GENE LOGIC INC, 10-K, 1998-03-31

GENE LOGIC INC
10-K, 1998-03-31
COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ___________

COMMISSION FILE NO. 0-23317

GENE LOGIC INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 06-1411336
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

708 QUINCE ORCHARD ROAD
GAITHERSBURG, MARYLAND 20878
(Address of principal executive offices)

Registrant's telephone number, including area code: (301) 987-1700

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 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 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. / /

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 March
16, 1998 was approximately $87,897,063, based on the closing price on that
date of Common Stock on the Nasdaq National Stock Market.*

The number of shares outstanding of the Registrant's Common Stock, $.01
par value, was 13,900,333 as of March 16, 1998.

DOCUMENTS INCORPORATED BY REFERENCE

Registrant's Definitive Proxy Statement to be filed with the Securities
and Exchange Commission (the "Commission") pursuant to Regulation 14A in
connection with the 1998 Annual Meeting of Stockholders to be held on June 5,
1998 is incorporated by reference into Part III of this Report on Form 10-K
to the extent stated herein.

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*Excludes 3,559,502 shares of Common Stock held by directors and officers and
stockholders whose beneficial ownership exceeds 10% of the shares outstanding on
March 16, 1998. 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.

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PART I
ITEM 1. BUSINESS

WHEN USED IN THIS REPORT, THE WORDS "ANTICIPATES," "BELIEVES,"
"ESTIMATES," "EXPECTS," "INTENDS" AND OTHER SIMILAR EXPRESSIONS ARE INTENDED
TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS, WHICH INCLUDE
STATEMENTS AS TO THE TIMING OF AVAILABILITY OF PRODUCTS UNDER DEVELOPMENT,
THE ABILITY TO COMMERCIALIZE PRODUCTS DEVELOPED UNDER COLLABORATIONS AND
ALLIANCES, THE PERFORMANCE AND UTILITY OF THE COMPANY'S PRODUCTS AND
SERVICES, AND THE ADEQUACY OF CAPITAL RESOURCES, ARE SUBJECT TO RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
PROJECTED. THESE RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, THE
EXTENT OF UTILIZATION OF GENOMIC INFORMATION BY THE PHARMACEUTICAL INDUSTRY
IN BOTH RESEARCH AND DEVELOPMENT, RISKS RELATING TO THE DEVELOPMENT OF
GENOMIC DATABASE PRODUCTS AND THEIR USE BY POTENTIAL COLLABORATORS OF THE
COMPANY, THE IMPACT OF TECHNOLOGICAL ADVANCES AND COMPETITION, AS WELL AS
OTHER RISKS AND UNCERTAINTIES SET FORTH BELOW AND IN THE SECTIONS ENTITLED
"RISK FACTORS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."

READS-TM-, MuST-TM-, Flow-thru Chip-TM-, Molecular Topography-TM-, GENE
EXPRESS-TM-, ACCELERATED DRUG DISCOVERY-TM-, Pharmacology EXPRESS-TM-,
Toxicology EXPRESS-TM-, rEST-TM- and TAG-TM- are trademarks of the Company.
Tradenames and trademarks of other companies appearing in this Report on Form
10-K are the property of their respective holders.

SUMMARY

GENE LOGIC INC. ("Gene Logic" or the "Company") uses a proprietary
system, based on analysis of gene expression and gene regulation, designed to
discover drug targets and drug leads. The Company's objective is to provide
its pharmaceutical company partners with novel drug targets, drug leads and a
suite of genomic database products to reduce the time, cost and risk
associated with drug discovery. The Company believes that by building its
portfolio of partnerships it will generate current revenues and establish a
long-term economic interest in the product pipelines of multiple partners
through milestone and royalty payments. Gene Logic has established major
strategic alliances with Procter & Gamble Pharmaceuticals, Inc. ("Procter &
Gamble"), Japan Tobacco Inc. ("Japan Tobacco") and N.V. Organon ("Organon"),
a pharmaceutical business unit of Akzo Nobel NV.

The core of Gene Logic's ACCELERATED DRUG DISCOVERY system is its
proprietary READS (Restriction Enzyme Analysis of Differentially-expressed
Sequences) technology for analyzing patterns of gene expression. Gene Logic
uses READS in its drug target and drug lead discovery programs and to
generate genomic data for its database products.

DRUG TARGET DISCOVERY. Gene Logic identifies and analyzes
disease-associated genes and their functional pathways to determine
which genes might encode useful drug targets and prioritizes targets for
drug screening. Using READS, Gene Logic generates a gene expression
profile, or Molecular Topography, representing a quantitative snapshot
of the levels of expression of essentially all the genes expressed in a
tissue sample. The Company compares normal and diseased tissues through
a series of Molecular

2.
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Topography snapshots to identify the changes in gene expression that
occur as the disease develops and progresses and to determine which
genes are associated with the disease. In addition, using its MuST
(Multiplex Selection of Transcription Factors) technology, Gene Logic
characterizes the regions of the genes that regulate their expression.

DRUG LEAD DISCOVERY. Gene Logic is developing a proprietary, reusable
Flow-thru Chip for high-throughput analysis of changes in the expression of
known genes. The Company believes the Flow-thru Chip will enable the
development of high-throughput screening assays to evaluate the effects of
compounds on the expression of disease-associated genes identified by
READS. For a given disease, the Company will design a customized Flow-thru
Chip incorporating probes specific for these genes and use the chip to test
the effects of compounds on cells. Compounds that have the desired effect
on expression of the relevant genes may be evaluated as drug leads. Gene
Logic believes this technology represents a new approach to drug discovery
and has the potential to accelerate substantially the identification of
drug leads.

GENOMIC DATABASES. Gene Logic is developing a suite of genomic database
products to accelerate the process of target identification and
prioritization, the discovery of lead compounds and the preclinical and
clinical development of drugs. The Company plans to market its genomic
database products, either in a single package or as separate modules, to
multiple pharmaceutical company customers. The Company's database products
are: (i) the GENE EXPRESS NORMAL database, a reference set of gene
expression profiles in a variety of normal tissues; (ii) the rare EST
(rEST) database containing sequences for rarely-expressed genes that are
not available through public sources; (iii) the Toxicology EXPRESS database
for screening of lead compounds for common classes of toxicological
effects; (iv) the Pharmacology EXPRESS database to predict efficacy of lead
compounds at the preclinical drug development stage and (v) The Annotated
Genome (TAG) database which assigns human genes to functional pathways
based on their patterns of expression and regulation.

The Company has designed and is continuing to develop a bioinformatics
system to manage and analyze the information it generates. The system
integrates Gene Logic's genomic data content with other proprietary or public
genomic databases, protein databases and the chemical, screening and assay
databases used by the Company's strategic partners.

Gene Logic's business strategy is to (i) establish strategic alliances
with pharmaceutical companies for drug target and drug lead discovery
programs, (ii) establish independent discovery programs and license resulting
data, drug targets or drug leads to pharmaceutical companies for further
development and commercialization, (iii) market its suite of genomic database
products under non-exclusive license to multiple pharmaceutical company
customers, and (iv) retain significant rights to new product opportunities,
including diagnostic products, therapeutic proteins, gene therapy products
and products in the fields of differential diagnosis, molecular staging of
disease and pharmacogenomic profiling. The Company expects to receive a
diversified stream of technology and database access fees, research funding,
milestone payments and royalty or profit-sharing income from its strategic
alliance partners and licensees.

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Gene Logic has established discovery programs in the fields of heart
failure, renal disease, certain diseases of the central nervous system,
osteoporosis and prostate cancer. The Company has collaborations with
academic institutions and commercial organizations for access to relevant
normal and diseased human tissues and cell types and animal disease models in
these areas.

To date, Gene Logic has established three major alliances with
pharmaceutical companies. In May 1997, the Company entered into a 4 1/2-year
strategic alliance with Procter & Gamble for drug target discovery in heart
failure; in September 1997, the Company and Japan Tobacco entered into a
5-year strategic alliance for drug target and drug lead discovery in renal
disease; and in December 1997, Gene Logic entered into a 3-year database
agreement for drug target discovery with Organon. Through these alliances,
Gene Logic will receive committed technology and database access fees and
research funding. In both the Procter & Gamble and Japan Tobacco alliances,
the Company's partner has the right to expand the alliance to include
discovery programs in two additional disease indications upon terms,
including committed payments, identical to those covering the initial
program. In each alliance, Gene Logic is also entitled to receive additional
payments for the achievement of specified target discovery and product
development milestones and royalties on worldwide net sales of all products
that may result from the alliances. Gene Logic has retained certain rights to
diagnostic products and certain classes of therapeutics under these
alliances. As part of its alliance, Japan Tobacco purchased $3.0 million of
Common Stock in the Company in a private placement concurrent with the
closing of the Company's initial public offering at a price of $8.00 per
share.

INDUSTRY BACKGROUND

DRUG DISCOVERY AND DEVELOPMENT

Diseases are the result of disturbances of, or abnormalities in, the
physiological pathways that regulate the functioning of cells in the human
body. The main components of these pathways are proteins, such as enzymes,
receptors or ion channels, encoded by genes expressed within the cells
affected by the disease. Drugs generally exert their therapeutic effects by
interacting with certain of these proteins, referred to as drug targets, in
such a way as to restore the normal functioning of the disease-affected
pathways or otherwise to compensate for the abnormalities. The process of
drug discovery involves the screening of collections of compounds against a
drug target to identify those compounds which interact with the target to
produce the desired effect.

In response to increasing competitive pressures to discover and develop
new drugs in a more rapid and cost-effective manner, pharmaceutical and
biotechnology companies have recently made significant advances in
combinatorial chemistry and high-throughput screening technologies which
enable the rapid generation and screening of large and diverse compound
libraries against many potential targets. However, the current drug discovery
process remains time-consuming and costly, in part because of the difficulty
and complexity of identifying novel drug targets using traditional
methodologies. In general, pharmaceutical companies rely upon their own basic
research and academic discoveries to identify drug targets. The Company
believes this approach provides an insufficient number of targets to fill the
industry's increasing annual screening objectives. Recent developments in
genomics have permitted the partial sequencing of tens of thousands of new
genes and the identification of the classes of proteins

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they encode. These developments have not enabled the rapid identification of
drug targets, because the gene sequence data by itself provides limited
information, if any, about a gene's relationship to a specific disease. There
remains a significant need for a rapid and cost-effective method to correlate
genes with specific diseases to discover drug targets.

GENES, GENE EXPRESSION AND DISEASE

The genetic content of humans, the human genome, is maintained in
chromosomes, which contain deoxyribonucleic acid ("DNA"). DNA is composed of
two strands of four constituent molecules known as bases or nucleotides:
adenine (A), thymine (T), guanine (G) and cytosine (C). The specific order,
or sequence, of these bases encodes genetic information within units defined
as genes, which are the hereditary units that control the structure, health
and function of all organisms. The beginning sequence of any gene is called 5
prime (5') and its end is called 3 prime (3'). The human genome is estimated
to comprise approximately three billion base pairs encoding 100,000 to
150,000 genes. While all of these genes are present in every human cell,
certain of these genes are switched "on" only in specific tissues or only at
certain developmental stages and are otherwise inactive. On average, in any
single cell type, 10,000 to 20,000 different genes are expressed out of the
possible 100,000 to 150,000. The cell's pattern of gene expression defines
the function of that cell.

Genes consist of coding and non-coding regions which ultimately direct
and regulate the production of the various proteins that maintain normal
cellular function. The coding regions, which account for less than five
percent of the human genome, direct the production of proteins, and the order
of the bases in these regions determine the order of amino acids in a given
protein. An enzyme reads these genes and makes a strand of RNA (a molecule
similar to DNA) that consists of a string of bases complementary to that of
the DNA of the gene. This process is known as transcription and results in
the production of messenger RNA ("mRNA"). Messenger RNA directs the assembly
of amino acids in a sequence that corresponds to the order of the bases of
the mRNA defining the sequence of a protein. The amount of mRNA in a cell
provides a direct indication of the level of activity of the corresponding
gene.

Some of the non-coding DNA sequences, referred to as promoter regions,
regulate genes in the different tissues. A series of regulatory proteins,
called transcription factors, bind to specific promoter regions, either
singularly or in unique, multi-component complexes, and act as switches
controlling the activity of the genes. The synthesis of regulatory proteins
is, in turn, directed by genes coding for transcription factors and their
accessory proteins. Together these control elements regulate the pattern of
gene expression in specific cells.

When a mutation occurs in a gene, the resulting protein may be abnormal
in function, resulting in disease. A number of relatively rare diseases, such
as cystic fibrosis and sickle cell anemia, result from such single gene
mutations, and the genes responsible for many of these monogenic diseases
have been identified over the last decade. Detailed knowledge of gene
sequences that encode defective proteins may facilitate development of novel
therapeutic products and diagnostic tests for these conditions. However,
almost all major common diseases, including heart failure, renal disease,
diseases of the central nervous system, osteoporosis and cancer, are believed
to involve multiple genes and, often, complex interactions of genetic and

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environmental factors. These conditions evolve over time as a result of
successive changes in the patterns of gene expression in the cells involved
in the disease.

THE NEED FOR NOVEL DRUG TARGETS

A critical step for drug development is the identification of suitable
drug targets for screening. The major pharmaceutical companies are facing
increasing pressures to introduce new drugs more rapidly than in the past.
Because most drug candidates fail during the development process, these
companies need to identify a large number of potential drug candidates by
screening compound libraries against large numbers of targets to improve
their chances of identifying commercially viable drugs. Recent estimates
suggest that major pharmaceutical companies may have to screen hundreds of
new targets each year in order to meet their drug discovery objectives. This
figure compares with a published 1995 industry source estimate that
approximately 300 targets in total were then in active screening by the
pharmaceutical industry.

The majority of drug targets are proteins that are encoded by genes
expressed within tissues affected by a disease. The importance of certain
protein classes, such as enzymes, receptors or ion channels, as targets is
illustrated by the world's top selling prescription drugs. Of the 100 most
prescribed drugs, approximately 80% interact with one of four classes of
proteins: 33 drugs inhibit 13 different enzymes; 22 bind to ten different
G-protein-coupled receptors; 13 interact with six different ion channels; and
15 bind to four different nuclear hormone receptors. It is estimated that
there are approximately 10,000 different enzymes, 1,000 different
G-protein-coupled receptors, 200 different ion channels and 100 different
nuclear hormone receptors encoded in the human genome. These proteins are key
components of the pathways involved in disease and, therefore, are likely to
be a rich source of new drug targets.

Proven drug targets share certain other characteristics which can only
be identified by understanding their expression levels in cells and cannot be
determined by their gene sequence alone. Drug targets are (i) often expressed
primarily in specific tissues, allowing for selectivity of pharmacological
action and reducing the potential for adverse side effects and (ii) generally
expressed at low abundance in the cells of the relevant organ. An effective
target discovery system would therefore enable the detection of genes that
encode for proteins expressed in specific tissues at low abundance, thereby
permitting the rapid identification of proteins which are likely to be
targets for therapeutic and diagnostic development.

LIMITATIONS OF TRADITIONAL GENOMICS TECHNOLOGIES

Although traditional genomics technologies have yielded sequence
information for many genes and have succeeded in identifying genes that
predispose individuals to certain diseases, the rate at which novel drug
targets can be identified from this information is limited. Traditional
genomics efforts are generally classified in two categories: gene sequencing
and positional cloning.

Most gene sequencing approaches use high-throughput methods to capture
partial sequences (known as expressed sequence tags or "ESTs") for many genes
on an essentially random basis. These ESTs are stored in public and
proprietary databases which, to date, contain an estimated three million
ESTs, representing partial and fragmentary sequence data for 50 to 60

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percent of human genes. Despite the widespread availability of a significant
amount of sequence data, these data have limited use in identifying targets
for therapeutic or diagnostic product development. This is because the gene
sequence data by itself provides limited information, if any, about a gene's
relationship to a specific disease. Also, the EST sequencing approach tends
to capture multiple times those genes which are abundantly expressed, while
missing the low-abundance, tissue-specific genes which may code for useful
drug targets.

Positional cloning is a method of identifying individual genes that,
when defective, cause or predispose individuals to particular diseases. The
process consists of genetic mapping, physical mapping and sequencing, and
typically requires an extensive collection of DNA samples from families
affected by the disease. Scientists test the DNA of both affected and
non-affected members of these families and, through statistical analysis,
attempt to identify the region or regions of the genome likely to contain a
gene related to the disease. Positional cloning requires large numbers of
samples from the affected families to demonstrate statistical significance
and becomes much more complicated when multiple genes are involved in the
disease. The accumulation of such samples is costly and time consuming.
Although researchers are attempting to use other methodologies, including
animal models of disease, to speed the process of gene discovery, the overall
process may take several years.

THE GENE LOGIC SOLUTION

Gene Logic believes that its proprietary technologies for analysis of
the overall patterns of gene expression and regulation in specific diseases
will enable the Company to identify multiple, novel drug targets more rapidly
than competing technologies. Gene Logic's ACCELERATED DRUG DISCOVERY system
allows the Company to display the changes in gene expression patterns as a
disease develops and progresses. The Company uses this information, in
conjunction with its proprietary suite of genomics databases and
bioinformatics tools, to identify genes and their associated pathways
implicated in disease and to discover and prioritize individual drug targets.
Pursuant to strategic alliances with corporate partners and in independent
programs, the Company is using its system to identify drug targets for major
common diseases, including heart failure, renal disease, diseases of the
central nervous system, osteoporosis and prostate cancer. In addition, Gene
Logic is developing a proprietary, reusable Flow-thru Chip for
high-throughput analysis of changes in the expression of known genes. The
Company believes the Flow-thru Chip will enable the development of
high-throughput screening assays to evaluate the effects of compounds on the
expression of disease-associated genes identified by READS. This technology
represents a new approach to drug discovery and has the potential to
accelerate substantially the identification of drug leads. By utilizing and
further developing the portfolio of technologies, genomics databases and
bioinformatics tools in its ACCELERATED DRUG DISCOVERY system, Gene Logic
believes it can significantly enhance many critical steps in the drug
development process and accelerate the development of novel pharmaceuticals
for the Company and its partners.

GENE LOGIC'S STRATEGY

Gene Logic's objective is to provide to its pharmaceutical company
partners novel drug targets, drug leads and a suite of genomic database
products in order to reduce the time, cost and risk associated with drug
discovery. The Company believes that by building its portfolio of

<PAGE>

partnerships it will generate current revenues and establish a long-term
economic interest in the product pipelines of multiple partners through
milestone and royalty payments. The Company believes that this portfolio
approach will maximize the likelihood of drugs being discovered and developed
using its system. The Company's strategy for building commercial value is to:

- PROVIDE AN INTEGRATED DRUG DISCOVERY PLATFORM. The Company has
established and intends to continue to build a broad technology
platform, the ACCELERATED DRUG DISCOVERY system, based on the analysis
of gene expression and gene regulation for the rapid discovery of
multiple, screenable drug targets and drug leads. The ACCELERATED DRUG
DISCOVERY system is designed to be integrated easily into the current
drug discovery processes of multiple partners.

- ESTABLISH DRUG TARGET AND LEAD DISCOVERY ALLIANCES. Gene Logic
intends to continue to establish strategic alliances with
pharmaceutical companies for drug target and drug lead discovery
programs. Such strategic alliances would generally require Gene Logic
to develop research databases of gene expression for drug target
discovery for its partner's specific programs and, in certain cases,
to use its Flow-thru Chip technology to identify drug leads. The
Company expects that these alliances would provide technology
and database access fees, research funding, milestone payments and
royalty or profit-sharing income from commercialization of products
resulting from the alliances. To date, Gene Logic has entered into
alliances of this type with Procter & Gamble, Japan Tobacco and
Organon.

- ESTABLISH INDEPENDENT DRUG TARGET AND LEAD DISCOVERY PROGRAMS.
Gene Logic has established and intends to expand independent drug
discovery programs based on its proprietary technologies, including
the Flow-thru Chip. The Company expects to license drug leads
discovered through its independent programs to pharmaceutical
companies for clinical development and commercialization and to
receive license fees, development milestone payments and royalty or
profit-sharing income from such licensees.

- MARKET GENOMIC DATABASE PRODUCTS UNDER NON-EXCLUSIVE LICENSE. The
Company plans to market its suite of genomic database products,
including its GENE EXPRESS NORMAL and rare EST (rEST) databases,
either in a single package or as separate modules, to multiple
pharmaceutical company partners. The Company intends to grant
non-exclusive licenses independent of, or in conjunction with,
strategic alliances. Such licenses would generally provide the
Company annual subscription fees, milestone payments and royalties.
To date, Gene Logic has granted Japan Tobacco and Organon
non-exclusive licenses to its GENE EXPRESS NORMAL database.

- RETAIN SIGNIFICANT RIGHTS TO NEW PRODUCT OPPORTUNITIES. Under its
strategic alliances, Gene Logic retains certain rights to diagnostic,
therapeutic protein and gene therapy applications. In addition, the
Company intends to use its databases and technological capabilities to
develop products for the evolving fields of differential diagnosis,
molecular staging of disease and pharmacogenomic

<PAGE>

profiling. The Company may pursue these applications independently
or in alliances with additional partners.

GENE LOGIC'S ACCELERATED DRUG DISCOVERY SYSTEM

Gene Logic is employing its proprietary technologies and bioinformatics
system for the discovery of drug targets and drug leads and to accelerate the
development of drugs. The elements of Gene Logic's ACCELERATED DRUG DISCOVERY
system include:

ANALYSIS OF GENE EXPRESSION AND REGULATION

READS TECHNOLOGY

Gene Logic has developed a proprietary, automated technology, known as
READS (Restriction Enzyme Analysis of Differentially-expressed Sequences),
for capturing and analyzing the overall gene expression profile of a given
cell or tissue type to identify drug targets. The Company has an exclusive
license from Yale University to a United States patent and patent
applications covering the READS technology. Gene Logic has also received
notice of allowance for an independent patent application, covering key
aspects of gene expression analysis, from the United States Patent and
Trademark Office (the "USPTO"). Using READS, Gene Logic rapidly generates a
gene expression profile representing a quantitative snapshot of the levels of
expression of essentially all the genes in a tissue sample. The Company
compares normal and diseased tissues through a series of such snapshots to
identify the changes in gene expression patterns that occur as the disease
develops and progresses and to determine which genes are associated with the
disease. The READS technology is accurate and highly sensitive, capable of
detecting essentially all mRNA transcripts including rarely expressed genes,
at the level of approximately one mRNA copy per cell. By employing its READS
technology in conjunction with its proprietary bioinformatics system, the
Company can then prioritize the proteins encoded by these disease-associated
genes as potential drug targets.

The READS process begins with the procurement of a relevant cell or
tissue sample, extraction of its total RNA content and preparation of
complementary DNA ("cDNA") using standard techniques. By applying proprietary
tagging and enzyme cleavage procedures to the cDNA pool, the Company
generates a unique set of identifiable signature fragments (3' ESTs) for each
mRNA species present in the cell. The fragments are separated by size using
gel-based, automated separation techniques and quantified using proprietary
image analysis software. The quantity of each signature fragment correlates
directly with the expression levels of the corresponding gene. The Company
uses its bioinformatics system to compile these data into a gene expression
profile which represents the levels of expression of genes active in the
sample. The READS process typically takes two days.

The READS technology has been highly automated through the use of
commercially available robotic liquid handling stations, thermocyclers and
fragment separation instruments. A single production unit is capable of
generating approximately 1,000 gene expression profiles per year. Gene Logic
has installed its first production unit and is scaling up operations. The
Company expects to install a second production unit during 1998. There can be
no assurance,

<PAGE>

however, that the Company will be able to increase its capacity as expected
or to realize the cost efficiencies of scale it anticipates.

MUST TECHNOLOGY

Gene Logic's proprietary MuST (Multiplex Selection of Transcription
Factors) technology enables the Company to identify the nucleotide sequences
of the transcription factor binding sites through which the expression of
genes is regulated. The Company believes that the information generated by
MuST, in combination with the information on gene expression levels generated
by its READS technology, will enable the Company to assign genes to
functional pathways based on the observation that genes in such pathways
share common regulatory mechanisms and are coordinately expressed. The
Company has an exclusive license from Yale University to patent applications
covering the MuST technology and has received a notice of allowance for the
original patent application, covering the key aspects of the MuST technology,
from the USPTO.

The MuST process starts with the extraction of nuclear proteins in the
cell or tissue sample. Proteins within this extract which exhibit
sequence-specific DNA binding properties are bound to a set of DNA probes and
separated from all unbound probes using electrophoretic separation
techniques. After purification and amplification, the binding sites are
sequenced and entered into a database. The result is a library of sequences
which represent the binding sites for the gene regulatory proteins contained
in the original nuclear extract.

THE FLOW-THRU CHIP

Gene Logic is developing its proprietary, reusable Flow-thru Chip for
high-throughput analysis of changes in the expression of known genes. The
Flow-thru Chip will enable the development of high-throughput screening
assays to evaluate the effects of compounds on the expression of
disease-associated genes identified by READS. This technology represents a
new approach to drug discovery and has the potential to accelerate
substantially the identification of drug leads. The Company has exclusive
licenses to the technology underlying the Flow-thru Chip from the United
States Department of Energy and the inventor of the technology.

In its drug discovery process, Gene Logic will use its READS technology
to identify which genes are associated with the disease. Once these genes are
known, the Company will design a customized Flow-thru Chip incorporating
probes specific to these genes and use the chip to test the effects of
compounds in cellular assays. Compounds that have the desired effect on
expression of the relevant genes, such as restoring the expression pattern to
normal or mimicking the effect of a known therapeutic, may be evaluated as
drug leads.

The substrate of the Flow-thru Chip is a glass or silicon wafer
traversed by a grid of micro-channels. The current version of the chip is
laid out in a format which is intended to be compatible with current
high-throughput cellular assay systems. Each well is configured to contain an
array of approximately 400 genes identified using the Company's READS
technology; the number of genes included in each well is expected to be
increased to approximately 1,000 in the second version of the Flow-thru Chip.
The Company expects to

10.

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commence in-house testing during 1998, but there can be no assurance that
such testing will commence in 1998, or at all.

Based on disease-associated genes identified by READS, Gene Logic
designs and synthesizes custom oligonucleotide probes and binds them, using a
proprietary covalent attachment chemistry, within the micro-channels covering
a specific area of the chip. The function of each probe is to bind to its
complementary DNA or RNA in the sample being analyzed. The nucleic acid is
isolated from such a sample and fluorescently labeled by one of several
standard biochemical methods. The test sample is then flowed through the
substrate of the Flow-thru Chip where each attached probe captures, or
hybridizes to, any labeled nucleic acid present in the sample which is
complementary to that probe. When imaged using the Company's signal detection
system, the hybridized test sample generates a fluorescent signal which can
be correlated with the expression in the original sample of the gene captured
by the probe because the sequence and position of each complementary DNA
probe on the Flow-thru Chip is known. The level of signal is readily
quantifiable and reflects the degree to which the gene is expressed in the
sample.

The Company believes that several features make the Flow-thru Chip well
suited for monitoring the expression of known genes in high-throughput
cellular assays:

- SENSITIVITY. Because of the greater surface area available for
attachment of the oligonucleotide probes, the Company believes the
Flow-thru Chip will be sensitive enough to monitor changes in
expression of low-abundance transcripts.

- SPEED. The existence of the micro-channels accelerates the
hybridization reaction, reducing the time required for each assay. In
addition, because the walls of the micro-channels focus the
fluorescent signal, the Company expects to be able to use a
commercially available digital signal detection system to provide an
immediate read-out.

- COST. As a result of the proprietary covalent chemistry through which
the oligonucleotide probes are attached within the micro-channels,
each Flow-thru Chip can be used multiple times. Following each assay
the chip is washed to remove the hybridized material and is then ready
for reuse. The Company believes the reusability of the Flow-thru Chip
will make it suitable for use in high-throughput screening
applications.

In addition to its use as part of the Company's drug lead discovery
programs, the Flow-thru Chip will also serve as a platform for the screening
of lead compounds against the data in the Toxicology EXPRESS and Pharmacology
EXPRESS databases being developed by the Company. Gene Logic will design
Flow-thru Chips using oligonucleotide probes representative of the genes that
comprise patterns of gene expression which typify known classes of toxic or
pharmacological effects identified using READS. The Company may sell
Flow-thru Chips to its strategic partners in conjunction with subscriptions
to the Toxicology EXPRESS or Pharmacology EXPRESS databases or provide
screening services in conjunction with an alliance.

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The Company has established relationships with several third parties for
manufacture of the chip substrates and oligonucleotide probes which
constitute its Flow-thru Chip arrays and for the robotic and signal detection
systems associated with running high-throughput screening assays using the
chips. There can be no assurance, however, that the Company will be able to
maintain such relationships on terms acceptable to the Company.

There can be no assurance that further development and scale up of the
Flow-thru Chip will be successful or that the Company will be successful in
marketing the Flow-thru Chip to strategic partners or others.

GENE LOGIC'S BIOINFORMATICS SYSTEM

Gene Logic has designed and is continuing to develop a bioinformatics
system to manage and analyze the information it generates and to interface
with its databases, its partners' databases and databases in the public
domain. This system enables the functional integration of Gene Logic's
genomic data content with other proprietary or public genomic databases,
protein databases and strategic partners' chemical, screening and assay
databases. Gene Logic's bioinformatics system provides the analytical tools
necessary to enable the Company to discover and prioritize targets for drug
discovery. Moreover, the provision of Gene Logic's proprietary genomic data
in conjunction with its integrated bioinformatics system enables the Company
to introduce that system into strategic partners' drug discovery process in a
customized, expandable format that is compatible with partners' current
database architectures.

DATABASE INTEGRATION TOOLS

Gene Logic's bioinformatics system was developed using scientific data
management tools based on the Object Protocol Model ("OPM"). These tools
provide support for the rapid development of relational databases, the
integration of relational and flat file databases and for cross-database
queries. The Company's bioinformatics system works through customized and
configurable Web interfaces, regardless of the structure of the underlying
databases and without having to redevelop each database. The Company's
bioinformatics system enables the integration of Gene Logic's information
content into the data management systems of its strategic partners, and Gene
Logic believes that the system will also enhance the value of such partners'
existing databases by establishing interconnectivity of heterogeneous data
sources.

GENOMIC DATA ANALYTICAL TOOLS

The Company's bioinformatics system includes tools for the analysis of
data generated by READS for both normal and diseased cell and tissue types.
Gene expression data are analyzed using the Company's proprietary software
tools. The tools allow intuitive "point and click" navigation among the
expressed genes. The system can identify genes as known (represented in the
Company's databases of indexed 3' sequences) or unknown, and provides a wide
variety of statistical analyses of expression levels and correlations both
within and across cell, tissue and disease types.

Gene Logic has also developed proprietary methods to prioritize the
disease-associated genes it discovers as potential drug targets. This
prioritization depends upon a number of factors including: (i) a gene's
temporal association with the disease process; (ii) the tissue distribution
of

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its expression; (iii) any homology it may have with known target classes,
such as membrane receptors, enzymes or signaling proteins; (iv) its
involvement in known metabolic or signal transduction pathways; and (v) the
feasibility of developing a screening assay.

GENE LOGIC PROGRAMS AND PRODUCTS

DRUG TARGET AND LEAD DISCOVERY PROGRAMS - STRATEGIC ALLIANCES

As part of its business strategy, Gene Logic intends to establish
strategic alliances with pharmaceutical companies for drug target and drug
lead discovery programs. Gene Logic may also enter into strategic alliances
or joint ventures with additional partners to develop certain diagnostics,
therapeutic proteins and gene therapy products for which it has retained
rights. The Company's strategic alliances would generally provide for the
Company to receive technology and database access fees, research funding,
milestone payments and royalty or profit-sharing income. To date, Gene Logic
has entered into alliances with Procter & Gamble, Japan Tobacco and Organon.

PROCTER & GAMBLE PHARMACEUTICALS, INC.

In May 1997, the Company and Procter & Gamble entered into a 4 1/2-year
strategic alliance for drug target discovery in heart failure. Payments by
Procter & Gamble to the Company in the form of committed technology access
fees and research funding will total a minimum of $10.1 million if the
research program continues for its full term and the Company performs its
research obligations under the agreement. The parties may agree to extend the
research program for additional one-year periods. At any time during the
first 18 months of the alliance, Procter & Gamble has the right to expand the
alliance to include drug target discovery programs in two additional disease
indications upon terms, including committed research funding, identical to
those covering the initial program in heart failure. Procter & Gamble will be
obligated to make additional payments to the Company for the achievement of
specified target discovery, product development and associated regulatory
milestones. Procter & Gamble will also pay the Company royalties on worldwide
net sales of all products that may result from the alliance. Payments for
technology access fees and research and development support will be
recognized as revenue ratably over the period for which the payments are
made. Payments related to the achievement of milestones will be recognized as
revenue when the milestones are achieved.

There can be no assurance that the Company's research pursuant to the
agreement will be successful in discovering drug targets related to heart
failure or to either of the two option disease fields or that Procter &
Gamble will be successful in developing or commercializing any products based
upon such discoveries made by the Company. As a result, there can be no
assurance that Gene Logic will receive any milestone payments, royalties or
other payments contemplated by the agreement, nor can there be any assurance
that the alliance will not be terminated prior to the natural expiration of
its term pursuant to provisions under the alliance agreement.

