 was due to Abbott and payable if
the Company receives in excess of $10,000,000 of additional funds (as defined in
the agreement) in any year beginning in 2000, in which case the Company must pay
15% of such  excess  over  $10,000,000  to Abbott.  The  Company  recorded  this
conditional  obligation as a liability in 1999 at its then present  value.  As a
result of the Company's financing activities during 2000 and other cash inflows,
$1,392,000 of this liability was payable and paid to Abbott on March 1, 2001. As
a result of the  Company's  financing  activities  during  2001 and  other  cash
inflows,  $480,000 of this  liability was payable and paid to Abbott on March 1,
2002. The remaining  amount of $1,529,000 due to Abbott is included in long-term
liabilities  as of September  30, 2002 as the Company has not received in excess
of  $10,000,000 of cash inflows for the  nine-month  period ended  September 30,
2002.

Liquidity

     The Company has not  generated  any  revenues  from  product  sales and has
funded operations  primarily from the proceeds of public and private  placements
of its  securities.  Substantial  additional  financing  will be required by the
Company  in the  near-term  to fund  its  continuing  research  and  development
activities.  No assurance can be given that any such financing will be available
when needed or that the  Company's  research  and  development  efforts  will be
successful.

     On September 25, 2002, the Company was notified by The Nasdaq Stock Market,
Inc.  that the  Company's  common stock had closed for more than 30  consecutive
trading  days  below  the  minimum  $1.00 per share  requirement  for  continued
inclusion on the Nasdaq  National  Market  under  Marketplace  Rule  4450(a)(5).
During October 2002,  the Company  applied to Nasdaq to transfer from the Nasdaq
National Market to the Nasdaq SmallCap Market.  On October 30, 2002, the Company
announced  that its request to transfer to the Nasdaq  SmallCap  Market had been
approved,  effective  October 31, 2002. The Company's  securities  will continue
trading under its current  symbol:  "GENR."


                                       8
<PAGE>


                              GENAERA CORPORATION

                    NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

--------------------------------------------------------------------------------

     Transferring  to the Nasdaq  SmallCap  Market  provides  the Company with a
grace  period  until March 24, 2003 to regain  compliance  with the Nasdaq Stock
Market's $1.00 minimum bid price requirement.  In the event the Company does not
meet the minimum bid price  requirement by March 24, 2003,  Nasdaq can grant the
Company an additional  180-day grace period to regain compliance if it meets the
"core" initial listing standards for the Nasdaq SmallCap Market as of that date,
principally,  a $5 million  stockholders' equity requirement.  If a company that
has  transitioned  to the Nasdaq  SmallCap  Market so desires,  generally it can
transition  back to the Nasdaq  National Market by meeting the $1.00 minimum bid
price  requirement for 30 consecutive  trading days during the grace periods and
complying with the other  applicable  National Market  standards.  If the Nasdaq
Small Cap Market does not grant the Company the additional  180-day grace period
on March 24, 2003, Nasdaq may begin its procedures for delisting the Company.

     In the  absence  of  raising  additional  funds or  significantly  reducing
expenses, the Company believes it has sufficient resources to sustain operations
through the end of 2003. The Company  regularly  explores  alternative  means of
financing its operations and seeks funding  through various  sources,  including
public and private  securities  offerings and  collaborative  arrangements  with
third parties.  The Company  currently  does 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 the Company cannot obtain funding,  it 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  it  might  otherwise  seek  to  develop  or   commercialize
independently,   or  seek  other   arrangements.   If  the  Company  engages  in
collaborations,  it will receive lower consideration upon  commercialization  of
such products than if it had not entered into such arrangements or if it entered
into such arrangements at later stages in the product development process.

NOTE 7. NEW ACCOUNTING PRONOUNCEMENTS

     In June 2002, the Financial  Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 146, Accounting for Costs Associated
with Exit or Disposal  Activities,  which  requires  that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred and nullifies Emerging Issues Task Force Issue No. 94-3. The provisions
of this  statement  are  effective  for  exit or  disposal  activities  that are
initiated  after  December 31, 2002.  The Company plans to adopt SFAS No. 146 in
January 2003.

NOTE 8. REALIGNMENT OF OPERATIONS

     On August 14, 2002, the Company announced that it implemented a realignment
of  operations  intended  to  focus  resources  on  its  most  advanced  product
development  programs and significantly  reduce expenses.  Under the realignment
plan, the Company reduced its headcount by  approximately  35%, or 23 employees,
primarily  impacting  unsupported  preclinical  research  programs.  All  of the
employees  affected  by the  workforce  reduction  were  offered  severance  and
outplacement   support.   The  Company   recorded  a   nonrecurring   charge  of
approximately  $506,000 for the three-month  period ended September 30, 2002, of
which $498,000 and $8,000 are recorded in Research and  Development  Expense and
General and Administrative Expense,  respectively. For the three- and nine-month
periods  ended  September  30,  2002,  the  Company  has paid  $223,000  in cash
severance and  outplacement  support  against this accrual,  leaving a remaining
accrual of $283,000 at September 30, 2002.


                                       9
<PAGE>


                              GENAERA CORPORATION

                    NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

--------------------------------------------------------------------------------

NOTE 9. SUBSEQUENT EVENT

     On November 7, 2002, as part of its ongoing cost containment  efforts,  the
Company  announced that it had recently  reduced its headcount by  approximately
32%,  or  11  employees,   primarily   impacting   preclinical  and  nonclinical
development  scientific  staff.  All of the employees  affected by the workforce
reduction  were  offered  severance  and  outplacement   support.   The  Company
anticipates  recording a nonrecurring  charge of  approximately  $320,000 in the
fourth  quarter of 2002  related to this action.  The Company also  transitioned
David F. Jarosz, its former Executive Vice President and Chief Business Officer,
to a six-month  consulting contract with the Company. The Company also announced
that  Michael  R.  Dougherty,  its former  Chairman  of the  Company's  Board of
Directors,  is stepping down from that position while  remaining a member of the
Company's Board of Directors.






                                       10
<PAGE>



ITEM 2.  MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
RESULTS OF OPERATIONS


FORWARD LOOKING STATEMENTS

     Our disclosure and analysis in this Quarterly  Report on Form 10-Q contains
some  forward-looking  statements.  Forward-looking  statements give our current
expectations or forecasts of future events. You can identify these statements by
the fact that 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  financing  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,
including those addressed below under "Risk Factors Related to Our Business."

