1
 UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-K
  (Mark One)[X]
                  
                  Annual Report Pursuant To
      Section 13 Or 15(D) Of The Securities Exchange Act Of
1934For the fiscal year ended
      December 31, 2007
  OR
  [  ]
                  
                  Transition Report Pursuant To
      Section 13 Or 15(D) Of The Securities Exchange Act Of
1934For the transition period from
      _______________ to _______________
 Commission
File Number: 0-23317
 
 ORE
PHARMACEUTICALS INC.
 (Exact
name of registrant as specified in its charter)
 
 Delaware
                06-1411336(State
      of Other Jurisdiction of Incorporation or Organization)
                (I.R.S.
      Employer Identification No.)
 
 50
West Watkins Mill Road
 Gaithersburg,
Maryland 20878
 (Address
of Principal Executive Offices)
 
 Registrant’s
phone number, including area code: (240) 361-4400
 Securities
registered pursuant to Section 12(b) of the Act: None
 Securities
registered pursuant to Section 12(g) of the Act:
 COMMON
STOCK, $.01 PAR VALUE
 (Title
of Class)
 
 Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act: YES  ̈ NO x
 
 Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act: YES  ̈ NO x
 
 Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities 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  ̈
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the Registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K:   ̈
 
 Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.
  Large accelerated
      filer   ̈
                
                Accelerated
      filer   ̈
                
                Non-accelerated
      filer   ̈
                
                Smaller reporting
      company  x(Do not check if a
      smaller reporting company)
 
 Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act):  YES  ̈ NO x
 
 The
aggregate market value of the voting stock (which consists solely of shares of
Common Stock) held by non-affiliates of the Registrant as of June 30, 2007 was
approximately $36,745,000, based on the closing price on that date of Common
Stock on The NASDAQ Stock Market.*
 
 The number
of shares outstanding of the Registrant’s Common Stock, $.01 par value, was
32,172,588 as of March 10, 2008.
 
 *
                Excludes
      5,348,710 shares of Common Stock held by directors and executive officers
      and stockholders whose beneficial ownership exceeds 10% of the shares
      outstanding on June 30, 2007.  Exclusion of shares held by any
      person should not be construed to indicate that such person possesses the
      power, direct or indirect, to direct or cause the direction of the
      management or policies of the Registrant, or that such person is
      controlled by or under common control with the
  Registrant.
  Documents
Incorporated by Reference
 Certain
information required by Part III of this Annual Report on Form 10-K is
incorporated by reference from the Registrant’s definitive proxy statement for
the annual meeting of stockholders which will be filed with the Securities and
Exchange Commission within 120 days after the close of the Registrant’s fiscal
year ended December 31, 2007.
 
  
  TABLE
OF CONTENTS
 
    PART
      IITEM
      1.
                
                BusinessITEM 1A.
                
                Risk FactorsITEM 1B.
                
                Unresolved Staff CommentsITEM 2.
                
                PropertiesITEM
      3.
                
                Legal ProceedingsITEM
      4.
                
                Submission of Matters to a Vote of Security
      HoldersPART
      IIITEM 5.
                
                Market for the Registrant’s Common Equity, Related
      Stockholder Matters and Issuer Purchases of Equity
      SecuritiesITEM
      6.
                
                Selected Consolidated Financial DataITEM
      7.
                
                Management’s Discussion and Analysis of Results of
      Operations and Financial ConditionITEM 7A.
                
                Quantitative and Qualitative Disclosure About Market
      RiskITEM
      8.
                
                Financial Statements and Supplementary DataITEM
      9.
                
                Changes in and Disagreements with Accountants on Accounting
      and Financial DisclosureITEM 9A.
                
                Controls and ProceduresITEM 9B.
                
                Other InformationPART
      IIIITEM 10.
                
                Directors and Executive Officers of the
      RegistrantITEM 11.
                
                Executive CompensationITEM 12.
                
                Security Ownership of Certain Beneficial Owners and
      Management and Related MattersITEM 13.
                
                Certain Relationships and Related
  TransactionsITEM 14.
                
                Principal Accountant Fees and ServicesPART
      IVITEM 15.
                
                Exhibits, Financial Statements and
  SchedulesSIGNATURESReport of Independent
      Registered Public Accounting Firm—Internal Control Over Financial
      ReportingReport of Independent
      Registered Accounting Firm—Consolidated Financial StatementsConsolidated Balance
      Sheets as of December 31, 2007 and 2006Consolidated
      Statements of Operations for the three years ended December 31,
      2007Consolidated
      Statements of Stockholders’ Equity for the three years ended December 31,
      2007Consolidated
      Statements of Cash Flows for the three years ended December 31,
    2007Notes to Consolidated
      Financial Statements
  
  3
  PART I
 
 This
Annual Report on Form 10-K (“Form 10-K”) contains forward-looking statements
regarding future events and the future results of Ore Pharmaceuticals Inc. (“Ore
Pharmaceuticals”) and our subsidiary that are based on current expectations,
estimates, forecasts and projections about the industries in which Ore
Pharmaceuticals operates and its business and the beliefs and assumptions of the
management of Ore Pharmaceuticals. Words such as “expects,” “anticipates,”
“targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,”
“estimates,” variations of such words, and similar expressions are intended to
identify such forward-looking statements. These forward-looking statements are
only predictions and are subject to risks, uncertainties and assumptions that
are difficult to predict. Therefore, actual results may differ materially and
adversely from those expressed in any forward-looking statements. Factors that
might cause or contribute to such differences include those discussed in this
Form 10-K under the section entitled “Risk Factors”. Ore Pharmaceuticals
undertakes no obligation to revise or update publicly any forward-looking
statements to reflect any change in management’s expectations with regard
thereto or any change in events, conditions, or circumstances on which any such
statements are based.
 
 Unless the
context otherwise requires, references in this Form 10-K to “Ore
Pharmaceuticals,” “Ore Pharmaceuticals Inc.,” the “Company,” “we,” “us,” and
“our” refer to Ore Pharmaceuticals Inc. Gene Logic®
and BioExpress are registered trademarks of Ocimum Biosolutions, Inc.
Viagra® is a
registered trademark of Pfizer Inc. Evista® is a
registered trademark of Eli Lilly & Co. Hytrin® is a
registered trademark of Abbott Laboratories.
 
 
 ITEM 1.
                BUSINESS
 
 Corporate
History
 
 Ore
Pharmaceuticals Inc. was incorporated in September 1994 as a Delaware
corporation. The Company, formerly named Gene Logic Inc., changed its name to
“Ore Pharmaceuticals Inc.” in December 2007 to reflect its new identity as a
drug repositioning and development company.  In 1997, we completed our
initial public offering. Our stock is now traded on The NASDAQ Global Market
under the symbol “ORXE.”
 
 We
acquired in 2004 certain indication seeking technologies from Millennium
Pharmaceuticals, Inc. (“Millennium”), which, together with the genomics
databases and proprietary software we developed, form the basis for our current
drug repositioning and development business.
 
 Until
2006, our core business had consisted of the development and licensing of
genomics databases and software and related services. In December 2007, we sold
the assets of our Genomics Division (the “Genomics Assets”) and the related name
“Gene Logic” to Ocimum Biosolutions, Inc. (“Ocimum”). In 2003, we had purchased
TherImmune Research Corporation, renamed it Gene Logic Laboratories Inc., which
we subsequently referred to it in our SEC filings as our Preclinical Division,
and sold it in December 2006.
 
 We are
headquartered in Gaithersburg, Maryland. Our principal executive offices are
currently located at 50 West Watkins Mill Road, Gaithersburg,
Maryland 20878, and our telephone number is (240)361-4400. Our Internet
site iswww.orepharma.com. Material contained on our Internet site is not
incorporated by reference into this Form 10-K.
 
 Our
Business
 
 Overview
 
 Ore
Pharmaceuticals is a drug repositioning and development company.  We
apply our proprietary know how in integrative pharmacology to identify potential
new uses for drug candidates that have failed clinical development for reasons
other than safety.  We deploy this proprietary know how in integrative
pharmacology at our research facilities in Cambridge,
Massachusetts.  This indication seeking program characterizes
systematically the biologic activity of chemical compounds in order to identify
potential new indications of therapeutic effect.
 
 Our
business purpose is to supply the demand by the pharmaceutical industry for
development stage drug compounds to enrich the industry’s drug development
pipelines.  Our goal is to provide to pharmaceutical companies drug
compounds that have already been successfully tested for safety in Phase I
clinical trials and for which we have identified new therapeutic uses that can
be reinstated or introduced into their development pipelines at Phase Ib or IIa
(described below in “Scientific Background”) of human clinical trial
testing.  We plan to meet our goal by either (1) identifying new
therapeutic uses for compounds provided by our pharmaceutical partners who will
then return compounds to their pipelines or (2) identifying new uses for our
proprietary compounds, for subsequent out-licensing or other form of
collaboration.
 
 
 4
  We
acquired certain rights to develop our first proprietary compound from
Millennium in 2006. We have identified potential new therapeutic uses for this
compound (GL1001) to treat inflammatory bowel disease (IBD, includes ulcerative
colitis and Crohn’s disease) and other diseases and conditions, including
non-ulcer dyspepsia, gastric ulcers, esophagitis and chronic pancreatitis;
GL1001 has shown indications of efficacy at relevant doses in in vivo testing for IBD. The
Company is conducting additional validation and other development testing and
intends to initiate clinical testing in 2008 while actively seeking to
out-license or partner the further clinical development and commercialization of
GL1001.
 
 Our
objective is to produce income by:
 ·
                  Monetizing
      compounds from our own development pipeline through out-licensing or
      various forms of
collaboration; and
 ·
                  Earning
      milestones and royalties from our pharmaceutical company partners who
      reinstate their compounds back into their own development pipelines for
      therapeutic uses we have
identified.
  We also
continue to consider other strategic opportunities and paths to enhance
shareholder value, including but not limited to additional sources of funding
and new strategic relationships with pharmaceutical companies and other third
parties.
 
 We have
two primary sources of drug compounds to which we apply our indication seeking
program. We carefully select all compounds for development, based on certain
business, economic and technical criteria.
 ·
                Compounds
      from established business partnerships with eight pharmaceutical
      companies.  Each company provides certain compounds for our
      evaluation (“partnered compounds”). Partnered compounds have already been
      assessed as safe in human clinical trials, but have been discontinued by
      our partners in development for their original indications. We currently
      have drug repositioning and development partnerships with Pfizer, F.
      Hoffmann-La Roche Ltd, Eli Lilly and Co., NV Organon, Abbott Laboratories,
      H. Lundbeck, Merck-Serono, and Solvay.  Most of these agreements
      permit us to acquire for consideration the rights to develop compounds
      that our partners ultimately decide not to reinstate into their own
      development pipelines.
 ·
                Compounds
      available in the public domain (“unpartnered compounds”) that have been
      previously assessed as safe and are not subject to patent or other rights
      that would block our development and commercialization of such compounds
      for a new use.
 
 Once we
obtain actual supplies of the compounds, we apply at our own risk and expense
our indication seeking program to identify potential new uses for
them.  Our indication seeking program consists of:
 ·
                Genomics
      databases and bioinformatics software developed over the past ten years by
      our former Genomics Division; and
 ·
                Proprietary
      biological screening technologies acquired in 2004 from Millennium that
      have undergone subsequent further development by
  us.
 
 To date,
we have initiated evaluation of more than 100 compounds provided by our
pharmaceutical company partners.  We have been able to propose
alternative indications for approximately one third of the compounds for which
the full evaluations have been completed.
 
 Some of
the compounds for which we have found new indications have or will progress to
in vivo validation
and/or efficacy studies to evaluate and support their suitability for
re-entering clinical trials for the proposed new indications. The validation
study is the study we have agreed to perform to confirm our hypothesis. For
partnered compounds, we typically agree on the design of the study with our
partner and, in most cases, we pay for the validation studies, subject in most
cases to reimbursement from our pharmaceutical partners of amounts in excess of
an agreed amount. After completion of the initial validation study, a partner
may wish to conduct additional studies to learn more about the efficacy of the
compound for the new indication before deciding whether to reinstate the
compound into its development pipeline. Generally, our partners would conduct
these in vivo efficacy
studies at their own expense. We expect that some portion of the partnered
compounds will have successful outcomes in the in vivo tests and will be
selected by our partners to re-enter clinical trials, but we do not yet have
sufficient data to estimate the rate of clinical trial re-entry.  To
date, no compound has yet been selected by a partner to re-enter clinical
trials. For unpartnered compounds, we would generally decide whether to conduct
efficacy studies or other development activities at our expense prior to seeking
to out-license, or otherwise identify a development partner for, the
compound.
 
 
 5
  Drug Repositioning
Background
 
 The
pharmaceutical development process is expensive, time-consuming and risky, with
a high failure rate. See “Scientific and Industry Background” below.
Billions of dollars are spent annually to identify and develop biologically
active compounds although only a small number of these compounds are ever
approved.* Many compounds do not ultimately succeed for a variety
of reasons, including (i) insufficient effectiveness in treating the
disease or condition for which they were designed; (ii) safety and toxicity
issues; (iii) patient variability in responding to a compound; and (iv)
insufficient potential economic return for the company developing the
compound.
 
 Pharmaceutical
companies have traditionally relied on two mainstream approaches to establish a
product pipeline:
 ·
                Internal
      development, which continues to be time-consuming and expensive,
      and
 ·
                Product
      in-licensing, which is limited by increased competition between
      pharmaceutical companies to in-license a finite number of quality
      compounds.
 
 Furthermore,
in traditional drug development, development of a compound that is determined to
have limited effectiveness in human clinical trials for a selected indication
will be stopped, even though the compound could be effective in treatingother medical conditions.
Until now, any alternative uses were most often discovered by serendipity, such
as in the cases of Pfizer’s Viagra®, Eli
Lilly & Co.’s Evista®, and
Abbott’s Hytrin®.
 
 Drug
repositioning offers pharmaceutical companies a third approach to expanding
their drug development pipelines and is the primary process through which Ore
Pharmaceuticals strives to build its own pipeline. Ore Pharmaceuticals has the
ability to evaluate a compound in less than one year using our indication
seeking program, allowing us to quickly and efficiently discover possible new
indications for a compound or expand the possible therapeutic uses for approved
drugs. Following confirmation of the potential new use viain vivo validation and/or
efficacy tests, we believe that some of these compounds will be found suitable
for re-entry into clinical development for a new indication.
 
 *PricewaterhouseCoopers:
“Pharma 2020: The Vision” ©2007.
 
 Our Drug Repositioning
Technology
 
 We believe
that no single technology is adequate to assess the effect of a compound across
complex biological processes.
 
 Our
indication seeking program integrates technologies acquired from Millennium in
2004 (which we continue to improve) with genomic and toxicogenomic capabilities
developed by our former Genomics Division (see below). Our multi-platform
solution allows us to systematically and efficiently evaluate a range of
biological activity that potentially may be affected by a compound, including
its potential effect on a wide variety of diseases, without requiring a prior
disease-specific hypothesis. The technologies we use to develop hypotheses about
which diseases a compound may treat includein vivo (in
life), ex vivo
(outside the organism),in
vitro (in dish), andin
silico (in computer data) assessments of a compound at the DNA, RNA,
protein, pathway, and cellular levels.
 
 The
technologies include:
 
 Real-TimeIn
VivoImaging - We are using
in-licensed technology in conjunction with proprietary protocols and procedures
to create an optimal imaging program that allows the pharmacological action of a
compound in organs and tissues to be visualized non-invasively using genetically
engineered mice. This technology allows us to determine which organs are
affected by the compound, timing of the response, and biological pathway
information.
 
 Ex
VivoMultiplex Bioanalytics - Using
sophisticated laboratory automation and proprietary targeted separation and
analysis techniques, we can simultaneously measure levels of biomolecules in
certain biological fluids collected from a compound-treated animal. By comparing
the levels of biomolecules in treated animals to those in normal animals, we can
identify activity caused by the compound which may signal potential alternative
disease indications.
 
 In
VitroMolecular Pharmacology -
Powered by sophisticated robotics and software, part of our technology
out-licensing allows us to apply a compound to a large number of cell types to
identify pathways that may be activated or repressed by the compound. Another
technology enables us to apply a compound to cells in a broad panel of cellular
assays, each of which represents one or more relevant diseases, to measure the
effect of the compound on the diseases.
 
 
 6
  In
SilicoBiology - The genomics
databases developed by our former Genomics Division enable us to find close
relatives of the target protein in the genome, major and minor sites of
expression of the target in the body, disease conditions that alter the
expression of the target, and other drug target parameters. We use genomics
databases to identify pathways and cell regulatory patterns to understand a
compound’s mechanism of activity in any organ of interest.
 
 Potential
alternative therapeutic uses may then be confirmed through a validation study,
using an in vivo model
related to the new disease indication.
 
 Our Compound Development
Pipeline
 
 To date,
we have begun evaluation of more than 100 compounds for our drug development
partners. We have been able to propose alternative indications for approximately
one third of the compounds for which the full evaluations have been completed..
Some of these compounds for which we have found new indications have or will
progress toin vivo
validation and/or efficacy models to evaluate and support their suitability for
re-entering clinical trials for the proposed new indications. Typically, we pay
for the validation studies, subject in most cases to reimbursement from our
pharmaceutical partners of amounts in excess of an agreed amount.  In
some instances, our partners may then rely on the validation study to make a
decision about the development of a particular compound, and in others our
partners may elect to perform and fund further in vivo efficacy
studies.  In either event, we expect that some portion of the
compounds will re-enter clinical trials, but we do not yet have sufficient
data to estimate the rate of clinical trial re-entry. We do not expect to derive
revenue from reinstatement of compounds into our pharmaceutical partners’
pipelines until after 2008.
 
 We also
expect to acquire compounds to develop our own pipeline and derive revenue by
monetizing them through out-licensing or collaborations. For compounds in our
pipeline, we may choose to out-license some compounds immediately, while we may
choose to further validate and/or develop others to increase their value prior
to out-licensing or other collaboration.
 
 We expect
that our pharmaceutical partners will choose not to develop some of the
compounds for which we identify new uses, either before or after in vivo validation or
efficacy studies. Partners may choose not to develop some of the
compounds for a variety of reasons that may include:
 ·
                The
      new therapeutic indication is outside of their existing therapeutic
      franchises;
 ·
                The
      market opportunity may not be substantial enough due to a small patient
      population or related factors;
 ·
                The
      pharmaceutical partner may already have a product on the market in the
      targeted therapeutic area;
 ·
                In vivo efficacy test
      results may not be compelling enough for them to pursue
      development;
 ·
                The
      intellectual property and/or regulatory protection for the new therapeutic
      use may not be adequate; or
 ·
                New
      in vivo tests may
      identify previously unknown toxic or other side effects or not confirm
      sufficient efficacy in treating the disease or
  condition.
 
 In most
cases, we have the option to acquire development rights to candidates rejected
by our pharmaceutical partners for consideration, consisting of an initial
development fee and future development milestones and royalties. We will have to
consider the reasons why our partner chose not to proceed, but we believe there
will be circumstances when we will identify sufficient opportunity to warrant
developing candidates that our partners choose not to reinstate into their own
pipelines.
 
 In
addition to compounds acquired from our partners, we anticipate acquiring
additional compounds through our own analysis of compounds which are in the
public domain and for which we find new therapeutic uses. We have identified a
number of public domain compounds that we expect to analyze for possible
inclusion into our drug development pipeline.
 
 We
currently have our first compound, GL1001, in development. GL1001 is a
clinical-stage small molecule drug candidate from Millennium that we agreed to
analyze in conjunction with the July 2004 acquisition of certain of our drug
repositioning technologies. This candidate was originally intended for another
purpose.  After Millennium reviewed our in vivo validated hypothesis
and chose not to develop GL1001, we elected to in-license the compound for our
pipeline. Using our indication seeking program, we have repositioned GL1001 for
potential utility in the treatment of inflammatory bowel disease (IBD includes
ulcerative colitis and Crohn’s Disease) and other diseases, including non-ulcer
dyspepsia, gastric ulcers, esophagitis and chronic pancreatitis. Based on
extensive preclinical safety tests, the compound has a favorable safety
profile.  In addition, no safety concerns were noted in a single
escalating dose clinical study conducted in humans for the drug’s original
purpose. The compound has demonstrated efficacy in an ulcerative colitis in vivostudy,and work continues to
confirm efficacy for this and other gastrointestinal indications. Working with a
third-party consulting firm, we performed a commercial assessment by identifying
the market opportunity and unmet need for the various diseases that could
benefit from a compound with the projected efficacy and safety profile
associated with GL1001. We expect to file an IND application during 2008 and we
are seeking a partner for further development and commercialization for this
compound.  In connection with our licensing certain rights to the
compound from Millennium, we agreed to make a payment to Millennium if we
out-licensed the compound prior to completing Phase IIa clinical testing and
certain milestone payments upon completion of Phase IIa clinical trials and
thereafter and royalty payments in the event of commercialization.
 
 7
 Drug Repositioning
Partnership Agreements
 
 We have
agreements to reposition compounds for our pharmaceutical company partners.
Between 2005 and 2007, we developed partnerships with eight pharmaceutical
partners: Pfizer, Inc., F. Hoffmann-La Roche Ltd, Eli Lilly and Co., NV Organon,
Abbott Laboratories, H. Lundbeck, Merck-Serono, and Solvay. Under these
agreements, our partners provide us with compounds that we analyze using our
indication seeking program to identify new therapeutic uses. Our drug
repositioning and development agreements vary as to specific terms, but
generally conform to the following:
 ·
                We
      agree with a partner on a group of compounds to be evaluated. Our partner
      provides samples and, at our expense, we analyze each compound using our
      indication seeking program, and we conduct in
      vivoanimal validation studies at our expense, subject to
      reimbursement of expenses beyond a stated amount. We receive no up-front
      payments;
 ·
                For
      compounds for which we have identified new uses and that our partners take
      back into development at their election, we are entitled to receive
      success-based payments when certain milestones are achieved. If all
      milestones are achieved for a compound, the totals range from $60-100+
      million per compound and in most cases include the following individual
      milestones:
 o
                Notice
      of re-initiation of development,
 o
                Filing
      of an Investigational New Drug (“IND”) with the
  FDA,
 o
                Establishment
      of proof of concept in a Phase II clinical
  trial,
 o
                Commencement
      of a Phase III clinical trial, and
 o
                Receipt
      of market approval in the U.S., in Europe, or in Japan;
  and
 ·
                As
      to compounds returned by our partners to commercial development, we are
      entitled to receive royalty payments, as a percentage of sales that range
      from single- to low double-digits and are generally tiered according to
      sales volume.
 
 In most
cases, if our partner decides not to take the compound back into development, we
have an option to obtain development rights. If we elect to exercise such
option, our partner would receive consideration, consisting of an initial fee
and future development milestones and royalties as a percentage of commercial
sales.
 
 Our
agreement with Organon involves co-ownership and co-development of repositioned
compounds, and therefore it differs substantially from our other
agreements.
 
 Former
Genomics Division
 
 Our former
Genomics Division  developed and licensed proprietary gene expression
and toxicogenomics databases and  software tools and provided related
services including toxicogenomics services, microarray data generation and
analysis services (for gene expression and SNP genotyping), and other
professional services. These services assist researchers to discover and
prioritize drug targets, identify biomarkers, predict toxicity and understand
mechanisms of toxicity, and understand mechanisms of action of specific
compounds, based on gene expression patterns and biological
pathways.
 