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JAPAN TOBACCO INC.

In September 1997, the Company and Japan Tobacco entered into a 5-year
strategic alliance for drug target and drug lead discovery in renal disease.
Payments by Japan Tobacco to the Company in the form of committed technology
and database access fees and research funding total a minimum of $15.0
million if the research program continues for its full term and the Company
performs its research obligations under the agreement. Japan Tobacco may
extend the research program for one additional year. At any time during the
first two years of the alliance, Japan Tobacco has the right to expand the
alliance to include drug target and drug lead discovery programs in two
additional disease indications upon terms, including committed research
funding, identical to those covering the initial program in renal disease.
Japan Tobacco will be obligated to make additional payments to the Company
for the achievement of specified target discovery and related product
development and associated regulatory milestones. Pursuant to the terms of
the agreement, Japan Tobacco would pay a minimum of $12.5 million for each
therapeutic product if all milestones are achieved. Japan Tobacco will also
pay the Company royalties on worldwide net sales of all products that may
result from targets discovered pursuant to the alliance. Payments for
technology and database access fees and research and development support will
be recognized as revenue ratably over the period for which the payments are
made. Payments related to the achievement of milestones will be recognized as
revenue when the milestones are achieved.

As part of the alliance and during the research term of the alliance
agreement, the Company granted Japan Tobacco a non-exclusive license to the
GENE EXPRESS NORMAL database, and Gene Logic intends to use its Flow-thru
Chip technology for screening for drug leads in renal disease or, if Japan
Tobacco has exercised its options to additional disease indications, such
other disease indications. In consideration for such license and access,
Japan Tobacco purchased $3.0 million of Common Stock in a private transaction
concurrent with the Company's initial public offering at $8.00 per share.
Under the terms of the option, Japan Tobacco will pay Gene Logic chip design
fees, screening fees and a minimum of $17.5 million for each therapeutic
product based on a lead compound identified through such assays if all
milestones are achieved. The agreement also entitles the Company to royalties
on net sales of therapeutic products based on lead compounds identified
through such assays.

There can be no assurance that the Company's research pursuant to the
agreement will be successful in discovering drug targets or drug leads
related to renal disease or to either of the two option disease fields or
that Japan Tobacco will be successful in developing or commercializing any
products based upon such discoveries made by the Company. As a result, there
can be no assurance that Gene Logic will receive any milestone payments,
royalties or other payments contemplated by the agreement, nor can there be
any assurance that the alliance will not be terminated prior to the natural
expiration of its term pursuant to provisions under the alliance agreement.

N.V. ORGANON

In December 1997, the Company and Organon entered into a 3-year
strategic alliance for drug target discovery. Payments by Organon to the
Company in the form of committed database access fees and research funding
total a minimum of $12.5 million if the research program continues for its
full term and the Company performs its research obligations under the

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agreement. As part of the alliance and during the research term of the
alliance agreement, the Company granted Organon a non-exclusive license to
the GENE EXPRESS NORMAL database. Organon will be obligated to make
additional payments to the Company for the achievement of specified target
discovery and related product development milestones. Organon will also pay
the Company royalties on worldwide net sales of all products that may result
from targets discovered pursuant to the alliance. Payments for database
access fees and research and development support will be recognized as
revenue ratably over the period for which the payments are made. Payments
related to the achievement of milestones will be recognized as revenue when
the milestones are achieved.

There can be no assurance that the Company's research pursuant to the
agreement will be successful in discovering drug targets or that Organon will
be successful in developing or commercializing any products based upon such
discoveries made by the Company. As a result, there can be no assurance that
Gene Logic will receive any milestone payments, royalties or other payments
contemplated by the agreement, nor can there be any assurance that the
alliance will not be terminated prior to the natural expiration of its term
pursuant to provisions under the alliance agreement.

DRUG TARGET AND LEAD DISCOVERY PROGRAMS - INDEPENDENT PROGRAMS

Gene Logic has established independent discovery programs to identify
drug targets for certain diseases of the central nervous system, osteoporosis
and prostate cancer and has established collaborations with academic
institutions and commercial organizations for access to relevant normal and
diseased human tissues and cell types and animal disease models. The Company
uses these tissues for analysis of gene expression and gene regulation and to
build its genomic databases. Under the terms of these agreements, the Company
generally retains all commercial rights to gene discoveries made through the
use of cells and tissues provided by its collaborators. Gene Logic also
intends to obtain access to compound libraries from combinatorial chemistry
and pharmaceutical companies for screening using its Flow-thru Chip.

To date, the Company has established the following independent programs:

SCHIZOPHRENIA. Gene Logic is analyzing the patterns of gene expression
in brain cells from schizophrenics and animal treatment models to identify
novel drug targets. Gene Logic has entered into a collaboration with Johns
Hopkins University School of Medicine for access to post mortem tissue
samples from brains of schizophrenics. These samples were obtained from both
drug-treated and untreated individuals shortly after death. The Company has
also begun evaluating the effects of established and experimental
anti-psychotic drugs on gene expression in the brain in animal models.

DEPRESSION. The Company is using READS to discover new antidepressant
drug targets based on changes in the patterns of gene expression in brain
cells from patients with affective disorders. The Company has entered into a
collaboration with Johns Hopkins University School of Medicine for access to
post mortem samples from specific regions of the brains of both drug-treated
and untreated manic-depressives.

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ALZHEIMER'S DISEASE. Gene Logic has entered into a collaboration with
Molecular Geriatrics Corporation for access to micro-dissected samples of
relevant regions of human brain from patients with Alzheimer's disease
ranging from early stage through advanced degeneration. The samples have been
characterized using proprietary monoclonal antibodies to reveal cells
affected at the onset of the disease. The Company has exclusive rights to any
genes useful in the development of therapeutic products which are identified
through the collaboration. The Company may pursue such rights independently
or in alliance with a strategic partner. Molecular Geriatrics Corporation
retains rights to develop diagnostic products.

OSTEOPOROSIS. Gene Logic has commenced its discovery program in
osteoporosis with the Center for Clinical and Basic Research and Johns
Hopkins University School of Medicine providing normal and osteoporotic bone
samples. The Company intends to develop drug targets identified through these
programs independently or in alliance with a strategic partner.

PROSTATE CANCER. Gene Logic has established a collaboration for access
to staged and characterized prostate cancer tissue samples, together with
related clinical treatment and outcomes data, with Baylor College of
Medicine. In this program, the Company is focusing on the identification of
targets for the development of novel therapeutics and diagnostic products.
Gene Logic may develop these independently or in alliance with strategic
partners.

GENOMIC DATABASE PRODUCTS

Complementary to its drug target and drug lead discovery programs, Gene
Logic is developing a suite of genomic database products designed to
accelerate the process of target identification and prioritization, the
discovery of lead compounds and the preclinical and clinical development of
drugs. Gene Logic intends to market these genomic database products, in a
single package or as separate modules, to multiple partners on a
non-exclusive basis both independent of and in conjunction with drug target
and drug lead discovery alliances. The Company expects to receive annual
database access subscription fees, milestone payments based on utilization of
the data in licensees' drug and diagnostic discovery programs and royalties
on net sales of resulting products.

GENE EXPRESS NORMAL DATABASE

The GENE EXPRESS NORMAL database is a reference set of gene expression
profiles for a variety of normal human tissues, which enables the Company and
its partners to determine rapidly the expression level of genes in normal
tissues. The database will also contain gene expression profiles for normal
tissues in rat and mouse, the experimental animals most commonly used by the
pharmaceutical industry. This information facilitates the prioritization of
drug targets. The Company uses the database with its bioinformatics system to
correlate specific gene sequences to their expression levels and to interface
with other public or private sequence databases to which the licensee may
have access. The Company has granted non-exclusive licenses to the GENE
EXPRESS NORMAL database to Japan Tobacco and Organon.

RARE EST (REST) DATABASE

Approximately 80% of all human genes are rarely expressed (at the level
of fewer than five mRNA copies per cell), and fewer than an estimated 50% of
such genes are available in

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existing human EST databases. However, these low-abundance, tissue-specific
gene transcripts are those that are most promising as drug targets. Gene
Logic uses its READS technology on tissue samples to identify rarely
expressed genes. Unlike traditional EST sequencing methods, Gene Logic's
process is directed (non-random) and has a low level of redundancy. The
Company is developing a database of rare ESTs, with the potential to provide
promising drug targets not available through other sources of sequence data.
Gene Logic anticipates that the rEST database will be available in 1998, but
there can be no assurance that it will be available by such date, or at all.

TOXICOLOGY EXPRESS DATABASE

Gene Logic intends to use its READS technology to build a database of
the changes in gene expression that typify known toxicological effects of
compounds in the target organs subject to such effects. Patterns may be
identified by comparing gene expression in normal tissues to gene expression
in similar tissues exposed to known toxic substances. These patterns can be
used as references for the screening of new lead compounds for common classes
of toxicological effects in order to minimize the use of traditional animal
toxicology screening, which is both time-consuming and expensive. In
conjunction with the Toxicology EXPRESS database, Gene Logic plans to use its
Flow-thru Chip for the screening of lead compounds against the database. The
Company believes that screening against the Toxicology EXPRESS database will
provide a filter for the prioritization of lead compounds and will accelerate
the selection of those to be taken forward through full toxicological studies
in animals and those to be abandoned. The construction of the Toxicology
EXPRESS database is at an early stage. The Company anticipates that such
database will be available in 1998, but there can be no assurance that it
will be available by such date, or at all.

PHARMACOLOGY EXPRESS DATABASE

The Company is using its READS technology to build a database of
profiles of gene expression that characterize the pharmacological effects in
relevant target organs of compounds of known therapeutic benefit. These
patterns can be used as references for the screening of new lead compounds in
order to predict therapeutic efficacy at the preclinical development stage.
The Company believes that this technology may substantially reduce the risks
associated with clinical development of new drugs and provide a rapid filter
for the selection and prioritization of lead compounds. In conjunction with
its Pharmacology EXPRESS database, Gene Logic plans to use its Flow-thru Chip
for the screening of lead compounds against the database. The construction of
the Pharmacology EXPRESS database is at an early stage. The Company
anticipates that such database will be available in 1998, but there can be no
assurance that it will be available by such date, or at all.

THE ANNOTATED GENOME (TAG) DATABASE

The Human Genome Project is forecast to complete the sequencing of the
entire genome by the year 2005. Using expression data derived from the GENE
EXPRESS NORMAL database and the transcription factor binding site sequence
information generated by the Company's MuST technology, Gene Logic intends to
create a database, the TAG database, of human genomic sequence information
derived from the Human Genome Project annotated with expression levels,

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tissue distribution of expression and gene regulatory mechanisms. The Company
believes the analysis of this database will enable genes to be placed in
their functional pathways based upon coordinate expression and shared
transcriptional control elements, thereby allowing the selection and
prioritization of appropriate drug targets at multiple points along
disease-associated pathways. The development of the TAG database is at an
early stage and Gene Logic expects that it will accelerate as more human
genomic sequence data becomes available.

The statements made in this Report on Form 10-K regarding anticipated
dates for commercial availability of certain of its products are
forward-looking statements, and the actual dates of commercialization could
differ materially from those projected as a result of a variety of factors,
including progress of the Company's technologies, changes in the Company's
business priorities and other factors discussed in "Risk Factors." There can
be no assurance that the Company will not experience difficulties that could
delay or prevent the successful development and commercialization of products
or that the Company's products will address the requirements of the market or
achieve market acceptance.

NEW PRODUCT OPPORTUNITIES

Gene Logic intends to pursue commercial opportunities for diagnostic
applications of its discoveries, including molecular staging of disease,
differential diagnosis and pharmacogenomic profiling. The Company believes
that management of common diseases in the future will include gene
expression-based diagnostics to monitor the molecular evolution of the
disease. Gene expression analysis may enable differentiation among diseases
which share clinical symptoms but which differ at the level of molecular
mechanism. Gene Logic believes that pharmacogenomic profiling, using gene
expression-based assays to predict an individual's response to specific
drugs, may be especially valuable in new drug development and in modifying
drug therapies of known efficacy but which have toxic side effects in certain
groups of patients.

INTELLECTUAL PROPERTY

Gene Logic seeks United States and international patent protection for
major components of its technology platform, including elements of its READS,
MuST, Flow-thru Chip and bioinformatics technologies; it relies upon trade
secret protection for certain of its confidential and proprietary
information; and it uses license agreements both to access external
technologies and assets and to convey certain intellectual property rights to
others. The Company's commercial success will be dependent in part upon its
ability to obtain commercially valuable patent claims and to protect its
intellectual property portfolio.

As of March 16, 1998, Gene Logic had exclusive rights to 17 United
States patent applications relating to its technologies. The Company has
exclusive rights to a United States patent covering key aspects of the READS
gene expression analysis. The Company has also received notice of allowance
for a United States patent application covering key aspects of gene
expression analysis, and notice of allowance for a United States patent
application covering its MuST technology.

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The patent positions of pharmaceutical, biopharmaceutical and
biotechnology companies, including Gene Logic, are generally uncertain and
involve complex legal and factual questions. There can be no assurance that
any of the pending patent applications to which the Company has exclusive
rights will result in issued patents, that the claims of any patents which
are issued will provide meaningful protection, that the Company will develop
additional proprietary technologies that are patentable, that any patents
licensed or issued to the Company or its strategic partners will provide a
basis for commercially viable products or will provide the Company with any
competitive advantages or will not be challenged by third parties, or that
the patents of others will not have an adverse effect on the ability of the
Company to do business. In addition, patent law relating to the scope of
claims in the technology field in which the Company operates is still
evolving. The degree of future protection for the Company's proprietary
rights, therefore, is uncertain. Furthermore, there can be no assurance that
others will not independently develop similar or alternative technologies,
duplicate any of the Company's technologies, or, if patents are licensed or
issued to the Company, design around the patented technologies licensed to or
developed by the Company. In addition, the Company could incur substantial
costs in litigation if it is required to defend itself in patent suits
brought by third parties or if it initiates such suits.

The Company is aware of a number of United States patents and patent
applications and corresponding foreign patents and patent applications owned
by third parties relating to the analysis of gene expression or the
manufacture and use of DNA chips. There can be no assurance that these or
other technologies will not provide third parties with competitive advantages
over the Company and will not have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, certain
third party patent applications contain broad claims, and it is not possible
to determine whether or not such claims will be narrowed during prosecution
and/or will be allowed and issued as patents, even if such claims appear to
cover the prior art or have other defects. There can be no assurance that an
owner or licensee of a patent in the field will not threaten or file an
infringement action or that the Company would prevail in any such action.
There can be no assurance that the cost of defending an infringement action
would not be substantial and would not have a material adverse effect on the
Company's business, financial condition and results of operations.
Furthermore, there can be no assurance that any required licenses would be
made available on commercially viable terms, if at all. Failure to obtain any
required license could prevent the Company from utilizing or commercializing
one or more of its technologies and could have a material adverse effect on
the Company's business, financial condition and results of operations.

The Company has applied, and intends to make additional applications,
for patent protection for methods relating to gene expression, for the
disease-specific patterns of gene expression it identifies and for the
individual disease genes and targets it discovers. Such patents may include
claims relating to novel genes and gene fragments and to novel uses for known
genes or gene fragments identified through its discovery programs. There can
be no assurance that the Company will be able to obtain meaningful patent
protection for its discoveries; even if patents are issued, the scope of the
coverage or protection afforded thereby is uncertain. Failure to secure such
meaningful patent protection could have a material adverse effect on the
Company's business, financial condition and results of operations.

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Several groups are attempting to identify and patent gene fragments and
full-length genes, the functions of which have not been characterized, as
well as fully characterized genes. There is substantial uncertainty regarding
the possible patent protection for gene fragments or genes without known
function or correlation with specific diseases. To the extent any patents
issue to other parties on such partial or full-length genes, the risk
increases that the potential products and processes of the Company or its
strategic partners may give rise to claims of patent infringement. The public
availability of partial or full sequence information or the existence of
patent applications related thereto, even if not accompanied by relevant
function or disease association, prior to the time the Company applies for
patent protection on a corresponding gene could adversely affect the
Company's ability to obtain patent protection with respect to such gene or to
the related expression patterns. Furthermore, others may have filed, and in
the future are likely to file, patent applications covering genes or gene
products that are similar, or identical to, any for which the Company may
seek patent protection. No assurance can be given that any such patent
application will not have priority over patent applications filed by the
Company. Any legal action against the Company or its strategic partners
claiming damages and seeking to enjoin commercial activities relating to the
affected products and processes could, in addition to subjecting the Company
to potential liability for damages, require the Company or its strategic
partners to obtain a license in order to continue to manufacture or market
the affected products and processes. There can be no assurance that the
Company or its strategic partners would prevail in any such action or that
any license required under any such patent would be made available on
commercially acceptable terms, if at all. The Company believes that there is
likely to be significant litigation in the industry regarding patent and
other intellectual property rights. If the Company becomes involved in such
litigation, it could consume a substantial portion of the Company's
managerial and financial resources and have a material adverse effect on the
Company's business, financial condition and results of operations.

Enactment of legislation implementing the General Agreement on Tariffs
and Trade has resulted in certain changes to United States patent laws that
became effective on June 8, 1995. Most notably, the term of patent protection
for patent applications filed on or after June 8, 1995 is no longer a period
of 17 years from the date of grant. The new term of United States patents
will commence on the date of issuance and terminate 20 years from the
earliest effective filing date of the application. Because the time from
filing to issuance of biotechnology patent applications is often more than
three years, a 20-year term from the effective date of filing may result in a
substantially shortened period of patent protection which may adversely
affect the Company's patent position. If this change results in a shorter
period of patent coverage, the Company's business could be adversely affected
to the extent that the duration and level of the royalties it is entitled to
receive from its strategic partners are based on the existence of a valid
patent covering the product subject to the royalty obligation.

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protect its proprietary know-how and technologies and confidential data
and continues to explore further methods of protection. While Gene Logic
requires all employees, consultants and collaborators to enter into
confidentiality agreements, there can be no assurance that proprietary
information will not be disclosed, that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets, or that the Company can
meaningfully protect its trade secrets. In the case of a strategic
partnership or other collaborative arrangement which requires the sharing of
data, the Company's policy is to make available to its partner only such data
as are relevant to the partnership or arrangement, under controlled
circumstances, and only during the contractual term of the strategic
partnership or collaborative arrangement, and subject to a duty of
confidentiality on the part of its partner or collaborator. There can be no
assurance, however, that such measures will adequately protect the Company's
data. Any material leak of confidential data into the public domain or to
third parties may have a material adverse effect on the Company's business,
financial condition and results of operations.

The Company is a party to various license agreements which give it
rights to use certain technologies and biological materials in its research
and development processes. There can be no assurance that the Company will be
able to maintain such rights on commercially reasonable terms, if at all.
Failure by the Company to maintain such rights could have a material adverse
effect on the Company's business, financial condition and results of
operations.

COMPETITION

Competition among entities attempting to identify the genes associated
with specific diseases and to develop products based on such discoveries is
intense. Gene Logic faces, and will continue to face, competition from
pharmaceutical, biotechnology and diagnostic companies, academic and research
institutions and government agencies, both in the United States and abroad.
Several entities are attempting to identify and patent randomly sequenced
genes and gene fragments, while others are pursuing a gene identification,
characterization and product development strategy based on positional
cloning. The Company is aware that certain entities are utilizing a variety
of different gene expression analysis methodologies, including the use of
chip-based systems, to attempt to identify disease-related genes. In
addition, numerous pharmaceutical companies are developing genomic research
programs, either alone or in partnership with the Company's competitors.
Competition among such entities is intense and is expected to increase. In
order to compete against existing and future technologies, the Company will
need to demonstrate to potential customers that its technologies and
capabilities are superior to competing technologies.

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the Company's or its strategic partners' ability to use the Company's drug
discovery technologies or commercialize therapeutic or diagnostic products,
which could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company also faces
competition from these and other entities in gaining access to cells, tissues
and nucleic acid samples used in its discovery programs.

The Company will rely on its strategic partners for support of certain
of its discovery programs and intends to rely on its strategic partners for
preclinical and clinical development of related potential products and the
manufacturing and marketing of such products. Each of the Company's strategic
partners is conducting multiple product development efforts within each
disease area which is the subject of its strategic alliance with Gene Logic.
Generally, the Company's strategic alliance agreements do not preclude the
strategic partner from pursuing development efforts utilizing approaches
distinct from that which is the subject of the alliance. Any product
candidate of the Company, therefore, may be subject to competition with a
potential product under development by a strategic partner.

Future competition will come from existing competitors as well as other
companies seeking to develop new technologies for drug discovery based on
gene sequencing, target gene identification, bioinformatics and related
technologies. In addition, certain pharmaceutical and biotechnology companies
have significant needs for genomic information and may choose to develop or
acquire competing technologies to meet such needs. Genomic technologies have
undergone and are expected to continue to undergo rapid and significant
change. The Company's future success will depend in large part on its
maintaining a competitive position in the genomics field. Rapid technological
development by the Company or others may result in products or technologies
becoming obsolete before the Company recovers the expenses it incurs in
connection with their development. Products offered by the Company could be
made obsolete by less expensive or more effective drug target and drug lead
technologies, including technologies which may be unrelated to genomics.
There can be no assurance that the Company will be able to make the
enhancements to its technology necessary to compete successfully with newly
emerging technologies.

GOVERNMENT REGULATION

The Company does not plan to conduct clinical trials in humans or
commercialize therapeutic products discovered as a result of its genes, drug
target and drug lead discovery programs but intends to rely on its strategic
partners to conduct such activities. Prior to marketing, any new drug
developed by the Company's strategic partners must undergo an extensive
regulatory approval process in the United States and other countries. This
regulatory process, which includes preclinical studies and clinical trials,
and may include post-marketing surveillance of each compound to establish its
safety and efficacy, can take many years and require the expenditure of
substantial resources. Data obtained from preclinical studies and clinical
trials are subject to varying interpretations that could delay, limit or
prevent regulatory approval. Delays or rejections may also be encountered
based upon changes in United States Food and Drug Administration ("FDA")
policies for drug approval during the period of product development and FDA
regulatory review of each submitted new drug application ("NDA") in the case
of new pharmaceutical agents, or product license application ("PLA") or
biologics license application ("BLA") in the case of biological therapeutics.
Similar delays may also be

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encountered in the regulatory approval of any diagnostic product, where such
approval is required, and in obtaining regulatory approval in foreign
countries. Delays in obtaining regulatory approvals could adversely affect
the marketing of any drugs developed by the Company or its strategic
partners, impose costly procedures upon the Company's and its partners'
activities, diminish any competitive advantages that the Company or its
partners may attain and adversely affect the Company's receipt of royalties.
There can be no assurance that regulatory approval will be obtained for any
drugs or diagnostic products developed by the Company or its strategic
partners. Furthermore, regulatory approval may entail limitations on the
indicated uses of a drug. Because certain of the products likely to result
from the Company's disease research programs involve the application of new
technologies and may be based upon a new therapeutic approach, such products
may be subject to substantial additional review by various government
regulatory authorities and, as a result, regulatory approvals may be obtained
more slowly than for products based upon more conventional technologies.

Even if regulatory approval is obtained, a marketed product and its
manufacturer are subject to continuing review. Discovery of previously
unknown problems with a product may result in withdrawal of the product from
the market, and could have a material adverse effect on the Company's
business, financial condition and results of operations. Violations of
regulatory requirements at any stage during the regulatory process, including
preclinical studies and clinical trials, the approval process, post-approval
or in good manufacturing practices manufacturing requirements, may result in
various adverse consequences to the Company, including the FDA's delay in
approval or refusal to approve a product, withdrawal of an approved product
from the market or the imposition of criminal penalties against the
manufacturer and NDA, PLA or BLA holder. No investigational new drug
application ("IND") has been submitted for any product candidate resulting
from the Company's discovery programs, and no product candidate has been
approved for commercialization in the United States or elsewhere. The Company
intends to rely on its strategic partners to file INDs and generally direct
the regulatory approval process. There can be no assurance that the Company's
strategic partners will be able to conduct clinical testing or obtain
necessary approvals from the FDA or other regulatory authorities for any
products. Failure to obtain required governmental approvals will delay or
preclude the Company's strategic partners from marketing drugs or diagnostic
products developed through the Company's research or limit the commercial use
of such products and could have a material adverse effect on the Company's
business, financial condition and results of operations.

The Company's research and development activities involve the controlled
use of certain biological and other hazardous materials, chemicals and
various radioactive materials. The Company is subject to federal, state and
local laws and regulations governing the use, storage, handling and disposal
of such materials and certain waste products. Although the Company believes
that its safety procedures for handling and disposing of such materials
comply with the standards prescribed by federal, state and local laws and
regulations, the risk of accidental contamination or injury from these
materials cannot be eliminated. In the event of such an accident, the Company
could be held liable for any damages that result, and any liability could
exceed the resources of the Company. Other than such laws and regulations
governing the generation, use and disposal of hazardous materials and wastes,
and limiting workplace exposures to such materials, the Company does not
believe its current and proposed activities are subject to any specific
government regulation other than regulations affecting the operations of
companies generally.

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EMPLOYEES

As of March 16, 1998, the Company had 97 full-time employees, 34 of whom
hold M.D., Ph.D or D.Sc. degrees and 16 of whom hold other advanced degrees.
Of these, 76 were engaged in research and development, including
bioinformatics, and 21 were engaged in business development, finance and
general administration. None of the Company's employees is represented by a
labor union or covered by a collective bargaining agreement. The Company has
not experienced any work stoppages and considers its relations with its
employees to be good. The Company's future success depends in significant
part upon the continued service of its key scientific, technical and senior
management personnel and its continuing ability to attract and retain highly
qualified technical and managerial personnel. There is intense competition
for such qualified personnel in the areas of the Company's activities and
there can be no assurance that the Company will continue to attract and
retain the personnel necessary for the development of its business. Failure
to attract and retain key personnel could have a material adverse effect on
the Company's business, financial condition and results of operations.

EXECUTIVE OFFICERS OF THE COMPANY

The following table sets forth the names, ages and positions of the
executive officers of the Company as of March 16, 1998:

<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Michael J. Brennan, M.D., Ph.D 40 President, Chief Executive Officer
and Director
Keith O. Elliston, Ph.D. 37 Senior Vice President, Research and
Development and Chief Scientific
Officer
Mark D. Gessler 36 Senior Vice President, Corporate
Development and Chief Financial
Officer
Daniel R. Passeri 37 Senior Vice President, Technology
and Program Management
</TABLE>
- ------------------

MICHAEL J. BRENNAN, M.D., PH.D. has served as President, Chief Executive
Officer and a director of the Company since December 1995. From October 1993
to November 1995, he was Vice President, Business Development for Corange
International Limited's worldwide therapeutics business, Boehringer Mannheim
Therapeutics. From June 1990 to October 1993, Dr. Brennan was a director and
the general manager of Boehringer Mannheim South Africa. Dr. Brennan received
a Ph.D. in neurobiology and a M.D. from the University of the Witwatersrand,
Johannesburg, South Africa. In 1985, he completed his residency in neurology
at Boston City Hospital.

KEITH O. ELLISTON, PH.D. has served as Senior Vice President, Research
and Development and Chief Scientific Officer of the Company since February
1997. From July 1996 to February 1997, Dr. Elliston was Head of Genome
Sciences at Bayer Corporation, a pharmaceutical company, and also responsible
for establishing and directing its bioinformatics effort worldwide. From 1986
to July 1996, Dr. Elliston was involved in a wide range of genomics and drug
discovery programs at Merck & Co., Inc. ("Merck"), a pharmaceutical company.
In 1993, he founded the Department of

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Bioinformatics at Merck. He also co-founded and was the scientific director
of the Merck Gene Index project, involving the coordinated efforts of Merck,
Washington University, Lawrence Livermore National Laboratory, the University
of Pennsylvania and the National Center for Biotechnology Information. Dr.
Elliston received his M.S. degree in genetics from the University of
Minnesota and a Ph.D. in molecular genetics from Rutgers University. He is an
advisory board member of the National Center for Biotechnology Information,
National Institutes of Health, and the National Center for Genome Resources,
and an Adjunct Professor at Rutgers University.

MARK D. GESSLER has served as Senior Vice President, Corporate
Development and Chief Financial Officer of the Company since June 1996. From
February 1993 to June 1996, Mr. Gessler was with GeneMedicine, Inc., a gene
therapy company, most recently as Vice President, Corporate Development. From
1988 until January 1993, he was Director of Business Development at BCM
Technologies, Inc., the venture and technology subsidiary of Baylor College
of Medicine. While in that position, Mr. Gessler co-founded three
biotechnology companies and a software company. Mr. Gessler holds a MBA from
the University of Tennessee and was an Adjunct Professor of Business
Administration at Rice University from 1991 to 1996.

DANIEL R. PASSERI has served as Senior Vice President, Technology and
Program Management of the Company since January 1998. From March 1997 to
December 1997, he was the Company's Vice President, Business Development and
Intellectual Property. From March 1995 to March 1997, Mr. Passeri was
Director of Technology Management for the Boehringer Mannheim Group,
responsible for the assessment and acquisition or licensing of new biomedical
technologies. From January 1992 to February 1995 he was Acting Chief,
Cellular Growth and Regulation Branch of the Office of Technology Transfer of
the National Institutes of Health and its Senior Licensing Specialist. He
served as a Patent Examiner in the biotechnology section of the USPTO. Mr.
Passeri holds a M.Sc. in biotechnology from the Imperial College of Science,
Technology and Medicine, University of London. He holds a J.D. from George
Washington University. He is registered to practice before the USPTO and in
the State of Maryland and has been an adjunct professor at George Washington
University since 1995.

RISK FACTORS

THE FOLLOWING FACTORS, AMONG OTHERS, COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE CONTAINED IN FORWARD-LOOKING STATEMENTS MADE IN
THIS REPORT ON FORM 10-K AND PRESENTED ELSEWHERE BY MANAGEMENT FROM TIME TO
TIME.

TECHNOLOGICAL UNCERTAINTY AND PRODUCT DEVELOPMENT RISK. The Company has
developed and intends to continue to develop its ACCELERATED DRUG DISCOVERY
system, including its proprietary READS and MuST technologies, bioinformatics
system and Flow-thru Chip, for the identification of genes, drug targets and
drug leads useful for the discovery and development of therapeutic and
diagnostic products. These technologies are new and unproven approaches and
are based on the assumption that information about gene expression and gene
sequences may enable scientists better to understand complex disease
processes. Generally, there is limited understanding of the roles of genes in
these diseases, and relatively few therapeutic products based on gene
discoveries have been developed and commercialized. There can be no assurance
that the Company's technologies will enable it or its strategic partners to
identify genes, drug

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targets and drug leads useful for the discovery and development of
therapeutic and diagnostic products. Even if the Company is successful in
identifying genes and drug targets associated with specific diseases, there
can be no assurance that the Company or its strategic partners will be able
to discover drug leads or develop products based on such discoveries. To
date, no drug targets or drug leads have been identified based on the
Company's technologies, and the Company has not commercialized any
therapeutic or diagnostic products either alone or in conjunction with its
strategic partners. Failure to identify genes, drug targets and drug leads
useful for the discovery and development of therapeutic and diagnostic
products will have a material adverse effect on the Company's business,
financial condition and results of operations.

The development of therapeutic and diagnostic products based on the
Company's discoveries will also be subject to other risks of failure inherent
in pharmaceutical development. These risks include, among others, the
possibilities that any such products will be found to be ineffective or
toxic, or otherwise fail to receive necessary regulatory approvals; that any
of the products, if safe and effective, will prove difficult or impossible to
manufacture on a large scale or will be uneconomical to market; that the
proprietary rights of third parties will preclude the Company or its
strategic partners from marketing any products developed; and that third
parties will market equivalent or superior products. As a result, there can
be no assurance that the activities of the Company or its strategic partners
will result in any commercially viable products.

The Company has created a prototype of the Flow-thru Chip and plans to
commence in-house testing during 1998 but has not yet produced the Flow-thru
Chip on a commercial scale. The Company is in the process of developing its
suite of genomic database products, but, to date, only the GENE EXPRESS
NORMAL database is commercially available. Other than the option to require
the Company to develop Flow-thru Chip assays and the non-exclusive license to
the GENE EXPRESS NORMAL database granted to Japan Tobacco and the
non-exclusive license to the GENE EXPRESS NORMAL database granted to Organon,
the Company has not sold or licensed rights to its Flow-thru Chip or any of
its genomic database products. There can be no assurance that the development
or commercial scale up of the Flow-thru Chip or the genomic database products
will be successful or that the Company will be successful in marketing such
products.

The success of the Company's genomic database products will depend on
the Company's ability to generate genomic data content and analyze such data
using software tools. Gene Logic's database products are complex and
sophisticated and could contain design defects or software errors that could
be difficult to detect and correct. There can be no assurance that, despite
testing by the Company and its strategic partners and customers, errors, bugs
and viruses will not be found in current and future products, if any. Failure
to maintain and further develop the necessary bioinformatics platform to
support the drug discovery efforts of the Company and its partners could
result in the loss of or delay in revenues and market acceptance, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. Because the Company's genomic database products
contain genomic information generated by the Company's technologies, the
development and commercialization of the Company's genomic database products
will be materially adversely affected in the event that its technologies fail
to generate such information. See "Gene Logic's ACCELERATED DRUG DISCOVERY
System" and "Gene Logic Programs and Products."