     We  undertake  no  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 consult any further
disclosures we make on related subjects in our filings with the U.S.  Securities
and Exchange Commission.


OVERVIEW

     Genaera Corporation is a biopharmaceutical  company committed to developing
medicines for serious diseases from genomics and natural products.  Research and
development efforts are focused on anti-angiogenesis  and respiratory  diseases.
Genaera has three products in development  addressing  substantial unmet medical
needs  in  major   pharmaceutical   markets.   These  include   squalamine,   an
anti-angiogenesis treatment for cancer and eye disease;  interleukin-9 antibody,
a respiratory treatment based on the discovery of a genetic cause of asthma; and
LOMUCIN(TM), a mucoregulator to treat the overproduction of mucus and secretions
involved in many forms of chronic  respiratory  disease. We were incorporated in
the State of Delaware in 1987.


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     The SEC recently released  cautionary advice regarding critical  accounting
policies.  The SEC has defined critical policies and practices as items that are
both most  important to the  portrayal of a company's  financial  condition  and
results,  and  require  management's  most  difficult,   subjective  or  complex
judgments,  often as a result of the need to make estimates about the effects of
matters  that  are  inherently  uncertain.  The  preparation  of  our  financial
statements in conformity with accounting  principles  generally  accepted in the
United States of America  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 items in
our financial  statements requiring  significant  estimates and judgments are as
follows:


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 on the earlier of when the payments
are received or when collection is assured.  Revenue from non-refundable upfront
license fees


                                       11
<PAGE>


and  certain  guaranteed   payments  where  we  continue   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 R&D cost reimbursement contracts or government grants
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  fees  received.  Changes in these
estimates,  due  to  the  evolution  of  the  development  program,  can  have a
significant effect on the timing of revenue recorded.


Research and Development Expenses

     Research and  development  expenses  include related  salaries,  contractor
fees,  and facility  costs.  R&D expenses  consist of  independent  R&D contract
costs, contract  manufacturing costs and costs associated with collaborative R&D
arrangements.  In addition,  we fund R&D at other  research  institutions  under
agreements  that are generally  cancelable.  R&D expenses also include  external
activities such as investigator-sponsored  trials. All such costs are charged to
R&D expense  systematically as incurred,  which may be measured by percentage of
completion,  contract milestones,  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 R&D costs in a specific period.

Stock-Based Compensation

     We  account  for  stock-based  employee  compensation  under the  intrinsic
value-based  method set forth by Accounting  Principles  Board (APB) Opinion No.
25,  Accounting  for Stock  Issued to  Employees,  and related  interpretations.
Effective  January  1,  1996,  we  adopted  the  disclosure-only  provisions  of
Statement of  Financial  Accounting  Standards  (SFAS) No. 123,  Accounting  for
Stock-Based   Compensation.   Stock  or  other  equity-based   compensation  for
non-employees  must be  accounted  for  under  the fair  value-based  method  as
required  by SFAS No.  123 and  Emerging  Issues  Task Force  (EITF) No.  96-18,
Accounting  for Equity  Instruments  that are Issued to Other Than Employees for
Acquiring,  or in Conjunction with Selling, Goods or Services, and other related
interpretations.  Under this method,  the  equity-based  instrument is valued at
either the fair value of the  consideration  received  or the equity  instrument
issued on the date of grant. The resulting  compensation  cost is recognized and
charged to  operations  over the  service  period,  which is usually the vesting
period.  Estimating  the fair  value of equity  securities  involves a number of
judgments and variables that are subject to significant  change. A change in the
fair  value  estimate  could  have  a  significant   effect  on  the  amount  of
compensation cost.


RISK FACTORS RELATED TO OUR BUSINESS

     Any  investment  in shares of our common  stock  involves a high  degree of
risk. You should  carefully  consider the following risk factors,  together with
the other  information  presented in this Quarterly  Report on Form 10-Q and our
Annual Report on Form 10-K for the year ended December 31, 2001.

IF WE DO NOT  RAISE  ADDITIONAL  CAPITAL,  WE MAY NOT BE ABLE  TO  CONTINUE  OUR
RESEARCH AND DEVELOPMENT PROGRAMS AND MAY NEVER COMMERCIALIZE ANY PRODUCTS.

     We believe our current  resources  are  sufficient to meet our research and
development goals and sustain  operations through the end of 2003.  However,  we
will need to raise  substantial  additional  funds in the future to continue our
research and development  programs and to commercialize our potential  products.
If we are  unable  to  raise  such  funds,  we may be  unable  to  complete  our
development activities for any of our proposed products.


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<PAGE>


     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
provide  additional funds, and may be unable to obtain sufficient funding in the
future  on  acceptable   terms,   if  at  all.  We  may  be  compelled  to  seek
collaborations  with  third  parties  to  commercialize  potential  products  or
technologies that we might otherwise seek to develop or commercialize ourselves,
or seek other arrangements,  none of which may result in our obtaining necessary
funds.  If we  cannot  obtain  funding,  we will need to  delay,  scale  back or
eliminate research and development  programs.  If we raise additional capital by
issuing  equity or securities  convertible  into equity,  our  stockholders  may
experience  dilution and our share price may  decline.  Any debt  financing  may
result in  restrictions  on  spending or payment of  dividends.  If we engage in
collaborations,  we will 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.

WE MAY BE UNABLE TO MAINTAIN THE  STANDARDS  FOR LISTING ON THE NASDAQ SMALL CAP
MARKET, WHICH COULD ADVERSELY AFFECT THE LIQUIDITY OF OUR COMMON STOCK AND COULD
SUBJECT OUR COMMON STOCK TO THE "PENNY STOCK" RULES.

     Our common stock is currently listed on the Nasdaq Small Cap Market. Nasdaq
requires listed companies to maintain standards for continued listing, including
a minimum bid price for shares of a company's  stock and a minimum  tangible net
worth. If we are unable to maintain these  standards,  our common stock could be
delisted.

     On September 25, 2002,  we were  notified by The Nasdaq Stock Market,  Inc.
that our common stock had closed for more than 30 consecutive trading days below
the minimum $1.00 per share  requirement  for continued  inclusion on the Nasdaq
National  Market under  Marketplace  Rule  4450(a)(5).  During  October 2002, we
applied  to Nasdaq to  transfer  from the Nasdaq  National  Market to the Nasdaq
SmallCap Market.  On October 30, 2002, we announced that our request to transfer
to the Nasdaq SmallCap Market had been approved, effective October 31, 2002. Our
securities will continue trading under our current symbol: "GENR."