 In 2006,
we began to redirect our Genomics Division in response to our customers’
shifting their research activities from early-stage drug discovery into
later-stage development and validation efforts and a resulting decline in sales
of our Genomics Division. In December 2007, we sold the Genomics Assets. The
sale included our genomics services capabilities and assets, the accumulated
data and our genomics and toxicogenomics databases, and software, the assignment
of one of our leased facilities and the transfer of approximately 80 employees.
We have retained full rights in perpetuity to use the databases of our former
Genomics Division, existing as of closing, for our drug repositioning and
development business.
 
 8
 Molecular
Diagnostics Assets and Capabilities
 
 In
conjunction with the sale of our Genomics Assets, we retained certain assets
related to the development of molecular diagnostic tests and services, including
certain intellectual property and licenses and a license to use the Genomics
databases sold to Ocimum for the purpose of developing molecular diagnostic
tests and services.
 
 Molecular
diagnostics encompass a variety of technologies and methods for using profiles
of DNA and RNA changes in individual patients to facilitate determining what
condition a patient has (diagnosis), the likely outcome (prognosis), response to
therapy (monitoring), and the best responders to various treatments
(personalized medicine). Development of new types of molecular markers requires
a process of discovery followed by validation in carefully selected patient
populations in controlled clinical trials. Such clinical trials may take weeks
or years to conduct and results are generally published in peer-reviewed medical
journals.
 
 We have
formed a new subsidiary named DioGenix Inc. to hold the molecular diagnostic
assets. We are exploring strategic alternatives for a sale of, or other
transaction to fund the development of, DioGenix. We do not expect that such a
transaction will have a significant impact on our results of
operations.
 
 The
Drug Discovery and Development Process and Role of Drug
Repositioning
 
 The
process of drug development is expensive, time consuming and risky. On average
it takes 13 years from the beginning of the discovery effort to get a drug to
market, and, while research and development costs have been doubling every five
years, success rates for getting drugs to market have been flat or
declining.  A significant number of compounds are halted at some point
in the discovery and development process. Compounds may have toxicity issues,
lack efficacy in the targeted therapeutic application, be difficult to
manufacture, have a narrow market, or be inferior to competitive products, among
other issues. Drug repositioning is generally defined by the industry as either
(i) finding new uses for compounds discontinued during the clinical phases or
(ii) finding uses for marketed drugs in additional therapeutic
applications.
 
 Today,
drug discovery and development in the United States generally consists of the
following steps:
 
 ·
                Discovery.
      Discovery is the process of identifying new biological targets and the
      compounds that can affect them. Targets must be identified, prioritized
      and validated.
 
 ·
                Preclinical
      Testing. Compounds that are being considered as drugs must be
      studied in the laboratory and in vivo studies to
      determine if the compound will have unacceptable safety profile and if it
      will be effective in treating the targeted disease or condition (i.e.
      efficacy).  For certain diseases, animal models may exist which
      are believed to be predictive of human efficacy.  For these
      diseases, a drug candidate is tested in such an in vivo
      model.
 
 ·
                Investigational
      New Drug (“IND”)
      Application. After completing preclinical testing, the company
      files an IND application with the FDA for permission to test the compound
      in humans. The IND application will include the result of any in vivo studies and any
      other relevant safety and efficacy
tests.
 
 ·
                Clinical
      Trials. These tests involve a series of studies (Phase I, II and
      III) involving up to several thousand patients over a multi-year period.
      These tests assess safety, appropriate dosage, and effectiveness in
      humans.
 o
                Phase I
      Trials. The initial introduction of an investigational new drug
      into healthy human subjects for safety (adverse effects), dosage
      tolerance, absorption, biodistribution, metabolism, excretion, clinical
      pharmacology and, if possible, to gain early information on effectiveness.
      In some instances, a drug developer may conduct a Phase Ib study in a
      small number of patients with the disease or other condition for which the
      drug is intended, as a “proof of concept”, or confirmation of the drug
      developer’s hypothesis in humans.
 o
                Phase II
      Trials. Includes the early, controlled, smaller-scale, clinical
      studies conducted to obtain preliminary data on the effectiveness of the
      drug for a particular indication or indications in patients with the
      disease or condition, to determine dose tolerance and the optimal dose
      range, and to gather additional information relating to safety and
      potential adverse effects. Phase II studies are sometimes divided into
      Phase IIa and Phase IIb. Phase IIa is designed to assess “proof of
      concept” as well as dosing requirements (how much drug should be given),
      whereas Phase IIb is specifically designed to study efficacy (how well the
      drug works at the prescribed
doses(s)).
   
 9
  o
                Phase III
      Trials. Larger scale clinical trials after preliminary evidence of
      effectiveness of the drug has been obtained in Phase II, to gather
      additional information about effectiveness and safety needed to evaluate
      the overall benefit-risk relationship of the drug. Phase III studies
      usually include several hundred to several thousand
  people.
 ·
                New Drug
      Application (“NDA”).
      Following successful completion of clinical trials, the company files an
      NDA application with the FDA to obtain approval to market. FDA approval of
      an NDA is required before any new drug can be
      commercialized.  Preparing an NDA involves considerable data
      collection, verification, analysis and expense, and there can be no
      assurance that any approval will be granted on a timely basis, if at all.
      The approval process is affected by a number of factors, including the
      severity of the disease, the availability of alternative treatments and
      the risks and benefits demonstrated in clinical trials. The FDA may deny
      an NDA if applicable regulatory criteria are not satisfied or require
      additional testing or information.
 
 ·
                Approval.
      Once the FDA approves the NDA, the new medicine becomes available for
      physicians to prescribe. The company must continue to periodically report
      about the medicine to the FDA, including instances of adverse reactions
      and appropriate quality-control records. For some medicines, the FDA
      requires additional studies (Phase IV) to evaluate long-term
      effects.
 
 The
process of completing clinical testing and obtaining FDA approval for a new drug
is likely to take a number of years from the commencement of the clinical trials
and require the expenditure of substantial resources.
 
 Customers,
Sales, Marketing and Customer Support
 
 We market
our drug repositioning capabilities to pharmaceutical companies based in North
America, Japan and Europe. To date, we have entered into drug repositioning
partnership agreements with eight pharmaceutical companies located in North
America and Europe. We have business development professionals who lead contract
negotiations with potential pharmaceutical partners. Once a contract is signed,
members of both the technology and business development groups interact with
each pharmaceutical partner to report results and consider next steps as we
analyze their compounds and progress through in vivo testing to validate
our hypotheses. If our partner declines to reinstate a repositioned compound
back into its pipeline, we will assess whether and how to obtain rights to
develop the compound ourselves, through an existing option or further
negotiation.
 
 Research
& Development
 
 Research
and development expenses for the years ended 2007, 2006 and 2005 were $10.3
million, $8.4 million and $6.6 million, respectively. Most of our research and
development expenses consist of costs associated with the evaluation of
customer-supplied compounds and the development of our drug repositioning
program.
 
 A small
portion of our research and development expense relate to continuing development
of our molecular diagnostics assets as we continue to explore strategic
alternatives, including a possible sale of these assets.
  
 10
 Competition
 
 Currently,
an increasing number of pharmaceutical and biotechnology companies are
evaluating whether to implement internal repositioning programs for their
compounds. In addition, there are companies attempting to reposition compounds
on behalf of drug development partners, but we are not aware of any existing
competitor that has developed, or is in the process of developing, a suite of
technologies comparable to ours. Other companies, including Melior, KineMed,
Perlegen Sciences, Inc., Vanda Pharmaceuticals Inc. and CombinatoRX Inc, offer
repositioning services that have individual technologies that directly compete
with components of our indication seeking program.
 
 Suppliers
 
 We have a
non-exclusive license and sublicense from Promega Corporation (the “Promega
License”) to use the luminescence technology we use in our real-timein vivo imaging. The term of
the agreement is for the life of the relevant patents, unless earlier terminated
upon breach by either party, bankruptcy or termination of Promega’s rights by an
academic institution that holds certain rights to a portion of the technology
(in which case we would seek separate licenses from Promega for its technology
and directly from the institution for its technology). Under the terms of the
agreement, we paid Promega an initial fee and we pay Promega an annual license
maintenance fee and royalties on luminescent assay reagents we use that are not
purchased from Promega. We also have a non-exclusive license with Xenogen
Corporation (the “Xenogen License”) for which we pay an annual license fee to
use the Xenogen Imaging Technology and certain related software in connection
with our use of certain imaging equipment we purchased from Xenogen for use in
performing real-timein
vivo imaging. The term of the Xenogen license ends in 2008, with a three
year renewal option, subject to earlier termination if we fail to make timely
payment or otherwise breach the terms of the agreement. We have agreed to
indemnify Xenogen and certain other persons and entities for liability resulting
from our use of the technology.
 
 Intellectual
Property Rights
 
 As of
December 31, 2007, our drug repositioning and development business owns or has
license rights to 9 issued patents, all of which are United States patents, and
27 patent applications, 10 of which are United States utility (non-provisional)
or provisional patent applications; except for one application, all of these
patents and applications relate to either of two compounds or their potential
uses.
 
 As of
December 31, 2007, our molecular diagnostics business owns or has license rights
to 29 issued patents, 9 of which are United States patents, and 15 patent
applications, 7 of which are United States utility (non-provisional) or
provisional patent applications.
 
 We do not
at this time believe that any single patent or application is individually
material to our business. However, we do believe the collective portfolio of
multiple patent applications that claim various uses of GL1001 is material to
our business.
 
 With
respect to proprietary know-how and products and processes for which patents are
of questionable value or are difficult or impossible to obtain or enforce, we
rely on confidentiality agreements and other trade secret protection measures to
protect our interests. We take security measures to protect our proprietary
know-how and technologies and confidential data and information, including
requiring all employees, consultants and customers to enter into confidentiality
agreements. In arrangements with our customers or suppliers that require the
sharing of know-how and other confidential information, our policy is to make
available only such information as is relevant to our agreements with such
customers and suppliers, subject to appropriate contractual restrictions,
including requirements for them to maintain confidentiality and use such
information  solely in accordance with our agreement. However, such
measures may not adequately protect our information.
 
 
 11
  We have
acquired or obtained licenses to use certain intellectual property rights and
technologies from Millennium, Promega, Xenogen, Ocimum and others, and we will,
from time to time, continue to acquire and obtain licenses to use intellectual
property rights and technologies as needed for our indication seeking program.
We will also pursue patents, where appropriate, on new enabling technology that
we wish to incorporate into our indication seeking program. Certain agreements
with partners having rights to known drugs, under which our indication seeking
program seeks new therapeutic uses for such compounds, provide us with certain
intellectual property rights to those new uses. Where such agreements permit, we
will pursue broad patent protection for selected new uses that we have found for
known drugs.
 
 With
respect specifically to our GL1001 compound, we obtained a license to develop
such compound through a Compound Transfer and Development Agreement with
Millennium dated July 26, 2006. Under the terms of this agreement, we have broad
rights to develop and/or out-license the development of GL1001 in any disease
indication except for of oncology diseases. In addition, the agreement restricts
our right to develop GL1001 to treat type 1 diabetes, type 2 diabetes or obesity
for a period expiring on September 29, 2008. Under the agreement, the developer
of GL1001 is obligated to pay Millennium specific milestone development fees at
the following points in development: upon completion of Phase IIa Clinical
Trials, upon initiation of Phase III trials, and upon first obtaining regulator
approval to market the compound. In addition, the developer of GL1001 will be
obligated to make royalty payments to Millennium equal to a percentage of net
commercial sales of approved products containing GL1001. The natural expiration
of our agreement with Millennium will be extended to a mutually agreed upon
later date if a GL1001 product receives marketing approval.
 
 When we
sold our Genomics Assets, we also obtained perpetual, royalty free licenses to
the genomics databases we had developed in our former Genomics Division over the
last several years. The licenses allow us to use the genomics databases as they
existed at the date of sale for drug repositioning and development and for
diagnostics development. The license for use in drug repositioning is exclusive
for that field of use and the license for use in diagnostic development is
exclusive for one year and non-exclusive thereafter.
  Government
Regulation
 
 Our only
laboratory is located in our facilities in Cambridge, Massachusetts. The
laboratory is subject to a variety of national, state and local laws and
regulations, including the Animal Welfare Act and the rules and regulations
promulgated thereunder by the United States Department of Agriculture. These
regulations establish the standards for the humane treatment, care, use and
handling of animals by research facilities. In addition, our Cambridge
facilities are registered with the United States National Institutes of Health
Office of Protection for Research Risks and comply with The Office of Laboratory
Animal Welfare regulations. Our laboratory maintains standard operating
procedures and the documentation necessary to comply with such regulations. Our
laboratory is subject to regulation under the Ordinance for the use of
Laboratory Animals for the City of Cambridge that is administered by the
Commissioner of Laboratory Animals. Under this ordinance, we maintain standard
operating procedures and the documentation necessary to comply with such
regulations.
 
 Our
laboratory is subject to licensing and regulation under federal, state and local
laws relating to hazard communication and employee right-to-know regulations,
the handling, storage and disposal of medical specimens, laboratory materials
and hazardous waste and radioactive materials and the safety and health of
laboratory employees.
 
 The use of
controlled substances in our laboratory is regulated in the United States by the
United States Drug Enforcement Administration (“DEA”) and relevant state and
local agencies. Our laboratory using controlled substances for testing purposes
is subject to licensure by the DEA and applicable state agencies.
 
 The
regulations of the United States Department of Transportation and the United
States Postal Service apply to the transportation of laboratory specimens via
surface and air.
 
 The
Occupational Safety and Health Administration has established extensive
requirements relating to workplace safety, which require us follow certain
procedures, including providing ongoing training and proper equipment for
employees working in our facilities. Our employees receive initial and periodic
training focusing on compliance with applicable hazardous materials regulations
and health and safety guidelines.
 
 Seasonality
 
 Our
business is not subject to predictable seasonal variation.
 
 
 12
  Human
Resources
 
 As of
December 31, 2007, we had 71 employees, all of whom reside within the United
States. Most of our employees are engaged directly in research, development,
production and marketing and sales activities. None of our employees are covered
by collective bargaining agreements, and management considers relations with our
employees to be good.
 
 Available
Information
 
 We
maintain a web site at www.orepharma.com.
However, material contained on our Internet site is not incorporated by
reference into this Form 10-K. We make available free of charge on or through
our Web site our SEC filings, including our Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to
those reports we file or furnish pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 as soon as reasonably practicable after such
reports are electronically filed with, or furnished to, the Securities and
Exchange Commission ("SEC").
 
 
 ITEM 1A.
                RISK
      FACTORS
 
 Set forth
below are risks and uncertainties that could cause actual results to differ
materially from the results contemplated by the forward-looking statements
contained in this Form 10-K.  You should carefully consider these risk
factors, together with all other information included in this Form
10-K.  Each of these risk factors could have material adverse effects
on our business, results of operations, financial condition and cash flows, as
well as adversely affect the value of our common stock.
 
 Our
drug development business is in an early stage of development and we do not have
any compounds in clinical trials; there is no assurance as to whether or when we
will be able to generate revenues from our compounds.
 
 Our
business is in an early stage of development. Our only proprietary product
currently in development is GL1001, a compound with potential for treating
Inflammatory Bowel Disease (“IBD”) and other gastro-intestinal
conditions.  We expect to file an Investigational New Drug (“IND”)
application with respect to GL1001 with the Food and Drug Administration (“FDA”)
in mid-2008.  However, we may be delayed in filing our IND or approval
may be delayed. While our goal is to monetize this compound through
out-licensing or other forms of development partnerships in late 2008, we do not
know whether or if we will realize our goal and whether we will be able to
monetize this compound at all or on satisfactory terms in a timely way to meet
our revenue objectives.
 As to each
of the compounds we are evaluating on behalf of our partners, we cannot predict
when, if at all, the compound will be returned to our partner’s pipeline for
development and, unless we acquire rights to the compound from our partner, we
cannot realize revenue from such compounds until the compound has been
reinstated into our partner’s pipeline.  Compounds that are not
reinstated by our partners generally will become available for inclusion in our
pipeline, but to acquire them we would likely have to pay certain fees and/or
future milestones and royalties.
 
 From the
public domain, we have selected, and may select additional, compounds for
evaluation.  Currently these compounds are at a relatively early stage
of our evaluation and have not advanced to in vivo validation
studies.  Further development by us of these compounds obtained from
the public domain would require significant additional evaluation and
development efforts before we could, if at all, monetize them through
out-licensing or other development partnerships.
 
 We
may invest significant resources in identifying alternative uses for our
partners’ compounds. We will not receive any revenue from our partners unless
they decide to return candidates to their pipeline and our ability to earn
revenue under our drug development partnership agreements is based in part on
factors over which we may have little or no control.
 
 Under our
drug development partnership agreements, we typically perform evaluations of
compounds and, when we find new uses of interest, perform in vivovalidation studies at
our expense. Accordingly, we may need to invest significant resources in seeking
and validating new uses for one or more partners’ compounds using our indication
seeking program, and we may find no sufficiently attractive new uses for these
compounds. If we identify new uses for a given compound, we may not be able to
realize any value from the identification of such new use until our partner
determines, if ever, that the use makes the candidate sufficiently desirable to
warrant its further development and commercialization. We do not control when,
on what schedule, or whether, a partner will reinstate a compound or at what
pace, if at all, the partner will conduct further development efforts. Such
decisions may be affected by factors of which we may not be aware and over which
we have no influence. Among the reasons why a partner might choose not to
reinstate a compound into development for a new use we identify are: (i)
insufficient effectiveness in treating the disease or condition for which they
were designed; (ii) safety and toxicity issues; (iii) patient variability in
responding to a compound; (iv) the new use may be in a therapeutic area in which
the partner is not involved; (v) the compound may compete with another product
that the partner has in development; (vi) competing products may already be on
the market and have established market acceptance; (vii) the intellectual
property and/or regulatory protection for the new therapeutic use may not be
adequate and (viii) insufficient potential economic return for the company
developing the compound.
 
 
 13
  Eve n if a
partner reinstates a compound into its pipeline, it may ultimately not progress
through the partner’s pipeline at a rate, if at all, that would enable us to
realize the full amount of revenue that we would expect from such development,
due to factors affecting drug development in general and factors specific to a
given partner’s business objectives.  Any milestone revenue would
depend on whether further development of the compound is successful and royalty
revenue would depend on whether the compound is commercially successful, both of
which are outside of our control.
 
 These
factors may limit our ability to earn significant revenue and therefore, derive
cash under our agreements.
 
 We
may be required to invest significant resources to develop our own pipeline of
compounds. We will not receive adequate revenue from our own compounds unless we
are able to out-license them or enter into other development arrangements on
acceptable terms and unless our licensees or development partner is able to
achieve specified milestones and then can successfully commercialize the
compounds for the new uses.
 
 To develop
our own pipeline of compounds, we are dependent on obtaining rights to compounds
that our partners choose not to reinstate into development and on compounds in
the public domain that we select, evaluate and for which we find new
uses.  If our partners choose not to reinstate compounds into their
own development pipeline, we will have to evaluate the reasons for that decision
as well as other factors in deciding whether to seek to obtain rights to such
compounds so that we can continue to develop such compounds and then seek to
out-license the compounds or enter into other development partnerships. There is
no guarantee that we will be able to develop and out-license or partner such
compounds successfully.
 
 With
regard to public domain compounds, we will need to effectively select compounds
for evaluation that have good prospects for yielding new uses. We will then have
to evaluate and find new uses for such compounds and validate such new uses, all
at our expense. We will also have to assess the commercial potential for
out-licensing or partnering such compounds, including whether we can obtain
sufficient protection for such new uses under government regulations relating to
drug development and intellectual property law. There is no guarantee that we
will be able to accomplish these activities within a time frame and at a cost
that is acceptable to us.
 
 Others
may provide drug repositioning services that could compete with ours, which may
affect the likelihood that we can expand our existing or enter into new
partnership agreements to obtain rights to evaluate more compounds and that we
have access to the most promising compounds for repositioning. We may also not
be able to protect the technologies we use from use by others.
 
 Efforts
are underway at various organizations to develop technologies intended to better
understand how drugs impact complex biological processes and how to more
efficiently and accurately select, purpose and reposition drug candidates. These
organizations may elect to use such technologies internally, in lieu of using
our services, or may successfully offer such services in competition with us.
While we have licensed rights for certain of the technologies that comprise our
indication seeking program, we do not currently have patent protection for any
of the technologies we use and, except for licenses to our genomics databases
and software that are exclusive for use in drug repositioning, our rights to
other technologies that we utilize are non-exclusive. We may not be able to
obtain adequate license rights for these technologies or intellectual property
rights for new or improved technologies we may develop or the technologies may
become obsolete or competing technologies may be developed that are equally or
more effective than the ones we use.
 
 Competition
from others may affect whether our current or potential future partners perceive
our indication seeking program to be a relatively reliable and cost effective
source of potential drug candidates.  Competition from others in the
area of drug repositioning could also limit our access to additional compounds
for repositioning, which could limit our ability to access sufficient numbers of
compounds with the greatest potential for successful repositioning.
 
 We may be unable to obtain access to
a sufficient numbers of acceptablecompounds for evaluation by our program to meet
our business objectives.
  
 14
  Our
business plan is dependent, in part, on having a sufficient number of acceptable
compounds available for evaluation. Although we currently find new uses for
about a third of the compounds we evaluate, there will be further attrition of
compounds in the process as we move through validation studies and as our
partners and we evaluate other relevant factors including the commercial
potential of such compounds, intellectual property protection, competition and
the risks and costs associated with further development.  Because of a
relatively low success rate in terms of the number of compounds reinstated into
clinical development expressed as a percentage of the total number of compounds
evaluated, we require a sufficient number of compound opportunities to provide a
reasonable assurance of success.
 
 We
presently obtain compounds primarily from our drug development partners. It may
take a considerable amount of time for a given partner to identify acceptable
compounds the partner is willing to make available to us, which may limit the
number, or timely availability, of compounds we can use to meet our business and
financial objectives. Further, there are challenges to obtaining additional new
drug development partnership agreements. While we currently have agreements with
eight pharmaceutical companies, intentional drug repositioning is a relatively
new activity and obtaining additional agreements requires time and substantial
effort. There can be no assurance that any new agreements will result in terms
acceptable to us or that will provide sufficient new opportunities for
us.
 
 We also
select compounds available in the public domain that either were never patented
or for which applicable patents have lapsed.  While these compounds
enable us to increase the numbers of compounds available to us for evaluation,
they will require us to incur additional time and effort to select, evaluate and
develop these compounds and such development would be at our own expense. There
is no guarantee that we will be able to identify and select sufficient
appropriate compounds likely to yield new uses of interest to merit further
development and eventual out-licensing.
 
 Our
indication seeking program currently relies in part on technologies of third
parties that may not always be available to us.
 
 Our
indication seeking program currently relies in part on technologies to which
third parties have obtained or are obtaining patent or other rights and, in the
process of further developing the program, we may need to license rights to use
these and other such technologies. We may not be able to retain or to obtain
license rights needed for one or more of these technologies on terms acceptable
to us. We currently license certain technology in connection with certain
products purchased from Promega Corporation and Xenogen Corporation. The Promega
license is for a period ending on the expiration or abandonment of the last of
the valid claims of the licensed patent rights. The Xenogen license is for a
term ending in 2008 with an option to renew for an additional three
years.  Each of these licenses is terminable if we breach the
agreement and fail to cure such breach within the applicable cure period. In
addition, the Promega license includes a sublicense to rights owned by an
academic institution and the license from Promega would terminate if the license
to Promega from the academic institution terminated. If either of these
agreements were to terminate while the relevant patent claims were enforceable
and if we were not able to obtain new licenses, we would have to abandon or
substantially revise one of the key technologies used in our drug repositioning
business.
 