26.

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RELIANCE ON STRATEGIC PARTNERS. The Company's strategy for development
and commercialization of therapeutic and diagnostic products based on its
discoveries depends, in large part, upon the formation of multiple strategic
alliances and licensing arrangements to pursue drug targets and drug leads.
The Company has established strategic alliances with Procter & Gamble, Japan
Tobacco and Organon. These strategic alliances have only been formed within
the past year. No drug targets have been identified pursuant to such
alliances, and there can be no assurance that the alliances will be
successful. There can also be no assurance that the Company will establish
additional strategic alliances or licensing arrangements that it deems
necessary to develop and commercialize products based upon its discovery
programs, that any such agreements will be made under terms acceptable to the
Company or that any future strategic alliances or licensing arrangements will
ultimately be successful. The Company has received a substantial portion of
its revenues since inception from alliances with its strategic partners and
expects to continue to do so in the near term. Failure of the Company to
enter into additional strategic alliances could have a material adverse
effect on the Company's business, financial condition and results of
operations.

The Company's strategy includes entering into multiple, concurrent
strategic alliances. There can be no assurance that the Company will
successfully manage simultaneous collaborative programs. Failure by the
Company to manage existing and future strategic alliances, maintain
confidentiality among strategic partners or prevent the occurrence of
conflicts among strategic partners could lead to disputes that result in,
among other things, a significant strain on management resources, legal
claims involving significant time, expense and loss of reputation, loss of
capital or a loss of revenues, any of which could have a material adverse
effect on the Company's business, financial condition and results of
operations.

The Company intends to rely on strategic partners for preclinical
studies, clinical development, regulatory approval, manufacturing and
marketing of therapeutic and diagnostic products, if any, resulting from its
discovery programs. Agreements with strategic partners typically will allow
such partners significant discretion in electing whether to pursue any of
these activities. The Company cannot control the amount and timing of
resources its strategic partners may devote to the Company's programs or
potential products, and there can be no assurance that such partners will
perform their obligations as expected. A strategic partner's performance
under its alliance agreement with the Company could be materially adversely
affected if such partner were involved in certain third party transactions
such as a business combination or in the event that the partner had a
significant strategic shift in its business focus. If any strategic partner
were to breach its agreement with the Company, or otherwise fail to conduct
its collaborative activities in a timely manner, such conduct could have a
material adverse effect on the Company's business, financial condition and
results of operations. Each of the Company's current strategic alliances
provides the strategic partner with certain rights to terminate the alliance
agreement prior to the natural expiration of its term. The early termination
of any strategic alliance could have a material adverse effect on the
Company's business, financial condition and results of operations. The
Company intends to continue to rely on its strategic partners for significant
funding in support of its research operations. The Company would be required
to devote additional internal resources to such programs, or to scale back or
terminate certain programs, if such funding were not available or were
reduced in amount.

27.

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Should a strategic partner fail to develop or commercialize a product to
which it has the rights, the Company's business may be materially adversely
affected. There can be no assurance that a strategic partner will not
develop, either along or with others, alternative technologies or products
which are competitive with any that might result from the Company's research
program with the strategic partner. Possible disagreements between the
Company and its partners could lead to delays in collaborative research,
development or commercialization of certain products or could require or
result in litigation or arbitration, which would be time consuming and
expensive, and could have a material adverse effect on the Company's
business, financial conditions and results of operations. See "Gene Logic's
Strategy" and "Drug Target and Lead Discovery Programs - Strategic Alliances."

LIMITED OPERATING HISTORY; HISTORY OF OPERATING LOSSES; PROFITABILITY
UNCERTAIN. The Company has a limited operating history and is at an early
stage of development. The Company was founded in September 1994, but did not
scale up operations until May 1996 following its first major financing.
Substantially all of the Company's resources have been, and for the
foreseeable future will continue to be, dedicated to the development of the
Company's ACCELERATED DRUG DISCOVERY system and its application to the
identification of genes, drug targets and drug leads with therapeutic and
diagnostic potential. All of the Company's programs and strategic alliances
are at an early stage. The development of the Company's technologies and
their application to the discovery of genes, drug targets and drug leads will
require significant additional research and development and investment,
including testing to further validate performance and demonstrate cost
effectiveness. There can be no assurance that the Company's technologies will
continue to be successfully developed, or that any therapeutic or diagnostic
products discovered or developed through their utilization will prove to be
commercially useful, meet applicable regulatory standards in a timely manner
or at all, compete with other technologies and products, avoid infringing the
proprietary rights of others, be manufactured in sufficient quantities or at
reasonable costs or be marketed successfully. The Company expects that it
will be a number of years, if ever, before the Company will recognize revenue
from therapeutic or diagnostic product sales or royalties.

The Company has incurred operating losses in each year since its
inception, including net losses of approximately $2.9 million and $7.2
million during the years ended December 31, 1996 and 1997, respectively, and
as of December 31, 1997, had an accumulated deficit of $12.7 million. The
Company expects to incur additional losses for at least the next several
years and that such losses will increase as the Company expands its research
and development activities. The Company's losses to date have resulted
principally from costs incurred in research and development and from general
and administrative costs associated with the Company's operations. To date,
substantially all of the Company's revenues have been derived from payments
from strategic alliances and licensing arrangements, and the Company expects
that substantially all of its revenues for the foreseeable future will result
from payments from strategic alliances and licensing arrangements and
interest income. There can be no assurance that the Company will receive
additional revenues under existing strategic alliances or that the Company
will be successful in entering into any new strategic alliance that results
in revenues. The Company's ability to generate revenues and achieve
profitability is dependent in

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large part on the Company's ability to enter into additional strategic
alliances, and on the ability of the Company and its strategic partners to
discover genes and drug targets associated with particular diseases and,
thereafter, utilize such discoveries to identify drug leads, develop
therapeutic and diagnostic products, conduct preclinical studies and clinical
trials, obtain required regulatory approvals and successfully manufacture,
introduce and market such products. In addition, to the extent that the
Company relies upon others for these research, development and
commercialization activities, the Company's ability to achieve profitability
will be dependent in part upon the success of such outside parties. The time
required to reach profitability is highly uncertain and there can be no
assurance that the Company will be able to achieve profitability on a
sustained basis, if at all. Failure to achieve significant revenues or
profitability would have a material adverse effect on the Company's business,
financial condition and results of operations. See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

DEPENDENCE UPON ACCESS TO CERTAIN MATERIALS AND INFORMATION AND LICENSED
TECHNOLOGIES. The Company obtains relevant normal and diseased human tissue
samples, related clinical and other biological information and animal disease
models through collaborations with academic institutions and commercial
organizations. Use of the Company's technologies to discover disease-related
genes and drug targets requires access to such materials and information and
there is substantial competition for such materials and information. There
can be no assurance that the Company will continue to be able to obtain
access to such materials and information upon terms acceptable to the
Company, if at all, and any material lack of availability of such materials
and information would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Gene Logic
Programs and Products."

Certain of the components of the ACCELERATED DRUG DISCOVERY system, such
as the technologies underlying READS, MuST and the Flow-thru Chip, have been
acquired or licensed from third parties. Changes in certain third party
license agreements and relationships, or termination thereof, could
materially adversely affect the Company's research and development
activities. There can be no assurance that the Company will be able to
acquire from third parties or develop new technologies, alone or with others.
Failure to license necessary technologies would have a material adverse
effect on the Company's business, financial condition and results of
operations. There also can be no assurance that there will not be disruptions
in the Company's relationships with third parties from whom the Company
derives technology, or that any disruptions that do arise will be resolved in
a timely and cost-effective manner, if at all. Any such disruptions could
have a material adverse effect on the Company's business, financial condition
and results of operations.

FLUCTUATIONS IN OPERATING RESULTS. The Company's operating results may
fluctuate significantly from quarter to quarter as a result of a variety of
factors, including changes in the demand for the Company's technologies and
products, variations in payments under strategic alliances, including
milestone payments, royalties, license fees and other contract revenues, the
timing of new product introductions, if any, by the Company, changes in the
research and development budgets of the Company's strategic partners and any
potential partners, the introduction of new products by the Company's
competitors and other competitive factors, regulatory actions, adoption of
new technologies, manufacturing results, and the cost, quality and

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availability of cell and tissue samples, reagents and related components. If
revenue in a particular period does not meet expectations, the Company may
not be able to adjust significantly its level of expenditures in such period,
which would have an adverse effect on the Company's operating results. The
Company believes that quarterly comparisons of its financial results will not
necessarily be a meaningful indication of future performance. Due to the
foregoing and other unforeseen factors, in some future quarter or quarters
the Company's operating results may be below the expectations of public
market analysts and investors. In such event, the price of the Company's
Common Stock could be materially and adversely affected. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

PATENTS AND PROPRIETARY RIGHTS; THIRD PARTY RIGHTS. Gene Logic seeks
United States and international patent protection for major components of its
technology platform, including elements of its READS, MuST, Flow-thru Chip
and bioinformatics technologies; it relies upon trade secret protection for
certain of its confidential and proprietary information; and it uses license
agreements both to access external technologies and assets and to convey
certain intellectual property rights to others. The Company's commercial
success will be dependent in part upon its ability to obtain commercially
valuable patent claims and to protect its intellectual property portfolio.

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that these or other technologies will not provide third parties with
competitive advantages over the Company and will not have a material adverse
effect on the Company's business, financial condition and results of
operations. In addition, certain third party patent applications contain
broad claims, and it is not possible to determine whether or not such claims
will be narrowed during prosecution and/or will be allowed and issued as
patents, even if such claims appear to cover the prior art or have other
defects. There can be no assurance that an owner or licensee of a patent in
the field will not threaten or file an infringement action or that the
Company would prevail in any such action. There can be no assurance that the
cost of defending an infringement action would not be substantial and would
not have a material adverse effect on the Company's business, financial
condition and results of operations. Furthermore, there can be no assurance
that any required licenses would be made available on commercially viable
terms, if at all. Failure to obtain any required license could prevent the
Company from utilizing or commercializing one or more of its technologies and
could have a material adverse effect on the Company's business, financial
condition and results of operations.

31.

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If the Company becomes involved in such litigation, it could consume a
substantial portion of the Company's managerial and financial resources and
have a material adverse effect on the Company's business, financial condition
and results of operations.

With respect to proprietary know-how that is not patentable and for
processes for which patents are difficult to enforce, the Company has chosen
to rely on trade secret protection and confidentiality agreements to protect
its interests. The Company believes that several elements of its ACCELERATED
DRUG DISCOVERY system involve proprietary know-how, technology or data which
are not covered by patents or patent applications. In addition, the Company
has developed a proprietary index of gene and gene fragment sequences which
it updates on an ongoing basis. Some of these data will be the subject of
patent applications whereas other data will be maintained as proprietary
trade secret information. The Company has taken security measures to protect
its proprietary know-how and technologies and confidential data and continues
to explore further methods of protection. While Gene Logic requires all
employees, consultants and collaborators to enter into confidentiality
agreements, there can be no assurance that proprietary information will not
be disclosed, that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets, or that the Company can meaningfully protect its
trade secrets. In the case of a strategic partnership or other collaborative
arrangement which requires the sharing of data, the Company's policy is to
make available to its partner only such data as are relevant to the
partnership or arrangement, under controlled circumstances, and only during
the contractual term of the strategic partnership or collaborative
arrangement, and subject to a duty of confidentiality on the part of its
partner or collaborator. There can be no assurance, however, that such
measures will adequately protect the Company's data. Any material leak of
confidential data into the public domain or to third parties may have a
material adverse effect on the Company's business, financial condition and
results of operations.

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INTENSE COMPETITION; RAPID TECHNOLOGICAL CHANGE. Competition among
entities attempting to identify genes associated with specific diseases and
to develop products based on such discoveries is intense. Gene Logic faces,
and will continue to face, competition from pharmaceutical, biotechnology and
diagnostic companies, academic and research institutions and government
agencies, both in the United States and abroad. Several entities are
attempting to identify and patent randomly sequenced genes and gene
fragments, while others are pursuing a gene identification, characterization
and product development strategy based on positional cloning. The Company is
aware that certain entities are utilizing a variety of different gene
expression analysis methodologies, including the use of chip-based systems,
to attempt to identify disease-related genes. In addition, numerous
pharmaceutical companies are developing genomic research programs, either
alone or in partnership with the Company's competitors. Competition among
such entities is intense and is expected to increase. In order to compete
against existing and future technologies, the Company will need to
demonstrate to potential customers that its technologies and capabilities are
superior to competing technologies.

Many of the Company's competitors have substantially greater capital
resources, research and development staffs, facilities, manufacturing and
marketing experience, distribution channels and human resources than the
Company. These competitors may discover, characterize or develop important
genes, drug targets or drug leads, drug discovery technologies or drugs in
advance of Gene Logic or which are more effective than those developed by
Gene Logic or its strategic partners, or may obtain regulatory approvals of
their drugs more rapidly than the Company and its strategic partners, any of
which could have a material adverse effect on any similar Gene Logic program.
Moreover, there can be no assurance that the Company's competitors will not
obtain patent protection or other intellectual property rights that would
limit the Company's or its strategic partners' ability to use the Company's
drug discovery technologies or commercialize therapeutic or diagnostic
products, which could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company also
faces competition from these and other entities in gaining access to relevant
samples used in its discovery programs.

The Company will rely on its strategic partners for support of certain
of its discovery programs and intends to rely on its strategic partners for
preclinical and clinical development of related potential products and the
manufacturing and marketing of such products. Each of the Company's strategic
partners is conducting multiple product development efforts within each area
which is the subject of its strategic alliance with Gene Logic. Generally,
the Company's strategic alliance agreements do not preclude the strategic
partner from pursuing development efforts utilizing approaches distinct from
that which is the subject of the alliance. Any product candidate of the
Company, therefore, may be subject to competition with a potential product
under development by a strategic partner. See "--Reliance on Strategic
Partners."

Future competition will come from existing competitors as well as other
companies seeking to develop new technologies for drug discovery based on
gene sequencing, gene expression analysis, bioinformatics and related
technologies. In addition, certain pharmaceutical and biotechnology companies
have significant needs for genomic information and may choose to develop or
acquire competing technologies to meet such needs. Genomic technologies have
undergone and are expected to continue to undergo rapid and significant
change. The Company's future success will depend in large part on its
maintaining a competitive position in the genomics

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field. Rapid technological development by the Company or others may result in
products or technologies becoming obsolete before the Company recovers the
expenses it incurs in connection with their development. Products offered by
the Company could be made obsolete by less expensive or more effective drug
target and drug lead technologies, including technologies which may be
unrelated to genomics. There can be no assurance that the Company will be
able to make the enhancements to its technology necessary to compete
successfully with newly emerging technologies.

FUTURE CAPITAL REQUIREMENTS; UNCERTAINTY OF ACCESS TO ADDITIONAL
FUNDING. The Company has invested significant capital in its infrastructure
and in its scientific and business development activities and expects capital
and operating expenditures to increase over the next several years as it
expands its operations. The Company believes that existing cash and
marketable securities and anticipated cash flow from its current strategic
alliances will be sufficient to support the Company's operations for at least
the next 24 months. This expectation is based on the Company's current
operating plan, which could change as a result of many factors, and the
Company could require additional funding sooner than expected. In addition,
the Company may choose to raise additional capital due to market conditions
or strategic considerations even if it has sufficient funds for its operating
plan. The estimate for the period for which the Company expects its
available cash balances and estimated cash flow from its current strategic
alliances to be sufficient to meet its capital requirements is a
forward-looking statement that involves risks and uncertainties as set forth
herein and in Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this Report on Form
10-K. The Company's actual future capital requirements and the adequacy of
its available funds will depend on many factors, including progress of its
discovery programs, the number and breadth of these programs, the ability of
the Company to establish and maintain strategic alliance and licensing
arrangements and the progress of the development and commercialization
efforts of the Company's strategic partners. These factors also include the
level of the Company's activities relating to its independent discovery
programs and to the development and commercialization rights it retains in
its strategic alliance arrangements, competing technological and market
developments, the costs associated with obtaining access to tissue samples
and related information and the costs involved in preparing, filing,
prosecuting, maintaining and enforcing patent claims and other intellectual
property rights.

The Company expects that it will require significant additional funding
in the future, which it may seek through public or private equity offerings,
debt financings or additional strategic alliance and licensing arrangements.
No assurance can be given that additional financing or strategic alliance and
licensing arrangements will be available when needed, or that, if available,
such financing will be obtained on terms favorable to the Company or its
stockholders. To the extent that the Company raises additional capital by
issuing equity or convertible debt securities, ownership dilution to
stockholders will result. If adequate funds are not available when needed,
the Company may be required to curtail operations significantly or to obtain
funds by entering into strategic alliances and licensing arrangements, in
which case the Company may be required to relinquish rights to certain of its
technologies, discoveries or potential products, or to grant licenses on
terms that are not favorable to the Company, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. In the event that adequate funds are not available,
the Company's business

34.

<PAGE>

would be adversely affected. See Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

ATTRACTION AND RETENTION OF KEY EMPLOYEES. The Company is highly
dependent on the principal members of its management and scientific staff.
The loss of the services of any of these persons could significantly impede
the accomplishment of the Company's scientific and business objectives. The
Company's success is also dependent upon its ability to attract and retain
additional qualified scientific, technical and managerial personnel. There is
substantial competition among biotechnology, pharmaceutical and health care
companies, universities, government entities and non-profit organizations for
such personnel, and there can be no assurance that the Company will retain
its key scientific, technical and managerial employees or that it will be
able to attract, assimilate and retain such other highly qualified
scientific, technical and managerial personnel as may be required in the
future. The inability of the Company to retain its current scientific,
technical and managerial personnel and to attract and retain additional key
employees could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Competition" and
"Employees."

GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL; HAZARDOUS
MATERIALS. The Company does not plan to conduct clinical trials in humans or
commercialize therapeutic products discovered as a result of its genes, drug
target and drug lead discovery programs but intends to rely on its strategic
partners to conduct such activities. Prior to marketing, any new drug
developed by the Company's strategic partners must undergo an extensive
regulatory approval process in the United States and other countries. This
regulatory process, which includes preclinical studies and clinical trials,
and may include post-marketing surveillance of each compound to establish its
safety and efficacy, can take many years and require the expenditure of
substantial resources. Data obtained from preclinical studies and clinical
trials are subject to varying interpretations that could delay, limit or
prevent regulatory approval. Delays or rejections may also be encountered
based upon changes in FDA policies for drug approval during the period of
product development and FDA regulatory review of each submitted NDA in the
case of new pharmaceutical agents, or PLA or BLA in the case of biological
therapeutics. Similar delays may also be encountered in the regulatory
approval of any diagnostic product, where such approval is required, and in
obtaining regulatory approval in foreign countries. Delays in obtaining
regulatory approvals could adversely affect the marketing of any drugs
developed by the Company or its strategic partners, impose costly procedures
upon the Company's or its partners' activities, diminish any competitive
advantages that the Company or its partners may attain and adversely affect
the Company's receipt of royalties. There can be no assurance that regulatory
approval will be obtained for any drugs or diagnostic products developed by
the Company or its strategic partners. Furthermore, regulatory approval may
entail limitations on the indicated uses of a drug. Because certain of the
products likely to result from the Company's drug target and drug lead
discovery programs involve the application of new technologies and may be
based upon a new therapeutic approach, such products may be subject to
substantial additional review by various government regulatory authorities
and, as a result, regulatory approvals may be obtained more slowly than for
products based upon more conventional technologies.

Even if regulatory approval is obtained, a marketed product and its
manufacturer are subject to continuing review. Discovery of previously unknown
problems with a product may

35.

<PAGE>

result in withdrawal of the product from the market, and could have a
material adverse effect on the Company's business, financial condition and
results of operations. Violations of regulatory requirements at any stage
during the regulatory process, including preclinical studies and clinical
trials, the approval process, post-approval or in good manufacturing
practices manufacturing requirements, may result in various adverse
consequences to the Company, including the FDA's delay in approval or refusal
to approve a product, withdrawal of an approved product from the market or
the imposition of criminal penalties against the manufacturer and NDA, PLA or
BLA holder. No IND has been submitted for any product candidate resulting
from the Company's discovery programs, and no product candidate has been
approved for commercialization in the United States or elsewhere. The Company
intends to rely on its strategic partners to file INDs and generally direct
the regulatory approval process. There can be no assurance that the Company's
strategic partners will be able to conduct clinical testing or obtain
necessary approvals from the FDA or other regulatory authorities for any
products. Failure to obtain required governmental approvals will delay or
preclude the Company's strategic partners from marketing drugs or diagnostic
products developed through the Company's research or limit the commercial use
of such products and could have a material adverse effect on the Company's
business, financial condition and results of operations.

The Company's research and development activities involve the controlled
use of certain biological and other hazardous materials, chemicals and
various radioactive materials. The Company is subject to federal, state and
local laws and regulations governing the use, storage, handling and disposal
of such materials and certain waste products. Although the Company believes
that its safety procedures for handling and disposing of such materials
comply with the standards prescribed by federal, state and local laws and
regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident,
the Company could be held liable for any damages that result, and any
liability could exceed the resources of the Company. Other than such laws and
regulations governing the generation, use and disposal of hazardous materials
and wastes, and limiting workplace exposures to such materials, the Company
does not believe its current and proposed activities are subject to any
specific government regulation other than regulations affecting the
operations of companies generally.

ETHICAL, LEGAL AND SOCIAL IMPLICATIONS OF GENE-BASED DIAGNOSTICS. The
Company and its partners may seek to develop diagnostic products based on
genes it discovers. The prospect of broadly available gene-based diagnostic
tests raises issues regarding their appropriate utilization and the
confidentiality of the information provided by such testing. It is possible
that discrimination by third party payors, based on the results of such
testing, could lead to the increase of premiums by such payors to prohibitive
levels, outright cancellation of insurance or unwillingness to provide
coverage to individuals showing unfavorable gene expression profiles.
Similarly, employers could discriminate against employees with gene
expression profiles indicative of the potential for high disease-related
costs and lost employment time. Finally, government authorities could, for
social or other purposes, limit or prohibit the use of such tests under
certain circumstances. There can be no assurance that such ethical and social
factors or concerns about genetic testing and target identification will not
have a material adverse effect on market acceptance of the Company's
technologies and products.

36.

<PAGE>

REIMBURSEMENT RISK. The levels of revenues and profitability of
pharmaceutical companies may be affected by the continuing efforts of
governments and third party payors to contain or reduce the costs of health
care through various means including by limiting prices paid for
pharmaceuticals. In both the United States and elsewhere, sale of
prescription pharmaceuticals are dependent in part on the availability of
reimbursement to the consumer from third party payors, such as government
insurance programs (Medicare and Medicaid) and private and corporate health
insurance plans. Third party payors are increasingly challenging the prices
charged for pharmaceuticals and, in some cases, refusing payment for
off-label use and other uses of pharmaceuticals they deem inappropriate.

EXPANSION OF OPERATIONS; MANAGEMENT OF GROWTH. The Company has recently
experienced, and expects to continue to experience, significant growth in the
number of its employees and the scope of its operations. The Company has
significantly increased the scale of its operations and number of employees
to support its partnered and independent discovery programs and to manage its
strategic alliances. The number of full-time employees of the Company
increased from three on January 1, 1996 to 72 on December 31, 1997, and in
March 1998 the Company relocated its principal business offices. This growth
and relocation has placed, and may continue to place, a significant strain on
the Company's management, operations and systems. The Company's ability to
manage such growth effectively will depend upon its broadening its management
team and attracting, hiring and retaining skilled employees. In addition, in
order to increase capacity to remain competitive and satisfy the needs of
current and future strategic partners, the Company will be required to
acquire additional capital equipment and resources. There can be no assurance
that the Company will be able to manage its growth, and the Company's
inability to manage growth effectively could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Employees."

LIMITED CLINICAL DEVELOPMENT, MANUFACTURING, MARKETING AND SALES
EXPERIENCE. The Company has made no investment in therapeutic or diagnostic
manufacturing, marketing or product sales resources and does not generally
expect to engage directly in the manufacturing, marketing or sale of
therapeutic or diagnostic products. Instead, the Company currently intends to
contract with others to pursue the commercialization of therapeutic or
diagnostic products based upon or discovered using its technologies. There
can be no assurance that the Company will be able to enter into such
arrangements on acceptable terms, if at all. The Company will be dependent to
a significant extent on partners, licensees or other entities for
development, manufacturing and commercialization of such products. The
Company's dependence upon third parties for the manufacture, marketing and
sales of therapeutic or diagnostic products may materially adversely affect
the Company's ability to develop and deliver such products on a timely and
competitive basis, if at all. To the extent the Company directly engages in
development, manufacturing and marketing of certain therapeutic or diagnostic
products, it will require substantial additional funds, personnel and
production facilities. See "Reliance on Strategic Partners."

PRODUCT LIABILITY EXPOSURE. Clinical trials, manufacturing, marketing
and sale of any of the Company's or its partners' potential therapeutic or
diagnostic products may expose the Company to liability claims from the use
of such products. The Company currently does not carry product liability
insurance. There can be no assurance that the Company or its partners will

37.

<PAGE>

be able to obtain such insurance or, if obtained, that sufficient coverage
can be acquired at a reasonable cost. The inability to obtain sufficient
insurance coverage at an acceptable cost or to otherwise protect against
potential product liability claims could prevent or inhibit the
commercialization of pharmaceutical products developed by the Company or its
partners. A product liability claim or recall would have a material adverse
effect on the Company's business, financial condition and results of
operations.

POSSIBLE VOLATILITY OF STOCK PRICE. The market prices for securities of
biotechnology and pharmaceutical companies have been highly volatile, and the
market has experienced significant price and volume fluctuations that are
often unrelated to the operating performance of particular companies.
Announcements of technological innovations or new commercial products by the
Company or its competitors, disputes or other developments concerning
proprietary rights, including patents and litigation matters, developments
concerning strategic alliance agreements, publicity regarding actual or
potential results with respect to products or technology under development by
the Company, its strategic partners or to the efficacy of new technologies,
quarterly fluctuations in the Company's operating results, future sales of
substantial amounts of Common Stock by existing stockholders and comments by
securities analysts, as well as general market conditions and other factors,
may have a significant impact on the market price of the Common Stock. In
particular, the realization of any of the risks described in these "Risk
Factors" could have a material adverse impact on such market price.

ANTI-TAKEOVER PROVISIONS. The Company's Amended and Restated
Certificate of Incorporation (the "Restated Certificate") provides for
staggered terms for the members of the Board of Directors. In addition, the
Restated Certificate authorizes the Board of Directors of the Company,
without stockholder approval, to issues additional shares of Common Stock and
to fix the rights, preferences and privileges of and issue additional shares
of Preferred Stock with voting, conversion, dividend and other rights and
preferences that could adversely affect the voting power or other rights of
the holders of Common Stock. The issuance of Preferred Stock, rights to
purchase Preferred Stock or additional shares of Common Stock may have the
effect of delaying or preventing a change in control of the Company. In
addition, the possible issuance of Preferred Stock or additional shares of
Common Stock could discourage a proxy contest, make more difficult the
acquisition of a substantial block of the Company's

38.

<PAGE>

Common Stock or limit the price that investors might be willing to pay for
shares of the Company's Common Stock. Further, the Restated Certificate
provides that any action required or permitted to be taken by stockholders of
the Company must be effected at a duly called annual or special meeting of
stockholders and may not be effected by written consent. Special meetings of
the stockholders of the Company may be called only by the Chairman of the
Board of Directors, the President of the Company or by the Board of Directors
pursuant to a resolution adopted by a majority of the total number of
authorized directors. These and other provisions contained in the Restated
Certificate and the Company's By-laws, as well as certain provisions of
Delaware law, could delay or make more difficult certain types of
transactions involving an actual or potential change in control of the
Company or its management (including transactions in which stockholders might
otherwise receive a premium for their shares over then current market prices)
and may limit the ability of stockholders to remove current management of the
Company or approve transactions that stockholders may deem to be in their
best interests and, therefore, could adversely affect the price of the
Company's Common Stock.

ITEM 2. PROPERTIES

Gene Logic's headquarters consist of approximately 50,000 square feet of
office and research laboratory space located at 708 Quince Orchard Road,
Gaithersburg, Maryland pursuant to a lease which expires in 2007. The
Company's Bioinformatics Systems Division occupies approximately 4,900 square
feet of office space located at 2001 Center Street, Berkeley, California
pursuant to a lease which expires in 1999.

ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to any legal proceedings.

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

Not applicable.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Common Stock of Gene Logic Inc. has been traded on the Nasdaq
National Market under the symbol GLGC since November 21, 1997. Prior to
November 21, 1997, the Company's Common Stock was not publicly traded. The
following table sets forth for the periods indicated the high and low closing
prices per share of the Common Stock as reported by the Nasdaq National
Market.

<TABLE>
<CAPTION>
1997 HIGH LOW
- ---- ---------- ---------
<S> <C> <C>
Fourth Quarter (commencing November 21, $8.375 $7.625
1997)
</TABLE>

39.

<PAGE>

On March 16, 1998, the last sales price of the Common Stock as reported
on the Nasdaq National Market was $8.50 per share. As of March 16, 1998,
there were approximately 88 holders of record of the Company's Common Stock.

The Company has not paid any cash dividends since inception and does not
anticipate paying any cash dividends in the foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES

Since January 1, 1997, the Company has sold and issued the following
securities which were not registered under the Securities Act of 1933, as
amended (the "Securities Act"):

(1) During the period, the Company granted stock options to employees,
officers, directors and consultants of the Company under its 1996 Stock Plan
covering an aggregate of 2,248,881 shares of the Company's Common Stock.
Certain of these options vest over a period of time following their
respective dates of grant. In addition, 152,943 shares of Common Stock were
issued pursuant to the exercise of stock options granted under the 1996 Stock
Plan.

(2) During the period, the Company granted stock options to employees,
officers and directors of the Company under its 1997 Equity Incentive Plan
covering an aggregate of 238,500 shares of the Company's Common Stock.
Certain of these options vest over a period of time following their
respective dates of grant.

(3) In April 1997, the Company issued a warrant to purchase 25,758
shares of Series B Preferred Stock at an exercise price of $2.20 per share in
connection with an equipment loan agreement.

(4) In April 1997, the Company issued a warrant to purchase 13,636
shares of Series B Preferred Stock at an exercise price of $2.20 per share in
connection with the establishment of a capital lease facility.

(5) In July 1997, pursuant to the terms of an equity financing of the
Company, the Company issued 4,444,443 shares of Series C Preferred Stock to
30 investors for approximately $20.0 million. In addition, the Company paid
approximately $660,000 to Hambrecht & Quist LLC for services as placement
agent in connection with such financing, and approximately $67,000 to Bailey
& Company, Inc. for services in connection with the financing.

(6) In August 1997, in connection with the Company's facilities lease,
the Company issued a warrant to purchase 20,000 shares of the Company's
Common Stock at an exercise price of $5.40 per share. In November 1997, such
warrant was fully exercised for 6,500 shares of Common Stock pursuant to a
net exercise provision.

(7) In September 1997, the Company issued 50,000 shares of Common Stock
to Genaissance Pharmaceuticals, Inc. in connection with a negotiated
settlement.

(8) The Company issued a warrant to purchase 48,889 shares of its
Common Stock at an exercise price of $4.50 per share to Hambrecht & Quist LLC
for services as placement agent for

40.

<PAGE>

the Company's Series C Preferred Stock financing, which closed on July 15,
1997. In November 1997, such warrant was fully exercised for 48,889 shares
of Common Stock.

(9) In September 1997, the Company issued a warrant to purchase 4,293
shares of Series B Preferred Stock at an exercise price of $2.20 per share in
connection with an equipment loan agreement.

(10) In November 1997, the Company issued 375,000 shares of Common
Stock at a purchase price of $8.00 per share to Japan Tobacco Inc. in
connection with a strategic alliance.

The grant of stock options described in paragraphs (1) and (2) above
were deemed to be exempt from registration under the Securities Act by virtue
of Rule 701 promulgated thereunder in that they were offered and sold either
pursuant to written compensatory benefit plans or pursuant to a written
contract relating to compensation, as provided by Rule 701.

The sales and issuances of securities in the transactions described in
paragraphs (3) through (10) above were deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2) and/or Regulation D
promulgated thereunder.

The recipients represented their intention to acquire the securities for
investment purposes only and not with a view to the distribution thereof.
Appropriate legends are affixed to the stock certificates issued in such
transactions. All recipients either received adequate information about the
Company or had access, through employment or other relationships, to such
information.

On November 20, 1997, the Company's Form S-1 registration statement
(File no. 333-37317) was declared effective by the Securities and Exchange
Commission. The registration statement, as amended, covered the offering of
3,000,000 shares of the Company's Common Stock, $.01 par value. The offering
commenced on November 21, 1997 and the sale to the public of 3,000,000 shares
of Common Stock at $8.00 per share was completed on November 26, 1997 for an
aggregate price of $24.0 million. The registration statement covered an
additional 450,000 shares of Common Stock that the underwriters had the
option to purchase solely to cover over-allotments. The managing
underwriters for the offering were BancAmerica Robertson Stephens, Hambrecht
& Quist LLC and UBS Securities LLC. On December 22, 1997, the underwriters
exercised their option to purchase 347,000 additional shares of Common Stock.
A total of 3,347,000 shares of Common Stock were sold in the offering at an
aggregate price of approximately $26.8 million. All of the shares sold in the
offering were sold by the Company.

