10-K

UNITED STATES
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 June 30, 2003

OR

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

For the transition period from ___________ to __________

Commission file number 0-22686

PALATIN TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

Delaware	95-4078884
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
4C Cedarbrook Drive
Cranbury, New Jersey	08512
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code:  (609) 495-2000

Securities registered pursuant to Section 12(b) of the Exchange Act:

Common Stock, par value $.01 per share
(Title of class)

Securities registered pursuant to Section 12(g) of the Exchange Act:  None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes [X]   No [  ]

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).   Yes [  ]  No [X]

As of September 26, 2003, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $68,701,648, computed by reference to the price at which the common stock was last sold on December 31, 2002.

As of September 26, 2003, 43,215,052 shares of the registrant's common stock, par value $.01 per share, were outstanding.

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TABLE OF CONTENTS

PART I

		Page
Item 1.	Business	4
Item 2.	Properties	14
Item 3.	Legal Proceedings	15
Item 4.	Submission of Matters to a Vote of Security Holders	15

PART II

Item 5.	Market for Registrant's Common Equity and Related Stockholder Matters	15
Item 6.	Selected Consolidatd Financial Data	19
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 8.	Financial Statements and Supplementary Data	40
Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	67
Item 9A.	Controls and Procedures	68

PART III

Item 10.	Directors and Executive Officers of the Registrant	69
Item 11.	Executive Compensation	72
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	80
Item 13.	Certain Relationships and Related Transactions	83
Item 14.	Principal Accounting Fees and Services	84

PART IV

Item 14.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	Page 85
	Signatures	Page __

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PART I

Item 1. Business.

Forward-looking statements

        Statements in this annual report on Form 10-K, as well as oral statements that may be made by Palatin or by officers, directors, or employees of Palatin acting on Palatin’s behalf, that are not historical facts constitute “forward-looking statements” which are made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934. The forward-looking statements in this annual report on Form 10-K do not constitute guarantees of future performance. Investors are cautioned that statements which are not strictly historical statements contained in this annual report on Form 10-K, including, without limitation, current or future financial performance, management’s plans and objectives for future operations, clinical trials and results, product plans and performance, management’s assessment of market factors, as well as statements regarding the strategy and plans of the company and its strategic partners, constitute forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause the actual results of the Company to be materially different from the historical results or from any results expressed or implied by such forward-looking statements. The Company’s future operating results are subject to risks and uncertainties and are dependent upon many factors, including, without limitation, the risks identified under the caption “Factors Affecting Our Business Condition” and elsewhere in this annual report, as well as in our other Securities and Exchange Commission filings.

Overview

        We are a development stage biopharmaceutical company primarily focused on developing melanocortin (MC) based therapeutics, which we believe is one of the fastest growing areas of pharmaceutical research and development. The MC family of receptors has been identified with a variety of conditions and diseases, including sexual dysfunction, obesity, anorexia, cachexia (extreme wasting, generally secondary to a chronic disease), inflammation and drug abuse. Our objective is to become a worldwide leader in MC based therapeutics by pursuing a strategy based on commercializing our products under development and identifying new product targets through the utilization of our patented drug discovery platform.

        PT-141 is our lead therapeutic drug candidate and is now in clinical development for the treatment of both male and female sexual dysfunction. We completed a Phase 2B trial with PT- 141 in male patients in September 2003 and we anticipate announcing results of this trial in the fourth quarter of calendar year 2003. LeuTech®, is our proprietary radiolabled monoclonal antibody for imaging and diagnosing infections. We commenced the biologics license application (BLA) amendment filings to the Food and Drug Administration (FDA) in the first half of calendar year 2003 and anticipate remitting the final BLA amendment filing to the FDA

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in the fourth quarter of calendar year 2003. We expect to receive a complete response from the FDA regarding our BLA amendment filings in the first half of calendar year 2004. We are also conducting additional clinical trials of LeuTech to expand its market potential as a imaging agent for other indications such as osteomyelitis (infection deep inside a bone), fever of unknown origin, post-surgical abscess, inflammatory bowel disease and pulmonary imaging. In addition, we have several preclinical drug candidates under investigation for various therapeutic indications including sexual dysfunction, obesity, cachexia and inflammation utilizing our patented drug discovery platform.

        Our near-term business strategy focuses on the continued advancement of our two late-stage products under development, PT-141, our lead therapeutic drug candidate for the treatment of both male and female sexual dysfunction and LeuTech, our proprietary radiolabled monoclonal antibody for imaging and diagnosing infections. Our long-term business strategy includes the advancement of our preclinical product pipeline and identification of new product targets through the utilization of our patented drug discovery platform, moving towards the commercialization of a broad portfolio of therapeutic products. Key elements of our business strategy include:

• Selectively entering into alliances and partnerships with pharmaceutical companies to facilitate the development, manufacture, marketing, sale and distribution of our product candidates under investigation;

• Expansion of our pipeline through the utilization of our MC expertise and patented drug discovery platform;

• Opportunistic acquisition of synergistic products and technologies; and

• Partial funding of our development programs with the cash flow from our LeuTech collaboration agreement.

        We incorporated in Delaware in 1986 and commenced operations in the biopharmaceutical area in 1996. Our executive offices and research facility are located at 4C Cedar Brook Drive, Cranbury, New Jersey 08512 and our telephone number is (609) 495-2200. We maintain an Internet site at http://www.palatin.com, where among other things, we make available free of charge on and through this website our Forms 3‘s, 4‘s and 5‘s, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) and Section 16 of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. Our website and the information contained therein or connected thereto shall not be deemed to be incorporated into this Annual Report on Form 10-K.

Products and Technologies in Research and Development

        We do not currently offer any products for sale. We are concentrating our efforts on the following proposed products and indications:

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    PT-141.     PT-141, our lead therapeutic drug candidate, is a novel, patented, nasally administered peptide that is under investigation for the treatment of both male erectile dysfunction (MED) and female sexual arousal disorders (FSAD). PT-141 is a synthetic analog of the naturally occurring hormone alpha-MSH (melanocyte-stimulating hormone). It is an MC receptor based therapeutic. The MSH class of hormones are potent regulators of a variety of physiological and behavioral functions, including the natural physiological sexual response. Our research suggests that PT-141 works through activation of MC receptors in the central nervous system rather than acting directly on the vascular system, which, is a different mechanism of action from currently marketed MED therapies. As a result, it may offer significant safety and therapeutic benefits over currently marketed products.

        We have completed various Phase 1 safety studies and Phase 2A efficacy studies in male subjects and patients. On April 27, 2003, we announced and presented positive results of our PT- 141 Phase 2A studies at the Sexual Medicine Society of North America meeting at the American Urological Association (AUA) Annual Meeting. Hunter Wessells, M.D., Associate Professor of Urology at the University of Washington — Seattle, presented clinical data on the safety and efficacy of PT-141. The data demonstrate that PT-141 produced a statistically significant improvement in erectile function across a wide range of erectile dysfunction patients with no clinically significant adverse effects. These Phase 2A studies were conducted in men with mild, moderate and severe MED, including patients with hypertension, hyperlipidemia, diabetes and depression. The Phase 2A studies consisted of one study of 24 patients responsive to Viagra and a second study of 24 patients with an inadequate response to Viagra (patients able to complete sexual intercourse less than 25% of the time after taking a 100mg dose of Viagra). Several analyses were conducted of the data from these Phase 2A clinical trials in 48 men. The data demonstrated that:

• PT-141 treatment improved erectile function (statistically significant) in a wide range of patients, including those with mild, moderate and severe MED, compared with placebo;

• Greater than 80% of the patients with an inadequate response to Viagra acheived erections sufficient for sexual intercourse when treated with PT-141;

• Patients in the studies tolerated treatment well over a broad range of doses. No significant changes in blood pressure, heart rate or electrocardiogram evaluations occurred in response to the drug;

• Results of the study indicate the rapid appearance (within 5 minutes) of intranasally administered PT-141 in the blood, with maximum levels reached at approximately 30 minutes; and

• PT-141 was well-tolerated and the common adverse events were generally mild to moderate in intensity and included flushing and nausea. No clinically significant adverse events were noted.

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        We completed a Phase 2B at-home dose-ranging study with PT-141 in patients with MED in September 2003 and anticipate announcing results of this trial in the fourth quarter of calendar year 2003. This study is designed to examine safety and efficacy of PT-141 for MED across a range of intranasally administered doses in an at-home environment. A total of 270 patients were enrolled, ranging in age from 21-70 years, all suffering from moderate to severe MED and having a history of responsiveness to Viagra® therapy.

        We have completed a Phase 1 safety study in female subjects and plan to initiate a Phase 2 efficacy study in female patients with FSAD in the first half of calendar year 2004.

        On June 24, 2003, we announced that the U.S. Patent and Trademark Office had issued U.S. patent No. 6,579,968, entitled “Compositions and Methods for Treatment of Sexual Dysfunction,” relating to PT-141. The patent covers both the specific peptide used in PT-141 and a pharmaceutical composition including the peptide for treating sexual dysfunction.

        MED is defined as the consistent inability to attain and maintain an erection sufficient for sexual intercourse. The condition is correlated with increasing age, cardiovascular disease, hypertension, diabetes, hyperlipidemia and smoking. In addition, certain prescription drugs and psychogenetic issues may contribute to MED. According to the Massachusetts Male Aging Study, more than 50% of men aged 40-70 report episodes of MED and more than 30 million men in the United States may be afflicted with some form of MED, with less than 20% seeking treatment. The current market size for MED is estimated to be more than $2 billion per year. FSAD is a multifactorial condition that has anatomical, physiological, medical, psychological and social components. Studies estimate FSAD is prevalent in approximately 50% of women over the age of 30 and that greater than 35 million women in the United States may be afflicted with some form of FSAD. Female sexual dysfunction includes disorders associated with desire, arousal, orgasm and pain. There is tremendous competition to develop, market and sell drugs for the treatment of MED and FSAD.

    LeuTech®.      LeuTech is a proprietary, radiolabeled monoclonal antibody under investigation for imaging and diagnosing infections. When injected into the blood stream, LeuTech binds to white blood cells present at the infection site, labeling these cells with a radioactive tracer. As a result, physicians can rapidly image and detect an infection using a gamma camera, a common piece of hospital equipment that records radioactivity. LeuTech offers the advantage of direct injection and in-vivo labeling of white blood cells leading to a rapid and highly specific functional image of an infection in less than an hour, whereas the current standard of care, ex-vivo labeled white blood cells, requires a blood sample to be taken from the patient, processed by a nuclear pharmacy and then re-injected into the patient, with diagnostic images not available until 12-24 hours later.

        In December 1999, the FDA accepted our LeuTech BLA for the diagnosis of appendicitis in patients with equivocal signs and symptoms. In July 2000, the FDA Medical Imaging Drugs Advisory Committee (MIDAC) unanimously voted that LeuTech is safe and effective for use in the diagnosis of appendicitis in patients with equivocal signs and symptoms and that the data presented support the clinical utility of LeuTech in managing these patients. In September 2000, we received a complete response letter from the FDA where they determined that the efficacy and safety data were complete, yet additional manufacturing and process validation data were required

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prior to final approval. We are working to resolve the outstanding issues. We commenced the BLA amendment filings to the FDA in the first half of calendar year 2003 and anticipate remitting the final BLA amendment filing to the FDA in the fourth quarter of calendar year 2003. We expect to receive a complete response from the FDA regarding our BLA amendment filings in the first half of calendar year 2004.

        We are currently conducting Phase 2 studies with LeuTech for detection of other infections, including osteomyelitis (infection deep inside a bone), fever of unknown origin, post-surgical abscess, inflammatory bowel disease and pulmonary imaging.

        On April 24, 2003, we announced positive results of a Phase 2 study to evaluate the efficacy of LeuTech in diabetic patients with suspected pedal osteomyelitis (infection in bones of the foot). The results were published in the January/February 2003 issue of The Journal of Foot and Ankle Surgery.

        Each year, more than 250,000 Americans are diagnosed with the infection, acute appendicitis. A timely and accurate diagnosis of this infection is crucial to ensure timely treatment and to prevent complications for the patient. A delay can entail hospital observation, outpatient treatment or surgery and can lead to increased risk of peritonitis, sepsis and other complications. Conversely, a mis-diagnosed patient may experience unneeded hospital observation or unneeded surgery, which is expensive, inconvenient and utilizes limited resources. Every year, more than 350,000 patients present with equivocal appendicitis. This is when a specific diagnosis is uncertain and further testing is needed. In this situation, it is not always clear if the patient has appendicitis or another medical problem; nor is it exactly clear where the site of infection is located.

        We believe that LeuTech may improve patient diagnosis for appendicitis and that it has the potential to improve diagnosis of other acute and chronic infections, such as osteomyelitis (infection deep inside a bone), fever of unknown origin, post-surgical abscess, inflammatory bowel disease and pulmonary imaging. The existing market for nuclear medicine diagnostics is approximately $3.6 billion. In 2002, approximately 700,000 patients were diagnosed with LeuTech’s target indications.

        Strategic Collaboration Agreement with Mallinckrodt. On May 13, 2002, we entered into an agreement with Mallinckrodt, Inc., a division of Tyco International, Ltd., to amend our Strategic Collaboration Agreement dated as of August 17, 1999. Under the terms of the original agreement, in addition to other provisions, Mallinckrodt paid us a licensing fee of $500,000 and an additional $13 million to purchase 700,000 restricted unregistered shares of our preferred stock. We shared LeuTech development expenses prior to FDA approval equally with Mallinckrodt. Mallinckrodt agreed to pay us milestone payments of an additional $10 million on FDA approval of the first LeuTech indication and on attainment of certain sales goals following product launch. We agreed to be responsible for the manufacture of LeuTech and Mallinckrodt agreed to pay us a transfer price on each product unit transferred to Mallinckrodt and a royalty on the net sales of LeuTech.

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        Under the terms of the amended agreement, Mallinckrodt has committed up to an additional $3.2 million, subject to certain conditions and attaining certain milestones, to offset a portion of the estimated expenses associated with completing the FDA review process. Additionally, timing of the original $10 million in milestone payments has been revised to coincide with LeuTech’s anticipated FDA approval and achievement of future sales goals. Of the $3.2 million, $1.2 million has been paid to date. We expect to receive the remaining $2 million in the fourth quarter of calendar year 2003.

        MIDAS™ (Metal Ion-induced Distinctive Array of Structures).     MIDAS is a proprietary platform technology that allows us to routinely design and synthesize novel pharmaceuticals that mimic the activity of peptides, but which we believe offer significant advantages to conventional protein or peptide-based drugs. MIDAS uses metal ions to fix the three-dimensional shape of peptides, forming conformationally rigid molecules that remain folded specifically in their active forms. These MIDAS molecules are simple to synthesize, are chemically and proteolytically stable, and have the potential to be orally bioavailable. Moreover, unlike most other drug discovery approaches, we believe that MIDAS is unique in that it can be used to generate either receptor antagonists (drugs that block a particular metabolic response) or agonists (drugs that promote a particular metabolic response). In addition, MIDAS molecules are information-rich and provide data on structure-activity relationships that can be used to design traditional small molecule drugs.

        We have initiated a MIDAS program to discover and develop compounds that interact with the MC family of receptors. MC receptors regulate a diverse array of functions such as pigmentation, adrenocortical function, immune modulation, sexual arousal and energy maintenance. Based on this effort, we have identified several MIDAS molecules that are now in preclinical development as potential treatments for sexual dysfunction, obesity, cachexia and inflammation. We expect to file an IND for at least one of these preclinical compounds and initiate clinical testing in the first half of calendar year 2004.

        Generation of commercially viable protein and peptide drug molecules with desirable properties continues to be arduous, expensive and labor-intensive. We believe that our MIDAS technology simplifies the development process by eliminating many of the inherent limitations associated with peptides and proteins. We intend to seek to enter into strategic alliances or collaborative arrangements to provide additional financial and technical resources for MIDAS development.

        Research and Development. Our current research and development efforts primarily focus on two areas: melanocortin based therapeutics and diagnostic imaging. By combining these areas, we believe our technologies will facilitate the development of a portfolio of potential products. Over the last three fiscal years, we have spent approximately the following amounts on company-sponsored research and development activities:

• year ended June 30, 2003: $17,439,000

• year ended June 30, 2002: $12,117,000

• year ended June 30, 2001: $10,109,000

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Competition

        Our products under development will compete on the basis of quality, performance, cost effectiveness, and application suitability with numerous established products and technologies. Additional products using new technologies which may be competitive with our proposed products may also be introduced by others. Many of the companies selling or developing competitive products have financial, manufacturing and distribution resources significantly greater than ours.

        The pharmaceutical and biotechnology industry is characterized by extensive research efforts and rapid technological change and there are many companies that are working to develop products similar to ours. There are currently several FDA-approved drugs for MED in the United States and in certain foreign markets. We are aware of several products under clinical development for both MED and FSAD. We cannot assure you that our competitors will not succeed in the future in developing products that are more effective than any that we are developing. We believe that our ability to compete in the sexual dysfunction market depends on a number of factors including the success and timeliness with which we complete FDA trials, the breadth of applications, if any, for which our products receive approval, and the effectiveness, cost, safety and ease of use of our products in comparison to the products of our competitors.

        We are aware of one company marketing an antibody-based product which may compete with LeuTech as to certain indications. The competing product is marketed in some European countries. Palatin is also aware of at least one other company developing a peptide-based product which may also compete with LeuTech as to certain indications. In addition, other technologies may also be used to diagnose appendicitis, including computerized tomography or CT scan, and ultrasound technologies.

        We have many competitors, including pharmaceutical and biotechnology companies. Many of these competitors have substantially greater capital and other resources than we do and may represent significant competition for us. Such companies may succeed in developing technologies and products that are more effective or less costly than any of those that we may develop. Such companies may be more successful than us in developing, manufacturing and marketing products. Furthermore, there are several well-established products in our target markets that we will have to compete against. We cannot guarantee that we will be able to compete successfully in the future or that developments by others will not render our proposed products under development or our future product candidates obsolete or non-competitive or that our collaborators or customers will not choose to use competing technologies or products.

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Patents and Proprietary Information

        Patent protection. Our success will depend in substantial part on our ability to obtain, defend and enforce patents, maintain trade secrets and operate without infringing upon the proprietary rights of others, both in the United States and abroad. We aggressively seek patent protection for our technology in the United States and, selectively, in those foreign countries where protection is important to the development of our business.

        We own or have rights to United States and foreign patents and pending applications directed to radiolabeling of antibodies, antibody fragments, and peptides; MIDAS peptides; small molecules; and methods for making and using the foregoing in diagnostic and therapeutic applications.

        We have exclusive rights to patents and applications relating to PT-141 for sexual dysfunction, and own an issued United States patent and pending United States and foreign applications covering PT-141. The claims of patents that issue covering PT-141 may not provide meaningful protection. In addition, even if such patents issue they may not be valid.

        We own patents covering certain aspects of the LeuTech product, but the claims of those patents may not be effective to prevent others from developing competing products. In addition, the validity of these patents has not been determined.

        In the event that a third party has also filed a patent application relating to an invention we claimed in a patent application, we may be required to participate in an interference proceeding adjudicated by the United States Patent and Trademark Office to determine priority of invention. The possibility of an interference proceeding could result in substantial uncertainties and cost, even if the eventual outcome is favorable to us. An adverse outcome could result in losing patent protection for the subject of the interference, subjecting us to significant liabilities to third parties and requiring us to obtain licenses from third parties at undetermined cost or to cease using the technology.

        Future patent infringement. We do not know for certain that our commercial activities will not infringe upon patents or patent applications of third parties, some of which may not even have been issued yet. Although we are not aware of any valid U.S. patents which are infringed by PT- 141 or LeuTech or by our methods of making PT-141 and LeuTech, we cannot exclude the possibility that such patents might exist or arise in the future. We may be unable to avoid infringement of any such patents and may have to seek a license, defend an infringement action, or challenge the validity of such patents in court. Patent litigation is costly and time consuming. If we do not obtain a license under any such patents, are found liable for infringement, or if such patents are not found to be invalid, we may be liable for significant money damages, may encounter significant delays in bringing products to market, or may be precluded from participating in the manufacture, use or sale of products or methods of treatment covered by such patents.

        Government rights. Some of our patents are directed to inventions developed internally or within academic institutions from which we previously acquired rights to such patents with funds from United States government agencies. As a result of these arrangements, the United States government may have rights in certain inventions developed during the course of the performance of federally funded projects, as required by law or agreements with the funding agency. In addition, we may be required to manufacture in the United States products to be sold in the United States.

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        Proprietary information. We rely on proprietary information, such as trade secrets and know-how, which is not patented. We have taken steps to protect our unpatented trade secrets and know-how, in part through the use of confidentiality agreements with our employees, consultants and certain contractors. If our employees, scientific consultants or collaborators or licensees develop inventions or processes independently that may be applicable to our product candidates, disputes may arise about ownership of proprietary rights to those inventions and processes. Such inventions and processes will not necessarily become our property, but may remain the property of those persons or their employers. Protracted and costly litigation could be necessary to enforce and determine the scope of our proprietary rights.

        If trade secrets are breached, our recourse will be solely against the person who caused the secrecy breach. This might not be an adequate remedy to us, because third parties other than the person who causes the breach will be free to use the information without accountability to us. This is an inherent limitation of the law of trade secret protection.

Governmental Regulation

        The FDA, comparable agencies in foreign countries and state regulatory authorities have established regulations and guidelines which apply, among other things, to the clinical testing, manufacturing, safety, efficacy, labeling, storage, record keeping, advertising, promotion and marketing of our proposed products. Noncompliance with applicable requirements can result in fines, recalls or seizures of products, total or partial suspension of production, refusal of the regulatory authorities to approve marketing applications, and criminal prosecution.

        After approving a product for marketing, the FDA may require post-marketing testing, including extensive Phase 4 studies, and surveillance to monitor the effects of the product in general use. The FDA may withdraw product approvals if compliance with regulatory standards is not maintained or if problems occur following initial marketing. In addition, the FDA may impose restrictions on the use of a drug that may limit its marketing potential.

        Good manufacturing practices. In addition to obtaining either a biologics license application or new drug application approval from the FDA for any of our proposed products, if the proposed product is manufactured in the United States, the drug manufacturing establishment must be registered with, and inspected by, the FDA. Such drug manufacturing establishments are subject to biennial inspections by the FDA, and must comply with good manufacturing practices regulations enforced by the FDA. To supply products for use in the United States, foreign manufacturing establishments must comply with good manufacturing practices and are subject to periodic inspection by the FDA or by corresponding regulatory agencies in such other countries under reciprocal agreements with the FDA. In complying with standards established by the FDA, manufacturing establishments must continue to expend time, money and effort in the areas of production and quality control to ensure full technical compliance. We depend on contract manufacturing establishments, both in the United States and in foreign countries, to manufacture components of LeuTech and PT-141. We currently have agreements in place for the manufacture of LeuTech and PT-141. We anticipate that contract manufacturing establishments will manufacture PT-141 and proposed products resulting from MIDAS technology.

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Third-Party Reimbursements

        Successful sales of our proposed products in the United States and other countries will depend on the availability of adequate reimbursement from third-party payors such as governmental entities, managed care organizations and private insurance plans. Reimbursement by a third-party payor may depend on a number of factors, including the payor’s determination that use of a product is safe and efficacious, neither experimental nor investigational, medically necessary, appropriate for the specific patient and cost effective. Since reimbursement approval is required from each payor individually, seeking such approvals is a time-consuming and costly process. Third-party payors routinely limit reimbursement coverage and in many instances are exerting significant pressure on medical suppliers to lower their prices. There is significant uncertainty concerning third-party reimbursement for the use of any pharmaceutical product incorporating new technology, and we are not sure whether third-party reimbursement will be available for our proposed products, or that the reimbursement, if obtained, will be adequate. Less than full reimbursement by governmental and other third-party payors for our proposed products would adversely affect the market acceptance of these proposed products. Further, health care reimbursement systems vary from country to country, and we are not sure whether third-party reimbursement will be made available for our proposed products under any other reimbursement system.

Manufacturing and Marketing

        To be successful, our proposed products will need to be manufactured in commercial quantities under current good manufacturing practices requirements prescribed by the FDA and at acceptable costs. We do not have the facilities to manufacture any of our proposed products in commercial quantities under good manufacturing practices. We intend to rely on collaborators, licensees or contract manufacturers for the commercial manufacture of our proposed products.

        We are dependent on DSM N.V. of the Netherlands for the manufacture of the LeuTech drug substance and intermediate drug product stages and on Ben Venue Laboratories of Cleveland, Ohio for the manufacture of the LeuTech drug product stage. The failure of either of these manufacturers to comply with FDA current good manufacturing practices or to supply these key components of LeuTech on a timely basis or at all, would force us to seek alternative sources of supply and could interfere with our ability to deliver product on a timely basis or at all. Establishing relationships with new suppliers, any of whom must be FDA-approved, is a time-consuming and costly process.

        Proposed products resulting from PT-141 and our MIDAS technology are synthetic peptides. The peptides are synthesized from readily available amino acids, and the production process involves well-established technology. We currently contract with third-party manufacturers for the production of peptides and anticipate doing so in the future.

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        If LeuTech is approved for marketing by the FDA, we will rely on our arrangement with Mallinckrodt/Tyco to market, sell and distribute LeuTech. We will have limited control over these activities.

        We intend to package and ship our radiopharmaceutical products in the form of non-radioactive kits. Prior to patient administration, the product would be radiolabeled with the specified radioisotope, generally by a specialized radiopharmacy. We do not intend to sell or distribute any radioactive substances.

Product Liability and Insurance

        Our business may be affected by potential product liability risks which are inherent in the testing, manufacturing and marketing of our proposed products. We have liability insurance providing up to $5,000,000 coverage in the aggregate as to certain clinical trial risks, and we will seek to obtain additional product liability insurance before the commercialization of our proposed products.

Employees

        As of September 15, 2003, we employed 51 persons full time, of whom 41 are engaged in research and development activities and 10 are engaged in administration and management. Nineteen of our employees hold Ph.D. degrees and one is an M.D. We have been successful in attracting skilled and experienced scientific personnel, however, competition for personnel in our industry is intense.

        None of our employees are covered by a collective bargaining agreement. All of our employees have executed confidentiality agreements. We consider relations with our employees to be good.

        From time to time, we hire scientific consultants to work on specific research and development programs. We also rely on independent organizations, advisors and consultants to provide services, including most aspects of manufacturing and some aspects of regulatory approval and clinical management. Our independent advisors and consultants sign agreements that provide for confidentiality of our proprietary information.

Item 2. Properties.

        Our corporate offices and research and development facility are located at 4C Cedar Brook Drive, Cedar Brook Corporate Center, Cranbury, NJ 08512, where we lease approximately 28,000 square feet under a lease which expires July 17, 2012. Our previous corporate offices were located at 103 Carnegie Center, Suite 200, Princeton, NJ 08540, where we sublet to a third party approximately 7,300 square feet under a lease which expires December 15, 2004. The leased properties are in good condition.

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Item 3. Legal Proceedings.

        Following the termination of our proposed merger with San Diego-based Molecular Biosystems, Inc. in March 2000, Molecular Biosystems commenced a legal action against us, seeking damages arising from the alleged improper termination of the merger agreement. We denied the material allegations. In August 2002, in order to avoid the ongoing costs of the litigation and consumption of our time, we settled this litigation with Molecular Biosystems for $400,000, which we had accrued as of June 30, 2002. There are no material legal proceedings pending against us.

Item 4. Submission of Matters to a Vote of Security Holders.

        We did not submit any matters to a vote of security holders during the fourth quarter of the fiscal year ended June 30, 2003.

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

        Our common stock has been quoted on The American Stock Exchange (AMEX) under the symbol PTN, since December 21, 1999. It had previously traded on The Nasdaq SmallCap Market under the symbol PLTN.

        The table below provides, for the fiscal quarters indicated, the reported high and low sales prices for the common stock on AMEX since July 1, 2001.

                      YEAR ENDED JUNE 30, 2003             HIGH            LOW
         Fourth Quarter                                    $4.01          $1.62
         Third Quarter                                     $1.93          $1.29
         Second Quarter                                    $2.10          $1.11
         First Quarter                                     $2.20          $1.10


                      YEAR ENDED JUNE 30, 2002             HIGH            LOW
         Fourth Quarter                                    $3.38          $1.62
         Third Quarter                                     $4.45          $3.05
         Second Quarter                                    $5.92          $2.00
         First Quarter                                     $5.22          $2.91

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        Holders of common stock. On September 26, 2003, we had approximately XXX holders of record of common stock. On September 26, 2003 the closing sales price of our common stock as reported on the AMEX was $4.21 per share.

        Dividends and dividend policy. We have never declared or paid any dividends. We currently intend to retain earnings, if any, for use in our business. We do not anticipate paying dividends in the foreseeable future.

        Dividend restrictions. Our outstanding Series A Preferred Stock, provides that we may not pay a dividend or make any distribution to holders of any class of stock unless we first pay a special dividend or distribution of $100 per share to the holders of the Series A preferred stock.

        Securities authorized for issuance under equity compensation plans.