 Our
ability to recruit and retain qualified personnel may be adversely affected by
the substantial changes we have been undergoing and by the uncertainty of our
business.
 
 In
2006, we sold our Preclinical Division. In 2007, we sold our Genomics Assets.
These changes and the uncertainty of our future may make it difficult to retain
and to recruit qualified personnel as we continue to develop our drug
repositioning and development business.
  We
have a history of operating losses that are likely to continue for some
time.
 
 We have
incurred operating losses in each year since our inception, including losses of
$34.7 in 2007, $54.7 million in 2006, and $48.3 million in 2005. At December 31,
2007, we had an accumulated deficit of $350.4 million. Our losses have resulted
principally from costs incurred in the development, marketing and sale of
services from our former Genomics and Preclinical Divisions, development of the
drug repositioning program, the impairment of goodwill of our former Preclinical
Division, and acquisitions of research and development. These costs have
exceeded our revenue and we expect to incur additional losses in the future,
including losses relating to the ongoing development of our drug repositioning
program.
 
 
 
 15
  Our
ability to use our Federal Net Operating Loss carry forwards may be
limited.
 
 We intend
to utilize our Federal Net Operating Loss carry forwards (“NOLs”) to reduce any
potential future United States income tax liability. These NOLs begin to expire
in 2008. Based on a Section 382 analysis performed in the fourth quarter of 2006
(that excluded NOLs obtained through acquisitions), we do not believe we are
currently subject to any current material limitations on the use of our NOLs to
offset our potential future income tax liability, although such limitations
could occur in the future. However, we may not generate sufficient taxable
income to utilize our NOLs prior to their expiration. In addition, there are
other legal limitations on the use of the NOLs, including a change of control,
that may affect our ability to realize value from these NOLs.
 
 In
the future we may not be able to obtain the additional funding we need to
continue to operate and grow our drug repositioning and development business as
planned.
 
 While as
of December 31, 2007, we had approximately $33 million in cash, cash
equivalents, and marketable securities available-for-sale, our business consumes
a significant amount of cash and unless we are able to generate sufficient
revenues in 2008 and 2009 to supplement our cash on hand, we expect
to need to seek additional sources of financing in the near
future.  There is no assurance that such funding will be available or
will be on terms acceptable to us. If we are unable to obtain necessary
financing, or financing on favorable terms, when needed, our business would
materially suffer. If additional financing is obtained through the issuance of
equity securities or debt convertible to equity, our existing stockholders could
experience significant dilution.  If we are unable to obtain
additional capital in the future, we may be forced to reduce our headcount and
operating expenses, reduce the number of compounds we evaluate, curtail
development of our proprietary compounds or otherwise limit our
operations.
 
 We
sold our Preclinical Division in December 2006, but are still subject to certain
risks from that sale.
 
 In
connection with the sale of our Preclinical Division in December 2006, we remain
potentially liable under the purchase agreement for breaches of warranty
relating to payment of taxes and environmental and certain other matters,
although no claims for breach have been made to date.
 
 We also
guarantee two leases of facilities to our former Preclinical Division that have
terms ending in 2011 and 2013. The buyer agreed to indemnify us for any claims
made against our guarantees. If the buyer defaults under such leases and claims
are made against our guarantees and the buyer fails to adequately indemnify us,
we could suffer additional losses, the amount of which depends in part on the
then-remaining terms of the leases and the potential to re-lease the facilities
and mitigate damages. As of December 31, 2007, the remaining lease payment
obligation amounted to $5.9 million.
 
 We
sold our Genomics Assets in December 2007, but are still subject to certain
risks from that sale.
 
 In
December 2007, we sold our Genomics Assets. A portion of the purchase price
remains payable pursuant to a $3 million non-interest bearing promissory note
issued jointly by the buyer and its parent, due 18 months after closing. The
buyer’s ability to pay the note may depend on its success in operating the
business it acquired. We also remain potentially liable under the purchase
agreement for breaches of representations, warranties and agreements made in the
purchase agreement, though our liability for certain of those is subject to an
aggregate limit of $1 million dollars and expires with respect to any claims not
made by March 31, 2009. The buyer also agreed to assume our obligations as
tenant under a lease for laboratory and office facilities that expires in 2011;
under the terms of that lease, although we are permitted to assign the lease, we
remain liable with the assignee.  If the buyer were to default under
the lease, we could suffer additional losses, the amount of which depends in
part on the then-remaining terms of the leases and the potential to re-lease the
facilities and mitigate damages. Ocimum has deposited in escrow $0.8 million to
partially secure both Ocimum’s performance under the lease and payment of the
$3.0 million promissory note.
  
 16
 Certain
investments made by the Company may fluctuate in value, may be subject to
impairment and may create an adverse impact on our financial
results.
 
 We have an
investment in Xceed Molecular (formerly named MetriGenix, Inc.) with a book
value as of December 31, 2007 of $3.0 million. This investment is subject to
periodic evaluation for impairment. Since Xceed is a small private company in
which we are a minority stockholder, the factors affecting an impairment
analysis, which include potential revenue, cost of capital and fair market value
of the entity, are not within our control and may be difficult to assess. There
is no guarantee that, in the future, this investment might not be subject to an
impairment charge.
 
 We
achieve our business objectives by relying on a combination of well understood
and commercially available technologies, certain proprietary technologies, and
trade secret expertise around how we use these technologies. We may not be able
to protect our trade secrets that allow us to utilize these various technologies
to achieve our business objectives.
 
 The
business relies on a variety of technologies that are well understood and
available in commercial markets.  There is no way for the business to
protect itself from competitors using the same technologies that we employ to
evaluate compounds.  The business also relies in part on genomics
databases and related software exclusively licensed to us for drug repositioning
purposes.  However, it may be difficult for us to monitor or enforce
the exclusive nature of our license. We rely on confidentiality agreements and
other trade secret protective measures to protect our interests in proprietary
trade secrets that are not patentable or for which patents are difficult to
enforce. We have taken security measures to protect our proprietary know-how and
confidential data and continue to explore further methods of protection. While
we require all employees, consultants and customers with access to our trade
secrets to enter into confidentiality agreements, we cannot be certain that we
will be able to protect our trade secrets. Any material leak of confidential
information into the public domain, or to third parties, could cause our
business, financial condition and results of operations to suffer adverse
consequences.
 
 We
may not be able to obtain adequate patent protection and/or regulatory
exclusivity for the compounds we analyze to be commercially viable development
opportunities.
 
 Our patent
position on compounds involves complex legal and factual questions. Legal
standards relating to the validity of patent applications claiming new methods
of using known chemical compounds or drugs are still evolving. Also, the
compounds the Company analyzes typically are subject to pre-existing
composition-of-matter patents, some of which were written to provide broad
protection beyond the original compound’s indication.  Hence, the
likelihood of patenting potential new therapeutic uses of drug repositioning
candidates and the degree of protection afforded by such patents also is
uncertain.
 
 Specific
risks and uncertainties that we face in the area of patent exclusivity
include:
 ·
                The
      pending patent applications we have filed, or to which we have licensed
      rights, may not result in issued patents or may take longer than we expect
      to result in issued patents;
 ·
                The
      claims of any patents which are issued on our pending applications may not
      provide commercially meaningful protection or
  value;
 ·
                The
      patents licensed or issued to us may not provide adequate exclusivity for
      all aspects of our proprietary
technology;
 ·
                Other
      companies may challenge patents issued or licensed to us;
    and
 ·
                The
      patent protection available may not be deemed adequate protection by our
      partners or by the Company to invest in development for
      commercialization.
 
 In
addition to patent protection and in some cases in lieu of patent protection, we
may rely on government regulations that provide for periods of exclusivity that
are available to the developers of pharmaceutical products, such as the
Hatch-Waxman regulations in the United States.  Regulatory rules that
provide for market exclusivity vary by country both in terms of the criteria
that must be present for obtaining such exclusivity and the periods of time
during which such exclusivity continues.  The standards relating to
regulatory exclusivity are constantly evolving and may be difficult to
attain.  Not being able to rely on such regulatory exclusivity may
detrimentally impact decisions made by the Company and/or its partners to invest
in compound development opportunities.
 
 We
may need to initiate patent enforcement litigation or be subject to future
infringement claims.
 
 Various
organizations, including companies, academic and non-profit institutions are
developing technologies in the drug repositioning field. Many of these
technologies are subject to the same evolving legal standards and related
uncertainties about patent protection associated with compounds in which we have
an interest. Therefore, it may be necessary for us to initiate litigation to
protect and enforce our intellectual property rights.
 
 
 17
  We also
face risks that patents issued to other organizations may restrict our ability
to do business, and that we may be unable to obtain or maintain licenses
providing freedom to operate on acceptable terms. Thus, the technologies upon
which our drug repositioning business relies, may be subject to claims that they
infringe the patents or proprietary rights of others. In addition, the Company
or its partners’ ability to file patents on new uses for compounds that the
Company discovered may be subject to claims that they infringe the patents or
proprietary rights of others.  Therefore, we could be sued by parties
alleging patent infringement.
 
 The risk
of involvement in patent litigation may increase as our drug repositioning and
development business expands, more patents are issued and other organizations
begin to compete in our business. We could incur substantial litigation costs to
defend ourselves in patent infringement suits brought by other parties or to
initiate such suits. In addition, patent litigation could cause disruption in
our business activities and divert management’s time and attention from the
operation of our business.
 
 In the
past we purchased reagents made by Enzo BioChem, Inc. from Affymetrix Inc., and
also directly from Enzo. In late 2003, Enzo sued Affymetrix, alleging, among
other things, that Affymetrix had agreements with the Company and other named
customers to supply the Enzo reagent for use by such customers in potential
violation of Enzo’s rights. That suit continues, but we have not been made a
party to that suit. It is possible that Enzo could in the future make claims or
initiate litigation against us in connection with our prior use of their
reagent.
 
 Our
Common Stock is subject to the possibility of delisting from the NASDAQ Global
Market.
 
 Our
common stock is currently listed on the NASDAQ Global Market and is subject to
certain listing requirements. These requirements include maintaining a minimum
closing bid price of $1.00 per share. On December 14, 2007 we received a notice
from the NASDAQ Stock Market, or NASDAQ, that for the previous 30 business days
our common stock had not met the $1.00 minimum closing bid price requirement for
continued listing on the NASDAQ Global Market, as specified by Marketplace Rule
4450(a)(5). Although the notification of non-compliance has no effect on the
listing of our common stock at this time and we have 180 calendar days, or until
June 11, 2008, to regain compliance by having the closing bid price of our
common stock equal or exceed $1.00 per share for a minimum of 10 consecutive
trading days, there is no guarantee that we will be able to regain compliance.
Additionally, NASDAQ may, in its discretion, require us to maintain a bid price
of at least $1.00 per share for a period in excess of ten consecutive business
days before determining that we have demonstrated an ability to maintain
long-term compliance.
 
 If
we do not regain compliance with the minimum bid price requirement by June 11,
2008, NASDAQ will provide us written notification that our common stock is
subject to delisting. We plan to seek shareholder approval at our annual
stockholders meeting of an amendment to the charter of the Company to effect a
reverse stock split, intended to enable the Company to return to compliance with
the listing requirements, but there is no assurance that such a proposal will be
approved by the shareholders or that it will be successful in enabling the
Company to continue to retain its listing.
 
 If
we fail to meet the continued listing requirements of the NASDAQ Global Market
and our common stock is delisted, trading in our common stock, if any, could be
conducted on the OTC Bulletin Board as long as we continue to file reports
required by the Securities and Exchange Commission. The OTC Bulletin Board is
generally considered to be a less efficient market than the NASDAQ Global
Market, and our stock price, as well as the liquidity of our common stock, would
be adversely affected as a result. Delisting would also negatively impact our
ability to sell our common stock and secure additional
financing.
  We
may be unable to identify a satisfactory strategic alternative to enable us to
capitalize on our molecular diagnostics assets.
 
 Although
we have been seeking to identify strategic alternatives for our molecular
diagnostics assets, there is no assurance that we will be successful in finding
a partner willing to assist in the development of those assets or a buyer for
those assets, on terms and conditions that are acceptable to us. If we are
unable to identify an acceptable strategic alternative we may be forced to close
or otherwise liquidate the business.
 
 Our
research and development activities are subject to governmental regulation. Our
failure to comply with such regulations could adversely affect our ability to
operate and conduct our research and development activities and could subject us
to regulatory action and potential liability.
 
 Laws and
regulations in the U.S. and other countries have a significant impact on our
research and development activities and will be a significant factor in the
development activities of our partners. All of our compounds will require
regulatory approval prior to clinical development by the FDA and similar
regulatory authorities in other countries.  Various statutes and
regulations govern or influence the manufacturing, safety, labeling, storage,
and record keeping of compounds in development. The lengthy process of seeking
these approvals, and the subsequent compliance with applicable statutes and
regulations, require the expenditure of substantial resources. Any failure to
obtain, or delay in obtaining, regulatory approvals or failure to comply with
such laws and regulations could materially adversely affect the ability to
develop compounds in which we have an interest in a timely manner, or at
all.
 
 Certain
activities of our businesses involve the controlled use of limited quantities of
hazardous and radioactive materials and may generate biological and/or hazardous
waste. We are subject to federal, state and local laws and regulations governing
the use, manufacture, storage, handling and disposal of these materials and
certain waste products. Although we believe that our safety procedures for
handling and disposing of these materials comply with prescribed standards, we
cannot completely eliminate the risk of accidental contamination or injury from
these materials. In the event of an accident or if we otherwise fail to comply
with applicable regulations, we could lose our permits and/or approvals or be
held liable for damages or penalized with fines.
 
 We believe
that we comply in all material respects with currently applicable environmental
laws and regulations and do not expect near term material additional capital
expenditures for environmental control facilities. However, we may have to incur
significant costs in the future to comply with environmental laws and
regulations.
 
 Our
business involves limited animal testing and changes in laws, regulations or
accepted clinical procedures or social pressures could restrict our use of
animals in testing and adversely affect our research and development
efforts.
  
 18
 Certain of
the research and development efforts we conduct or sponsor involve the use of
laboratory animals. Changes in laws, regulations or accepted clinical procedures
may adversely affect these research and development efforts. Social pressures
that would restrict the use of animals in testing or actions against us or our
partners by groups or individuals opposed to testing using animals could also
adversely affect these research and development efforts.
 
 In
addition, preclinical animal studies conducted by us or third parties on our
behalf may be subject to additional regulations for certain animal species.
Failure to comply with applicable regulations could impact the development of
our compounds.
 
 Provisions
in our amended and restated certificate of incorporation, our amended and
restated bylaws and Delaware law and in our employment arrangements could make
it more difficult for a third party to acquire us, discourage a takeover and
adversely affect existing stockholders.
 
 Our
amended and restated certificate of incorporation, our amended and restated
bylaws and the Delaware General Corporation Law contain provisions that may have
the effect of making more difficult, delaying, or deterring attempts by others
to obtain control of our company, even when these attempts may be in the best
interests of our stockholders.  These include provisions limiting the
stockholders’ powers to remove directors, to take action by written consent
instead of a stockholders’ meeting and to call a special meeting of the
stockholders.  Additionally, the company’s staggered board of
directors limits the ability of a person to replace a majority of the directors
in any one particular election.  Delaware law also imposes conditions
on the voting of “control shares” and on certain business combination
transactions with “interested stockholders.”
 
 These
provisions and others that could be adopted in the future could deter
unsolicited takeovers or delay or prevent changes in our control or management,
including transactions in which stockholders might otherwise receive a premium
for their shares over then current market prices.  These provisions
may also limit the ability of stockholders to approve transactions that they may
deem to be in their best interests.
  In addition, we have
agreements with certain employees to provide them with payments in the event of
changes of control which could add to the cost of acquiring the Company and
could also have a deterrent effect on a third party's decision to aquire the
Company.
  We
do not expect to pay any dividends for the foreseeable future.  Our
stockholders may never obtain a return on their investment.
 
 We do not
anticipate that we will pay any dividends to holders of our common stock in the
foreseeable future.  Instead, we plan to retain any earnings to
maintain and expand our existing operations and the development of our
products.  Accordingly, for the foreseeable future, investors must
rely on sales of their common stock after price appreciation, which may never
occur, as the only way to realize any return on their
investment.
 19
 ITEM 1B.
                UNRESOLVED
      STAFF COMMENTS
 
 None.
  ITEM 2.
                PROPERTIES
 
 The
following table sets forth information regarding the principal facilities we own
or lease, the location and approximate size of each such facility or the size of
the space leased at such property, and their designated use. We believe that
these facilities are in good condition, enable us to serve our customers
efficiently and are sufficient to meet our business needs for the foreseeable
future.
  
 Location
                  
                  Approximate
                    Square
                    Footage
                  
                  Operation
                  Type of
                    Holding
                  ExpirationGaithersburg,
      MD.*
                  
                  
                  57,410
                  
                  Office
                  Sublease
                  2008Gaithersburg,
      MD.
                  
                  
                  5,108
                  
                  Office
                  Sublease
                  2013Cambridge,
      MA.
                  
                  
                  19,093
                  
                  Administrative,
      R&D
                  Lease
                  201381,611
 *We agreed
to reimburse Ocimum for 50 % of the lease obligations for this facility for
2008.
   ITEM 3.
                LEGAL
      PROCEEDINGS
 
 We are not
currently a party to any legal proceedings that would have a material adverse
effect on our financial condition or results of operations.
 20
  ITEM 4.
                SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS
 
 A special
meeting of the shareholders of the Company was held on Monday, December 10,
2007, at which the shareholders approved the following proposals:
 ·
                The
      sale of the Company's Genomics Division associated with the Genomics
      Assets, which may be deemed to constitute a sale of substantially all of
      the Company's assets, to Ocimum Biosolutions, Inc. or its affiliate
      substantially upon the terms set forth in an asset purchase agreement
      dated as of October 14, 2007 by and between the Company, Ocimum and Ocimum
      (India) Biosolutions, Ltd.; and
 ·
                An
      amendment of the Amended and Restated Certificate of Incorporation of the
      Company to change the Company’s name to Ore Pharmaceuticals
      Inc.
 
 Because
the following proposal required approval by holders of the majority of
outstanding shares, and did not receive sufficient votes in favor, the
shareholders did not approve the following proposal:
 ·
                In
      the event, among others, that the Asset Purchase Agreement terminates for
      any reason, the sale by of all or substantially all of the Genomics
      Division assets to one or more third parties other than Ocimum on or
      before June 30, 2008 at a price not less than $6,000,000 and on such terms
      and conditions as the Board of Directors may
  approve.
 
 The
results of the voting at the special meeting were as follows:
 For
                
                Against
                
                AbstainSale
      of the Genomics Assets to Ocimum
                  Biosolutions
      Inc. or its affiliate
                
                18,287,190
                
                510,211
                
                892,574Sale
      of all or substantially all of the
                  Genomics
      Business assets to one or more
                  third
      parties other than Ocimum
                  Biosolutions
      Inc.
                
                12,463,737
                
                6,302,656
                
                923,582Amendment
      of the Amended and
                  Restated
      Certificate of Incorporation to
                  change
      the Company’s name to Ore
                  Pharmaceuticals
      Inc.
                
                17,498,983
                
                1,477,214
                
                713,778
 
 No other
matters were submitted to the shareholders at the special meeting.
  
 21
  Executive
Officers
 
 The
following table sets forth, as of March 10, 2008, information regarding the
names and ages of all our executive officers and their respective positions and
offices with us.
  Name
                  
                  Age
                  
                  PositionCharles
      L. Dimmler, III
                  65
                  
                  Chief
      Executive Officer and PresidentPhilip
      L. Rohrer, Jr.
                  
                  51
                  
                  Chief
      Financial OfficerF.
      Dudley Staples, Jr.
                  60
                  
                  Senior
      Vice President, Secretary and General CounselLarry
      Tiffany
                  
                  41
                  
                  Interim
      Head, Commercial Operations, Ore Pharmaceuticals Inc.President
      & Chief Executive Officer, DioGenix
Inc.
  Charles L. Dimmler, III has
served as President and Chief Executive Officer of the Company since March 2007.
From March 2004 until November 2006, Mr. Dimmler served as Executive Chairman,
and from August 2005 to November 2006, as Chief Executive Officer, of NOBEX
Corporation, a privately-held biopharmaceutical company.  Since
December 2003, Mr. Dimmler has served as Managing Principal of Newcastle Harbor,
LLC, a privately-held family asset management firm specializing in investments
in healthcare and life sciences enterprises.  From February 2001
through December 2003, Mr. Dimmler served as Chief Investment Officer of H.
Lundbeck A/S, a pharmaceutical company listed on the Copenhagen stock exchange
and Chief Executive Officer and Chairman of the Board of Directors of Lundbeck,
Inc., a wholly-owned subsidiary of H. Lundbeck A/S.  Mr. Dimmler has
served as a Director of the Company since May 1996.
 
 Philip L. Rohrer, Jr. has
served as Chief Financial Officer since prior to March 2003. Mr. Rohrer holds a
B.A. in biology from Hood College and an M.S.M. from
Frostburg State University.
 
 F. Dudley Staples, Jr. has
served as our Senior Vice President, Secretary and General Counsel since prior
to March 2003. Mr. Staples holds a J.D. degree from the University of Virginia
School of Law and a B.A. from Williams College.
 
 Larry Tiffany has served as a
senior vice president of the Company and President and Chief Executive
Officer, DioGenix Inc. since December 2007. Currently he is also designated as
Interim Head, Commercial Operations, Ore Pharmaceuticals. He was previously
Senior Vice President, General Manager, Genomics beginning in June 2006. Prior
to returning to Gene Logic, Mr. Tiffany was President and Chief Business Officer
of Genetraks, an Australian-based veterinary molecular diagnostics firm, from
August 2004 through June 2006. Prior to joining Genetraks, Mr. Tiffany was VP,
Worldwide Business Development for Gene Logic from prior to March 2003 until
July 2004. Mr. Tiffany holds a J.D. degree from
Franklin Pierce Law Center; a M.S. in Biotechnology from The
Johns Hopkins University; and a B.S. in Chemistry from
Nazareth College.
 
 
 22
  PART II
 
 ITEM 5.
                MARKET
      FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
 
 Price Range
of Common Stock
 
 Our Common
Stock is traded on the NASDAQ Stock Market under the symbol ORXE. Prior to
January 3, 2008, it traded under the symbol GLGC. The following table sets forth
information regarding the high and low closing prices for our Common Stock, for
the periods indicated.
 
 Year
      Ended December 31, 2007
                  
                  High
                  
                  
                  LowFirst
      Quarter
                  
                  $
                  2.88
                  
                  
                  $
                  1.50Second
      Quarter
                  
                  $
                  2.65
                  
                  
                  $
                  1.25Third
      Quarter
                  
                  $
                  1.76
                  
                  
                  $
                  1.17Fourth
      Quarter
                  
                  $
                  1.26
                  
                  
                  $
                  0.74Year
      Ended December 31, 2006First
      Quarter
                  
                  $
                  4.80
                  
                  
                  $
                  3.24Second
      Quarter
                  
                  $
                  4.65
                  
                  
                  $
                  1.27Third
      Quarter
                  
                  $
                  1.86
                  
                  
                  $
                  1.11Fourth
      Quarter
                  
                  $
                  2.08
                  
                  
                  $
                  1.38
  Holders
 
 On March
10, 2008, the last reported sale price of our Common Stock on the NASDAQ Stock
Market was $0.50. As of March 10, 2008, there were approximately 61
registered holders of record of our Common Stock, including one company, Cede
& Co., which is the Registered Nominee for the Depository Trust Company,
acting as holder of record for beneficial holders whose stock is held in street
name.
 