     Transferring  to the Nasdaq SmallCap Market provides us with a grace period
until March 24, 2003 to regain  compliance  with the Nasdaq Stock Market's $1.00
minimum bid price requirement.  In the event that we do not meet the minimum bid
price requirement by March 24, 2003,  Nasdaq can grant us an additional  180-day
grace  period  to  regain  compliance  if we meet  the  "core"  initial  listing
standards  for the Nasdaq  SmallCap  Market as of that date,  principally,  a $5
million stockholders' equity requirement.  If a company that has transitioned to
the Nasdaq SmallCap  Market so desires,  generally it can transition back to the
Nasdaq National Market by meeting the $1.00 minimum bid price requirement for 30
consecutive  trading days during the grace periods and complying  with the other
applicable  National Market  standards.  If the Nasdaq Small Cap Market does not
grant us the additional 180-day grace period on March 24, 2003, Nasdaq may begin
its procedures for delisting the Company.

     If we are unable to meet the requirements for inclusion on the Nasdaq Small
Cap  Market,  our common  stock may be traded on an  electronic  bulletin  board
established  for  securities  that are not  included  in  Nasdaq  or traded on a
national  securities  exchange or in some published  quotation service.  If this
occurs,  it could be more  difficult to sell our  securities  or obtain the same
level of market  information as to the price of our common stock as is currently
available.

     In addition,  if our common stock were  delisted  from Nasdaq,  it would be
subject to the so-called "penny stock" rules.  The U.S.  Securities and Exchange
Commission has adopted  regulations that define a "penny stock" to be any equity
security  that has a market  price of less than  $5.00  per  share,  subject  to
certain  exceptions,  such as any  securities  listed on a  national  securities
exchange or quoted on Nasdaq.


                                       13
<PAGE>


For any transaction  involving a "penny stock," unless exempt,  the rules impose
additional  sales practice  requirements on  broker-dealers,  subject to certain
exceptions.

     For transactions  covered by the "penny stock" rules, a broker-dealer  must
make a  special  suitability  determination  for the  purchaser  and  must  have
received  the  purchaser's  written  consent  to the  transaction  prior  to the
transaction.  The "penny  stock"  rules also require  broker-dealers  to deliver
monthly   statements  to  "penny  stock"  investors   disclosing   recent  price
information  for the "penny stock" held in the account,  and  information on the
limited market in "penny stocks." Prior to the transaction, a broker-dealer must
provide a disclosure schedule relating to the "penny stock" market. In addition,
the broker-dealer must disclose the following:

     o  commissions   payable   to  the   broker-dealer   and  the   registered
        representative; and
     o  current  quotations  for the  security  as  mandated  by the  applicable
        regulations.

     If our common stock were delisted and  determined to be a "penny  stock," a
broker-dealer  may find it more  difficult  to trade  our  common  stock  and an
investor may find it more difficult to acquire or dispose of our common stock in
the secondary market.

WE EXPECT TO CONTINUE TO INCUR SUBSTANTIAL  LOSSES IN THE FORESEEABLE FUTURE AND
MAY NEVER GENERATE REVENUES OR BECOME PROFITABLE.

     To date, we have engaged  primarily in the research and development of drug
candidates.  We have not  generated  any revenues  from  product  sales and have
incurred  losses  in  each  year  since  our  inception.  We  currently  have  a
substantial accumulated deficit.

     Our proposed  products are in a relatively  early  developmental  stage and
will require  significant  research,  development  and  testing.  We must obtain
regulatory  approvals for any proposed product prior to commercialization of the
product.  Our operations also are subject to various  competitive and regulatory
risks.  As a result,  we are unable to predict  when or if we will  achieve  any
product  revenues  or become  profitable.  We expect to  experience  substantial
losses in the  foreseeable  future as we continue our research,  development and
testing efforts.

DEVELOPMENT  AND COMMERCIAL  INTRODUCTION OF OUR PRODUCTS WILL TAKE SEVERAL MORE
YEARS AND MAY NOT BE SUCCESSFUL.

     We are  dedicating  substantially  all of our  resources  to  research  and
development,  do not have any  marketed  products,  and have not  generated  any
product revenue.  Because  substantially all of our potential products currently
are in  research,  preclinical  development  or the early and  middle  stages of
clinical  testing,  revenues  from sales of any  products  will not occur for at
least the next several  years,  if at all. Our  technologies  are relatively new
fields and may not lead to commercially viable pharmaceutical  products.  Before
we can  commercially  introduce any products,  we will likely incur  substantial
expense for, and devote a significant amount of time to, preclinical testing and
clinical  trials.  We cannot  apply for  regulatory  approval  of our  potential
products until we have performed additional research and development testing and
demonstrated  in  preclinical  testing  and  clinical  trials  that our  product
candidates  are  safe  and  effective  for use in  humans.  Some of our  product
candidates  are in the early  stages of  research  and  development,  and we may
abandon  further  development  efforts on these product  candidates  before they
reach clinical trials.  Conducting clinical trials is a lengthy,  time-consuming
and expensive  process.  Our clinical  trials may not demonstrate the safety and
efficacy of our  potential  products,  and we may  encounter  unacceptable  side
effects or other problems in the clinical trials. Should this occur, we may have
to delay or discontinue development of the potential products.  Further, even if
we believe that any product is safe or effective, we may not obtain the required
regulatory  approvals,  be  able  to  manufacture  our  products  in  commercial
quantities or be able to market any product successfully.


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<PAGE>


IF WE DO NOT  OBTAIN  REQUIRED  REGULATORY  APPROVALS,  WE  WILL  NOT BE ABLE TO
COMMERCIALIZE ANY OF OUR PRODUCT CANDIDATES.

     Numerous governmental authorities,  including the FDA in the United States,
regulate our  business and  activities.  Federal,  state and foreign  government
agencies  impose  rigorous   preclinical  and  clinical   testing  and  approval
requirements  on our product  candidates.  In general,  the process of obtaining
government approval for pharmaceutical products is time consuming and costly.

     Governmental  authorities may delay or deny the approval of any of our drug
candidates.  In addition,  governmental authorities may enact new legislation or
regulations  that could  limit or  restrict  our  efforts.  A delay or denial of
regulatory approval for any of our drug candidates,  such as that which occurred
for LOCILEX(TM) Cream, a topical treatment of infection in diabetic foot ulcers,
will materially  affect our business.  Even if we receive  approval of a product
candidate, it may be conditioned upon certain limitations and restrictions as to
the drugs  used and may be subject to  continuous  review.  If we fail to comply
with any applicable regulatory  requirements,  we could be subject to penalties,
including warning letters,  fines,  withdrawal of regulatory  approval,  product
recalls, operating restrictions, injunctions, and criminal prosecution.