Expenses incurred by the Company through December 31, 1997 in connection
with the issuance and distribution of Common Stock in the offering included
underwriting discounts, commissions and allowances and other expenses of
approximately $1.9 million and $1.0 million, respectively. Total offering
expenses of approximately $2.8 million resulted in net offering proceeds to
the Company of approximately $23.9 million. No expenses were paid to
directors, officers or affiliates of the Company or 10% owners of any class
of equity securities of the Company.

41.

<PAGE>

Of the net offering proceeds to the Company of approximately $23.9 million,
through December 31, 1997, approximately $326,000 had been used to fund
tenant improvements, approximately $129,000 had been used to fund capital
expenditures, approximately $878,000 had been used for enhancement of
internal research and development capabilities and approximately $535,000 had
been used for general corporate purposes. No payments were made to directors,
officers or affiliates of the Company or 10% owners of any class of equity
securities of the Company. Approximately $22.1 million of the net offering
proceeds remain as working capital.

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data set forth below with respect to the Company's
statements of operations for the years ended December 31, 1997, 1996 and 1995
and with respect to the balance sheets at December 31, 1997 and 1996 have been
derived from audited financial statements included as part of this Form 10-K.
The statement of operations data for the period from September 22, 1994
(inception) through December 31, 1994 and the balance sheet data at December
31, 1995 and 1994 are derived from audited financial statements not included
in this Form 10-K. The following selected financial data should be read in
conjunction with the financial statements and notes thereto included
elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 22, 1994
YEARS ENDED DECEMBER 31, (INCEPTION)
----------------------------------------- THROUGH
1997 1996 1995 DECEMBER 31, 1994
---------- --------- --------- --------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $ 2,047 $ - $ - $ -
Operating expenses:
Research and development 6,061 1,741 486 44
General and administrative 3,826 1,345 258 46
----------- ---------- -------- --------
Total operating expenses 9,887 3,086 744 90
Interest income, net 745 221 - -
Income tax expense 100 - - -
----------- ---------- -------- --------
Net loss $(7,195) $(2,865) $ (744) $ (90)

Basic and dilutive net loss per
common share $ (3.97) $ (5.87) $ (3.48)
----------- ---------- --------
----------- ---------- --------
Shares used in computing basic
and dilutive net loss per
common share 2,138 572 214
----------- ---------- --------
----------- ---------- --------
Pro forma net loss per
common share $ (0.90) $ (0.72)
----------- ----------
----------- ----------

Shares used in computing
pro forma net loss per
common share 8,004 3,987
----------- ----------
----------- ----------

</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------
1997 1996 1995 1994
--------- --------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities $ 46,621 $ 5,671 $ 348 $ 298
Working capital 42,455 4,581 246 311
Total assets 53,972 7,819 424 311
Total long-term debt and capital lease obligation 1,551 446 - -
Total mandatorily redeemable convertible preferred stock - 10,471 1,153 400
Total stockholders' equity 46,067 (4,187) (833) (89)
</TABLE>

42.
<PAGE>

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

THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS WHICH INVOLVE RISK AND UNCERTAINTIES. ACTUAL EVENTS AND RESULTS
MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF VARIOUS FACTORS, INCLUDING THE MATTERS SET FORTH
UNDER THE CAPTION "RISK FACTORS" AND ELSEWHERE IN THIS REPORT ON FORM 10-K.

OVERVIEW

The Company was incorporated in September 1994, and has devoted
substantially all of its resources to the development of its genomics
technologies, bioinformatics systems and database products used to identify
the expression of genes, drug targets and drug leads. The Company has
incurred losses since inception and, as of December 31, 1997, had an
accumulated deficit of $12.7 million.

The Company entered into a strategic alliance with Procter & Gamble in
May 1997, with Japan Tobacco in September 1997, and with Organon in December
1997. These agreements provide the Company with various combinations of
technology and database access fees and research funding and may provide
certain additional payments upon the attainment of research product
development and/or regulatory milestones and royalty payments based on sales
of any products resulting from the strategic alliances. Revenue recognized
under the alliances with Procter & Gamble, Japan Tobacco and Organon through
December 31, 1997 totaled approximately $2.0 million. Procter & Gamble and
Japan Tobacco each have the option to expand the alliances to cover
additional disease indications. Japan Tobacco purchased $3.0 million of the
Company's Common Stock in a private placement that closed simultaneously with
the Company's initial public offering.

Gene Logic's future profitability will depend in part on the successful
development and marketing of the ACCELERATED DRUG DISCOVERY system, the
genomic database products and the Flow-thru Chip and the establishment of
strategic alliances. Payments from strategic alliance partners and interest
income are expected to be the only sources of revenue for the foreseeable
future. Such revenue is dependent in large part on the discovery of genes,
drug targets and drug leads using the Company's technologies. Royalties or
other revenue from commercial sales of products developed from any
therapeutic or diagnostic product identified using the Company's technologies
are not expected for at least several years, if at all. Payments under
strategic alliances will be subject to significant fluctuation in both timing
and amount, and, therefore, the Company's results of operations for any
period may not be comparable to the results of operations for any other
period. Furthermore, the generation of significant revenues and profitability
will depend upon the Company entering into additional alliances. There can be
no assurance that the Company will enter into additional alliances on
acceptable terms, if at all, or that such current or future alliances will be
successful.

The Company has incurred operating losses in each year since its
inception, including net losses of approximately $2.9 million and $7.2
million for the years ended December 31, 1996 and 1997, respectively, and, at
December 31, 1997, the Company had an accumulated deficit of approximately
$12.7 million. The Company's losses have resulted principally from costs
incurred in research and development and from general and administrative
costs associated with the Company's operations. These costs have exceeded the
Company's interest income and revenues which to date have been generated
principally from strategic alliances. The Company expects to incur additional
operating losses over the next few years as a result of increases in its
expenses for research and development capabilities.

43.

<PAGE>

The Company's quarterly operating results may fluctuate significantly as
a result of a variety of factors, including changes in the demand for the
Company's technologies and products, variations in payments under strategic
alliances, including milestone payments, royalties, license fees and other
contract revenues, and the timing of new product introductions, if any, by
the Company. The Company's quarterly operating results may also fluctuate
significantly depending on changes in the research and development budgets of
the Company's strategic partners and any potential partners, the introduction
of new products by the Company's competitors and other competitive factors,
regulatory actions, adoption of new technologies, manufacturing results, and
the cost, quality and availability of cell and tissue samples, reagents and
related components.

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996

Revenue under strategic alliance agreements was $2.0 million for 1997.
There was no revenue in 1996. The 1997 revenue resulted from the Company's
strategic alliance agreements with Procter & Gamble, Japan Tobacco and
Organon. Under the terms of the strategic alliance agreements, payments for
technology and database access fees and research funding are recognized as
revenue ratably over the period for which the payments are made. Payments
related to the achievement of certain milestones are recognized as revenue
when the milestones are achieved.

Research and development expenses increased to $6.1 million for 1997
from $1.7 million in 1996. This increase was primarily attributable to
increased payroll and personnel expenses as the Company hired additional
research and development personnel, increased purchases of laboratory
supplies and increased equipment depreciation as a result of capital
expenditures. The Company expects research and development expenses to
continue to increase as personnel and research and development facilities are
expanded to accommodate new and existing strategic alliances.

General and administrative expenses increased to $3.8 million for 1997
from $1.3 million in 1996. This increase was primarily attributable to
increased payroll and personnel expenses as the Company hired additional
management and administrative personnel and professional fees in connection
with the overall scale up of the Company's operations and business
development efforts. The Company expects that general and administrative
expenses will continue to increase as the Company continues to expand its
operations.

Net interest income increased to $745,000 for 1997 from $221,000 in
1996. This increase was primarily due to larger cash and investment balances
on hand during 1997 as a result of private placements of equity securities
and the completion of the Company's initial public offering.

As of December 31, 1997, the Company had accumulated losses of $12.7
million since inception and, therefore, has not paid any federal income
taxes. Realization of deferred tax assets is dependent on future earnings, if
any, the timing and amount of which are uncertain.

44.

<PAGE>

Accordingly, valuation allowances in amounts equal to the deferred tax assets
have been established to reflect these uncertainties. See Note 7 of Notes to
Financial Statements.

YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995

Research and development expenses increased to $1.7 million in 1996 from
$486,000 in 1995. This increase was primarily attributable to increased
payroll and personnel expenses as the Company hired additional research and
development personnel, increased purchases of laboratory supplies and
increased contracted services.

General and administrative expenses increased to $1.3 million in 1996
from $258,000 in 1995. This increase was primarily attributable to increased
payroll and personnel expenses as the Company hired additional management and
administrative personnel and professional fees in connection with the
expansion of the Company's operations and business development efforts.

The Company had net interest income of $221,000 in 1996 resulting from
interest earned on cash and marketable securities derived from private
placements of equity securities. The Company did not earn interest income in
1995.

LIQUIDITY AND CAPITAL RESOURCES

From inception through December 31, 1997, the Company financed its
operations through proceeds from the Company's initial public offering and
private placements of equity securities, payment from strategic alliance
partners, a capital lease and an equipment loan. In November 1997, the
Company completed an initial public offering of 3,347,000 shares of its
Common Stock (including exercise of the underwriters' over-allotment option),
generating net proceeds of approximately $23.9 million. The private placement
of equity securities has provided the Company with aggregate gross proceeds
of approximately $33.2 million as of December 31, 1997. The Company has
received, as of December 31, 1997, $5.5 million under its strategic alliances
for technology and database access fees and research funding, of which $2.0
million has been recognized as revenue. The Company has also obtained
$471,000 of capital lease financing and $1.1 million under an equipment loan.
As of December 31, 1997, the Company had approximately $46.6 million in cash
and marketable securities.

During 1995, 1996 and 1997, the Company had expenditures relating to
intangible and other assets of approximately $63,000, $126,000 and $643,000,
respectively. These expenditures were primarily for patent costs and license
fees. The Company will amortize capitalized patent costs to research and
development expense once the patents issue. These expenditures are necessary
to protect the Company's intellectual property and to secure rights to
current technology and are expected to continue to increase.

Amounts financed for equipment under a capital lease for the year ended
December 31, 1996 were approximately $471,000. The Company also had purchases
of equipment of approximately $12,000, $1.3 million and $3.1 million during
1995, 1996 and 1997, respectively.

45.

<PAGE>

The Company's new office and research laboratory facility was completed in
February 1998. Payments for tenant improvements were approximately $326,000
as of December 31, 1997. The Company anticipates funding additional
improvements for the new facility in the amount of $1.7 million in 1998. In
addition, the Company expects capital expenditures to increase over the next
several years as it expands its facilities and acquires significant
scientific and computer equipment to support the planned expansion of its
research and development efforts.

As of December 31, 1997, the Company had net operating loss
carryforwards of approximately $10.4 million to offset federal and state
income taxes. The Company's research and development tax credit carryforwards
were estimated to be approximately $279,000 as of December 31, 1997 for
federal income tax purposes. If not utilized, the federal and state net
operating loss carryforwards will expire through 2011. See Note 7 to Notes to
Financial Statements.

To date, all revenue received by the Company has been from its strategic
alliances. The Company expects that substantially all revenue for the
foreseeable future will come from strategic alliance partners and interest
income. Furthermore, the Company's ability to achieve profitability will be
dependent upon the ability of the Company to enter into additional strategic
alliances. There can be no assurance that the Company will be able to
negotiate additional strategic alliances in the future on acceptable terms,
if at all, or that current or future strategic alliances will be successful
and provide the Company with expected benefits.

The Company believes that existing cash and marketable securities and
anticipated cash flow from its current strategic alliances will be sufficient
to support the Company's operations for at least the next 24 months. The
estimate for the period for which the Company expects its available cash
balances and estimated cash flow from its current strategic alliances to be
sufficient to meet its capital requirements is a forward-looking statement
that involves risks and uncertainties as set forth herein and in Item 1 under
the caption "Risk Factors" and elsewhere in this Report on Form 10-K. The
Company's actual future capital requirements and the adequacy of its
available funds, will depend on many factors, including progress of its
discovery programs, the number and breadth of these programs, the ability of
the Company to establish and maintain additional strategic alliance and
licensing arrangements and the progress of the development and
commercialization efforts of the Company's strategic partners. These factors
also include the level of the Company's activities relating to its
independent discovery programs and to the development and commercialization
rights it retains in its strategic alliance arrangements, competing
technological and market developments, the costs associated with obtaining
access to tissue samples and related information and the costs involved in
preparing, filing, prosecuting, maintaining and enforcing patent claims and
other intellectual property rights. The Company expects that it will require
significant additional financings in the future, which it may seek to raise
through public or private equity offerings, debt financing or additional
strategic alliance and licensing arrangements. No assurance can be given that
additional financing or strategic alliance and licensing arrangements will be
available when needed, if at all, or that, if available, such financing will
be obtained on terms favorable to the Company or its stockholders. To the
extent that the Company raises additional capital by issuing equity or
convertible debt securities, ownership dilution to stockholders will result.
If adequate financing is not available when needed, the Company may be
required to curtail significantly one or more of its research and development
programs or to obtain funds through arrangements with strategic partners or
others

46.

<PAGE>

that may require the Company to relinquish rights to certain of its
technologies, discoveries or potential products, or to grant licenses on
terms that are not favorable to the Company, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. In the event that adequate funds are not available,
the Company's business would be adversely affected.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Company's Financial Statements and notes thereto, together with the
Independent Public Accountants Report thereon, appear at pages F-1 through
F-18 of this Report on Form 10-K and are incorporated herein by reference.

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

Not applicable.

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 captioned "Election of Directors,"
contained in the Company's definitive Proxy Statement for the 1998 Annual
Meeting of Stockholders to be filed with the Securities and Exchange
Commission within 120 days after the end of the Company's fiscal year ended
December 31, 1997 (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 of the
Company" in Part I, Item 1 of this Report on 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 "Compliance with the Reporting
Requirements of Section 16(a) of the Securities Exchange Act of 1934"
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 captioned "Executive Compensation"
contained in the Proxy Statement.

47.

<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference to
the information set forth in the section captioned "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 captioned "Certain Transactions"
contained in the Proxy Statement.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES AND REPORTS ON FORM 8-K

(a)1. FINANCIAL STATEMENTS

The financial statements required by this item are submitted in a
separate section beginning on page F-1 of this Report on Form 10-K.

<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF GENE LOGIC INC. PAGE
<S> <C>
Report of Independent Public Accountants F-2

Balance Sheets as of December 31, 1997 and 1996 F-3

Statements of Operations for the Years Ended December 31, 1997,
1996 and 1995
F-4

Statements of Stockholders' Equity for the Years Ended December
31, 1997, 1996 and 1995 F-5

Statements of Cash Flows for the Years Ended December 31, 1997,
1996 and 1995 F-6

Notes to Financial Statements F-7

</TABLE>

(a)2. FINANCIAL STATEMENT SCHEDULES

All schedules are omitted because they are not required, are not
applicable, or the information is included in the Financial Statements or
Notes thereto appearing elsewhere in this Annual Report on Form 10-K.

(a)3. INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation. (1)
</TABLE>

48.

<PAGE>

<TABLE>
<S> <C>
3.2 By-Laws, as amended and restated. (1)
4.1 Reference is made to Exhibits 3.1 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 (the "Stock Plan"). (1)
*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 and related offering
document. (1)
*10.6 Registrant's Non-Employee Directors' Stock Option Plan. (1)
*10.7 Form of Nonstatutory Stock Option under the Non-Employee Directors'
Stock Option Plan. (1)
*10.8 Stock Restriction Agreement, dated July 31, 1996, between the
Registrant and Mark D. Gessler. (1)
*10.9 Stock Restriction Agreement, dated December 20, 1996, between the
Registrant and Michael J. Brennan. (1)
*10.10 Stock Restriction Agreement, dated July 31, 1996, between the
Registrant and Michael J. Brennan. (1)
10.11 Amended and Restated Investor Rights Agreement, dated July 15,
1997, between the Registrant and certain investors. (1)
*10.12 Employment Agreement, dated October 31, 1995, between the
Registrant and Michael J. Brennan. (1)
*10.13 Amendment to the Employment Agreement, dated July 9, 1997, between
the Registrant and Michael J. Brennan. (1)
*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 Michael J. Brennan. (1)
10.16 Series A-1 Convertible Preferred Stock Purchase Warrant, dated
August 1, 1995, issued to Oxford Bioscience Partners L.P. (1)
</TABLE>
49.

<PAGE>

<TABLE>
<S> <C>
10.17 Series A-1 Convertible Preferred Stock Purchase Warrant, dated
August 1, 1995, issued to Oxford Bioscience Partners (Bermuda)
Limited Partnership. (1)
10.18 Warrant for the purchase of shares of Common Stock dated August 29,
1997, between Registrant and ARE-708 Quince Orchard, LLC. (1)
10.19 Warrant, dated April 24, 1997, issued to Venture Lending & Leasing,
Inc. (1)
10.20 Warrant issued to Hambrecht & Quist LLC. (1)
10.21 Lease Agreement, dated May 7, 1997, between Registrant and M.O.R.
XVIII Associates Limited Partnership. (1)
10.22 Lease Agreement, dated August 22, 1997, between Registrant and ARE-
708 Quince Orchard, LLC, as amended. (1)
10.23 Warrant, dated April 15, 1997, between Registrant and Comdisco,
Inc. (1)
10.24 Target Discovery Collaboration and License Agreement, dated May 27,
1997, between Registrant and Procter & Gamble Pharmaceuticals, Inc.
("Procter & Gamble"). (1)
10.25 Promissory Note, dated May 27, 1997, between Registrant and Procter
& Gamble. (1)
10.26 Drug Target and Drug Lead Discovery Collaboration Agreement, dated
September 9, 1997, between Registrant and Japan Tobacco Inc. (1)
10.27 Share Purchase Agreement, dated September 9, 1997, between
Registrant and Japan Tobacco Inc. (1)
10.28 License Agreement, dated May 22, 1996, between Registrant and Yale
University. (1)
10.29 Amendment, dated October 1, 1997, to the License Agreement between
Registrant and Yale University. (1)
10.30 Sole Commercial Patent License Agreement, dated June 15, 1997,
between Registrant and Lockheed Martin Energy Research Company. (1)
10.31 License Agreement, dated May 30, 1997, between Registrant and
Dr. Kenneth L. Beattie. (1)
10.32 Warrant, dated September 30, 1997, issued to Venture Lending &
Leasing, Inc. (1)
+10.33 Genomic Database Collaboration and License Agreement between
Registrant
</TABLE>
50.

<PAGE>

<TABLE>
<S> <C>
and N.V. Organon dated as of December 31, 1997.
*10.34 Employment Agreement, dated February 5, 1997 between the Registrant
and Keith O. Elliston.
*10.35 Amendment to Employment Agreement, dated July 9, 1997, between the
Registrant and Keith O. Elliston.
*10.36 Employment Agreement, dated September 7, 1996, between the
Registrant and Eric M. Eastman.
*10.37 Amendment to Employment Agreement, dated July 9, 1997, between the
Registrant and Eric M. Eastman.
*10.38 Employment Agreement, dated February 17, 1997, between the
Registrant and Daniel R. Passeri.
*10.39 Amendment to Employment Agreement, dated July 9, 1997, between the
Registrant and Daniel R. Passeri
11.1 Statement re: computation of per share earnings.
24.1 Power of Attorney. Reference is made to the signature page of this
Report on Form 10-K.
27.1 Financial Data Schedule.
27.2 Amended Financial Data Schedule.
</TABLE>

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

* Indicates management compensatory plan, contract or arrangement.

+ Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions will be filed separately with the
Securities and Exchange Commission.

(1) Filed as an exhibit to Registrant's Registration Statement on Form S-1 (No.
333-37317) and incorporated herein by reference

(b) REPORTS ON FORM 8-K

No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1997.

51.

<PAGE>

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, in the City of
Gaithersburg, County of Montgomery, State of Maryland, on the 31st day of
March, 1998.

GENE LOGIC INC.

By: /S/ MICHAEL J. BRENNAN
---------------------------------------------------
Michael J. Brennan, M.D., Ph.D.
President, Chief Executive Officer and Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Michael J. Brennan, M.D., Ph.D. and Mark D.
Gessler, or any of them, jointly and severally, as his true and lawful
attorney-in-fact and agent, each with the full power of substitution, for him
in any and all capacities, to sign any and all amendments to this Report on
Form 10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done therewith, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that each of
said attorneys-in-fact and agents, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

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.

<TABLE>
<CAPTION>
<S> <C> <C>
NAME POSITION DATE
--------------------------------- ---------------------------------- -----------------

/S/ MICHAEL J. BRENNAN President, Chief Executive March 31, 1998
--------------------------------- Officer and Director
Michael J. Brennan, M.D, Ph.D. (PRINCIPAL EXECUTIVE OFFICER)

/S/ MARK D. GESSLER Senior Vice President, March 31, 1998
--------------------------------- Corporate Development, Chief
Mark D. Gessler Financial Officer and
Secretary
(PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)

/S/ ALAN G. WALTON Chairman of the Board March 31, 1998
---------------------------------
Alan G. Walton, Ph.D., D.Sc.

/S/ JULES BLAKE Director March 31, 1998
---------------------------------
Jules Blake, Ph.D.

/S/ CHARLES L. DIMMLER Director March 31, 1998
---------------------------------
Charles L. Dimmler III

/S/ G. ANTHONY GORRY Director March 31, 1998
---------------------------------
G. Anthony Gorry, Ph.D.

/S/ JEFFREY D. SOLLENDER Director March 31, 1998
---------------------------------
Jeffrey D. Sollender
</TABLE>

52.

<PAGE>
GENE LOGIC INC.
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Balance Sheets as of December 31, 1997 and 1996............................................................ F-3
Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995.............................. F-4
Statements of Stockholders' Equity for the Years Ended December 31, 1997, 1996 and 1995.................... F-5
Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995.............................. F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
Gene Logic Inc.:

We have audited the accompanying balance sheets of Gene Logic Inc. (a
Delaware corporation) as of December 31, 1997 and 1996, and the related
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1997, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Gene Logic Inc. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years ended December 31, 1997, 1996 and 1995, in conformity with
generally accepted accounting principles.

/s/ Arthur Andersen LLP

Baltimore, Maryland,
February 20, 1998

F-2
<PAGE>
GENE LOGIC INC.

BALANCE SHEETS

AS OF DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................... $ 46,521,732 $ 1,137,130
Marketable securities available for sale........ 99,054 4,534,353
Due from strategic partner...................... 1,000,000 --
Prepaid expenses................................ 481,382 37,424
Other current assets............................ 890,120 67,078
------------ ------------
Total Current Assets.......................... 48,992,288 5,775,985
Property and Equipment, net....................... 4,210,513 1,757,240
Notes Receivable from Employees................... -- 102,896
Intangibles and Other Assets, net................. 769,349 182,931
------------ ------------
Total Assets.................................. $ 53,972,150 $ 7,819,052
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................ $ 181,269 $ 91,074
Accrued expenses................................ 1,370,887 997,710
Current portion of capital lease obligation..... 115,005 106,195
Current portion of long-term debt............... 433,701 --
Deferred revenue................................ 4,436,147 --
------------ ------------
Total Current Liabilities..................... 6,537,009 1,194,979
Capital Lease Obligation.......................... 224,694 339,699
Long-Term Debt.................................... 777,155 --
Other Noncurrent Liabilities...................... 365,832 --
------------ ------------
Total Liabilities............................. 7,904,690 1,534,678
------------ ------------
Commitments and Contingencies
Series A Convertible Preferred Stock, $.01 par
value; 333,333 shares authorized; 0 and 333,333
shares issued and outstanding as of December 31,
1997 and 1996, respectively; liquidation
preference of $1.50 per share................... -- 500,000
Series A-1 Convertible Preferred Stock, $.01 par
value; 462,500 shares authorized; 0 and 412,500
shares issued and outstanding as of December 31,
1997 and 1996, respectively; liquidation
preference of $1.60 per share................... -- 653,722
Series B Convertible Preferred Stock, $.01 par
value; 4,154,167 shares authorized; 0 and
4,090,909 shares issued and outstanding as of
December 31, 1997 and 1996, respectively;
liquidation preference of $2.20 per share....... -- 9,317,611
Series C Convertible Preferred Stock, $.01 par
value; 4,600,000 shares authorized; 0 shares
issued and outstanding as of December 31, 1997
and 1996; liquidation preference of $4.50 per
share........................................... -- --
Stockholders' Equity:
Common stock, $.01 par value; 60,000,000 shares
authorized; and 13,899,250 and 692,733 shares
issued and outstanding as of December 31, 1997
and 1996, respectively........................ 138,993 6,927
Preferred stock, $.01 par value; 10,000,000
shares authorized; no shares issued and
outstanding as of December 31, 1997 and
1996.......................................... -- --
Additional paid-in capital...................... 64,881,819 13,450
Deferred compensation on stock options, net..... (6,277,529) --
Unrealized loss on marketable securities........ (1,536) (13,215)
Accumulated deficit............................. (12,674,287) (4,194,121)
------------ ------------
Total Stockholders' Equity.................... 46,067,460 (4,186,959)
------------ ------------
Total Liabilities and Stockholders' Equity.... $ 53,972,150 $ 7,819,052
------------ ------------
------------ ------------
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-3
<PAGE>
GENE LOGIC INC.

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -----------
<S> <C> <C> <C>
Revenues.............................................................. $ 2,047,187 $ -- $ --
Expenses:
Research and development............................................ 6,060,721 1,741,469 485,688
General and administrative.......................................... 3,825,834 1,344,961 258,491
------------- ------------- -----------
Total expenses.................................................... 9,886,555 3,086,430 744,179
------------- ------------- -----------
Loss from operations.............................................. (7,839,368) (3,086,430) (744,179)
Interest Income, net.................................................. 745,375 221,302 --
------------- ------------- -----------
Loss before income tax expense.................................... (7,093,993) (2,865,128) (744,179)
Income Tax Expense.................................................... 100,000 -- --
------------- ------------- -----------
Net loss.......................................................... (7,193,993) (2,865,128) (744,179)
Accretion of Mandatory Redemption Value of Preferred Stock............ 1,286,173 493,513 897
------------- ------------- -----------
Net loss attributable to common stockholders...................... $ (8,480,166) $ (3,358,641) $ (745,076)
------------- ------------- -----------
------------- ------------- -----------
Basic and Dilutive Net Loss Per Common Share.......................... $ (3.97) $ (5.87) $ (3.48)
------------- ------------- -----------
------------- ------------- -----------
Shares Used in Computing Basic and Dilutive Net Loss Per Common
Share............................................................... 2,137,688 572,337 214,274
------------- ------------- -----------
------------- ------------- -----------
Pro Forma Net Loss Per Common Share................................... $ (0.90) $ (0.72)
------------- -------------
------------- -------------
Shares Used in Computing Pro Forma Net Loss Per Common Share.......... 8,004,258 3,987,098
------------- -------------
------------- -------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-4
<PAGE>
GENE LOGIC INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
PREFERRED STOCK
---------------------------
NUMBER OF
SHARES AMOUNT
----------- -------------
<S> <C> <C>
Balance at December 31, 1994....... 266,666 $ 400,000
Issuance of common stock......... -- --
Issuance of Series A Convertible
Preferred Stock................ 66,667 100,000
Issuance of Series A-1
Convertible Preferred Stock,
net of issuance costs.......... 412,500 651,928
Accretion of mandatory redemption
value of preferred stock....... -- 897
Net Loss......................... -- --
----------- -------------
Balance at December 31, 1995....... 745,833 1,152,825
Issuance of common stock......... -- --
Issuance of Series B Convertible
Preferred Stock, net of
issuance costs................. 4,090,909 8,824,995
Accretion of mandatory redemption
value of preferred stock....... -- 493,513
Net change in unrealized losses
from marketable securities..... -- --
Net Loss......................... -- --
----------- -------------
Balance at December 31, 1996....... 4,836,742 10,471,333
Issuance of Series C Convertible
Preferred Stock, net of
issuance costs................. 4,444,443 19,117,260
Cancellation of common stock..... -- --
Issuance of common stock in
connection with exercise of
stock options.................. -- --
Issuance of common stock......... -- --
Issuance of warrants............. -- --
Accretion of mandatory redemption
value of preferred stock....... -- 1,286,173
Conversion of preferred stock to
common stock in connection with
initial public offering........ (9,281,185) (30,874,766)
Issuance of common stock in
connection with initial public
offering, net of issuance
costs.......................... -- --
Issuance of common stock in
connection with exercise of
warrants....................... -- --
Net change in unrealized losses
from marketable securities..... -- --
Deferred compensation from stock
options........................ -- --
Amortization of deferred
compensation................... -- --
Net Loss......................... -- --
----------- -------------
Balance at December 31, 1997....... -- $ --
----------- -------------
----------- -------------

<CAPTION>
STOCKHOLDERS' EQUITY
---------------------------------------------------------------------------------

COMMON STOCK UNREALIZED
----------------------- ADDITIONAL LOSSES ON
NUMBER OF PAR PAID-IN DEFERRED MARKETABLE ACCUMULATED
SHARES VALUE CAPITAL COMPENSATION SECURITIES DEFICIT
----------- --------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994....... 100,000 $ 1,000 $ -- $ -- $ -- $ (90,404)
Issuance of common stock......... 180,000 1,800 -- -- -- --
Issuance of Series A Convertible
Preferred Stock................ -- -- -- -- -- --
Issuance of Series A-1
Convertible Preferred Stock,
net of issuance costs.......... -- -- -- -- -- --
Accretion of mandatory redemption
value of preferred stock....... -- -- -- -- -- (897)
Net Loss......................... -- -- -- -- -- (744,179)
----------- --------- ------------ ------------ ---------- ------------
Balance at December 31, 1995....... 280,000 2,800 -- -- -- (835,480)
Issuance of common stock......... 412,733 4,127 13,450 -- -- --
Issuance of Series B Convertible
Preferred Stock, net of
issuance costs................. -- -- -- -- -- --
Accretion of mandatory redemption
value of preferred stock....... -- -- -- -- -- (493,513)
Net change in unrealized losses
from marketable securities..... -- -- -- -- (13,215) --
Net Loss......................... -- -- -- -- -- (2,865,128)
----------- --------- ------------ ------------ ---------- ------------
Balance at December 31, 1996....... 692,733 6,927 13,450 -- (13,215) (4,194,121)
Issuance of Series C Convertible
Preferred Stock, net of
issuance costs................. -- -- -- -- -- --
Cancellation of common stock..... (55,000) (550) (7,700) -- -- --
Issuance of common stock in
connection with exercise of
stock options.................. 152,943 1,530 21,518 -- -- --
Issuance of common stock......... 425,000 4,250 3,003,250 -- -- --
Issuance of warrants............. -- -- 42,563 -- -- --
Accretion of mandatory redemption
value of preferred stock....... -- -- -- -- -- (1,286,173)
Conversion of preferred stock to
common stock in connection with
initial public offering........ 9,281,185 92,812 30,781,954 -- -- --
Issuance of common stock in
connection with initial public
offering, net of issuance
costs.......................... 3,347,000 33,470 23,910,909 -- -- --
Issuance of common stock in
connection with exercise of
warrants....................... 55,389 554 219,447 -- -- --
Net change in unrealized losses
from marketable securities..... -- -- -- -- 11,679 --
Deferred compensation from stock
options........................ -- -- 6,896,428 (6,896,428) -- --
Amortization of deferred
compensation................... -- -- -- 618,899 -- --
Net Loss......................... -- -- -- -- -- (7,193,993)
----------- --------- ------------ ------------ ---------- ------------
Balance at December 31, 1997....... 13,899,250 $ 138,993 $ 64,881,819 $(6,277,529) $ (1,536) $(12,674,287)
----------- --------- ------------ ------------ ---------- ------------
----------- --------- ------------ ------------ ---------- ------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-5
<PAGE>
GENE LOGIC INC.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss............................................................ $ (7,193,993) $ (2,865,128) $ (744,179)
Adjustments to reconcile net loss to net cash flows from operating
activities:
Depreciation and amortization..................................... 631,682 67,602 1,395
Write-off of deferred financing fee............................... -- 2,500 --
Cancellation of notes receivable.................................. 94,646 -- --
Amount due under research agreement............................... 47,500 -- --
Amortization of deferred compensation............................. 618,899 -- --
Changes in operating assets and liabilities:
Due from strategic partner........................................ (1,000,000) -- --
Prepaid expenses.................................................. (443,958) (37,424) 11,445
Other current assets.............................................. (823,052) (65,978) (100)
Intangibles and other assets...................................... (642,504) (125,810) (63,139)
Accounts payable.................................................. 90,195 73,780 17,294
Accrued expenses.................................................. 373,177 911,461 86,249
Deferred revenue.................................................. 4,436,147 -- --
Other noncurrent liabilities...................................... 408,395 -- --
------------- ------------- -----------
Net Cash Flows From Operating Activities........................ (3,402,866) (2,038,997) (691,035)
------------- ------------- -----------
Cash Flows From Investing Activities:
Purchases of property and equipment................................. (3,068,868) (1,339,207) (12,366)
Increase in notes receivable from employees......................... -- (102,896) --
Purchase of marketable securities available for sale................ -- (4,547,568) --
Proceeds from sale and maturity of marketable securities available
for sale.......................................................... 4,446,978 -- --
------------- ------------- -----------
Net Cash Flows From Investing Activities........................ 1,378,110 (5,989,671) (12,366)
------------- ------------- -----------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock.............................. 30,019,049 17,577 1,800
Proceeds from issuance of preferred stock........................... 20,000,000 9,000,000 760,000
Payments for stock issuance costs................................... (3,714,352) (175,005) (8,072)
Proceeds from equipment loan........................................ 1,084,362 -- --
Proceeds from financing agreement................................... 281,325 -- --
Repayments of capital lease obligation and equipment loan........... (261,026) (25,252) --
------------- ------------- -----------
Net Cash Flows From Financing Activities........................ 47,409,358 8,817,320 753,728
------------- ------------- -----------
Net Increase in Cash and Cash Equivalents............................. 45,384,602 788,652 50,327
Cash and Cash Equivalents, beginning of period........................ 1,137,130 348,478 298,151
------------- ------------- -----------
Cash and Cash Equivalents, end of period.............................. $ 46,521,732 $ 1,137,130 $ 348,478
------------- ------------- -----------
------------- ------------- -----------
Supplemental Disclosure:
Interest expense paid............................................... $ 97,048 $ 9,024 $ --
------------- ------------- -----------
------------- ------------- -----------
Non-Cash Transactions:
Equipment acquired under capital lease.............................. $ -- $ 471,146 $ --
------------- ------------- -----------
------------- ------------- -----------
Issuance of warrants to lessor...................................... $ 42,563 $ -- $ --
------------- ------------- -----------
------------- ------------- -----------
</TABLE>

The accompanying notes are an integral part of these statements.