 Dividend
Policy
 
 Since we
became a public company, we have not paid dividends on our Common Stock.
Currently, we intend to retain future earnings, if any, to finance the growth
and development of our business and do not anticipate paying cash dividends for
the foreseeable future.
 
 
 23
 Graph, page 23
   Annual
      Return Percentage,Years
      Ending December 31,Company Name/Index
                  
                  2003
                  
                  2004
                  
                  2005
                  
                  2006
                  
                  2007Ore
      Pharmaceuticals Inc.
                  
                  -17.48
                  
                  -29.09
                  
                  -8.95
                  
                  -54.03
                  
                  -47.41NASDAQ
      Composite
                  
                  50.79
                  
                  9.16
                  
                  2.12
                  
                  10.39
                  
                  13.87NASDAQ
      Biotechnology
                  
                  45.74
                  
                  6.11
                  
                  2.82
                  
                  1.01
                  
                  4.59Base
      PeriodAnnual
      Return Percentage,Years
      Ending December 31,Company Name/Index
                  
                  2003
                  
                  2004
                  
                  2005
                  
                  2006
                  
                  2007Ore
      Pharmaceuticals Inc.
                  
                  82.52
                  
                  58.51
                  
                  53.27
                  
                  24.49
                  
                  12.88NASDAQ
      Composite
                  
                  150.79
                  
                  164.60
                  
                  168.08
                  
                  185.55
                  
                  211.29NASDAQ
      Biotechnology
                  
                  145.74
                  
                  154.64
                  
                  159.01
                  
                  160.62
                  
                  167.99
 
 
 24
 
 ITEM 6.
                SELECTED
      CONSOLIDATED FINANCIAL DATA
 
 The
selected consolidated financial data set forth below with respect to our
consolidated statements of operations for the years ended December 31, 2007,
2006 and 2005 and with respect to the consolidated balance sheets as of December
31, 2007 and 2006 have been derived from audited consolidated financial
statements included as part of this Form 10-K . The statements of
operations data for the years ended December 31, 2004 and 2003 and the balance
sheet data as of December 31, 2005, 2004 and 2003 are derived from audited
financial statements not included in this Form 10-K, after classifying the
operations of the Genomics and Preclinical Divisions as discontinued operations
(see Note 2 to the Consolidated Financial Statements included in Item 15(a) of
this Form 10-K).
  Year
      Ended December 31,2007
                  
                  
                  2006
                  
                  
                  2005
                  
                  
                  2004
                  
                  
                  2003(in
      thousands, except per share data)Revenue:Drug
      repositioning and development services
                  
                  $
                  1,596
                  
                  
                  $
                  36
                  
                  
                  $
                  588
                  
                  
                  $
                  -
                  
                  
                  $
                  -Expenses:Research
      and development
                  
                  
                  10,260
                  
                  
                  
                  8,403
                  
                  
                  
                  6,552
                  
                  
                  
                  1,215
                  
                  
                  
                  -Selling,
      general and administrative
                  
                  
                  11,101
                  
                  
                  
                  12,167
                  
                  
                  
                  13,159
                  
                  
                  
                  979
                  
                  
                  
                  -Total
      expenses
                  
                  
                  21,361
                  
                  
                  
                  20,570
                  
                  
                  
                  19,711
                  
                  
                  
                  2,194
                  
                  
                  
                  -Loss
      from operations
                  
                  
                  (19,765
                  )
                  
                  
                  (20,534
                  )
                  
                  
                  (19,123
                  )
                  
                  
                  (2,194
                  )
                  
                  -Interest
      (income), net
                  
                  
                  (1,988
                  )
                  
                  
                  (2,694
                  )
                  
                  
                  (2,625
                  )
                  
                  
                  (1,395
                  )
                  
                  
                  (1,652
                  )Other
      (income) expense
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (327
                  )Write-down
      of other-than-temporary declinein
      value of marketable securities available-for-sale
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  719
                  
                  
                  
                  -
                  
                  
                  
                  -Write-down
      of long-term equity investments
                  
                  
                  -
                  
                  
                  
                  275
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  4,268Loss
      from continuing operations
                  
                  
                  (17,777
                  )
                  
                  
                  (18,115
                  )
                  
                  
                  (17,217
                  )
                  
                  
                  (799
                  )
                  
                  
                  (2,289
                  )Loss
      from discontinued operations
                  
                  
                  (16,911
                  )
                  
                  
                  (36,595
                  )
                  
                  
                  (31,087
                  )
                  
                  
                  (27,721
                  )
                  
                  
                  (22,482
                  )Net
      loss
                  
                  $
                  (34,688
                  )
                  
                  $
                  (54,710
                  )
                  
                  $
                  (48,304
                  )
                  
                  $
                  (28,520
                  )
                  
                  $
                  (24,771
                  )Basic
      and diluted net loss per share:Loss
      from continuing operations
                  
                  $
                  (0.56
                  )
                  
                  $
                  (0.57
                  )
                  
                  $
                  (0.54
                  )
                  
                  $
                  (0.03
                  )
                  
                  $
                  (0.08
                  )Loss
      from discontinued operations
                  
                  
                  (0.53
                  )
                  
                  
                  (1.15
                  )
                  
                  
                  (0.98
                  )
                  
                  
                  (0.88
                  )
                  
                  
                  (0.74
                  )Net
      loss
                  
                  $
                  (1.09
                  )
                  
                  $
                  (1.72
                  )
                  
                  $
                  (1.52
                  )
                  
                  $
                  (0.91
                  )
                  
                  $
                  (0.82
                  )Shares
      used in computing basic and dilutednet
      loss per share
                  
                  
                  31,875
                  
                  
                  
                  31,807
                  
                  
                  
                  31,744
                  
                  
                  
                  31,493
                  
                  
                  
                  30,112Year
      Ended December 31,2007
                  
                  
                  2006
                  
                  
                  2005
                  
                  
                  2004
                  
                  
                  2003(in
      thousands)Consolidated
      Balance Sheets Data:Cash,
      cash equivalents and marketable securitesavailable-for-sale
                  
                  $
                  32,800
                  
                  
                  $
                  50,110
                  
                  
                  $
                  82,125
                  
                  
                  $
                  102,915
                  
                  
                  $
                  111,823Working
      capital
                  
                  
                  28,299
                  
                  
                  
                  43,214
                  
                  
                  
                  67,600
                  
                  
                  
                  96,059
                  
                  
                  
                  111,015Total
      assets
                  
                  
                  45,979
                  
                  
                  
                  90,273
                  
                  
                  
                  160,719
                  
                  
                  
                  207,081
                  
                  
                  
                  227,366Total
      long-term debt and capital lease agreements
                  
                  
                  528
                  
                  
                  
                  577
                  
                  
                  
                  825
                  
                  
                  
                  1,008
                  
                  
                  
                  1,174Total
      stockholders' equity
                  
                  
                  37,371
                  
                  
                  
                  71,090
                  
                  
                  
                  124,856
                  
                  
                  
                  172,828
                  
                  
                  
                  199,589
  
 25
  ITEM 7.
                MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
      CONDITION
 
 Ore
Pharmaceuticals is a drug repositioning and development company focused on
discovery of new indications for drugs and drug candidates.  Our
indication seeking program provides an efficient and cost-effective approach for
systematically uncovering a compound’s biological activity and identifying
potential new indications of therapeutic effects.  Our goal is to
provide to pharmaceutical companies drug compounds that have already been
successfully tested for safety in Phase I clinical trials and for which we have
identified new therapeutic uses that can be reinstated or introduced into their
development pipelines at Phase Ib or IIa of human clinical trial
testing.
  Our
objective is to produce income by:
 ·
                  Monetizing
      compounds from our own development pipeline through out-licensing or
      various forms of
   collaboration; and
 ·
                  Earning
      milestones and royalties from our pharmaceutical company partners who
      reinstate their compounds back into their own development pipelines for
      therapeutic uses we have
identified.
 
 We will
develop our own pipeline of drug compounds by identifying and analyzing
promising unpartnered compounds in the public domain and by acquiring rights to
develop partnered compounds for which we identify new therapeutic uses when our
partners choose not to reinstate compounds into their own
pipeline.  In 2006, we acquired certain rights to develop our first
proprietary compound from Millennium.  We have identified potential new
therapeutic uses for this clinical-stage, small molecule drug candidate (GL1001)
to treat inflammatory bowel disease (IBD) and other gastro-intestinal diseases
and conditions; GL1001 has shown indications of efficacy at relevant doses in
in vivo testing for
IBD.  The Company is conducting additional validation and development
testing and intends to initiate clinical testing in 2008 while actively seeking
to out-license or partner the further clinical development and commercialization
of GL1001.  We currently expect to file with the U.S. Food and Drug
Administration an Investigative New Drug Application (IND) for GL1001 during
mid-2008.
 
 We also
work with pharmaceutical companies to find new therapeutic uses for their
compounds.  To do that, we enter into partnership agreements with
pharmaceutical companies that provide us with access to their proprietary
compounds that have previously been assessed as safe in human clinical trials
and that have been subsequently discontinued in development.  We
currently have drug repositioning and development partnerships with eight
pharmaceutical partners: Pfizer, Inc., F. Hoffmann-La Roche Ltd, Eli Lilly and
Co., NV Organon, Abbott Laboratories, H. Lundbeck, Merck-Serono and
Solvay.  Under these agreements, our partners provide us with
compounds that we analyze using our indication seeking program to identify new
therapeutic uses.  Our drug repositioning and development agreements
vary somewhat as to specific terms, but generally, we are entitled to receive
success-based payments when certain milestones are achieved.  If all
milestones are achieved for a compound, the totals could range from $60-100+
million per compound.  If a compound is returned by our partners to
commercial development, we are entitled to receive royalty payments, as a
percentage of sales that range from single- to low double-digits and are
generally tiered according to sales volume.  In most cases, if our
partner decides not to take the compound back into development, we have an
option to obtain development rights for a pre-negotiated amount and our partner
would receive success-based milestone payments and royalties on
sales.
 
 Our
agreement with Organon involves co-ownership and co-development of repositioned
compounds, and it therefore differs substantially from our other
agreements.
 
 Once we
obtain actual supplies of the compounds, we apply at our own risk and expense
our indication seeking program to identify potential new uses for
them.  This program consists of genomics databases and bioinformatics
software developed by Ore Pharmaceuticals over the past ten years, and
proprietary biological screening technologies acquired from Millennium in 2004
that have undergone subsequent further development.  To date, we have
initiated evaluation of more than 100 compounds provided by our pharmaceutical
company partners.  We have been able to propose alternative
indications for approximately one third of the compounds for which the full
evaluations have been completed.  Some of the compounds for which we
have found new indications have or will progress to in vivo validation and/or
efficacy studies to evaluate and support their suitability for re-entering
clinical trials for the proposed new indications.  Typically, we pay
for the validation studies, subject in most cases to reimbursement from our
partners for costs in excess of an agreed amount.  After completion of
the initial validation study, a partner may wish to conduct additional studies
to learn more about the efficacy of the compound for the new indication before
deciding whether to reinstate the compound into its development pipeline.
 Generally, our partners would conduct these in vivo efficacy studies at
their own expense.  We expect that some portion of the partnered compounds
will have successful outcomes in the in vivo tests and will be
selected by our partners to re-enter clinical trials, but we do not yet have
sufficient data to estimate the rate of clinical trial re-entry.  We
do not expect to derive revenue from reinstatement of compounds into our
pharmaceutical partners’ pipelines until after 2008.
  
 26
  We expect
that our pharmaceutical partners will choose not to develop some of the
compounds for which we identify new uses for a variety of reasons that may
include: (i) insufficient effectiveness in treating the disease or
condition for which they were designed; (ii) safety and toxicity issues; (iii)
patient variability in responding to a compound; (iv) the new use may be in a
therapeutic area in which the partner is not involved; (v) the compound may
compete with another product that the partner has in development; (vi) competing
products may already be on the market and have established market acceptance;
(vii) the intellectual property and/or regulatory protection for the new
therapeutic use may not be adequate and (viii) insufficient potential
economic return for the company developing the compound.  In most
cases, we have the option to acquire development rights to candidates rejected
by our pharmaceutical partners for consideration, consisting of an initial
development fee and future development milestones and royalties on
sales.
 
 Our
transformation into a drug repositioning and development company, which began in
2004 with the biological screening technologies acquired from Millennium,
continued with the sale of our Genomics Assets in 2007 and Preclinical Division
in 2006. We also
continue to consider other strategic opportunities and paths to enhance
shareholder value, including but not limited to additional sources of funding
and new strategic relationships with pharmaceutical companies and other third
parties.
 
 In
December 2007, we completed the sale of our Genomics Assets to Ocimum for a
sales price of $10.0 million, of which $7.0 million was received at closing and
the balance is payable pursuant to a $3.0 million non-interest bearing
promissory note due 18 months from the date of closing.  The note has
been recorded in other assets, net of a discount of $0.3 million due to imputed
interest.  In connection with the sale of our Genomics Assets, we
agreed to indemnify Ocimum in the event of a breach of its representations and
warranties to, and agreements with, Ocimum.  Ocimum also assumed
certain liabilities relating to the Genomics Assets and the lease obligations of
our former Genomics laboratory and office facility, subject to our agreement to
reimburse Ocimum for 50% of the lease obligations for 2008 for space that we
currently intend to occupy.  In the event of Ocimum’s default under
the lease, which expires in February 2011, we could be liable for the amounts
due under the lease that could total $2.8 million (not including our lease
obligations in 2008).  Ocimum has deposited in escrow $0.8 million to
partially secure both Ocimum’s performance under the lease and payment of the
$3.0 million promissory note.  We have retained full rights in
perpetuity to use the databases of our former Genomics business, existing as of
closing, for our drug repositioning business.  We also retained
certain assets associated with our molecular diagnostics business and continue
to explore strategic alternatives for these assets. The Genomics Division
provided proprietary genomic and toxicogenomic databases, toxicogenomics
services, software tools and data generation and analysis and other related
services.
 
 In
December 2006, we completed the sale of Gene Logic Laboratories Inc., our
Preclinical Division, to Bridge Pharmaceuticals, Inc. (“Bridge”) for a sales
price of $15.0 million, of which $13.5 million was received at closing and $1.5
million was held in escrow for 12 months to guarantee certain obligations under
the agreement.  Of the amount held in escrow, $1.1 million was paid to
us in December 2007.  Substantially all of the remaining balance was
paid to us in early 2008.  Our guarantees of two leases formerly used
by our Preclinical Division continue in effect and Bridge agreed to indemnify us
with respect to such guarantees.  In the event of Bridge’s default
under these leases, which expire in February 2011 and December 2013, we could be
liable for the amounts due under the lease that total $1.7 million and $4.2
million, respectively.  The Preclinical Division provided contract
research services enabling customers to assess the safety and pharmacologic
effects of compounds.
 
 Operations
of both the Genomics Division and Preclinical Division up through the date of
sale, as well as the resulting loss on disposal have been classified as
discontinued operations in the accompanying financial statements.
 
 We have
incurred net losses in each year since our inception, including losses of $34.7
million in 2007, $54.7 million in 2006 and $48.3 million in 2005.  At
December 31, 2007, we had an accumulated deficit of $350.4
million.  Our losses have resulted principally from costs incurred
from our recently disposed of Genomics and Preclinical Divisions, and the
development of our Drug Repositioning and Development business.  These
costs have exceeded our revenue and we expect to incur additional losses in the
future.
 
 Results
of Continuing Operations
 
 With the
completion of the sale of our Genomics Assets in December 2007, the Genomics
Division has been classified as a “Discontinued Operation” for historical
financial statement purposes.  Previously, following its sale in
December 2006, our Preclinical Division had also been classified as a
Discontinued Operation.  Our remaining continuing operations consist
of our Drug Repositioning and Development business and, to a much lesser extent,
our molecular diagnostics business.  In addition, certain expenses
previously allocated to the operations that were discontinued that we have
subsequently determined would not be eliminated as a result of the divestitures,
have been re-allocated to Drug Repositioning and Development for all periods
presented.  Expenses for our molecular diagnostic business are also
included in our operating expenses from continuing operations; however, these
expenses are not considered material to Ore Pharmaceuticals.
  
 27
 
 Years
Ended December 31, 2007 and 2006
 
 Revenue.  Revenue
from continuing operations increased to $1.6 million in 2007 from less than $0.1
million in 2006.  During 2007 and 2006, one customer accounted for
greater than 10% of our total revenue.  The 2007 increase in revenue
resulted from a licensing agreement with H. Lundbeck for certain technology
rights unrelated to our core drug repositioning and development
business.  We expect to derive revenue primarily from the
out-licensing of our drug candidate, GL1001, and other compounds we may add to
our pipeline and the achievement of milestones and royalties under our drug
repositioning and development agreements.  We expect to begin to
generate revenue from out-licensing our drug candidate, GL1001, in late 2008,
which may not occur.
 
 Research and Development
Expense. Research and development expenses, which consist primarily of
costs associated with the evaluation of customer-supplied drug candidates and,
to a lesser degree, further development of our proprietary drug candidate,
GL1001, increased to $10.3 million for 2007 from $8.4 million for
2006.  The increase was primarily the result of an increase in the
number of in vivo
validation studies begun under the terms of our drug repositioning partnerships
and the 2007 amount includes $1.0 million in costs associated with further
development efforts for our clinical-stage compound, GL1001.  For
2008, we expect research and development expenses to increase modestly,
primarily as a result of further development of GL1001.
 
 Selling, General and Administrative
Expense. Selling, general and administrative expenses from continuing
operations, which consist primarily of sales, marketing, accounting, legal,
human resources and other general corporate expenses, decreased to $11.1 million
for 2007 from $12.2 million for 2006.  The decrease is largely due to
lower employee and facility related costs.  For 2008, we do not expect
an increase in selling, general and administrative expenses.
 
 Net Interest Income.Net
interest income decreased to $2.0 million for 2007 from $2.7 million for 2006,
due to the decline in the balance of our cash and cash equivalents and
marketable securities available-for-sale, partially offset by increases in our
rates of return on investments.
 
 Write-down of Equity
Investment. In connection with our investment in Xceed Molecular
(“Xceed”, formerly MetriGenix Corporation), we had been issued a warrant which
would enable us to maintain our ownership position in Xceed.  Under
the terms of the agreement, in 2006, the warrant was terminated and we recorded
a $0.3 million write-down of the fair value of this warrant.  At
December 31, 2007, the remaining book value of our investment in Xceed was $3.0
million, which we believe approximates fair value.
 
 Years
Ended December 31, 2006 and 2005
 
 Revenue.  Revenue
from continuing operations decreased to less than $0.1 million in 2006 from $0.6
million in 2005.  During 2006 and 2005, one customer accounted for
greater than 10% of our total revenue.  The decrease in 2006 reflects
the timing of work under a drug development agreement with Millennium which was
substantially completed in 2006.
 
 Research and Development
Expense. Research and development expenses increased to $8.4 million for
2006 from $6.6 million for 2005.  The increase was primarily the
result of large numbers of evaluations of drug candidates begun under the terms
of our drug repositioning partnerships.
 
 Selling, General and Administrative
Expense. Selling, general and administrative expenses decreased to $12.2
million for 2006 from $13.2 million for 2005.  The decrease is largely
due to lower employee and facility related costs.
 
 Net Interest Income.Net
interest income remained relatively flat at $2.7 million for 2006 compared to
$2.6 million for 2005.
 
 Write-down of Other-than-Temporary
Decline in the Value of Marketable Securities Available-for-Sale.In
2005, we recorded a $0.7 million write-down of our investment in Avalon
Pharmaceuticals, Inc., due to an other-than-temporary decline in its estimated
market value.
 
 
 28
  Liquidity
and Capital Resources
 
 From
inception through December 31, 2007, we have financed our operations and
acquisitions through the issuance and sale of equity securities and payments
from customers.  As of December 31, 2007, we had approximately $32.8
million in cash, cash equivalents and marketable securities available-for-sale,
compared to $50.1 million as of December 31, 2006.
 
 Net cash
from operating activities from continuing operations decreased to a negative
$17.7 million for 2007
from a negative $22.6
million for 2006, primarily due to the timing of customer payments and a $3.5
million payment in 2006 to Millennium.  We presently anticipate that
our use of cash for 2008 will be lower than for 2007, based on certain
assumptions as to revenue and cash receipts for 2008, including the possible
out-licensing of GL1001 in late 2008, which may not occur. However, we currently
expect our cash usage for the first half of 2008 to be higher than that for the
second half due in significant part to the timing of payments related to the
expenses incurred in connection with the sale of our Genomics Assets and
compensation expenses including retention, severance and bonus
payments.
  During
2007 and 2006, our investing activities consisted primarily of purchases and
sales of available-for-sale securities and capital
expenditures.  Capital expenditures for each of 2007 and 2006 were
relatively flat at $0.6 million.  For 2008, we do not expect the level
of capital expenditures to be significant.
 
 In
December 2007, upon completion of the sale of our Genomics Assets to Ocimum as
described above, we received $7.0 million in cash at closing less transaction
costs of $1.9 million; the balance of the sales price is payable pursuant
to a $3.0 million non-interest bearing promissory note due 18 months from the
date of closing.  Ocimum also assumed the lease obligations of our
former Genomics laboratory and office facility, subject to our agreeing to
reimburse Ocimum for 50% of the lease obligations for 2008 for space that we
currently intend to occupy and subject to any remaining liability we may have
under the lease if Ocimum fails to perform.
 
 In
December 2006, upon completion of the sale of Gene Logic Laboratories Inc., our
Preclinical Division, to Bridge as described above, we received $13.5 million in
cash at closing less transaction costs of $1.4 million and $1.5 million was held
in escrow for 12 months to guarantee certain obligations under the
agreement.  Of the amount held in escrow, $1.1 million was paid to us
in December 2007.  Substantially all of the remaining balance was paid
to us in early 2008.  In January 2007, we repaid $1.2 million to
Bridge in conjunction with the final reconciliation of cash balances associated
with the sale of our Preclinical Division.  In July 2007, we paid $0.7
million to Bridge for the final adjustment to the sale price.
 
 On March
14, 2008, we entered into an agreement with a member of our Board of Directors
to repurchase 4,602,127 shares owned directly or indirectly for $3.3 million
(the “Repurchase”).  In addition, we agreed to reimburse certain fees
and expenses amounting to $0.1 million associated with the Repurchase and to pay
Board retainer and meeting fees amounting to less than $0.1 million through the
remainder of the director’s term (through June 2009).  In connection
with the Repurchase, the director has resigned from the Company’s Board of
Directors and surrendered stock options for 30,000 shares of the Company’s
common stock previously granted.
 
 Specific
future financial commitments from continuing operations as of December 31, 2007
are set forth in the following table:
  Total
                  
                  
                  2008
                  
                  
                  2009
      & 2010
                  
                  
                  2011
      & 2012
                  
                  
                  Beyond
      2012Long-term
      debt
                  
                  $
                  531
                  
                  
                  $
                  504
                  
                  
                  $
                  27
                  
                  
                  $
                  -
                  
                  
                  $
                  -Operating
      leases
                  
                  
                  7,460
                  
                  
                  
                  1,479
                  
                  
                  
                  2,484
                  
                  
                  
                  2,573
                  
                  
                  
                  924Total
                  
                  $
                  7,991
                  
                  
                  $
                  1,983
                  
                  
                  $
                  2,511
                  
                  
                  $
                  2,573
                  
                  
                  $
                  924
  Assuming
we realize our objectives as to revenue and cash receipts for 2008, we believe
that existing cash, cash equivalents and marketable securities
available-for-sale and anticipated potential payments from the out-licensing of
our compounds will be sufficient to support our operations for at least the next
two years. We expect long-term support of our operations to come from additional
out-licensing payments (including up-front payments, milestones and royalties)
and milestones and royalties from our drug repositioning
partnerships.  These estimates are forward-looking statements that
involve risks and uncertainties.  Our actual future capital
requirements and the adequacy of our available funds will depend on many
factors, including those discussed under “Risks Factors” elsewhere in this Form
10-K.
  