WE EXPECT TO RELY ON THIRD PARTIES IN  CONNECTION  WITH THE  DEVELOPMENT  OF OUR
PRODUCTS AND EXPECT TO RELY ON THIRD  PARTIES TO MARKET ANY PRODUCTS WE DEVELOP;
IF THESE PARTIES DO NOT PERFORM AS EXPECTED,  WE MAY NEVER SUCCESSFULLY  DEVELOP
OR COMMERCIALIZE OUR PRODUCTS.

     We expect to delegate the responsibility for all, or a significant portion,
of the development  and regulatory  approval for certain  potential  products to
third parties. We do not have control over the amount and timing of resources to
be devoted to the development of these potential  products by our  collaborative
partners.  Our  collaborators may not place a high priority on their contractual
arrangements  with us.  Collaborators  may  develop  products  independently  or
through  third  parties  that could  compete  with our  proposed  products.  For
example, GlaxoSmithKline, a current collaborative partner, which entered into an
agreement  with  us  relating  to the  development  of  LOCILEXTM,  maintains  a
significant  presence  in the  antibiotic  area and  currently  sells a  topical
antibiotic  product  indicated for the treatment of certain skin infections.  In
addition,  a collaborator may decide to end a relationship  with us, which would
require  that we  repartner  the  technology.  For  example,  in December  2000,
Genentech  provided notice to us of its election to terminate the  collaboration
agreement covering the IL9 antibody  development program and related respiratory
technology.  Ultimately,  these third parties may never develop an approvable or
marketable product.

     We do not have our own sales and marketing  staff. In order to successfully
market  our future  products,  we must enter  into  marketing  and  distribution
arrangements  with  third  parties.  If these  parties  do not  market a product
successfully,  we may never generate  sufficient  revenue to become  profitable.
Additionally,  we may be unable to  successfully  enter into  arrangements  with
other parties for such products.

     We also may  decide to  establish  our own sales  force to market  and sell
certain  products.   Although  some  members  of  our  management  have  limited
experience in marketing  pharmaceutical  products,  we have no  experience  with
respect to marketing our products.  If we choose to pursue this alternative,  we
will  need  to  spend  significant   additional  funds  and  devote  significant
management resources and time to establish a successful sales force. This effort
may not be successful.  Moreover,  because our financial  resources are limited,
our  sales  and  marketing  expenditures  in this  area  would  likely be modest
compared to our competitors.


                                       15
<PAGE>


WE FACE  FORMIDABLE  COMPETITION  WITH RESPECT TO THE PRODUCTS WE ARE SEEKING TO
DEVELOP AND THE RECRUITMENT OF HIGHLY TRAINED SCIENTIFIC PERSONNEL.

     The pharmaceutical  industry is characterized by intense competition.  Many
companies,  research  institutions and universities are conducting  research and
development  activities in our fields of interest.  Some of these  companies are
currently  involved  in  research  and  development  activities  focused  on the
pathogenesis of disease,  and the competition among companies attempting to find
genes  responsible  for  disease  is  intense.  In  addition,  we are aware that
research  on  compounds  derived  from  animal  host-defense  systems  is  being
conducted by others. We also may face competition from companies using different
or advanced  techniques that could render our future products obsolete.  Most of
these entities have substantially greater financial,  technical,  manufacturing,
marketing, distribution and other resources than we have.

     Many companies are working to develop and market products  intended for the
additional  disease areas being targeted by us,  including  cancer,  age-related
macular degeneration and chronic obstructive  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 cancer and AMD,  anti-angiogenic  agents are under  development  at a
number of companies. In the respiratory field, other biopharmaceutical companies
also  have  reported  the  discovery  of genes  relating  to  asthma  and  other
respiratory diseases.

     Many of the  companies  developing  or marketing  competing  products  have
significantly  greater  financial  resources  than  us  and  significantly  more
experience than us in undertaking  preclinical testing and human clinical trials
of new or improved  therapeutic  products and obtaining  regulatory approvals of
such  products.  Some of these  companies may be in advanced  phases of clinical
testing of various drugs that may be competitive with our proposed products.

     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.  Accordingly,  we must continue to devote substantial  resources
and  efforts to  research  and  development  activities  in order to  maintain a
competitive position in this field. Our efforts may not be successful.

     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.

IF WE DO NOT DEVELOP AND MAINTAIN RELATIONSHIPS WITH CONTRACT MANUFACTURERS,  WE
MAY NOT SUCCESSFULLY COMMERCIALIZE OUR PRODUCTS.

     We  currently  do  not  have  the  resources,   facilities,   or  technical
capabilities to manufacture  any of our proposed  products in the quantities and
quality  necessary  for  commercial  sale.  We  have no  plans  to  establish  a
commercial   manufacturing   facility.   We  expect  to  depend  upon   contract
manufacturers  for commercial scale  manufacturing  of our proposed  products in
accordance with regulatory standards. For example, we currently are working with
outside contractors for the chemical  production of squalamine.  This dependence
on  contract  manufacturers  may  restrict  our  ability to develop  and deliver
products on a timely,  profitable and competitive basis,  especially because the
number of companies capable of producing our proposed products is limited. These
contract manufacturers generally have multiple projects and they may give ours a
lower  priority than others.  As a result of contract  manufacture  errors,  our
product could be lost or delivered  late,  delaying our clinical and preclinical
programs,  or may not be produced  in  accordance  with all  current  applicable
regulatory  standards.  Product  not  produced  in  accordance  with all current
applicable regulatory standards may lead to adverse outcomes for patients and/or
product   recalls.   Furthermore,   the   development  of  a  robust,   low-cost
manufacturing  process for the


                                       16
<PAGE>


commercial  production of squalamine  and other  proposed  products will require
significant   time  and  expenditure  by  us.  We  may  be  unable  to  maintain
arrangements  with qualified  outside  contractors  to manufacture  materials at
costs that are affordable to us, if at all.