                                    EQUITY COMPENSATION PLAN INFORMATION

                                             AS OF JUNE 30, 2003



                                                                               Number of securities
                                                                               remaining available for
                                                                               future issuance under
                       Number of securities to       Weighted-average          equity compensation
                       be issued upon exercise       exercise price of         plans (excluding
                       of outstanding options,       outstanding options,      securities reflected in
Plan category          warrants and rights           warrants and rights       column (a))
- -------------          -----------------------       -------------------       ------------------------
                                 (a)                         (b)                        (c)
Equity compensation
plans approved by             4,476,876                     $3.67                     802,535
security holders (1)


Equity compensation
plans not approved by         1,852,207                     $3.46                        0
security holders
____________________________

(1) Includes individual option and warrant agreements we assumed when we merged with RhoMed Incorporated in 1996. Options and warrants to purchase 498,447 shares of common stock are outstanding under the assumed agreements, with a weighted average exercise price of $3.63 per share. No additional options or warrants are available for issuance, except that the number of shares purchasable under certain warrants may increase due to anti-dilution provisions.

        We have authorized the issuance of equity securities under the compensation plans described below, without the approval of stockholders. No additional options, warrants or rights are available for issuance under any of these plans, except for additional shares which may become purchasable under warrants with anti-dilution protection as noted below. We have already registered for resale the common stock underlying all of these plans.

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• 1997 Executive Officers Stock Option Agreement, dated June 3, 1997: provided common stock purchase options to three executive officers. An aggregate of 76,238 shares at $4.96 per share remain under this plan. Options to purchase 26,766 shares remain outstanding with an expiration date of June 3, 2007, and options to purchase 49,472 shares remain outstanding with an expiration date of June 13, 2004.

• Richard J. Murphy Stock Option Agreement, dated December 4, 1997: provided common stock purchase options to a former director to purchase 5,000 shares at $5.44 per share and 1,066 shares at $7.50 per share, with an expiration date of December 4, 2007. These options replaced options for the same number of shares at the same prices which terminated under our 1996 Stock Option Plan.

• Watson Laboratories settlement warrants, dated March 15, 2000: provided common stock purchase warrants to eight individuals who participated in a privately negotiated resale of 363,636 shares of our common stock, to purchase an aggregate of 50,000 shares at $0.01 per share, with an expiration date of March 15, 2005. Warrants to purchase 15,125 shares remain outstanding.

• Griffin Financial Services Advisory Agreement warrants, dated June 8, 2000: provided common stock purchase warrants to Griffin Securities, Inc., a financial consultant, to purchase 5,000 shares at $7.00 per share, with an expiration date of June 8, 2005.

• Wistar Institute of Anatomy and Biology warrants, dated December 15, 2000: provided common stock purchase warrants to a technology licensor to purchase 15,000 shares at $4.00 per share, with an expiration date of December 15, 2010.

• Cedar Brook II Corporate Center, L.P. warrants, dated April 6, 2001 and December 17, 2001: provided common stock purchase warrants to the lessor of our office and laboratory facility to purchase 30,000 shares at $2.90 per share, with an expiration date of April 6, 2006, and 25,000 shares at $3.65 per share with an expiration date of December 17, 2006.

• Fried Consulting Agreement warrants, dated April 30, 2002: provided common stock purchase warrants to Albert Fried, Jr., a financial consultant, to purchase 15,000 shares at $2.70 per share, with an expiration date of April 30, 2007.

• Wistar Institute of Anatomy and Biology warrants, dated May 13, 2002: provided common stock purchase warrants to a technology licensor to purchase 15,000 shares at $2.82 per share, with an expiration date of May 15, 2012.

• Placement warrants: provided common stock purchase warrants as compensation to various private offering placement agents to purchase an aggregate of 1,649,778 shares. These warrants have the following share amounts, prices (rounded to the nearest cent) and expiration dates:

17

                               Shares            Exercise     Expiration
       Offering               Purchasable          Price          Date
       --------               -----------         --------     ----------

       December 1998            10,000             $4.38        12-31-03
       Spring 1999             194,600             $4.70        02-08-04
       Spring 1999              20,000             $4.48        03-09-04
       Spring 1999              50,000             $4.56        03-10-04
       Spring 1999              44,073             $5.57        03-12-04
       Fall 2000               216,000             $6.60        10-05-05
       Fall 2000                87,884             $6.53        10-27-05
       Fall 2001               134,188             $2.66        10-29-06
       Fall 2001               221,872             $2.70        10-29-06
       Spring 2002             109,510             $2.75        06-13-07
       Summer 2002              51,502             $1.46        07-29-07
       Summer 2002              51,502             $1.37        07-29-07
       Fall 2002               458,647             $1.54        11-15-07

        Recent sales of unregistered securities. In closings on July 29, 2002, November 15, 2002 and March 20, 2003, we sold a total of 24,352,099 shares of common stock and five-year warrants to purchase 5,542,075 shares of common stock in a private placements of common stock and warrants to accredited investors. The aggregate of these closings yielded gross proceeds of approximately $32,414,000. The warrant exercise price for 309,012 shares is $1.46 per share, the exercise price for 1,874,788 shares is $1.54, and the exercise price for 3,358,275 shares is $1.77 per share. We paid cash placement agent fees totaling approximately $1,902,000 and issued five-year warrants to purchase a total of 561,651 shares of common stock to placement agents for the offerings. The placement agent warrant exercise price for 51,502 shares is $1.46 per share, the exercise price for 51,502 shares is $1.37 per share and the exercise price for 458,647 shares is $1.54 per share.

        We made the private offerings to domestic accredited investors pursuant to Regulation D, and to foreign accredited investors pursuant to Regulation S, under the Securities Act of 1933. The investors represented to us that they were purchasing the securities for their own accounts for investment and not with a view toward resale or distribution to others. The stock and warrants sold are not transferable absent registration or exemption from registration requirements, and the certificates bear a legend to that effect. We have registered for resale under the Securities Act of 1933 the common stock sold and the common stock issuable on exercise of the warrants.

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Item 6. Selected Consolidated Financial Data.

        The following selected consolidated financial data has been derived from the audited consolidated financial statements of Palatin Technologies, Inc. This data should be read in conjunction with our consolidated financial statements, including the notes to the financial statements, and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this report.

Selected Consolidated Financial Data

                                                                       (In thousands, except per share data)
                                                                                Year Ended June 30,
                                                  --------------------------------------------------------------------------------
                                                     1999              2000             2001             2002             2003
                                                  ----------       ------------      -----------      -----------      -----------
Statement of Operations Data:
REVENUES
  Grants and contracts                         $        60     $       4,617   $      1,621    $         81   $        641
  License fees and royalties                           550               500            167             200            629
  Other                                                 --                --             --              --             --
                                                ----------      ------------    -----------     -----------    -----------
    Total revenues                                     610             5,117          1,788             281          1,270
                                                ----------      ------------    -----------     -----------    -----------
OPERATING EXPENSES
  Research and development                           8,720             9,110         10,109          12,117         17,439
  General and administrative                         3,957             4,567          3,025           5,004          4,867
                                                ----------      ------------    -----------     -----------    -----------
    Total operating expenses                        12,677            13,677         13,134          17,121         22,306
                                                ----------      ------------    -----------     -----------    -----------
OTHER INCOME (EXPENSES)
  Interest income                                      172               405            788             312            248
  Interest expense                                   (107)              (29)            (5)             (3)           (22)
                                                ----------      ------------    -----------     -----------    -----------
    Total other income                                  65               376            783             309            226
                                                ----------      ------------    -----------     -----------    -----------
    Loss before income taxes & cumulative
    effect of accounting change                   (12,002)           (8,184)       (10,563)        (16,531)       (20,810)
Income tax benefit                                      --                --            325             392            245
                                                ----------      ------------    -----------     -----------    -----------
Loss before cumulative effect of
 accounting change                                (12,002)           (8,184)       (10,238)        (16,139)       (20,565)
Cumulative effect of accounting change (1)              --                --          (361)              --             --
                                                ----------      ------------    -----------     -----------    -----------
NET LOSS                                          (12,002)           (8,184)       (10,599)        (16,139)       (20,565)
DEEMED DIVIDEND                                         --                --             --           (297)          (203)
                                                ----------      ------------    -----------     -----------    -----------
NET LOSS ATTRIBUTABLE TO
COMMON STOCKHOLDERS                            $  (12,002)     $     (8,184)   $   (10,599)    $   (16,436)   $   (20,768)
                                                ==========      ============    ===========     ===========    ===========
Basic and diluted net loss before cumulative
  effect of accounting change                  $    (2.02)     $      (1.10)   $     (1.01)    $     (1.16)   $     (0.73)
Cumulative effect of accounting change (1)              --                --         (0.04)              --             --
                                                ----------      ------------    -----------     -----------    -----------
Basic and diluted net loss per common share    $    (2.02)     $      (1.10)   $     (1.05)    $     (1.16)   $     (0.73)
                                                ==========      ============    ===========     ===========    ===========
Weighted average common shares
  outstanding                                        5,936             7,441         10,131          14,195         28,362
                                                ==========      ============    ===========     ===========    ===========

Pro forma amounts assuming accounting
  change applied retroactively:
Net loss to common shareholders                $  (12,002)     $     (8,545)   $   (10,238)
                                                ==========      ============    ===========
Basic and diluted net loss per common share    $    (2.02)     $      (1.15)   $     (1.01)
                                                ==========      ============    ===========

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Balance Sheet Data:
Cash, cash equivalents and investments         $     2,789     $       5,842   $     11,456    $      9,123   $     18,383
Property and equipment, net                          1,458             1,573          1,925           2,416          3,399
Working capital                                        554             4,995          9,360           6,595         15,249
Total assets                                         4,723             8,885         14,244          12,358         22,721
Long term debt, net of current portion               2,000                --             --              --             76
Stockholders' equity                           $       341     $       6,905   $     11,916    $      8,687   $     18,657
- -------------------------------------------  -------------  ---------------- -------------- ---------------  -------------

(1)     In fiscal 2001, we recorded a non-cash charge for the cumulative effect related to the adoption of SEC Staff Accounting Bulletin No. 101. See Note 2 to the Consolidated Financial Statements.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

        The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes to the financial statements filed as part of this Annual Report.

Critical Accounting Policies.

        Our significant accounting policies are described in Note 2 to the consolidated financial statements included in this Annual Report. We believe our most critical accounting policy is revenue recognition. Revenue from corporate collaborations and licensing agreements consists of up-front fees, research and development funding, and milestone payments. Non-refundable up-front fees are deferred and amortized to revenue over the related performance period. We estimate our performance period as the initial research term. The actual performance period may vary. We will adjust the performance period estimate based upon available facts and circumstances. Periodic payments for research and development activities and government grants are recognized over the period that we perform the related activities under the terms of the agreements. Revenue resulting from the achievement of milestone events stipulated in the agreements is recognized when the milestone is achieved. Milestones are based on the occurrence of a substantive element specified in the contract or as a measure of substantive progress towards completion under the contract.

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Certain Significant Events in Fiscal Year 2003

        PT-141 is our lead therapeutic candidate and is now in clinical development for the treatment of both male and female sexual dysfunction. We completed a Phase 2B trial with PT- 141 in male patients in September 2003 and anticipate announcing results of this trial in the fourth

quarter of calendar year 2003. LeuTech®, is our proprietary radiolabled monoclonal antibody for imaging and diagnosing infections. We commenced the BLA amendment filings to the FDA in the first half of calendar year 2003 and anticipate remitting the final BLA amendment filing to the FDA in the fourth quarter of calendar year 2003. We expect to receive a complete response from the FDA regarding our BLA amendment filings in the first half of calendar year 2004. We are currently conducting Phase 2 studies with LeuTech for detection of other infections, including osteomyelitis (infection deep inside a bone), fever of unknown origin, post-surgical abscess, inflammatory bowel disease and pulmonary imaging.

        On July 24, 2003, we announced the completion of patient enrollment in a Phase 2B at-home, dose-ranging clinical study of PT-141. This study is designed to examine safety and efficacy for MED across a range of intranasally administered doses of PT-141 in an at-home environment. A total of 270 patients were enrolled, ranging in age from 21-70 years, all suffering from moderate to severe MED and having a history of responsiveness to Viagra® therapy.

        On June 24, 2003, we announced that the U.S. Patent and Trademark Office has issued U.S. patent No. 6,579,968, entitled “Compositions and Methods for Treatment of Sexual Dysfunction.” The approved patent covers the specific formula in PT-141. The patent covers both the specific peptide used in PT-141 and the pharmaceutical composition for treating sexual dysfunction.

        In June 2003, Palatin was added to the Russell 2000(R) Index, which is determined by objective rules, such as market capitalization rankings, which will remain in place for a year. Russell indexes are used by investment managers for index funds and as benchmarks for both passive and active strategies. About $220 billion is invested in index funds based on Russell's indexes and an additional $850 billion is benchmarked to them. Investment managers who oversee these funds purchase shares of member stocks according to that company's weighting in the particular index.

        On April 27, 2003, we announced and presented positive results of our PT-141 Phase 2A studies at the Sexual Medicine Society of North America meeting at the American Urological Association (AUA) Annual Meeting. Hunter Wessells, M.D., Associate Professor of Urology at the University of Washington — Seattle, presented clinical data on the safety and efficacy of PT- 141. The data demonstrate that PT-141 produced a statistically significant improvement in erectile function across a wide range of erectile dysfunction patients with no clinically significant adverse effects. These Phase 2A studies were conducted in men with mild, moderate and severe MED, including patients with hypertension, hyperlipidemia, diabetes and depression. The Phase 2A studies consisted of one study of 24 patients responsive to Viagra and a second study of 24 patients with an inadequate response to Viagra (patients able to complete sexual intercourse less than 25% of the time after taking a 100mg dose of Viagra).

21

        In March 2003, we concluded a private placement of our common stock and warrants, which yielded gross proceeds of approximately $19.1 million. Investors, consisting of domestic financial institutions and other accredited investors, purchased 13,433,096 shares of common stock and 3,358,275 warrants at a market value of approximately $1.42 per share. For every four shares purchased, the investors also received a five-year warrant. Each warrant entitles the purchaser to purchase one share of common stock at an exercise price of approximately $1.77 per share. The net proceeds of approximately $18.1 million are being used primarily for general corporate purposes, including the development and clinical trials of new products based on certain of our proprietary technologies.

        In November 2002, we concluded a private placement of our common stock and warrants, which yielded gross proceeds of approximately $11.5 million. Investors, consisting of domestic and European financial institutions and other domestic accredited investors, purchased 9,373,940 shares of common stock and 1,874,788 warrants at a market value of approximately $1.23

per share. For every five shares purchased, the investors also received a five-year warrant. Each warrant entitles the purchaser to purchase one share of common stock at an exercise price of approximately $1.54 per share. The net proceeds of approximately $10.7 million were used primarily for general corporate purposes, including the development and clinical trials of new products based on certain of our proprietary technologies.

        In July 2002, we received gross proceeds of $1.8 million pursuant to the second closing of the Spring 2002 private placement of common stock and warrants. Investors, consisting of domestic and European financial institutions and other domestic accredited investors, purchased 1,545,063 shares of common stock and 309,012 warrants at a market value of approximately $1.17 per share. For every five shares purchased, the investors also received a five-year warrant. Each warrant entitles the purchaser to purchase one share of common stock at an exercise price of approximately $1.46 per share. The net proceeds of approximately $1.7 million were used primarily for general corporate purposes, including the development and clinical trials of new products based on certain of our proprietary technologies.

        On July 17, 2002, we moved into our new leased facility of approximately 28,000 square feet in Cranbury, New Jersey that combines both the research and development facility formerly located in Edison, New Jersey and the corporate offices formerly located in Princeton, New Jersey. The lease will expire in July 2012.

Results of Operations

Year Ended June 30, 2003 Compared to the Year Ended June 30, 2002

        Grants and contracts – For the year ended June 30, 2003, we recognized $504,000 in contract revenue related to the shared development costs of LeuTech pursuant to our collaboration agreement with Mallinckrodt, Inc., a division of Tyco International, Ltd., as compared to no recognition of contract revenue for the year ended June 30, 2002. The increase in contract revenue was attributable to additional shared development costs of LeuTech pursuant to the amended collaboration agreement. For the year ended June 30, 2003, we recorded $137,417 in grant revenue pursuant to the Small Business Technology Transfer programs of the Department of Health and Human Services compared to $80,929 for the year ended June 30, 2002.

22

        License Fees and Royalties – For the year ended June 30, 2003, we recorded $628,598 of license revenue compared to $200,426 of license revenue recorded for the year ended

June 30, 2002. Of the license revenue recorded for the year ended June 30, 2003, $43,987 was included in the cumulative effect adjustment as of July 1, 2000 and $584,611 was recorded as a result of the initial $800,000 payment received from Mallinckrodt pursuant to our amended collaboration agreement in May 2002. Of the license revenue recorded for the year ended June 30, 2002, $138,888 was included in the cumulative effect adjustment as of July 1, 2000 and $61,538 was recorded as a result of the initial $800,000 payment received from Mallinckrodt.

        Research and development – Research and development (R&D) expenses increased to $17,439,191 for the year ended June 30, 2003 compared to $12,117,026 for the year ended June 30, 2002. The increase in R&D was primarily related to our increased development efforts and expanding clinical trials of PT-141 and LeuTech. Our R&D efforts, and their respective allocated costs, are currently concentrated on the following:

• PT-141, to date we have incurred approximately $22.1 million in allocated R&D expenses. For the year ended June 30, 2003, approximately $9.0 million of R&D expense was allocated to PT-141 compared to approximately $6.0 million for the year ended June 30, 2002. We anticipate incurring approximately $4.0 million of expenses over the next 12 months as we progress with our clinical trials and product development programs.

• LeuTech, to date we have incurred approximately $40.6 million in allocated R&D expenses. For the year ended June 30, 2003,approximately $5.4 million of R&D expense was allocated to LeuTech compared to approximately $3.5 million for the year ended June 30, 2002. We anticipate incurring approximately $3.0 million of expenses over the next 12 months.

• MIDAS, to date we have incurred approximately $9.7 million in allocated R&D expenses. For the year ended June 30, 2003, approximately $3.0 million of R&D expense was allocated to MIDAS compared to approximately $2.6 million for the year ended June 30, 2002. Based on this effort, we have identified several molecules that are now in preclinical development as potential treatments for obesity, sexual dysfunction and inflammation. We expect to file an IND with the FDA for at least one of these preclinical compounds and initiate clinical testing in the first half of calendar year 2004. We anticipate incurring approximately $2.0 million of expenses over the next 12 months.

23

        General and administrative – General and administrative (G&A) expenses decreased to $4,866,642 for the year ended June 30, 2003 compared to $5,004,143 for the year ended June 30, 2002. The decrease in G&A expenses is primarily attributable to the reduction in legal expenses since the settlement with Molecular Biosystems in August 2002, which was accrued as of June 30, 2002.

        Interest income – Interest income decreased to $247,552 for the year ended June 30, 2003 compared to $312,015 for the year ended June 30, 2002. The decrease in interest income is attributable to lower average amounts of cash, cash equivalents and investments available for investment purposes throughout the year and the decrease in interest rates these investments earn.

        Income tax benefit — During 2003 and 2002, the Company sold New Jersey State net operating loss carryforwards and research and development credits, which resulted in the recognition of $245,093 and $392,410 income tax benefit, respectively. Assuming the State of New Jersey continues to fund this program, which is uncertain, the actual amount of net operating losses and tax credits we may sell will also depend upon the allocation among qualifying companies of an annual pool established by the State of New Jersey.

        Deemed dividend — Based on the sales price of the common stock in private placements, the exercise prices of certain outstanding warrants were adjusted downward in accordance with their existing terms. As a result, a deemed dividend of $203,138 and $297,603 has been reflected in the Company’s consolidated statement of operations for years ended June 30, 2003 and 2002, respectively. The decrease in deemed dividend between years is primarily the result of the difference in the sales price of the common stock in the private placements and the changes to the total securities outstanding during 2003 compared to 2002.

Year Ended June 30, 2002 Compared to the Year Ended June 30, 2001

        Grants and contracts – For the year ended June 30, 2002, we did not recognize any contract revenue related to the shared development costs of LeuTech pursuant to our collaboration agreement with Mallinckrodt, Inc., a division of Tyco International, Ltd., as compared to $1,410,356 recognized for the year ended June 30, 2001. The decrease was attributable to the cap on shared development costs of LeuTech pursuant to the original collaboration agreement, which was reached during the year ended June 30, 2001. In May 2002 we entered into an agreement with Mallinckrodt to amend this agreement. Under the terms of this amended agreement, Mallinckrodt has committed, among other things, up to an additional $3.2 million, subject to certain conditions and attaining certain milestones, to cover half of the estimated expenses associated with completing the FDA review process of LeuTech. Grant revenue under the Small Business Innovation Research and the Small Business Technology Transfer programs of the Department of Health and Human Services decreased to $80,929 for the year ended June 30, 2002 compared the $211,069 reported for the year ended June 30, 2001.

        License Fees and Royalties – During the year ended June 30, 2001, we adopted U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 101 “Revenue Recognition in Financial Statements” (“SAB 101”), which requires up-front, non-refundable license fees to be deferred and recognized over the performance period. The cumulative effect of adopting SAB 101 resulted in a one-time, non-cash charge of $361,111 or $0.04 per share in fiscal 2001, which reflects the deferral of an up-front license fee received from Mallinckrodt, Inc. related to licensing of LeuTech recognized in the year ended June 30, 2000. Previously, we had recognized up-front license fees when they were received and we had no obligations to return the fees under any circumstances. Under SAB 101 these payments are recorded as deferred revenue to be recognized over the remaining term of the related agreements. For the year ended June 30, 2002, we recorded $200,426 of license revenue, $138,888 of which was included in the cumulative effect adjustment as of July 1, 2000 and $61,538 was recorded as a result of the initial $800,000 payment received from Mallinckrodt pursuant to our amended collaboration agreement in May 2002. We recorded $166,667 of license revenue for the year ended June 30, 2001 that was included in the cumulative effect adjustment as of July 1, 2000.

24

        Research and development – Research and development (R&D) expenses increased to $12,117,026 for the year ended June 30, 2002 compared to $10,108,999 for the year ended June 30, 2001. The increase in R&D was primarily related to our increased development efforts and expanding clinical trials of PT-141 and LeuTech, and increased research on our MIDAS technology. Additionally, depreciation expense increased due to a change in the remaining estimated useful lives of certain leasehold improvements at our Edison, New Jersey facility which we moved out of in July 2002.

        General and administrative – General and administrative (G& A) expenses increased to $5,004,143 for the year ended June 30, 2002 compared to $3,024,841 for the year ended June 30, 2001. The increase in G&A was primarily attributable to an increase in professional fees mainly related to legal fees, increase in salaries and related personnel expenses and the accrual of our settlement of litigation with Molecular Biosystems, Inc.

        Interest income – Interest income decreased to $312,015 for the year ended June 30, 2002 compared to $787,574 for the year ended June 30, 2001. The decrease in interest income was due to lower level of funds available for investment purposes and lower rates of return experienced throughout the fiscal year ended June 30, 2002.

        Income tax benefit — During 2002 and 2001, the Company sold New Jersey State net operating loss carryforwards and research and development credits, which resulted in the recognition of $392,410 and $325,152 income tax benefit, respectively. Assuming the State of New Jersey continues to fund this program, which is uncertain, the actual amount of net operating losses and tax credits we may sell will also depend upon the allocation among qualifying companies of an annual pool established by the State of New Jersey.

        Deemed dividend — Based on the sales price of the common stock in private placements, the exercise prices of certain outstanding warrants were adjusted downward in accordance with the existing terms of those warrants. As a result, a deemed dividend of $297,603 has been reflected in the Company’s consolidated statement of operations for year ended June 30, 2002. There was no dividend recorded during 2001 as the sales price of common stock issued exceeded the terms of these warrants.

Liquidity and Capital Resources

        Since inception, we have incurred net operating losses. As of June 30, 2003, we had a deficit accumulated during the development stage of $90,808,827. We have financed our net operating losses through June 30, 2003 by a series of debt and equity financings. At June 30, 2003, we had cash and cash equivalents of $14,294,603 and investments of $4,088,384.

25

        Our product candidates are at various stages of research and development and may never be successfully developed or commercialized. We will need regulatory approval to market and sell LeuTech for diagnosis of appendicitis, as well as for PT-141, MIDAS and LeuTech for other indications. PT-141, MIDAS and LeuTech for other indications will require significant further research, development and testing. We may experience uncertainties, delays, difficulties and expenses commonly experienced by early stage biopharmaceutical companies, which may include unanticipated problems and additional costs relating to:

• the development and testing of products in animals and humans;

• product approval or clearance;

• regulatory compliance;

• good manufacturing practices;

• intellectual property rights;

• product introduction; and

• marketing, sales and competition.

Failure to obtain regulatory approval of LeuTech, or delays in obtaining regulatory approval of LeuTech for the diagnosis of appendicitis, would eliminate or delay our potential revenues from sales of LeuTech. This could make it more difficult to attract investment capital for funding our other research and development projects. Any of these possibilities could materially and adversely affect our operations.

        During the year ended June 30, 2003, our operating activities used net cash of $19.9 million and during the year ended June 30, 2002 our operating activities used net cash of $13.1 million. The increase resulted primarily from increased R&D spending on both PT-141 and LeuTech.

        During the year ended June 30, 2003, we used cash in investing activities of $4.1 million, consisting of $1.1 million of capital expenditures and $3.0 million for net purchases of investment securities. During the year ended June 30, 2002, we used cash in investing activities of $2.8 million, consisting of $1.6 million of capital expenditures and $1.2 million for investment securities.

        During the year ended June 30, 2003, net cash provided by financing activities was approximately $30.3 million, consisting of approximately $30.5 million in gross proceeds from the issuance of common stock and warrants in private placements, partially offset by $153,473 for payments on capital lease obligations. During the year ended June 30, 2002, net cash provided by financing activities was $12.4 million, all of which resulted from the issuance of common stock and warrants in private placements.

        In November 2002 and March 2003, we received aggregate gross proceeds of $30.6 million in private placements of common stock and warrants. Investors, consisting of domestic and European financial institutions and other accredited investors, purchased approximately 22.8 million shares of common stock: 9,373,940 shares at $1.23 per share and 13,433,096 at $1.42 per share. For every five shares purchased in the November 2002 offering and for every four shares purchased in the March 2003 offering, the investors also received a five-year warrant to purchase one share of common stock at an exercise price of $1.54 for the November 2002 offering and $1.77 for the March 2003 offering. The net proceeds of approximately $28.8 million continue to be used primarily for general corporate purposes, especially for the development and clinical trials of new products based on our proprietary technologies.

26

        In July 2002, we received additional gross proceeds of $1.8 million pursuant to the second tranche of the Spring 2002 private placement of common stock and warrants. Investors, consisting of domestic and European financial institutions and other accredited investors, purchased approximately 1.5 million shares of common stock shares at $1.17 per share. For every five shares purchased, the investors also received a five-year warrant to purchase one share of common stock at an exercise price of $1.46 per share. The net proceeds of approximately $1.7 million were used primarily for general corporate purposes, especially for the development and clinical trials of new products based on our proprietary technologies.

        In November 2001 and June of 2002, we received aggregate gross proceeds of $13.44 million in private placements of common stock and warrants. Investors, consisting of domestic and European financial institutions and other accredited investors, purchased approximately 6.0 million shares of common stock: 4,902,481 shares at $2.25 per share and 1,095,097 shares at $2.20 per share. For every four shares purchased in the November 2001 offering and for every five shares purchased in the June 2002 offering, the investors also received a five-year warrant to purchase one share of common stock at an exercise price of $2.70 for the November 2001 offering and $2.75 for the June 2002 offering. The net proceeds of approximately $12.5 million were used primarily for general corporate purposes, especially for the development and clinical trials of new products based on our proprietary technologies.

        On May 13, 2002, we entered into an agreement with Mallinckrodt, Inc., a division of Tyco International, Ltd., to amend our Strategic Collaboration Agreement dated as of August 17, 1999. Under the terms of the original agreement, in addition to other provisions, Mallinckrodt paid us a licensing fee of $500,000 and an additional $13 million to purchase 700,000 restricted unregistered shares of our preferred stock. We shared LeuTech development expenses prior to FDA approval equally with Mallinckrodt. Mallinckrodt agreed to pay us milestone payments of an additional $10 million on FDA approval of the first LeuTech indication and on attainment of certain sales goals following product launch. We agreed to arrange for the manufacture of LeuTech and we would receive a transfer price on each product unit and a royalty on LeuTech net sales.

        Under the terms of the amended agreement, Mallinckrodt has committed up to an additional $3.2 million, subject to certain conditions and attaining certain milestones, to offset a portion of the estimated expenses associated with completing the FDA review process. Additionally, timing of the $10 million in milestone payments has been revised to coincide with LeuTech’s anticipated FDA approval and achievement of future sales goals. Of the $3.2 million, $1.2 million has been paid to date. We expect to receive the remaining $2 million in the fourth quarter of calendar year 2003

        On July 17, 2002, we moved into our new leased facility of approximately 28,000 square feet in Cranbury, New Jersey that combines both the research and development facility formerly located in Edison, New Jersey and the corporate offices formerly located in Princeton, New Jersey. Our initial cash outlay related to the move was approximately $1.6 million. Minimum annual lease payments escalate currently from approximately $925,000 per year to $1,605,000 per year in 2007. The lease will expire in July 2012.