 29
 Critical
Accounting Policies
 
 Our
consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States, which require management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period.  Actual results
could differ from these estimates.  The following discussion
highlights what we believe to be the critical accounting policies and judgments
made in the preparation of these consolidated financial statements.
 
 Revenue
Recognition
 
 Revenue is
recognized in accordance with the SEC’s Staff Accounting Bulletin No. 104,
“Revenue Recognition” (“SAB 104”).  SAB 104 requires that four basic
criteria be met before revenue can be recognized: 1) persuasive evidence of an
arrangement exists; 2) delivery has occurred or services rendered; 3) the fee is
fixed and determinable; and 4) collectability is reasonably
assured.  As to 1), our business practices require that our services
be performed pursuant to contracts with our customers.  As to 2), we
recognize revenue when services are rendered to our
customers.  Determination of 3) and 4) are based on management’s
judgments regarding the fixed nature of our arrangements taking into account
termination provisions and the collectability of fees under our
arrangements.  Should changes in conditions cause management to
determine these criteria are not met for certain future arrangements, revenue
recognized for any reporting period would be adjusted and could be adversely
affected.
 
 In
accordance with Emerging Issues Task Force Issue No. 00-21, “Revenue
Arrangements with Multiple Deliverables”, revenue recognized for any
multiple-element contract is allocated to each element of the arrangement based
on the relative fair value of the element.  The determination of fair
value of each element is based on our analysis of objective evidence from
comparable internal or third-parties’ sales of the individual
element.  If we are unable to determine evidence of fair value for an
undelivered element of the arrangement, revenue for the arrangement is deferred
and recognized using the revenue recognition method appropriate to the
predominant undelivered element.
 
 We expect
to enter into contractual arrangements with multiple deliverables.  If
we are unable to determine objectively and reliably the fair value of individual
undelivered elements, we recognize all revenue using the revenue recognition
method appropriate to the predominant undelivered element.  We also
defer the direct and incremental expenses associated with the delivery of
services for which revenue has been deferred and recognize these expenses as we
recognize the related revenue.  The timing of revenue recognition
associated with agreements we enter into in future periods may also be dependent
on our ability to objectively and reliably determine the fair value of
deliverables included in those agreements.
 
 Goodwill
and Intangible Assets Impairment
 
 In
connection with the sale of our Genomics Assets, we allocated $2.1 million of
goodwill to the disposition of such assets with the remaining amount of $0.6
million being allocated to our molecular diagnostics business.  The
allocation of goodwill was based on the respective fair values of each of our
Genomics Assets and molecular diagnostics business.
 
 Under
Statement of Financial Accounting Standards No. 142, “Goodwill and Other
Intangible Assets”, we are required to perform an annual impairment test of our
goodwill and periodic reviews of our other intangible assets.  In
addition, we are required to test for impairment at any point we have an
indication that impairment may exist.  We have elected to perform our
annual impairment test of goodwill as of October 1.  As part of our
annual testing of goodwill, we determined that no impairment existed in the
carrying value of goodwill.  This assessment was based on estimates of
fair value we obtained as a result of exploring our strategic alternatives for
both our Genomics business, as well as our molecular diagnostics
business.
 
 Our
assessment of fair value is dependent on subjective estimates we make of
inherently uncertain future net cash flows as a result of exploring our
strategic alternatives for our molecular diagnostics
business.  Accordingly, our estimates of future net cash flows may
change as market conditions and circumstances dictate.  Future
impairment tests of goodwill and other intangibles may result in additional
impairment charges based on these changing estimates.
 
 Equity
Investments
 
 Following
the write-down of $0.3 million in 2006, we hold an equity investment in one
company (Xceed Molecular, formerly MetriGenix) with a remaining book value of
$3.0 million as of December 31, 2007.  We record an investment
impairment charge when indicators of impairment exist and it is believed that an
investment has experienced a decline in value that is
other-than-temporary.  Future adverse changes in market conditions or
poor operating results of the underlying investee could result in our inability
to recover the carrying value of this investment that may not be reflected in
such an investment’s current carrying value, thereby possibly requiring an
impairment charge in the future.
 
 
 30
  Stock-Based
Compensation
 
 In 2006,
we adopted Statement of Financial Accounting Standards No. 123 (revised 2004),
“Share-Based Payment” (“SFAS 123R”).  SFAS 123R requires us to expense
the fair value of stock-based compensation awards of our various stock-based
compensation programs over the requisite service period of the
award.  We estimate the fair value of our stock-based compensation
using fair value pricing models which require the use of significant assumptions
for expected volatility of our common stock, life of stock options and
forfeiture rates.  Future adverse changes in such assumptions could
result in us recording increased stock-based compensation expenses for
stock-based compensation awards granted/issued in the future.
 
 Recently
Issued Accounting Pronouncements
 
 In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements.  SFAS 157 is effective for fiscal years
beginning after November 15, 2007.  In February 2008, the FASB decided
to issue a final Staff Position to allow a one-year deferral of adoption of SFAS
157 for non-financial assets and liabilities that are recognized or disclosed at
fair value in the financial statements on a nonrecurring basis.  The
FASB also decided to amend SFAS 157 to exclude FASB Statement No. 13 and its
related interpretive accounting pronouncements that address leasing
transactions.  We are currently evaluating the impact of this standard
and do not expect the adoption of SFAS 157 to have a material impact on our
financial statements.
 
 In July
2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (“FIN 48”), which prescribes a minimum recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position.  FIN 48 also provides guidance on derecognition,
measurement, classification, interest and penalties, accounting in interim
periods and disclosure and transition.  If a tax position does not
meet the more-likely-than-not initial recognition threshold, no benefit is
recorded in the financial statements.  We adopted FIN 48 on January 1,
2007 for which there was no cumulative effect of applying the provisions of this
interpretation.  We classify interest and penalties accrued on any
unrecognized tax benefits as a component of the provision for income
taxes.  There were no interest or penalties recognized in the
Consolidated Statement of Operations for the year ended December 31, 2007 and
the Consolidated Balance Sheet at December 31, 2007.  We do not
currently anticipate that the total amounts of unrecognized tax benefits will
significantly increase within the next 12 months.  We and our
subsidiaries filed consolidated and separate income tax returns in the United
States and in a number of state and foreign jurisdictions.  We are
subject to tax examination in its major tax jurisdictions for all years since
inception.
 
 In
December 2007, the FASB issued SFAS No. 141 Revised, “Business
Combinations” (“SFAS 141R”).  SFAS 141R revises SFAS 141,
“Business Combinations”.  SFAS 141R requires an acquirer to determine
the fair value of the consideration exchanged as of the acquisition date
(i.e., the date the acquirer obtains control).  Presently, an
acquisition is valued as of the date the parties agree upon the terms of the
transaction.  SFAS 141R also modifies, among other things, the
accounting for direct costs associated with an acquisition, contingencies
acquired and contingent consideration.  We will adopt SFAS 141R for
business combinations for which the acquisition date occurs after
January 1, 2009.
 
 ITEM 7A.
                QUANTITATIVE
      AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
 
 We have
exposure to financial market risks, including changes in interest rates and the
underlying credit of the U.S. Government and its agencies and corporate debt
issuers.  At December 31, 2007, we had cash and cash equivalents of
approximately $26.3 million and marketable securities available-for-sale of an
additional $6.5 million.  We invest our excess cash primarily in money
market funds, obligations of the U.S. Government and its agencies and marketable
debt securities of companies with strong credit ratings.  These
instruments have maturities of twenty-four months or less when
purchased.  We do not utilize derivative financial instruments,
derivative commodity instruments or other market risk sensitive instruments,
positions or transactions in any material fashion.  Accordingly, we
believe that, while the instruments we hold are subject to changes in the
financial standing of the issuer of such securities, we are not subject to any
material risks arising from changes in foreign currency exchange rates,
commodity prices, equity prices or other market changes that affect market risk
sensitive instruments.  Based on our cash and cash equivalents and
marketable securities available-for-sale balances at December 31, 2007, a
hypothetical 100 basis point adverse movement in interest rates would have
resulted in an increase in the loss from continuing operations of approximately
$0.3 million for the year ended December 31, 2007.  Actual changes in
rates may differ from the hypothetical assumptions used in computing this
exposure.
  
 31
  ITEM 8.
                FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
 
 Our
Consolidated Financial Statements and notes thereto, together with the Reports
of Independent Registered Public Accounting Firm, appear on pages F-1 through
F-20 of this Form 10-K and are incorporated herein by reference.
 
 ITEM 9.
                CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
 
 None.
 
 ITEM 9A.
                CONTROLS
      AND PROCEDURES
 
 Attached
as exhibits to this Form 10-K are certifications of our Chief Executive Officer
(CEO) and Chief Financial Officer (CFO), which are required in accordance with
Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”).  This “Controls and Procedures” section includes information
concerning the controls and controls evaluation referred to in the
certifications. Part II, Item 8 of this Form 10-K sets forth the report of Ernst
& Young LLP, our independent registered public accounting firm, regarding
its audit of our internal control over financial reporting.  This
section should be read in conjunction with the certifications and the Ernst
& Young LLP report for a more complete understanding of the topics
presented.
 
 Evaluation
of Disclosure Controls and Procedures
 
 As of
December 31, 2007, under the supervision and with the participation of our
management, including the Chief Executive Officer (“CEO”) and Chief Financial
Officer (“CFO”), an evaluation was performed of the effectiveness of the design
and operation of our “disclosure controls and procedures” (“Disclosure
Controls”).  These are controls and procedures designed to reasonably
assure that information required to be disclosed in our reports filed under the
Exchange Act, such as this Form 10-K, is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the United
States Securities and Exchange Commission (“SEC”).  Disclosure
Controls are also designed to reasonably assure that such information is
accumulated and communicated to our management, including the CEO and CFO as
appropriate, to allow timely decisions regarding required
disclosure.  Based on that evaluation, our CEO and CFO have concluded
that, as of December 31, 2007, our disclosure controls and procedures were
effective to provide reasonable assurance that information required to be
disclosed in our Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified by the SEC, and that material
information relating to us is made known to management, including the CEO and
CFO, particularly during the period when our periodic reports are being
prepared.
 
 Our
management, including the CEO and CFO, does not expect that our Disclosure
Controls or our internal control over financial reporting will prevent or detect
all errors and all instances of fraud.  A control system, no matter
how well designed and operated, can provide only reasonable, not absolute,
assurance that the control system’s objectives will be met.  The
design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs.  Further, because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all control issues
and instances of fraud, if any, within the Company have been
detected.  These inherent limitations include the realities that
judgments in decision-making can be faulty and that breakdowns can occur because
of simple error or mistake.  Controls can also be circumvented by the
individual acts of some persons, by collusion of two or more people, or by
management override of the controls.  The design of any system of
controls is based, in part, on certain assumptions about the likelihood of
future events and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future
conditions.  Projections of any evaluation of the effectiveness of
controls to future periods are subject to risks.  Over time, controls
may become inadequate because of changes in conditions or deterioration in the
degree of compliance with policies or procedures.
  
 32
  Management’s
Report on Internal Control Over Financial Reporting
 
 Our
management is responsible for establishing and maintaining adequate “internal
control over financial reporting” to provide reasonable assurance regarding the
reliability of our financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles.  Internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of
records that in reasonable detail accurately and fairly reflect the transactions
and dispositions of the assets of the company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the company’s assets that could have a
material effect on the financial statements.
 
 Under the
supervision and with the participation of our management, including our CEO and
CFO, we conducted an evaluation of the effectiveness of our internal control
over financial reporting as of December 31, 2007 based on the framework in Internal Control--Integrated
Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO).  Based on that evaluation, our management concluded that our
internal control over financial reporting was effective as of December 31, 2007
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external reporting purposes in
accordance with generally accepted accounting principles.
 
 The
effectiveness of our internal control over financial reporting as of the
December 31, 2007 has been audited by Ernst & Young LLP, an independent
registered public accounting firm, as stated in their report which is included
in Item 15(a) of this Form 10-K.
 
 Changes
In Internal Control Over Financial Reporting
 
 There were
no changes in our internal controls over financial reporting during the fourth
quarter of 2007 that materially affected or are reasonably likely to materially
affect our internal controls over financial reporting.
 
 ITEM 9B.
                OTHER
      INFORMATION
  None.
  PART III
 
 ITEM 10.
                DIRECTORS
      AND EXECUTIVE OFFICERS OF THE
REGISTRANT
 
 Identification
Of Directors
 
 The
information required by this item is incorporated by reference to the
information set forth in the section entitled “Election of Directors,” contained
in the Company’s definitive Proxy Statement for the 2008 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission within 120
days following the Company’s fiscal year ended December 31, 2007 (the “Proxy
Statement”).
 
 Identification
Of Executive Officers
 
 The
information required by this item is incorporated by reference to the
information set forth in the section entitled “Executive Officers” in Part I,
following Item 4 of this Form 10-K.
 
 Compliance
With Section 16(A) Of The Securities Exchange Act Of 1934
 
 The
information required by this item is incorporated by reference to the
information set forth in the section entitled “Section 16(a) Beneficial
Ownership Reporting Compliance,” contained in the Proxy Statement.
 
 33
 Code
Of Ethics
 
 The
information required by this item is incorporated by reference to the
information set forth in the section entitled “Corporate Governance,” contained
in the Proxy Statement.
 
 ITEM
11.                               EXECUTIVE
COMPENSATION
 
 The
information required by this item is incorporated by reference to the
information set forth in the section entitled “Executive Compensation,”
contained in the Proxy Statement.
 
 ITEM 12.
                SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      MATTERS
 
 The
information required by this item is incorporated by reference to the
information set forth in the section entitled “Security Ownership of Certain
Beneficial Owners and Management,” contained in the Proxy
Statement.
 
 ITEM
13.                             CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
 
 The
information required by this item is incorporated by reference to the
information set forth in the section entitled “Certain Transactions,” contained
in the Proxy Statement.
 
 ITEM
14.                              PRINCIPAL
ACCOUNTANT FEES AND SERVICES
 
 The
information required by this item is incorporated by reference to the
information set forth in the section entitled “Principal Accountant Fees and
Services,” contained in the Proxy Statement.
 
 PART IV
 
 ITEM 15.
                EXHIBITS,
      FINANCIAL STATEMENTS AND SCHEDULES
 
 (a)1.
Financial Statements
  Consolidated
      Financial Statements of Gene Logic Inc.
                  PageReport
      of Independent Registered Public Accounting Firm − Internal Control Over
      Financial Reporting
                  F-2Report
      of Independent Registered Public Accounting Firm − Consolidated Financial
      Statements
                  F-3Consolidated
      Balance Sheets as of December 31, 2007 and 2006
                  F-4Consolidated
      Statements of Operations for the three years ended December 31,
      2007
                  F-5Consolidated
      Statements of Stockholders' Equity for the three years ended December 31,
      2007
                  F-6Consolidated
      Statements of Cash Flows for the three years ended December 31,
      2007
                  F-7Notes
      to Consolidated Financial Statements
                  F-8
  (a)2.
Financial Statement Schedules
 
 Schedule
II – Valuation and Qualifying Accounts
 
 All other
schedules for which provision is made in the applicable accounting regulations
of the SEC are not required under the related instruction or are inapplicable
and therefore have been omitted.
 
 (a)3.
Index to Exhibits
 
 34
 Exhibit
                    Number
                  
                  Description of
      Document2.2
                  
                  Stock
      Purchase Agreement, dated December 15, 2006, between Registrant and Bridge
      Pharmaceuticals, Inc. (23)2.3
                  
                  Asset
      Purchase Agreement by and between Gene Logic inc. and Ocimum Biosolutions
      (India) Limited and Ocimum Biosolutions Inc. dated as of October 14, 2007.
      (30)2.3a
                  
                  Letter
      Agreement dated as of December 12, 2007 by and between Gene Logic Inc.,
      Ocimum Biosolutions, Inc. and Ocimum Biosolutions (India) Limited.
      (31)2.3b
                  
                  Letter
      Agreement dated as of December 14, 2007 by and between Gene Logic Inc.,
      Ocimum Biosolutions, Inc. and Ocimum Biosolutions (India) Limited.
      (31)3.1
                  
                  Amended
      and Restated Certificate of Incorporation filed November 26, 1997.
      (1)3.1.1
                  
                  Certificate
      of Amendment to Amended and Restated Certificate of Incorporation filed on
      December 18, 2007 changing Company name to Ore Pharmaceuticals
      (30)3.2
                  
                  By-Laws,
      as amended and restated as of December, 20 2007. (32)4.1
                  
                  Reference
      is made to Exhibits 3.1, 3.1.1 and 3.2.4.2
                  
                  Specimen
      stock certificate. (1)*10.1
                  
                  Form
      of Indemnity Agreement entered into between Registrant and its directors
      and officers. (1)*10.2
                  
                  Registrant's
      1997 Equity Incentive Plan, as amended (the "Stock Plan").
      (16)*10.3
                  
                  Form
      of Stock Option Agreement under the Stock Plan. (1)*10.4
                  
                  Form
      of Stock Option Grant Notice. (1)*10.5
                  
                  Registrant's
      Employee Stock Purchase Plan, as amended, and related offering document.
      (13)*10.6
                  
                  Registrant's
      1997 Non-Employee Directors' Stock Option Plan, as amended.
      (2)*10.7
                  
                  Form
      of Nonstatutory Stock Option under the 1997 Non-Employee Directors' Stock
      Option Plan. (1)*10.12
                  
                  Employment
      Agreement, dated June 7, 2001, between the Registrant and Michael J.
      Brennan. (12)*10.14
                  
                  Employment
      Agreement, dated May 16, 1996, between the Registrant and Mark D. Gessler.
      (1)*10.15
                  
                  Amendment
      to the Employment Agreement, dated July 9, 1997, between the Registrant
      and Mark D. Gessler. (1)10.22
                  
                  Lease
      Agreement, dated August 22, 1997, between Registrant and ARE-708 Quince
      Orchard, LLC. (1)10.22a
                  
                  First
      Amendment to Lease, dated July 21, 2000, between Registrant and ARE-708
      Quince Orchard, LLC. (7)*10.45
                  
                  Amended
      and Restated Employment Agreement, dated April 1, 1999, between Registrant
      and Y. Douglas Dolginow. (3)10.50
                  
                  Agreement,
      effective January 1, 2002, between Registrant and Affymetrix.
      (superceded)(10)10.50a
                  
                  Letter
      Agreement, amending Agreement effective January 1, 2002, between
      Registrant and Affymetrix, Inc. (superceded)(5)(B)10.50b
                  
                  Service
      Provider Agreement, effective January 1, 2006, between Registrant and
      Affymetrix, Inc. (21)10.50c
                  
                  Biotech
      Access Agreement, effective January 1, 2007, between Registrant and
      Affymetrix, Inc. (27)10.50d
                  
                  Service
      Provider Agreement, effective January 1, 2007, between Registrant and
      Affymetrix, Inc. (27)*10.55
                  
                  Executive
      Severance Plan, as amended February 2001. (8)*10.58
                  
                  Employment
      Agreement, dated October 11, 1999, between Registrant and Philip L.
      Rohrer, Jr. (4)*10.58a
                  
                  Second
      Amendment to Executive Employment Agreement, dated as of February 23,
      2007, between registrant and Philip L. Rohrer, Jr. (28)*10.58b
                  
                  Third
      Amendment to Executive Employment Agreement, dated as of January 1, 2008,
      between Registrant and Philip L. Rohrer, Jr. to be filed with Q1 10Q.
      (28)10.67
                  
                  Lease
      Agreement, dated July 21, 2000 between Registrant and ARE-50 West Watkins
      Mill, LLC. (6)*10.75
                  
                  Employment
      Agreement, dated May 30, 2002, between Registrant and F. Dudley Staples,
      Jr. (11)10.78
                  
                  Settlement
      and Nonexclusive License Agreement, dated January 10, 2001, between
      Registrant and Incyte Corporation. (15)(A)10.79
                  
                  Lease
      Agreement, dated November 20, 1999, between TherImmune Research
      Corporation and Rickman Associates. (15)10.80
                  
                  Lease
      Agreement for 620 Professional Drive, dated October 26, 2000, between
      TherImmune Research Corporation and Oxbridge Development at Crown Pointe,
      L.C. (15)10.80a
                  
                  Guarantee
      of Lease Agreement dated April 1, 2003, between Gene Logic Inc. and
      Oxbridge Development at Crown Pointe, L.C. (28)10.81
                  
                  Lease
      Agreement for 610 Professional Drive, dated June 22, 2001, between
      TherImmune Research Corporation and Oxbridge Development at Crown Pointe,
      L.C., including amendments dated September 25, 2001 and December 20, 2002.
      (15)10.81a
                  
                  Third
      Amendment to Lease dated June 22, 2001, between TherImmune Research
      Corporation and Oxbridge
  
 35  10.81b
                  
                  Guarantee
      of Lease Agreement dated April 1, 2004, between Gene Logic Inc. and
      Oxbridge Development at Crown Pointe, L.C. (28)*10.83
                  
                  Employment
      Agreement, dated November 4, 2004, between Registrant and Dennis A. Rossi.
      (17)*10.84
                  
                  Employment
      Agreement, dated November 4, 2004, between Registrant and Joanne M.
      Smith-Farrell. (17)10.85
                  
                  Asset
      Purchase Agreement, dated July 22, 2004, between Registrant and Millennium
      Pharmaceuticals, Inc. (17)(B)10.85a
                  
                  Compound
      Transfer and Development Agreement, dated July 26, 2006, between
      Registrant and Millennium Pharmaceuticals, Inc. (34)(C)10.86
                  
                  Lease
      Agreement, dated July 31, 2004, between Registrant and Thirty-Eight Sidney
      Street Limited Partnership. (17)10.87
                  
                  Lease
      Agreement, dated October 5, 2004, between Registrant and ARE-Maryland No.
      23, LLC. (5)10.87a
                  
                  Agreement
      for Termination of Lease and Voluntary Surrender of Premises dated
      September 28, 2006, between Registrant and ARE-Maryland No. 23, LLC.
      (22)*10.88
                  
                  Employment
      Agreement, dated March 10, 2005, between Registrant and V.W. Brinkerhoff,
      III. (20)*10.88a
                  
                  Second
      Amendment to Employment Agreement, dated February 23, 2007, between
      Registrant and V. W. Brinkerhoff, III. (28)10.90
                  
                  License
      and Sublicense Agreement, dated September 12, 2005, between Registrant and
      Promega Corporation. (14)(C)10.91
                  
                  License
      Agreement for Real-Time In Vivo Imaging Technology, effective November 17,
      2004, between Registrant and Xenogen Corporation.
  (14)(C)10.91a
                  
                  Amendment
      to License Agreement for Real-Time In Vivo Imaging Technology, effective
      November 22, 2005, between Registrant and Xenogen Corporation.
      (14)(C)*10.92
                  
                  2006
      Performance Year Incentive Compensation Plan. (14)10.92a
                  
                  2007
      Performance Year Incentive Compensation Plan. (28)*10.93
                  
                  Employment
      Agreement, dated June 21, 2006, between Registrant and Larry Tiffany.
      (24)*10.93b
                  
                  Amendment
      to Employment Agreement, dated December 6, 2006 between Registrant and
      Larry Tiffany. (28)*10.93c
                  
                  Executive
      Employment Agreement, dated February 1, 2007, between Registrant and Larry
      Tiffany. (28)*10.94
                  
                  Amendment
      to Employment Agreement, dated August 31, 2006, between Registrant and
      Larry Tiffany. (25)*10.95
                  
                  Amendment
      to Employment Agreement, dated October 24, 2006, between Registrant and
      each of Mark D. Gessler, Philip L. Rohrer, Jr., F. Dudley Staples, Joanne
      Smith-Farrell and Louis A. Tartaglia. (26)*10.96
                  
                  Form
      of Restricted Stock Agreement under the Stock Plan.
(28)*10.97
                  
                  Employment
      Agreement, signed July 9, 2007, between Registrant and Charles L. Dimmler,
      III (28)10.98
                  
                  Advisory
      Services Agreement between Registrant and Louis Tartaglia, dated as of
      October 26, 2007. (33)10.99
                  
                  Asset
      Purchase Agreement by and between Gene Logic inc. and Ocimum Biosolutions
      (India) Limited and Ocimum Biosolutions Inc. dated as of October 14, 2007.
      (30)10.99a
                  
                  Amendment
      1 to the Asset Purchase Agreement dated as of December 12, 2007 by and
      between Gene Logic Inc., Ocimum Biosolutions, Inc. and Ocimum Biosolutions
      (India) Limited. (31)10.99b
                  
                  Amendment
      2 to the Asset Purchase Agreement dated as of December 14, 2007 by and
      between Gene Logic Inc., Ocimum Biosolutions, Inc. and Ocimum Biosolutions
      (India) Limited. (31)10.100
                  
                  License
      Agreement dated as of December 14, 2007 by and between Gene Logic Inc. and
      Ocimum Biosolutions, Inc. (31)10.101
                  
                  License
      Agreement dated as of December 14, 2007 by and between Gene Logic Inc. and
      Ocimum Biosolutions, Inc. (31)10.102
                  
                  Secured
      Note dated as of December 14, 2007 from Ocimum Biosolutions (India)
      Limited and Ocimum Biosolutions, Inc. to Gene Logic Inc.
    (31)10.103
                  
                  Sublease
      dated as of December 14, 2007 by and between Gene Logic Inc. and Ocimum
      Biosolutions, Inc. (31)21.1
                  
                  List
      of Subsidiaries.23.1
                  
                  Consent
      of Ernst & Young LLP, Independent Registered Public Accounting
      Firm.31
                  
                  Certifications
      pursuant to Rule 13a-14(a) and 15d-14(a).32
                  
                  Certification
      pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.__________________________________________*
                  
                  Indicates
      management compensatory plan, contract or arrangement.(1)
                  
                  Filed
      as an exhibit to Registrant’s Registration Statement on Form S-1, filed
      October 7, 1997, as amended, (No. 333-37317) and incorporated herein by
      reference.
  