     Contract  manufacturers  that we use may utilize their own technology,  our
technology,  or technology acquired or licensed from third parties in developing
a  manufacturing  process.  If we  determine  to  engage  a  different  contract
manufacturer,  we may need to obtain a license or other technology transfer from
the original  contract  manufacturer.  Even if a license is  available  from the
original  contract  manufacturer  on  acceptable  terms,  we  may be  unable  to
successfully  effect  the  transfer  of  the  technology  to  the  new  contract
manufacturer.  Any such  technology  transfer  also may require the  transfer of
requisite data for regulatory  purposes,  including  information  contained in a
proprietary  drug master file held by a contract  manufacturer.  If we rely on a
contract  manufacturer  that owns the drug  master  file,  our ability to change
contract manufacturers may be more limited.

WE DEPEND ON OUR  INTELLECTUAL  PROPERTY,  AND IF WE ARE UNABLE TO  PROTECT  OUR
INTELLECTUAL PROPERTY, OUR BUSINESS MAY BE HARMED.

Patents

     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 other  countries.  As with  most  biotechnology  and  pharmaceutical
companies,  our patent position is highly  uncertain and involves  complex legal
and factual questions. If we do not maintain patent and other protections, other
companies could offer for sale products that are substantially identical to ours
without  incurring  the  sizeable  development  and  testing  costs that we have
incurred.  As a result,  our ability to recover these  expenditures  and realize
profits upon commercialization likely would be diminished.

     The process of obtaining patents can be time consuming and expensive.  Even
after significant  expenditure,  a patent may not issue. We can never be certain
that we were the first to develop  the  technology  or that we were the first to
file a patent  application  for the particular  technology  because U.S.  patent
applications  are maintained in secrecy by the U.S. Patent and Trademark  Office
until a patent issues,  and publications in the scientific or patent  literature
concerning  new  technologies  occur some time after actual  discoveries  of the
technologies are made.

     We are subject to the risk that:

     o  patents will not issue from any of our patent applications;
     o  our patent rights will not be sufficient to protect our technology;
     o  others may file  patents  ahead of us in time and  prevent the
        issuing of our patent claims;
     o  others will not design around the patented aspects of our technology;
     o  our  patents  will  be   successfully   challenged  or  circumvented  by
        our competitors; or
     o  an adverse outcome in a suit  challenging our patents would subject us
        to significant  liabilities to third parties,  require rights to be
        licensed from third parties, or require us to cease using such
        technology.

     The cost of litigation related to patents can be substantial, regardless of
the outcome.

Other Intellectual Property

     In order to protect our proprietary technology and processes,  we also rely
on trade secrets and confidentiality agreements with our employees, consultants,
outside  scientific  collaborators,  and other advisors.  We may find that these
agreements  will be breached,  or that our trade secrets have  otherwise  become
known or independently developed or discovered by our competitors.


                                       17
<PAGE>


     Certain of our  exclusive  rights to patents  and patent  applications  are
governed by contract.  Generally,  these contracts require that we pay royalties
on sales of any products that are covered by patent claims.  If we are unable to
pay  the  royalties,  we may  lose  our  rights  to  these  patents  and  patent
applications.  Additionally,  some of  these  agreements  also  require  that we
develop the licensed technology under certain timelines.  If we do not adhere to
an acceptable schedule of commercialization, we may lose our rights.

Potential Ownership Disputes

     Disputes  may  arise as to the  ownership  of our  technology.  Most of our
research and  development  personnel  previously  worked at other  biotechnology
companies,  pharmaceutical  companies,  universities,  or research institutions.
These entities may raise  questions as to when  technology  was  developed,  and
assert  rights  to the  technology.  We have  been  involved  in these  kinds of
disputes in the past and have  resolved  them. We may not prevail in any similar
disputes that may arise in the future.

     Similar  technology   ownership  disputes  may  arise  in  the  context  of
consultants,  vendors or third  parties,  such as  contract  manufacturers.  For
example,  our  consultants  are employed by or have  consulting  agreements with
third parties. There may be disputes as to the capacity in which consultants are
operating  when they make  certain  discoveries.  We may not prevail in any such
disputes.

IF WE CANNOT  RECRUIT  AND RETAIN  QUALIFIED  MANAGEMENT,  WE MAY NOT BE ABLE TO
SUCCESSFULLY DEVELOP AND COMMERCIALIZE OUR PRODUCTS.

     We depend to a  considerable  degree on a limited  number of key personnel.
Most  significant  responsibilities  have been  assigned to a  relatively  small
number of  individuals.  We do not  maintain  "key man"  insurance on any of our
employees.  The  loss of  certain  management  and  scientific  personnel  could
adversely affect our ability to develop and commercialize products.

WE ARE  SUBJECT TO  POTENTIAL  PRODUCT  LIABILITY  CLAIMS  THAT COULD  RESULT IN
SIGNIFICANT COSTS.

     We are subject to significant potential product liability risks inherent in
the  testing,   manufacturing  and  marketing  of  human  therapeutic  products,
including the risk that:

     o  our proposed products cause some undesirable side effects or injury
        during clinical trials;
     o  our products cause undesirable side effects or injury in the market; or
     o  third parties that we engage incur liabilities that we have agreed to
        indemnify them against.

     While we carry  insurance,  this coverage may be  insufficient to cover our
product liability losses. Moreover,  product liability coverage is expensive and
we may be unable to maintain adequate coverage on acceptable terms.

IF WE DO NOT  RECEIVE  ADEQUATE  THIRD-PARTY  REIMBURSEMENT  FOR ANY OF OUR DRUG
CANDIDATES,  SOME  PATIENTS MAY BE UNABLE TO AFFORD OUR PRODUCTS AND SALES COULD
SUFFER.

     In both the United States and elsewhere,  the availability of reimbursement
from third-party payers, such as government health  administration  authorities,
private  health  insurers  and  other  organizations,  can  affect  prescription
pharmaceutical  sales.  These  organizations  are  increasingly  challenging the
prices  charged for  medical  products  and  services,  particularly  where they
believe  that there is only an  incremental  therapeutic  benefit  that does not
justify the  additional  cost.  If any of our  products  ever  obtain  marketing
approval,  coverage and  reimbursement  may not be available for these products,
or, if available, may not be adequate. Without insurance coverage, many patients
may be unable to afford our  products,  in which case sales of the product would
be adversely affected.