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        We have three license agreements that require minimum yearly payments. Future minimum payments under the license agreements are: 2004 — $250,000, 2005 — $200,000, 2006 — $200,000, 2007 — $200,000 and 2008 — $200,000.

        We are and expect to continue actively searching for certain products and technologies to license or acquire, now or in the future. If we are successful in identifying a product or technology for acquisition, we may require substantial funds for such an acquisition and subsequent development or commercialization. We do not know whether any acquisition will be consummated in the future.

        We have incurred negative cash flows from operations since our inception, and have expended, and expect to continue to expend in the future, substantial funds to complete our planned product development efforts. We expect that our existing capital resources will be adequate to fund our projected operations into fiscal year ending June 30, 2005, based on current and projected expenditure levels. No assurance can be given that we will not consume a significant amount of our available resources before that time. We plan to continue to refine our operations, control expenses, evaluate alternative methods to conduct our business and seek available and attractive sources of financing and sharing of development costs through strategic collaboration agreements or other resources. Should appropriate sources of financing not be available, we would delay certain clinical trials and research activities until such time as appropriate financing was available.

        We anticipate incurring additional losses over at least the next few years. To achieve profitability, we, alone or with others, must successfully develop and commercialize our technologies and proposed products, conduct pre-clinical studies and clinical trials, obtain required regulatory approvals and successfully manufacture and market such technologies and proposed products. The time required to reach profitability is highly uncertain, and we do not know whether we will be able to achieve profitability on a sustained basis, if at all.

Commitments

        As outlined in Note 5 of the Notes to our Consolidated Financial Statements, we have entered into various contractual obligations and commercial commitments. The following table summarizes our most significant contractual obligations as of June 30, 2003:

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                                                          Payments due by Period
                                                          ----------------------
                                               Less than                                     After 5
                                  Total          1 Year      1 - 3 Years    4 - 5 Years       Years
                                  -----          ------      -----------    -----------       -----

Facility operating leases     $12,054,000     $1,367,000      $2,529,000     $2,888,000     $5,270,000
Capital lease obligations         283,000        199,000          64,000         20,000              -
License agreements              1,050,000        250,000         400,000        400,000              -
                              ------------------------------------------------------------------------
Total conractual obligations  $13,387,000     $1,816,000      $2,993,000     $5,270,000     $5,270,000
                              ========================================================================

Recent Accounting Pronouncement

        In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statement No. 123.” This Statement amends FASB Statement No. 123, “Accounting for Stock -Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements. Certain of the disclosure modifications are required for fiscal years ending after December 15, 2002 and are included in the notes to these consolidated financial statements.

Factors Affecting our Business Condition

        In addition to the other information included in this Annual Report, the following factors should be considered in evaluating our business and future prospects:

We expect to continue to incur substantial losses over the next few years and we may never become profitable.

        We have never been profitable and we may never become profitable. As of June 30, 2003, we had a deficit accumulated during development stage of $90,808,827 and a loss for the year then ended of $20,565,211. We anticipate substantial losses over the next few years associated with the manufacturing and marketing of LeuTech for diagnosis of appendicitis, and continued research and development of PT-141, MIDAS and LeuTech for other indications. We cannot be certain whether additional funds will be available when needed, or on acceptable terms. If we are unable to obtain additional financing as needed, we may reduce the scope of our operations, which will have a material adverse effect on our business.

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We currently have no revenues from product sales and will need to raise additional capital to operate our business.

        To date, we have generated no revenues from the sale of any approved products. Unless and until we receive approval from the U.S. Federal Drug Administration and other regulatory authorities for our product candidates, we cannot sell our products and will not have product revenues. Therefore, for the foreseeable future, we will have to fund all of our operations and capital expenditures from net proceeds of future offerings and cash on hand. We will need to seek additional sources of financing, which may not be available on favorable terms, if at all. If we do not succeed in raising additional funds on acceptable terms, we may be unable to complete planned pre-clinical and clinical trials or obtain approval of our product candidates from the FDA and other regulatory authorities. In addition, we could be forced to discontinue product development, reduce or forego sales and marketing efforts and forego attractive business opportunities, which will have a material adverse effect on our business.

We have a limited operating history upon which to base an investment decision.

        We are a development-stage company and have not demonstrated our ability to perform the functions necessary for the successful commercialization of any of our product candidates. The successful commercialization of our product candidates will require us to perform a variety of functions, including:

• continuing to undertake pre-clinical development and clinical trials;

• participating in regulatory approval processes;

• formulating and manufacturing products;

• conducting sales and marketing activities; and

• obtain additional capital.

Our operations have been limited to organizing and staffing our Company, acquiring, developing and securing our proprietary technology and undertaking pre-clinical trials and clinical trials of our principal product candidates. These operations provide a limited basis for you to assess our ability to commercialize our product candidates and the advisability of investing in our common stock.

Development and commercialization of our proposed product and technologies involves a lengthy, complex and costly process and we may never develop or commercialize any products.

        Our product candidates are at various stages of research and development, will require regulatory approval, and may never be successfully developed or commercialized. We will need regulatory approval to market LeuTech for diagnosis of appendicitis, and we are still conducting clinical trials on the use of LeuTech for other indications. PT-141 and MIDAS will require significant further research, development and testing. You should evaluate Palatin in light of the uncertainties, delays, difficulties and expenses commonly experienced by early stage biopharmaceutical companies, which may include unanticipated problems and additional costs relating to:

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• the research, development and testing of products in animals and humans;

• product approval or clearance;

• regulatory compliance;

• good manufacturing practices;

• intellectual property rights;

• product introduction; and

• marketing and competition.

Government authorities in the United States and other countries extensively regulate the advertising, labeling, storage, record-keeping, safety, efficacy, research, development, testing, manufacture, promotion, marketing and distribution of drug products under the Federal Food, Drug and Cosmetic Act, or FFDCA, in the United States and under comparable laws in most foreign countries. Drugs are subject to rigorous regulation by the FDA in the United States and similar regulatory bodies in other countries. The steps ordinarily required by the FDA before a new drug may be marketed in the United States are similar to steps required in most other countries and include:

• completion of pre-clinical laboratory tests, pre-clinical trial and formulation studies;

• submission to the FDA of an investigational new drug application, or IND, for a new drug or antibiotic, which must become effective before clinical trials may begin;

• performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug for each proposed indication;

• the submission of a new drug application, or NDA, to the FDA; and

• FDA review and approval of the NDA before any commercial marketing, sale or shipment of the drug.

Pre-clinical tests include laboratory evaluation of product chemistry formulation and stability, as well as studies to evaluate toxicity. The results of pre-clinical testing together with manufacturing information and analytical data are submitted to the FDA as part of an IND application. The FDA requires a 30-day waiting period after the filing of each IND application before clinical trials may begin, in order to ensure that human research subjects will not be exposed to unreasonable health risks. At any time during this 30-day period or at any time thereafter, the FDA may halt proposed or ongoing clinical trials, or may authorize trials only on specified terms. The IND application process may become extremely costly and substantially delay development of our products. Moreover, positive results of pre-clinical tests will not necessarily indicate positive results in clinical trials.

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        Clinical trials to support new drug applications are typically conducted in three sequential phases that may overlap. These phases generally include the following:

• Phase I: The drug is usually first introduced into healthy humans or, on occasion, into patients, and is tested for safety, dosage tolerance, absorption, distribution, excretion and metabolism.

• Phase II: The drug is introduced into a limited patient population to:

–  assess the efficacy of the drug in specific, targeted indications;

–  assess dosage tolerance and optimal dosage; and

–  identify possible adverse effects and safety risks.

• Phase III: These are commonly referred to as pivotal studies. If a compound is found to have an acceptable safety profile and to be potentially effective in Phase II clinical trials, new clinical trials will be initiated to further demonstrate clinical efficacy, optimal dosage and safety within an expanded and diverse patient population at geographically dispersed clinical study sites.

        Clinical testing must meet requirements for Institutional Review Board, or IRB, oversight, informed consent and good clinical practices. The FDA, and the IRB at each institution at which a clinical trial is being performed, may suspend a clinical trial at any time for various reasons, including a belief that the subjects are being exposed to an unacceptable health risk.

        The results of product development, pre-clinical studies and clinical studies are submitted to the FDA as part of a new drug application, or NDA. The NDA also must contain extensive manufacturing information. Once the submission has been accepted for filing, the FDA has 180 days to review the application and respond to the applicant. The review process is often significantly extended by FDA requests for additional information or clarification. The FDA may refer the NDA to an advisory committee for review, evaluation and recommendation as to whether the application should be approved, but the FDA is not bound by the recommendation of an advisory committee. The FDA may deny or delay approval of applications that do not meet applicable regulatory criteria or if the FDA determines that the clinical data do not adequately establish the safety and efficacy of the drug. Upon approval, a drug candidate may be marketed only in those dosage forms and for those indications approved in the NDA. Once approved, the FDA may withdraw the product approval if compliance with pre- and post-market regulatory standards is not maintained or if problems occur after the product reaches the marketplace. In addition, the FDA may require post-marketing studies, referred to as Phase IV studies, to monitor the effect of approved products, and may limit further marketing of the product based on the results of these post-market studies. The FDA has broad post-market regulatory and enforcement powers, including the ability to levy fines and civil penalties, suspend or delay issuance of approvals, seize or recall products, and withdraw approvals.

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        Satisfaction of FDA pre-market approval requirements for new drugs typically takes several years and the actual time required may vary substantially based upon the type, complexity and novelty of the product or disease. Government regulation may delay or prevent marketing of potential products for a considerable period of time and impose costly procedures upon our activities. Success in early stage clinical trials does not assure success in later stage clinical trials. Data obtained from clinical activities is not always conclusive and may be susceptible to varying interpretations that could delay, limit or prevent regulatory approval. Even if a product receives regulatory approval, later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market.

        If regulatory approval of any of our products is granted, it will be limited to certain disease states or conditions. The manufacturers of approved products and their manufacturing facilities will be subject to continual review and periodic inspections by the FDA and other authorities where applicable, and must comply with ongoing regulatory requirements, including the FDA’s cGMP regulations. Failure to comply with the statutory and regulatory requirements subjects the manufacturer to possible legal or regulatory action, such as Warning Letters, suspension of manufacturing, seizure of product, voluntary recall of a product injunctive action or possible civil penalties. Adverse experiences with the product must be reported to the FDA and could result in the imposition of market restriction through labeling changes or in product removal. Product approvals may be withdrawn if compliance with regulatory requirements is not maintained or if problems concerning safety or efficacy of the product occur following approval. Because we intend to contract with third parties for manufacturing of these products, our ability to control third party compliance with FDA requirements will be limited to contractual remedies and rights of inspection. Failure of third-party manufacturers to comply with cGMP or other FDA requirements applicable to our products may result in legal or regulatory action by the FDA.

        With respect to post-market product advertising and promotion, the FDA imposes a number of complex regulations on entities that advertise and promote pharmaceuticals, which include, among others, standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet. The FDA has very broad enforcement authority under the Federal Food Drug and Cosmetic Act, and failure to abide by these regulations can result in penalties including the issuance of a warning letter directing us to correct deviations from FDA standards, a requirement that future advertising and promotional materials be pre-cleared by the FDA, and state and federal civil and criminal investigations and prosecutions.

        We are also subject to various laws and regulations regarding laboratory practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances in connection with our research. In each of these areas, as above, the FDA and other regulatory authorities have broad regulatory and enforcement powers, including the ability to levy fines and civil penalties, suspend or delay issuance of approvals, seize or recall products, and withdraw approvals, any one or more of which could have a material adverse effect upon us. We are also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. We may incur significant costs to comply with such laws and regulations now or in the future.

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        Outside the United States our ability to market our products will also depend on receiving marketing authorizations from the appropriate regulatory authorities. The foreign regulatory approval process includes all of the risks associated with FDA approval described above. The requirements governing the conduct of clinical trials and marketing authorization vary widely from country to country. At present, foreign marketing authorizations are applied for at a national level, although within the European Community, or EC, registration procedures are available to companies wishing to market a product to more than one EC member state. If the regulatory authority is satisfied that adequate evidence of safety, quality and efficiency has been presented, a marketing authorization will be granted.

We could lose our rights to LeuTech and PT-141, which would adversely affect our potential revenues.

        Our rights to a key antibody used in LeuTech are dependent upon an exclusive license agreement with The Wistar Institute of Biology and Anatomy. Our rights to technology related to PT-141 are dependent upon an exclusive field-of-use license agreement with Competitive Technologies, Inc. These agreements contain specific performance criteria and require us to pay royalties and make milestone payments. Failure to meet these requirements, or any other event of default under the license agreements, could lead to termination of the license agreements. If a license agreement is terminated we may be unable to make or market the covered product, in which case we may lose the value of our substantial investment in developing the product, as well as any future revenues from selling the product.

The FDA may not approve the marketing of LeuTech, which would adversely affect our potential revenues.

        We completed clinical trials of LeuTech for the diagnosis of equivocal appendicitis in the spring of 1999. In December 1999, the FDA accepted our LeuTech BLA for the diagnosis of appendicitis in patients with equivocal signs and symptoms. In July 2000, the FDA Medical Imaging Drugs Advisory Committee (MIDAC) unanimously voted that LeuTech is safe and effective for use in the diagnosis of appendicitis in patients with equivocal signs and symptoms and that the data presented support the clinical utility of LeuTech in managing these patients. In September 2000, we received a complete response letter from the FDA where they determined that the efficacy and safety data were complete, yet additional manufacturing and process validation data were required prior to final approval. We are working to resolve the outstanding issues. We commenced the BLA amendment filings to the FDA in the first half of calendar year 2003 and anticipate remitting the final BLA amendment filing to the FDA in the fourth quarter of calendar year 2003. We expect to receive a complete response from the FDA regarding our BLA amendment filings in the first half of calendar year 2004. FDA review of the application amendments can be a long and uncertain process. The amendments must demonstrate that we have satisfactorily addressed all of the issues contained in the complete review letter, before the FDA can approve LeuTech for commercial use. We will need to rely on our contract manufacturers to obtain a substantial part of the requested information. We cannot know for certain whether we can provide the requested information, how long it will take, or whether the data we provide will be satisfactory to the FDA. Failure to obtain regulatory approval of LeuTech, or delays in obtaining regulatory approval of LeuTech, would eliminate or delay our potential revenues from sales of LeuTech. This could make it more difficult to attract investment capital for funding our other research and development projects.

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The results of our clinical trials may not support our product claims.

        Even if our clinical trials are completed as planned, we cannot be certain that their results will support our product claims. Success in pre-clinical testing and early clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the results of later clinical trials will replicate the results of prior clinical trials and pre-clinical testing. The clinical trial process may fail to demonstrate that our product candidates are safe for humans and effective for indicated uses. This failure would cause us to abandon a product candidate and could delay development of other product candidates. Any delay in, or termination of, our clinical trials will delay or eliminate our ability to commercialize our product candidates and generate product revenues.

Production and supply of LeuTech depends on contract manufacturers over whom we have no control.

        We do not have the facilities to manufacture LeuTech. We depend on DSM N.V. of the Netherlands for the manufacture of the antibody used in LeuTech, and on Ben Venue Laboratories of Cleveland, Ohio for the manufacture of LeuTech kits. Our contract manufacturers must perform LeuTech manufacturing activities in a manner that complies with FDA regulations. Failure to conduct their activities in compliance with FDA regulations could negatively impact our ability to receive FDA approval of LeuTech. The failure of either of these manufacturers to supply these key components of LeuTech, or their inability to comply with FDA manufacturing regulations, could force us to seek other manufacturers and could interfere with our ability to deliver product. Establishing relationships with new suppliers, any of whom must be FDA-approved, is a time-consuming and costly process.

We have limited or no experience in marketing, distributing and selling diagnostic imaging products and will rely on our marketing partner to provide these capabilities.

        If the FDA approves LeuTech for marketing and sale, we will depend on our arrangement with Tyco Healthcare (formerly Mallinckrodt, Inc.), a division of Tyco International, Ltd., to market, sell and distribute LeuTech. Tyco Healthcare is our worldwide (excluding Europe) marketing, sale and distribution partner for LeuTech. If Tyco Healthcare fails to market LeuTech or devote enough resources to LeuTech, our potential revenues from the sale of LeuTech will be adversely affected. If the arrangement with Tyco Healthcare fails, we may have difficulty establishing new marketing relationships, and in any event, we will have limited control over these activities.

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If LeuTech does not achieve market acceptance, our business will suffer.

        Approval of LeuTech for marketing and sale does not assure the product’s commercial success. LeuTech, if successfully developed, will compete with drugs manufactured and marketed by major pharmaceutical and other biotechnology companies. Imaging agents such as LeuTech generally take longer to achieve market acceptance following marketing approval than other drugs. The degree of market acceptance of LeuTech will depend on a number of factors, including:

• perceptions by members of the health care community, including physicians, about the safety and effectiveness of LeuTech;

• cost-effectiveness of LeuTech relative to competing products;

• availability of reimbursement for our products from government or other healthcare payors;

• the establishment and demonstration of the clinical efficacy and safety; and

• potential advantage over alternative treatment methods.

If LeuTech does not achieve adequate market acceptance, our business, financial condition and results of operations will be adversely affected.

Competing products and technologies may make LeuTech and our other potential products noncompetitive.

        We are aware of one company marketing an antibody-based product which may compete with LeuTech as to certain indications. The competing product is marketed in some European countries. Palatin is also aware of at least one other company developing a peptide-based product which may also compete with LeuTech as to certain indications. In addition, other technologies may also be used to diagnose appendicitis, including computerized tomography or CT scan, and ultrasound technologies.

        We are aware that there are two oral FDA-approved drugs for the treatment of erectile dysfunction. Both of these products and another oral drug are also approved in Europe, Japan and most of the world’s pharmaceutical markets. In addition, we are aware of at least two other products treating erectile dysfunction that have been submitted for approval in the United States, Europe and most of the world’s pharmaceutical markets. Potentially, in order to achieve approval and market acceptance, PT-141 may potentially be required to demonstrate efficacy and safety equivalent or superior to these other products.

        The biopharmaceutical and diagnostic industries are highly competitive. We are likely to encounter significant competition with respect to LeuTech, PT-141 and our other potential products. Many of our competitors have substantially greater financial and technological resources than we do. Many of them also have significantly greater experience in research and development, marketing, distribution and sales than we do. Accordingly, our competitors may succeed in developing, marketing, distributing and selling products and underlying technologies more rapidly than us. These competitive products or technologies may be more effective and useful and less costly than LeuTech, PT-141 or our other potential products. In addition, academic institutions, hospitals, governmental agencies and other public and private research organizations are also conducting research and may develop competing products or technologies on their own or through strategic alliances or collaborative arrangements.

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If we fail to adequately protect or enforce our intellectual property rights or secure rights to patents of others, the value of our intellectual property rights would diminish.

        Our success, competitive position and future revenues will depend in part on our ability and the abilities of our licensors to obtain and maintain patent protection for our products, methods, processes and other technologies, to preserve our trade secrets, to prevent third parties from infringing on our proprietary rights and to operate without infringing the proprietary rights of third parties. We cannot predict:

• the degree and range of protection any patents will afford us against competitors, including whether third parties will find ways to invalidate or otherwise circumvent our patents;

• if and when patents will issue;

• whether or not others will obtain patents claiming aspects similar to those covered by our patents and patent applications; or

• whether we will need to initiate litigation or administrative proceedings which may be costly whether we win or lose.

If our products, methods, processes and other technologies infringe the proprietary rights of other parties, we could incur substantial costs and we may have to:

• obtain licenses, which may not be available on commercially reasonable terms, if at all;

• redesign our products or processes to avoid infringement;

• stop using the subject matter claimed in the patents held by others;

• pay damages; or

• defend litigation or administrative proceedings which may be costly whether we win or lose, and which could result in a substantial diversion of our management resources.

Contamination or injury from hazardous materials used in the development of LeuTech, PT- 141 and MIDAS could result in liability exceeding our financial resources.

        Our research and development of LeuTech, PT-141 and MIDAS involves the use of hazardous materials and chemicals, including radioactive compounds. We cannot completely eliminate the risk of contamination or injury from these materials. In the event of contamination or injury, we may be responsible for any resulting damages. Damages could be significant and could exceed our financial resources, including the limits of our insurance.

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We may incur substantial liabilities and may be required to limit commercialization of our products in response to product liability lawsuits.

        The testing and marketing of medical products entail an inherent risk of product liability. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our products, or cease clinical trials. Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of pharmaceutical products we develop, alone or with corporate collaborators. We currently carry product/medical professional liability insurance, which includes liability insurance for our clinical trials. We, or any corporate collaborators, may not be able to obtain insurance at a reasonable cost or in sufficient amounts, if at all. Even if our agreements with any future corporate collaborators entitle us to indemnification against losses, such indemnification may not be available or adequate should any claim arise.

Trading in our stock over the last 12 months has been limited, so investors may not be able to sell as much stock as they want at prevailing prices.

        The average daily trading volume in our common stock for the 12 month period ended September 26, 2003 was approximately 90,000 shares. If limited trading in our stock continues, it may be difficult for investors to sell their shares in the public market at any given time at prevailing prices.

Our management and principal stockholders together control approximately 57% of our voting securities, a concentration of ownership which could delay or prevent a change in control.

        Our executive officers and directors beneficially own approximately 5% of our voting securities and our 5% or greater stockholders beneficially own approximately 52% of our voting securities. These stockholders, acting together, will be able to influence and possibly control most matters submitted for approval by our stockholders, including the election of directors, delaying or preventing a change of control, and the consideration of transactions in which stockholders might otherwise receive a premium for their shares over then current market prices.

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Corporate Governance

        Recently enacted and proposed changes in the laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002 and rules proposed by the Securities and Exchange Commission and by the Nasdaq Stock Market, could result in increased costs to us as we evaluate the implications of any new rules and respond to their requirements. The new rules could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. We are presently evaluating and monitoring developments with respect to new and proposed rules and cannot predict or estimate the amount of the additional costs we may incur or the timing of such costs.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

        Interest Rate Risk. Our exposure to market risk related to changes in interest rates relates primarily to our investment portfolio. We invest in instruments that meet high credit quality standards, and we limit the amount of credit exposure as to any one issue, issuer and type of investments.

        As of June 30, 2003, our cash and cash equivalents were $14,294,603 and investments, which consisted of commercial paper, were $4,088,384. Due to the average maturity and conservative nature of our investment portfolio, we do not believe that short term fluctuations in interest rates would materially affect the value of our securities.

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Item 8. Financial Statements and Supplementary Data

Table of Contents
Consolidated Financial Statements

The following consolidated financial statements of the Company are filed as part of this Report:

	Page
Independent Auditors' Report	41
Report of Independent Public Accountants	42
Consolidated Balance Sheets	43
Consolidated Statements of Operations	44
Consolidated Statements of Stockholders' Equity (Deficit)	45
Consolidated Statements of Cash Flows	50
Notes to Consolidated Financial Statements	52

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INDEPENDENT AUDITORS’ REPORT

The Board of DirectorsPalatin
Technologies, Inc.:

        We have audited the accompanying consolidated balance sheets of Palatin Technologies, Inc. (a development stage company) and subsidiaries as of June 30, 2003 and 2002, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for the years then ended, and for the period from January 28, 1986 (inception) through June 30, 2003. 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 audit. The consolidated financial statements of Palatin Technologies, Inc. and subsidiaries for the year ended June 30, 2001 and for the period from January 28, 1986 (inception) through June 30, 2003, to the extent related to the period from January 28, 1986 (inception) through June 30, 2001, were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements in their report dated September 10, 2001. Our opinion on the consolidated statements of operations, stockholders’ equity (deficit) and cash flows, insofar as it relates to the amounts included for the period from January 28, 1986 (inception) through June 30, 2001, is based solely on the report of the other auditors.

        We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, based on our audits and the report of other auditors, the 2003 and 2002 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Palatin Technologies, Inc. (a development stage company) and subsidiaries as of June 30, 2003 and 2002, and the results of their operations and their cash flows for the years then ended, and for the period from January 28, 1986 (inception) through June 30, 2003, in conformity with accounting principles generally accepted in the United States of America.

/s/ KPMG LLP

Philadelphia, Pennsylvania
September 19, 2003

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The following report is a copy of a previously issued Arthur Andersen LLP (“Andersen”) report and the report has not been reissued by Andersen. The Andersen report refers to financial statements as of June 30, 2001 and 2000 and for the year ended June 30, 2000, which are no longer included in the accompanying financial statements.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Palatin Technologies, Inc.:

        We have audited the accompanying consolidated balance sheets of Palatin Technologies, Inc. (a Delaware corporation in the development stage) and subsidiaries as of June 30, 2001 and 2000, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for each of the three years in the period ended June 30, 2001 and the period from January 28, 1986 (inception) through June 30, 2001. 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 auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosure 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Palatin Technologies, Inc. and subsidiaries as of June 30, 2001 and 2000 and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2001 and the period from January 28, 1986 (inception) through June 30, 2001, in conformity with accounting principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

Philadelphia, Pennsylvania
September 10, 2001

42

PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Consolidated Balance Sheets

                                                                   June 30, 2003     June 30, 2002
                                                                   -------------     -------------
                              ASSETS
Current assets:
  Cash and cash equivalents                                         $ 14,294,603     $  7,944,264
  Available for sale investments                                       4,088,384        1,160,773
  Prepaid expenses and other                                             447,510          349,883
                                                                    ------------     ------------
      Total current assets                                            18,830,497        9,454,920

Property and equipment, net                                            3,399,181        2,416,499
Restricted cash                                                          428,075          433,844
Other                                                                     63,381           52,953
                                                                    ------------     ------------
                                                                    $ 22,721,134     $ 12,358,216
                                                                    ============     ============
               LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of long term debt                                 $    188,015     $          -
  Accounts payable                                                     1,344,789        1,579,336
  Accrued expenses                                                     1,619,382          661,883
  Accrued compensation                                                   428,500          236,200
  Accrued litigation settlement                                                -          400,000
  Deferred revenue                                                       407,420          794,018
      Total current liabilities                                        3,988,106        3,671,437
                                                                    ------------     ------------

Long term debt                                                            76,432                -
                                                                    ------------     ------------

Commitments and Contingencies (Note 5)

Stockholders' equity:
  Preferred stock of $.01 par value - authorized 10,000,000 shares;
    Series A Convertible; 14,867 and 26,192 shares issued and
      outstanding as of June 30, 2003 and 2002, respectively;                149              262
    Series C Convertible;  700,000 shares issued and outstanding
      as of June 30, 2002;                                                     -            7,000
  Common stock of $.01 par value - authorized 75,000,000 shares;
    Issued and outstanding 42,994,050 and 17,423,076 shares as of
      June 30, 2003 and 2002 respectively;                               429,941          174,231
  Additional paid-in capital                                         109,085,115       78,792,240
  Deferred compensation                                                  (37,977)         (53,942)
  Accumulated other comprehensive income                                 (11,805)          10,604
  Deficit accumulated during development stage                       (90,808,827)    $(70,243,616)
                                                                    ------------     ------------
                                                                      18,656,596        8,686,779
                                                                    ------------     ------------
                                                                    $ 22,721,134     $ 12,358,216
                                                                    ============     ============

The accompanying notes to the consolidated financial statements are an integral part of these financial statements.

43

PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Consolidated Statements of Operations

                                      Inception
                                 (January 28, 1986)
                                       through                              Year Ended June 30,
                                                       --------------------------------------------------------------
                                    June 30, 2003             2003                  2002                 2001
                                 -------------------   -------------------   -------------------  -------------------
REVENUES:
     Grants and contracts               $ 10,265,511     $    641,417     $     80,929     $  1,621,425
     License fees and royalties            2,729,987          628,598          200,426          166,667
     Other                                   318,917                -                -                -
                                        -------------    -------------    -------------    -------------
          Total revenues                  13,314,415        1,270,015          281,355        1,788,092
                                        -------------    -------------    -------------    -------------

OPERATING EXPENSES:
     Research and development             72,412,504       17,439,191       12,117,026       10,108,999
     General and administrative           32,247,900        4,866,642        5,004,143        3,024,841
     Net intangibles write down              259,334                -                -                -
                                        -------------    -------------    -------------    -------------
          Total operating expenses       104,919,738       22,305,833       17,121,169       13,133,840
                                        -------------    --------------   --------------   --------------

OTHER INCOME (EXPENSES):
     Interest income                       2,701,132          247,552          312,015          787,574
     Interest expense                     (1,981,179)         (22,038)          (3,188)          (5,104)
     Merger costs                           (525,000)               -                -                -
                                        -------------    -------------    -------------    -------------
          Total other income                 194,953          225,514          308,827          782,470
                                        -------------    -------------    -------------    -------------

 Loss before income taxes & cumu-
   lative  effect of accounting change   (91,410,371)     (20,810,304)     (16,530,987)     (10,563,278)
Income tax benefit                           962,655          245,093          392,410          325,152
                                        -------------    -------------    -------------    -------------

 Loss before cumulative effect of
   accounting change                     (90,447,716)     (20,565,211)     (16,138,577)     (10,238,126)
Cumulative effect of accounting change
   (Note 2)                                 (361,111)               -                -         (361,111)
                                        -------------    -------------    -------------    -------------

NET LOSS                                 (90,808,827)     (20,565,211)     (16,138,577)     (10,599,237)

DEEMED DIVIDEND                           (3,511,765)        (203,138)        (297,603)               -
                                        -------------    -------------    -------------    -------------

NET LOSS ATTRIBUTABLE TO
COMMON STOCKHOLDERS                     $(94,320,592)    $(20,768,349)    $(16,436,180)    $(10,599,237)
                                        =============    =============    =============    =============


Basic and diluted net loss per Common share
  Basic and diluted net loss before cumulative effect
     of accounting change                                $      (0.73)    $      (1.16)    $      (1.01)

  Cumulative effect of accounting change                            -                -            (0.04)
                                                         -------------    -------------    -------------
  Basic and diluted net loss                             $      (0.73)    $      (1.16)    $      (1.05)
                                                         =============    =============    =============
Weighted average number of Common shares  outstanding
    used in computing basic and diluted net loss per
    Common share                                           28,362,121       14,195,466       10,131,195
                                                         =============    =============    =============

The accompanying notes to the consolidated financial statements are an integral part of these financial statements.