 36
 (2)
                Filed
      as an exhibit to Registrant’s Current Report on Form 8-K, filed on June 6,
      2005, and incorporated herein by
reference.
 
 (3)
                Filed
      as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended June 30, 1999, filed on August 13, 1999, and incorporated
      herein by reference.
 
 (4)
                Filed
      as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal
      year ended December 31, 1999, filed on March 30, 2000, and incorporated
      herein by reference.
 
 (5)
                Filed
      as an exhibit to Registrant’s Annual Report on From 10-K for the fiscal
      year ended December 31, 2004, filed on March 16, 2005, and incorporated
      herein by reference.
 
 (6)
                Filed
      as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2000, filed on November 14, 2000, and
      incorporated herein by reference.
 
 (7)
                Filed
      as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal
      year ended December 31, 2000, filed on March 29, 2001, and incorporated
      herein by reference.
 
 (8)
                Filed
      as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended March 31, 2001, filed on May 11, 2001, and incorporated
      herein by reference.
 
 (9)
                Filed
      as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal
      year ended December 31, 2002, filed on March 19, 2003, and incorporated
      herein by reference.
 
 (10)
                Filed
      as an exhibit to Registrant’s Annual Report on Form 10-K/A for the fiscal
      year ended December 31, 2001, filed on July 31, 2003, and incorporated
      herein by reference.
 
 (11)
                Filed
      as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended June 30, 2002, filed on August 9, 2002, and incorporated
      herein by reference.
 
 (12)
                Filed
      as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal
      year ended December 31, 2001, filed on March 28, 2002, and incorporated
      herein by reference.
 
 (13)
                Filed
      as an exhibit to Registrant’s Proxy Statement with respect to the Annual
      Meeting of Stockholders held on June 5, 2003, filed on April 25, 2003, and
      incorporated herein by reference.
 
 (14)
                Filed
      as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal
      year ended December 31, 2005, filed on March 16, 2006, and incorporated
      herein by reference.
 
 (15)
                Filed
      as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended June 30, 2003, filed on August 14, 2003, and incorporated
      herein by reference.
 
 (16)
                Filed
      as an exhibit to Registrant’s Proxy Statement with respect to the Annual
      Meeting of Stockholders held on June 1, 2006, filed on April 24, 2006, and
      incorporated herein by reference.
 
 (17)
                Filed
      as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2004, filed on November 9, 2004, and
      incorporated herein by reference.
 
 (18)
                Filed
      as an exhibit to Registrant’s Current Report on Form 8-K with respect to
      the Company’s amended By-Laws to provide for a non-executive Chairman of
      the Board of Directors, filed on November 12, 2004, and incorporated
      herein by reference.
 
 (19)
                Filed
      as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal
      year ended December 31, 2003, filed on March 15, 2004, and incorporated
      herein by reference.
 
 (20)
                Filed
      as an exhibit to Registrant’s Current Report on Form 8-K with respect to
      the Company’s hiring of V. W. Brinkerhoff, III as Senior Vice President
      and General Manager, Gene Logic Laboratories, filed on March 10, 2005, and
      incorporated herein by reference.
  
 37
  (21)
                Filed
      as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended March 31, 2006, filed on May 10, 2006, and incorporated
      herein by reference.
 
 (22)
                Filed
      as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2006, filed on November 9, 2006, and
      incorporated herein by reference.
 
 (23)
                Filed
      as an exhibit to Registrant’s Current Report on Form 8-K with respect to
      the Company’s sale of its Preclinical Division, filed on December 21,
      2006, and incorporated herein by
reference.
 
 (24)
                Filed
      as an exhibit to Registrant’s Current Report on Form 8-K with respect to
      the Company’s employment of Larry Tiffany, filed on June 30, 2006, and
      incorporated herein by reference.
 
 (25)
                Filed
      as an exhibit to Registrant’s Current Report on Form 8-K with respect to
      the Company’s employment of Larry Tiffany, filed on September 7, 2006, and
      incorporated herein by reference.
 
 (26)
                Filed
      as an exhibit to Registrant’s Current Report on Form 8-K with respect to
      the Company’s employment of the named executives, filed on October 24,
      2006, and incorporated herein by
reference.
  (27)
                Filed
      as an exhibit to Registrant’s Current Report on Form 8-K with respect to
      Board approval of the 2006 Performance Year Incentive Compensation Plan,
      filed on March 1, 2006, and incorporated herein by
    reference.
  (28)
                Filed
      as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended March 31, 2007, filed on May 10, 2007, and incorporated
      herein by reference.
  (29)
                Filed
      as an exhibit to Registrant’s Current Report on Form 8-K/A with respect to
      the Company’s employment of the named executives, filed on July 12, 2007,
      and incorporated herein by
reference.
  (30)
                Filed
      as an exhibit to Registrant’s Proxy Statement on Form DEFA14A with respect
      to the Special Meeting of Stockholders held on December 14, 2007, filed on
      October 18, 2007, and incorporated herein by
  reference.
  (31)
                Filed
      as an exhibit to Registrant’s Current Report on Form 8-K with respect to
      the Company’s entry into certain material agreements, filed on December
      18,  2007, and incorporated herein by
  reference.
  (32)
                Filed
      as an exhibit to Registrant’s Current Report on Form 8-K with respect to
      an amendment to the By-laws, filed on December 20, 2007, and incorporated
      herein by reference.
  (33)
                Filed
      as an exhibit to Registrant’s Current Report on Form 8-K/A with respect to
      an advisory services agreement, filed on October 18, 2007, and
      incorporated herein by reference.
  (34)
                Filed
      as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal
      year ended December 31, 2007, filed on March 14, 2008, and incorporated
      herein by reference.
 
 (A)
                Confidential
      treatment has been granted with respect to certain portions of this
      exhibit pursuant to an Order Granting Application Under the Securities
      Exchange Act of 1934 and Rule 24b-2 Thereunder Respecting Confidential
      Treatment dated December 12, 2003.
 
 (B)
                Confidential
      treatment has been granted with respect to certain portions of this
      exhibit pursuant to an Order Granting Application Under the Securities
      Exchange Act of 1934 and Rule 24b-2 Thereunder Respecting Confidential
      Treatment dated May 5, 2005.
 
 (C)
                Confidential
      treatment has been requested with respect to certain portions of this
      exhibit. Omitted portions have been filed separately with the
      SEC.
 
 
 38
 
 SIGNATURE
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, on the 14th day of
March, 2008.
   ORE PHARMACEUTICALS
      INC.By:
      /s/
      CHARLES L. DIMMLER, IIICharles L. Dimmler,
      IIIChief Executive
      Officer and President
  Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
   Name
                  
                  Position
                  
                  Date/s/ CHARLES L.
      DIMMLER, III
                  
                  Chief
      Executive Officer,
                  
                  March
      14, 2008(Charles
      L. Dimmler, III)
                  
                  President
      and Director(Principal
      Executive Officer)/s/
      PHILIP L. ROHRER, JR.
                  
                  Chief
      Financial Officer
                  
                  March
      14, 2008(Philip
      L. Rohrer, Jr.)
                  
                  (Principal
      Financial andAccounting
      Officer)/s/ MICHAEL J.
      BRENNAN
                  
                  Director
                  
                  March
      14, 2008(Michael
      J. Brennan, M.D., Ph.D.)/s/ FRANK L.
      DOUGLAS
                  
                  Director
                  
                  March
      14, 2008(Frank
      L. Douglas, M.D, Ph.D.)/s/
      MARK GABRIELSON
                  
                  Director
                  
                  March
      14, 2008(Mark
      Gabrielson)/s/
      MARK D. GESSLER
                  
                  Director
                  
                  March
      14, 2008(Mark
      D. Gessler)/s/ G. ANTHONY
      GORRY
                  
                  Director
                  
                  March
      14, 2008(G.
      Anthony Gorry, Ph.D.)/s/ J. STARK
      THOMPSON
                  
                  Chairman
      of the Board
                  
                  March
      14, 2008(J.
      Stark Thompson, Ph.D.)/s/ DAVID
      URDAL
                  
                  Director
                  
                  March
      14, 2008(David
      Urdal, Ph.D.)




Ore
Pharmaceuticals Inc. (formerly Gene Logic Inc.)





Index
to Consolidated Financial Statements





PageReport of Independent Registered Public Accounting Firm –
      Internal Control Over Financial Reporting
            F-2Report of Independent Registered Public Accounting Firm –
      Consolidated Financial Statements
            F-3Consolidated Balance Sheets as of December 31, 2007 and
      2006
            F-4Consolidated Statements of Operations for the three years ended
      December 31, 2007
            F-5Consolidated Statements of Stockholders’ Equity for the three
      years ended December 31, 2007
            F-6Consolidated Statements of Cash Flows for the three years ended
      December 31, 2007
            F-7Notes to Consolidated Financial Statements
            F-8




F-1


Report of Independent Registered Public Accounting Firm
–





Internal
Control Over Financial Reporting





The Board
of Directors and Stockholders of Ore Pharmaceuticals Inc. (formerly Gene Logic
Inc.):





We have
audited Ore Pharmaceuticals Inc.’s (formerly Gene Logic Inc.) internal control
over financial reporting as of December 31, 2007, based on criteria established
in Internal Control–Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). Ore Pharmaceuticals Inc.’s (formerly
Gene Logic Inc.) management is responsible for maintaining effective internal
control over financial reporting included in the accompanying Management’s
Report on Internal Control Over Financial Reporting.  Our
responsibility is to express an opinion on the company’s internal control over
financial reporting based on our audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.





A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.





Because of
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





In our
opinion, Ore Pharmaceuticals Inc. (formerly Gene Logic Inc.) maintained, in all
material respects, effective internal control over financial reporting as of
December 31, 2007, based on the COSO criteria.





We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Ore
Pharmaceuticals Inc. (formerly Gene Logic Inc.) and subsidiaries as of December
31, 2007 and 2006, and the related consolidated statements of operations,
stockholders’ equity, and cash flows for each of the three years in the period
ended December 31, 2007 of Ore Pharmaceuticals Inc. (formerly Gene Logic Inc.)
and subsidiaries, and our report dated March 14, 2008 expressed an unqualified
opinion thereon.








/s/ Ernst
& Young LLP








Baltimore,
Maryland


March 14,
2008


F-2


Report of Independent Registered Public Accounting Firm
–





Consolidated
Financial Statements





The Board
of Directors and Stockholders Ore Pharmaceuticals Inc. (formerly Gene Logic
Inc.):





We have
audited the accompanying consolidated balance sheets of Ore Pharmaceuticals Inc.
(formerly Gene Logic Inc.) and subsidiaries as of December 31, 2007 and 2006,
and the related consolidated statements of operations, stockholders’ equity, and
cash flows for each of the three years in the period ended December 31, 2007.
Our audits also included the financial statement schedule listed in the Index at
Item 15(a). These financial statements and schedule are the responsibility of
the Company’s management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.





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





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Ore Pharmaceuticals
Inc. (formerly Gene Logic Inc.) and subsidiaries at December 31, 2007 and 2006,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 2007 in conformity with U.S.
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.





As
discussed in Note 1 to the consolidated financial statements, in 2006, the
Company changed its method of accounting for stock-based compensation upon the
adoption of Statement of Financial Accounting Standard No. 123(R), “Share-Based
Payments”.





We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Ore Pharmaceuticals Inc.’s (formerly Gene Logic
Inc.) internal control over financial reporting as of December 31, 2007, based
on criteria established in Internal Control–Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 14, 2008 expressed an unqualified
opinion thereon.








/s/ Ernst
& Young LLP








Baltimore,
Maryland


March 14,
2008








F-3


ORE PHARMACEUTICALS INC. (FORMERLY GENE LOGIC INC.)





Consolidated
Balance Sheets


as
of December 31, 2007 and 2006


(in
thousands, except share data)






2007
            
            
            2006ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            26,323
            
            
            $
            25,700Marketable
      securities available-for-sale
            
            
            6,477
            
            
            
            24,410Accounts
      receivable, net of allowance of $0 and $45 in 2007 and 2006,
      respectively
            
            
            1,953
            
            
            
            3,327Prepaid
      expenses
            
            
            910
            
            
            
            367Other
      current assets
            
            
            1,185
            
            
            
            2,658Assets
      of discontinued operations
            
            
            -
            
            
            
            4,555Total current assets
            
            
            36,848
            
            
            
            61,017Property
      and equipment, net
            
            
            2,101
            
            
            
            2,922Long-term
      investment
            
            
            2,964
            
            
            
            2,964Goodwill
            
            
            554
            
            
            
            554Other
      intangibles, net
            
            
            836
            
            
            
            355Other
      assets
            
            
            2,676
            
            
            
            726Assets
      of discontinued operations
            
            
            -
            
            
            
            21,735Total assets
            
            $
            45,979
            
            
            $
            90,273LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
            
            $
            1,120
            
            
            $
            3,703Payable
      to Bridge Pharmaceuticals
            
            
            -
            
            
            
            1,727Accrued
      compensation and employee benefits
            
            
            2,516
            
            
            
            2,080Other
      accrued expenses
            
            
            2,912
            
            
            
            3,947Accrued
      restructuring costs
            
            
            -
            
            
            
            1,941Current
      portion of long-term debt
            
            
            501
            
            
            
            499Deferred
      revenue
            
            
            1,500
            
            
            
            -Liabilities
      of discontinued operations
            
            
            -
            
            
            
            3,906Total
      current liabilities
            
            
            8,549
            
            
            
            17,803Long-term
      debt, net of current portion
            
            
            27
            
            
            
            78Deferred
      rent
            
            
            32
            
            
            
            79Liabilities
      of discontinued operations
            
            
            -
            
            
            
            1,223Total
      liabilities
            
            
            8,608
            
            
            
            19,183Commitments
      and contingencies
            
            
            -
            
            
            
            -Stockholders'
      equity:Preferred
      stock, $.01 par value; 10,000,000 shares authorized; and no shares
      issuedand
      outstanding as of December 31, 2007 and 2006
            
            
            -
            
            
            
            -Common
      stock, $.01 par value; 60,000,000 shares authorized; 32,242,588
      and31,820,273
      shares issued and outstanding as of December 31, 2007 and 2006,
      respectively
            
            
            322
            
            
            
            318Additional
      paid-in-capital
            
            
            387,463
            
            
            
            386,530Accumulated
      other comprehensive loss
            
            
            (46
            )
            
            
            (78
            )Accumulated
      deficit
            
            
            (350,368
            )
            
            
            (315,680
            )Total
      stockholders' equity
            
            
            37,371
            
            
            
            71,090Total
      liabilities and stockholders' equity
            
            $
            45,979
            
            
            $
            90,273See
      accompanying notes.






F-4




ORE PHARMACEUTICALS INC. (FORMERLY GENE LOGIC INC.)





Consolidated
Statements of Operations


For
the Years Ended December 31, 2007, 2006 and 2005


(in
thousands, except per share data)







2007
              
              
              2006
              
              
              2005Revenue:Drug
      repositioning and development services
              
              $
              1,596
              
              
              $
              36
              
              
              $
              588Expenses
      (1):Research
      and development
              
              
              10,260
              
              
              
              8,403
              
              
              
              6,552Selling,
      general and administrative
              
              
              11,101
              
              
              
              12,167
              
              
              
              13,159Total
      expenses
              
              
              21,361
              
              
              
              20,570
              
              
              
              19,711Loss
      from operations
              
              
              (19,765
              )
              
              
              (20,534
              )
              
              
              (19,123
              )Interest
      (income), net
              
              
              (1,988
              )
              
              
              (2,694
              )
              
              
              (2,625
              )Write-down
      of other-than-temporary decline in the value ofmarketable
      securities available-for-sale
              
              
              -
              
              
              
              -
              
              
              
              719Write-down
      of long-term equity investment
              
              
              -
              
              
              
              275
              
              
              
              -Loss
      from continuing operations
              
              
              (17,777
              )
              
              
              (18,115
              )
              
              
              (17,217
              )Loss
      from discontinued operations (1)
              
              
              (16,911
              )
              
              
              (36,595
              )
              
              
              (31,087
              )Net
      loss
              
              $
              (34,688
              )
              
              $
              (54,710
              )
              
              $
              (48,304
              )Basic
      and diluted net loss per share:Loss
      from continuing operations
              
              $
              (0.56
              )
              
              $
              (0.57
              )
              
              $
              (0.54
              )Loss
      from discontinued operations
              
              
              (0.53
              )
              
              
              (1.15
              )
              
              
              (0.98
              )Net
      loss
              
              $
              (1.09
              )
              
              $
              (1.72
              )
              
              $
              (1.52
              )Shares
      used in computing basic and diluted net loss per share
              
              
              31,875
              
              
              
              31,807
              
              
              
              31,744(1)
      Line items include non-cash stock compensation expense as follows (see
      Note 1):Research
      and development
              
              $
              268
              
              
              $
              92
              
              
              $
              -Selling,
      general and administrative
              
              
              415
              
              
              
              165
              
              
              
              -Loss
      from discontinued operations
              
              
              244
              
              
              
              532
              
              
              
              -Total
      non-cash stock compensation expense
              
              $
              927
              
              
              $
              789
              
              
              $
              -See
      accompanying notes.





F-5


ORE PHARMACEUTICALS INC. (FORMERLY GENE LOGIC INC.)





Consolidated
Statements of Stockholders’ Equity


For
the Years Ended December 31, 2005, 2006 and 2007


(in
thousands, except number of shares)







Stockholder's
      EquityAccumulatedCommon
      Stock
              
              
              Additional
              
              
              OtherNumber
              
              
              Par
              
              
              Paid-In
              
              
              Comprehensive
              
              
              Accumulated
              
              
              Comprehensiveof
      Shares
              
              
              Value
              
              
              Capital
              
              
              Income
      (Loss)
              
              
              Defecit
              
              
              LossBalance
      at January 1, 2005
              
              
              31,654,413
              
              
              $
              317
              
              
              $
              385,313
              
              
              $
              (136
              )
              
              $
              (212,666
              )
              
              $
              -Issuance
      of common stock in connection withexercise
      of stock options
              
              
              54,609
              
              
              
              -
              
              
              
              111
              
              
              
              -
              
              
              
              -
              
              
              
              -Issuance
      of common stock in connection withEmployee
      Stock Purchase Plan
              
              
              62,813
              
              
              
              1
              
              
              
              162
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      change in unrealized gains frommarketable
      securities
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              58
              
              
              
              -
              
              
              $
              58Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (48,304
              )
              
              
              (48,304
              )Comprehensive
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              $
              (48,246
              )Balance
      at December 31, 2005
              
              
              31,771,835
              
              
              $
              318
              
              
              $
              385,586
              
              
              $
              (78
              )
              
              $
              (260,970
              )
              
              $
              -Issuance
      of common stock in connection withexercise
      of stock options
              
              
              48,438
              
              
              
              -
              
              
              
              155
              
              
              
              -
              
              
              
              -
              
              
              
              -Non-cash
      stock-based compensation
              
              
              -
              
              
              
              -
              
              
              
              789
              
              
              
              -
              
              
              
              -Foreign
      currency translation adjustments
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (38
              )
              
              
              -
              
              
              $
              (38
              )Net
      change in unrealized gains frommarketable
      securities
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              38
              
              
              
              -
              
              
              
              38Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (54,710
              )
              
              
              (54,710
              )Comprehensive
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              $
              (54,710
              )Balance
      at December 31, 2006
              
              
              31,820,273
              
              
              $
              318
              
              
              $
              386,530
              
              
              $
              (78
              )
              
              $
              (315,680
              )
              
              $
              -Issuance
      of common stock in connection withrestricted
      stock awards (net of 91,898 restictedstock
      awards forfeited)
              
              
              388,105
              
              
              
              4
              
              
              
              (4
              )
              
              
              -
              
              
              
              -
              
              
              
              -Issuance
      of common stock in connection withexercise
      of stock options
              
              
              34,210
              
              
              
              -
              
              
              
              10
              
              
              
              -
              
              
              
              -
              
              
              
              -Non-cash
      stock-based compensation
              
              
              -
              
              
              
              -
              
              
              
              927
              
              
              
              -
              
              
              
              -
              
              
              
              -Foreign
      currency translation adjustments
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (7
              )
              
              
              -
              
              
              $
              (7
              )Net
      change in unrealized gains frommarketable
      securities
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              39
              
              
              
              -
              
              
              
              39Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (34,688
              )
              
              
              (34,688
              )Comprehensive
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              $
              (34,656
              )Balance
      at December 31, 2007
              
              
              32,242,588
              
              
              $
              322
              
              
              $
              387,463
              
              
              $
              (46
              )
              
              $
              (350,368
              )See
      accompanying notes.





F-6


ORE PHARMACEUTICALS INC. (FORMERLY GENE LOGIC INC.)