                                       18
<PAGE>


     There also has been a trend toward  government  reforms intended to contain
or reduce  the cost of health  care.  In  certain  foreign  markets,  pricing or
profitability of prescription  pharmaceuticals is subject to government control.
In the United States, there have been a number of federal and state proposals to
implement similar government control.  We expect this trend to continue,  but we
cannot  predict the nature or extent of any reform that  results.  These reforms
could  adversely  affect  our  ability  to obtain  financing  for the  continued
development  of our  proposed  products or market any of our  products  that are
successfully  developed.  Furthermore,  reforms  could have a broader  impact by
limiting  overall growth of health care spending,  such as Medicare and Medicaid
spending, which could also adversely affect our business.

OUR STOCK PRICE IS EXTREMELY VOLATILE.

     The market prices and trading  volumes for securities of  biopharmaceutical
and biotechnology  companies,  including ours, have historically  been, and will
likely continue to be, highly volatile. Future events affecting our business, or
that of our competitors, may have a significant impact on our stock price. Among
these events are the following:

     o  product testing results from us or our competitors;
     o  technological innovations by us or our competitors;
     o  new commercial products from us or our competitors;
     o  government regulations;
     o  proprietary rights;
     o  regulatory actions; and
     o  litigation.

THE EXERCISE OF OPTIONS AND  WARRANTS AND OTHER  ISSUANCES OF SHARES WILL LIKELY
HAVE A DILUTIVE EFFECT ON OUR STOCK PRICE.

     We currently  have a large number of options and warrants  outstanding  and
exercisable,  though  none of which  grant the right to  purchase  shares of our
common stock at prices below its September  30, 2002 market price.  Some warrant
exercise prices are subject to adjustment under the anti-dilution  provisions of
the warrant  agreements.  Should our market  price  increase in the future,  the
exercise of options and  warrants at prices below the market price of our common
stock could adversely affect the price of our common stock.  Additional dilution
may result from the issuance of shares of our capital stock in  connection  with
collaborations  or  manufacturing  arrangements  or  in  connection  with  other
financing efforts.

OUR CERTIFICATE OF INCORPORATION AND DELAWARE LAW CONTAIN  PROVISIONS THAT COULD
DISCOURAGE A TAKEOVER.

     Our certificate of incorporation  provides our board of directors the power
to issue shares of preferred stock without stockholder approval.  This preferred
stock could have voting rights,  including  voting rights that could be superior
to that of our common stock.  In addition,  Section 203 of the Delaware  General
Corporation  Law contains  provisions  that impose  restrictions  on stockholder
action to acquire  control of  Genaera.  The effect of these  provisions  of our
certificate of  incorporation  and Delaware law could  discourage  third parties
from  seeking  to obtain  control,  even  though  the price at which  such third
parties  seek to acquire our common  stock is in excess of the market  price for
our stock.


                                       19
<PAGE>


RESULTS OF OPERATIONS

Revenues

     To date, we have not received any revenues from product sales. Our revenues
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.  In  accordance  with the  contract,  MedImmune  is
expected  to  fund at  least  $2.5  million  for our  research  and  development
activities  through April 2003,  payable in eight equal  quarterly  installments
plus certain  external cost  reimbursements.  For the  three-month  period ended
September 30, 2002, we recognized $349,000 as revenue related to the R&D Funding
($315,000) and external cost reimbursements ($34,000). For the nine-month period
ended September 30, 2002, we recognized $1,202,000 as revenue related to the R&D
Funding  ($935,000)  and  external  cost  reimbursements   ($267,000).  For  the
three-month  period ended September 30, 2001, we recognized  $455,000 as revenue
related  to  the  R&D  Funding  ($315,000)  and  external  cost   reimbursements
($140,000).  For the nine-month  period ended  September 30, 2001, we recognized
$705,000 as revenue  related to the R&D Funding  ($565,000)  and  external  cost
reimbursements ($140,000).


Research and Development Expenses

     Research and development expenses decreased in the three-month period ended
September 30, 2002, as compared to the same period in 2001, from $3.6 million in
2001 to $2.7  million in 2002,  due to the absence of  squalamine  manufacturing
efforts and trodulamine  development  efforts.  These  reductions were partially
offset  by  the  one-time  $500,000  accrual  of  severance  and  related  costs
associated  with the  realignment  of  operations  in August 2002.  Research and
development  expenses  increased in the  nine-month  period ended  September 30,
2002, as compared to the same period in 2001,  from $8.2 million in 2001 to $9.2
million in 2002, due to increases in personnel and related costs associated with
the Company's  research  programs,  along with the one-time  $500,000 accrual of
severance and related costs  associated  with the  realignment  of operations in
August 2002.  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.

General and Administrative Expenses

     General and  administrative  expenses  decreased in the three-month  period
ended  September 30, 2002, as compared to the same period in 2001, from $755,000
in 2001 to $657,000  in 2002 due  principally  to  decreases  in G&A  personnel.
General and  administrative  expenses  decreased only slightly in the nine-month
period ended  September 30, 2002,  as compared to the same period in 2001,  from
$2.5 million in 2001 to $2.4 million in 2002.

Other Income and Expense

     Other  income  and  expense  is  primarily  comprised  of  interest  income
generated from cash and investments, net of interest expense related to the $2.5
million note  payable.  Interest  income for the three- and  nine-month  periods
ended September 30, 2002 decreased,  as compared to the same period in 2001, due
to declining  investment interest yields and lower average investment  balances.
Interest expense for the three- and nine-month  periods ended September 30, 2002
decreased,  as compared to the same  period in 2001,  due to a reduction  in the
note  payable's  interest  rate and because the  long-term  obligation to Abbott
Laboratories  is now  recorded  at its face  value  and we no  longer  recognize
additional interest expense on the obligation.


                                       20
<PAGE>


Realignment of Operations

     On August 14, 2002, we announced that we are  implementing a realignment of
operations  intended to focus resources on our most advanced product development
programs,  squalamine and LOMUCIN(TM) and significantly reduce expenses. We will
proceed with our ongoing phase 2b non-small cell lung cancer study, and commence
our first "wet" macular  degeneration study.  Additional studies for squalamine,
including  our planned trial in advanced  ovarian  cancer,  will  require,  at a
minimum,  additional funding. For LOMUCIN(TM),  we anticipate having the results
from our chronic  asthma  study  later this year,  and are  proceeding  with the
startup of our initial clinical trials in cystic  fibrosis.  The cystic fibrosis
trials are funded in part by our alliance with the Cystic  Fibrosis  Foundation,
which  has  provided  a  Therapeutics  Development  Grant  of up to  $1,700,000.
MedImmune  continues as our partner for the IL-9 antibody program for asthma and
fully funds these research and development efforts.  Under the realignment plan,
we reduced our headcount by approximately 35%, primarily  impacting  unsupported
preclinical  research  programs.  All of the employees affected by the workforce
reduction  were  offered  severance  and  outplacement  support.  We  recorded a
nonrecurring  charge of approximately  $506,000 for the three-month period ended
September 30, 2002.  For the three- and nine-month  periods ended  September 30,
2002, we paid $223,000 in cash severance and  outplacement  support against this
accrual, leaving a remaining accrual of $283,000 at September 30, 2002.