44

PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Consolidated Statements of Stockholders' Equity (Deficit)

                                                                             Preferred Stock
                                                         ------------------------------------------------------
                                                                                      Subscrip-
                                                          Shares         Amount         tions        Receivable
                                                       -----------    ------------   -----------    -----------
Balance at inception                                            -     $              $              $
                                                                                -             -              -
   Preferred stock subscriptions                                -               -         4,000         (4,000)
   Net loss from inception                                      -               -             -              -
                                                       -----------    ------------   -----------    -----------

Balance, August 31, 1995                                        -               -         4,000         (4,000)
   Preferred stock subscriptions                                -               -        (4,000)         4,000
   Issuance of Preferred shares                         4,000,000           4,000             -              -
   Issuance of Common shares on
      $10,395,400 private placement                             -               -             -              -
   Shares earned but not issued                                 -               -             -              -
   Net loss                                                     -               -             -              -
                                                       -----------    ------------   -----------    -----------

Balance, June 25, 1996                                  4,000,000            4,000            -              -
   Conversion to Palatin Technologies, Inc.            (4,000,000)          (4,000)           -              -
Adjusted balance, June 25, 1996                                 -                -            -              -
    Shares outstanding of Palatin Technologies, Inc.            -                -            -              -
   Purchase of treasury stock                                   -                -            -              -
   Net loss                                                     -                -            -              -
                                                       -----------    ------------   -----------    -----------

Balance, June 30, 1996                                          -                -            -              -
   Issuance of Preferred shares, net of expenses          137,780            1,378            -              -
   Net loss                                                     -                -            -              -
                                                       -----------    ------------   -----------    -----------

Balance, June 30, 1997                                    137,780            1,378            -              -
   Issuance of Preferred shares, net of expenses           18,875              189            -              -
   Conversion of Preferred shares into Common shares      (49,451)            (495)           -              -
   Net loss                                                     -                -            -              -
                                                       -----------    ------------   -----------    -----------

The accompanying notes to the consolidated financial statements are an integral part of these financial statements.

45

PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Consolidated Statements of Stockholders' Equity (Deficit)
(continued)

                                                                             Preferred Stock
                                                         ------------------------------------------------------
                                                                                      Subscrip-
                                                          Shares         Amount         tions        Receivable
                                                       -----------    ------------   -----------    -----------
Balance, June 30, 1998                                    107,204           1,072             -              -
   Conversion of Preferred shares into Common shares      (51,145)           (511)            -              -
   Net loss                                                     -            -                -              -
                                                       -----------    ------------   -----------    -----------

Balance, June 30, 1999                                     56,059             561             -              -
   Issuance of Preferred shares, net of expenses          700,000           7,000             -              -
   Conversion of Preferred shares into Common shares      (22,498)           (225)            -              -
   Net loss                                                     -            -                -              -
                                                       -----------    ------------   -----------    -----------

Balance, June 30, 2000                                    733,561           7,336             -              -
   Conversion of Preferred shares into Common shares       (4,244)            (43)            -              -
   Net loss                                                     -               -             -              -
                                                       -----------    ------------   -----------    -----------

Balance, June 30, 2001                                    729,317           7,293             -              -
   Conversion of Preferred shares into Common shares       (3,125)            (31)            -              -
   Net loss                                                     -               -             -              -
                                                       -----------    ------------   -----------    -----------

Balance, June 30, 2002                                    726,192           7,262             -              -
   Conversion of Preferred shares into Common shares     (711,325)         (7,113)            -              -
   Net loss                                                     -               -             -              -

Balance, June 30, 2003                                     14,867               $             $              $
                                                                              149             -              -
                                                       ===========    ============   ===========    ===========

The accompanying notes to the consolidated financial statements are an integral part of these financial statements.

46

PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Consolidated Statements of Stockholders' Equity (Deficit)
(continued)

                                                                     PALATIN TECHNOLOGIES, INC.
                                                                  (A Development Stage Enterprise)
                                                      Consolidated Statements of Stockholders' Equity (Deficit)
                                                                             (continued)

                                                                                                                   Accumulated
                                                                                                                    Other       Deficit
                                         Common Stock            Additional                          Deferred     Comprehen-   Accumulated
                                  --------------------------     Paid-In     Earned but  Treasury    Compensa-       sive       During Develop-
                                    Shares          Amount       Capital     not Issued    Stock       tion       Income/(loss)   ment Stage      Total
                                  -----------   -------------  ------------  ----------  ---------  ------------  ---------    ---------------- ---------
Balance at inception                        -   $              $         -   $       -   $     -    $         -   $      -   $          -   $          -
  Issuance of shares from
    inception                       6,922,069      1,177,786       100,000     110,833         -              -          -              -      1,388,619
  Net loss from inception                   -              -             -           -         -              -          -     (4,235,059)    (4,235,059)
                                  ------------  -------------  ------------  ----------  --------   ------------  ---------  -------------  -------------
Balance, August 31, 1995            6,922,069      1,177,786       100,000     110,833         -              -          -     (4,235,059)    (2,846,440)
  Issuance of Preferred shares              -              -             -           -         -              -          -              -          4,000
  Issuance of Common shares on
    $10,395,400 private placeme    41,581,600      9,139,303             -           -         -              -          -              -      9,139,303
  Shares earned but not issued              -              -             -     266,743         -              -          -              -        266,743
  Issuance of Common shares         1,054,548        458,977      (100,000)   (324,546)        -              -          -              -         34,431
  Net loss                                  -              -             -           -         -              -          -     (3,897,879)    (3,897,879)
                                  ------------  -------------  ------------  ----------  --------   ------------  ---------  -------------  -------------
Balance, June 25, 1996             49,558,217     10,776,066             -      53,030         -              -          -     (8,132,938)     2,700,158
  Conversion to Palatin
    Technologies, Inc.            (46,807,465))  (10,748,558)   10,752,558           -         -              -          -              -              -
Adjusted balance, June 25, 1996     2,750,752         27,508    10,752,558      53,030         -              -          -     (8,132,938)     2,700,158
  Shares outstanding of Palatin
    Technologies, Inc.                108,188          1,082       (1,082)           -         -              -          -              -              -
  Issuance of Common shares            25,754            257       139,459           -         -              -          -              -        139,716
  Purchase of treasury stock                -              -             -           -    (1,667)             -          -              -         (1,667)
                                  ------------  -------------  ------------  ----------  --------   ------------  ---------  -------------  -------------
Balance, June 30, 1996              2,884,694         28,847    10,890,935      53,030    (1,667)             -          -     (8,132,938)     2,838,207
  Issuance of Preferred shares,
     net of expenses                        -              -    11,635,653           -         -              -          -              -     11,637,031
  Shares earned but not issued              -              -             -     250,141         -              -          -              -        250,141
  Issuance of Common shares           135,987          1,360       316,761    (303,171)        -              -          -              -         14,950
  Retirement of treasury shares          (308))           (3)       (1,664)           -    1,667              -          -              -              -
  Issuance of stock options below
    fair market value                       -              -     1,472,716           -         -     (1,472,716)         -              -              -
  Amortization of deferred
    compensation                            -              -             -           -         -        394,383          -              -        394,383
  Net loss                                  -              -             -           -         -              -          -     (5,300,164)    (5,300,164)
                                  ------------  -------------  ------------  ----------  --------   ------------  ---------  -------------  -------------
Balance, June 30, 1997              3,020,373         30,204    24,314,401           -         -     (1,078,333)         -    (13,433,102)     9,834,548
  Issuance of Preferred shares,
     net of expenses                        -              -     1,573,295           -         -              -          -              -      1,573,295
  Issuance of Preferred shares
    expense Recapture                       -              -        49,733           -         -              -          -              -         49,733
  Issuance of Common shares            66,696            666        94,873           -         -              -          -              -         95,539
  Issuance of Common shares upon
    conversion of Preferred shares  1,012,554         10,126        (9,820)          -         -              -          -              -              -

47

PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Consolidated Statements of Stockholders' Equity (Deficit)
(continued)

  Issuance of stock options below
      fair market value                     -              -     1,161,156           -         -     (1,161,156)         -              -              -
  Amortization of deferred
    compensation                            -              -             -           -         -      1,723,310          -              -      1,723,310
  Net loss                                  -              -             -           -         -              -          -     (9,886,878)    (9,886,878)
                                  ------------  -------------  ------------  ----------  --------   ------------  ---------  -------------  -------------
Balance, June 30, 1998              4,099,623         40,995    27,183,638           -         -       (516,179)         -    (23,319,980)     3,389,547
  Issuance of Common shares         1,842,101         18,421     7,594,182           -         -              -          -              -      7,612,603
  Issuance of Common shares upon
    conversion of Preferred shares  1,115,740         11,158       (10,655)          -         -              -          -              -             (9)
  Issuance of Common shares upon
    exercise of warrants                9,874             99        18,676           -         -              -          -              -         18,775
  Issuance of Common shares upon
    exercise of options                70,257            703        13,348           -         -              -          -              -         14,051
  Issuance of stock options below
    fair market value                       -              -       811,054           -         -      (811,054)          -              -              -
  Amortization of deferred
    compensation                            -              -             -           -         -      1,308,675          -              -      1,308,675
   Net loss                                 -              -             -           -         -              -          -    (12,002,384)   (12,002,384)
                                  ------------  -------------  ------------  ----------  --------   ------------  ---------  -------------  -------------
Balance, June 30, 1999              7,137,595         71,376    35,610,243           -         -       (18,558)          -    (35,322,364)       341,258
  Issuance of Preferred shares,
    net of expenses                         -              -    12,999,058           -         -              -          -              -     12,999,058
  Issuance of Preferred shares              -              -             -           -         -              -          -              -          7,000
  Issuance of Common shares upon
    conversion of Preferred shares    572,374          5,724        (5,462)          -         -              -          -              -             37
  Issuance of Common shares upon
    exercise of warrants              111,551          1,115       451,097           -         -              -          -              -        452,212
  Issuance of Common shares upon
    exercise of options                80,852            809        99,667           -         -              -          -              -        100,476
  Acceleration of options
    previously granted                      -              -     1,170,000           -         -              -          -              -      1,170,000
  Amortization of stock based
    compensation                            -              -             -           -         -         18,558          -              -         18,558
  Net loss                                  -              -             -           -         -              -          -     (8,183,438)    (8,183,438)
                                  ------------  -------------  ------------  ----------  --------   ------------  ---------  -------------  -------------
Balance, June 30, 2000              7,902,372         79,024    50,324,603           -         -              -          -    (43,505,802)     6,905,161
  Issuance of Common shares,
    net of expenses                 2,532,369         25,324    13,954,928           -         -              -          -              -     13,980,252
  Issuance of Common shares upon
    conversion of Preferred shares    104,886          1,049        (1,006)          -         -              -          -              -              -

48

PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Consolidated Statements of Stockholders' Equity (Deficit)
(continued)

  Issuance of Common shares upon
    exercise of warrants              173,015          1,730       486,736           -         -              -          -              -        488,466
  Issuance of Common shares upon
    exercise of options               487,016          4,870       634,883           -         -              -          -              -        639,753
  Stock based compensation                  -              -       246,109           -         -       (105,534)         -              -        140,575
  Acceleration of options
     previously granted                     -              -       335,315           -         -              -          -              -        335,315
  Amortization of stock based
    compensation                            -              -             -           -         -         25,415          -              -         25,415
   Net loss                                 -              -             -           -         -              -          -    (10,599,237)   (10,599,237)
                                  ------------  -------------  ------------  ----------  --------   ------------  ---------  -------------  -------------
Balance, June 30, 2001             11,199,658        111,997    65,981,568           -         -        (80,119)          -   (54,105,039)    11,915,700
  Issuance of Common shares,
    net of expenses                 5,997,578         59,976    12,380,727           -         -              -          -              -     12,440,703
  Issuance of Common shares upon
    conversion of Preferred shares     76,590            766          (735)          -         -              -          -              -              -
  Issuance of Common shares upon
    exercise of options               149,250          1,492       339,098           -         -              -          -              -        340,590
  Stock based compensation                  -              -        91,582           -         -        (21,147)         -              -         70,435
  Amortization of stock based
    compensation                            -              -             -           -         -         47,324          -              -         47,324
   Unrealized gain on investments           -              -             -           -         -              -     10,604              -         10,604
   Net loss                                 -              -             -           -         -              -          -    (16,138,577)   (16,138,577)
                                  ------------  -------------  ------------  ----------  --------   ------------  ---------  -------------  -------------
Balance, June 30, 2002             17,423,076        174,231    78,792,240           -         -        (53,942)    10,604    (70,243,616)     8,686,779
  Issuance of Common shares,
    net of expenses                24,352,099        243,521    30,127,905           -         -              -          -              -     30,371,426
  Issuance of Common shares upon    1,121,576
    conversion of Preferred shares                    11,216       (4,103)           -         -              -          -              -              -
  Issuance of Common shares upon
    exercise of options and warrants   97,299            973       127,445           -         -              -          -              -        128,418
  Stock based compensation                  -              -        41,628           -         -        (13,153)         -              -         28,475
  Amortization of stock based
    compensation                            -              -             -           -         -         29,118          -              -         29,118
   Unrealized loss on investments           -              -             -           -         -              -    (22,409)             -        (22,409)
   Net loss                                 -              -             -           -         -              -          -    (20,565,211)   (20,565,211)
                                  ------------  -------------  ------------  ----------  --------   ------------  ---------  -------------  -------------

Balance, June 30, 2003             42,994,050   $   429,941    $109,085,115  $       -  $      -   $    (37,977)   (11,805)   (90,808,827)    18,656,596
                                  ============  =============  ============  ==========  ========  =============  =========  =============  =============

The accompanying notes to the consolidated financial statements are an integral part of these financial statements.

49

PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows

                                                        Inception
                                                   (January 28, 1986)                Year Ended June 30,
                                                         through       -----------------------------------------------
                                                      June 30, 2003         2003             2002             2001
                                                      -------------    -------------    -------------    -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss                                             $(90,808,827)    $(20,565,211)    $(16,138,577)    $(10,599,237)

 Adjustments to reconcile net loss to net cash
  used for operating activities:
   Cumulative effect of accounting change                  361,111                -                -          361,111
   Depreciation and amortization                         3,109,988          579,258        1,156,874          288,086
   License fee                                             500,000                -                -                -
   Interest expense on note payable                         72,691                -                -                -
   Accrued interest on long-term financing                 796,038                -                -                -
   Accrued interest on short-term financing                  7,936                -                -                -
   Intangibles and equipment write down                    278,318                -                -                -
   Common stock and notes payable issued for expenses      751,038                -                -                -
   Settlement with consultant                              (28,731)               -                -                -
   Deferred revenue                                         46,309         (386,598)         599,574         (166,667)
   Acceleration of options previously granted            1,505,315                -                -          335,315
   Stock based compensation                              4,455,374           57,593          458,349          165,990
   Changes in certain operating assets and liabilities:
     Accounts receivable                                         -                -                -          953,163
     Prepaid expenses and other                         (1,243,211)         (91,858)          34,079          111,053
     Accounts payable                                    1,344,789         (234,547)         449,676          117,590
     Accrued expenses and other                          1,586,715          749,799          293,678           36,239
                                                      -------------    -------------    -------------    -------------

      Net cash used for operating activities           (77,265,147)     (19,891,564)     (13,146,347)      (8,397,357)
                                                      -------------    -------------    -------------    -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Sale/(Purchases) of investments, net                  (4,142,460)      (2,970,453)      (1,172,007)       2,155,617
  Purchases of property and equipment                   (5,941,750)      (1,134,015)      (1,634,509)        (629,899)
                                                      -------------    -------------    -------------    -------------

      Net cash provided/(used) for investing activites (10,084,210)      (4,104,468)      (2,806,516)       1,525,718
                                                      -------------    -------------    -------------    -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from notes payable, related party               302,000                -                -                -
  Payments on notes payable, related party                (302,000)               -                -                -
  Proceeds from senior bridge notes payable              1,850,000                -                -                -
  Payments on senior bridge notes payable               (1,850,000)               -                -                -
  Payments on capital lease obligations                   (153,473)        (153,473)               -                -
  Proceeds from notes payable and
    long-term debt                                       3,951,327                -                -                -
  Payments on notes payable and
    long-term debt                                      (1,951,327)               -                -                -
  Proceeds from common stock, stock option and
    warrant issuances, net                              75,588,774       30,499,844       12,440,703       15,108,470
  Proceeds from preferred stock, net                    24,210,326                -                -                -
  Purchase of treasury stock                                (1,667)               -                -                -
                                                      -------------    -------------    -------------    -------------

     Net cash provided by financing activities         101,643,960       30,346,371       12,440,703       15,108,470
                                                      -------------    -------------    -------------    -------------

NET INCREASE (DECREASE) IN CASH
    AND CASH EQUIVALENTS                                14,294,603        6,350,339       (3,512,160)       8,236,831

CASH AND CASH EQUIVALENTS, beginning of period                   -        7,944,264       11,456,424        3,219,593
                                                      -------------    -------------    -------------    -------------

CASH AND CASH EQUIVALENTS, end of period              $ 14,294,603     $ 14,294,603     $  7,944,264     $ 11,456,424
                                                      =============    =============    =============    =============

The accompanying notes to the consolidated financial statements are an integral part of these financial statements.

50

PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
(continued)

                                                        Inception
                                                   (January 28, 1986)                Year Ended June 30,
                                                         through       -----------------------------------------------
                                                      June 30, 2003         2003             2002             2001
                                                      -------------    -------------    -------------    -------------
SUPPLEMENTAL CASH FLOW INFORMATION:
   Cash paid for interest                             $    657,920     $     22,038     $      3,188     $      5,104
                                                      =============    =============    =============    =============

NON-CASH TRANSACTION:
   Settlement of accounts payable with
      Equipment                                       $        900     $          -     $          -     $          -
                                                      =============    =============    =============    =============

NON-CASH STOCK ACTIVITY:
    Conversion of loans from employees to
      Common stock                                    $     74,187     $          -     $          -     $          -
                                                      =============    =============    =============    =============
   Conversion of note payable to Common stock         $     16,000     $          -     $          -     $          -
                                                      =============    =============    =============    =============
   Common stock issued for equipment                  $       2,32     $                $          -     $          -
                                                      =============    =============    =============    =============
   Common stock and warrants issued for expenses      $    960,909     $     20,000     $     14,144     $     31,200
                                                      =============    =============    =============    =============
   Common stock issued for accrued salaries
      and bonuses                                     $     16,548     $          -     $          -     $          -
                                                      =============    =============    =============    =============
   Accrued interest payable in Common stock           $    679,097     $          -     $          -     $          -
                                                      =============    =============    =============    =============

The accompanying notes to the consolidated financial statements are an integral part of these financial statements.

51

PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements

(1)     ORGANIZATION ACTIVITIES:

        Nature of Business – Palatin Technologies, Inc. (“Palatin” or the “Company”) is a development-stage biopharmaceutical company. The Company does not currently offer any products for sale. The Company is primarily focused on developing melanocortin (MC) based therapeutics, which the Company believes is one of the fastest growing areas of pharmaceutical research and development. The MC family of receptors has been identified with a variety of conditions and diseases, including sexual dysfunction, obesity, anorexia, cachexia, inflammation and drug abuse. The Company’s objective is to become a worldwide leader in melanocortin-based therapeutics by pursuing a strategy based on commercializing the Company’s products under development and identifying new product targets through the utilization of the Company’s patented drug discovery platform.

        PT-141 is the Company's lead therapeutic drug candidate and is now in clinical development for the treatment of both male and female sexual dysfunction. The Company recently completed a Phase 2B trial with PT-141 in male patients for which it expects to announce results in the fourth quarter of calendar year 2003. LeuTech®, is the Company's proprietary radiolabled monoclonal antibody for imaging and diagnosing infections. The Company commenced the biologics license application (BLA) amendment filings to the FDA in the first half of calendar year 2003 and anticipates remitting the final BLA amendment filing to the FDA in the fourth quarter of calendar year 2003. The Company expects to receive a complete response from the FDA regarding its BLA amendment filings in the first half of calendar year 2004. The Company is also conducting additional clinical trials for LeuTech to expand its market potential as a diagnostic agent. In addition, the Company has several preclinical drug candidates under investigation for various therapeutic indications including sexual dysfunction, obesity, cachexia and inflammation.

        Key elements of the Company’s business strategy include: entering into alliances and partnerships with pharmaceutical companies to facilitate the development, manufacture, marketing, sale and distribution of the Company’s product candidates under investigation, expansion of the Company’s pipeline through the utilization of its MC expertise and patented drug discovery platform, opportunistic acquisition of synergistic products and technologies and partial funding of the Company’s development programs with the cash flow from our LeuTech collaboration agreement.

        Business Risk and Liquidity – As shown in the accompanying financial statements, the Company incurred a substantial net loss of $20,565,211 for the year ended June 30, 2003 and has a deficit accumulated in the development stage of $90,808,827, cash and cash equivalents of $14,294,603 and investments of $4,088,384 as of June 30, 2003. The Company anticipates incurring additional losses in the future as it continues development of LeuTech for diagnosis of appendicitis and expands clinical trials for other indications of LeuTech and continues research and development of PT-141 and its MIDAS technology. To achieve profitability, the Company, alone or with others, must successfully develop and commercialize its technologies and proposed products, conduct pre-clinical studies and clinical trials, obtain required regulatory approvals and successfully manufacture and market such technologies and proposed products. 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.

52

        The Company has incurred negative cash flows from operations since its inception, the Company has expended and expects to continue to expend in the future, substantial funds to complete its planned product development efforts. The Company expects that its existing capital resources will be adequate to fund the Company’s projected operations into fiscal year ending June 30, 2005, based on current and projected expenditure levels. Management plans to continue to refine its operations, control expenses, evaluate alternative methods to conduct its business, and seek available and attractive sources of financing and sharing of development costs through strategic collaboration agreements or other resources. Should appropriate sources of financing not be available, management would delay certain clinical trials and research activities until such time as appropriate financing was available. There can be no assurance that the Company’s financing efforts will be successful. If adequate funds are not available, our financial condition and results of operations will be materially and adversely affected.

(2)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

        Principles of Consolidation – The consolidated financial statements include the accounts of Palatin and its wholly owned inactive subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

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

        Statements of Cash Flows – Cash and cash equivalents include cash on hand, cash in banks and all highly liquid investments with a maturity of less than three months. As of June 30, 2003 and 2002, approximately $428,000 and $434,000, respectively, of cash was restricted to secure letters of credit for security deposits on leases.

        Investments – The Company accounts for its investments in accordance with Statement of Financial Accounting Standards No. 115 “Accounting For Certain Investments in Debt and Equity Securities.” The Company classifies such investments as available for sale investments and as such all investments are recorded at fair value. The investments consist principally of corporate debt securities with a minimum credit rating of A2 and mutual funds with average durations ranging from one to three years and credit ratings of AAA. Unrealized holding gains and losses, net of the related tax effect, if any, are excluded from earnings and are reported in other comprehensive income and as a separate component of stockholders’ equity until realized. Interest on securities classified as available for sale is included in interest income. Realized gains and losses are recorded in the statement of operations in the period that the transaction occurs.

The following is a summary of available for sale investments as of June 30, 2003:

53

                                       Gross          Gross
                                     Unrealized     Unrealized
                          Cost         Gains          Losses      Fair Value
Corporate debt
securities          $    100,000     $  2,243     $       -     $    102,243

Mutual Funds        $  4,000,189     $      -     $  14,048     $  3,986,141
                    -------------    ---------    ----------    -------------
Total               $  4,100,189     $  2,243     $  14,048     $  4,088,384
                    =============    =========    ==========    =============

The following is a summary of available for sale investments as of June 30, 2002:

                                       Gross          Gross
                                     Unrealized     Unrealized
                          Cost         Gains          Losses      Fair Value
Government
securities          $     50,000     $    672     $       -     $     50,672

Corporate debt
securities               100,000          860             -          100,860

Mutual funds           1,000,169        9,072             -        1,009,241
                    -------------    ---------    ----------    -------------
Total               $  1,150,169     $ 10,604     $       -     $  1,160,773
                    =============    =========    ==========    =============

        Property and Equipment – Property and equipment consists of office and laboratory equipment, office furniture and leasehold improvements. Property and equipment are recorded at cost. Depreciation is recognized using the straight-line method over the estimated useful lives of five years for equipment, seven years for office furniture and over the term of the lease for leasehold improvements. Maintenance and repairs are expensed as incurred while expenditures that extend the useful life of an asset are capitalized.

        Impairment of Long-Lived Assets – The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine recoverability of its long-lived assets, management evaluates the probability that future undiscounted net cash flows, without interest charges, will be less than the carrying amount of the assets. Impairment is measured at fair value. Fair value is determined by an evaluation of available price information at which assets could be bought or sold including quoted market prices, if available, or the present value of the estimated future discounted cash flows based on reasonable and supportable assumptions.

54

        Revenue Recognition – Grant and contract revenues are recognized as the Company provides the services stipulated in the underlying grants and/or contracts based on the time and materials incurred. Revenue from corporate collaborations and licensing agreements consists of up-front fees, research and development funding, and milestone payments. Non-refundable up-front fees are deferred and amortized to revenue over the related performance period. The Company estimates the performance period as the initial research term. The actual performance period may vary. The Company will adjust the performance period estimate based upon available facts and circumstances. Periodic payments for research and development activities and government grants are recognized over the period that the Company performs the related activities under the terms of the agreements. Revenue resulting from the achievement of milestone events stipulated in the agreements is recognized when the milestone is achieved. Milestones are based on the occurrence of a substantive element specified in the contract or as a measure of substantive progress towards completion under the contract.

        The Company recognized $137,417, $80,929 and $211,069, respectively, in grant revenue pursuant to the Small Business Technology Transfer programs of the Department of Health and Human Services for the years ended June 30, 2003, 2002 and 2001.

        The Company recognized $504,000 for the year ended June 30, 2003 in contract revenue related to the attainment of certain milestones and other shared development costs of LeuTech pursuant to our collaboration agreement, as amended, with Mallinckrodt, Inc. a division of Tyco International, Ltd. described below. The Company did not recognize any contract revenue related to the shared development costs of LeuTech for the year ended June 30, 2002, as compared to $1,410,356 recognized for the year ended June 30, 2001.

        In August 1999, the Company entered into a strategic collaboration agreement with Mallinckrodt, Inc. to jointly develop and market one of its proposed products (see Note 8). Under the terms of the agreement, the Company granted a worldwide license, excluding Europe, for sales, marketing and distribution and received a non-refundable licensing fee of $500,000. The licensing fee was recognized as revenue in the period that such non-refundable fees were received.

        In fiscal 2001, the Company adopted U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 101 “Revenue Recognition in Financial Statements” (“SAB 101”) which requires up front, non-refundable license fees to be deferred and recognized over the performance period. The cumulative effect of adopting SAB 101 resulted in a one-time, non-cash charge of $361,111 or $0.04 per share, which reflects the deferral of the $500,000 up-front license fee received from Mallinckrodt in August 1999. Under SAB 101, this payment has been recorded as deferred revenue to be recognized as license revenue over the remaining development term of this agreement. For the years ended June 30, 2003, 2002 and 2001, the Company recognized $43,987, $138,888 and $166,667, respectively, in license revenue that was included in the cumulative effect adjustment as of July 1, 2000. Prior year financial statements have not been restated to apply SAB 101 retroactively; however the following pro forma amounts show the net loss to common stockholders and net loss per share assuming the Company had retroactively applied SAB 101 to the prior year:

                                                        Year Ended
                                                      June 30, 2001
                                                      -------------
Net loss to common stockholders, as reported         $  (10,599,237)
                                                     ===============
Net loss per common share, as reported               $        (1.05)
                                                     ===============
Pro forma net loss to common stockholders            $  (10,238,126)
                                                     ===============
Pro forma net loss per common share                  $        (1.01)
                                                     ===============

55

        In May 2002, the Company entered into an agreement with Mallinckrodt to amend the original agreement. Under the terms of this amended agreement, Mallinckrodt committed, among other things, up to an additional $3.2 million, subject to certain conditions and attainment of certain milestones, to cover half of the Company’s estimated expenses associated with completing the FDA review process of LeuTech. Pursuant to this amendment, $800,000 was received upon execution of this agreement. Under SAB 101, this payment has been recorded as deferred revenue to be recognized as license revenue over the remaining development term of this agreement. For the years ended June 30, 2003 and 2002, the Company recognized $584,611 and $61,538, respectively, in license revenue under this agreement.