F-6
<PAGE>
GENE LOGIC INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1997, 1996 AND 1995

NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

ORGANIZATION AND BUSINESS

Gene Logic Inc. (the Company), formerly Senatics Corporation, was
incorporated on September 22, 1994, to commercialize technologies for the
discovery of disease-associated genes for the development of therapeutic and
diagnostic products. The Company was previously in the development stage and has
yet to generate any significant revenues.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses in the financial statements and in the disclosures of contingent
assets and liabilities. While actual results could differ from those estimates,
management believes that actual results will not be materially different from
amounts provided in the accompanying financial statements.

NEW PRONOUNCEMENTS

In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128").
SFAS No. 128 simplifies the standards for computing earnings per share
previously found in Accounting Principles Board Opinion No. 15, "Earnings Per
Share" ("APB Opinion No. 15"). It replaces the presentation of primary EPS with
a presentation of basic EPS and requires a reconciliation of the numerator and
denominator of the basic EPS calculation to the numerator and denominator of the
diluted EPS calculation. Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted EPS is computed similarly to primary
EPS pursuant to APB Opinion No. 15.

SFAS No. 128 is effective for interim periods and fiscal years ending after
December 15, 1997, and early adoption is not permitted.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"). SFAS No. 130 sets standards for reporting and presentation of
comprehensive income and its components in financial statements. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997, and early adoption
is permitted. When adopted, it will require reclassification adjustments and
changes in presentation for all prior periods shown. The impact of the adoption
of SFAS No. 130 on the Company has not been determined.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosure About Segments of an
Enterprise and Related Information", which establishes standards for reporting
information about operating segments in annual and interim financial statements
issued to shareholders. This statement also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The Company plans to adopt this statement in 1998.

F-7
<PAGE>
GENE LOGIC INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):

CASH AND CASH EQUIVALENTS

Cash and cash equivalents are defined as liquid investments with original
maturities of 90 days or less that are readily convertible into cash. All other
investments are reported as marketable securities available for sale. Cash and
cash equivalents as of December 31, 1997 and 1996, are comprised of:

<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Cash............................................................. $ 148,982 $ 117,407
Corporate commercial paper....................................... 46,372,750 --
Money market mutual fund......................................... -- 1,019,723
------------- ------------
$ 46,521,732 $ 1,137,130
------------- ------------
------------- ------------
</TABLE>

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 losses
reported as a separate component of stockholders' equity. Realized gains and
losses and declines in value judged to be other than temporary for available for
sale securities are included in other income.

PROPERTY AND EQUIPMENT

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

<TABLE>
<S> <C>
Furniture and fixtures............................................ 10 years
Computers and office equipment.................................... 5 years
Lab equipment..................................................... 5 years
</TABLE>

Equipment under capital leases and leasehold improvements are depreciated
and amortized over their useful lives, or the term of the lease, whichever is
shorter.

INTANGIBLES AND OTHER ASSETS

Other assets consists primarily of organization costs, patent costs,
trademarks and licenses. These amounts are being amortized over periods of
approximately five to seventeen years. Accumulated amortization relating to
other assets was $19,610 and $3,518 as of December 31, 1997 and 1996,
respectively. The Company's success is heavily dependent upon its proprietary
technologies. The Company depends upon a combination of patents, trade secrets,
copyright and trademark laws, license agreements, nondisclosure and other
contractual provisions and various other security measures to protect its
technology rights.

RESEARCH AND DEVELOPMENT

Research and development costs are charged to operations when incurred.

F-8
<PAGE>
GENE LOGIC INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):

REVENUE RECOGNITION

The Company recognizes revenue from research and development support and
technology and database access fees as they are earned under the terms of the
agreement. Revenue is deferred for fees received before they are earned.
Revenues related to the achievement of certain milestones are recognized when
earned.

INCOME TAXES

The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). Under the asset and liability method of SFAS No. 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
No. 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.

STOCK OPTION PLANS

Prior to January 1, 1996, the Company's policy was to account for its stock
option plans in accordance with the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB Opinion No.
25"), and related interpretations. As such, compensation expense is recorded on
the date of grant only if the current fair value of the underlying stock exceeds
the exercise price. On January 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net earnings and pro
forma earnings per share disclosures for employee stock option grants made in
1995 and future years as if the fair-value based method defined in SFAS No. 123
had been applied. The Company elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
The Company uses the Black-Scholes option pricing model to estimate the fair
value of options and warrants granted.

PRO FORMA NET LOSS PER COMMON SHARE

Pro forma net loss per common share is computed using the weighted average
number of shares of common stock outstanding giving effect to the conversion of
convertible preferred shares that automatically converted to common stock upon
completion of the Company's initial public offering (the "IPO") (using the
if-converted method) from the original date of issuance. Common equivalent
shares from stock options and warrants are excluded from the computation for all
periods as their effect is antidilutive.

F-9
<PAGE>
GENE LOGIC INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 2. MARKETABLE SECURITIES:

The following is a summary of the Company's investment portfolio as of
December 31, 1997 and 1996:

<TABLE>
<CAPTION>
GROSS
AMORTIZED UNREALIZED
COST LOSSES FAIR VALUE
------------ ----------- ------------
<S> <C> <C> <C>
December 31, 1997
Unit Investment Trust............................... $ 100,590 $ (1,536) $ 99,054
Government Securities............................... -- -- --
------------ ----------- ------------
Total............................................. $ 100,590 $ (1,536) $ 99,054
------------ ----------- ------------
------------ ----------- ------------
December 31, 1996
Unit Investment Trust............................... $ 2,483,352 $ (13,215) $ 2,470,137
Government Securities............................... 2,064,216 -- 2,064,216
------------ ----------- ------------
Total............................................. $ 4,547,568 $ (13,215) $ 4,534,353
------------ ----------- ------------
------------ ----------- ------------
</TABLE>

All marketable securities mature within one year or have no stated maturity.
As of December 31, 1997 and 1996, all of the Company's investments were
classified as current as the Company may not hold its investments until maturity
in order to take advantage of market conditions. During the year ended December
31, 1997, a portion of the Unit Investment Trust was sold for total proceeds of
$2,407,071, resulting in realized losses of $11,679.

NOTE 3. PROPERTY AND EQUIPMENT:

Property and equipment includes the following as of December 31, 1997 and
1996:

<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Furniture and fixtures............................................ $ 190,787 $ 105,061
Computers and office equipment.................................... 2,096,015 276,912
Lab equipment..................................................... 1,765,756 932,479
Lab equipment under capital lease................................. 471,146 471,146
Leasehold improvements............................................ 367,883 37,121
------------ ------------
4,891,587 1,822,719

Less--Accumulated depreciation.................................... (681,074) (65,479)
------------ ------------
Property and Equipment, net....................................... $ 4,210,513 $ 1,757,240
------------ ------------
------------ ------------
</TABLE>

Depreciation expense was $615,595, $64,779 and $700 for the years ended
December 31, 1997, 1996 and 1995, respectively.

F-10
<PAGE>
GENE LOGIC INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 4. ACCRUED EXPENSES:

Accrued expenses consists of the following as of December 31, 1997 and 1996:

<TABLE>
<CAPTION>
1997 1996
------------ ----------
<S> <C> <C>
Property additions.................................................. $ 782,732 $ 877,962
Professional fees................................................... 418,596 56,039
Payroll taxes and benefits.......................................... 133,730 63,709
Consulting.......................................................... 35,829 --
------------ ----------
Total............................................................. $ 1,370,887 $ 997,710
------------ ----------
------------ ----------
</TABLE>

NOTE 5. LICENSE ARRANGEMENTS:

The proprietary rights and technical information covered by various patent
applications have been licensed by the Company from third parties. These
licenses will continue for the life of the respective patent or until terminated
by either party. The license costs are being amortized over the useful life of
the related patents. The agreements call for the payment of royalties over the
life of the patents or a shorter life if no patents are issued.

NOTE 6. STRATEGIC ALLIANCES:

During May 1997, the Company entered into a 4 1/2-year strategic alliance
with Procter & Gamble Pharmaceuticals Inc., a division of Procter & Gamble
Company ("Procter & Gamble") for the discovery of drug targets in the field of
heart failure. Payments by Procter & Gamble to the Company in the form of
committed technology access fees and research funding will total a minimum of
$10.1 million if the research program continues for its full term and the
Company performs its research obligations under the agreement. Under the
alliance, approximately $1,167,000 has been recognized as revenue during the
year ended December 31, 1997. Procter & Gamble will be obligated to make
additional payments to the Company for the achievement of specified target
discovery and related product development and associated regulatory milestones.
Procter & Gamble will also pay the Company royalties on worldwide net sales of
all products that may result from the alliance. Procter & Gamble also has the
option to expand the alliance to include two additional fields upon terms,
including committed research funding, identical to those covering the initial
program in heart failure.

During September 1997, the Company entered into a 5-year strategic alliance
with Japan Tobacco Inc. ("Japan Tobacco") for the discovery of drug targets and
drug leads in the field of renal disease. Payments by Japan Tobacco to the
Company in the form of committed technology and database access fees and
research funding will total a minimum of $15.0 million if the research program
continues for its full term and the Company performs its research obligations
under the agreement. As part of the alliance and during the research term of the
alliance agreement, the Company granted Japan Tobacco a non-exclusive license to
the Gene Express-TM- Normal database, and the Company intends to use its
Flow-thru Chip-TM- technology for screening for drug leads in renal disease or,
if Japan Tobacco has exercised its options to additional disease indications,
such other disease indications. During the year ended December 31, 1997, the
Company has recognized approximately $878,000 of revenue under the alliance. In
addition, Japan Tobacco also made a $3.0 million investment in common stock of
the Company at the IPO. Japan Tobacco will be obligated to make additional
payments to the Company for the achievement of specified target discovery and
related product development and associated regulatory milestones. Japan Tobacco
will also

F-11
<PAGE>
GENE LOGIC INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 6. STRATEGIC ALLIANCES (CONTINUED):

pay the Company royalties on worldwide net sales of all products that may result
from targets discovered pursuant to the alliance. Japan Tobacco also has the
option to expand the alliance to include two other fields upon terms, including
committed research funding, identical to those covering the initial program in
renal disease.

During December 1997, the Company entered into a 3-year strategic alliance
with N.V. Organon ("Organon"), a pharmaceutical business unit of Akzo Nobel NV,
for the discovery of drug targets. Payments by Organon to the Company in the
form of committed database access fees and research funding will total a minimum
of $12.5 million if the research program continues for its full term and the
Company performs its research obligations under the agreement. As part of the
alliance and during the research term of the alliance agreement, the Company
granted Organon a non-exclusive license to the Gene Express-TM- Normal database.
Organon will be obligated to make additional payments to the Company for the
achievement of specified target discovery and related product development
milestones. Organon will also pay the Company royalties on worldwide net sales
of all products that may result from targets discovered pursuant to the
alliance.

Under the terms of the strategic alliance agreements, payments for
technology and database access fees and research and development support are
recognized as revenue ratably over the period for which the payment is made.
Payments related to the achievement of certain milestones are recognized as
revenue when the milestones are achieved.

The Company's strategy for developing and commercializing pharmaceutical
products based on its target discoveries depends on the formation of strategic
alliances with pharmaceutical companies. The Company has established three such
alliances in 1997. There can be no assurance that the Company will be able to
establish additional strategic alliances or that any alliances established will
be successful.

NOTE 7. INCOME TAXES:

The actual income tax expense for the years ended December 31, 1997, 1996
and 1995, is different from the amount computed by applying the statutory
federal income tax rates to losses before income tax expense. The reconciliation
of these differences is as follows:

<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------ -----------
<S> <C> <C> <C>
Tax benefit at federal statutory rate............... $ (2,411,958) $ (977,518) $ (253,021)
State income taxes, net of federal income tax
effect............................................ (326,324) (132,827) (34,381)
Other............................................... 1,871 (49,813) 9,799
Increase in valuation allowance..................... 2,836,411 1,160,158 277,603
------------- ------------ -----------
Income tax expense.................................. $ 100,000 $ -- $ --
------------- ------------ -----------
------------- ------------ -----------
</TABLE>

F-12
<PAGE>
GENE LOGIC INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 7. INCOME TAXES (CONTINUED):

The tax effect of cumulative temporary differences at December 31, 1997,
1996 and 1995, follows:

<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -----------
<S> <C> <C> <C>
Deferred Tax Assets:
Japanese withholding............................. $ 100,000 $ -- $ --
Tax carryforwards................................ 4,065,913 1,128,927 --
Start-up costs................................... 312,443 403,889 316,937
Accrued vacation................................. 38,892 7,457 --
------------- ------------- -----------
4,517,248 1,540,273 316,937
Less: Valuation allowance........................ (4,313,506) (1,477,095) (316,937)
------------- ------------- -----------
Net deferred tax asset......................... $ 203,742 $ 63,178 $ --
------------- ------------- -----------
------------- ------------- -----------
Deferred Tax Liabilities:
Depreciation..................................... $ 117,984 $ 51,380 $ --
Prepaid expenses................................. 44,745 2,046 --
Capital leases................................... 41,013 9,752 --
------------- ------------- -----------
Net deferred tax liabilities................... $ 203,742 $ 63,178 $ --
------------- ------------- -----------
------------- ------------- -----------
</TABLE>

Net operating loss carryforwards for income tax purposes are approximately
$10,384,000, as of December 31, 1997. The Company also has research and
development tax credit carryforwards of approximately $279,000 as of December
31, 1997. The carryforwards, if not utilized, will expire in increments through
2012. Utilization of the net operating losses and credits may be subject to an
annual limitation, due to the ownership change limitations provided by the
Internal Revenue Code of 1986.

NOTE 8. LONG-TERM DEBT:

Long-term debt at December 31, 1997, consists of the following:

<TABLE>
<S> <C>
Equipment loan.................................................. $ 929,531
Note payable.................................................... 281,325
---------
1,210,856

Less--Current portion........................................... (433,701)
---------
Total long-term debt............................................ $ 777,155
---------
---------
</TABLE>

As of December 31, 1997, principal payments on long-term debt for the
following years are as follows:

<TABLE>
<S> <C>
Year ending December 31,
1998....................................... $433,701
1999....................................... 371,730
2000....................................... 299,480
2001....................................... 105,945
----------
$1,210,856
----------
----------
</TABLE>

F-13
<PAGE>
GENE LOGIC INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 8. LONG-TERM DEBT (CONTINUED):

In March 1997, the Company entered into a loan agreement for the purchase of
laboratory and computer equipment. The Company may borrow up to $1.5 million,
bearing interest at 9.0%. In April 1997, the Company borrowed $1,084,362 under
this agreement. The loan will be repaid in 48 equal monthly installments. The
Company has granted the lender a security interest, collateralized by all of the
equipment and fixtures acquired under the loan. In conjunction with the
agreement, the Company granted warrants to the lender to purchase 30,051 shares
of the Company's Series B Convertible Preferred Stock at an exercise price of
$2.20 per share.

In December 1997, the Company entered into a note payable to finance the
purchase of directors and officers' insurance. The note bears interest at 8.0%
and is due in regular monthly installments of $16,747 through June 1999.

NOTE 9. CONVERTIBLE PREFERRED STOCK:

Four series of mandatory redeemable preferred stock have been issued: Series
A Convertible Preferred Stock ("Series A"), Series A-1 Convertible Preferred
Stock ("Series A-1"), Series B Convertible Preferred Stock ("Series B") and
Series C Convertible Preferred Stock ("Series C"). Each holder of common and
preferred stock is entitled to one vote for each share held.

During 1995, the Company sold 66,667 shares of Series A stock for $100,000
and 412,500 shares of Series A-1 stock for $660,000. Warrants to purchase an
additional 50,000 shares of Series A-1 stock at an exercise price of $1.60 per
share were issued and expire August 2005.

During 1996, the Company sold 4,090,909 shares of Series B stock for $9.0
million.

During July 1997, the Company sold 4,444,443 shares of Series C stock for
net proceeds of approximately $19.1 million. The Company also issued a warrant
for an additional 48,889 shares of Series C stock at an exercise price of $4.50.
At the time of issuance, the fair value of this warrant, approximately $118,000,
was recorded as Series C stock on the Company's balance sheet. The fair value of
this warrant was calculated using the Black-Scholes option pricing model using
the same assumptions used for options granted during the period (see Note 13).
This warrant was exercised by the warrantholder concurrent with the Company's
IPO.

All outstanding shares of preferred stock were converted to common stock in
conjunction with the Company's IPO on a one-to-one basis.

NOTE 10. STOCKHOLDERS' EQUITY:

In October 1996, an officer of the Company resigned. In January 1997, in
connection with the resignation, the 55,000 shares of the Company's common stock
held by the officer were canceled in satisfaction of the $50,000 note receivable
and accrued interest obligation from the officer to the Company (see Note 14).

During November 1997, the Company completed an IPO of 3,000,000 shares of
common stock at a price of $8 per share. In December 1997, the underwriters
exercised their over-allotment option on an additional 347,000 shares. Net
proceeds of the IPO (not including the concurrent Japan Tobacco investment
described in Note 6), after underwriting commissions and expenses, were
approximately $23,944,000. Concurrent with the IPO, a note receivable of $50,000
plus interest from an officer of the Company was

F-14
<PAGE>
GENE LOGIC INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 10. STOCKHOLDERS' EQUITY (CONTINUED):

forgiven, the vesting of certain options was accelerated and the authorized
capital stock of the Company was increased to 60,000,000 shares of common stock
and 10,000,000 shares of preferred stock.

NOTE 11. COMMITMENTS AND CONTINGENCIES:

OPERATING LEASE

During October 1997, the Company renegotiated its current lease of
laboratory and office space under an agreement which expires February 28, 1998,
with an option to continue on a month-to-month basis with 60 days written notice
to terminate. The Company terminated this lease in February 1998 once the
relocation to the new facility was complete. In addition, the Company entered
into an operating sublease for office space in Berkeley, California. The lease
term is for 22 months with monthly rent payments of $9,158.

During August 1997, the Company entered into an operating lease for new
laboratory and office space. The Company is responsible for the design and
renovation of an existing facility owned by the lessor. These costs will be
funded by the lessor while the responsibility for performance and liability
during construction remains with the Company. The lease term is ten years with
monthly payments of $89,211 plus 3% annual inflation; however, monthly payments
could increase if construction costs exceed a certain amount. Rent expense on
the lease is being recognized on a straight-line basis over its term. The lease
also requires the Company to pay for building operating costs. In addition to
future minimum lease payments, the Company issued a warrant to purchase 20,000
shares of common stock at an exercise price of $5.40 per share in connection
with the lease. The fair value of the warrant, approximately $43,000, is being
recorded as rent expense over the term of the lease. The fair value of the
warrant was calculated using the Black-Scholes option pricing model using the
same assumptions used for options granted during the period (see Note 13). This
warrant was exercised by the lessor concurrent with the Company's IPO.

Future minimum lease payments on these operating leases as of December 31,
1997, are as follows:

<TABLE>
<S> <C>
Year ending December 31,
1998....................................... $1,183,110
1999....................................... 1,169,516
2000....................................... 1,138,572
2001....................................... 1,172,729
2002....................................... 1,207,912
2003 and thereafter........................ 6,485,463
------------
$12,357,302
------------
------------
</TABLE>

Rent expense for the years ended December 31, 1997, 1996 and 1995, was
$492,559, $238,930 and $0, respectively.

CAPITAL LEASE

During 1996, the Company entered into a capital lease to purchase equipment
for $471,146. Accumulated amortization for this equipment was $147,239 and
$29,447 at December 31, 1997 and 1996,

F-15
<PAGE>
GENE LOGIC INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 11. COMMITMENTS AND CONTINGENCIES (CONTINUED):

respectively. Payments during the years ended December 31, 1997 and 1996,
totaled $106,195 and $25,252, respectively. Future minimum lease payments as of
December 31, 1997, are as follows:

<TABLE>
<S> <C>
Year ending December 31,
1998........................................................... $ 137,104
1999........................................................... 137,104
2000........................................................... 102,827
---------
Total minimum lease payments................................... 377,035
Less: Amounts representing imputed interest...................... (37,336)
---------
Present value of net minimum payments.......................... 339,699

Less: Current portion............................................ (115,005)
---------
Noncurrent portion of capital lease obligation................... $ 224,694
---------
---------
</TABLE>

In conjunction with this lease agreement, the Company granted a warrant to
the lessor to purchase 13,636 shares of the Company's Series B Convertible
Preferred stock at an exercise price of $2.20 per share. Such warrant expires
five years from the date of the Company's IPO (see Note 10).

CONTINGENCIES

Clinical trials, manufacturing, marketing and sale of any of the Company's
partners' potential therapeutic or diagnostic products may expose the Company to
liability claims from the use of such pharmaceutical products. The Company
currently does not carry product liability insurance.

NOTE 12. 401(K) RETIREMENT PLAN:

During 1996, the Company established the Gene Logic Inc. 401(k) Retirement
Plan (the 401(k) Plan) for its employees under Section 401(k) of the Internal
Revenue Code. Under this plan, all employees over 21 years of age and with at
least six months of service with the Company are eligible to contribute from 2%
to 15% of their salary. Employee contributions are 100% vested. The Company is
not required to make any contributions to the 401(k) Plan and has not made any
contributions through December 31, 1997.

NOTE 13. STOCK BASED COMPENSATION:

During 1996, the Company instituted a stock plan (the "Stock Plan"), which
was amended and restated in 1997, whereby the Company's compensation committee
(the Committee), at its discretion, can grant options, award stock or provide
opportunities to make direct purchase of stock to employees, officers, directors
and consultants of the company and related corporations. The Stock Plan is
authorized to grant options of up to 6,100,000 shares of common stock. During
1997, the Company adopted a Directors' Stock Plan (the "Directors' Plan") to
provide for granting of options to non-employee directors of the Company. The
Directors' Plan is administered by the Committee and is authorized to grant
options of up to 125,000 shares of common stock. No options have been granted
under the Directors' Plan. Options are to be granted at the fair market value of
the common stock at the grant date. The options, awards and opportunities to
purchase stock expire at the earlier of termination or the date specified by the
Committee at the date of grant, but not more than ten years. During 1997, the
Company adopted an

F-16
<PAGE>
GENE LOGIC INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 13. STOCK BASED COMPENSATION (CONTINUED):

Employee Stock Purchase Plan (the "Purchase Plan") covering an aggregate of
250,000 shares of common stock. The Purchase Plan allows employees to purchase
common stock of the Company, through payroll deductions of up to a maximum of
15% of their salary, at 85% of the closing price of the shares at the time of
purchase. No shares were issued to employees at December 31, 1997.

The following is a rollforward of option activity for the years ended
December 31, 1997 and 1996:

<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Outstanding, beginning of period............... 424,000 $ 0.15 -- $ --
Granted...................................... 2,281,881 1.31 524,000 0.12
Exercised.................................... (152,943) 0.15 (100,000) 0.01
Canceled..................................... (55,578) 0.15 -- --
---------- ----------
Outstanding, end of period..................... 2,497,360 1.21 424,000 0.15
---------- ----------
---------- ----------
Exercisable, end of period..................... 859,315 0.35 77,710 0.15
---------- ----------
---------- ----------
Weighted average fair value of options
granted...................................... $ 3.22 $ 0.05
---------- ----------
---------- ----------
Available for grant at year end................ 3,249,697 1,376,000
---------- ----------
---------- ----------
</TABLE>

During the year ended December 31, 1997, the Company granted options with
exercise prices below fair value. The Company has recorded deferred compensation
of $6,896,428 at December 31, 1997, and compensation expense of $618,899 for the
year then ended related to these options.

The following table provides further information on options granted with
exercise prices below fair value, compared to options granted with exercise
prices equal to fair value for the year ended December 31, 1997.

<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED WEIGHTED AVERAGE FAIR
AVERAGE AVERAGE VALUE OF
EXERCISE OPTION FAIR COMMON STOCK
SHARES PRICE VALUE ON GRANT DATE
---------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Options whose exercise price equals the fair
value of the stock on the grant date...... 53,000 $ 5.27 $ 2.36 $ 5.27

Options whose exercise price is less than
the fair value of the stock on the grant
date...................................... 2,228,881 1.22 3.24 4.31
</TABLE>

F-17
<PAGE>
GENE LOGIC INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 13. STOCK BASED COMPENSATION (CONTINUED):

The following table summarizes information about stock options outstanding
at December 31, 1997:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- -------------------------
WEIGHTED NUMBER
NUMBER AVERAGE WEIGHTED EXERCISABLE WEIGHTED
OUTSTANDING AT REMAINING AVERAGE AT AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
RANGE OF EXERCISE PRICES 1997 LIFE PRICE 1997 PRICE
- ------------------------- -------------- ----------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
$0.15-$0.99.............. 1,203,979 9.1 Years $ 0.16 728,363 $ 0.15
$1.00-$2.50.............. 1,204,381 9.7 Years $ 1.95 126,778 $ 1.38
$2.51-$8.38.............. 89,000 9.8 Years $ 5.31 4,174 $ 4.30
</TABLE>

During 1996, an officer of the Company purchased 100,000 shares of common
stock for $0.15 per share under the Plan.

Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under the Plan,
consistent with the method of SFAS No. 123, the Company's net loss and loss per
common share would have been changed to the pro forma amounts for the years
ended December 31, 1997, 1996 and 1995 as indicated below:

<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -----------
<S> <C> <C> <C>
Net loss:

As reported...................................... $ (7,193,993) $ (2,865,128) $ (744,179)

Pro forma........................................ (7,243,486) (2,873,805) (744,179)

Net loss per common share:

As reported...................................... $ (3.97) $ (5.87) (3.48)

Pro forma........................................ (3.99) (5.88) (3.48)
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model, with the following assumptions:

<TABLE>
<S> <C>
Expected volatility................................ 60.0%

Risk-free interest rates........................... 5.72% to 5.86%

Expected lives..................................... 1-3 years

Dividend rate...................................... 0%
</TABLE>

NOTE 14. RELATED PARTY TRANSACTIONS:

During 1996, the Company made loans to two officers of the Company of
$50,000 each to offset relocation costs. These notes receivable were secured by
common stock previously issued to the officers. In January 1997, one of these
notes was cancelled (see Note 10). The remaining note was forgiven concurrent
with the Company's IPO (see Note 10).

F-18

<PAGE>

*** Text Omitted and Filed separately Confidential Treatement Requested Under
17 C.F.R. Sections 200.80(b)(4), 200.83 and 240.24b-2

EXHIBIT 10.33

GENOMIC DATABASE COLLABORATION AND LICENSE AGREEMENT

THIS GENOMIC DATABASE COLLABORATION AND LICENSE AGREEMENT ("Agreement")
is made as of December 31, 1997, by and between GENE LOGIC INC., a Delaware
corporation ("Gene Logic"), located at 10150 Old Columbia Road, Columbia,
Maryland 21046 and N.V. ORGANON ("Organon"), a corporation organized under
the laws of The Netherlands, located at Kloosterstraat 6, 5349 AB, Oss, The
Netherlands.

WITNESSETH:

WHEREAS, Gene Logic has developed technologies and know-how with respect
to high throughput analysis of gene expression and gene regulation for use in
the identification of drug targets and the discovery of pharmaceutical
products;

WHEREAS, Organon is a company engaged in the development and
commercialization of pharmaceutical products;

WHEREAS, Organon and Gene Logic wish to enter into a collaborative
effort directed toward the development of a Research Database (as defined
herein) that will contain all of the data derived from tissue samples
delivered by Organon to Gene Logic for the identification of genes which
might encode potential drug targets; and

WHEREAS, through the Research Program (as defined herein), Organon
intends to discover new drug targets for the development and
commercialization of pharmaceutical products.

NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises, covenants and conditions contained herein, Gene Logic and Organon
agree as follows:

1. DEFINITIONS.

The following capitalized terms shall have the meanings indicated for
purposes of this Agreement:

1.1 "AFFILIATE" shall mean any corporation, association or other entity
which directly or indirectly controls, is controlled by or is under common
control with the party in question. As used in this definition of "Affiliate,"
the term "control" shall mean direct or indirect beneficial ownership of more
than 50% of the voting or income interest in such corporation or other business
entity.

1.2 "AGREEMENT DATE" shall mean the date of this Agreement first written
above.

<PAGE>

1.3 "AGREEMENT TERM" shall mean the period from the Agreement Date
until, with respect to each Product, the expiration of the last royalty
obligation owed by Organon to Gene Logic with respect to such Product, or until
this Agreement is otherwise terminated pursuant to its terms.

1.4 "ALLIANCE DIRECTOR" shall have the meaning set forth in Section 3.3.

1.5 "BASE INFORMATION" shall mean all sequence information pertaining to
cDNAs, partial cDNAs and their corresponding full length cDNAs and proteins
resulting from work performed under the Research Program.

1.6 "CDNA" shall mean a DNA copy of a mRNA, including, without
limitation, all cDNA clones and cDNA templates derived from a given gene
transcript and its corresponding coding sequence, including the full length
sequence.

1.7 "CONTROL" shall mean possession of the ability to grant the licenses
or sublicenses or to make the assignments as provided for herein without
violating the terms of any agreement or other arrangement with any Third Party.

1.8 "DIAGNOSTIC PRODUCT" shall mean any product or service or
combination thereof used for the diagnosis, prognosis and/or monitoring of
progression of any disease or disorder which is developed utilizing, or is
comprised of, any Gene Target or which incorporates any Gene Target DNA or RNA
sequence.

1.9 "EFFECTIVE DATE" shall mean the date that Samples are first
delivered to Gene Logic by Organon, which date is expected to be on or before
April 1, 1998 but shall in any event be no later than July 1, 1998.

1.10 "FDA" shall mean the United States Food and Drug Administration.

1.11 "FIELD OF USE" shall mean all internal research uses by Organon of
Gene Targets and the development and commercialization of those Therapeutic
Products described in Section 1.35(a). All uses of Gene Targets as Protein
Products, Nucleic Acid Products or Diagnostic Products are excluded from the
Field of Use.

1.12 "FURTHER DEVELOPMENT" shall have the meaning set forth in Section
2.6.

1.13 "GENE EXPRESS-TM- NORMAL DATABASE" shall mean Gene Logic's GENE
EXPRESS-TM- NORMAL database (it being the intent of the parties that such term
shall include any successor database created by Gene Logic with content
substantially equivalent to that of the GENE EXPRESS-TM- NORMAL database).

1.14 "GENE LOGIC SOFTWARE" shall mean Gene Logic's software programs for
the analysis of gene expression and gene regulation and the identification and

<PAGE>

prioritization of genes as drug targets that are Controlled by Gene Logic as of
the Agreement Date or during the Research Term.

1.15 "GENE LOGIC TECHNOLOGY" shall mean (a) all discoveries, inventions,
information, data, know-how, trade secrets and materials (whether or not
patentable) that are Controlled by Gene Logic as of the Agreement Date or during
the Research Term and that pertain to (i) Gene Logic's READS-TM- and MuST-TM-
technologies, (ii) the Gene Logic Software and (iii) the database architecture
and design of, and the analytical tools within, the Research Database and the
GENE EXPRESS-TM- NORMAL Database, and (b) all Patent Rights or other
intellectual property rights of Gene Logic covering the foregoing.