Subsequent Event

     On November 7, 2002, as part of its ongoing cost  containment  efforts,  we
announced that we had recently reduced our headcount by approximately 32%, or 11
employees,   primarily   impacting   preclinical  and  nonclinical   development
scientific staff. All of the employees affected by the workforce  reduction were
offered  severance  and  outplacement   support.   We  anticipate   recording  a
nonrecurring  charge of  approximately  $320,000  in the fourth  quarter of 2002
related  to this  action.  We also  transitioned  David F.  Jarosz,  our  former
Executive Vice President and Chief Business Officer,  to a six-month  consulting
contract with the Company.  We also  announced  that Michael R.  Dougherty,  our
former  Chairman of our Board of Directors,  is stepping down from that position
while remaining a member of our Board of Directors.



FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

     Cash and short-term investments were $11.9 million at September 30, 2002 as
compared to $16.1  million at December 31, 2001. On April 10, 2002, we completed
the sale of  approximately  2.7 million  shares of our common stock at $2.75 per
share. Net proceeds from the offering,  after deducting placement agent fees and
offering  expenses,  were  approximately  $6.9 million.  The primary use of cash
during the period was to finance our research and development operations.

     Current  liabilities  decreased  $849,000 to $4.7 million at September  30,
2002 from $5.6 million at December 31, 2001 due to the payment of our short-term
obligation to Abbott along with decreases in other accrued  expenses.  Under the
terms of our $2.5 million note payable, we make monthly  interest-only  payments
at an annual  rate of  5.346%,  with  principal  due in June 2003.  We  maintain
investments of $2.8 million as collateral for the note payable.

     Our capital  expenditure  requirements  will 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  commitments  for
capital expenditures as of September 30, 2002.


                                       21
<PAGE>


     After  considering the private  placement  investment in April,  and in the
absence of raising  additional  funds or  significantly  reducing  expenses,  we
believe we have sufficient  resources to sustain  operations  through the end of
2003.

     We will  need to  raise  substantial  additional  funds  in the  future  to
continue  our  research  and  development  programs  and  to  commercialize  our
potential  products.  If we are unable to raise such funds,  we may be unable to
complete our development activities for any of our proposed products.

     On September 25, 2002,  we were  notified by The Nasdaq Stock Market,  Inc.
that our common stock had closed for more than 30 consecutive trading days below
the minimum $1.00 per share  requirement  for continued  inclusion on the Nasdaq
National  Market under  Marketplace  Rule  4450(a)(5).  During  October 2002, we
applied  to Nasdaq to  transfer  from the Nasdaq  National  Market to the Nasdaq
SmallCap Market.  On October 30, 2002, we announced that our request to transfer
to the Nasdaq SmallCap Market had been approved, effective October 31, 2002. Our
securities will continue trading under our current symbol: "GENR."

     Transferring  to the Nasdaq SmallCap Market provides us with a grace period
until March 24, 2003 to regain  compliance  with the Nasdaq Stock Market's $1.00
minimum bid price requirement.  In the event that we do not meet the minimum bid
price requirement by March 24, 2003,  Nasdaq can grant us an additional  180-day
grace  period  to  regain  compliance  if we meet  the  "core"  initial  listing
standards  for the Nasdaq  SmallCap  Market as of that date,  principally,  a $5
million stockholders' equity requirement.  If a company that has transitioned to
the Nasdaq SmallCap  Market so desires,  generally it can transition back to the
Nasdaq National Market by meeting the $1.00 minimum bid price requirement for 30
consecutive  trading days during the grace periods and complying  with the other
applicable  National Market  standards.  If the Nasdaq Small Cap Market does not
grant us the additional 180-day grace period on March 24, 2003, Nasdaq may begin
its procedures for delisting the Company.

     We regularly explore alternative means of financing our operations and seek
funding  through  various  sources,  including  public  and  private  securities
offerings and collaborative arrangements with third parties. 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 will 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.


                                       22
<PAGE>


Contractual Cash Obligations

     The table below sets forth our  contractual  cash  obligations at September
30, 2002 (in thousands):

<TABLE>
<CAPTION>
                                                                    CASH PAYMENTS DUE BY PERIOD
                                                            ---------------------------------------------
                                                              LESS THAN                            AFTER
        CONTRACTUAL CASH OBLIGATIONS                 TOTAL      1 YEAR     1-3 YEARS   4-5 YEARS  5 YEARS
        ----------------------------                 -----      ------     ---------   ---------  -------
<S>               <C>                               <C>         <C>          <C>         <C>        <C>
        Bank debt /1/                               $2,500      $2,500      $  --        $ --       $ --
        Abbott settlement /2/                        1,529          --       1,529         --         --
        Operating lease on building /3/              1,897         336         706        757         98
        Operating leases and maintenance
            contracts on equipment                     331         185         119         26          1
        Research and development
            contracts                                1,930       1,842          88         --         --
                                                    ------      ------      ------       ----       ----
        Total contractual cash obligations          $8,187      $4,863      $2,442       $783       $ 99
                                                    ======      ======      ======       ====       ====
</TABLE>

--------------

/1/ We maintain cash and investments of approximately $2.8 million as collateral
    for this obligation. Our current intention is to refinance this obligation
    just prior to its maturity.

/2/ Payable if we receive in excess of $10 million of additional funds in any
    year beginning in 2000, in which case 15% of such excess over $10 million
    shall be payable to Abbott.

/3/ The lease provides for escalations relating to increases in the Consumer
    Price Index not to exceed 7% but no less than 3.5% beginning in December
    2002. We have assumed a minimum lease payment escalation of 3.5% for the
    purposes of this table.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are exposed to risks associated with interest rate changes. Our exposure
to market risk for changes in interest rates relates primarily to our investment
portfolio.  We invest in only U.S.  government debt  instruments  that meet high
quality credit standards, as specified in our investment policy. The policy also
limits the  amount of credit  exposure  we may have to any one issue,  issuer or
type of investment.