        Research and Development Costs – The costs of research and development activities are charged to expense as incurred.

        Stock Options – The Company applies the intrinsic-value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and related interpretations, to account for its fixed-plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS 123, as amended in Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure, an Amendment of FASB Statement No. 123” (“SFAS 148”), the Company has elected to continue to apply the intrinsic-value-based method of accounting described above, and has adopted only the disclosure requirements of SFAS 123.

        The Company applies APB 25 and the related interpretations in accounting for its stock option plans. Had compensation cost for the Company’s common stock options been determined based upon the fair value of the options at the date of grant, as prescribed under SFAS 123, as amended by SFAS 148, the Company’s net loss attributable to common stockholders and net loss per common share would have been reduced to the following pro forma amounts:

                                                           For the year ended June 30,
                                                 -----------------------------------------------
                                                      2003             2002             2001
                                                 -----------------------------------------------
Net loss attributable to common stockholders:
  As reported                                    $(20,737,349)    $(16,436,180)    $(10,599,237)
  Impact of total stock-based compensation
     expense determined under fair-value-based
     method                                        (1,297,069)      (1,660,290)      (1,609,113)
                                                 -------------    -------------    -------------
  Pro forma                                      $(22,034,418)    $(18,096,470)    $(12,208,350)
                                                 =============    =============    =============
Basic and diluted net loss per common share:
  As reported                                    $      (0.73)    $      (1.16)    $      (1.05)
                                                 =============    =============    =============
  Impact of stock-based compensation, net of
   tax                                                  (0.05)           (0.11)           (0.16)
                                                 =============    =============    =============
  Pro forma                                      $      (0.78)    $      (1.27)    $    (1.21)
                                                 =============    =============    =============

55

The assumptions used in the Black-Scholes option-pricing model are as follows: dividend yield of 0%, weighted average risk-free interest rate of 3.54% in 2003, 4.5% in 2002, and 5.78% in 2001, expected volatility of 101% in 2003 and 60% in 2002 and 2001, and an expected option life of 7 years.

        Income Taxes – The Company and its subsidiaries file consolidated federal and combined state income tax returns. The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS 109”). SFAS 109 requires, among other things, the use of the liability method in computing deferred income taxes.

        The Company provides for deferred income taxes relating to temporary differences in the recognition of income and expense items (primarily relating to depreciation, amortization and certain leases) for financial and tax reporting purposes. Such amounts are measured using current tax laws and regulations in accordance with the provisions of SFAS 109.

        In accordance with SFAS 109, the Company has recorded a valuation allowance against the realization of its deferred tax assets. The valuation allowance is based on management’s estimates and analysis, which includes tax laws which may limit the Company’s ability to utilize its tax loss carry-forwards.

        Net Loss per Common Share – The Company applies Statement of Financial Accounting Standards No. 128, “Earnings per Share” (“SFAS 128”). SFAS 128 requires dual presentation of basic and diluted earnings per share (“EPS”) for complex capital structures on the face of the statement of operations. Basic EPS is computed by dividing the income (loss) by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution from the exercise or conversion of securities into Common stock, such as stock options. For the years ended June 30, 2003, 2002 and 2001, there were no dilutive effects of stock options or warrants as the Company incurred a net loss in each period. Options and warrants to purchase 15,140,115 shares of Common Stock at prices ranging from $0.01 to $21.70 per share were outstanding at June 30, 2003 (See Note 6).

        Fair Value of Financial Instruments – Statement of Financial Accounting Standards No. 107 “Disclosures about Fair Value of Financial Instruments” (“SFAS 107”), requires disclosures of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate the value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. These techniques are significantly affected by the assumptions used, including discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. SFAS 107 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

57

        Recent Accounting Pronouncements — In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statement No. 123.” This Statement amends FASB Statement No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements. Certain of the disclosure modifications are required for fiscal years ending after December 15, 2002 and are included in the notes to these consolidated financial statements.

(3)     PROPERTY AND EQUIPMENT:

        Property and equipment consists of the following:

                                                  June 30,
                                        ---------------------------
                                            2003            2002
                                        ------------   -------------
Office equipment                        $ 1,063,610    $    876,893
Laboratory equipment                      2,153,787       1,071,461
Leasehold improvements                    3,086,932       2,804,040
                                        ------------   -------------
                                          6,304,329       4,752,394
Less: Accumulated depreciation and
     amortization                        (2,905,148)     (2,335,895)
                                        ------------   -------------
                                        $ 3,399,181     $ 2,416,499
                                        ============   =============

        For the years ended June 30, 2003, 2002 and 2001, depreciation expense was $569,253, $1,146,566 and $278,078, respectively.

    (4)        ACCRUED EXPENSES:

        Accrued expenses consist of the following:

                                                 June 30,
                                       ----------------------------
                                           2003            2002
                                       -----------    -------------
      Product development costs        $  784,007     $   208,000
      Accrued rent                        397,872         100,000
      Other                               437,503         353,883
                                       -----------    -------------
                                       $1,619,382      $  661,883
                                       ===========    =============

58

(5)     COMMITMENTS AND CONTINGENCIES:

        Leases – The Company currently leases two facilities in New Jersey under non-cancelable operating leases and is in the process of terminating the lease for the Company’s former Corporate Offices located in Princeton. In July 2002, the Company moved into a new facility in Cranbury, New Jersey that combined both the research and development facility in Edison, New Jersey and the corporate offices in Princeton, New Jersey. Future minimum lease payments under these two leases are as follows:

      Fiscal Year Ending June 30,
      ---------------------------
   2004                   $  1,366,582
   2005                      1,482,153
   2006                      1,046,956
   2007                      1,604,370
   2008                      1,283,848
   2009 and thereafter       5,270,494
                          -------------
                          $ 12,054,403

        The Company has accrued approximately $100,000 related to the Company’s share of estimated costs until termination of the Princeton lease, which is currently being subleased. For the years ended June 30, 2003, 2002 and 2001, rent expense was $1,554,838, $656,850 and $560,476, respectively.

        Capital Leases — In September 2002, the Company acquired $417,920 of laboratory equipment under capital leases. The term of these leases range from 24 to 60 months. As of June 30, 2003, $264,447 remains outstanding pursuant to these lease obligations.

        Employment Agreements – Dr. Spana, Mr. Wills and Dr. Molinoff have each entered into an employment agreement with the Company for a two-year period commencing October 1, 2001 for Dr. Spana and Mr. Wills, and commencing September 4, 2001 for Dr. Molinoff. Each agreement automatically renews for a one-year period unless terminated at least 30 days before the anniversary date. Dr. Spana is serving as chief executive officer and president at a salary of $290,000 per year. Mr. Wills is serving as chief financial officer at a salary of $225,000 per year. Dr. Molinoff is serving as executive vice president of research and development at a salary of $250,000 per year. Each agreement also provides for:

• annual bonus compensation, in an amount to be decided by the compensation committee and approved by the board, based on achievement of yearly objectives; and

• participation in all benefit programs that the Company establishes, to the extent the employee’s position, tenure, salary, age, health and other qualifications make him eligible to participate.

59

Each agreement allows the Company or the employee to terminate the agreement upon written notice, and contains other provisions for termination by the company for “cause,” or by the employee for “good reason” or due to a “change in control” (as these terms are defined in the employment agreements). Early termination may, in some circumstances, result in severance pay at the salary then in effect, for a period of 24 months (Spana), 18 months (Wills) or 12 months (Molinoff) plus continuation of medical and dental benefits then in effect for 18 months (Spana and Wills) or 12 months (Molinoff). For Dr. Spana and Mr. Wills, termination following a change in control will result in a lump sum payment of two times (Spana) or one and one-half times (Wills) the salary then in effect, continuation of medical and dental benefits then in effect for 18 months, and immediate vesting of all stock options. For Dr. Molinoff, termination following a change in control will result in severance payments at the salary then in effect for 12 months, continuation of medical and dental benefits then in effect for 12 months, employment search expense reimbursement up to $25,000, and immediate vesting of all stock options. Each agreement includes non-competition, non-solicitation and confidentiality covenants. Although the agreements for Dr. Spana, Mr. Wills and Dr. Molinoff were automatically extended for a one year period pursuant to their terms, we are currently negotiating amendments to the agreements, except with respect to the base annual salary, and we anticipate that the amended terms will not be materially different than the existing terms.

        License Agreements – The Company has three license agreements that require minimum annual payments. Future minimum payments under the license agreements are: 2004 — $250,000, 2005 — $200,000, 2006 — $200,000, 2007 — $200,000 and 2008 — $200,000.

        Legal Proceedings – Following the termination of the Company’s proposed merger with San Diego-based Molecular Biosystems, Inc. in March 2000, Molecular Biosystems commenced a legal action against the Company, seeking damages arising from the alleged improper termination of the merger agreement. The Company denied the material allegations. In August 2002, in order to avoid the ongoing costs of the litigation and consumption of the Company’s time, the Company settled this litigation with Molecular Biosystems for $400,000, which the Company had accrued as of June 30, 2002.

(6)     STOCKHOLDERS’ EQUITY (DEFICIT):

        Series A Preferred Offering – On December 2, 1996, the Company commenced the Series A Preferred Offering of units at a price of $100,000 per unit, each unit consisting of 1,000 shares of Series A Convertible Preferred Stock. The final closing on the Series A Preferred Offering was effective as of May 9, 1997, with the Company having sold an aggregate total of 137.78 units, representing 137,780 shares of Series A Convertible Preferred Stock, for net proceeds to the Company of approximately $11,635,000, after deducting commission and other expenses of the Series A Preferred Offering.

        Each share of Series A Convertible Preferred Stock is convertible at any time, at the option of the holder, into the number of shares of Common Stock equal to $100 divided by the “Series A Conversion Price”. The current Series A Conversion Price is $2.63, so each share of Series A Convertible Preferred Stock is currently convertible into approximately 38 shares of Common Stock. The Series A Conversion Price is subject to adjustment, under certain circumstances, upon the sale or issuance of Common Stock for consideration per share less than either (i) the Conversion Price in effect on the date of such sale or issuance, or (ii) the market price of the Common Stock as of the date of such sale or issuance. The Conversion Price is also subject to adjustment upon the occurrence of a merger, reorganization, consolidation, reclassification, stock dividend or stock split which will result in an increase or decrease in the number of shares of Common Stock outstanding. During the fiscal year ended June 30, 2003, 11,325 shares of the Series A Convertible Preferred Stock was converted into 421,575 shares of Common Stock. As of June 30, 2003, 14,867 shares of Series A Convertible Preferred Stock, currently convertible into 565,285 shares of Common Stock, are oustanding.

60

        Series C Preferred Offering – As of August 16, 1999, pursuant to the strategic collaboration agreement with Mallinckrodt (see Note 8), the Company sold 700,000 restricted shares of Series C Convertible Preferred Stock for $13,000,000. During June 2003, the Series C Convertible Preferred Stock was converted into 700,000 shares of Common Stock.

        Common Stock Transactions – In private placements of Common Stock and warrants in July 2002, November 2002 and March 20, 2003, the Company sold an aggregate of 24,352,099 shares of its Common Stock to investors consisting of domestic and European financial institutions and other accredited investors: 1,545,063 shares were sold at a market value of approximately $1.17 per share in the July 2002 offering, 9,373,940 shares of common stock were sold at a market value of approximately $1.23 per share in the November 2002 offering, and 13,433,096 shares of common stock were sold at a market value of approximately $1.42 per share in the March 2003 offering. For every five shares purchased in the July and the November offerings, and for every four shares purchased in the March offering, the investors received a five year warrant to purchase one share of common stock at an exercise price of $1.46 for the July offering, $1.54 for the November offering, and $1.77 for the March offering. Based on the sales price of the common stock in these private placements, the exercise prices of certain outstanding warrants were adjusted downward in accordance with the existing terms of those warrants. As a result, a deemed dividend of $203,138 has been reflected in the Company’s consolidated statement of operations for year ended June 30, 2003.

        In connection with these private placements, the Company paid cash placement agent fees of $126,000 for the July offering, $790,433 for the November offering and $985,250 for the March 2003 offering and issued five-year warrants to purchase (i) 103,004 shares of Common Stock at prices ranging from $1.37 to $1.46 per share pursuant to the July offering, and (ii) 458,647 shares of Common Stock at $1.54 per share pursuant to the November offering.

        In private placements of Common Stock and warrants in November 2001 and June 2002, the Company sold an aggregate of 5,997,578 shares of its Common Stock to investors consisting of domestic and European financial institutions and other domestic accredited investors: 4,902,481 shares were sold at $2.25 per share in the November 2001 offering and 1,095,097 shares were sold at $2.20 per share in the June 2002 offering. For every four shares purchased in the November offering, and for every five shares purchased in the June offering, the investors received a five year warrant to purchase one share of common stock at an exercise price of $2.70 for the November offering and $2.75 for the June offering. Based on the sales price of the common stock in these private placements, the exercise prices of certain outstanding warrants were adjusted downward in accordance with the existing terms of those warrants. As a result, a deemed dividend of $297,603 has been reflected in the Company’s consolidated statement of operations for the year ended June 30, 2002.

        In connection with these private placements, the Company paid placement agent’s fees of $771,879 for the November offering and $168,000 for the June offering and issued five year warrants to purchase (i) 356,060 shares of Common Stock at prices ranging from $2.66 to $2.70 per share pursuant to the November offering and (ii) 109,510 shares of Common Stock at $2.75 per share pursuant to the June offering.

61

        In a private placement of Common Stock and warrants in September and October 2000, the Company sold 2,532,368 shares of its Common Stock to a total of nine investors in two tranches: 1,800,000 shares at $6.00 per share and 732,368 shares at $5.94 per share for total net proceeds of approximately $14 million. For every five shares purchased, the investors received an immediately exercisable five-year warrant to purchase one share of Common Stock at 125% of the closing price. As a result, the Company issued warrants to purchase 360,000 shares at an exercise price of $7.50 per share and warrants to purchase 146,472 shares at an exercise price of $7.42 per share.

        In connection with the private placement, the Company paid a placement agent’s fee of $1,060,391 and issued five year warrants to the placement agent to purchase 216,000 shares of Common Stock at $6.60 per share and 87,884 shares of Common Stock at $6.53 per share.

        Outstanding Stock Purchase Warrants – At June 30, 2003, the Company had the following warrants outstanding (prices are rounded to the nearest cent).

                      Common           Exercise Price      Latest
                   Stock Shares          per Share     Termination Date
                   ------------          ---------     ----------------
                       15,125             $0.01           03/15/05
                       32,487              0.22           09/13/05
                       51,502              1.37           07/29/07
                      360,514              1.46           06/13/07
                    2,325,312              1.54           11/29/07
                    3,358,275              1.77           03/21/08
                       32,654              1.78           02/15/06
                      404,263              2.36           06/25/06
                      134,188              2.66           10/29/06
                    1,429,984              2.70           04/30/07
                      328,529              2.75           06/13/07
                       15,000              2.82           05/13/12
                       30,000              2.90           04/06/06
                       25,000              3.65           12/17/06
                       15,000              4.00           12/15/10
                      170,000              4.37           02/08/04
                      193,003              4.48           03/09/04
                      214,271              4.56           03/10/04
                      808,850              4.70           03/11/04
                       28,582              4.81           03/11/04
                      194,773              5.06           03/12/04
                       44,073              5.56           03/12/04
                       87,884              6.53           10/27/05
                        5,000              7.00           06/06/05
                      146,475              7.42           10/27/05
                      360,000              7.50           10/05/05
                   ----------             -----
      Total        11,031,744      $0.01 - 7.50
                   ==========      ============

62

        In December 2002, the Company issued warrants to purchase 15,000 shares of its Common Stock at $2.82 per share to the Wistar Institute of Anatomy and Biology, as part of the consideration for a second agreement with Wistar to amend a technology license which Wistar previously granted to the Company. The warrants expire on May 13, 2012. The fair value of these warrants, of approximately $20,000 as calculated by the Black-Scholes option pricing model, has been charged to expense in the statement of operations.

        In April 2002, the Company issued warrants to purchase 15,000 shares of its Common Stock at $2.70 per share to Albert Fried, Jr. in consideration for a consulting agreement. The warrants expire on April 30, 2007. The fair value of these warrants, of approximately $14,000, as calculated by the Black-Scholes option pricing model, has been charged to expense in the statement of operations.

        In April and December 2001, the Company issued warrants to purchase 30,000 shares of its Common Stock at $2.90 per share and 25,000 shares at $3.65 per share, respectively, to the Cedar Brook Corporate Center as part of the consideration for the lease agreement for the Cranbury, NJ facility. These warrants expire 5 years from the date of issuance. The fair value of these warrants, of approximately $47,000, as calculated by the Black-Scholes option pricing model, will be charged ratably to expense in the statement of operations over the lease term of 10 years.

        In December 2000, the Company issued warrants to purchase 15,000 shares of its Common Stock at $4.00 per share to the Wistar Institute of Anatomy and Biology, as part of the consideration for an agreement with Wistar to amend a technology license which Wistar previously granted to the Company. The warrants expire on December 15, 2010. The fair value of these warrants, of approximately $31,200 as calculated by the Black-Scholes option pricing model, has been charged to expense in the statement of operations.

        Stock Option Plans – The Company has one stock option plan currently in effect under which future grants may be issued, the 1996 Stock Option Plan, as amended, approved by the Company’s stockholders on November 15, 2000, for which 5,000,000 shares of Common Stock are reserved. The Company has also granted options under agreements with individuals, and not under any plan.

        The status of the plans and individual agreements during the three years ended June 30, 2003, was as follows:

                                  Number of shares      Range of prices    Weighted average
                                 subject to options        per share       Prices per share
                                 ------------------     ---------------    ----------------
Outstanding at June 30, 2000         3,008,500          $.20 - $360.00         $3.92
                                     ==========         ==============         =====
   Granted                             983,125          $2.86 - $6.063
   Expired or canceled                (119,434)         $3.50 - $6.00
   Exercised                          (487,016)          $.20 - $3.875
                                     ----------         ---------------
Outstanding at June 30, 2001         3,385,175          $0.22 - $360.00        $4.14
                                     ==========         ==============         =====
   Granted                             695,000          $2.86 - $6.063
   Expired or canceled                (411,832)         $3.50 - $6.00
   Exercised                          (149,275)         $0.20 - $3.875
                                     ----------         ---------------
Outstanding at June 30, 2002         3,519,068          $0.22 - $21.70         $4.30
                                     ==========         ==============         =====
   Granted                             799,900          $1.16 - $3.53
   Expired or canceled                (177,554)         $1.36 - $21.70
   Exercised                            (5,184)          $.22 - $2.50
                                     ----------         ---------------
Outstanding at June 30, 2003         4,136,230          $1.00 - $21.70         $3.79
                                     ==========         ==============         =====
Exercisable at June 30, 2003         2,678,859          $1.00 - $21.70         $4.25







63 






                        Shares       Weighted      Weighted                           Weighted
                      Purchasable    Average       Average          Shares          Average Price
  Range of               Under     Option Life     Exercise     Exercisable At     Of Exercisable
Exercise Prices         Options      (Years)        Price        June 30, 2003         Shares
- ---------------       ----------   -----------     --------     --------------     --------------
 $1.00 - $2.49           794,796      8.88          $1.62           236,170             $1.59
 $2.50 - $3.99         1,677,594      7.02          $3.16         1,096,335             $3.04
 $4.00 - $5.99         1,269,375      6.50          $4.70           955,219             $4.79
 $6.00 - $8.00           366,959      4.26          $6.94           363,624             $6.95
 $8.01 - $18.49            7,188      0.40         $18.34             7,188            $18.34
 $18.50 - $21.70          20,323      0.46         $21.70            20,323            $21.70

                                     all outstanding options:
                                     ------------------------
 $1.00 - $21.70        4,136,235      6.93          $3.79         2,678,859             $4.25
                       =========                                  =========

(7)     INCOME TAXES:

        The Company has had no income tax expense or benefit since inception because of operating losses, except for amounts recognized for sales of New Jersey State operating loss carryforwards and research and development credits. Deferred tax assets and liabilities are determined based on the estimated future tax effect of differences between the financial statements and tax reporting basis of assets and liabilities, given the provisions of the tax laws. Based on the Company's historical losses, a valuation allowance for the net deferred tax assets has been recorded at June 30, 2003.

        The Tax Reform Act of 1986 imposes limitations on the use of net operating loss carryforwards if certain stock ownership changes occur. As a result of past changes in majority ownership, the Company most likely will not be able to fully realize the benefit of its net operating loss carryforwards.

64

        Significant components of the Company's deferred tax asset for federal and state purposes is as follows:

                                                                  June 30,
                                                       ------------------------------
                                                            2003            2002
                                                        -------------   -------------
Net operating loss carryforwards ...................... $ 29,149,000    $ 24,267,000
Research and development tax credits ..................    1,736,000         866,000
Non-deductible expenses ...............................      455,000       1,138,000
                                                        -------------   -------------
                                                          31,340,000      26,271,000
Valuation Allowances ..................................  (31,340,000)    (26,271,000)
                                                        -------------   -------------
Net deferred tax assets................................            -               -
                                                        =============   =============

        A valuation allowance was established for 100% of the deferred tax assets as realization of such benefits is not assured.

        During 2003, 2002 and 2001, the Company sold New Jersey State operating loss carryforwards and research and development credits, which resulted in the recognition of $245,093, $392,410 and $325,152, respectively, in tax benefits.

(8)     GRANTS AND CONTRACTS:

        The Company applies for and has received grants and contracts under the Small Business Innovative Research (“SBIR”) program and other federally funded grant and contract programs. Since inception, approximately $3,875,000 of the Company’s revenues has been derived from federally or state funded grants and contracts. Under federal grants and contracts, there are no royalties or other forms of repayment; however, in certain limited circumstances the government can acquire rights to technology which is not being commercially exploited.

        On May 13, 2002, the Company entered into an agreement with Mallinckrodt, Inc., a division of Tyco International, Ltd., to amend the strategic collaboration agreement dated as of August 17, 1999 for the development of LeuTech. Under the terms of the original agreement, Mallinckrodt paid a licensing fee of $500,000 (see Note 2) and purchased 700,000 restricted unregistered shares of Series C Convertible Preferred Stock for $13,000,000 (see Note 6). The Company shared LeuTech development expenses prior to FDA approval equally with Mallinckrodt. Mallinckrodt agreed to pay the Company milestone payments of an additional $10 million on FDA approval of the first LeuTech indication and on attainment of certain sales goals following product launch. The Company agreed to arrange for the manufacture of LeuTech and would receive a transfer price on each product unit and a royalty on LeuTech net sales.

        Under the terms of the amended agreement, Mallinckrodt has committed up to an additional $3.2 million, subject to certain conditions and attaining certain milestones, to offset a portion of the Company’s estimated expenses associated with completing the FDA review process. Additionally, timing of the $10 million in future milestone payments has been revised to coincide with LeuTech’s anticipated FDA approval and achievement of future sales goals (see Note 2). Of the $3.2 million, $1.2 million has been paid to date. The Company expects to receive the remaining $2 million in the fourth quarter of calendar year 2003.

65

        During the year ended June 30, 2003, 2002 and 2001, the Company recognized $504,000, $0 and $1,410,356, respectively, as contract revenue related to the development of LeuTech.

    (9)        CONSOLIDATED QUARTERLY FINANCIAL DATA – UNAUDITED:

        The following tables provide quarterly data for the fiscal years ended June 30, 2003 and 2002.

                                                                         Three Months Ended
                                             ---------------------------------------------------------------------
                                               September 30,     December 31,       March 31,         June 30,
                                                   2002              2002             2003              2003
                                              --------------   ---------------   --------------   ----------------
                                                         (amounts in thousands except per share data)

Total revenues                                $         624    $          234    $          330   $            82
Total operating expenses                              4,768             4,875             6,025             6,638
Total other income (expense)                             45                44                43                93
                                              --------------   ---------------   ---------------   ---------------

    Loss before income taxes                         (4,099)           (4,597)           (5,652)           (6,463)
Income tax benefit                                        -               245                 -                 -
                                              --------------   ---------------   ---------------   ---------------

Net loss                                             (4,099)           (4,352)           (5,652)           (6,463)
Deemed dividend                                         (17)              (98)              (88)                -
                                              --------------   ---------------   ---------------   ---------------
Net loss attributable to common shares        $      (4,116)   $       (4,450)   $       (5,740)   $       (6,463)
                                              ==============   ===============   ===============   ===============

Basic and diluted net loss per common share   $       (0.22)   $        (0.18)   $        (0.19)   $        (0.15)
                                              ==============   ===============   ===============   ===============
Weighted average number of common shares
   outstanding, used in computing basic and
   diluted net loss per common share             18,497,853        24,871,723        30,162,510        42,039,097
                                              ==============   ===============   ===============   ===============


                                                                         Three Months Ended
                                              --------------------------------------------------------------------
                                               September 30,     December 31,       March 31,         June 30,
                                                   2001              2001             2002              2002
                                              --------------   ---------------   ---------------   ---------------
                                                         (amounts in thousands except per share data)

Total revenues                                $          41    $           42    $           99    $           99
Total operating expenses                              3,000             4,266             4,662             5,193
Total other income (expense)                            101                79                64                65
                                              --------------   ---------------   ---------------   ---------------

        Loss before income taxes                     (2,858)           (4,145)           (4,499)           (5,029)
Income tax benefit                                        -               162               230                 -
                                              --------------   ---------------   ---------------   ---------------

Net loss                                             (2,858)           (3,983)           (4,269)           (5,029)
Deemed dividend                                           -              (286)                -               (11)
                                              --------------   ---------------   ---------------   ---------------
Net loss attributable to common shares        $      (2,858)    $      (4,269)     $     (4,269)     $     (5,040)
                                              ==============   ===============   ===============   ===============

Basic and diluted net loss per common share   $       (0.26)    $       (0.33)     $      (0.26)    $       (0.31)
                                              ==============   ===============   ===============   ===============
Weighted average number of common shares
   outstanding, used in computing basic and
   diluted net loss per common share             11,199,611        13,013,547        16,140,790        16,495,204
                                              ==============   ===============   ===============   ===============

66

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

        On August 8, 2002, upon the recommendation and approval of our Audit Committee, we dismissed Arthur Andersen LLP (“Andersen”) as our principal independent public accountants and engaged KPMG LLP (“KPMG”) as our principal independent public accountants.

        In connection with the audits for the most recent year ended June 30, 2001 and the subsequent interim period through the filing date of this Annual Report on Form 10-K, there were no disagreements with Andersen on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures which, if not resolved to the satisfaction of Andersen, would have caused Andersen to make reference to the subject matter of such disagreements in connection with their reports on our consolidated financial statements for such years; and there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.

        The report of Andersen on our consolidated financial statements, as of and for the year ended June 30, 2001, did not contain any adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting principles.

        We provided Andersen with the foregoing disclosures and requested Andersen to furnish a letter addressed to the Securities and Exchange Commission stating whether it agrees with the above statements. While we have received no information from Andersen that Andersen has a basis for disagreement with such statements, we have been unable to obtain such a letter due to the fact that the personnel primarily responsible for our account (including the engagement partner and manager) have left Andersen.

        During the year ended June 30, 2001 and through the filing date of this Annual Report on Form 10-K, neither we nor someone on our behalf consulted KPMG regarding the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, or any other matters or reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.

Item 9A. Controls and Procedures

    (A)   Evaluation of Disclosure Controls and Procedures. Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Annual Report on Form 10-K, have concluded that, based on such evaluation, our disclosure controls and procedures were adequate and effective to ensure that material information relating to us, including our consolidated subsidiaries, was made known to them by others within those entities, particularly during the period in which this Annual Report on Form 10-K was being prepared.

67

    (B)   Changes in Internal Controls. There were no changes in our internal control over financial reporting, identified in connection with the evaluation of such internal control that occurred during our last fiscal quarter, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

[PART III BEGINS ON THE FOLLOWING PAGE]

68

PART III

Item 10. Directors and Executive Officers of the Registrant

        Directors and executive officers. The following table sets forth the names, ages and positions of our directors and executive officers.