1.16 "GENE PRODUCTS" shall mean all partial cDNAs, DNAs, genes, full
length cDNAs corresponding thereto and proteins encoded therefrom.

1.17 "GENE TARGET" shall have the meaning set forth in Section 2.6.

1.18 "GENE TARGET KNOW-HOW" shall mean all discoveries, inventions,
information, data, know-how, trade secrets and materials for the manufacture,
use or sale of a Gene Target, which are Controlled by Gene Logic during the
Agreement Term, but excluding Gene Logic's Patent Rights.

1.19 "INVENTION(s)" shall have the meaning set forth in Section 4.1.

1.20 "NET SALES" shall mean the gross invoices delivered by Organon or
its Affiliates or sublicensees, or by Gene Logic or its Affiliates or
sublicensees, as appropriate, for the sale of a Product, less the following
deductions:

(1) Prompt payment or other trade or quantity discounts actually
allowed and taken in such amounts as are customary in the trade;

(2) Amounts repaid or credited by reason of timely rejections or
returns;

(3) Taxes on the sale of a Product (other than franchise or income
taxes on the income of the seller) actually paid or withheld;

(4) Allowances for bad debt to the extent such amounts were
previously invoiced and included in Net Sales for royalty purposes and were
subsequently actually written off by such party (Organon or its Affiliate or
sublicensee, or Gene Logic or its Affiliate or sublicensee, as appropriate); and

(5) Transportation and delivery charges, including insurance
premiums, actually incurred.

<PAGE>

Notwithstanding the foregoing, amounts received by such party (Organon or
its Affiliate or sublicensee, or Gene Logic or its Affiliate or sublicensee, as
appropriate) for the sale of Products among such party and its Affiliates
whether for their internal use or for resale or other disposition will not be
included in the computation of Net Sales hereunder.

1.21 "NUCLEIC ACID PRODUCT" shall mean any gene therapy product or
antisense product, in any dosage form or formulation by any route of
administration, for the prevention or treatment of any disease or disorder which
is or comprises any full, partial or modified RNA or DNA sequence corresponding
to or complementary to a Gene Target RNA or DNA sequence.

1.22 "PATENT RIGHT(s)" shall mean, with respect to Gene Logic or Organon,
all United States and foreign patents (including all reissues, extensions,
confirmations, registrations, re-examinations, and inventor's certificates) and
patent applications (including, without limitation, all substitutions,
continuations, continuations-in-part and divisionals thereof) necessary for the
purposes of this Agreement Controlled by Gene Logic or Organon at any time
during the Agreement Term.

1.23 "PRODUCT" shall mean a Therapeutic Product or Protein Product, as
applicable.

1.24 "PROTEIN PRODUCT" shall mean any product for the prevention or
treatment of any disease or disorder, in any dosage form or formulation for
delivery by any route of administration, which is or comprises a protein or
peptide encoded by the full, partial or mutated RNA or DNA sequence
corresponding to a Gene Target RNA or DNA sequence (but excluding any such
protein or peptide that has been substantially modified), including any
therapeutic antibody.

1.25 "PROTEIN PRODUCT FIELD OF USE" shall mean all uses of Gene Targets
for the development and commercialization of Gene Targets as Protein Products or
as those Therapeutic Products described in Section 1.35(b). All uses of Gene
Targets as Nucleic Acid Products or Diagnostic Products are excluded from the
Protein Product Field of Use.

1.26 "REGULATORY APPROVAL" shall mean (i) approval of an NDA or
comparable applicable filing by the FDA permitting commercial sale of a Product
and (ii) any comparable approval permitting commercial sale of a Product granted
by applicable authorities in any country or jurisdiction other than the United
States.

1.27 "RESEARCH DATABASE" shall mean the database created by Gene Logic
using the Gene Logic Technology pursuant to the Research Plan and containing all
of the data derived from experiments conducted with respect to Samples.

1.28 "RESEARCH PLAN" shall have the meaning set forth in Section 2.1.

<PAGE>

1.29 "RESEARCH PROGRAM" shall mean that program of research performed by
the parties pursuant to Section 2 for the research, discovery and
characterization of genes through the application of bioinformatics and genomic
technologies to analyze Samples, and the use of such genes for the development
and commercialization of Products. As used herein, the term "genomic
technologies" shall mean, without limitation, technologies for the analysis of
gene expression and gene regulation, hybridization array techniques, high speed
sequencing and generation of expressed sequence tags.

1.30 "RESEARCH TERM" shall mean the period commencing on the Effective
Date and ending upon the third anniversary of the Effective Date, subject to
extension or earlier termination as set forth herein.

1.31 "RMC" shall have the meaning set forth in Section 3.1.

1.32 "SAMPLES" shall mean human or animal tissue samples or cell lines
supplied by Organon to Gene Logic for analyses pursuant to the Research Plan.

1.33 "SCIENTIFIC FTE" shall mean the equivalent of a full-time
researcher's or program manager's work time over a 12 month period (including
normal vacations, sick days and holidays).

1.34 "SYNTHESIS AND TESTING" shall mean a project approved by the Organon
Research Committee based on a Gene Target (a) aiming at optimisation of a lead
compound or lead compounds to develop a Therapeutic Product described in Section
1.35(a) or (b) aiming at development of a Protein Product or a Therapeutic
Product described in Section 1.35(b).

1.35 "THERAPEUTIC PRODUCT" shall mean any product for the prevention or
treatment of any disease or disorder, in any dosage form or formulation by any
route of administration, which product is or comprises (a) a molecule, compound
or other agent, regardless of its function or utility, which is discovered or
whose utility is discovered utilizing, in whole or in part, a Gene Target,
whether or not in the course of the Research Program, or (b) a protein or
peptide encoded by the full, partial or mutated RNA or DNA sequence
corresponding to a Gene Target RNA or DNA sequence, which protein or peptide has
been substantially modified, and in each case excluding any Nucleic Acid
Product, Diagnostic Product or Protein Product.

1.36 "THIRD PARTY" shall mean any party other than Organon or Gene Logic
or an Affiliate of either of them.

2. RESEARCH PROGRAM.

2.1 UNDERTAKING AND SCOPE. During the 45 days after the Agreement Date,
Organon will work to develop a plan for the creation and use of the Research
Database,

<PAGE>

with input as appropriate from Gene Logic. The RMC will review and, in its
discretion, approve or modify the general direction of such plan. Such plan, as
approved by the RMC for any year of the Research Program, is referred to herein
as the "Research Plan." At least 90 days before each anniversary of the
Effective Date during the Research Term, Organon will propose to the RMC a
Research Plan providing for such additional quantities and types of Samples to
be analyzed and included in the Research Database during the following year of
the Research Program, with input as appropriate from Gene Logic, and the RMC
shall review, modify if appropriate, and approve such Research Plan by such
anniversary. At any time, the RMC may modify or amend any such Research Plan as
appropriate or necessary to reflect the parties' experiences in performing the
Research Program. Each party agrees to use all reasonable efforts to perform
the activities detailed in the Research Plan in a professional and timely
manner. The parties agree that the Research Program will not include any
research, discovery or development activities primarily directed toward the
discovery and characterization of genes associated with the indications listed
on Schedule 2.1 and that the collaboration between the parties contemplated by
this Agreement will not cover the indications listed on Schedule 2.1.

2.2 PERSONNEL AND RESOURCES. Each party agrees to commit the personnel,
facilities, technology and other resources necessary to perform its obligations
under the Research Plan; PROVIDED, HOWEVER, that neither party warrants that the
Research Program shall achieve any of the research objectives contemplated by
them. During the Research Term, Organon and Gene Logic will each maintain the
number of Scientific FTEs, which in the case of Gene Logic shall not be fewer
than [ . . . *** . . .] Scientific FTEs, devoted to cooperative work as are
required under the Research Plan. The scientific priorities and direction of
the work of such Scientific FTEs will be determined by the RMC. Organon will
provide funding to support Gene Logic's performance of its obligations under the
Research Plan as set forth in Section 6.

2.3 INFORMATION AND REPORTS CONCERNING THE RESEARCH DATABASE. All
information, technology or inventions relating to the Samples and the analysis
of such Samples made by either party in the course of the Research Program will
be promptly disclosed to the other as necessary to enable the parties to conduct
the Research Program, with significant discoveries or advances being
communicated as soon as practicable after such information is obtained or its
significance is appreciated. The parties will exchange at least quarterly
written reports presenting a meaningful summary of their activities performed
under this Agreement during the Research Term.

2.4 SAMPLES. Organon shall supply Samples to Gene Logic in sufficient
varieties and quantities, as well as background information with respect to such
Samples and related experimental protocols, for Gene Logic to develop the
Research Database and otherwise carry out the purposes of this Agreement and the
Research Plan. Gene Logic will, and will take reasonable steps to ensure that
its employees and agents, use the

*Confidential Treatment Requested

<PAGE>

Samples and background information in a manner that is consistent with the
terms of this Agreement and the Research Plan.

2.5 TERM OF THE RESEARCH PROGRAM. Work under the Research Program
will commence as of the Effective Date and, unless terminated earlier by
either party pursuant to the terms of this Agreement or extended by mutual
agreement of the parties, will terminate upon expiration of the Research
Term. [. . . *** . . .], any licenses granted to Gene Logic pursuant to
Section 5.7 shall remain in full force and effect.

2.6 SELECTION OF GENE TARGETS.

(a) Organon will use reasonable efforts consistent with its
obligations under the Research Plan to identify Gene Products as potential
targets for the development of pharmaceutical products. Organon shall select
certain of such Gene Products as targets for further development of
pharmaceutical products using information obtained from the Research Database or
the GENE EXPRESS-TM- NORMAL Database. Any Gene Product which is selected as a
target for further development using information obtained from the Research
Database or the GENE EXPRESS-TM- NORMAL Database (as evidenced by laboratory
notebooks kept by Organon) and which Organon uses in Further Development (as
defined below) shall be a "Gene Target."

(b) Organon agrees to keep laboratory notebooks that record whether
information obtained from the Research Database or the GENE EXPRESS-TM- NORMAL
Database has been used in the selection of Gene Products as targets for further
development and to provide an independent third party, reasonably acceptable to
both parties, with access to such laboratory notebooks upon reasonable prior
notice and during normal business hours for purposes of confirming the use of
such information. In addition, Organon agrees that, if so requested by Gene
Logic, it will enter into a third party escrow arrangement under which it will
place into escrow notice of the selection of Gene Products as targets for
further development using information obtained from the Research Database or the
GENE EXPRESS-TM- NORMAL Database.

(c) Based upon Organon's standard, internal research and
development criteria, Organon will, in its sole discretion, decide whether to
commence Further Development with regard to a particular Gene Product. Organon
shall notify Gene Logic in writing and make the payment described in Section 6.3
prior to using any Gene Target in Further Development. For purposes of this
Agreement, "Further Development" of a Gene Target as (i) a Therapeutic Product
described in Section 1.35(a) will be the [ . . . *** . . .] or (ii)
a Protein Product or a Therapeutic Product described in Section 1.35(b) will be
[ . . . *** . . .].

*Confidential Treatment Requested

<PAGE>

(d) Notwithstanding the foregoing, Organon shall have no
obligations to make any payments for any Gene Target selected after the
[. . . *** . . .] of the end of the Research Term, and Gene Logic shall have
no obligation to convey to Organon any rights to any such Gene Target under
Section 5.3.

3. RESEARCH MANAGEMENT COMMITTEE; ALLIANCE DIRECTORS; DISPUTE RESOLUTION.

3.1 RESEARCH MANAGEMENT COMMITTEE. Promptly after the Agreement Date,
Organon and Gene Logic will each appoint two representatives to a research
management committee (the "RMC"). Attached as Schedule 3.1 is a list of
representatives the parties intend to appoint to the RMC. One of the Organon
representatives shall be identified as chairman of the RMC. The RMC will
review, direct and supervise all operational and scientific aspects related to
the creation of the Research Database. The duties of the RMC shall include
approving the Research Plan pursuant to which Organon will deliver Samples to
Gene Logic, agreeing to resource allocations necessary to process such Samples
(including the allocation of Scientific FTEs), monitoring the parties' progress
under the Research Plan and evaluating the means through which Organon has
access to the Research Database. The RMC will meet quarterly, or more
frequently if mutually agreed, and will alternate sites of meetings between Gene
Logic's offices and Organon's offices. Each party recognizes the importance of
the RMC in the success of the Research Program and will use diligent efforts to
cause all of its representatives to such committee to attend all meetings of
such committee. A party may change any of its appointments to the RMC at any
time upon giving written notice to the other party. Any disputes or
disagreements within the RMC shall be resolved pursuant to Section 3.4.

3.2 RMC MEETINGS. The RMC may meet by telephone or video conference or
in person at such times as are agreeable to the members of such committee.
Attendance at meetings shall be at the respective expense of the participating
parties. The chairman of the RMC shall assure that agendas and minutes are
prepared for each of its meetings. All actions taken and decisions made by the
RMC shall be by unanimous agreement. If personal attendance is not possible for
valid reasons, voting by proxy is permissible.

3.3 ALLIANCE DIRECTORS. Each party shall designate one of its employees
as an alliance director ("Alliance Director") for all of the activities
contemplated under this Agreement. Such Alliance Directors will be responsible
for the day-to-day coordination of the performance of the Research Program and
will serve to facilitate communication between the parties with respect thereto.

3.4 DISPUTE RESOLUTION. Disputes or disagreements between the
parties arising hereunder will be referred to the RMC during the Research
Term. The representatives of Organon on the RMC shall have the right to
resolve any dispute or

*Confidential Treatment Requested

<PAGE>

disagreement between the parties with respect to the Research Plan. If the
RMC is unable to resolve, after 30 days, a dispute or disagreement regarding
any issue presented to it or arising in it other than a dispute or
disagreement with respect to the Research Plan, or if the dispute or
disagreement arises after the Research Term, such dispute will be referred to
the Chief Executive Officer of Gene Logic and the Director of Research and
Development of Organon for good faith resolution, for a period of 90 days.
If such dispute is not resolved by the end of such 90-day period, then such
issue shall be submitted for resolution through mediation within 30 days
after either party requests mediation, according to the terms set forth in
Section 11.

4. PATENTS, KNOW-HOW RIGHTS AND INVENTIONS.

4.1 OWNERSHIP OF INVENTIONS. Inventorship of any inventions (whether or
not patentable) that are conceived, generated or reduced to practice during the
course of the Research Program ("Inventions") shall be determined in accordance
with United States laws of inventorship. Ownership of Inventions shall be
determined in the manner described in this Section 4 and, if not provided for
herein, shall be determined in accordance with inventorship.

4.2 OWNERSHIP OF GENE LOGIC TECHNOLOGY AND GENE LOGIC SOFTWARE. Subject
to the grant of intellectual property rights to Organon under the non-exclusive
or exclusive licenses granted under Section 5, Gene Logic shall own all rights
to the Gene Logic Technology and the Gene Logic Software. The filing,
prosecution and maintenance of Patent Rights, copyrights and other proprietary
rights directed at the protection of all rights to the Gene Logic Technology and
the Gene Logic Software shall be the responsibility of, and at the discretion
of, Gene Logic.

4.3 OWNERSHIP OF IMPROVEMENTS TO GENE LOGIC TECHNOLOGY AND GENE LOGIC
SOFTWARE. Gene Logic Technology and Gene Logic Software shall also include any
enhancements or improvements to the Gene Logic Technology and Gene Logic
Software discovered by either party during the course of the Collaboration.
Organon hereby irrevocably assigns to Gene Logic all right, title and interest
in and to enhancements or improvements to such Gene Logic Technology and Gene
Logic Software discovered by Organon. If Organon has any rights that cannot be
assigned to Gene Logic, Organon waives the enforcement of such rights, and if
Organon has any rights that cannot be assigned or waived, Organon hereby grants
to Gene Logic an exclusive, irrevocable, perpetual, worldwide, fully-paid
license, with right to sublicense through multiple tiers of sublicense, to such
rights. The filing, prosecution and maintenance of such assigned or licensed
Patent Rights, copyrights and other proprietary rights directed at the
protection of all rights to the enhancements or improvements to the Gene Logic
Technology and Gene Logic Software shall be the responsibility of, and at the
discretion of, Gene Logic.

<PAGE>

4.4 OWNERSHIP OF CERTAIN INVENTIONS.

(a) Subject to the grant of intellectual property rights to
[. . . *** . . .]. [. . . *** . . .] hereby irrevocably assigns to
[. . .*** . . .] all right, title and interest of [. . . *** . . .] in and
to the [. . . *** . . .]. If [. . . *** . . .] has any rights that cannot
be assigned to [. . . *** . . .] of such rights, and if [. . . *** . . .] has
any rights that cannot be assigned or waived, [. . . *** . . .] hereby
[. . . *** . . .]. The filing, prosecution and maintenance of Patent Rights,
copyrights and other proprietary rights directed at the protection of all
rights to such [. . . *** . . .] Inventions shall be the responsibility of,
and at the discretion of, [. . . *** . . .]. In order to minimize redundant
patent filings, [. . . *** . . .] may notify [...***...] of the subject
matter of any patent application it proposes to file with respect to an
[. . . *** . . .], and [. . . *** . . .] agrees to inform [. . . *** . . .]
of whether [. . . *** . . .] has previously filed a patent application
covering such subject matter or, subject to any obligation of
confidentiality, has been granted rights by a Third Party under a published
patent application or issued patent covering such subject matter.

(b) With respect to Patent Rights, copyrights or other
proprietary rights directed at the protection of the [. . . *** . . .] will
provide drafts of documents to be submitted to any governmental patent agency
or other authority with respect to initial filings and other filings in the
United States and Europe to [. . . *** . . .]for review and comment prior to
submission, and [. . . *** . . .]shall offer its comments promptly.
[. . . *** . . .] will take [. . . *** . . .] comments into consideration and
will use its best efforts to ensure that any filings with respect to such
Patent Rights, copyrights or other proprietary rights preserve the rights to
be granted to [. . . *** . . .] as contemplated under this Section 4.4. If
[. . . *** . . .] files a patent application or makes any other filing to
protect proprietary rights with respect to an [. . . *** . . .] Invention
pursuant to this Section 4.4 and subsequently decides to discontinue
prosecution and maintenance of such application or other filing, it will
first give [. . . *** . . .] prior notice of such decision and the
opportunity to assume prosecution and maintenance of such patent application
or other filing, at [. . . *** . . .] expense.

(c) [. . . *** . . .] hereby grants to [. . . *** . . .] (i)
to all [. . . *** . . .] claimed therein for all research uses of such
(provided that [. . . *** . . .] will not include any
additional sequence information generated by [. . . *** . . .] or its
employees, agents, consultants, Affiliates of sublicensees in any
research database other than the Research

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Database), subject to [. . . *** . . .] right to use such [. . . *** . . .]
for its [. . . *** . . .] for clarification purposes, [. . . *** . . .] means
use of the [. . . *** . . .] but does not include [. . . *** . . .], (ii) for
all uses of such [. . . *** . . .] for the discovery, development and
commercialization of [. . . *** . . .] as [. . . *** . . .], (iii) for all
uses of such [. . . *** . . .] the discovery, development and
commercialization of [. . . *** . . .] as [. . . *** . . .], and (iv) for all
uses of such [. . . *** . . .] for the discovery, development and
commercialization of [. . . *** . . .]as [. . . *** . . .]. All rights under
such Patent Rights and other proprietary rights which are not subject to the
license granted to [. . . *** . . .] under this Section 4.4(c) shall be
retained by [. . . *** . . .].

4.5 PATENT PROTECTION.

(a) RIGHTS TO FILE, PROSECUTE AND MAINTAIN PATENT RIGHTS. The
party designated as responsible for the filing, prosecution and maintenance of
Patent Rights and other proprietary rights pursuant to Section 4.2, 4.3 or 4.4,
as applicable, or the owner of the applicable Invention if not otherwise
indicated (the "Responsible Party") shall have the right, at its option and
expense, to prepare, file and prosecute any patent applications or other
appropriate filings with respect to the matters described in the respective
sections and to maintain any patents issued thereon, copyrights or other similar
rights.

(b) COOPERATION. Each party agrees to cooperate, both during
and after the term of this Agreement, with the Responsible Party in the
preparation and prosecution of all patent applications or other appropriate
filings contemplated by this Agreement and in the maintenance of any patents,
copyrights or other similar rights issued thereon; PROVIDED, HOWEVER, that,
following the Research Term, the Responsible Party shall reimburse the other
party for its out-of-pocket expenses incurred in connection with such
cooperation. Such cooperation will include the execution of all documents
necessary or desirable for the Responsible Party to fulfill its obligations
hereunder. In particular, if

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necessary, Organon agrees to provide background information in support of the
preparation and prosecution of such patent applications or other filings
regarding mRNA source (the identity of the cell or tissue and mode of
activation, if any, of the cell or tissue, from which the mRNA has been
prepared).

(c) COMMUNICATION REGARDING PATENT PROTECTION. The Responsible
Party will prepare, prosecute and maintain (and shall keep the other party
currently informed of all steps to be taken in such preparation, prosecution and
maintenance of) all Patent Rights, copyrights or other similar rights with
respect to which it is responsible and shall furnish the other party with copies
of documentation of such Patent Rights, copyrights or other similar rights and
other related correspondence relating thereto with respect to which it is
responsible to and from governmental patent agencies or other authorities.

(d) REIMBURSEMENT FOR CERTAIN PATENT EXPENSES. In the event that
Organon receives the grant pursuant to Section 5.3(b) of an exclusive license to
Patent Rights and other proprietary rights based upon data provided by a Third
Party, Organon shall reimburse Gene Logic for out-of-pocket expenses with
respect to such Patent Rights and other proprietary rights incurred by Gene
Logic during the term of such license within 30 days of receipt of an invoice
therefor; provided that, if other parties have rights under such Patent Rights
and other proprietary rights for diagnostic, gene therapy or antisense uses,
Organon shall only be required to reimburse Gene Logic for Organon's
proportional share of such out-of-pocket expenses with respect to such Patent
Rights and other proprietary rights.

4.6 INFRINGEMENT BY THIRD PARTIES. In the event Gene Logic or Organon
becomes aware of any actual or threatened infringement of any Patent Right,
copyright, trademark, trade secret or other intellectual property right of
either party which claims an Invention, that party shall promptly notify the
other party, and (i) Gene Logic shall have the right, at its option and expense,
to determine how to proceed in connection with any such actual or threatened
infringement of any Patent Right, copyright, trademark, trade secret or other
intellectual property right with respect to which Gene Logic is the Responsible
Party, and (ii) Organon shall have the right, at its option and expense, to
determine how to proceed in connection with any such actual or threatened
infringement of any Patent Right, copyright, trademark, trade secret or other
intellectual property right with respect to which Organon is the Responsible
Party. Notwithstanding the foregoing, in the event of any actual or threatened
infringement of any Patent Right, copyright, trademark, trade secret or other
intellectual property right which claims an Organon Invention, which
infringement interferes with any of the rights granted to Gene Logic under
Section 4.4(c) but does not interfere with Organon's use of such Patent Right,
copyright, trademark, trade secret or other intellectual property right, then
Gene Logic shall have the right, at its option and expense, to determine how to
proceed in connection with any such actual or threatened infringement. If
either party commences any actions

<PAGE>

or proceedings (legal or otherwise) pursuant to this Section 4.6, it shall
prosecute the same vigorously at its expense and shall not abandon or
compromise them or fail to exercise any rights of appeal without giving the
other party the right to take over the prosecuting party's conduct at such
other party's own expense. Neither party shall have the right to settle any
patent infringement litigation under this Section 4.6 in a manner that
diminishes the rights or interests of the other party without the consent of
such other party. Any recovery realized as a result of any patent
infringement action under this Section 4.6 shall belong to the party who
brought the action.

4.7 ALLEGATIONS OF INFRINGEMENT BY THIRD PARTIES.

(a) The parties acknowledge that, in order to exploit the rights
contained herein, Organon may require licenses under Third Party patent rights
that may be infringed by the use by Organon of the rights granted herein and it
is hereby agreed that it shall be Organon's responsibility to satisfy itself as
to the need for such licenses (other than licenses to Third Party patent rights
that are infringed by the Gene Logic Technology) and, if necessary, to obtain
such licenses.

(b) Organon shall be solely responsible for any threatened or
actual claims for Third Party patent infringement or other Third Party
intellectual property right arising out of the manufacture, use, sale or
importation of a Product sold by Organon, its Affiliates or sublicensees. Upon
receiving notice of such actual or threatened claims, Organon shall promptly
meet with Gene Logic to discuss the course of action to be taken to resolve or
defend any such infringement litigation.

5. LICENSES.

5.1 RESEARCH DATABASE AND GENE EXPRESS-TM- NORMAL DATABASE LICENSE TO
ORGANON. Subject to the terms and conditions of this Agreement and except as
provided in Section 2.1, Gene Logic hereby grants to Organon an exclusive,
worldwide license to use the Research Database, together with a non-exclusive,
worldwide license to use the GENE EXPRESS-TM- NORMAL Database, in each case
solely for its internal research purposes to identify Gene Targets during the
Research Term. Organon will have no right to sublicense to Third Parties under
such rights and shall not provide the Research Database, the GENE EXPRESS-TM-
NORMAL Database or any Gene Logic Technology or Gene Logic Software with respect
thereto, to any Third Party (other than consultants to whom disclosure is
permitted under Section 8.3) without prior written consent of Gene Logic.
Following the expiration of the Research Term, and provided Organon has paid to
Gene Logic all of the Database Access Fees set forth in Section 6.1, Gene Logic
hereby grants to Organon a perpetual, exclusive, worldwide license to use the
Research Database solely for its internal research purposes, subject only to the
obligations of Organon to make the milestone and royalty payments described in
Sections 6.3, 6.4 and 7. Notwithstanding the foregoing, Organon may provide
Gene Targets to a Third Party so long as Organon obtains Gene Logic's prior
written approval of the provision of Gene Targets to such

<PAGE>

Third Party, which approval will not unreasonably be withheld, and any use of
the Gene Targets by such Third Party is subject to all of the terms and
conditions (including, without limitation, the economic terms) of this
Agreement. Organon may elect to extend the term of the foregoing
non-exclusive GENE EXPRESS-TM- NORMAL Database license following the
expiration of the Research Term upon financial terms and other conditions
mutually satisfactory to the parties by providing written notice of such
election to Gene Logic at least 90 days prior to the date upon which such
rights would otherwise expire.

5.2 LICENSE OF SAMPLES TO GENE LOGIC. Organon grants to Gene Logic a
non-exclusive, fully-paid, worldwide license to use and analyze the Samples
provided by Organon and the data and progeny derived therefrom for purposes of
the Research Program during the Research Term.

5.3 GENE TARGET LICENSE TO ORGANON. Subject to the terms and conditions
of this Agreement, with respect to each Gene Target for which Organon has paid
the fee described in Section 6.3:

(a) Gene Logic hereby grants and agrees to grant to Organon a
non-exclusive, worldwide license (without the right to sublicense) under the
Patent Rights and Gene Target Know-How Controlled by Gene Logic, if any, to
develop, make, have made, use, import, offer for sale and sell such Gene Target
in the Field of Use; and

(b) If Organon has requested rights to such Gene Target in the
Protein Product Field of Use and provided that Gene Logic has not previously
granted an exclusive license or right to such Gene Target to a Third Party in
the Protein Product Field of Use, Gene Logic hereby grants and agrees to grant
to Organon an exclusive, worldwide license (with the right to sublicense) under
the Patent Rights and Gene Target Know-How Controlled by Gene Logic, if any, to
develop, make, have made, use, import, offer for sale and sell such Gene Target
in the Protein Product Field of Use.

5.4 ORGANON RIGHT OF FIRST NEGOTIATION. With respect to each Gene
Target for which Organon has paid the fee described in Section 6.3 and Patent
Rights and other proprietary rights have been exclusively licensed to Organon
under Section 5.3, Gene Logic hereby grants to Organon an exclusive right of
first negotiation to obtain an exclusive, worldwide license (with the right to
sublicense) under the Patent Rights and Gene Target Know-How Controlled by Gene
Logic, if any, to develop, make, have made, use, import, offer for sale and sell
such Gene Target as a Nucleic Acid Product or Diagnostic Product for [ . . . ***
. . .], such license to be upon commercially reasonable terms to be negotiated
in good faith by the parties. Organon shall provide written notice to Gene
Logic (the "Exercise Notice") as to whether it would like to exercise its right
of first negotiation pursuant to this Section 5.4. If Gene Logic proposes to
develop any such Gene Target as a Nucleic Acid Product or Diagnostic Product or
to license to a Third Party rights with respect to any such Gene Target for
development or commercialization

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as a Nucleic Acid Product or Diagnostic Product, Gene Logic shall so notify
Organon and, if Organon does not provide an Exercise Notice with respect to
such Gene Target within [ . . . *** . . .] of such notice from Gene Logic,
then the right of first negotiation with respect to such Gene Target shall
terminate. If Organon does not exercise its right of first negotiation with
respect to a Gene Target, or if such right of first negotiation terminates
without exercise by Organon, Organon shall have no further rights under this
Section 5.4 with respect to such Gene Target, and Gene Logic shall be free to
proceed with the development, manufacture, use, import or sale of such Gene
Target as a Nucleic Acid Product and Diagnostic Product, either by itself or
through one or more Third Parties. If Organon does exercise its right of
first negotiation with respect to such Gene Target pursuant to this Section
5.4, then for a period of up to [ . . . *** . . .] following the date of the
Exercise Notice, the parties shall negotiate in good faith regarding the
terms of such license, which terms shall be commercially reasonable;
PROVIDED, HOWEVER, that if at the end of such [ . . . *** . . .] period, the
parties have not reached mutual agreement with regard to such terms as
evidenced by a written agreement, Organon shall have no further rights with
respect to such Gene Target under this Section 5.4, and Gene Logic shall be
free to proceed with the development, manufacture, use, import or sale of
such Gene Target as a Nucleic Acid Product and Diagnostic Products, either by
itself or through one or more Third Parties, upon principal financial terms
in the aggregate no more favorable to such Third Party(ies) than those
proposed to Organon.

5.5 DILIGENCE.

(a) During the Research Term, Gene Logic shall use commercially
reasonable and diligent efforts, consistent with the Research Program, to
perform analysis of the Samples using the Gene Logic Technology (including, but
not limited to, analysis of gene expression, hybridization array techniques,
gene sequencing and generation of expressed sequence tags) to develop the
Research Database. In addition, during the Research Term, Gene Logic shall use
commercially reasonable and diligent efforts, consistent with its internal
development plans, to develop the GENE EXPRESS-TM- NORMAL Database. In this
regard, Gene Logic will provide to Organon its development plans for the GENE
EXPRESS-TM- NORMAL Database on an annual basis, in conjunction with review and
approval of the Research Plan. For purposes of this Agreement, "commercially
reasonable and diligent efforts" will mean, unless the parties agree otherwise,
those efforts consistent with the exercise of prudent scientific and business
judgment, as applied to other research efforts and to products of similar
scientific and commercial potential within such party's relevant research
programs and product lines.

(b) During the Research Term, Organon shall use commercially
reasonable and diligent efforts to conduct active, ongoing research activities
utilizing the Research Database and the GENE EXPRESS-TM- NORMAL Database.

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<PAGE>

(c) Without limiting the foregoing, Organon (or its Affiliates or
sublicensees) shall use commercially reasonable and diligent efforts to develop
and commercialize any Protein Products to which it has rights under this
Agreement. Gene Logic may provide [ . . . *** . . .] written notice to Organon
if in its opinion, Organon (or its Affiliates or sublicensees) is not using
commercially reasonable and diligent efforts with regard to a Protein Product,
whereupon the parties agree to hold a meeting, attended by individuals with
decision-making authority, to attempt in good faith to negotiate a resolution of
the dispute. If, within [ . . . *** . . .] after such meeting, the parties have
not succeeded in negotiating a resolution of the dispute, then such dispute
shall be submitted for resolution according to the terms set forth in
Section 11.

(d) In addition, in the event that Organon elects not to pursue the
development or commercialization of any Protein Product to which it has rights
under to this Agreement for any reason, Organon shall promptly notify Gene Logic
thereof, and, upon such notice, the exclusive license granted to Organon
pursuant to Section 5.3(b) with respect to the applicable Gene Target in the
Protein Product Field of Use on a worldwide basis will be terminated.

5.6 REPORTS. Organon hereby agrees to keep Gene Logic informed on a
reasonable basis of its efforts to select Gene Targets and to develop
Products, and to provide written reports to Gene Logic on an annual basis
(the "Reports"). The Reports shall provide, as applicable, the following
information: (i) a listing of the Gene Products which Organon has identified
as prospects for Further Development, (ii) Organon's progress toward
selection of particular Gene Products for Further Development, (iii)
Organon's plans for Further Development with regard to selected Gene Targets,
(iv) Organon's progress in screening, pre-clinical or clinical development
for Gene Targets, and (v) Organon's progress in lead optimization and
pre-clinical or clinical development of lead compounds identified through the
use of Gene Targets.