     As of  September  30, 2002,  our  portfolio  investments  consisted of $1.2
million in cash and $10.7 million in U.S government  debt  instruments  having a
maturity of less than one year. Due to the nature of our  investment  portfolio,
management  believes  that a sudden  change in  interest  rates would not have a
material effect on the value of the portfolio.  Management estimates that if the
average  annualized  yield of our investments had decreased by 100 basis points,
our interest  income for the  nine-month  period ended  September 30, 2002 would
have  decreased  by  approximately  $106,000.  This  estimate  assumes  that the
decrease  occurred on the first day of 2002 and reduced the annualized  yield of
each  investment  instrument  by 100 basis  points.  The  impact  on our  future
interest  income  will  depend  largely  on the gross  amount of our  investment
portfolio.

     We do not currently have any significant  direct foreign currency  exchange
rate risk.

ITEM 4.   CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.  Based on their evaluation
as of a date within 90 days of the filing date of this Quarterly  Report on Form
10-Q, the Company's  principal executive officer and principal financial officer
have concluded that the Company's disclosure controls and procedures (as defined
in Rules 13a-14(c) and 15d-14(c) under the Securities  Exchange Act of 1934 (the
"Exchange  Act"))  are  effective  to ensure  that  information  required  to be
disclosed by the Company in reports that it files or submits  under the Exchange
Act is recorded,  processed,  summarized  and  reported  within the time periods
specified in Securities and Exchange Commission rules and forms.

(b)  Changes in  internal  controls.  There were no  significant  changes in the
Company's internal controls or in other factors that could significantly  affect
these  controls  subsequent  to the  date of  their  evaluation,  including  any
corrective  actions  with  regard  to  significant   deficiencies  and  material
weaknesses.


                                       23
<PAGE>


PART II - OTHER INFORMATION

     ITEM 1.      LEGAL PROCEEDINGS

         We are not a party to any material litigation.

     ITEM 2.      CHANGES IN SECURITIES AND USE OF PROCEEDS

         None.

     ITEM 3.      DEFAULTS UPON SENIOR SECURITIES

         None.

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

         None.

     ITEM 5.      OTHER INFORMATION

         None.


     ITEM 6.      EXHIBITS AND REPORTS ON FORM 8-K

        (a)  Exhibits

             10.1 License, Development and Commercialization Agreement Between
                  Laboratorios Bago SA and Genaera Corporation *+
           ------------

           *      Filed herewith.
           +      Confidential treatment has been requested as to certain
                  portions of this exhibit pursuant to an application filed with
                  the Securities and Exchange Commission.  The omitted portions
                  have been separately filed with the Securities and Exchange
                  Commission.


        (b)  Reports on Form 8-K

             We filed a Current Report on Form 8-K on August 14, 2002  regarding
             CEO/CFO  certifications  pursuant to Section 906 of the Sarbanes-
             Oxley Act of 2002.

             We filed a Current  Report on Form 8-K on August 14, 2002
             incorporating  a press release  regarding our Second Quarter 2002
             financial results and a realignment of operations.

             We filed a Current  Report on Form 8-K on August 15, 2002
             incorporating  a press  release  regarding  the death of Board of
             Directors member Bernard Canavan, M.D.

             We filed a Current  Report on Form 8-K on  September  27, 2002
             incorporating  a press  release  regarding  our receipt of a
             notification by NASDAQ regarding Marketplace Rule 4450(a)(5).



                                       24
<PAGE>


                                   SIGNATURES

     Pursuant to the  requirements  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.


                                                   GENAERA CORPORATION



DATE:  November 12, 2002                      By:  /s/ Christopher P. Schnittker
                                                   -----------------------------
                                                   CHRISTOPHER P. SCHNITTKER
                                                   Vice President and
                                                   Chief Financial Officer



                                       25
<PAGE>




                                 CERTIFICATIONS


I, Roy C. Levitt, M.D., certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Genaera Corporation;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

         a)     designed such disclosure controls and procedures to ensure that
                material information relating to the registrant, including its
                consolidated subsidiaries, is made known to us by others within
                those entities, particularly during the period in which this
                quarterly report is being prepared;

         b)     evaluated the effectiveness of the registrant's disclosure
                controls and procedures as of a date within 90 days prior to the
                filing date of this quarterly report (the "Evaluation Date");
                and

         c)     presented in this quarterly report our conclusions about the
                effectiveness of the disclosure controls and procedures based on
                our evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

         a)     all significant deficiencies in the design or operation of
                internal controls which could adversely affect the registrant's
                ability to record, process, summarize and report financial data
                and have identified for the registrant's auditors any material
                weaknesses in internal controls; and

         b)     any fraud, whether or not material, that involves management or
                other employees who have a significant role in the registrant's
                internal controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly report whether or not there were significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date: November 12, 2002

/s/ Roy C. Levitt
-----------------
Roy C. Levitt, M.D.
President and Chief Executive Officer



                                       26
<PAGE>



I, Christopher P. Schnittker, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Genaera Corporation;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

         a)     designed such disclosure controls and procedures to ensure that
                material information relating to the registrant, including its
                consolidated subsidiaries, is made known to us by others within
                those entities, particularly during the period in which this
                quarterly report is being prepared;

         b)     evaluated the effectiveness of the registrant's disclosure
                controls and procedures as of a date within 90 days prior to the
                filing date of this quarterly report (the "Evaluation Date");
                and

         c)     presented in this quarterly report our conclusions about the
                effectiveness of the disclosure controls and procedures based on
                our evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

         a)     all significant deficiencies in the design or operation of
                internal controls which could adversely affect the registrant's
                ability to record, process, summarize and report financial data
                and have identified for the registrant's auditors any material
                weaknesses in internal controls; and

         b)     any fraud, whether or not material, that involves management or
                other employees who have a significant role in the registrant's
                internal controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly report whether or not there were significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


Date: November 12, 2002

/s/ Christopher P. Schnittker
-----------------------------
Christopher P. Schnittker
Vice President and Chief Financial Officer




                                       27
<PAGE>


                                  EXHIBIT INDEX

Exhibit No.     Description
-----------     -----------

  10.1          License, Development and Commercialization Agreement Between
                Laboratorios Bago SA and Genaera Corporation *+

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             *  Filed herewith.
             +  Confidential treatment has been requested as to certain portions
                of this exhibit pursuant to an application filed with the
                Securities and Exchange Commission.  The omitted portions have
                been separately filed with the Securities and Exchange
                Commission.