Name                                          Age      Position with Palatin
- ----                                          ---      ---------------------
Carl Spana, Ph.D.                             41       President, chief executive officer and
                                                       director
Stephen T. Wills, CPA                         46       Executive vice president and chief
                                                       financial officer, secretary and treasurer
Perry B. Molinoff, M.D.                       63       Executive vice president of research and
                                                       development and director
Shubh D. Sharma, Ph.D.                        48       Vice president and chief technical officer
John K.A. Prendergast, Ph.D.                  49       Director, chairman of the board of
                                                       directors
Robert K. deVeer, Jr. (1) (2)                 57       Director
Kevin S. Flannery (1) (2)                     59       Director
Zola P. Horovitz, Ph.D. (2)                   68       Director
Robert I. Taber, Ph.D. (1)                    67       Director
Errol DeSouza, Ph.D.                          49       Director
________________________________

(1)     Member of the audit committee

(2)     Member of the compensation committee.

All directors hold office until the next annual meeting of stockholders or until their successors have been elected and qualified. All current directors were elected at our annual stockholders’ meeting on December 6, 2002, except for Dr. DeSouza, who was elected by the board and became a director on April 1, 2003. Executive officers are appointed by the board and serve at the discretion of the board. Each officer holds his position until his successor is appointed and qualified. All of the current executive officers hold office under employment agreements.

        CARL SPANA, Ph.D., co-founder of Palatin, has been our president and chief executive officer since June 14, 2000. He has been a director of Palatin since June 1996 and has been a director of our wholly-owned subsidiary, RhoMed Incorporated, since July 1995. From June 1996 through June 14, 2000, Dr. Spana served as an executive vice president and our chief technical officer. From June 1993 to June 1996, Dr. Spana was vice president of Paramount Capital Investments, LLC, a biotechnology and biopharmaceutical merchant banking firm, and of The Castle Group Ltd., a medical venture capital firm. At Paramount Capital Investments and at Castle Group, Dr. Spana was responsible for discovering, evaluating, and commercializing biotechnologies. Through his work at Paramount Capital Investments and Castle Group, Dr. Spana co-founded and acquired several private biotechnology firms. From July 1991 to June 1993, Dr. Spana was a Research Associate at Bristol-Myers Squibb, a publicly traded pharmaceutical company, where he was involved in scientific research in the field of immunology. Dr. Spana is a director of AVAX Technologies, Inc., a publicly traded medical technology company. Dr. Spana received his Ph.D. in molecular biology from The Johns Hopkins University and his B.S. in biochemistry from Rutgers University.

69

        PERRY B. MOLINOFF, M.D. has been executive vice president for research and development since September 2001 and a director since November 2001. Dr. Molinoff’s background includes more than 30 years of experience in both the industrial and educational sectors. From 1981 to 1994 he was a professor of pharmacology and chairman of the Department of Pharmacology at the University of Pennsylvania School of Medicine in Philadelphia. From January 1995 until March 2001, he was vice president of neuroscience and genitourinary drug discovery for the Bristol-Meyers Squibb Pharmaceutical Research Institute, where he was responsible for directing and implementing the Institute’s research efforts. Dr. Molinoff earned his medical degree from Harvard Medical School.

        JOHN K. A. PRENDERGAST, Ph.D., co-founder of Palatin, has been chairman of the board since June 14, 2000, and a director since August 1996. Dr. Prendergast has been president and sole stockholder of Summercloud Bay, Inc., a biotechnology consulting firm, since 1993. He is a co-founder and/or a member of the board of Ingenex, Inc., Avigen, Inc., and AVAX Technologies, Inc. From October 1991 through December 1997, Dr. Prendergast was a managing director of The Castle Group Ltd. Dr. Prendergast received his M.Sc. and Ph.D. from the University of New South Wales, Sydney, Australia and a C.S.S. in administration and management from Harvard University.

        ROBERT K. deVEER, JR. has been a director since November 1998. Since January 1997, Mr. deVeer has been the president of deVeer Capital LLC, a private investment company. From 1995 until his retirement in 1996, Mr. deVeer served as Managing Director, Head of Industrial Group at New York-based Lehman Brothers. From 1973 to 1995, he held increasingly responsible positions at New York-based CS First Boston, including Head of Project Finance, Head of Industrials and Head of Natural Resources. He was a managing director, member of the investment banking committee, and a trustee of the First Boston Foundation. He received a B.A. in economics from Yale University and an M.B.A. in finance from Stanford Graduate School of Business.

        KEVIN S. FLANNERY has been a director since March 2000. Since 1992, Mr. Flannery has served as president of Whelan Financial Corp., a consulting and investment firm, and from 1994 to 1997 Mr. Flannery also served as president of Whelan Securities Corp., an NASD member brokerage firm. From 1975 to 1992, Mr. Flannery was senior managing director at Bear, Stearns & Co., Inc. where he was the head of listed equity trading. From 1974 to 1975, Mr. Flannery was first vice president at White, Weld & Co., Inc. where he was the head of the arbitrage department and co-head of the equity trading department. Prior to this, Mr. Flannery was a senior trader at Goldman, Sachs & Co. He is currently a director of three other publicly held companies: Geneva Steel Holdings Corp., Raytech Corporation and TeleSpectrum Worldwide Inc., of which he is also chairman and CEO; and of four privately held companies: Sheffield Steel Corp., Sarcom Inc., Global Technology Finance Corp. and Centis Inc. Mr. Flannery is a graduate of Columbia University.

70

        ZOLA P. HOROVITZ, Ph.D. has been a director since February 2001. Before he retired from Bristol-Myers Squibb in 1994, Dr. Horovitz spent 34 years in various positions, including associate director of the Squibb Institute for Medical Research, vice president of development, vice president, scientific liaison, vice president of licensing, and vice president of business development and planning, for the pharmaceutical division of Bristol-Myers Squibb. He held advisory positions at the University of Pittsburgh, Rutgers College of Pharmacy and Princeton University. He is currently a director of seven other publicly held companies: Genaera Corporation, Biocryst Pharmaceuticals, Diacrin, Avigen, Synaptic Pharmaceutical, 3-Dimensional Pharmaceuticals and Dov Pharmaceuticals; and four non-public companies: Phyton, Epigenesis, Immunicon and Nitromed. Dr. Horovitz earned his Ph.D. in Pharmacology from the University of Pittsburgh.

        ROBERT I. TABER, Ph.D. has been a director since May 2001. Dr. Taber began his career in the pharmaceutical industry in 1962, holding a succession of positions within Schering Corporation’s biological research group before leaving in 1982 as director of biological research. He has also held a number of increasingly important positions with DuPont Pharmaceuticals and the DuPont Merck Pharmaceutical Company, including director of pharmaceutical research, director of pharmaceutical and biotechnology research, vice president of pharmaceutical research and vice president of extramural research and development. From 1994 to 1998, Dr. Taber held the position of senior vice president of research and development at Synaptic Pharmaceuticals Corporation before founding Message Pharmaceuticals, Inc. in 1998. He is currently a director of Message Pharmaceuticals, and serves on the scientific advisory board of Locus Discovery, Inc. Dr. Taber earned his Ph.D. in pharmacology from the Medical College of Virginia.

        ERROL DE SOUZA, Ph.D. has been a director since April 2003. Dr. De Souza has nearly two decades of experience in the field of drug discovery and development. Dr. DeSouza joined Archemix Corporation, a biopharmaceutical company focused on aptamer therapeutics, on April 1, 2003. Previously, he was president and chief executive officer and a director of Synaptic Pharmaceuticals. As a result of a merger effective March 2003, Synaptic Pharmaceuticals became a wholly owned subsidiary of H. Lundbeck A/S, an international pharmaceutical company. Prior to that, Dr. DeSouza held senior management positions with Aventis, and its predecessor company Hoechst Marion Roussel Pharmaceuticals, and was co-founder of Neurocrine Biosciences, Inc. He is currently a member of the board of directors of IDEXX, and a Professor at the Center for Molecular Biology and Behavioral Neurosciences at Rutgers University. Dr. DeSouza received his B.A. (Honors) in Physiology and his Ph.D. in Neuroendocrinology from the University of Toronto, Canada and he received his postdoctoral fellowship in Neuroscience from The John Hopkins School of Medicine, Baltimore, MD.

Section 16(a) Beneficial Ownership Reporting Compliance

        The rules of the SEC (the Securities and Exchange Commission) require us to disclose late filings of reports of stock ownership and changes in stock ownership by our directors and officers. To the best of our knowledge, all of the filings for our directors and officers were made on a timely basis in fiscal 2003, except that Messrs. Spana, Wills, Molinoff, deVeer, Flannery, Horovitz and Taber each filed one report on Form 4 late, each relating to one option grant transaction.

71

Item 11. Executive Compensation

        Summary compensation table. The following table summarizes the compensation paid to our chief executive officer and the other named executive officers for the last three fiscal years. With respect to the persons and periods covered in the following table, we made no restricted stock awards, have no outstanding stock appreciation rights (“SARs”) and have no long-term incentive plan (“LTIP”).

                              SUMMARY COMPENSATION TABLE
                                                                 Long Term
                                                               Compensation
                                                               ------------
                                 Annual Compensation              Awards
                        -----------------------------------    ------------
                                                                                All other
Name and                                                          Option         Compen-
Principal Position      Year       Salary          Bonus          Shares(1)      sation
- ------------------      ----     -----------     ----------      ----------     ----------
Carl Spana, Ph.D.,      2003     $290,000        $50,000(2)      100,000        $3,543(3)
chief executive         2002     $291,042(4)           -         100,000(5)     $58,305(6)
officer                 2001     $268,358        $60,000         140,000         $2,319(7)


Stephen T. Wills,       2003     $225,000        $40,000(2)       80,000        $18,131(8)
CPA, MST, chief         2002     $226,833(4)           -          70,000(5)     $16,472(9)
financial officer       2001     $206,274        $45,000          65,000        $10,164(10)


Perry B. Molinoff,      2003     $250,000        $26,667(2)       60,000        $17,665(11)
M.D., executive         2002     $205,715              -               -        $46,192(12)
vice president of       2001        N/A            N/A           245,000          N/A
research &
development


Shubh D. Sharma,        2003     $165,000        $23,333(2)       30,000        $17,081(13)
Ph.D., vice             2002     $162,083              -          35,000(5)     $13,091(14)
president and chief     2001     $140,912        $20,000          30,000        $11,628(15)
technical officer
_____________________________

(1) The security underlying all options listed is common stock.

(2) Bonus earned in fiscal year 2003 and paid in fiscal year 2004.

72

(3) Includes 401(k) matching contributions of $2,538 and life/disability insurance premiums of $1,005.

(4) Includes one pay period of retroactive FY 2001 base salary earnings paid in FY 2002.

(5) Options granted in fiscal year 2002 relate to compensation for fiscal year 2001. No options were granted relative to fiscal 2002.

(6) Includes a relocation benefit of $55,000, 401(k) matching contributions of $2,300 and life/disability insurance premiums of $1,005.

(7) 401(k) matching contributions.

(8) Includes health insurance premiums of $11,126, life/disability insurance premiums of $1,005 and 401(k) matching contributions of $6,000.

(9) Includes health insurance premiums of $10,248, life/disability insurance premiums of $1,005 and 401(k) matching contributions of $5,219.

(10) Includes health insurance premiums of $7,089 and 401(k) matching contributions of $3,075.

(11) Includes Health insurance premiums of $10,660, life/disability insurance premiums of $1,005 and 401(k) matching contributions of $6,000.

(12) Includes a relocation benefit of $32,809, health insurance premiums of $8,482, life/disability insurance premiums of $838 and 401(k) matching contributions of $4,063.

(13) Includes health insurance premiums of $11,126, life/disability insurance premiums of $1,005 and 401(k) matching contributions of $4,950.

(14) Includes health insurance premiums of $10,248, life/disability insurance premiums of $1,005 and 401(k) matching contributions of $1,838.

(15) Includes health insurance premiums of $9,678 and 401(k) matching contributions of $1,950.

        Option grants in last fiscal year. The following table shows options granted to our named executive officers during the fiscal year ended June 30, 2003. All of the options listed were granted under our 1996 stock option plan, and the underlying security is common stock. All options granted in fiscal 2003 vested as to one third of the shares on the date of grant, and will vest as to the remaining two thirds of the shares only upon achievement of performance objectives. The exercise price for each option is equal to the market price of common stock on the date of grant. We have not granted any SARs.

[TABLE APPEARS ON FOLLOWING PAGE]

73

                                             OPTION GRANTS IN LAST FISCAL YEAR

                           INDIVIDUAL GRANTS
- --------------------------------------------------------------------------|
                                                                          |  Potential Realizable
                                                                          |    Value at Assumed
                      Number of      % of Total                           |    Annual Rates of
                      Securities       Options                            |      Stock Price
                      Underlying     Granted to    Exercise               |    Appreciation for
                       Options        Employees    or Base                |      Option Term*
                       Granted       in Fiscal      Price      Expiration | ---------------------
        Name             (#)            Year        ($/Sh)        Date    |   5%($)       10%($)
- ----------------------------------- -------------- --------- -------------| ----------  ---------
                                                                          |
Carl Spana             100,000          16.5%       $2.00      12/11/2012 |  $125,780    $318,750
                                                                          |
Stephen T. Wills        80,000          13.2%       $2.00      12/11/2012 |  $100,624    $255,000
                                                                          |
Perry B. Molinoff       60,000           9.9%       $2.00      12/11/2012 |  $75,468     $191,250
                                                                          |
Shubh D. Sharma         30,000           5.0%       $2.00      12/11/2012 |  $37,734      $95,625
__________________________

* "Potential realizable value" is shown in response to SEC rules which require the information, for illustration purposes only. The values shown are not representations or projections of future stock prices or the future value of our common stock.

        Aggregated option exercises in last fiscal year and fiscal year-end option values. No executive officer exercised any options during the fiscal year ended June 30, 2003. We have not granted any SARs. Fiscal year-end values in the following table are based on the closing price for the common stock, as reported on AMEX on June 30, 2003, of $3.19 per share.

                               aggregated option exercises in last fiscal year
                                      and fiscal year-end option values


                                                                                           Value of
                                                        Shares Underlying                 Unexercised
                                                          Unexercised                    In-the-Money
                       Shares                              Options at                      Options at
                      Acquired                          Fiscal Year End,                Fiscal Year End,
                         on         Value          -------------------------       -------------------------
      Name            Exercise     Realized        Exercisable Unexercisable       Exercisable Unexercisable
      ----            --------     --------        ----------- --------------      ----------- -------------
Carl Spana               0            $0             650,962      130,000           $216,114      $79,334
Stephen T. Wills         0            $0             457,916      113,334            $85,359      $63,466
Perry B. Molinoff        0            $0             117,500      187,500            $23,800      $47,600
Shubh D. Sharma          0            $0              82,630      63,335             $18,800      $23,800

        Ten-year option repricings. We did not adjust or amend the exercise price of any stock options during the fiscal year ended June 30, 2003. We have not granted any SARs. The following table shows all option repricings for all executive officers at any time during the last 10 years, except for repricings which may have been effected before we became a publicly held company in 1993:

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                                            TEN-YEAR OPTION REPRICINGS


                                 Number of       Market                                     Length of
                                Securities      Price of       Exercise                     Original
                                Underlying      Stock at       Price at                    Option Term
                                  Options       Time of         Time of        New        Remaining at
                                Repriced or   Repricing or   Repricing or    Exercise        Date of
                                  Amended      Amendment       Amendment      Price       Repricing or
Name                   Date         (#)           ($)             ($)          ($)          Amendment
- -------------------   -------   -----------   ------------   ------------    --------   ----------------
Carl Spana            3/24/98     74,196         $6.25           $4.96        $1.00     8 years 3 months
Charles Putnam (1)    3/24/98     74,196         $6.25           $4.96        $1.00     8 years 3 months
Edward J. Quilty (2)  3/24/98      7,803         $6.25           $4.96        $0.20     9 years 2 months
Edward J. Quilty      9/27/96     70,257         $10.50          $5.42        $0.20     8 years 3 months
- --------------------------

(1)     Former executive vice president and chief operating officer.

(2)     Former president and chief executive officer.

Compensation of Directors

        Non-employee directors’ initial option grants. When a non-employee director is first elected to the board, he receives an option to purchase an amount of common stock determined by the board, up to 10,000 shares, at the market value on the date of grant. These options vest as to 25% of the option per year, starting on the date of grant. They expire 10 years from the date of grant.

        Non-employee directors’ annual option grants. Each non-employee director receives annually an option to purchase 25,000 shares of common stock at the closing price on the date of the board’s annual meeting. These options vest in 12 monthly installments, starting on the last day of January. They expire 10 years from the date of grant. Messrs. deVeer, Flannery, Horovitz and Taber each received an option to purchase 25,000 shares at $1.59 per share, the closing price on December 6, 2002. Mr. DeSouza received an option to purchase 18,750 shares, representing the prorated portion of his annual option grant, at $1.70 per share, the closing price on April 1, 2003, the date he became a director.

        Non-employee directors’ expenses. Non-employee directors are reimbursed for expenses incurred in performing their duties as directors, including attending all meetings of the board and any committees on which they serve.

        Employee directors. Employee directors are not separately compensated for services as directors, but are reimbursed for expenses incurred in performing their duties as directors, including attending all meetings of the board and any committees on which they serve.

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Employment Agreements

        Carl Spana, Ph.D., Stephen T. Wills and Perry B. Molinoff, M.D. Dr. Spana, Mr. Wills and Dr. Molinoff have each entered into an employment agreement with us for a two-year period commencing October 1, 2001 for Dr. Spana and Mr. Wills, and commencing September 4, 2001 for Dr. Molinoff. Each agreement automatically renews for a one-year period unless terminated at least 30 days before the anniversary date. Dr. Spana is serving as chief executive officer and president at a salary of $290,000 per year. Mr. Wills is serving as chief financial officer at a salary of $225,000 per year. Dr. Molinoff is serving as executive vice president of research and development at a salary of $250,000 per year. Each agreement also provides for:

• annual bonus compensation, in an amount to be decided by the compensation committee and approved by the board, based on achievement of yearly objectives; and

• participation in all benefit programs that we establish, to the extent the employee’s position, tenure, salary, age, health and other qualifications make him eligible to participate.

Each agreement allows us or the employee to terminate the agreement upon written notice, and contains other provisions for termination by the company for “cause,” or by the employee for “good reason” or due to a “change in control” (as these terms are defined in the employment agreements). Early termination may, in some circumstances, result in severance pay at the salary then in effect, for a period of 24 months (Spana), 18 months (Wills) or 12 months (Molinoff) plus continuation of medical and dental benefits then in effect for 18 months (Spana and Wills) or 12 months (Molinoff). For Dr. Spana and Mr. Wills, termination following a change in control will result in a lump sum payment of two times (Spana) or one and one-half times (Wills) the salary then in effect, continuation of medical and dental benefits then in effect for 18 months, and immediate vesting of all stock options. For Dr. Molinoff, termination following a change in control will result in severance payments at the salary then in effect for 12 months, continuation of medical and dental benefits then in effect for 12 months, employment search expense reimbursement up to $25,000, and immediate vesting of all stock options. Each agreement includes non-competition, non-solicitation and confidentiality covenants. Although the agreements for Dr. Spana and Mr. Wills were automatically extended for a one year period pursuant to their terms, we are currently negotiating amendments to the agreements, except with respect to the base annual salary, and we anticipate that the amended terms will not be materially different than the existing terms.

        Shubh D. Sharma, Ph.D. When we merged with RhoMed Incorporated (now our wholly-owned subsidiary) in 1996, we assumed RhoMed’s employment agreement with Dr. Sharma, which automatically renews for one-year periods, unless terminated by either party at least six months before the anniversary date. Dr. Sharma is serving as a vice president and chief technical officer at a salary of $165,000 per year. His agreement also provides for:

• bonus compensation based on completion of proprietary peptide libraries, and discretionary incentive bonuses in an amount to be decided by the company; and

• participation in all benefit programs that we establish, to the extent the employee’s position, tenure, salary, age, health and other qualifications make him eligible to participate.

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The agreement allows us or the employee to terminate the agreement upon written notice, and contains other provisions for termination by the company for “cause” (as defined in the agreement). Early termination may, in some circumstances, result in severance pay at the salary then in effect, for a period of six months. The agreement includes non-competition and confidentiality covenants.

Compensation Committee Interlocks and Insider Participation in Compensation Decisions.

        During the fiscal year ended June 30, 2003, Mr. Flannery, Mr. deVeer and Dr. Horovitz served on the compensation committee.

        There are no compensation committee interlocks with other companies.

COMPENSATION COMMITTEE REPORT

        The compensation committee of the board makes recommendations to the board about compensation of executive officers. The committee also administers the 1996 stock option plan and may grant options to non-management employees and consultants, but it is the board’s policy to have the full board review and approve all option grants which the committee recommends for executive officers and directors. The committee also reviews and makes recommendations to the board concerning proposed employment agreements with executive officers. The committee evaluates performance and determines compensation policies and levels for executive officers. The members of the compensation committee are not, and have never been, employees or executive officers of Palatin. Mr. deVeer and Mr. Flannery have served on the committee since August 2000, and Dr. Horovitz has served on the committee since February 2001.

        Executive compensation policy. Competition for qualified senior management personnel in Palatin’s industry is intense. In order to attract and retain qualified personnel, Palatin must offer compensation which is both comparable to similarly situated companies in current salary and benefits, and includes the potential for substantial rewards if Palatin is successful over the long term. Palatin’s aim is to attract, retain and reward executive officers and other key employees who contribute to its long-term success and to motivate those individuals to enhance long-term stockholder value. It is Palatin’s policy to enter into employment agreements with executive officers, preferably with an initial term of two years. To establish this relationship between executive compensation and creation of stockholder value, the board has adopted a total compensation package comprised of base salary, bonus and stock option awards. Key elements of the compensation philosophy are:

• Palatin pays compensation at levels competitive with other biotechnology companies with which Palatin competes for talent.

• Palatin maintains annual incentive opportunities sufficient to provide motivation to achieve specific operating goals and to generate rewards that bring total compensation to competitive levels.

• Palatin provides significant equity-based incentives for executives and other key employees to ensure that they are motivated over the long-term to respond to Palatin’s business challenges and opportunities as owners and not just as employees.

        Determining executive compensation. The committee usually meets twice per year to review how well management compensation is serving Palatin’s goals, to make recommendations to the board for any adjustments, and to recommend annual compensation for the coming year. Palatin’s chief financial officer and human resources manager gather and report on information about compensation levels in comparable companies. We review the performance of each executive officer and the financial condition of the company. We then consider the following major components of executive compensation:

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Base salary. The employment agreement with each executive sets an initial base salary, which is competitive in our industry, given the executive’s experience and qualifications, at the time we enter into the agreement. The committee annually reviews each executive officer’s base salary. Among the factors taken into consideration are (1) individual and corporate performance, (2) levels of responsibility, (3) prior experience, (4) breadth of knowledge of the industry, and (5) competitive pay practices. If salaries at comparable companies appear to have increased, we recommend similar increases, but only if each executive’s historical performance warrants an increase and if the increase is prudent in view of Palatin’s financial condition.

Annual bonus. In addition to the competitive base salary, we intend to reward executives each year for the achievement of specific goals, which may be financial, operational or technological. We consider objectively measurable goals, such as obtaining new investment capital, negotiating valuable contracts, or meeting regulatory requirements, and more subjective goals, such as quality of management performance and consistency of effort. Palatin’s objectives consist of operating, strategic and financial goals that the board considers to be critical to Palatin’s overall goal: building stockholder value. Our recommendations for cash bonuses also take into account Palatin’s liquidity and capital resources at the time. Until Palatin’s operations generate substantial income, we may recommend bonuses which consist partly or mainly of stock options. Stock options granted as part of bonus compensation will usually be immediately exercisable, or will vest over a shorter time than other incentive options.

Long-term incentives. At present, Palatin’s only long-term incentive program is its 1996 stock option plan. Palatin does not have a defined benefit pension plan, and contributions to executives’ accounts under Palatin’s 401K plan are limited by federal tax regulations. Through option grants, executives receive significant equity incentives to build long-term stockholder value. The exercise price of options granted under the plan is at least 100% of fair market value of the common stock on the date of grant. Employees receive value from these grants only if the common stock appreciates over the long-term. We determine the size of option grants based on competitive practices at leading companies in the biotechnology industry and Palatin’s philosophy of significantly linking executive compensation with stockholder interests.

        Fiscal year 2003 compensation. During the fiscal year ended June 30, 2003, we continued compensation under our employment agreements with Dr. Spana, Mr. Wills, Dr. Molinoff and Dr. Sharma, with no change in base salaries. The base salaries for these executive officers, as provided in their employment agreements, reflect comparable salary figures for the industry, necessary to engage and retain individuals with their skills. Stock option grants for the executive officers reflected achievement of corporate and development goals. Starting December of 2002, we have made the vesting of a majority of the options granted to our executive officers contingent on achievement of performance objectives. Due to insufficient liquidity and other factors, we did not grant cash bonuses to executive officers with respect to fiscal 2002. We have resumed the granting of cash bonuses with respect to fiscal 2003, but did not pay out these bonuses until the first quarter of fiscal 2004.

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        The base salary, bonus and grants of stock options for our CEO, Carl Spana, Ph.D., were determined in accordance with the criteria described above under “Determining executive compensation.” Dr. Spana’s compensation reflects the board’s subjective assessment of (1) his performance, (2) his skills in relation to other CEOs in Palatin’s industry, and (3) the board’s assessment of Palatin’s performance. Considering these factors, the committee set Dr. Spana’s base annual salary at $290,000 when we entered into our employment agreement with him effective October 1, 2001.

        Certain Tax Considerations. Section 162(m) of the Internal Revenue Code limits the company to a deduction for federal income tax purposes of not more than $1 million of compensation paid to certain executive officers in a taxable year. Compensation above $1 million may be deducted if it is “performance-based compensation” within the meaning of the Code.

        The committee believes that at the present time it is unlikely that the compensation paid to any executive officer in a taxable year will exceed $1 million. Therefore, the board has not established a policy for determining which forms of incentive compensation awarded to executive officers will be designed to qualify as “performance based compensation.”

SUBMITTED BY THE COMPENSATION COMMITTEE:

Kevin S. Flannery, Chairman
Robert K. deVeer, Jr.
Zola P. Horovitz, Ph.D.

Stock Performance Graph

        The following graph compares the yearly change in the cumulative total shareholder return on our common stock with the cumulative total return on the Nasdaq Composite Index and the Nasdaq Biotechnology Index for our last five fiscal years. The graph assumes the investment of $100 in each stock or index on June 30, 1998, and the reinvestment of any dividends (we have never paid a dividend).

[GRAPH APPEARS ON FOLLOWING PAGE]

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        GRAPH OMITTED

stock or index:          6/98         6/99        6/00        6/01        6/02         6/03
- --------------           ----         ----        ----        ----        ----         ----
Palatin common          $100.00      $92.41     $141.77      $87.09      $40.10       $64.61
Nasdaq composite        $100.00     $141.77     $209.32     $114.07      $77.22       $85.65
Nasdaq biotech          $100.00     $159.91     $383.59     $319.59     $160.79      $211.91

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters

   Securities Authorized for Issuance under Equity Compensation Plans

        The information required by item 201(d) of Regulation S-K pursuant to the requirements of this Item 12 is contained in this report under the same heading of Part II, Item 5.

Security Ownership of Certain Beneficial Owners and Management

        The tables below show the beneficial stock ownership and voting power, as of September 18, 2003, of:

• each director, each of the named officers, and all current directors and officers as a group; and

• all persons who, to our knowledge, beneficially own more than five percent of the common stock or Series A preferred stock.

“Beneficial ownership” here means direct or indirect voting or investment power over outstanding stock and stock which a person has the right to acquire now or within 60 days after September 18, 2003. Please see the footnotes for more detailed explanations of the holdings. Except as otherwise noted, to our knowledge, the persons named in the tables beneficially own and have sole voting and investment power over all shares listed.

        The common stock has one vote per share and the Series A preferred stock has approximately 38 votes per share. Voting power is calculated on the basis of the aggregate of common stock and Series A preferred stock outstanding as of September 18, 2003. On September 18, 2003, 43,125,360 shares of common stock and 13,617 shares of Series A preferred stock were outstanding.

        The address for all members of our management is c/o Palatin Technologies, Inc., 4C Cedar Brook Drive, Cranbury, NJ 08512. Addresses of other beneficial owners are in the footnotes to the table of beneficial owners.

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                                                    MANAGEMENT:



                                                                                   Percent of
                                                                     Percent of      Voting
Class        Name of Beneficial Owner                    Shares        Class         Power
- ---------------------------------------------------------------------------------------------
Common       Carl Spana, Ph.D.                          730,968(1)      2.4%           *
Common       Stephen T. Wills                           525,916(2)      1.7%           *
Common       Perry B. Molinoff, M.D.                    176,250(3)       *             *
Common       Shubh D. Sharma, Ph.D.                     114,313(4)       *             *
Common       John K.A. Prendergast, Ph.D.               343,673(5)       *             *
Common       Robert K. deVeer, Jr.                      180,273(6)       *             *
Common       Kevin S. Flannery                          130,444(7)       *             *
Common       Zola P. Horovitz, Ph.D.                     70,833(8)       *             *
Common       Robert I. Taber, Ph.D.                      65,833(9)       *             *
Common       Errol DeSouza, Ph.D.                        17,083(10)      *             *
             All current directors and executive      2,355,586(11)     5.2%           *
             officers as a group (ten persons)
- ------------------

*Less than one percent.