Consolidated
Statements of Cash Flows


For
the Years Ended December 31, 2007, 2006 and 2005


(in
thousands)






2007
              
              
              2006
              
              
              2005Cash
      flows from operating activities:Loss
      from continuing operations
              
              $
              (17,777
              )
              
              $
              (18,115
              )
              
              $
              (17,217
              )Adjustments
      to reconcile loss from continuing operations to net cash flows from
      continuing operating activities:Depreciation
      and amortization
              
              
              1,114
              
              
              
              1,265
              
              
              
              961Write-down
      of long-term equity investment and marketable securities
      available-for-sale
              
              
              -
              
              
              
              275
              
              
              
              719Non-cash
      stock-based compensation expense
              
              
              683
              
              
              
              257
              
              
              
              -Other
      non-cash items
              
              
              -
              
              
              
              -
              
              
              
              145Changes
      in continuing operating assets and liabilities:Accounts
      receivable
              
              
              1,374
              
              
              
              (1,548
              )
              
              
              1,476Prepaids
      and other assets
              
              
              (220
              )
              
              
              (332
              )
              
              
              (144
              )Accounts
      payable
              
              
              (2,583
              )
              
              
              (1,090
              )
              
              
              999Accrued
      expenses and deferred rent
              
              
              147
              
              
              
              178
              
              
              
              3,074Accrued
      restructuring
              
              
              (1,941
              )
              
              
              -
              
              
              
              -Accrued
      techologies payable
              
              
              -
              
              
              
              (3,492
              )
              
              
              -Deferred
      revenue
              
              
              1,500
              
              
              
              -
              
              
              
              -Net
      cash flows from continuing operating activities
              
              
              (17,703
              )
              
              
              (22,602
              )
              
              
              (9,987
              )Loss
      from discontiuned operations
              
              
              (16,911
              )
              
              
              (36,595
              )
              
              
              (31,087
              )Adjustments
      to reconcile loss from discotined operations to net cash flows from
      discontinued operating activities:Impairment
      charges, loss on disposal, depreciation and amortization and other
      non-cash items
              
              
              12,024
              
              
              
              28,066
              
              
              
              46,109Changes
      in discontinued operating assets and liabilities
              
              
              2,920
              
              
              
              (5,829
              )
              
              
              (4,627
              )Net
      cash flows from discontinued operating activities
              
              
              (1,967
              )
              
              
              (14,358
              )
              
              
              10,395Net
      cash flows from operating activities
              
              
              (19,670
              )
              
              
              (36,960
              )
              
              
              408Cash
      flows from investing activities:Purchases
      of property and equipment
              
              
              (552
              )
              
              
              (648
              )
              
              
              (4,970
              )Purchases
      of licenses and patent costs
              
              
              (276
              )
              
              
              (377
              )
              
              
              (284
              )Proceeds
      from sale of marketable securities available-for-sale
              
              
              38,222
              
              
              
              44,486
              
              
              
              59,414Purchase
      of marketable securities available-for-sale
              
              
              (20,250
              )
              
              
              (30,687
              )
              
              
              (47,576
              )Net
      proceeds received from sale of Genomics Assets
              
              
              5,110
              
              
              
              -
              
              
              
              -Net
      proceeds received from sale of Preclinical Division
              
              
              1,146
              
              
              
              12,117
              
              
              
              -Payments
      related to the sale of Preclinical Division
              
              
              (1,843
              )
              
              
              -
              
              
              
              -Net
      investing activities of discontinued operations
              
              
              (1,225
              )
              
              
              (6,144
              )
              
              
              (16,374
              )Net
      cash flows from investing activities
              
              
              20,332
              
              
              
              18,747
              
              
              
              (9,790
              )Cash
      flows from financing activities:Proceeds
      from issuance of common stock to employees
              
              
              10
              
              
              
              155
              
              
              
              274Repayments
      of an equipment loan
              
              
              (49
              )
              
              
              (47
              )
              
              
              (44
              )Net
      financing activities of discontinued operations
              
              
              -
              
              
              
              (141
              )
              
              
              (139
              )Net
      cash flows from financing activities
              
              
              (39
              )
              
              
              (33
              )
              
              
              91Net
      increase (decrease) in cash and cash equivalents
              
              
              623
              
              
              
              (18,246
              )
              
              
              (9,291
              )Cash
      and cash equivalents, beginning of year
              
              
              25,700
              
              
              
              43,946
              
              
              
              53,237Cash
      and cash equivalents, end of year
              
              $
              26,323
              
              
              $
              25,700
              
              
              $
              43,946Supplemental
      disclosure:Interest
      paid
              
              $
              6
              
              
              $
              19
              
              
              $
              35Non-cash
      investing transaction:Fair
      value of promissory note received in connection with the sale of Genomics
      Assets
              
              $
              2,668
              
              
              $
              -
              
              
              $
              -See
      accompanying notes.




F-7


ORE PHARMACEUTICALS INC. (FORMERLY GENE LOGIC INC.)





Notes
to Consolidated Financial Statements


December
31, 2007, 2006 and 2005


(in
thousands, except share and per share data)





Note
1 – Organization and summary of significant accounting policies





Description
of Business





Ore
Pharmaceuticals Inc. (formerly known as Gene Logic Inc.), including its wholly
owned subsidiary, DioGenix Inc. (its molecular diagnostics business),
(collectively the “Company”), is a drug repositioning and development company
focused on discovery of new indications for drugs and drug
candidates.  The Company’s indication seeking program provides an
efficient and cost-effective approach for systematically uncovering a compound’s
biological activity and identifying potential new indications of therapeutic
effects.  Thus far, the Company has used its indication seeking
program in efforts to build its own proprietary pipeline and to contribute to
the pipeline success of our drug repositioning partners.  The Company
continues to explore strategic alternatives for its molecular diagnostics
business.





In 2007,
the Company sold the assets of its Genomics Division (“Genomics Assets”) and in
2006, the Company sold its Preclinical Division (see Note 2).





Principles
of Consolidation





The
consolidated financial statements include the accounts of Ore Pharmaceuticals
Inc. and its wholly owned subsidiary. All material inter-company accounts,
transactions and profits have been eliminated in consolidation.





Use of Estimates





The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenue and
expenses during the reporting period.  Actual results could differ
from those estimates.





Basis
of Presentation





As a
result of the Company’s sale of its Genomics Assets and Preclinical Division and
in accordance with Statement of Financial Accounting Standards No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”),
the Company has classified the net assets of the Genomics Division (not
including the business associated with its molecular diagnostic business) as
assets and liabilities of a discontinued operation at December 31, 2006 and the
results of operations of the Genomics Division (not including the business
associated with its molecular diagnostic business) and Preclinical Division as
discontinued operations for all periods presented (see Note 2).





Concentration
of Credit Risk and Fair Value of Financial Instruments





Cash, cash
equivalents and marketable securities available-for-sale are financial
instruments that potentially subject the Company to concentrations of credit
risk.  The estimated fair value of financial instruments approximates
the carrying value based on available market information.  The Company
primarily invests its excess available funds in money market funds, commercial
paper, corporate bonds and securities issued by the U.S. Government and its
agencies and, by policy, seeks to ensure both liquidity and safety of
principal.  The policy also limits investments to certain types of
instruments issued by institutions with strong investment grade credit ratings
and places restrictions on their terms, geographic origin and concentrations by
type and issuer.





F-8


Cash
and Cash Equivalents





Cash and
cash equivalents are defined as liquid investments with maturities of 90 days or
less when purchased.  All other investments are reported as marketable
securities available-for-sale and are not reflected in the table
below.  Cash and cash equivalents as of December 31 are comprised
of:





2007
              
              
              2006Cash
              
              $
              763
              
              
              $
              1,076Money
      market funds
              
              
              19,081
              
              
              
              8,415Commercial
      paper
              
              
              6,479
              
              
              
              16,209Total
              
              $
              26,323
              
              
              $
              25,700


Marketable
Securities Available-for-Sale





All
marketable securities are classified as
available-for-sale.  Available-for-sale securities are carried at fair
value, with unrealized gains and temporary losses reported as accumulated other
comprehensive income (loss) included in stockholders’
equity.  Realized gains and losses and declines in value judged to be
other-than-temporary for available-for-sale securities are included in the
Consolidated Statements of Operations.  The cost of securities sold is
based on the specific identification method.  In 2007, 2006 and 2005,
realized gains and/or losses resulting from the sale of marketable securities
were immaterial.





As of
December 31, 2007, the Company’s investment portfolio consisted of commercial
paper.  All marketable securities had original maturities greater than
90 days, but less than two years.  All marketable securities with a
gross unrealized loss as of December 31, 2007 have been in an unrealized loss
position for less than 12 months.  The Company reviews marketable
securities for impairment based on criteria that include the extent to which the
investment’s carrying value exceeds its related market value, the duration of
the market decline, the Company’s ability to hold the investment to recovery and
the financial strength and specific prospects of the issuer of the
security.  During 2005, the Company determined that one of its
marketable securities had an other-than-temporary decline in its value and
accordingly, recorded a loss of $719 (see Note 4).  As of December 31,
2007, all of the Company’s investments were classified as current because the
Company may not hold its investments until maturity in order to take advantage
of market conditions.





Marketable
securities available-for-sale as of December 31 are comprised of:






2007
              
              
              2006Gross
              
              
              Gross
              
              
              
              
              
              
              
              
              Gross
              
              
              GrossAmortized
              
              
              Unrealized
              
              
              Unrealized
              
              
              Fair
              
              
              Amortized
              
              
              Unrealized
              
              
              Unrealized
              
              
              FairCost
              
              
              Gains
              
              
              Losses
              
              
              Value
              
              
              Cost
              
              
              Gains
              
              
              Losses
              
              
              ValueCommercial
      paper
              
              $
              6,478
              
              
              $
              -
              
              
              $
              (1
              )
              
              $
              6,477
              
              
              $
              8,929
              
              
              $
              -
              
              
              $
              -
              
              
              $
              8,929Corporate
      bonds
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              13,498
              
              
              
              -
              
              
              
              (28
              )
              
              
              13,470U.S.
      Governmentmortgage-backedsecurities
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,023
              
              
              
              -
              
              
              
              (12
              )
              
              
              2,011Total
              
              $
              6,478
              
              
              $
              -
              
              
              $
              (1
              )
              
              $
              6,477
              
              
              $
              24,450
              
              
              $
              -
              
              
              $
              (40
              )
              
              $
              24,410




Allowance
for Doubtful Accounts Receivable





The
Company uses estimates to determine the amount of the allowance for doubtful
accounts necessary to reduce accounts receivable to their expected net
realizable value.  The Company estimates the amount of the required
allowance by reviewing the status of past-due receivables and by establishing
general provisions for estimated losses by analyzing current customer credit
worthiness and historical bad debt trends.  Actual collection
experience has not varied significantly from the Company’s estimates, due
primarily to collection policies and the financial strength of the Company’s
customers.  Receivables that are ultimately deemed uncollectible are
written-off as a reduction of accounts receivable and the allowance for doubtful
accounts.





F-9


Property
and Equipment





Property
and equipment is carried at cost, less accumulated depreciation and
amortization.  Depreciation and amortization is recorded using the
straight-line method over the estimated useful lives of the assets as
follows:




Furniture
              10
      yearsComputer
      and office equipment
              1-5
      yearsLaboratory
      equipment
              5
      yearsLeasehold
      improvements
              Lesser
      of the lease term or the useful
life




Long-Term
Investments





The
Company has made equity investments in companies whose businesses may be
complementary to the Company’s business.  All of the Company’s current
equity investments are accounted for under the cost method of accounting, as the
Company holds less than 20% of the voting stock outstanding under such
arrangements and does not exert significant influence over these
companies.





Goodwill





The
Company accounts for goodwill under the provisions of Statement of Financial
Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS
142”).  Under SFAS 142, the Company is required to perform an annual
impairment test of its goodwill.  The Company’s annual impairment test
is performed October 1.  In addition, the Company is required to test
for impairment at any point at which it has an indication that an impairment may
exist.





The
goodwill impairment test involves a two-step approach.  Under the
first step, the Company determines the fair value of the reporting unit to which
goodwill has been assigned.  Reporting units are defined as the
Company’s operating segments.  The Company then compares the fair
value of the reporting unit to its carrying value, including
goodwill.  The Company estimates the fair value of the reporting unit
by estimating the reporting unit’s future net cash flows.  If the fair
value exceeds the carrying value, no impairment loss is
recognized.  If the carrying value exceeds the fair value, the
goodwill of the reporting unit is considered potentially impaired and the second
step is to measure the impairment loss.  Under the second step, the
Company calculates the implied fair value of goodwill by deducting the fair
value of all tangible and intangible net assets, including any unrecognized
intangible assets, of the reporting unit from the fair value of the reporting
unit, as determined in the first step.  The Company then compares the
implied fair value of goodwill to the carrying value of goodwill.  If
the implied fair value of goodwill is less than the carrying value of goodwill,
the Company recognizes an impairment loss equal to the difference.





Other
Intangible Assets





Other
intangible assets consist of licenses and patent costs.





With
regard to licenses, the Company has licensed from third parties certain
proprietary rights and technical information covered by various patents and
patent applications.  These licenses will continue for the term of the
agreement or the life of the respective patent, whichever is
shorter.  License costs are being amortized over their expected useful
lives, but not greater than the lesser of the term of the agreement or the life
of the respective patent.  Certain agreements call for the payment of
milestones, royalties and/or other fees.





Patent
costs include issued patents and patent applications and are stated at
cost.  Amortization of costs for issued patents is recorded using the
straight-line method over the shorter of their expected useful life or the legal
lives of the patents, generally for periods ranging up to 20 years.





Impairment
of Long-Lived Assets





Long-lived
assets, consisting principally of property and equipment, long-term investments
and other intangible assets (including licenses and patent costs), are evaluated
for possible impairment.  If an impairment loss is indicated, the
Company will measure the amount of the impairment by comparing the carrying
value of the asset to the present value of the expected future cash flows
associated with the use of the asset.








F-10








Research
and Development





Research
and development costs, including those costs incurred in acquiring and
developing the drug repositioning technologies and analyzing and further
developing our compounds, are charged to operations when incurred or
acquired.





Revenue
Recognition





Revenue
associated with non-refundable license fees for which the Company is not
obligated to provide continuing research and development activities is generally
recognized when the license becomes effective. Revenue associated with
non-refundable license fees under arrangements where the license fees and
research and development activities cannot be accounted for as separate units of
accounting are deferred and recognized as revenue over the expected term of the
Company’s continued performance of such research and development
activities.





Revenue
recognized for any multiple-element contract is allocated to each element of the
arrangement based on the relative fair value of the element.  The
determination of fair value of each element is based on the Company’s analysis
of objective and reliable evidence from comparable internal or third-parties’
sales of the individual element.  If the Company is unable to
determine evidence of fair value for an undelivered element of the arrangement,
revenue for the arrangement is deferred and recognized using the revenue
recognition method appropriate to the predominant undelivered
element.





In 2007,
the Company entered into a contractual arrangement with multiple
deliverables.  The Company was unable to determine objectively and
reliably the fair value of the undelivered elements, and as such, the Company
recognizes revenue using the revenue recognition method appropriate to the
predominant undelivered element.  The Company also defers the direct
and incremental expenses associated with the license for which revenue has been
deferred and recognizes these expenses as the Company recognizes the related
revenue.  This arrangement has resulted in an increase in the
Company’s deferred costs and deferred revenue as of December 31,
2007.  The timing of revenue recognition associated with future
agreements may also be dependent on its ability to objectively and reliably
determine the fair value of deliverables included in those
agreements.





Deferred
revenue is recorded for cash received from customers for whom services have not
yet been performed as of the balance sheet date.





Income Taxes





The
Company accounts for income taxes under the provisions of Statement of Financial
Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS
109”).  Under the asset and liability method of SFAS 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and net operating
loss and tax credit carryforwards.  Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.  Under SFAS 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in operations in
the period that includes the enactment date.





Basic and Diluted Net Loss Per
Share





Net loss
per share is computed using the weighted average number of shares of Common
Stock outstanding.  Common equivalent shares from all outstanding
stock options and unvested restricted stock awards are excluded from the
computation, as their effect is anti-dilutive.





Stock-Based
Compensation





Prior to
January 1, 2006, the Company accounted for all of its stock-based compensation
awards under the recognition and measurement provisions of Accounting Principles
Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB
25”).  Accordingly, the Company recognized compensation expense, if
any, only to the extent that the fair value of the underlying stock on the date
of grant exceeded the exercise or acquisition price of the stock or stock-based
award.  Any resulting compensation expense was recognized ratably over
the associated service period, which was generally the option vesting
period.  Effective January 1, 2006, the Company adopted the fair value
recognition provisions of Statement of Financial Accounting Standards (“SFAS”)
No. 123(R) (revised 2004), “Share-Based Payment,” (“SFAS 123R”), using the
modified prospective transition method and therefore has not restated results
for prior periods.  Under this transition method, stock-based
compensation expense includes compensation expense for all stock-based
compensation awards granted (i) prior to, but not yet vested as of, January 1,
2006 based on the grant date fair value estimated in accordance with the
original provisions of SFAS No. 123, “Accounting for Stock-Based
Compensation”(“SFAS 123”), and (ii)
after January 1, 2006 based on the grant date fair value determined in
accordance with the provisions of SFAS 123R.  The Company recognizes
compensation expense on a straight-line basis over the requisite service period
of the award, which typically occurs ratably over periods ranging from one to
four years.  In March 2005, the SEC issued Staff Accounting Bulletin
No. 107 (“SAB 107”) regarding the SEC’s interpretation of SFAS 123R and the
valuation of share-based payments for public companies.  The Company
has applied the provisions of SAB 107 in its adoption of SFAS
123R.  See Note 10 for a further discussion on stock-based
compensation.





F-11




As a
result of adopting SFAS 123R, the Company’s net loss in the Consolidated
Financial Statements for 2007 and 2006 was $927 and $789, respectively, greater
than if the Company had continued to account for stock-based compensation under
APB 25.  The impact on basic and diluted net loss per share for 2007
and 2006 was $0.03 and $0.02 per share, respectively.  The impact of
stock compensation expense in future periods will be dependent on the number and
type of share-based payments issued to employees and non-employee
directors.





Prior to
January 1, 2006, the Company provided pro forma disclosure amounts in accordance
with SFAS No. 148 “Accounting for Stock-Based Compensation—Transition and
Disclosure”, as if the fair value method defined by SFAS 123 had been applied to
its stock-based compensation.





The
following table illustrates the effect on net loss and net loss per share as if
the Company had applied the fair value recognition provisions of SFAS 123 to
stock-based compensation for the indicated period:






2005Net
      loss, as reported
              
              $
              (48,304
              )Add:
      Stock-based compensation expenseincluded
      in reported net loss
              
              
              -Deduct:
      Stock-based compensation expensedetermined
      under fair value based method for all awards
              
              
              (2,010
              )Pro
      forma net loss
              
              $
              (50,314
              )Basic
      and diluted net loss per share:As
      reported
              
              $
              (1.52
              )Pro
      forma
              
              $
              (1.58
              )






The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model for the years ended December 31, 2007, 2006
and 2005 with the following assumptions:







2007
              
              2006
              
              2005Expected
      volatility
              59%
              
              55%
              
              52%Risk-free
      interest rate
              3.04%
      to 4.51%
              
              4.49%
      to 5.11%
              
              3.41%
      to 4.42%Expected
      lives
              3
      years
              
              3
      years
              
              3
      yearsDividend
      rate
              0%
              
              0%
              
              0%







Segment
information





Subsequent
to the sale of the Genomics Assets (see Note 2), the Company manages its
business as two operating segments: Drug Repositioning and Development and
molecular diagnostics; however, because these operating segments meet the
aggregation criteria of SFAS 131 “Disclosures about Segments of an Enterprise
and Related Information,” the Company has aggregated its operating segments into
one reporting segment.  For each of 2007, 2006 and 2005 one customer
accounted for 10% or more of the Company’s revenue.





New
Accounting Pronouncements





In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements.  SFAS 157 is effective for fiscal years
beginning after November 15, 2007.  In February 2008, the FASB decided
to issue a final Staff Position to allow a one-year deferral of adoption of SFAS
157 for non-financial assets and liabilities that are recognized or disclosed at
fair value in the financial statements on a nonrecurring basis.  The
FASB also decided to amend SFAS 157 to exclude FASB Statement No. 13 and its
related interpretive accounting pronouncements that address leasing
transactions.  The Company is currently evaluating the impact of this
standard and does not expect the adoption of SFAS 157 to have a material impact
on its financial statements.





F-12




In July
2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes" ("FIN 48"), which prescribes a minimum recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position.  FIN 48 also provides guidance on derecognition,
measurement, classification, interest and penalties, accounting in interim
periods and disclosure and transition.  If a tax position does not
meet the more-likely-than-not initial recognition threshold, no benefit is
recorded in the financial statements.  The Company adopted FIN 48 on
January 1, 2007 for which there was no cumulative effect of applying the
provisions of this interpretation.  The Company classifies interest
and penalties accrued on any unrecognized tax benefits as a component of the
provision for income taxes.  There were no interest or penalties
recognized in the Consolidated Statement of Operations for the year ended
December 31, 2007 and the Consolidated Balance Sheet at December 31,
2007.  The Company does not currently anticipate that the total
amounts of unrecognized tax benefits will significantly increase within the next
12 months.  The Company and its subsidiaries filed consolidated and
separate income tax returns in the United States and in a number of state and
foreign jurisdictions.  The Company is subject to tax examination in
its major tax jurisdictions for all years since inception.





In
December 2007, the FASB issued SFAS No. 141 Revised, “Business
Combinations” (“SFAS 141R”).  SFAS 141R revises SFAS 141,
“Business Combinations”.  SFAS 141R requires an acquirer to determine
the fair value of the consideration exchanged as of the acquisition date
(i.e., the date the acquirer obtains control).  Presently, an
acquisition is valued as of the date the parties agree upon the terms of the
transaction.  SFAS 141R also modifies, among other things, the
accounting for direct costs associated with an acquisition, contingencies
acquired and contingent consideration.  The Company will adopt SFAS
141R for business combinations for which the acquisition date occurs after
January 1, 2009.





Note
2 – Discontinued operations





Genomics
Assets





In
December 2007, the Company completed the sale of its Genomics Assets to Ocimum
Biosolutions Ltd. (“Ocimum”) for a sales price of $10,000, of which $7,000 was
received at closing less transaction costs of $1,890 and the balance of the
sales price is payable pursuant to a $3,000 non-interest bearing promissory note
due 18 months from the date of closing.  The note has been recorded in
other assets, net of a discount of $322 due to imputed interest.  In
connection with the sale of its Genomics Assets, the Company agreed to indemnify
Ocimum in the event of a breach of its representations and warranties to, and
agreements with, Ocimum.  Ocimum also assumed certain liabilities
relating to the Genomics Assets and the lease obligations of the Company’s
former Genomics laboratory and office facility, subject to the Company’s
agreement to reimburse Ocimum for 50% of the lease obligations for 2008 for
space that it currently intends to occupy.  In the event of Ocimum’s
default under the lease, which expires in February 2011, the Company could be
liable for amounts due under the lease that could total $2,755 (not including
the Company’s lease obligations in 2008).  Ocimum has deposited in
escrow $750 to partially secure both Ocimum’s performance under the lease and
payment of the $3,000 promissory note.  The Company retained full
rights in perpetuity to use the databases of its former Genomics business,
existing as of closing, for its drug repositioning business.  The
Company also retained certain assets associated with its molecular diagnostic
business and continues to explore strategic alternatives for these
assets.