5.7 RETAINED RIGHTS. Gene Logic retains all rights to Nucleic Acid
Products and Diagnostic Products, except as otherwise agreed between the
parties pursuant to Section 5.4. Upon termination of Organon's rights to use
the Research Database, the GENE EXPRESS-TM- NORMAL Database and the Gene
Logic Software, except with respect to any Gene Target being pursued in
Further Development by Organon in accordance with this Agreement, all rights
to all Gene Products and related information will revert to Gene Logic and
Gene Logic will have a non-exclusive, perpetual, fully-paid, worldwide
license to the data and progeny derived from the Samples provided by Organon
and related information contained in the Research Database.

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6. PAYMENTS AND ROYALTIES.

6.1 DATABASE ACCESS PAYMENTS TO GENE LOGIC. The following payments
("Database Access Fees") will be made to Gene Logic to defray research costs
associated with creating the Research Database and analyzing Samples pursuant to
the Research Plan:

(a) Organon shall pay Gene Logic (i) [. . . *** . . .] upon the
Agreement Date and (ii) [ . . . *** . . .] upon Gene Logic's development of a
Research Database containing READS-TM- data for [ . . . *** . . .] Samples
(I.E., [ . . . *** . . .] Samples supplied by Organon) OR on the
[ . . . *** . . .] of the Effective Date if Gene Logic has developed a
Research Database containing READS-TM- data on [ . . . *** . . .] of any
lesser number of Samples provided by Organon during the first year of
the Research Term.

(b) Organon shall pay Gene Logic [ . . . *** . . .] on the second
anniversary of the Effective Date; provided that the Research Term has not been
terminated pursuant to Section 2.5.

(c) Organon shall pay Gene Logic [ . . . *** . . .] on the third
anniversary of the Effective Date; provided that the Research Term has not been
terminated pursuant to Section 2.5.

6.2 RESEARCH SUPPORT.

(a) During the Research Term, Organon shall provide Gene Logic with
financial support for the Research Program for Gene Logic's Scientific FTEs at a
rate of [ . . . *** . . .] per Scientific FTE. The FTE payment rate payable
pursuant to this Section 6.2(a) shall be reevaluated annually on each
anniversary of the Effective Date and adjusted in proportion to the percentage
increase in the Consumer Price Index since the last adjustment. The number of
Scientific FTEs for each year of the Research Term will be set forth in the
applicable Research Plan; provided that such number shall not be less than [ .
. . *** . . .] Scientific FTEs in any one-year period.

(b) Research funding payments shall be made in advance in four
quarterly payments during each year of the Research Term (i.e., on or before
April 1, July 1, October 1 and January 1 of each year for use in the next
quarter). An initial payment will be made within 15 days of the Effective Date,
pro-rated to cover the remainder of such calendar quarter. The last payment for
the Research Program shall be pro-rated to the end of Research Term.

(c) If the Research Program is terminated by Organon pursuant to
Section 2.5, Organon shall continue to provide Gene Logic with financial support
for the terminated Research Program for the number of Scientific FTEs provided
in the then

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applicable Research Plan as otherwise provided in this Section 6.2 until the
effective date of the termination following the notice period as provided in
Section 2.5.

6.3 GENE TARGET FEES. Organon shall pay [ . . . *** . . .] to Gene
Logic for each Gene Target which Organon selects for Further Development
pursuant to Section 2.6. The [ . . . *** . . .] payment shall be made to Gene
Logic prior to commencement of Further Development using such Gene Target. At
the time of such payment, Organon will notify Gene Logic in writing of whether
it wishes to obtain rights to such Gene Target in the Protein Product Field of
Use.

6.4 ROYALTIES PAYABLE BY ORGANON.

(a) Organon will pay Gene Logic royalties at the following rates on
Net Sales of each Product:

(i) Organon shall pay Gene Logic a royalty on Net
Sales of each Therapeutic Product as follows:

Annual Net Sales

(million US$) Royalty Rate

[ . . . *** . . .] [ . . . *** . . .]

(ii) Organon shall pay Gene Logic a royalty on Net
Sales of each Protein Product as follows:

Annual Net Sales

(million US$) Royalty Rate

[ . . . *** . . .] [ . . . *** . . .]

(b) The royalty payable with respect to all Net Sales during a
given calendar year shall be calculated by multiplying total Net Sales during
such calendar year by the applicable royalty rate determined based on total
Net Sales during such calendar year. Royalties shall be payable on all Net
Sales of any Product for the period of time commencing on the date such
Product is first sold commercially in any country and ending, on a
country-by-country basis, [. . . *** . . .] from the date of such first
commercial sale of such Product in such country. Organon shall remain
responsible for all royalty payments payable to Gene Logic pursuant to this
Section 6 whether Organon or its Affiliates or sublicensees or any Third
Party to whom Organon has provided Gene Targets under Section 5.1 generates
Net Sales.

*Confidential Treatment Requested

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6.5 CURRENCY OF PAYMENT. All payments to be made under this Agreement
shall be made in United States dollars in the United States to a bank account
designated by Gene Logic. All amounts payable by Organon to Gene Logic pursuant
to this Section 6 shall be non-refundable and non-creditable against any other
payments due under this Agreement. Royalties shall be determined in the
currency of the country in which they are earned and then converted to its
equivalent in United States currency. The buying rates involved for the
currency of the United States into which the currencies involved are being
exchanged shall be the one quoted by The Wall Street Journal (or, if not
available, by Citibank (or its successor in interest) in New York, New York) at
the close of business on the last business day of the quarterly period in which
the royalties were earned to determine any such conversion.

6.6 PAYMENT AND REPORTING. By March 1 of each calendar year, Organon
will communicate to Gene Logic a forecast of Net Sales for each Product to be
sold pursuant to this Agreement in a given calendar year on a country-by-country
basis, including a calculation of the royalty amount payable for each Product
using such forecast and supporting data sufficient to confirm the accuracy of
such calculations (the "Forecast Royalty Amount") starting the quarter in which
the first commercial sale is made for such Product. Gene Logic will issue an
invoice to Organon on the first day of the months of April, July and October for
an amount equal to 25% of the Forecast Royalty Amount, payable within 30 days
after the date of such invoice. Within 30 days after the end of each calendar
year, Organon will communicate to Gene Logic the actual Net Sales for each
Product sold pursuant to this Agreement for such calendar year, including a
calculation of the royalty amount payable on such actual Net Sales and
supporting data sufficient to confirm the accuracy of such calculations (the
"Actual Royalty Amount"). Gene Logic will promptly issue either an invoice to
Organon for the amount, if any, by which the Actual Royalty Amount exceeds all
royalty payments already made for such calendar year, payable within 30 days
after the date of such invoice or a credit to be applied to the next quarter if
an overpayment has occurred. All amounts payable to Gene Logic pursuant to this
Agreement shall be made by wire transfer pursuant to the instructions set forth
on Schedule 6.6.

6.7 RECORDS AND AUDITS. During the Agreement Term and for a period of
five years thereafter, Organon shall keep complete and accurate records
pertaining to the development and sale or other disposition of Products in
sufficient detail to permit Gene Logic to confirm the accuracy of all payments
due hereunder. Gene Logic shall have the right to cause an independent,
certified public accountant reasonably acceptable to Organon to audit such
records to confirm Net Sales and royalty and other payments for the preceding
year. Such audits may be exercised during normal business hours once a year
upon at least 30 working days' prior written notice to Organon. Gene Logic
shall bear the full cost of such audit unless such audit discloses a variance of
more than 5% from the amount of the Net Sales or royalties or other payments due
under this Agreement. In such case, Organon shall bear the full cost of such
audit and Gene Logic shall have the right to audit all prior years not
previously audited.

<PAGE>

7. MILESTONES FOR THERAPEUTIC PRODUCTS AND PROTEIN PRODUCTS.

7.1 MILESTONES.

(a) Organon shall pay Gene Logic the following amount with respect
to each Therapeutic Product designated as a Therapeutic Product Lead (defined
below), within 30 days following such designation:

(i) [ . . . *** . . .] for each Therapeutic Product
designated as a Therapeutic Product Lead within [ . . . *** . . .] following the
date of selection of a Gene Target for Further Development pursuant to Section
2.6; or

(ii) [ . . . *** . . .] for each Therapeutic Product
designated as a Therapeutic Product Lead if such designation occurs anytime
after [ . . . *** . . .] following the date of selection of a Gene Target for
Further Development pursuant to Section 2.6.

For purposes of this Section 7.1(a), a Therapeutic Product is designated a
"Therapeutic Product Lead" when Organon commences the Synthesis and Testing
phase of development of such Therapeutic Product. Organon shall provide prompt
written notice to Gene Logic thereof.

(b) Organon shall pay Gene Logic the following amount with respect
to each Protein Product designated as a Protein Product Lead (defined below),
within 30 days following such designation:

(i) [ . . . *** . . . ] for each Protein Product designated
as a Protein Product Lead within [ . . . *** . . .] following the date of
selection of a Gene Target for Further Development pursuant to Section 2.6; or

(ii) [ . . . *** . . .] for each Protein Product designated
as a Protein Product Lead if such designation occurs anytime after [ . . . *** .
. . ] following the date of selection of a Gene Target for Further Development
pursuant to Section 2.6.

For purposes of this Section 7.1(b), a Protein Product is designated a "Protein
Product Lead" when Organon commences the Synthesis and Testing phase of
development of such Protein Product. Organon shall provide prompt written
notice to Gene Logic thereof.

7.2 MILESTONE PAYMENTS. Milestone payments made under this
Section 7 shall be non-refundable and non-creditable against any other payments
due under this Agreement. Milestone payments made under this Section 7 shall
fund in substantial part the research costs associated with this Agreement.

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8. CONFIDENTIALITY AND SECURITY.

8.1 SECURITY OF RESEARCH DATABASE, GENE EXPRESS-TM- NORMAL DATABASE
AND GENE LOGIC SOFTWARE. The parties agree that the following additional terms
and conditions apply to the information and data contained in or derived from
the Research Database and the GENE EXPRESS-TM- NORMAL Database that are
disclosed and Gene Logic Software that is provided under the provisions of this
Agreement:

(a) Organon may use the Research Database, the GENE EXPRESS-TM-
NORMAL Database and the Gene Logic Software only for its own internal use in
secure work facilities by authorized personnel and shall not make any copies of
the Research Database, the GENE EXPRESS-TM- NORMAL Database or the Gene Logic
Software.

(b) Organon will be provided with access to the Research Database,
the GENE EXPRESS-TM- NORMAL Database and the Gene Logic Software only through a
secure, encrypted link to Gene Logic's computer system.

(c) Organon will promptly notify Gene Logic of any (i) loss, theft
or unauthorized disclosure of information or data derived from the Research
Database, the GENE EXPRESS-TM- NORMAL Database or the Gene Logic Software and
(ii) unauthorized access to the Research Database, the GENE EXPRESS-TM- NORMAL
Database or the Gene Logic Software.

(d) Upon termination of the term of the applicable license as
provided in Section 5.1 with respect to the Research Database or the GENE
EXPRESS-TM- NORMAL Database and upon termination of the Research Program as
provided in Section 2.5 with respect to the Gene Logic Software, Organon shall
immediately discontinue use of the Research Database or the GENE EXPRESS-TM-
NORMAL Database, and of any information or data derived from the Research
Database (except for Gene Targets that are the subject of the licenses as set
forth in Section 5.3) or the GENE EXPRESS-TM- NORMAL Database, or use of the
Gene Logic Software, as applicable, and Organon shall (i) cooperate with Gene
Logic to terminate the encrypted link to Gene Logic's computer system and (ii)
promptly deliver to Gene Logic copies of any information and data derived from
the Research Database, the GENE EXPRESS-TM- NORMAL Database or the Gene Logic
Software, as applicable.

8.2 CONFIDENTIALITY.

(a) Except as specifically permitted hereunder, each party hereby
agrees to hold in confidence and not use on behalf of itself or others all
technology, data, samples, technical information, commercialization, clinical
and research strategies, know-how and trade secrets provided by the other party
(the "Disclosing Party") during the Agreement Term and all data, results and
information developed pursuant to the Research Program and solely owned by the
Disclosing Party or jointly owned by the parties

<PAGE>

(collectively the "Confidential Information"), except that the term
"Confidential Information" shall not include:

(i) information that is or becomes part of the public domain
through no fault of the party that receives such Confidential Information (the
"Receiving Party") or its Affiliates;

(ii) information that is obtained after the date hereof by
the Receiving Party or one of its Affiliates from any Third Party which is
lawfully in possession of such Confidential Information and not in violation of
any contractual or legal obligation to the Disclosing Party with respect to such
Confidential Information;

(iii) information that is known to the Receiving Party or one
or more of its Affiliates prior to disclosure by the Disclosing Party, as
evidenced by the Receiving Party's written records;

(iv) information which has been independently developed by
the Receiving Party or one of its Affiliates without the use of such
Confidential Information, as evidenced by the Receiving Party's written records;
and

(v) information that is required to be disclosed to any
governmental authorities or pursuant to any regulatory filings, but only to the
limited extent of such legally required disclosure.

(b) The obligations of this Section 8.2 shall survive for a period
of 10 years from the completion or termination of the Research Program with
respect to Confidential Information resulting from the Research Program and for
a period of five years following the date of disclosure with respect to any
other Confidential Information.

8.3 PERMITTED DISCLOSURES. Confidential Information may be disclosed to
employees, agents, consultants or sublicensees of the Receiving Party or its
Affiliates and, with respect to Organon, any Third Party to whom Organon is
permitted to provide Gene Targets under Section 5.1, but only to the extent
required to accomplish the purposes of this Agreement and only if the Receiving
Party obtains prior agreement from its employees, agents, consultants and
sublicensees and, with respect to Organon, any Third Party to whom Organon is
permitted to provide Gene Targets under Section 5.1 to whom disclosure is to be
made to hold in confidence and not make use of such information for any purpose
other than those permitted by this Agreement. Each party will use at least the
same standard of care as it uses to protect proprietary or confidential
information of its own to ensure that such employees, agents, consultants and
sublicensees and, with respect to Organon, any Third Party to whom Organon is
permitted to provide Gene Targets under Section 5.1 do not disclose or make any
unauthorized use of the Confidential Information. Notwithstanding any other
provision of this Agreement, each party may disclose the terms of this Agreement
to lenders,

<PAGE>

investment bankers and other financial institutions of its choice solely for
purposes of financing the business operations of such party either (i) upon
the written consent of the other party or (ii) if the disclosing party
obtains a signed confidentiality agreement with such financial institution
with respect to such information, upon terms substantially similar to those
contained in this Section 8.

8.4 PUBLICATION. The parties shall cooperate in appropriate publication
of the results of research and development work performed pursuant to this
Agreement, but subject to the predominating interest to obtain patent protection
for any patentable subject matter. To this end, prior to any public disclosure
of such results, the party proposing disclosure (the "Publishing Party") shall
send the other party (the "Reviewing Party") a copy of the information to be
disclosed, and shall allow the Reviewing Party 30 days from the date of receipt
in which to determine whether the information to be disclosed contains subject
matter for which patent protection should be sought prior to disclosure, or
otherwise contains Confidential Information of the Reviewing Party. The
Publishing Party shall be free to proceed with the disclosure unless prior to
the expiration of such 30-day period the Reviewing Party notifies the Publishing
Party that the disclosure contains subject matter for which patent protection
should be sought or Confidential Information of the Reviewing Party, and the
Publishing Party shall then delay public disclosure of the information for an
additional period of up to six months to permit the preparation and filing of a
patent application on the subject matter to be disclosed or for the parties to
determine a mutually acceptable modification to such publication to protect the
Confidential Information of the Reviewing Party adequately. The Publishing
Party shall thereafter be free to publish or disclose the information. The
determination of authorship for any paper shall be in accordance with accepted
scientific practice.

8.5 PRESS RELEASE. The parties agree that a press release announcing
the matters covered by this Agreement will be prepared in advance and will be
subject to the mutual approval of the parties, which approval will not
unreasonably be withheld; PROVIDED, HOWEVER, that nothing herein shall prohibit
a party from disclosing the terms of this Agreement to the extent required to
comply with applicable securities laws.

9. REPRESENTATIONS AND WARRANTIES.

9.1 LEGAL AUTHORITY. Each party represents and warrants to the other
that it has the legal power, authority and right to enter into this Agreement
and to perform its respective obligations set forth herein.

9.2 VALID LICENSES. Each party represents and warrants that it has
authority to grant the rights and licenses set forth in this Agreement.

9.3 NO CONFLICTS. Each party represents and warrants that as of the
Agreement Date it is not a party to any agreement or arrangement with any Third
Party or under any obligation or restriction, including pursuant to its
Certificate of Incorporation or By-Laws

<PAGE>

or other charter documents, which in any way limits or conflicts with its
ability to fulfill any of its obligations under this Agreement.

9.4 DISCLAIMER. Except as expressly set forth in this Agreement, EACH
PARTY MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER
EXPRESS OR IMPLIED. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR THAT THE USE OF THE
INFORMATION, MATERIALS, SOFTWARE AND OTHER TECHNOLOGY PROVIDED HEREUNDER WILL
NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER RIGHTS OF ANY THIRD
PARTY. NEITHER PARTY MAKES ANY WARRANTY OF ANY KIND AS TO THE PATENTABILITY OF
ANY DISCOVERY MADE OR TECHNOLOGY DEVELOPED UNDER THIS AGREEMENT. EACH PARTY
ACKNOWLEDGES THAT THIS AGREEMENT PROVIDES FOR AN INNOVATIVE PROGRAM UTILIZING
NEW TECHNOLOGIES AND THAT NO WARRANTY IS MADE AS TO THE UTILITY OF ANY
INFORMATION, MATERIALS, SOFTWARE OR OTHER TECHNOLOGY PROVIDED HEREUNDER.

10. TERM; TERMINATION.

10.1 TERM. The term of this Agreement shall commence upon the Effective
Date and shall expire upon the expiration of all royalty obligations set forth
in Section 6.4.

10.2 TERMINATION FOR BREACH.

(a) BREACH BY GENE LOGIC. If Gene Logic breaches a material term
of this Agreement at any time, and has not cured such breach within 60 days
after written notice thereof from Organon, then Organon shall have the right to
terminate this Agreement effective upon written notice thereof, whereupon all
rights and obligations of the parties under this Agreement shall terminate
except as set forth in Section 10.5 and subject to the following: (i) the
licenses granted to Organon under Section 5 shall remain in full force and
effect for so long as Organon is not in breach of its obligations to Gene Logic
under this Agreement and (ii) Gene Logic shall return to Organon all
Confidential Information of Organon.

(b) BREACH BY ORGANON. If Organon breaches a material term of this
Agreement at any time, and has not cured such breach within 60 days (or within
15 days in the event of a material breach by Organon of its obligations to make
any royalty payments due) after written notice thereof from Gene Logic, then
Gene Logic shall have the right to terminate this Agreement effective upon
written notice thereof, whereupon all rights and obligations of the parties
under this Agreement shall terminate except as set forth in Section 10.5 and
subject to the following: (i) the licenses granted to Organon pursuant to
Section 5.1 shall terminate, (ii) if such termination occurs as the result of a

<PAGE>

material breach by Organon of its obligations to make any payment due under
Section 6.3, 6.4 or 7, the licenses granted to Organon pursuant to Section 5.3
shall terminate, (iii) the right of first negotiation granted to Organon
pursuant to Section 5.4 shall terminate and (iv) Organon shall return to Gene
Logic all Confidential Information of Gene Logic. In the event of an uncured
material breach by Organon of its obligations to pay any royalties due and owing
with respect to a Product pursuant to Section 6.4, if Gene Logic terminates the
licenses it has granted to Organon pursuant to Section 5 in respect of such
Product, at Gene Logic's request, Organon shall grant to Gene Logic an exclusive
(even as to Organon) worldwide license (with the right to sublicense) to such
Product, to the extent necessary to make, use or sell such Product subject to
payment of a [ . . . *** . . .] royalty to Organon on Net Sales of such Product,
and shall further assign to Gene Logic all Regulatory Approvals (to the extent
permitted by law) in such countries.

10.3 EFFECT OF BANKRUPTCY. If, during the Research Term, either party
files a voluntary petition in bankruptcy, is adjudicated a bankrupt, makes a
general assignment for the benefit of creditors, admits in writing that it is
insolvent or fails to discharge within 15 days an involuntary petition in
bankruptcy filed against it, then the Research Term and the entirety of this
Agreement may be immediately terminated by the other party.

10.4 REMEDIES. In the event of any breach of any provision of this
Agreement, in addition to the termination rights set forth herein, each party
shall have all other rights and remedies at law or equity to enforce this
Agreement.

10.5 SURVIVAL. Sections 4.1, 4.2, 4.3, 4.4, 5.7, 8.2, 9, 10.2 (including
the provisions therein that are contemplated to continue following termination)
10.5, 11, 12.1 and 12.4 shall survive the termination or expiration of this
Agreement.

11. DISPUTE RESOLUTION.

11.1 MEDIATION. Subject to Section 3.4, the parties shall resolve any
controversy arising under or related to this Agreement, and any disputed claim
by either party against the other under this Agreement, excluding any dispute
relating to patent validity or infringement arising under this Agreement, by
mediation using the Center for Public Resources ("CPR"). Unless the parties
agree otherwise, the mediator will be selected from CPR and, if they require it,
the parties shall notify CPR to initiate a selection process. The language of
the mediation shall be English and the location of the mediation shall be
Baltimore, Maryland unless the parties hereto mutually agree in writing to
another place.

11.2 FURTHER RESOLUTION. If the dispute has not been resolved by
non-binding means as provided in Section 11.2 hereof, either party shall be free
to take any action and seek any remedy it may have at law or in equity. Without
limiting the foregoing, either party shall have the right, at any time, to seek
specific performance and injunctive relief

*Confidential Treatment Requested

<PAGE>

hereunder. In any legal action relating to this Agreement, each party agrees
to the exercise of jurisdiction over it by a state or federal court in
Baltimore, Maryland and that any action brought hereunder shall be instituted
in such court.

12. GENERAL PROVISIONS.

12.1 MUTUAL INDEMNIFICATION. Each party agrees to defend, indemnify and
hold harmless the other party and its Affiliates, employees, agents, officers,
directors and permitted from and against any judgments, settlements, damages,
awards, costs (including attorneys' fees and costs) and other expenses arising
out of any claims, actions or other proceedings by a Third Party (collectively a
"Claim") arising out of or resulting from the development, manufacture, use,
promotion, marketing, handling, storage or sale of any Product, except to the
extent that such Claim arises out of or results from the negligence or
misconduct of the party claiming a right of indemnification under this
Section 12.1, and to the extent that such Claim arises out of or results from
infringement of the patent rights of any Third Party by the Gene Logic
Technology if Gene Logic is the party claiming a right of indemnification under
this Section 12.1. In the event either party seeks indemnification under this
Section 12.1, it shall inform the other party of a Claim as soon as reasonably
practicable after it receives notice of the Claim, shall permit the other party
to assume direction and control of the defense of the Claim (including the right
to settle the Claim solely for monetary consideration), and shall cooperate as
requested (at the expense of the other party) in the defense of the Claim. The
obligations set forth in this Section shall survive the expiration or
termination of this Agreement.

12.2 ASSIGNMENT. This Agreement shall not be assignable by either party
without the prior written consent of the other party, such consent not to be
unreasonably withheld or delayed, except a party may make such an assignment
without the other party's consent to Affiliates or to a successor to
substantially all of the business of such party, whether in merger, sale of
stock, sale of assets or other transaction; PROVIDED, HOWEVER, that in the event
of such transaction, no intellectual property rights of any Affiliate or Third
Party that is an acquiring party shall be included in the technology licensed
hereunder. This Agreement shall be binding upon and inure to the benefit of the
parties' successors, legal representatives and assigns.

12.3 NON-WAIVER. The waiver by either of the parties of any breach of
any provision hereof by the other party shall not be construed to be a waiver of
any succeeding breach of such provision or a waiver of the provision itself.

12.4 GOVERNING LAW. This Agreement shall be construed and interpreted in
accordance with the laws of the State of Maryland other than those provisions
governing conflicts of law.

12.5 PARTIAL INVALIDITY. If and to the extent that any court or tribunal
of competent jurisdiction holds any of the terms or provisions of this
Agreement, or the

26
<PAGE>

application thereof to any circumstances, to be invalid or
unenforceable in a final nonappealable order, the parties shall use their best
efforts to reform the portions of this Agreement declared invalid to realize the
intent of the parties as fully as practicable, and the remainder of this
Agreement and the application of such invalid term or provision to circumstances
other than those as to which it is held invalid or unenforceable shall not be
affected thereby, and each of the remaining terms and provisions of this
Agreement shall remain valid and enforceable to the fullest extent of the law.

12.6 NOTICE. Any notice to be given to a party under or in connection
with this Agreement shall be in writing and shall be (i) personally delivered,
(ii) delivered by a nationally recognized overnight courier, (iii) delivered by
certified mail, postage prepaid, return receipt requested or (iv) delivered via
facsimile, with receipt confirmed, to the party at the address set forth below
for such party:

To Organon: To Gene Logic:

Kloosterstraat 6 10150 Old Columbia Road
5349 AB Oss Columbia, Maryland 21046
The Netherlands Attn: President
Attn: Vice President, Research Phone: (410) 309-3100
and Development Fax: (410) 309-3111
Phone: 31-412-666299
Fax: 31-412-666373

with a copy to: with a copy to:

Manager Licensing Department L. Kay Chandler, Esq.

Kloosterstraat 6 Cooley Godward LLP
5349 AB Oss 4365 Executive Dr., Suite 1100
The Netherlands San Diego, CA 92121
Phone: 31-412-666299 Phone: (619) 550-6000
Fax: 31-412-666373 Fax: (619) 453-3555

or to such other address as to which the party has given written notice
thereof. Such notices shall be deemed given upon receipt.

12.7 HEADINGS. The headings appearing herein have been inserted solely
for the convenience of the parties hereto and shall not affect the construction,
meaning or interpretation of this Agreement or any of its terms and conditions.

12.8 NO IMPLIED LICENSES OR WARRANTIES. No right or license under any
patent application, issued patent, know-how or other proprietary information is
granted or shall be granted by implication. All such rights or licenses are or
shall be granted only as expressly provided in the terms of this Agreement.
Neither party warrants that (i) the

<PAGE>

Research Program shall achieve any of the research objectives contemplated by
them or (ii) any clinical or other studies will be successful.

12.9 FORCE MAJEURE. No failure or omission by the parties hereto in the
performance of any obligation of this Agreement shall be deemed a breach of this
Agreement nor shall it create any liability if the same shall arise from any
cause or causes beyond the reasonable control of the affected party, including,
but not limited to, the following, which for purposes of this Agreement shall be
regarded as beyond the control of the party in question: acts of nature; acts or
omissions of any government; any rules, regulations, or orders issued by any
governmental authority or by any officer, department, agency or instrumentality
thereof; fire; storm; flood; earthquake; accident; war; rebellion; insurrection;
riot; invasion; strikes; and labor lockouts; provided that the party so affected
shall use its best efforts to avoid or remove such causes of nonperformance and
shall continue performance hereunder with the utmost dispatch whenever such
causes are removed.

12.10 ENTIRE AGREEMENT. This Agreement, including the exhibits and
schedules hereto, constitutes the entire understanding between the parties with
respect to the subject matter contained herein and supersedes any and all prior
agreements, understandings and arrangements whether oral or written between the
parties relating to the subject matter hereof, except for the Mutual
Confidential Disclosure Agreement dated August 25, 1997.

12.11 AMENDMENTS. No amendment, change, modification or alteration of the
terms and conditions of this Agreement shall be binding upon either party unless
in writing and signed by the party to be charged.

12.12 INDEPENDENT CONTRACTORS. It is understood that both parties hereto
are independent contractors and are engaged in the operation of their own
respective businesses, and neither party hereto is to be considered the agent or
partner of the other party for any purpose whatsoever. Neither party has any
authority to enter into any contracts or assume any obligations for the other
party or make any warranties or representations on behalf of the other party.

12.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.

GENE LOGIC INC. N.V. ORGANON

By: /s/ MICHAEL J. BRENNAN By: /s/ H.J. VERGOUWEN
------------------------------- ---------------------------
Michael J. Brennan, M.D., Ph.D. Name: H.J. Vergouwen
President and Chief Executive Officer Title: Managing Director R&D

By: /s/ G.B.A. SMEVEL
------------------
G.B.A. Smevel
Managing Director I&C

<PAGE>

SCHEDULE 2.1

[ . . . *** . . . ]

The foregoing list may be amended by Gene Logic from time to time to delete one
or more of the specified indications.

*Confidential Treatment Requested

<PAGE>

SCHEDULE 3.1

RMC REPRESENTATIVES

ORGANON:

[To be determined at the first RMC meeting]

GENE LOGIC:

Keith O. Elliston, Ph.D.
Daniel R. Passeri, J.D.

<PAGE>

SCHEDULE 6.6

WIRE TRANSFER PAYMENT INSTRUCTIONS

Bank: [ . . . *** . . . ]

Location: [ . . . *** . . . ]

ABA #:
For further credit to client funds #: [ . . . *** . . . ]
Account Name: GENE LOGIC INC.
Account #: [ . . . *** . . . ]

*Confidential Treatment Requested

<PAGE>

EXHIBIT 10.34

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of February 5, 1997 by and between GENE LOGIC INC., a Delaware corporation
(the "Company") and KEITH O. ELLISTON, a Connecticut resident ("Elliston").

RECITAL:

The Company desires to secure the services of Elliston and Elliston
desires to perform such services for the Company on the terms and conditions
as set forth in this Agreement.

NOW, THEREFORE, in consideration of these premises and the mutual
promises and conditions contained in this Agreement, the parties hereto
hereby agree as follows:

1. EMPLOYMENT AND DUTIES. Subject to the terms and conditions of this
Agreement, the Company shall employ Elliston as Senior Vice President and
Chief Scientific Officer of the Company and Elliston hereby accepts such
employment and such positions. Elliston shall devote his full time, ability,
attention, knowledge and skill to performing all duties as Senior Vice
President, and Chief Scientific Officer of the Company as lawfully assigned
or delegated to him by the Chief Executive Officer of the Company.

2. BASE SALARY. In consideration for Elliston's services to the
Company during the term of his employment under this Agreement, Elliston
shall receive an annual base salary of $175,000 during 1997, and thereafter
in such amounts as may be determined by the Company, but not less than
$175,000. Base salary shall be paid in equal, bi-weekly installments from
which the Company shall withhold and deduct all applicable federal and state
income, social security, disability and other taxes as required by applicable
laws.

3. INCENTIVE STOCK OPTIONS. In addition to the salary specified above,
on or before February 28, 1997, the Company shall grant to Elliston options to
purchase 100,000 shares of the Company's common stock at a purchase price of
$0.15 per share. Such incentive stock options shall become exercisable
according to the following schedule: twenty-five percent (25%) upon the date of
signing of this Agreement and thereafter at a rate of 1/36th each month for
36 months beginning upon the first anniversary of such date. The Company will
grant additional incentive stock options to Elliston in each year during which
this Agreement remains in force, in numbers consistent with Elliston's position
as Senior Vice President and Chief Scientific Officer of the Company, at an
exercise price determined by the Company's auditors and other financial advisers
in accordance with established accounting and taxation principles. The number
and schedule of issue of such additional options is envisaged as laid out in
Exhibit A to this Agreement. Such incentive stock options shall become
exercisable according to the schedule established by the Board of Directors for
the Company's Incentive Stock Option Plan. Any unexercisable options held by
Elliston pursuant to this Section 3 shall automatically become exercisable upon
the date upon which a registration statement for the sale of securities of the
Company to the public becomes effective, or upon any merger of the Company or
sale of the Company or all or substantially all of its assets. In the event
Elliston terminates this Agreement prior to its first anniversary, the Company
shall have the right to repurchase any shares of the Company's stock acquired by
Elliston pursuant to the exercise of options granted under this

<PAGE>

Section 3, such repurchase to occur at a purchase price equal to Elliston's
original purchase price for such shares.

4. ADDITIONAL COMPENSATION AND BENEFITS.

4.1 BONUS FOR 1997. Upon the execution of this Agreement, the Company
shall pay to Elliston a cash bonus in the amount of $50,000.

4.2 ANNUAL PERFORMANCE BONUS. During each calendar year while this
Agreement remains in force, commencing with 1998, Elliston shall receive, in
addition to the base salary specified in Section 2 above, a performance bonus
based upon achievement of goals mutually agreed by Elliston and the Chief
Executive Officer of the Company. The amount of such bonus for 1998 shall be
not less than $25,000 in cash, and thereafter in such amount as may be
determined by the Company.

4.3 RELOCATION EXPENSES AND ALLOWANCES. The Company shall reimburse
Elliston on a tax grossed-up basis for all reasonable moving expenses, temporary
accommodation and house-hunting expenses and other costs related to his
relocation to the vicinity of the Company's headquarters, including seller's
closing costs on the sale of Elliston's existing house and purchaser's closing
costs on the purchase of a new home of similar value, including up to three (3)
points on the new mortgage for such purchase.

4.4 MEDICAL BENEFITS, VACATION AND SICK LEAVE. Elliston shall be entitled
to participate in such medical, health and life insurance plans as the Company
may from time to time implement, and to receive twenty (20) days of paid
vacation per year and sick leave on the same basis as the Company's other senior
executives.