(1)     Includes 714,295 shares which Dr. Spana has the right to acquire under options.

(2)     Includes 517,916 shares which Mr. Wills has the right to acquire under options.

(3)     Includes 166,250 shares which Dr. Molinoff has the right to acquire under options.

(4)     Includes 114,298 shares which Dr. Sharma has the right to acquire under options.

(5)     Includes 330,000 shares which Dr. Prendergast has the right to acquire under options.

(6)     Shares which Mr. deVeer has the right to acquire under options.

(7)     Includes 110,444 shares which Mr. Flannery has the right to acquire under options.

(8)     Includes 65,833 shares which Dr. Horovitz has the right to acquire under options.

(9)     Includes 60,833 shares which Dr. Taber has the right to acquire under options.

(10)     Shares which Mr. DeSouza has the right to acquire under options.

(11)     Includes 2,277,225 shares which directors and officers have the right to acquire under options.

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                                         5% OR GREATER BENEFICIAL OWNERS:


                                                                                      Percent of
                                                                        Percent of      Voting
Class          Name of Beneficial Owner                   Shares          Class         Power
- ------------------------------------------------------------------------------------------------
Common         ProQuest(1)                               6,161,972(2)     13.9%         11.3%
Common         Albert Fried, Jr.(3)                      3,660,277(4)      8.3%          5.7%
Common         Lurie Investments(5)                      3,080,984(6)      7.0%          5.6%
Common         Federated Kaufmann Fund(7)                2,668,982(8)      6.1%          4.1%
Common         BVF Inc.(9)                               2,640,846(10)     6.0%          4.8%
Common         Credit Suisse Equity Fund Management
               Company S.A. on behalf of CS Equity
               Fund (Lux) Global Biotech(11)             2,599,489(12)     6.0%          4.9%
Common         Joseph Edelman(13)                        2,580,458(14)     5.9%          4.0%
Common         Pictet & Cie.(15)                         2,500,166(16)     5.7%          4.7%
Series A

Preferred      J.F. Shea Co., Inc.(17)                       5,000        36.7%           *(18)
- ------------------

*Less than one percent.

(1) Includes the ownership of ProQuest Investments, L.P., ProQuest Investments II, L.P., ProQuest Investments II Advisors Fund, L.P. and ProQuest Companion Fund, L.P. ProQuest Associates LLC is the general partner of ProQuest Investments, L.P. and ProQuest Companion Fund, L.P. ProQuest Associates II LLC is the general partner of ProQuest Investments II, L.P. and ProQuest Investments II Advisors Fund, L.P. Address is 600 Alexander Park, Suite 204, Princeton, NJ 08540.

(2) Includes 1,232,394 shares which the ProQuest entities have the right to acquire under warrants.

(3) Address is c/o Albert Fried & Company LLC, 60 Broad St., 39th Floor, New York, NY 10004.

(4) Includes 1,175,629 shares which Mr. Fried has the right to acquire under warrants.

(5) Includes the ownership of Lurie Investment Fund, LLC, ALFATECH, LLC, and WASK Investments, LLC. Mark Slezak is the investment manager for all three entities. Address is c/o Lurie Investments, 2 N. Riverside Plaza, Suite 1500, Chicago, IL 60606.

(6) Includes 616,197 shares which Lurie Investment Fund, LLC, ALFATECH, LLC, and WASK Investments, LLC have the right to acquire under warrants.

(7) Includes the ownership of Federated Kaufmann Fund and Federated Kaufmann Small-Cap Fund. Lawrence Auriana is the portfolio manager for Federated Kaufmann Fund and Federated Kaufmann Small-Cap Fund. Address is 140 East 45th Street, New York, NY 10017.

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(8) Includes 880,282 shares which Federated Kaufmann Fund and Federated Kaufmann Small-Cap Fund have the right to acquire under warrants.

(9) Includes the ownership of Biotechnology Value Fund, L.P, Biotechnology Value Fund II, L.P, BVF Investments, L.L.C. and Investment 10, L.L.C. BVF Inc. is the general partner of BVF Partners LP, which is the general partner of Biotechnology Value Fund, L.P and Biotechnology Value Fund II, L.P., the manager of BVF Investments, L.L.C. and the investment adviser to Investment 10, L.L.C. Address is 227 West Monroe, Suite 4800, Chicago, IL 60606.

(10) Includes 528,169 shares which Biotechnology Value Fund, L.P, Biotechnology Value Fund II, L.P, BVF Investments, L.L.C. and Investment 10, L.L.C. have the right to acquire under warrants.

(11) Address is c/o Brown Brothers Harriman, P.O. Box 1536, Pine Street Station, New York, NY 10268.

(12) Includes 325,300 shares which CS Equity Fund (Lux) Global Biotech has the right to acquire under warrants.

(13) Address is c/o Perceptive Capital LLC, 5431 Connecticut Ave. NE, Suite 100, Washington, DC 20015.

(14) Includes 813,932 shares which Mr. Edelman, or persons with whom he shares voting and investment power, have the right to acquire under warrants. Mr. Edelman shares voting and/or investment power as to 2,320,200 of the shares shown in the table with the following persons:  Perceptive Life Sciences Master Fund, Ltd. as to 2,212,000 shares; and First New York Securities, LLC as to 108,200 shares. Mr. Edelman is the managing partner of Perceptive Life Sciences Master Fund, Ltd.

(15) Address is 29 Blvd. Georges-Favon, 1204 Geneva, Switzerland.

(16) Includes 280,000 shares which Pictet & Cie. has the right to acquire under warrants.

(17) Address is 655 Brea Canyon Road, Walnut, CA 91789.

(18) Includes 75,000 shares of common stock which J.F. Shea Co., Inc. has the right to acquire under warrants.

Item 13. Certain Relationships and Related Transactions.

        John K. A. Prendergast, Ph.D. Dr. Prendergast is the president and sole stockholder of Summercloud Bay, Inc., a corporation with which we have a consulting agreement to provide strategic and technology consulting services. Under the agreement, we have agreed to pay Summercloud Bay a fee of $1,750 per diem for work which we request, and we reimburse Dr. Prendergast for direct expenses. During the fiscal year ended June 30, 2003, we paid a total of $112,500 to Summercloud Bay, Inc. for consulting services.

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Item 14. Principal Accountant Fees and Services.

        Our principal accountant is KPMG LLP.

        Audit Fees. For the fiscal year ended June 30, 2003, KPMG billed us a total of $69,928 for professional services rendered for the audit of our annual financial statements, review of financial statements in our Forms 10-Q and services provided in connection with regulatory filings. For the fiscal year ended June 30, 2002, the total was $47,161.

        Audit-Related Fees. During the fiscal years ended June 30, 2003 and 2002, KPMG did not perform or bill us for assurance and related services related to audit or review of our financial statements, other than as stated in the preceding paragraph.

        Financial Information Systems Design and Implementation Fees. During the fiscal years ended June 30, 2003 and 2002, KPMG did not perform or bill us for financial information systems design and implementation.

        Tax Fees. For the fiscal year ended June 30, 2003, KPMG billed us a total of $12,000 for professional services rendered for tax compliance, tax advice and tax planning. For the fiscal year ended June 30, 2002, the total was $11,500.

        All Other Fees. KPMG did not perform or bill us for any services other than those described above for the fiscal years ended June 30, 2003 and 2002.

[PART IV BEGINS ON THE FOLLOWING PAGE]

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PART IV

Item 16. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a)     Documents filed as part of the report:

    1.        Financial statements: the following financial statements are filed as a part of this report under Item 8 – Financial Statements and Supplementary Data:

      — Independent Auditors’ Report

      — Report of Independent Public Accountants

      — Consolidated Balance Sheets

      — Consolidated Statements of Operations

      — Consolidated Statements of Stockholders’ Equity (Deficit)

      — Consolidated Statements of Cash Flows

      — Notes to Consolidated Financial Statements

    2.        Financial statement schedules: none.

    3.        Exhibits: The following exhibits are filed with this report, or incorporated by reference as noted. Exhibits filed with this report are marked with an asterisk (*). Exhibits which consist of or include a management contract or compensatory plan or arrangement are marked with an obelisk (†).

No. Description

3.01 Certificate of incorporation. Incorporated by reference to Exhibit 3.01 of our Form 10-K for the year ended June 30, 2000, filed with the SEC on September 29, 2000.

3.02 Bylaws. Incorporated by reference to Exhibit 3.2 of our Form 10-QSB for the quarter ended December 31, 1997, filed with the SEC on February 13, 1998.

10.01 RhoMed Incorporated 1995 Employee Incentive Stock Option Plan. Incorporated by reference to Exhibit 10.04 of our annual report on Form10-KSB for the period ended June 30, 1996, filed with the SEC on September 27, 1996.

10.02 1996 Stock Option Plan, as amended effective July 1, 1999. Incorporated by reference to Exhibit 10.02 of our amended annual report on Form 10-KSB/A for the period ended June 30, 1999, filed with the SEC on December 28, 1999.

10.03 Carl Spana Stock Option Agreement. Incorporated by reference to Exhibit 4.15 of our Form S-8 filed with the SEC on June 17, 1998. +

10.04 Executive Officers Stock Option Agreement. Incorporated by reference to Exhibit 4.18 of our Form S-8 filed with the SEC on June 17, 1998. +

10.05 Form of Placement Agent Warrant for the RhoMed common stock offering. Incorporated by reference to Exhibit 10.22 of our annual report on Form 10-KSB for the period ended June 30, 1996, filed with the SEC on September 27, 1996.

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10.06 Lease between Carnegie 214 Associates Limited Partnership and Palatin Technologies, Inc. dated May 6, 1997. Incorporated by reference to Exhibit 10.26 of our annual report on Form 10-KSB for the year ended June 30, 1997, filed with the SEC on September 26, 1997.

10.07 Consulting Agreement between Palatin and Summercloud Bay, Inc. Incorporated by reference to Exhibit 10.36 of our annual report on Form 10-KSB/A, Amendment No. 1, dated June 30, 1998, filed with the SEC on October 2, 1998. +

10.08 Strategic Collaboration Agreement dated as of August 17, 1999, between Palatin and Mallinckrodt, Inc. Incorporated by reference to Exhibit 10.21 of our amended annual report on Form 10-KSB/A for the period ended June 30, 1999, filed with the SEC on December 28, 1999.

10.09 Amendment To Strategic Collaboration Agreement dated as of May 13, 2002 between Palatin and Mallinckrodt, Inc. Incorporated by reference to Exhibit 10.1 of our quarterly report on Form 10-Q for the period ended March 31, 2002, filed with the SEC on May 15, 2002. We have obtained confidential treatment of certain provisions contained in Exhibit 10.15. The copy filed as an exhibit omits the information subject to the confidentiality request.

10.10 Form of warrant and registration rights for the warrant issued in April 2000 with an expiration date of March 15, 2005. Incorporated by reference to Exhibit 10.22 of our Form 10-K for the year ended June 30, 2000, filed with the SEC on September 29, 2000.

10.11 Form of warrant issued to purchasers in the September-October 2000 private placement. Incorporated by reference to Exhibit 10.3 of the registrant’s report on Form 10-Q for the quarter ended September 30, 2000, filed on November 14, 2000.

10.12 Employment Agreement dated as of July 17, 2001, between Palatin Technologies, Inc. and Perry B. Molinoff. Incorporated by reference to Exhibit 10.30 of our annual report on Form 10-K for the period ended June 30, 2001, filed with the SEC on September 28, 2001. †

10.13 Employment Agreement dated as of October 1, 2001, between Palatin Technologies, Inc. and Carl Spana. Incorporated by reference to Exhibit 10.4 of our quarterly report on Form 10-Q for the period ended September 30, 2001, filed with the SEC on November 14, 2001. †

10.14 Employment Agreement dated as of October 1, 2001, between Palatin Technologies, Inc. and Stephen T. Wills. Incorporated by reference to Exhibit 10.5 of our quarterly report on Form 10-Q for the period ended September 30, 2001, filed with the SEC on November 14, 2001. †

10.15 Form of stock purchase agreement for our October 2001 private placement. Incorporated by reference to Exhibit 10.1 of our report on Form 10-Q for the quarter ended September 30, 2001, filed on November 14, 2001.

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10.16 Form of registration rights agreement for our October 2001 private placement. Incorporated by reference to Exhibit 10.2 of the registrant’s report on Form 10-Q for the quarter ended September 30, 2000, filed on November 14, 2000.

10.17 Form of warrant issued to purchasers in our October 2001 private placement. Incorporated by reference to Exhibit 10.3 of the registrant’s report on Form 10-Q for the quarter ended September 30, 2000, filed on November 14, 2000.

10.18 Form of stock purchase agreement for our June-July 2002 private placement. Incorporated by reference to Exhibit 10.27 of our annual report on Form 10-K for the period ended June 30, 2002, filed with the SEC on September 30, 2002.

10.28 Form of registration rights agreement for our June-July 2002 private placement. Incorporated by reference to Exhibit 10.28 of our annual report on Form 10-K for the period ended June 30, 2002, filed with the SEC on September 30, 2002.

10.29 Form of warrant issued to purchasers in our June-July 2002 private placement. Incorporated by reference to Exhibit 10.29 of our annual report on Form 10-K for the period ended June 30, 2002, filed with the SEC on September 30, 2002.

10.30 Form of stock purchase agreement for our November 2002 private placement. *

10.31 Form of registration rights agreement for our November 2002 private placement. *

10.32 Form of warrant issued to purchasers in our November 2002 private placement. *

10.33 Form of stock purchase agreement for our March 2003 private placement. *

10.34 Form of warrant issued to purchasers in our March 2003 private placement. *

10.35 Development and Manufacturing Agreement between Palatin and DSM Biologics Company B.V. We have requested confidential treatment of certain provisions contained in Exhibit 10.33. The copy filed as an exhibit omits the information subject to the confidentiality request. *

21 Subsidiaries of the registrant. *

23.1 Consent of KPMG LLP, independent auditors. *

31.1 Certification of Chief Executive Officer *

31.2 Certification of Chief Financial Officer *

32.1 Certification of principal executive officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

87

32.2 Certification of principal financial officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

_________________

* Exhibit filed with this report.

† Management contract

(b)     Reports on Form 8-K

         None.

88

SIGNATURES

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

PALATIN TECHNOLOGIES, INC.

By: /s/ Carl Spana     
      Carl Spana, Ph.D.
      President and Chief Executive Officer

Date: September 29, 2003

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.

Signature	Title	Date
/s/ Carl Spana	President, Chief Executive Officer and Director	September 29, 2003
Carl Spana	(principal executive officer)
/s/ Stephen T. Wills	Executive Vice President and Chief Financial Officer	September 29, 2003
Stephen T. Wills	(principal financial and accounting officer)
/s/ Perry B. Molinoff	Executive Vice President of Research & Development	September 29, 2003
Perry B. Molinoff	and Director
/s/ John K.A. Prendergast	Chairman and Director	September 29, 2003
John K.A. Prendergast
/s/ Robert K. deVeer, Jr.	Director	September 29, 2003
Robert K. deVeer, Jr.
/s/ Kevin S. Flannery	Director	September 29, 2003
Kevin S. Flannery
/s/ Zola P. Horovitz	Director	September 29, 2003
Zola P. Horovitz
/s/ Robert I. Taber	Director	September 29, 2003
Robert I. Taber
/s/ Errol DeSouza	Director	September 29, 2003

89

EX-10

                                                                   EXHIBIT 10.30

                           PALATIN TECHNOLOGIES, INC.

                               PURCHASE AGREEMENT


         This Purchase Agreement (the "Agreement" or "Purchase Agreement") is
made as of ____________, 2002 by and between Palatin Technologies, Inc., a
Delaware corporation (the "Company"), with its principal office at 4C Cedarbrook
Drive, Cedarbrook Corporate Center, Cranbury, New Jersey 08512, and each of the
purchasers who are signatories hereto and any other purchasers who are made a
party to this Agreement pursuant to Section 1 (individually, a "Purchaser" and
collectively, the "Purchasers").

                                    RECITALS

         The Company is hereby offering (the "Offering") a minimum of $4,000,000
and a maximum of $12,000,000 (a) shares (the "Shares") of the Company's Common
Stock, $.01 par value per share (the "Common Stock"), and (b) warrants (the
"Warrants") entitling the Purchaser to purchase one (1) share of Common Stock
for every five (5) shares of Common Stock purchased under this Agreement. The
Shares and the Warrants offered in the Offering shall sometimes collectively be
referred to herein as the "Securities." The Securities will be sold by the
Company to Purchasers pursuant to Regulation D ("Regulation D") and/or
Regulation S ("Regulation S") promulgated under the Securities Act of 1933, as
amended (the "Act").

         The purchase price of the Shares to be offered in the Offering (the
"Offering Price") will be the sum of (i) the amount equal to the average
reported closing sales prices for the Common Stock on the American Stock
Exchange (symbol "PTN") for the five (5) business days immediately prior to the
Initial Closing Date (as defined below) and any subsequent Closing Dates (as
defined below), as the case may be, and (ii) $0.025, which reflects the value
assigned to the warrants. Every five (5) shares of Common Stock purchased in the
Offering will entitle the Purchaser to a Warrant to purchase one (1) share of
Common Stock at an exercise price per share equal to 125% of the Offering Price,
subject to certain adjustments.

                                    AGREEMENT

         In consideration of the Company's agreement to sell the Securities to
the undersigned upon the terms and conditions contained herein, each Purchaser
(severally and not jointly) agrees and represents as follows:

1. PURCHASE AND SALE OF SECURITIES.

1.1      Issue of Securities.

(a) The Company has authorized the issuance and sale of a minimum of $4,000,000
and a maximum of $12,000,000 of Securities pursuant to the provisions of this
Agreement.

(b) Subject to the terms and conditions set forth herein, the Company hereby
agrees to issue and sell to each Purchaser the aggregate amount of Shares and
Warrants set forth below the Purchaser's signature on the subscription page
bearing such Purchaser's name. The Shares shall be sold at the Offering Price.

(c) Subject to the terms and conditions set forth herein, each Purchaser hereby
agrees to purchase the amount of Shares and Warrants as determined on the
subscription page bearing such Purchaser's name (each a "Subscription"). Each
Purchaser shall severally, and not jointly, be liable only for the purchase of
the amount of Shares and Warrants that appears on the subscription page hereof
that relates to such Purchaser.

(d) The Company's agreement with each Purchaser is a separate agreement and the
sale of the Securities to each Purchaser is a separate sale.

2. CLOSING DATE; DELIVERY.

2.1 Closing. The Company expects to hold an initial closing of the Offering (the
"Initial Closing") on any day, as determined by the Company (the "Initial
Closing Date") after (i) subscriptions for a minimum of $4,000,000 of Securities
have been accepted and (ii) the escrow agent has received funds for such
accepted subscriptions, which is expected to occur on or about October 31, 2002.
The final closing of the Offering (the "Final Closing Date") shall occur as soon
as practicable on the date on which Subscriptions for the maximum of $12,000,000
of Securities have been accepted by the Company but no later than December 31,
2002, unless extended by the Company for an additional period not exceeding 60
days, without notice to the Purchaser. The Company may hold additional interim
closings after the Initial Closing. Any such interim closing together with the
Initial Closing are each hereinafter referred to as an "Interim Closing" and
shall occur on one or more dates each hereinafter referred to as an "Interim
Closing Date," and each, together with the Final Closing Date, are hereinafter
referred to as a "Closing Date."

2.2 Delivery. On each Closing Date, subject to the terms and conditions hereof,
the Company shall deliver to each Purchaser (i) stock certificates, registered
in the name of the Purchaser, representing the Shares to be purchased by the
Purchaser from the Company, and (ii) warrant certificates, registered in the
name of the Purchaser, representing the Warrants purchased by the Purchaser,
each dated as of the relevant Closing Date, against payment of the purchase
price therefor (the "Payment") by wire transfer or previously cleared check,
unless other means of payment shall have been agreed upon by the Purchaser and
the Company. The undersigned understands that payments by check as provided in
this Paragraph 2.2 shall be delivered to Mintz Levin Cohn Ferris Glovsky and
Popeo, P.C., as the escrow agent and, thereafter, such payment will be deposited
as soon as practicable in an escrow account for the undersigned's benefit. The
wire transfer shall be made to Mintz Levin Cohn Ferris Glovsky and Popeo, P.C.,
as escrow agent in accordance with the wire transfer instructions attached as
Exhibit A hereto. The Payment will be made on or prior to the relevant Closing
Date. The Payment (or, in the case of the rejection of a portion of the
undersigned's subscription, the part of the Payment relating to such rejected
portion) will be returned promptly, without interest or deduction, if the
undersigned's subscription is rejected in whole or in part. Any Payment made by
the Purchaser prior to the Initial Closing and/or any subsequent Closing is
based on an estimated price per share of Common Stock of $2.00. The Purchaser
agrees to remit to the Company on the Initial Closing and/or any Interim Closing
the balance of the Payment if the Offering Price is greater than $2.00 per
share. The Company agrees to promptly remit to the Purchaser any excess Payment
made by such Purchaser if the Offering Price is less than $2.00 per share. Each
party hereto shall deliver or cause to be delivered at or prior to the Closing
Date an executed copy of the Registration Rights Agreement between the Company
and the Purchaser and the Company shall deliver to each Purchaser a
fully-executed copy of the Agreement.

3. REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS OF THE PURCHASER.

                  Each Purchaser hereby represents and warrants to, and agrees
with, the Company as follows:

3.1 Legal Power. If this Agreement is executed and delivered on behalf of a
partnership, corporation, limited liability company, trust or estate: (i) such
partnership, corporation, limited liability company, trust or estate has the
full legal right and power and all authority and approval required (a) to
execute and delivery, or authorize execution and deliver of, this Agreement and
all other instruments (including, without limitation, the Registration Rights
Agreement among the Purchasers and the Company (the "Registration Rights
Agreement") executed and delivered by or on behalf of such partnership,
corporation, limited liability company, trust or estate in connection with the
purchase of its Securities, (b) to delegate authority pursuant to a power of
attorney and (c) to purchase and hold such Securities; (ii) the signature of the
party signing on behalf of such partnership, corporation, limited liability
company, trust or estate is binding upon such partnership, corporation, trust or
estate; and (iii) such partnership, corporation, limited liability company or
trust has not been formed for the specific purpose of acquiring such Securities,
unless each beneficial owner of such entity is qualified as an accredited
investor within the meaning of Rule 501(a) of Regulation D and has submitted
information substantiating such individual qualification.

3.2 Due Execution. Each of this Agreement and the Registration Rights Agreement
(collectively, the "Operative Documents") has been duly authorized, if Purchaser
is a corporation, partnership, limited liability company, trust or fiduciary,
executed and delivered by Purchaser and, upon due execution and delivery by the
Company, the Operative Documents will be valid and binding agreements of
Purchaser, enforceable against Purchaser in accordance with their terms, subject
to applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws relating to or affecting creditors' rights and subject to general equity
principles.

3.3      Investment Representations.

3.3.1 Purchaser is acquiring the Securities for its own account, not as nominee
or agent, for investment and not with a view to or for resale in connection with
any distribution or public offering thereof within the meaning of the Act,
except pursuant to an effective registration statement under the Act.
Alternatively, if Purchaser is a non-United States resident, such purchaser
represents that it (a) is acquiring the Securities solely for its own account,
and not on behalf of a U.S. resident, for investment purposes and not with a
view to distribution or resale, and (b) will not sell, hypothecate, pledge or
otherwise dispose of any interest in the Securities, in the United States, its
territories and possessions or any area subject to its jurisdiction, or to any
partnership or other entity created or organized therein, unless such Securities
have been either registered under the Act or are exempt from the registration
requirements of the Act; in the opinion of the Company's counsel, and unless
such Purchaser has complied with any applicable restrictions on transfer in this
Agreement.

3.3.2 Purchaser understands that (i) the Securities have not been registered
under the Act by reason of a specific exemption therefrom, and may not be
transferred or resold except pursuant to an effective registration statement or
exemption from registration and (ii) each certificate or other document
representing the Securities will be endorsed with legends in substantially the
following form:

A)       THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
         SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES
         LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
         TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT
         AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS,
         PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE
         SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
         SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR
         RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
         SECURITIES LAWS.

B)       Any legend required to be placed thereon by applicable federal or state
         securities laws;

and (iii) the Company will instruct any transfer agent not to register the
transfer of any of the Securities unless the conditions specified in the
foregoing legend are satisfied.

3.3.3 The Purchaser is familiar with and understands the terms of the Offering,
including the rights to which the Purchaser is entitled under the Registration
Rights Agreement and Form of Warrant Certificate attached hereto. The Purchaser
has been furnished with and has carefully read the Company's Current Reports on
Form 8-K dated October 1, 2002, August 15, 2002, and August 8, 2002 (the "8-Ks")
and the Company's Annual Report on Form 10-K for the year ended June 30, 2002
(the "10-K"). In evaluating the suitability of an investment in the Company, the
Purchaser has not relied upon any representation or other information (whether
oral or written) from the Company, or any agent, employee or affiliate of the
Company other than as set forth in the 10-K and 8-Ks and the results of
Purchaser's own independent investigation. With respect to individual or
partnership tax and other economic considerations involved in this investment,
the Purchaser has carefully considered and has, to the extent the Purchaser
believes such discussion necessary, discussed with the Purchaser's professional
legal, tax, accounting and financial advisers the suitability of an investment
in the Securities for the Purchaser's particular tax and financial situation and
has determined that the Securities being subscribed for by the Purchaser are a
suitable investment for the Purchaser.

3.3.4 The Purchaser acknowledges that (i) the Purchaser has had the right to
request copies of any documents, records and books pertaining to this investment
and (ii) such documents, records, and books pertaining to this investment which
the Purchaser requested have been made available for inspection by the
Purchaser, the Purchaser's representative, attorney, accountant or adviser(s)
(the "Purchaser's advisers").

3.3.5 The Purchaser and/or the Purchaser's adviser(s) has/have had a reasonable
opportunity to ask questions of and receive answers from a person or persons
acting on behalf of the Company concerning the Offering and all such questions
have been answered to the full satisfaction of the Purchaser.

3.3.6 The Purchaser is not subscribing for Securities as a result of or
subsequent to any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio or presented at any seminar or meeting.

3.3.7 Purchaser is an "accredited investor" as such term is defined in Rule 501
under the Act and as indicated by the Purchaser's responses to the Confidential
Purchaser Questionnaire.

3.3.8 Purchaser is a resident of, and all communications regarding Purchaser's
purchase of the Securities were sent to Purchaser, in the state and country of
Purchaser's residence shown on the subscription page attached hereto.

3.3.9 If the Purchaser is a natural person, the Purchaser has reached the age of
majority in the state or other jurisdiction in which the Purchaser resides, has
adequate means of providing for the Purchaser's current financial needs and
contingencies, is able to bear the substantial economic risks of an investment
in the Securities for an indefinite period of time, has no need for liquidity in
such investment and, at the present time, could afford a complete loss of such
investment.

3.3.10 The Purchaser or the Purchaser's representative, as the case may be, has
such knowledge and experience in financial, tax and business matters so as to
enable the Purchaser to utilize the information made available to the Purchaser
in connection with the Offering to evaluate the merits and risks of an
investment in the Securities and to make an informed investment decision with
respect thereto.

3.3.11 The Purchaser recognizes that an investment in the Securities involves
substantial risks, including loss of the entire amount of such investment.
Further, the Purchaser has carefully read and considered the matters set forth
under the caption "Important Factors Affecting Our Business" in the 10-K, and
has taken full cognizance of and understands all of the risks related to the
purchase of the Securities.
3.4 Remedies. The Purchaser acknowledges and agrees that it shall not be
entitled to seek any remedies with respect to the Offering from any party other
than the Company.

3.5 Indemnification. The Purchaser shall indemnify and hold harmless the Company
and each officer, director or control person of the Company, who is or may be a
party or is or may be threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of or arising from any actual or alleged
misrepresentation or misstatement of facts or omission to represent or state
facts made or alleged to have been made by the Purchaser to the Company, or
omitted or alleged to have been omitted by the Purchaser, concerning the
Purchaser or the Purchaser's authority to invest or financial position in
connection with the Offering, including, without limitation, any such
misrepresentation, misstatement or omission contained in any investor
qualification questionnaire or any other document submitted by the Purchaser,
against losses, liabilities and expenses for which the Company, or any officer,
director or control person of the Company has not otherwise been reimbursed
(including attorneys' fees, judgments, fines and amounts paid in settlement)
actually and reasonably incurred by the Company, or such officer, director or
control person in connection with such action, suit or proceeding.