As a
result of the Company’s sale of its Genomics Assets, the Company recorded a loss
on disposal of $3,880 which represented the excess carrying value of the net
assets of the Genomics Assets over the net sales proceeds, which is included in
the loss from discontinued operations for the year ended December 31,
2007.





The
operations of the Genomics Division have been classified as discontinued
operations for all periods presented.  Summarized operating results
from the discontinued operations included in the Company’s Consolidated
Condensed Statements of Operations are as follows:






2007
              
              
              2006
              
              
              2005Revenue
              
              $
              16,738
              
              
              $
              24,310
              
              
              $
              56,602Income
      (Loss) from discontinued operations (1)
              
              $
              (16,911
              )
              
              $
              (20,139
              )
              
              $
              11,837(1)
      Includes $3,880 loss on disposal in 2007.





During
2006, the Company initiated a restructuring of its Genomics Division, which has
been completed, and recorded total restructuring costs of $5,258 (included in
the loss from discontinued operations in 2006).  As of December 31,
2007, the restructuring liabilities were fully paid.





F-13


The net
Genomics assets and liabilities were classified as assets or liabilities of
discontinued operations and are as follows:







December
      31,2006Current
      assets
              
              $
              4,555Property
      and equipment, net
              
              
              9,907Goodwill
              
              
              2,123Other
      long-term assets
              
              
              9,705Current
      liabilities
              
              
              (3,906
              )Noncurrent
      liabilities
              
              
              (1,223
              )Net
      assets of discontinued operations
              
              $
              21,161


Preclinical
Division





The
Company completed the sale of its Preclinical Division in December 2006 for a
sales price of $15,000, including $13,500 received at closing less transaction
costs of $1,383 and $1,500 held in escrow for 12 months to guarantee certain
obligations under the agreement. Of the amount held in escrow, $1,146 was paid
to the Company in December 2007.  Substantially all of the remaining
balance was paid to the Company in early 2008.  In connection with the
sale of its Preclinical Division, the Company agreed to indemnify the purchaser
in the event of a breach of its representations and warranties to, and
agreements with, the purchaser and retained certain liabilities relating to the
activities of the business prior to the sale.  The Company’s
guarantees of two leases formerly used by the Company’s Preclinical Division
also continue in effect and purchaser agreed to indemnify the Company with
respect to such guarantees.  In the event the purchaser’s default
under these leases, which expire in February 2011 and December 2013, the Company
could be liable for the amounts due under the leases that total $1,738 and
$4,201, respectively.





As a
result of the Company’s sale of its Preclinical Division, the Company recorded a
loss on disposal (including an impairment charge)during 2006 of $10,900
which represented the excess carrying value of the net assets of the Preclinical
Division over the net sales proceeds, which is included in the loss from
discontinued operations for the year ended December 31, 2006.





The
operations of the Preclinical Division have also been classified as discontinued
operations for all periods presented.  Summarized operating results
from the Preclinical Division which have been included in the loss from
discontinued operations are as follows:







2006
              
              
              2005Revenue
              
              $
              25,961
              
              
              $
              22,180Loss
      from discontinued operations (1)(2)
              
              $
              (16,456
              )
              
              $
              (42,924
              )(1)
      Includes $10,900 loss on disposal in 2006.(2)
      Includes $32,794 impairment charge associated with the impairment of
      goodwill in 2005.





Note
3 – Property and equipment





Property
and equipment includes the following as of December 31:





2007
              
              
              2006Furniture
              
              $
              985
              
              
              $
              1,057Computer
      and office equipment
              
              
              855
              
              
              
              1,814Laboratory
      equipment
              
              
              2,750
              
              
              
              2,614Leasehold
      improvements
              
              
              754
              
              
              
              6965,344
              
              
              
              6,181Less
      -- accumulated depreciation and amortization
              
              
              (3,243
              )
              
              
              (3,259
              )Property
      and equipment, net
              
              $
              2,101
              
              
              $
              2,922





Depreciation
expense was $922, $1,060 and $940 for the years ended December 31, 2007, 2006
and 2005, respectively.





F-14


Note
4– Long-term investments





In
November 2003, the Company’s subsidiary, then named MetriGenix, Inc. (which has
since been dissolved), sold substantially all of its assets for cash to a
privately held company (the “Buyer”, referred to herein as “Xceed”, formerly
MetriGenix).  The proceeds of sale were used to satisfy then known
liabilities of the Company’s subsidiary.  In connection with the sale,
Xceed received a fully paid BioExpress® System subscription with a term through
December 31, 2006, which thereafter renewed automatically on an annual basis
unless either party elected not to renew, under which no additional fees are
payable for the subscription so long as the Company owns 15% of the outstanding
stock of Buyer.  In consideration for the consent to the assignment,
the Company received convertible preferred stock of Xceed, valued at $2,911,
representing at the time 15% of the equity of Xceed, and a warrant, valued at
$275, exercisable at $0.0001 per additional share, intended to enable the
Company to maintain a 15% equity interest in Xceed.  The Company also
received the right to appoint a person to the Board of Directors of the
Buyer.  The Company accounts for its investment in Xceed using the
cost method of accounting.  During 2006, the subscription agreement
was terminated by mutual agreement and the warrant was therefore terminated. As
a result, the Company recorded a $275 write-down of the fair value of the
warrant.  At December 31, 2007, the remaining book value of the
Company’s investment in Xceed was $2,964.





The
Company accounted for its investment in Avalon Pharmaceuticals, Inc. (“Avalon”)
under the cost method of accounting until Avalon completed an initial public
offering in 2005 and as a result, reclassified its $1,000 investment to
marketable securities available-for-sale.  Subsequently, the Company
recorded a $719 write-down of its investment in Avalon due to an
other-than-temporary decline in Avalon’s estimated market
value.  During 2006, the Company sold its remaining investment in
Avalon and recorded a gain, after the write-down, of $31.





Note
5 – Other intangible assets





Information
regarding the Company’s other intangible assets at December 31 is as
follows:





2007
              
              
              2006Carrying
      amount:Licenses
              
              $
              144
              
              
              $
              219Patent
      costs
              
              
              890
              
              
              
              290Total
      carrying amount
              
              $
              1,034
              
              
              $
              509Accumulated
      amortization:Licenses
              
              $
              120
              
              
              $
              79Patent
      costs
              
              
              78
              
              
              
              75Total
      accumulated amortization
              
              $
              198
              
              
              $
              154Net
      carrying value:Licenses
              
              $
              24
              
              
              $
              140Patent
      costs
              
              
              812
              
              
              
              215Total
      net carrying value
              
              $
              836
              
              
              $
              355





Amortization
expense for the years ended December 31, 2007, 2006 and 2005 was $192, $205 and
$21, respectively.  Estimated future amortization expense for existing
intangible assets is not significant since most patents costs are not related to
issued patents as of December 31, 2007 and therefore not subject to
amortization.





Note
6 – Long-term debt





Long-term
debt as of December 31 consists of the following:




2007
              
              
              2006Loan
      bearing interest at 5.0% per annum and due inquarterly
      installments through September 2009
              
              $
              78
              
              
              $
              127Loan
      bearing interest at 4.5% and due upon demand
              
              
              450
              
              
              
              450528
              
              
              
              577Less
      -- current portion
              
              
              (501
              )
              
              
              (499
              )Long-term
      debt
              
              $
              27
              
              
              $
              78


F-15





As of
December 31, 2007, future principal payments on long-term debt for the years
ending December 31 are as follows:




2008
              
              $
              5012009
              
              
              27$
              528





Interest
expense was $53, $8 and $10 for the years ended December 31, 2007, 2006 and
2005, respectively.





Note
7 – Income taxes





The actual
income tax expense for the years ended December 31, 2007, 2006 and 2005 is
different from the amount computed by applying the statutory federal income tax
rates to loss before income tax expense.  The reconciliation of these
differences for the years ended December 31 is as follows:




2007
              
              
              2006
              
              
              2005Tax
      benefit at federal statutory rate
              
              $
              (11,806
              )
              
              $
              (18,614
              )
              
              $
              (16,433
              )State
      income taxes, net of federal income tax effect
              
              
              (1,860
              )
              
              
              (2,526
              )
              
              
              (2,233
              )Impairment
      losses
              
              
              -
              
              
              
              4,310
              
              
              
              12,665Change
      in state tax rate
              
              
              (3,309
              )
              
              
              -
              
              
              
              -Other
              
              
              221
              
              
              
              (1,204
              )
              
              
              (2,973
              )Increase
      in valuation allowance
              
              
              16,754
              
              
              
              18,034
              
              
              
              8,974Income
      tax expense
              
              $
              -
              
              
              $
              -
              
              
              $
              -





The tax
effect of cumulative temporary differences at December 31 is as
follows:





2007
              
              
              2006Deferred
      tax assets:NOL
      and tax credit carryforwards
              
              $
              127,130
              
              
              $
              113,499Net
      loss in unconsolidated investee
              
              
              3,581
              
              
              
              3,483Purchased
      research and development
              
              
              2,685
              
              
              
              2,838Depreciation
              
              
              2,353
              
              
              
              2,812Other
              
              
              2,739
              
              
              
              4,779138,488
              
              
              
              127,411Less
      -- valuation allowance
              
              
              (138,488
              )
              
              
              (126,241
              )Net
      deferred tax assets
              
              $
              -
              
              
              $
              1,170Deferred
      tax liabilities:Other
              
              $
              -
              
              
              $
              1,170Deferred
      tax liabilities
              
              $
              -
              
              
              $
              1,170





At
December 31, 2007, net operating loss carryforwards (“NOLs”) for income tax
purposes were $306,066, including approximately $1,300 and $30,000 related to
the acquisitions of TherImmune and Oncormed, respectively.  The
Company also has research and development tax credit carryforwards of $5,583 as
of December 31, 2007.  The carryforwards, if not utilized, will expire
in increments from 2008 through 2027.  Utilization of the net
operating losses and credits may be subject to an annual limitation as provided
by the Internal Revenue Code of 1986, and there can be no guarantee that such
NOLs and tax credits will ever be fully utilized.  During 2006, the
Company, with the assistance of an independent third party, performed an IRS
Code Section 382 study on its NOLs, excluding NOLs assumed from
acquisitions.  Based on the study, the Company does not believe that
there are presently any material limitations on the use of its
NOLs.  As a result of cumulative losses, the Company has recorded a
full valuation allowance against its net deferred tax assets as management
believes it is more likely than not that the assets will not be
realizable.





F-16


Note
8 – Commitments and contingencies





Operating
Leases





The
Company conducts all of its operations from leased facilities, under operating
leases with varying terms expiring through 2013, in Gaithersburg, Maryland and
Cambridge, Massachusetts.  These leases obligate the Company to pay
building operating costs.





Future
minimum lease payments under all operating lease agreements for the years ending
December 31 are as follows:





2008
              
              $
              1,4792009
              
              
              1,2312010
              
              
              1,2532011
              
              
              1,2752012
              
              
              1,2982013
      and thereafter
              
              
              924$
              7,460




Rent
expense for the years ended December 31, 2007, 2006 and 2005, was $1,315, $1,295
and $1,259,respectively.





Contingencies





Genomics
Assets and Preclinical Division





The
Company is subject to certain contingencies associated with the sales of its
Genomics Assets and Preclinical Division (see Note 2).





Litigation





The
Company is not currently a party to any legal proceedings that would have a
material adverse effect on the Company’s financial condition or results of
operations.





Note
9 – 401(k) retirement plan





The
Company has a Gene Logic Inc. 401(k) Retirement Plan (the “401(k) Plan”) for its
employees under Section 401(k) of the Internal Revenue Code, as
amended.  Under the 401(k) Plan, all employees 18 years of age or
older are eligible, starting on the calendar quarter, to contribute up to 100%
of their eligible compensation and in the case of employees age 50 or older make
certain catch-up contributions, subject to maximum deferrals allowed under IRS
regulations.  Employee contributions are 100%
vested.  Beginning April 2006, the Company’s matching contributions
increased to 50% of up to 6% of an employee’s eligible
compensation.  Employees hired before January 1, 2004 are fully vested
in the Company matching contributions.  Employees hired after December
31, 2003 vest ratably over three years.  These matching contributions,
which are expensed, amounted to $171,$185 and $62 in 2007,
2006 and 2005, respectively.





Note
10 – Stock-based compensation





At
December 31, 2007, the Company has the following stock-based compensation plans:
1997 Equity Incentive Plan (the “Stock Plan”) and 1997 Non-Employee Directors’
Stock Option Plan (the “Directors’ Plan”). The Employee Stock Purchase Plan was
terminated by the Company’s Board of Directors in June 2007.





Stock
Plan





The
Company has a Stock Plan, under which the Compensation Committee (the
“Committee”) of the Company’s Board of Directors, at its discretion, can grant
stock options and, beginning in 2006, restricted stock awards, to employees of
the Company and related corporations.  The Stock Plan currently
authorizes the grant of stock options for up to 10,600,000 shares of Common
Stock, of which only 3,000,000 shares may be issued as restricted stock
awards.  The stock options granted under the Stock Plan generally
expire at the earlier of a specified period after termination of service or the
date specified by the Committee at the date of grant, but not more than ten
years from such grant date.  Grants of restricted stock awards are
generally subject to conditions for vesting within a specified time
period.  Such awards are generally forfeited at the earlier of not
meeting such vesting conditions or upon termination of service.  At
December 31, 2007, there were 2,746,057 shares available for issuance under the
Stock Plan.





F-17




Directors’
Plan





The
Company has a Directors’ Plan to provide for granting of stock options to
purchase up to 900,000 shares of Common Stock to non-employee directors of the
Company.  Stock options are to be granted at the fair market value of
the Common Stock at the grant date.  The stock options granted under
the Directors’ Plan expire at the earlier of a specified period after
termination of service or ten years from such grant date.  At December
31, 2007, there were 112,500 shares available for issuance under the Director’s
Plan.





Stock
Option Awards





The
following is a summary of option activity for the year ended December 31,
2007:




Shares
      Subject toOutstanding
      OptionsWeightedPer
      Share
              
              AverageWeighted
              
              Remaining
              AggregateAverage
              
              Contractual
              IntrinsicShares
              
              
              Exercise
      Price
              
              Life
      (Years)
              ValueBalance
      at January 1, 2007
              
              
              4,528,956
              
              
              $
              6.88Options
      granted
              
              
              1,691,800
              
              
              $
              1.92Options
      exercised
              
              
              (34,210
              )
              
              $
              0.30Options
      cancelled
              
              
              (1,662,259
              )
              
              $
              5.13Balance
      at December 31, 2007
              
              
              4,524,287
              
              
              $
              5.72Vested
      and expected to vest at December 31, 2007
              
              
              4,289,569
              
              
              $
              5.93
              
              5.0
              $          -




Options to
purchase a total of 3,239,329, 4,199,885 and 4,287,254 shares at December 31,
2007, 2006 and 2005, respectively, were exercisable.  The
weighted-average grant-date fair value of options granted during the years ended
December 31, 2007, 2006 and 2005 was $0.73, $1.05 and $1.40,
respectively.





Of the
stock options outstanding at December 31, 2007, 567,847 are stock options held
by former employees of the Genomics Division that will be subject to
cancellation within three months after the sale of the Genomics Assets in
accordance with the terms of the Stock Plan.





The
aggregate intrinsic value in the table above represents the total intrinsic
value (the difference between the Company’s closing stock price on the last
trading day of 2007 and the exercise price, multiplied by the number of
in-the-money options) that would have been received by the option holders had
all option holders exercised their options on December 31, 2007.  This
amount is subject to change based on changes to the fair market value of the
Company’s Common Stock.  Total intrinsic value of options exercised
for 2007 and 2006 were not significant.  Total intrinsic value of
options exercised for 2005 was $101.





Cash
received from option exercises for 2007, 2006 and 2005 was $10, $155 and $111,
respectively.


F-18


The
following table summarizes information about stock options outstanding at
December 31, 2007:
  Options
      Outstanding
                
                
                Options
      ExercisableWeighted
                
                Per
      Share
                
                
                
                
                
                Per
      ShareNumber
                
                Average
                
                Weighted
                
                
                Number
                
                
                WeightedOutstanding
      at
                
                Remaining
                
                Average
                
                
                Exercisable
      at
                
                
                AverageRange
      of
                
                
                December
      31,
                
                Contractual
                
                Exercise
                
                
                December
      31,
                
                
                ExerciseExercise
      Price
                
                
                2007
                
                Life
                
                Price
                
                
                2007
                
                
                Price$
                0.78--$4.50
                
                
                
                2,428,337
                
                7.5
      Years
                
                $
                2.58
                
                
                
                1,150,313
                
                
                $
                3.34$
                4.51--$6.00
                
                
                
                806,633
                
                3.1
      Years
                
                $
                5.19
                
                
                
                799,699
                
                
                $
                5.19$
                6.01--$7.20
                
                
                
                73,648
                
                3.1
      Years
                
                $
                6.61
                
                
                
                73,648
                
                
                $
                6.61$
                7.21--$62.88
                
                
                
                1,215,669
                
                2.3
      Years
                
                $
                12.29
                
                
                
                1,215,669
                
                
                $
                12.29$
                0.78--$62.88
                
                
                
                4,524,287
                
                5.2
      Years
                
                $
                5.72
                
                
                
                3,239,329
                
                
                $
                7.23
   Restricted
Stock Awards
  During
2007, the Committee approved grants for shares of restricted stock under the
Stock Plan subject to certain performance- or time-based vesting conditions
which, if not met, would result in forfeiture of the shares and reversal of any
previously recognized related stock-based compensation expense.
  The
following is a summary of restricted stock awards activity for the year ended
December 31, 2007:
  Per
      ShareWeighted-AverageNumber
      of
                
                
                Grant-DateShares
                
                
                Fair
      ValueOutstanding
      at January 1, 2007
                
                
                -
                
                
                $
                -Restricted
      stock granted
                
                
                480,003
                
                
                $
                1.49Restricted
      stock vested
                
                
                (80,484
                )
                
                $
                1.74Restricted
      stock forfeited
                
                
                (91,898
                )
                
                $
                1.91Outstanding
      at December 31, 2007
                
                
                307,621
                
                
                $
                1.31
  Performance-based
nonvested share awards are recognized as compensation expense over the expected
vesting period based on the fair value at the date of grant and the number of
shares ultimately expected to vest.  The shares of restricted stock
outstanding at December 31, 2007 will only vest if certain performance
milestones are achieved, which the Company believes is probable.
  As
of December 31, 2007, $676 of total unrecognized compensation cost related to
stock option and restricted stock awards is expected to be recognized over a
weighted-average period of 1.7 years.  This estimate does not include
the impact of other possible stock-based awards that may be made during future
periods.
 
 F-19




Note
11 – Quarterly results of operations (unaudited)





The
following is a summary of the quarterly results of operations for the years
ended December 31, 2007 and 2006.




March
      31
              
              
              June
      30
              
              
              September
      30 (1)
              
              
              December
      312007Revenue
              
              $
              -
              
              
              $
              38
              
              
              $
              841
              
              
              $
              717Loss
      from continuing operations
              
              
              (5,034
              )
              
              
              (4,995
              )
              
              
              (3,905
              )
              
              
              (3,841
              )Loss
      from discontinued operations
              
              
              (5,072
              )
              
              
              (2,878
              )
              
              
              (4,001
              )
              
              
              (4,962
              )Net
      loss
              
              $
              (10,106
              )
              
              $
              (7,873
              )
              
              $
              (7,906
              )
              
              $
              (8,803
              )Basic
      and diluted net loss per share:Loss
      from continuing operations
              
              $
              (0.16
              )
              
              $
              (0.16
              )
              
              $
              (0.12
              )
              
              $
              (0.12
              )Loss
      from discontinued operations
              
              
              (0.16
              )
              
              
              (0.09
              )
              
              
              (0.13
              )
              
              
              (0.16
              )Net
      loss
              
              $
              (0.32
              )
              
              $
              (0.25
              )
              
              $
              (0.25
              )
              
              $
              (0.28
              )2006Revenue
              
              $
              20
              
              
              $
              9
              
              
              $
              6
              
              
              $
              -Loss
      from continuing operations
              
              
              (4,976
              )
              
              
              (4,196
              )
              
              
              (4,495
              )
              
              
              (4,450
              )Loss
      from discontinued operations
              
              
              (6,821
              )
              
              
              (7,090
              )
              
              
              (22,160
              )
              
              
              (522
              )Net
      loss
              
              $
              (11,797
              )
              
              $
              (11,286
              )
              
              $
              (26,655
              )
              
              $
              (4,972
              )Basic
      and diluted net loss per share:Loss
      from continuing operations
              
              $
              (0.16
              )
              
              $
              (0.13
              )
              
              $
              (0.14
              )
              
              $
              (0.14
              )Loss
      from discontinued operations
              
              
              (0.21
              )
              
              
              (0.22
              )
              
              
              (0.70
              )
              
              
              (0.02
              )Net
      loss
              
              $
              (0.37
              )
              
              $
              (0.35
              )
              
              $
              (0.84
              )
              
              $
              (0.16
              )






The
quarterly data above differs from the amounts previously reported in the
Company’s Quarterly Report on Form 10-Q filed for each of the respective
quarters because of the classification of the Genomics Division as a
discontinued operation, which occurred in the quarter ended December 31,
2007.  In addition, certain costs previously allocated to the Genomics
Division have been re-allocated to continuing operations based on a final
determination as to what specific costs were in fact eliminated as a result of
the sale of the Genomics Assets.  The table above presents quarterly
information as if the Genomics Division had been classified as a discontinued
operation as of January 1, 2006.





(1)
Includes $11,000 impairment charge for the Preclinical Division (discontinued
operations) for the three months ended September 30, 2006.





Note
12 – Subsequent events





On March
14, 2008, the Company entered into an agreement with a member of its Board of
Directors to repurchase 4,602,127 shares owned directly or indirectly for $3,264
(the “Repurchase”).  In addition, the Company has agreed to reimburse
certain fees and expenses amounting to $90 associated with the Repurchase and to
pay Board retainer and meeting fees amounting to $36 through the remainder of
the director’s term (through June 2009).  In connection with the
Repurchase, the director has resigned from the Company’s Board of Directors and
surrendered stock options for 30,000 shares of the Company’s common stock
previously granted.


F-20


ORE
PHARMACEUTICALS INC.





Schedule
II – Valuation and Qualifying Accounts


December
31, 2007, 2006 and 2005


(in
thousands)











Allowance
for Doubtful Accounts:





Balance
      atBeginning
              
              
              New
              
              
              Accounts
              
              
              Collected
              
              
              Balance
      atof
      Year
              
              
              Reserves
              
              
              Written-Off
              
              
              Amounts
              
              
              End
      of YearDecember
      31, 2007
              
              $
              45
              
              
              $
              -
              
              
              $
              (45
              )
              
              $
              -
              
              
              $
              -December
      31, 2006
              
              
              255
              
              
              
              -
              
              
              
              -
              
              
              
              (210
              )
              
              
              45December
      31, 2005
              
              
              34
              
              
              
              221
              
              
              
              -
              
              
              
              -
              
              
              
              255






Valuation
Allowance for Deferred Tax Assets:




Balance
      atBeginning
              
              
              New
              
              
              Reserves
              
              
              Balance
      atof
      Year
              
              
              Reserves
              
              
              Used
              
              
              End
      of YearDecember
      31, 2007
              
              $
              126,241
              
              
              $
              12,247
              
              
              $
              -
              
              
              $
              138,488December
      31, 2006
              
              
              109,055
              
              
              
              17,186
              
              
              
              -
              
              
              
              126,241December
      31, 2005
              
              
              100,082
              
              
              
              8,973
              
              
              
              -
              
              
              
              109,055