4.5 PENSION PLAN. Elliston shall be entitled to participate as a
beneficiary under such pension plan(s) as the Company may from time to time
adopt, on the same basis as the Company's other senior executives.

5. CONFIDENTIALITY AND PROPRIETARY INVENTIONS AGREEMENT. Upon the
commencement of the term of this Agreement, Elliston shall enter into the
Company's standard form of agreement relating to the treatment of the Company's
confidential information and ownership of proprietary inventions.

6. TERM OF EMPLOYMENT. Subject to the provision of Section 7, the term
of the employment engaged by this Agreement shall be a period of four (4) years
commencing on March 1, 1997 and ending on February 28, 2001, whereupon the term
shall automatically renew for successive one (1) year periods unless one of the
parties to the Agreement shall have given notice of its intention to terminate
the Agreement not later than ninety (90) days prior to the end of such initial
term or any such renewal term.

7. TERMINATION OF EMPLOYMENT.

7.1 FOR CAUSE. The Company may terminate this Agreement, effective
immediately upon written notice to Elliston, if at any time, in the reasonable
opinion of the Company's Board of Directors, (a) Elliston commits any material
act of dishonesty, fraud or

<PAGE>

embezzlement with respect to the Company or any subsidiary or affiliate
thereof, (b) is convicted of a crime of moral turpitude, or (c) breaches any
material obligation under this Agreement. The Company's total liability to
Elliston in the event of termination of Elliston's employment under this
Subsection 7.1 shall be limited to the payment of Elliston's salary and
benefits through the effective date of termination.

7.2 WITHOUT CAUSE. The Company may terminate this Agreement without cause
upon thirty (30) days' written notice to Elliston. Upon any termination of this
Agreement without cause by the Company, the Company shall pay to Elliston as
severance pay an amount equal to one half (1/2) of Elliston's salary for that
calendar year during which the termination becomes effective, in additional to
such other compensation to which Elliston may be entitled prior to the date of
elimination.

7.3 BY ELLISTON. Elliston reserves the right to terminate his employment
hereunder for any reason upon thirty (30) days' written notice to the Company.
The Company's total liability to Elliston in the event of termination of
Elliston's employment under this Subsection 7.3 shall be limited to the payment
of Elliston's salary and benefits through the effective date of termination and
the provisions of Subsection 7.2 shall not apply.

8. MISCELLANEOUS.

8.1 MODIFICATION. Any modification of this Agreement shall be effective
only if reduced to writing and signed by the parties to be bound thereby.

8.2 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the Company and Elliston pertaining to the subject matter hereof and
supersedes all prior or contemporaneous written or verbal agreements and
understandings between the parties in connection with the subject matter hereof.

8.3 SEVERABILITY. If any provision of this Agreement is held by a court
of competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall, nevertheless, continue in full force and effect without being
impaired or invalidated in any way.

8.4 WAIVER. The parties hereto shall not be deemed to have waived any of
their respective rights under this Agreement unless the waiver is in writing and
signed by the waiving party. No delay in exercising any right shall be a waiver
of such right nor shall a waiver of any right on one occasion operate as a
waiver of such right on a future occasion.

8.5 COST OF ENFORCEMENT. If any action or proceeding shall be
commenced to enforce this Agreement or any right arising in connection with
this Agreement, each party shall initially bear its own costs and legal fees
associated with such action or proceeding. The prevailing party in any such
action or proceeding shall be entitled to recover from the other party the
reasonable attorneys' fees, costs and expenses incurred by such prevailing
party in connection with such action or proceeding.

<PAGE>

8.6 NOTICES. All notices provided for herein shall be in writing and
delivered personally or sent by United States mail, registered or certified,
postage paid or by Federal Express, addressed as follows:

To the Company: Gene Logic, Inc.
10150 Old Columbia Road
Columbia, MD 21046

To Elliston: Keith O. Elliston, Ph.D.
3 Canberra Court
Guilford, CT 06437

or to such other addresses as either of such parties may from time to time
designate in writing. Any notice given under this Agreement shall be deemed
to have been given on the date of actual receipt, or, if not received during
normal business hours, on the next business day.

IN WITNESS WHEREOF, the parties have executed this Agreement by their
duly authorized officers or agents as of the date first written above.

"Company" "Employee"

GENE LOGIC INC. /s/ KEITH O. ELLISTON
-------------------------------------
a Delaware corporation Keith O. Elliston

By: /s/ MICHAEL J. BRENNAN
--------------------------------
Name: Dr. Michael J. Brennan

Title: President and Chief Executive Officer

<PAGE>

EXHIBIT 10.35

AMENDMENT TO EMPLOYMENT AGREEMENT

THIS AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment") is made and
entered into as of July 9, 1997, by and between GENE LOGIC INC., a Delaware
Corporation (the "Company"), and KEITH O. ELLISTON ("Executive").

WHEREAS, the Company and Executive previously entered into an Employment
Agreement dated February 5, 1997 (the "Employment Agreement") which, among
other things, provides for the automatic vesting of all outstanding options
to purchase the Company's Common Stock held by the Executive upon a change of
control of the Company (the "Vesting Provision"); and

WHEREAS, the Company and Executive desire to amend the Employment
Agreement to amend and restate the Vesting Provision.

NOW, THEREFORE, the parties hereto, in consideration of the mutual
promises and agreements set forth below, hereby agree to amend the Employment
Agreement as follows:

1. RESTATEMENT OF VESTING PROVISION. Section 3 of the Employment
Agreement shall be amended and restated to read in its entirety as follows:

"3. INCENTIVE STOCK OPTIONS. In addition to the salary specified
above, on or before February 28, 1997, the Company shall grant to Elliston
options to purchase 100,000 shares of the Company's common stock at a
purchase price of $0.15 per share. Such incentive stock options shall
become exercisable according to the following schedule: twenty-five
percent (25%) upon the date of signing of this Agreement and thereafter at
a rate of 1/36th each month for 36 months upon the first anniversary of
such date. The Company will grant incentive stock options to Elliston in
each year during which this Agreement remains in force, in numbers
consistent with Elliston's position as Senior Vice President and Chief
Scientific Officer of the Company, at an exercise price determined by the
Company's auditors and other financial advisors in accordance with
established accounting and taxation principles. The number and schedule of
issue of such additional options is envisaged as laid out in Exhibit A to
this Agreement. Such incentive stock options shall become exercisable
according to the schedule established by the Board of Directors for the
Company's Incentive Stock Option Plan. In the event of: (i) a merger or
consolidation of the Company with another corporation, not including any
merger or consolidation if immediately thereafter the stockholders of the
Company immediately before such transaction own shares representing more
than 50% of the outstanding voting securities of the surviving corporation,
(ii) a sale of shares by the stockholders of the Company if

<PAGE>

immediately thereafter the stockholders of the Company immediately
before such sale own shares representing less than 50% of the
outstanding voting securities of the surviving corporation, or (iii) a
sale of all or substantially all of the Company's assets, all options to
purchase Common Stock of the Company held by Elliston that have not
previously vested under the terms of the applicable Option Agreements
shall vest immediately upon the closing of such transaction. In the
event of an underwritten initial public offering of the Company's Common
Stock, to the extent at least 80% of the aggregate of the shares subject
to outstanding options to purchase Common Stock of the Company held by
Elliston (other than any such options granted immediately prior to and
in contemplation of such initial public offering) have not previously
vested under the terms of the applicable Option Agreements, then the
vesting of such options shall be accelerated such that 80% of the shares
subject to each such option shall be vested as of the closing of such
initial public offering and the remaining 20% of the shares subject to
each such option shall vest 180 days from the closing of such initial
public offering. If, in the event of an underwritten initial public
offering of the Company's Common Stock, 80% or more of the aggregate of
the shares subject to outstanding options to purchase Common Stock of
the Company held by Elliston (other than any such options granted
immediately prior to and in contemplation of such initial public
offering) have previously vested, then any remaining unvested shares
subject to such options shall vest 180 days from the closing of such
initial public offering. In the event Elliston terminates this
Agreement prior to its first anniversary, the Company shall have the
right to repurchase any shares of the Company's stock acquired by
Elliston pursuant to the exercise of options granted under this Section
3, such repurchase to occur at a purchase price equal to Elliston's
original purchase price for such shares."

2. EFFECTIVE DATE. This Amendment shall be effective as of the date of
the Employment Agreement. Except as amended herein, or as otherwise agreed to
in writing by the Company and Executive, all terms of the Employment Agreement
shall remain in full force and effect.

<PAGE>

IN WITNESS WHEREOF, the parties have executed this Amendment to Employment
Agreement as of the date first above written.

THE COMPANY: EXECUTIVE:

GENE LOGIC INC.
a Delaware Corporation

By: /s/ MICHAEL J. BRENNAN /s/ KEITH O. ELLISTON
----------------------------- --------------------------------

Title: President and CEO Keith O. Elliston
-----------------------------

<PAGE>

EXHIBIT 10.36

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of September 7, 1996 by and between GENE LOGIC INC., a Delaware corporation
(the "Company") and ERIC M. EASTMAN, a Texas resident ("Eastman").

RECITALS:

The Company desires to secure the services of Eastman and Eastman
desires to perform such services for the Company on the terms and conditions
as set forth in this Agreement.

NOW, THEREFORE, in consideration of these premises and the mutual
promises and conditions contained in this Agreement, the parties hereto
hereby agree as follows:

1. EMPLOYMENT AND DUTIES. Subject to the terms and conditions of this
Agreement, the Company shall employ Eastman as Vice President, Scientific
Operations and Eastman hereby accepts such employment and such position.
Eastman shall devote his full time, ability, attention, knowledge and skill
to performing all duties as Vice President, Scientific Operations as lawfully
assigned or delegated to him by the Chief Executive Officer of the Company.

2. BASE SALARY. In consideration for Eastman's services to the
Company during the term of his employment under this Agreement, Eastman shall
receive an annual base salary of $140,000 during 1996, $160,000 during 1997,
and thereafter in such amounts as may be mutually agreed by the Company and
Eastman. Base salary shall be paid in equal, bi-weekly installments from
which the Company shall withhold and deduct all applicable federal and state
income, social security, disability and other taxes as required by applicable
laws.

3. INCENTIVE STOCK. In addition to the salary specified above, the
Company shall provide Eastman with stock incentives as follows:

3.1 INCENTIVE STOCK OPTIONS. Upon commencement of the term of
employment engaged by this Agreement, the Company shall grant to Eastman
incentive stock options to purchase 75,000 shares of the Company's common
stock at a price of $0.15 per share. While this Agreement remains in force,
such options shall become exercisable according to the following schedule:
twenty-five percent (25%) upon the date of commencement and thereafter at a
rate of 1/36th each month for 36 months beginning upon the first anniversary
of such date. Any unexercisable options held by Eastman pursuant to this
Subsection 3.1 shall automatically become exercisable upon the date upon
which a registration statement for the sale of securities of the Company to
the public becomes effective, or upon any merger of the Company or sale of
the Company or all or substantially all of its assets.

3.2 EFFECT OF TERMINATION BY EASTMAN. In the event Eastman
terminates this Agreement prior to its first anniversary, all vested stock
shall become unvested and the Company shall have the right to repurchase any
shares of the Company's stock acquired by Eastman under Subsection 3.1 above,
such repurchase to occur at a purchase price equal to Eastman's original
purchase price for such shares.

<PAGE>

4. ADDITIONAL COMPENSATION AND BENEFITS.

4.1 SIGNING BONUS. Upon the execution of this Agreement, the
Company shall pay to Eastman a cash signing bonus in the amount of $20,000.

4.2 ANNUAL PERFORMANCE BONUS. During each calendar year while
this Agreement remains in force, commencing with 1996, Eastman shall receive,
in addition to the base salary specified in Section 2 above, a performance
bonus based upon achievement of goals mutually agreed by Eastman and the
Chief Executive Officer of the Company. The amount of such bonus for 1996
shall be $20,000 in cash; thereafter any annual bonus shall be in such amount
as may be mutually agreed by the Company and Eastman, but not less than
$20,000 for calendar year 1997.

4.3 RELOCATION EXPENSES AND ALLOWANCES. The Company shall
reimburse Eastman on a tax grossed-up basis for all reasonable moving
expenses, temporary accommodation and house-hunting expenses and other costs
related to his relocation to the vicinity of the Company's headquarters,
including seller's closing costs on the sale of Eastman's existing house and
purchaser's closing costs on the purchase of a new home, including up to
three (3) points on the new mortgage for such purchase.

4.4 MEDICAL BENEFITS, VACATION AND SICK LEAVE. Eastman shall be
entitled to participate in such medical, health and life insurance plans as
the Company may from time to time implement, and to receive twenty (20) days
of paid vacation per year and sick leave on the same basis as the Company's
other senior executives.

4.5 PENSION PLAN. Eastman shall be entitled to participate as a
beneficiary under such pension plan(s) as the Company may from time to time
adopt, on the same basis as the Company's other senior executives.

5. CONFIDENTIALITY AND PROPRIETARY INVENTIONS AGREEMENT. Upon the
commencement of the term of this Agreement, Eastman shall enter into the
Company's standard form of agreement relating to the treatment of the
Company's confidential information and ownership of proprietary inventions.

6. TERM OF EMPLOYMENT. Subject to the provisions of Section 7, the
term of the employment engaged by this Agreement shall be a period of four
(4) years commencing on September 23, 1996 and ending on September 22, 2000,
whereupon the term shall automatically renew for successive one (1) year
periods unless on of the parties to the Agreement shall have given notice of
its intention to terminate the Agreement not later than ninety (90) days
prior to the end of such initial term or any such renewal term.

7. TERMINATION OF EMPLOYMENT.

7.1 FOR CAUSE. The Company may terminate this Agreement,
effective immediately upon written notice to Eastman, if at any time, in the
reasonable opinion of the Company's Board of Directors, (a) Eastman commits
any material act of dishonesty, fraud or embezzlement with respect to the
Company or any subsidiary or affiliate thereof, (b) is convicted of a crime
of moral turpitude, or (c) breaches any material obligation under this
Agreement. The

<PAGE>

Company's total liability to Eastman in the event of termination of Eastman's
employment under this Subsection 7.1 shall be limited to the payment of
Eastman's salary and benefits through the effective date of termination.

7.2 WITHOUT CAUSE. The Company may terminate this Agreement
without cause upon thirty (30) days' written notice to Eastman. Upon any
termination of this Agreement without cause by the Company, the Company shall
pay to Eastman as severance pay in one lump sum an amount equal to three (3)
months of his then current salary in addition to such other compensation to
which Eastman may be entitled prior to the date of termination.

7.3 BY EASTMAN. Eastman reserves the right to terminate his
employment hereunder for any reason upon thirty (30) days' written notice to
the Company. The Company's total liability to Eastman in the event of
termination of Eastman's employment under this Subsection 7.3 shall be
limited to the payment of Eastman's salary and benefits through the effective
date of termination and the provisions of Subsection 7.2 shall not apply.

8. MISCELLANEOUS.

8.1 MODIFICATION. Any modification of this Agreement shall be
effective only if reduced to writing and signed by the parties to be bound
thereby.

8.2 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the Company and Eastman pertaining to the subject matter
hereof and supersedes all prior or contemporaneous written or verbal
agreements and understandings between the parties in connection with the
subject matter hereof.

8.3 SEVERABILITY. If any provision of this Agreement is held by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions shall, nevertheless, continue in full force and effect
without being impaired or invalidated in any way.

8.4 WAIVER. The parties hereto shall not be deemed to have waived
any of their respective rights under this Agreement unless the waiver is in
writing and signed by the waiving party. No delay in exercising any right
shall be a waiver of such right nor shall a waiver of any right on one
occasion operate as a waiver of such right on a future occasion.

8.5 COSTS OF ENFORCEMENT. If any action or proceeding shall be
commenced to enforce this Agreement or any right arising in connection with
this Agreement, each party shall initially bear its own costs and legal fees
associated with such action or proceeding. The prevailing party in any such
action or proceeding shall be entitled to recover from the other party the
reasonable attorneys' fees, costs and expenses incurred by such prevailing
party in connection with such action or proceeding.

8.6 NOTICES. All notices provided for herein shall be in writing
and delivered personally or sent by United States mail, registered or
certified, postage paid or by Federal Express, addressed as follows:

<PAGE>

To the Company: Gene Logic, Inc.
10150 Old Columbia Road
Columbia, MD 21046

To Eastman: Eric M. Eastman
47 E. Greywing Circle
The Woodlands, TX 77382

IN WITNESS WHEREOF, the parties have executed this Agreement by their
duly authorized officers or agents as of the date first written above.

"Company" "Employee"
/s/ ERIC M. EASTMAN
GENE LOGIC INC. ----------------------------
a Delaware corporation Eric M. Eastman

By: /s/ MICHAEL J. BRENNAN
----------------------------------------

Name: Dr. Michael J. Brennan
--------------------------------------

Title: President and Chief Executive Officer
-------------------------------------

<PAGE>

EXHIBIT 10.37

AMENDMENT TO EMPLOYMENT AGREEMENT

WHEREAS, the Company and Executive previously entered into an Employment
Agreement dated September 7, 1996 (the "Employment Agreement") which, among
other things, provides for the automatic vesting of all outstanding options
to purchase the Company's Common Stock held by the Executive upon a change of
control of the Company (the "Vesting Provision"); and

WHEREAS, the Company and Executive desire to amend the Employment
Agreement to amend and restate the Vesting Provision.

NOW, THEREFORE, the parties hereto, in consideration of the mutual
promises and agreements set forth below, hereby agree to amend the Employment
Agreement as follows:

1. RESTATEMENT OF VESTING PROVISION. Section 3.1 of the Employment
Agreement shall be amended and restated to read in its entirety as follows:

"3.1 INCENTIVE STOCK OPTIONS. Upon commencement of the term of
employment engaged by this Agreement, the Company shall grant to Eastman
incentive stock options to purchase 75,000 shares of the Company's Common
Stock at a purchase price per share of $0.15 per share. While this
Agreement remains in force, such options shall become exercisable according
to the following schedule: twenty-five percent (25%) upon the date of
commencement and thereafter at the rate of 1/36th each month for 36 months
beginning upon the first anniversary of such date. In the event of: (i) a
merger or consolidation of the Company with another corporation, not
including any merger or consolidation if immediately thereafter the
stockholders of the Company immediately before such transaction own shares
representing more than 50% of the outstanding voting securities of the
surviving corporation, (ii) a sale of shares by the stockholders of the
Company if immediately thereafter the stockholders of the Company
immediately before such sale own shares representing less than 50% of the
outstanding voting securities of the surviving corporation, or (iii) a sale
of all or substantially all of the Company's assets, all options to
purchase Common Stock of the Company held by Eastman that have not
previously vested under the terms of the applicable Option Agreements shall
vest immediately upon the closing of such transaction. In the event of an
underwritten initial public offering of the Company's Common Stock, to the
extent at least 80% of the aggregate of the

<PAGE>

shares subject to outstanding options to purchase Common Stock of the
Company held by Eastman (other than any such options granted immediately
prior to and in contemplation of such initial public offering) have not
previously vested under the terms of the applicable Option Agreements,
then the vesting of such options shall be accelerated such that 80% of
the shares subject to each such option shall be vested as of the closing
of such initial public offering and the remaining 20% of the shares
subject to each such option shall vest 180 days from the closing of such
initial public offering. If, in the event of an underwritten initial
public offering of the Company's Common Stock, 80% or more of the
aggregate of the shares subject to outstanding options to purchase
Common Stock of the Company held by Eastman (other than any such options
granted immediately prior to and in contemplation of such initial public
offering) have previously vested, then any remaining unvested shares
subject to such options shall vest 180 days from the closing of such
initial public offering.

<PAGE>

IN WITNESS WHEREOF, the parties have executed this Amendment to Employment
Agreement as of the date first above written.

THE COMPANY: EXECUTIVE:

GENE LOGIC INC.
a Delaware Corporation

By: /s/ MICHAEL J. BRENNAN /s/ ERIC M. EASTMAN
--------------------------- -------------------
Title: President & CEO Eric M. Eastman
------------------------

<PAGE>

EXHIBIT 10.38

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of February 17, 1997 by and between Gene Logic Inc., a Delaware corporation
(the "Company") and Daniel R. Passeri, a Maryland resident ("Passeri").

RECITAL:

The Company desires to secure the services of Passeri and Passeri
desires to perform such services for the Company on the terms and conditions
as set forth in this Agreement.

NOW, THEREFORE, in consideration of these premises and the mutual
promises and conditions contained in this Agreement, the parties hereto
hereby agree as follows:

1. EMPLOYMENT AND DUTIES. Subject to the terms and conditions of this
Agreement, the Company shall employ Passeri as Vice President, Business
Development and Intellectual Property management and Passeri hereby accepts
such employment and such position. Passeri shall devote his full time,
ability, attention, knowledge and skill to performing all duties as Vice
President, Business Development and Intellectual Property Management as
lawfully assigned or delegated to him by the Senior Vice President Corporate
Development and Chief Financial Officer of the Company. Passeri will report
to the Senior Vice President Corporate Development and Chief Financial
Officer of the Company.

2. BASE SALARY. In consideration for Passeri's services to the
Company during the term of his employment under this Agreement, Passeri shall
receive an annual base salary of no less than $135,000. The annual base
salary will be prorated for any partial year of employment on the basis of a
365-day fiscal year. Base salary shall be paid in equal, bi-weekly
installments from which the Company shall withhold and deduct al applicable
federal and state income, social security, disability and other taxes as
required by applicable laws.

3. INCENTIVE STOCK OPTIONS. Upon commencement of the term of
employment engaged by this Agreement, the Company shall grant to Passeri
incentive stock options to purchase 50,000 shares of the Company's common
stock at a purchase price of $0.15 per share. These incentive stock options
will be subject to vesting over a 4 year period with 10,000 shares vesting
upon commencement of employment and the remaining 40,000 shares vesting at a
rate of 1/48th each month for 48 months. An additional 10,000 shares of any
unvested incentive stock options held by Passeri pursuant to this Subsection
3 shall automatically become vested when a registration statement for the
sale of securities of the Company to the public becomes effective, or upon
any merger of the Company or sale of the Company or all or substantially all
of its assets.

4. ADDITIONAL COMPENSATION AND BENEFITS.

4.1 UPFRONT BONUS. Upon the execution of this Agreement, the
Company shall pay to Passeri a cash bonus in the amount of $30,000.

<PAGE>

4.2 ANNUAL PERFORMANCE BONUS. During each calendar year while
this Agreement remains in force, commencing with 1998, Passeri shall receive,
in addition to the base salary specified in Section 2 above, a performance
bonus based upon achievement of goals mutually agreed by Passeri and the
Senior Vice President, Corporate Development and Chief Financial Officer of
the Company. The amount of such bonus for 1998 shall be $10,000 in cash;
thereafter any annual bonus shall be in such amount determined by the Company.

4.3 RELOCATION BENEFIT. The Company will provide Passeri with a
$30,000 payment to facilitate relocation ("Relocation Benefit") upon the sale of
Passeri's existing home and the purchase of a new home. In the event that
Passeri voluntarily terminates his employment with the Company within a 12 month
period following the receipt of the Relocation Benefit, Passeri agrees to
reimburse the Company for the full amount of the Relocation Benefit within 30
days following the effective date of such termination.

4.4 MEDICAL BENEFITS, VACATION AND SICK LEAVE. Passeri shall be
entitled to participate in such medical, health and life insurance plans as the
Company may from time to time implement, and to receive no less than twenty (20)
days of paid vacation per on the same basis as the Company's other senior
executives.

4.5 PENSION PLAN. Passeri shall be entitled to participate as a
beneficiary under such pension plan(s) as the Company may from time to time
adopt, on the same basis as the Company's other senior executives.

5. CONFIDENTIALITY AND PROPRIETARY INVENTIONS AGREEMENT. As a condition
of this Agreement, Passeri shall enter into the Company's standard form of
agreement relating to the treatment of the Company's confidential information
and ownership of proprietary inventions a copy of which is attached as
Exhibit A.

6. TERM OF EMPLOYMENT. Subject to the provisions of Section 7, the term
of the employment engaged by this Agreement shall be period of four (4) years
commencing on March 16, 1997 and ending on March 15, 2001, whereupon the term
shall automatically renew for successive one (1) year periods unless one of the
parties to the Agreement shall have given notice of its intention to terminate
the Agreement not later than ninety (90) days prior to the end of such initial
term or any such renewal term. Passeri agrees to commence employment with the
Company no later than March 15, 1997.

7. TERMINATION OF EMPLOYMENT.

7.1 FOR CAUSE. The Company may terminate this Agreement, effective
immediately upon written notice to Passeri, if at any time, in the reasonable
opinion of the Company's Board of Directors, (a) Passeri commits any material
act of dishonesty, fraud or embezzlement with respect to the Company or any
subsidiary or affiliate thereof, (b) is convicted of a crime of moral turpitude,
or (c) breaches any material obligation under this Agreement. The Company's
total liability to Passeri in the event of termination of Passeri's employment
under this Subsection 7.1 shall be limited to the payment of Passeri's salary
and benefits through the effective date of termination.

<PAGE>

7.2 WITHOUT CAUSE. The Company may terminate this Agreement without
cause upon thirty (30) days' written notice to Passeri. Upon any termination of
this Agreement without cause by the Company, the Company shall pay to Passeri as
severance pay in one lump sum an amount equal to three (3) months of his then
current salary in addition to such other compensation to which Passeri may be
entitled prior to the date of termination.

7.3 BY PASSERI. Passeri reserves the right to terminate his
employment hereunder for any reason upon thirty (30) days' written notice to the
Company. The Company's total liability to Passeri in the event of termination
of Passeri's employment under this Subsection 7.3 shall be limited to the
payment of Passeri's salary and benefits through the effective date of
termination and the provisions of Subsection 7.2 shall not apply.

8. MISCELLANEOUS.

8.1 MODIFICATION. Any modification of this Agreement shall be
effective only if reduced to writing and signed by the parties to be bound
thereby.

8.2 ENTIRE AGREEMENT. This Agreement including Exhibit A constitutes
the entire agreement between the Company and the Passeri pertaining to the
subject matter hereof and supersedes all prior or contemporaneous written or
verbal agreements and written or verbal agreements and understandings between
the parties in connection with the subject matter hereof.

8.3 SEVERABILITY. If any provision of this Agreement is held by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions shall, nevertheless, continue in full force and effect
without being impaired or invalidated in any way.

8.4 WAIVER. The parties hereto shall not be deemed to have waived
any of their respective rights under this Agreement unless the waiver is in
writing and signed by the waiving party. No delay in exercising any right shall
be a waiver of such right nor shall a waiver of any right on one occasion
operate as a waiver of such right on a future occasion.

8.5 COSTS OF ENFORCEMENT. If any action or proceeding shall be
commenced to enforce this Agreement or any right arising in connection with this
Agreement, each party shall initially bear its own costs and legal fee
associated with such action or proceeding. The prevailing party in any such
action or proceeding shall be entitled to recover from the other party the
reasonable attorneys' fees, costs and expenses incurred by such prevailing party
in connection with such action or proceeding.

To the Company: Gene Logic Inc.
10150 Old Columbia Road
Columbia, MD 20146

<PAGE>

To Passeri: Daniel R. Passeri
991 Paulsboro Drive
Rockville, MD 20850

IN WITNESS WHEREOF, the parties have executed this Agreement by their
duly authorized officers or agents as of the date first written above.

"Company" "Employee"

GENE LOGIC INC.
A Delaware corporation

By: /s/ MARK D. GESSLER By: /s/ DANIEL R. PASSERI
----------------------------- ------------------------------
Mark D. Gessler Daniel R. Passeri

Sr. Vice President Corporate Development
and Chief Financial Officer

<PAGE>

EXHIBIT 10.39

AMENDMENT TO EMPLOYMENT AGREEMENT

WHEREAS, the Company and Executive previously entered into an Employment
Agreement dated February 17, 1997 (the "Employment Agreement") which, among
other things, provides for the automatic vesting of all outstanding options
to purchase the Company's Common Stock held by the Executive upon a change of
control of the Company (the "Vesting Provision"); and

WHEREAS, the Company and Executive desire to amend the Employment
Agreement to amend and restate the Vesting Provision.

NOW, THEREFORE, the parties hereto, in consideration of the mutual
promises and agreements set forth below, hereby agree to amend the Employment
Agreement as follows:

1. RESTATEMENT OF VESTING PROVISION. Section 3 of the Employment
Agreement shall be amended and restated to read in its entirety as follows:

"3 INCENTIVE STOCK OPTIONS. Upon commencement of the term of
employment engaged by this Agreement, the Company shall grant to Passeri
incentive stock options to purchase 50,000 shares of the Company's Common
Stock at a purchase price per share of $0.15 per share (the "Initial
Option"). The Initial Option will be subject to vesting over a 4 year
period with 10,000 shares vesting upon commencement of employment and the
remaining 40,000 shares vesting at a rate of 1/48th each month for 48
months. The Company will grant additional incentive stock options to
Passeri in each year during which this Agreement remains in force, in
numbers consistent with Passeri's position as Vice President, Business
Development and Intellectual Property Management of the Company. Such
incentive stock options shall become exercisable according to the schedule
established by the Board of Directors for the Company's Incentive Stock
Option Plan. In the event of: (i) a merger or consolidation of the
Company with another corporation, not including any merger or consolidation
if immediately thereafter the stockholders of the Company immediately
before such transaction own shares representing more than 50% of the
outstanding voting securities of the surviving corporation, (ii) a sale of
shares by the stockholders of the Company if immediately thereafter the
stockholders of the Company immediately before such sale own shares
representing less than 50% of the outstanding voting securities of the
surviving corporation, or (iii) a sale of all or substantially all of
the Company's

<PAGE>

assets, 10,000 unvested shares under the Initial Option and any other
options to purchase Common Stock of the Company held by Passeri that
have not previously vested under the terms of the applicable Option
Agreements shall vest immediately upon the closing of such transaction.
In the event of an underwritten initial public offering of the Company's
Common Stock, to the extent at least 80% of the aggregate of the shares
subject to outstanding options to purchase Common Stock of the Company
held by Passeri (other than any such options granted immediately prior
to and in contemplation of such initial public offering) have not
previously vested under the terms of the applicable Option Agreements,
then the vesting of such options shall be accelerated such that 80% of
the shares subject to each such option shall be vested as of the closing
of such initial public offering and the remaining 20% of the shares
subject to each such option shall vest 180 days from the closing of such
initial public offering. If, in the event of an underwritten initial
public offering of the Company's Common Stock, 80% or more of the
aggregate of the shares subject to outstanding options to purchase
Common Stock of the Company held by Passeri (other than any such options
granted immediately prior to and in contemplation of such initial public
offering) have previously vested, then any remaining unvested shares
subject to such options shall vest 180 days from the closing of such
initial public offering.

<PAGE>

IN WITNESS WHEREOF, the parties have executed this Amendment to Employment
Agreement as of the date first above written.

THE COMPANY: EXECUTIVE:

GENE LOGIC INC.
a Delaware Corporation

By: /s/ MICHAEL J. BRENNAN /s/ DANIEL R. PASSERI
-------------------------- ---------------------------
Title: President and CEO Daniel R. Passeri
--------------------------

<PAGE>

EXHIBIT 11.1

Statement Re: Computation of Per Share Earnings
(In thousands, except per share amounts)

<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
BASIC AND DILUTIVE:

Weighted average common shares outstanding 2,138 572 214

Net loss $(7,193) $(2,865) $ (744)

Accretion of mandatory redemable value
of convertible preferred stock 1,286 494 1
------- ------- ------
Net Loss attributable to common
stockholders $(8,480) $(3,359) $ (745)

Net loss per common share $ (3.97) $ (5.87) $(3.48)

PRO FORMA:

Weighted average common shares
outstanding 2,138 572

Dilutive common stock equivalents:

Convertible securities, using the
if-converted method 5,867 3,415
------- -------

Common and common equivalent shares
used in the calculation of net loss
per share 8,005 3,987
------- -------
------- -------

Net loss $(7,193) $(2,865)
------- -------
------- -------

Net loss per common and common
equivalent share $(0.90) $(0.72)
------- -------
------- -------
</TABLE>

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 46,522
<SECURITIES> 99
<RECEIVABLES> 1,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 48,992
<PP&E> 4,892
<DEPRECIATION> 681
<TOTAL-ASSETS> 53,972
<CURRENT-LIABILITIES> 6,537
<BONDS> 1,211
0
0
<COMMON> 139
<OTHER-SE> (45,928)
<TOTAL-LIABILITY-AND-EQUITY> 46,067
<SALES> 0
<TOTAL-REVENUES> 2,047
<CGS> 0
<TOTAL-COSTS> 9,887
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,094)
<INCOME-TAX> 100
<INCOME-CONTINUING> (7,194)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,194)
<EPS-PRIMARY> 3.97
<EPS-DILUTED> 3.97

</TABLE>

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS AMENDED FINANCIAL DATA SCHEDULE FOR 1996.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,137
<SECURITIES> 4,534
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,776
<PP&E> 1,823
<DEPRECIATION> 65
<TOTAL-ASSETS> 7,819
<CURRENT-LIABILITIES> 1,195
<BONDS> 0
10,471
0
<COMMON> 7
<OTHER-SE> (4,194)
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