4. COVENANTS OF THE COMPANY.

4.1      Information.

                  So long as the Company is subject to the periodic reporting
requirements of the Exchange Act, the Company shall deliver to each holder of
Securities all annual, quarterly or other reports to the extent such reports are
furnished to the Company's public security holders. In the event that the
Company is not so subject, until the fifth anniversary of the relevant Closing
Date the Company shall promptly furnish to each holder of Securities (i) as soon
as available, and in any event within 90 days after the end of each fiscal year
of the Company, a consolidated balance sheet of the Company and its consolidated
subsidiaries, if any, as of the end of such fiscal year and the related
consolidated statements of income, stockholders' equity and cash flows for such
fiscal year, setting forth in each case in comparative form the figures for the
previous fiscal year, all prepared in accordance with generally accepted
accounting principles and reported on by independent certified public
accountants of recognized national standing; and (ii) as soon as available, and
in any event within 45 days after the end of each of the first three fiscal
quarters of each fiscal year of the Company, a consolidated balance sheet of the
Company and its consolidated subsidiaries, if any, as of the end of such quarter
and the related consolidated statements of income and stockholder's equity
(together with any other quarterly financial statements being prepared by the
Company at such time), setting forth in each case in comparative form the
figures for the corresponding quarter and the corresponding portion of the
Company's previous fiscal year, all certified (subject to normal year-end
adjustments) as to fairness of presentation and consistency by the chief
financial or accounting officer of the Company.

5.       UNDERSTANDINGS.

                  The Purchaser understands, acknowledges and agrees with the
Company as follows:

5.1 This Subscription may be rejected, in whole or in part, by the Company, in
the sole and absolute discretion of the Company, at any time before any Closing
Date notwithstanding prior receipt by the Purchaser of notice of acceptance of
the Purchaser's Subscription.

5.2 Except as otherwise set forth herein, the Purchaser hereby acknowledges and
agrees that the Subscription hereunder is irrevocable by the Purchaser, that,
except as required by law, the Purchaser is not entitled to cancel, terminate or
revoke this Agreement or any agreements of the Purchaser hereunder and that this
Agreement and such other agreements shall survive the death or disability of the
Purchaser and shall be binding upon and inure to the benefit of the parties and
their heirs, executors, administrators, successors, legal representatives and
permitted assigns. If the Purchaser is more than one person, the obligations of
the Purchaser hereunder shall be joint and several and the agreements,
representations, warranties and acknowledgments herein contained shall be deemed
to be made by and be binding upon each such person and his/her heirs, executors,
administrators, successors, legal representatives and permitted assigns.

5.3 No federal or state agency has made any finding or determination as to the
accuracy or adequacy of this Agreement or the Registration Rights Agreement or
as to the fairness of the terms of this Offering for investment nor any
recommendation or endorsement of the Securities.

5.4 The Offering is intended to be exempt from registration under the Securities
Act by virtue of Section 4(2) of the Securities Act and the provisions of
Regulation D thereunder, and/or the provisions of Regulation S which is in part
dependent upon the truth, completeness and accuracy of the statements made by
the Purchaser.

5.5 There can be no assurance that the Purchaser will be able to sell or dispose
of the Securities. It is understood that in order not to jeopardize the
Offering's exempt status under Section 4(2) of the Securities Act and Regulation
D, as well as Regulation S, any transferee may, at a minimum, be required to
fulfill the investor suitability requirements thereunder.

5.6 Privateq Advisors AG (the "Placement Agent") is acting as a finder in
connection with this Offering solely in Europe and will receive a fee equal to
7% of the aggregate cash value of the amount of equity investment raised by the
Company through the introduction by the Placement Agent to qualified individuals
or institutions and (ii) warrants to purchase shares of Common Stock equal to 5%
of the shares of Common Stock sold as part of such equity investment, with such
warrants having an exercise price equal to 125% of the Offering price per common
share. The Company does not currently anticipate employing the services of a
finder in the United States.



5.7 The Purchaser acknowledges that the information contained in this Agreement
and the Registration Rights Agreement or otherwise made available to the
Purchaser is confidential and non-public and agrees that all such information
shall be kept in confidence by the Purchaser and neither used by the Purchaser
for the Purchaser's personal benefit (other than in connection with this
Subscription) nor disclosed to any third party for any reason, notwithstanding
that a Purchaser's Subscription may not be accepted by the Company; provided,
however, that this obligation shall not apply to any such information that (i)
is part of the public knowledge or literature and readily accessible at the date
hereof, (ii) becomes part of the public knowledge or literature and readily
accessible by publication (except as a result of a breach of this provision) or
(iii) is received from third parties (except third parties who disclose such
information in violation of any confidentiality agreements or obligations,
including, without limitation, any subscription or other similar agreement
entered into with the Company).

5.8 The representations, warranties and agreements of the Purchaser contained
herein and in any other writing delivered in connection with the transactions
contemplated hereby shall be true and correct in all respects on and as of the
relevant Closing Date of the sale of the Securities as if made on and as of such
date and shall survive the execution and delivery of this Agreement and the
purchase of the Securities.

5.9 IN MAKING AN INVESTMENT DECISION, PURCHASERS MUST RELY ON THEIR OWN
EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR
STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS
PURCHASE AGREEMENT OR OTHER WRITINGS DELIVERED IN CONNECTION WITH THE SALE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

5.10 THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE
AND MAY NOT BE TRANSFERRED, RESOLD OR OTHERWISE DISPOSED OF EXCEPT AS PERMITTED
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. PURCHASERS SHOULD BE AWARE THAT THEY
WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME.

5.11 If the Purchaser is a Registered Representative of an NASD member firm, the
Purchaser must give such firm the notice required by the NASD's Rules of Fair
Practice, receipt of which must be acknowledged by such firm on the signature
page hereof.

6. DEFAULTING PROSPECTIVE PURCHASERS.

(a) If, on the relevant Closing Date, a prospective Purchaser defaults in the
performance of its obligations under this Agreement, a non-defaulting
prospective Purchaser may make arrangements for the purchase of the Securities
that would have been purchased by such defaulting prospective Purchaser by other
persons satisfactory to the Company and the non-defaulting prospective
Purchasers, but if no such arrangements are made within 36 hours after such
default, this Agreement shall terminate without liability on the part of the
non-defaulting prospective Purchasers or the Company except that prospective
Purchasers will continue to be liable for the payment of expenses to the extent
set forth in Section 7.8 and except that the provisions of Section 3.5 shall not
terminate and shall remain in effect.

(b) Nothing contained herein shall relieve a defaulting prospective Purchaser of
any liability it may have for damages caused by its default. If other Purchasers
agree to purchase the Securities of a defaulting prospective Purchaser, either
the non-defaulting prospective Purchaser or the Company may postpone a Closing
Date for up to seven (7) full business days in order to effect any changes that
in the reasonable opinion of counsel for the Company or counsel for the
Placement Agent may be necessary in any document or arrangement, and the Company
agrees to prepare and distribute promptly any amendment that effects any such
changes.

7. MISCELLANEOUS.

7.1 Governing Law. This Agreement shall be governed by and construed under the
laws of the State of New York without regard to any otherwise applicable
principles of conflicts of laws.

7.2 Survival. The representations and warranties made by the parties in this
Agreement shall survive the consummation of the transactions herein contemplated
until the expiration of the statute of limitations with respect to claims
arising under Section 10(b) of the Securities Exchange Act of 1934, as amended,
with respect to the purchase of Securities hereunder.

7.3 Successors and Assigns. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.

7.4 Entire Agreement. This Agreement and the Exhibits hereto, constitute the
full and entire understanding and agreement among the parties with regard to the
subjects hereof and no party shall be liable or bound to any other party in any
manner by any representations, warranties, covenants or agreements except as
specifically set forth herein or therein. Nothing in this Agreement, express or
implied, is intended to confer upon any party, other than the parties hereto and
their respective successors and assigns, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
herein.

7.5 Severability. In the event that any provision of this Agreement shall be
invalid, illegal or unenforceable, it shall, to the extent practicable, be
modified so as to make it valid, legal and enforceable and to retain as nearly
as practicable the intent of the parties, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby. To the extent permitted by law, the parties hereto waive the
benefit of any provision of law that renders any provision of this Agreement
invalid or unenforceable in any respect.

7.6 Amendment and Waiver. Except as otherwise provided herein, any term of this
Agreement may be amended, and the observance of any term of this Agreement may
be waived (either generally or in a particular instance, either retroactively or
prospectively, and either for a specified period of time or indefinitely), with
the written consent of the Company and the Purchaser.

7.7 Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed effectively given upon
personal delivery, on the first business day following mailing by overnight
courier, or on the fifth day following mailing by registered or certified mail,
return receipt requested, postage prepaid, addressed to the Company and the
Purchaser at the respective addresses included herein.

7.8 Fees and Expenses. Except as otherwise provided herein, the Company and the
Purchasers shall bear their own expenses and legal fees incurred on its behalf
with respect to this Agreement and the transactions contemplated hereby.

7.9 Titles and Subtitles. The titles of the paragraphs and subparagraphs of this
Agreement are for convenience of reference only and are not to be considered in
construing this Agreement.

7.10 Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one instrument.

                  7.11 No Waiver. No waiver by any party to this Agreement of
any one or more defaults by any other party or parties in the performance of any
of the provisions hereof shall operate or be construed as a waiver of any future
default or defaults, whether of a like or different nature. Except as expressly
provided herein, no failure or delay on the part of any party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy.



8. ESCROW AGENT. To induce Mintz Levin Cohn Ferris Glovsky and Popeo, P.C. to
serve as the escrow agent and to act in such capacity hereunder, it is agreed by
the parties hereto that:

(a) The escrow agent shall not be under any duty to give the property held by it
hereunder (the "Escrowed Property") any greater degree of care than it gives its
own similar property.

(b) This Section 8 of this Agreement expressly sets forth all the duties of the
escrow agent with respect to any and all matters pertinent hereto. No implied
duties or obligations shall be read into this Agreement against the escrow
agent. The escrow agent shall not be bound by the provisions of any agreement
among the other parties hereto except this Section 8 of this Agreement.

(c) The escrow agent shall not be liable, except for its own gross negligence or
willful misconduct and, except with respect to claims based upon such gross
negligence or willful misconduct that are successfully asserted against the
escrow agent, the other parties hereto shall jointly and severally indemnify and
hold harmless the escrow agent from and against any and all losses, liabilities,
claims, actions, damages and expenses, including, without limitation, reasonable
attorneys' fees and disbursements, arising out of or in connection with this
Agreement.

(d) The escrow agent shall be entitled to rely upon any order, judgment,
certification, demand, notice, instrument or other writing delivered to it
hereunder without being required to determine the authenticity or the
correctness of any fact stated therein or the propriety or validity of the
service thereof. The escrow agent may act in reliance upon any instrument or
signature believed by it to be genuine and may assume that any person purporting
to give receipt or advice or make any statement or execute any document in
connection with the provisions hereof has been duly authorized to do so.

(e) The escrow agent may act pursuant to the advice of counsel with respect to
any matter relating to this Agreement and shall not be liable for any action
taken or omitted in accordance with such advice.

(f) The escrow agent does not have any interest in the Escrowed Property
deposited hereunder but is serving as escrow holder only and having only
possession thereof. The other parties shall, on a joint and several basis, pay
or reimburse the escrow agent upon request for any and all expenses, if any,
incurred by the escrow agent in connection with this Agreement and transfer
taxes or other taxes relating to the Escrowed Property incurred in connection
herewith and shall indemnify and hold harmless the escrow agent from any amounts
that it is obligated to pay in the way of such expenses and taxes. This
subparagraph and subparagraph (c) shall survive notwithstanding any termination
of this Agreement or the resignation of the escrow agent.

(g) The escrow agent makes no representation as to the validity, value,
genuineness or the collectability of any security or other document or
instrument held by or delivered to it.

(h) The escrow agent may at any time resign as such by delivering the Escrowed
Property to any successor escrow agent jointly designated by the other parties
hereto in writing, or to any court of competent jurisdiction, whereupon the
escrow agent shall be discharged of and from any and all further obligations
arising in connection with this Agreement. The resignation of the escrow agent
will take effect on the earlier of (a) the appointment of a successor (including
a court of competent jurisdiction) or (b) the day which is 30 days after the
date of delivery of its written notice of resignation to the other parties
hereto. If at that time the escrow agent has not received a designation of a
successor escrow agent, the escrow agent's sole responsibility after that time
shall be to safekeep the Escrowed Property until receipt of a designation of
successor escrow agent or a joint written disposition instruction by the other
parties hereto or a final order of a court of competent jurisdiction.

(i) In the event of any disagreement between the other parties hereto resulting
in adverse claims or demands being made in connection with the Escrowed
Property, or in the event that the escrow agent in good faith is in doubt as to
what action it should take hereunder, the escrow agent shall be entitled to
retain the Escrowed Property until the escrow agent shall have received (i) a
final non-appealable order of a court of competent jurisdiction directing
delivery of the Escrowed Property or (ii) a written agreement executed by the
other parties hereto directing delivery of the Escrowed Property, in which event
the escrow agent shall disburse the Escrowed Property in accordance with such
order or agreement. Any court order shall be accompanied by a legal opinion by
counsel for the presenting party satisfactory to the escrow agent to the effect
that said opinion is final and non-appealable.

(j) Notwithstanding anything to the contrary contained herein, the escrow
agent's duties and obligations hereunder shall terminate upon the release and
distribution of the Escrowed Property in accordance with the terms of this
Agreement.

(k) Each of the Company and the Purchaser understands and agrees that,
notwithstanding its duties as escrow agent hereunder, the escrow agent is the
attorney for the Company, and, accordingly, neither any services as escrow agent
hereunder nor any provisions hereof, either express or implied, shall restrict
or inhibit the escrow agent in any way from representing the Company or its
affiliates in any action, dispute, controversy, arbitration, suit or negotiation
arising under this Agreement or under any other agreement or in any manner or
context whatsoever, whether or not directly or indirectly involving the Company
or its affiliates. Notwithstanding anything to the contrary contained herein, if
at any time a law firm representing either Company or Purchasers serves or is
serving as escrow agent, then with respect to such law firm's capacity as escrow
agent, such counsel shall not for these purposes serve as the agent for either
of the parties, but shall be a fiduciary of both parties.

9. EXECUTION OF AGREEMENT.

                  THE PURCHASER ACKNOWLEDGES THAT THE PURCHASER HAS SIGNED THIS
AGREEMENT ON THE PURCHASER'S OWN BEHALF, AND NOT BY POWER OF ATTORNEY.








         IN WITNESS WHEREOF, the parties have executed this Purchase Agreement
as of the day and year first written above.



                   By:
                        --------------------------------------------------------
                        Name of Purchaser(s):
                        Address:





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


                        Social Security or Taxpayer
                        Identification Number of Purchaser(s)
                        --------------------------------------------------------
                        --------------------------------------------------------


                        Number of Shares Purchased
                        --------------------------------------------------------
                        --------------------------------------------------------
                        Number of Warrants Purchased




*$________________________________
U.S. Dollar Amount Invested

Date:    ____________, 2002

         * If Purchaser is a Registered Representative with a NASD member firm,
have the following acknowledgment signed by the appropriate party:

The undersigned NASD member firm acknowledges receipt of the notice required by
Article 3, Sections 28(a) and (b) of the Rules of Fair Practice.


                        By:
                             ---------------------------------------------------
                             Name of NASD Member Firm:


                        By:
                             ---------------------------------------------------
                                                          Authorized Officer:

*        Estimated based on $___ per share of Common Stock. Adjustments will be
         made in the Payment if the Offering Price, as defined in the Purchase
         Agreement, is different than the estimated $___ price per share. The
         Purchaser agrees to remit to the Company on the applicable Closing the
         balance of the Payment if the Offering Price is greater than $___ per
         share. The Company agrees to promptly remit to the Purchaser any excess
         Payment made by the Purchaser if the Offering Price is less than $___
         per share.

                         Subscription Accepted:

                         PALATIN TECHNOLOGIES, INC.


                         By:
                              --------------------------------------------------
                              Carl Spana, Ph.D.
                              Chief Executive Officer

Date:  __________, 2002












                                       A-1

                                    EXHIBIT A


                           WIRE TRANSFER INSTRUCTIONS


     Wire transfers should be made to Mintz Levin Cohn Ferris Glovsky and Popeo
PC, as Escrow Agent, Fleet Bank of Massachusetts, N.A., Malden MA 02148,
ABA#011000390, Account Name: Mintz Levin Cohn Ferris Glovsky and Popeo PC IOLTA
Account, Account Number 534-66888, Reference: Palatin Technologies.








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




                           PALATIN TECHNOLOGIES, INC.

                               PURCHASE AGREEMENT



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





                                       ii

                                TABLE OF CONTENTS

                                                                            Page

1.       PURCHASE AND SALE OF SECURITIES.......................................1
- --       -------------------------------

         1.1      Issue of Securities..........................................1
         ---      -------------------

2.       CLOSING DATE; DELIVERY................................................2
- --       ----------------------

         2.1      Closing......................................................2
         ---      -------

         2.2      Delivery.....................................................2
         ---      --------

3.       REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS OF THE PURCHASER....3
- --       ------------------------------------------------------------------

         3.1      Legal Power..................................................3
         ---      -----------

         3.2      Due Execution................................................3
         ---      -------------

         3.3      Investment Representations...................................3
         ---      --------------------------

         3.4      Remedies.....................................................5
         ---      --------

         3.5      Indemnification..............................................5
         ---      ---------------

4.       COVENANTS OF THE COMPANY..............................................6
- --       ------------------------

         4.1      Information..................................................6
         ---      -----------

5.       UNDERSTANDINGS........................................................6
- --       --------------

6.       DEFAULTING PROSPECTIVE PURCHASERS.....................................8
- --       ---------------------------------

7.       MISCELLANEOUS.........................................................9
- --       -------------

         7.1      Governing Law................................................9
         ---      -------------

         7.2      Survival.....................................................9
         ---      --------

         7.3      Successors and Assigns.......................................9
         ---      ----------------------

         7.4      Entire Agreement.............................................9
         ---      ----------------

         7.5      Severability.................................................9
         ---      ------------

         7.6      Amendment and Waiver.........................................9
         ---      --------------------

         7.7      Notices......................................................9
         ---      -------

         7.8      Fees and Expenses...........................................10
         ---      -----------------

         7.9      Titles and Subtitles........................................10
         ---      --------------------

         7.10     Counterparts................................................10
         ----     ------------

         7.11     No Waiver...................................................10
         ----     ---------

8.       ESCROW AGENT.........................................................10
- --       ------------

9.       EXECUTION OF AGREEMENT...............................................12
- --       ----------------------

EX-10

                                                                   EXHIBIT 10.31

                          REGISTRATION RIGHTS AGREEMENT


     This Registration Rights Agreement (this "Agreement") is made as of this
___ day of _________, 2002, by PALATIN TECHNOLOGIES, INC., a Delaware
corporation (the "Company"), for the benefit of each Purchaser (individually a
"Purchaser" and collectively the "Purchasers") entering into that certain
Purchase Agreement (the "Purchase Agreement") with the Company.

                                   BACKGROUND

     Pursuant to the Purchase Agreement, the Company has offered (the
"Offering") for sale up to a maximum of $12,000,000 of (a) shares (the "Shares")
of the Company's Common Stock, $.01 par value per share (the "Common Stock") and
(b) warrants (the "Warrants") to purchase one (1) share of Common Stock of the
Company for every five (5) shares of Common Stock purchased under the Purchase
Agreement. The Shares and Warrants are sometimes collectively called the
"Securities." In order to induce the Purchasers to purchase the Securities, the
Company has agreed to provide the registration rights set forth in this
Agreement.

1. Securities Laws Representations and Covenants of Purchaser.

     This Agreement is made for the benefit of the Purchasers in reliance upon
each Purchaser's representations to the Company, as the same are set forth in
Section 4 of the Purchase Agreement.

2. Registration Rights.

2.1  Certain Definitions. As used in this Agreement, the following terms shall
     have the following respective meanings:

(a)                        "Commission" shall mean the Securities and Exchange
                           Commission or any other federal agency at the time
                           administering the Securities Act.

(b)                        "Form S-1, Form SB-1, Form S-2, Form SB-2 and Form
                           S-3" shall mean Form S-1, Form SB-1, Form S-2, Form
                           SB-2 or Form S-3, respectively, promulgated by the
                           Commission or any substantially similar form then in
                           effect.

(c)                        "Purchasers" shall mean, collectively, the
                           Purchasers, their permitted assignees and transferees
                           and, individually, a Purchaser and any permitted
                           assignee or transferee of such Purchaser.

(d)                        "Privateq Warrant Shares" shall mean the shares of
                           common stock issued underlying any warrants issued to
                           Privateq Advisors AG pursuant to section 5.6 of the
                           Purchase Agreement.

(e)                        The terms "Register", "Registered" and "Registration"
                           refer to a registration effected by preparing and
                           filing a Registration Statement or Statements or
                           similar documents in compliance with the Securities
                           Act, and the declaration or ordering by the
                           Commission of the effectiveness of such Registration
                           Statement.

(f)                        "Registrable Securities" shall mean the Shares and
                           Warrant Shares, as well as the Privateq Warrant
                           Shares, so long as such shares are ineligible for
                           sale under subparagraph (k) of Rule 144.

(g)                        "Registration Expenses" shall mean all expenses
                           incurred by the Company in complying with Section 2,
                           including, without limitation, all federal and state
                           registration, qualification and filing fees, printing
                           expenses, fees and disbursements of counsel for the
                           Company, accountant fees, blue sky fees and expenses
                           and, the expense of any special audits incident to or
                           required by any such Registration.

(h)                        "Registration Statement" shall mean Form S-1, Form
                           SB-1, Form S-2, Form SB-2 or Form S-3, whichever is
                           applicable, unless otherwise specified herein.

(i)                        "Rule 144" shall mean Rule 144 promulgated by the
                           Commission pursuant to the Securities Act.

(j)                        "Securities Act" shall mean the Securities Act of
                           1933, as amended.

(k)                        "Selling Expenses" shall mean all underwriting
                           discounts and selling commissions applicable to the
                           sale of Registrable Securities pursuant to this
                           Agreement.

(l)                        "Selling Stockholder" shall mean a holder of
                           Registrable Securities who requests Registration
                           under Section 2.3 hereof or whose shares of Common
                           Stock become Registered pursuant to Section 2.2
                           hereof.

(m)                        "Warrant Shares" shall mean the shares of capital
                           stock of the Company underlying the Warrants.

Capitalized terms used but not defined herein shall have the meanings ascribed
to such terms in the Purchase Agreement.

2.2      Required Registration.

(a)                        Within forty-five (45) days following the Final
                           Closing Date of the Offering, the Company shall use
                           its commercially reasonable efforts to prepare and
                           file with the Commission a Registration Statement for
                           the purpose of Registering, upon the effectiveness of
                           such Registration Statement, the Registrable
                           Securities.

(b)                        The Company shall use its commercially reasonable
                           efforts to maintain with the Commission a
                           Registration Statement that is effective and causes
                           the Registrable Securities to be Registered under the
                           Securities Act until the earlier of (i) the second
                           anniversary of the first date on which no Warrants
                           remain unexercised or unexpired or (ii) the date all
                           shares purchased by the Purchasers may be sold under
                           Rule 144 during any ninety (90) day period.

2.3      Piggyback Registration.

(a)                      Until the time set forth in Section 2.3(g) hereof, each
                         time that the Company proposes to Register a public
                         offering of its Common Stock, other than (i) pursuant
                         to a Registration Statement on Form S-4 or Form S-8 or
                         similar or successor forms or (ii) on a Registration
                         Statement filed in connection with an exchange offer or
                         other offer of Common Stock solely to the then-existing
                         stockholders of the Company, the Company shall promptly
                         give written notice of such proposed Registration to
                         all holders of Registrable Securities, which shall
                         offer such holders the right to request inclusion of
                         any Registrable Securities in the proposed
                         Registration.

(b)                        Each holder of Shares or Warrant Shares shall have
                           ten (10) days or such longer period as shall be set
                           forth in the notice from the receipt of such notice
                           to deliver to the Company a written request
                           specifying the number of Registrable Securities such
                           holder intends to sell and the holder's intended plan
                           of disposition.

(c)                      The Company shall have the exclusive right to select
                         all underwriters for any underwritten public offering
                         of securities of the Company, including all Registrable
                         Securities. In the event that the proposed Registration
                         by the Company is, in whole or in part, an underwritten
                         public offering of securities of the Company, any
                         request under Section 2.3(b) shall contain the holder's
                         agreement that the Registrable Securities will be
                         included in the underwriting on the same terms and
                         conditions as the shares of Common Stock or other
                         securities, if any, otherwise being sold through
                         underwriters under such Registration.

(d)                        Upon receipt of a written request pursuant to Section
                           2.3(b), the Company shall promptly use its
                           commercially reasonable best efforts to cause all
                           such Registrable Securities to be Registered, to the
                           extent required to permit sale or disposition as set
                           forth in the written request.

(e)                      Notwithstanding the foregoing, if the managing
                         underwriter of an underwritten public offering
                         determines and advises in writing that the inclusion of
                         all Registrable Securities proposed to be included in
                         the underwritten public offering, together with any
                         shares proposed to be sold by the Company for its own
                         account and any other issued and outstanding shares of
                         Common Stock or other securities proposed to be
                         included therein by holders other than the holders of
                         Registrable Securities (such other holders' shares
                         hereinafter collectively referred to as the "Other
                         Shares"), would interfere with the successful marketing
                         of the securities proposed to be included in the
                         underwritten public offering, including the price at
                         which such securities can be sold, then the number of
                         such shares of persons other than the Company that
                         otherwise would be included in such underwritten public
                         offering shall be excluded from such underwritten
                         public offering in a number deemed necessary by such
                         managing underwriter, first by excluding, to the extent
                         necessary, other shares held by persons who have not
                         exercised contractual rights to include such Shares in
                         the offering pursuant to the Prior Registration Rights
                         Agreements (as hereinafter defined), and then, to the
                         extent necessary, by excluding Registrable Securities
                         participating in such underwritten public offering, pro
                         rata, based on the number of shares of Registrable
                         Securities each holder proposes to include; and, then,
                         excluding to the extent necessary, other Shares
                         proposed to be included by the holders of Other Shares
                         who have exercised registration rights granted to them
                         under registration rights agreements of the Company in
                         effect on the date hereof or any other registration
                         rights in effect on the date hereof (collectively, the
                         "Prior Registration Rights Agreements").

(f)                        All Shares and Warrant Shares that are not included
                           in an underwritten public offering pursuant to
                           Section 2.3 shall be withheld from the market by the
                           holders thereof for a period, not to exceed 12 months
                           following a public offering, that the managing
                           underwriter reasonably determines is necessary in
                           order to effect the underwritten public offering. The
                           holders of such Shares and the Warrant Shares shall
                           execute such documentation as the managing
                           underwriter reasonably requests to evidence this
                           lock-up.

(g)                        The registration rights provided by this Agreement
                           shall expire with respect to any Registrable Security
                           upon the earliest to occur of (i) the effectiveness
                           of a Registration Statement that includes in the
                           Registration effected thereby, at the request of a
                           Selling Stockholder, such Registrable Security; (ii)
                           the date on which such Registrable Security is
                           eligible for resale under Rule 144 without regard to
                           the volume limitations thereof; and (iii) five years
                           from the date hereof.

2.4               Preparation and Filing. If and whenever the Company is under
                  an obligation pursuant to the provisions of this Section 2 to
                  use its commercially reasonable efforts to effect the
                  Registration of any Registrable Securities, the Company shall,
                  as expeditiously as practicable:

(a)                        prepare and file with the Commission a Registration
                           Statement with respect to such Registrable
                           Securities, using such form of available Registration
                           Statement as is reasonably selected by the Company
                           (unless otherwise specified herein), and use its
                           commercially reasonable efforts to cause such
                           Registration Statement to become effective within
                           ninety (90) days of the filing date and remain
                           effective, keeping each Selling Stockholder advised
                           as to the initiation, progress and completion of the
                           Registration;

(b)                        prepare and file with the Commission such amendments
                           and supplements to such Registration Statements and
                           the prospectus used in connection therewith as may be
                           necessary to keep such Registration Statement
                           effective for, in the case of a Required Registration
                           under Section 2.2, the period set forth in Section
                           2.2(b) and, in the case of a Piggyback Registration
                           under Section 2.3, six (6) months, and to comply with
                           the provisions of the Securities Act with respect to
                           the sale or other disposition of all Registrable
                           Securities covered by such Registration Statement;

(c)                      furnish to each Selling Stockholder such number of
                         copies of any summary prospectus or other prospectus,
                         including a preliminary prospectus and all amendments
                         and supplements thereto, in conformity with the
                         requirements of the Securities Act, and such other
                         documents as such Selling Stockholder may reasonably
                         request in order to facilitate the public sale or other
                         disposition of such Registrable Securities; PROVIDED,
                         HOWEVER, that no such prospectus need be furnished more
                         than, in the case of a Required Registration under
                         Section 2.2, six (6) months after the conclusion of the
                         period set forth in Section 2.2(b) and, in the case of
                         a Piggyback Registration under Section 2.3, six months
                         after the effective date of the Registration Statement
                         related thereto;

(d)                      use its commercially reasonable best efforts to
                         register or qualify the Registrable Securities covered
                         by such Registration Statement under the securities or
                         blue sky laws of such jurisdictions as each Selling
                         Stockholder shall reasonably request and do any and all
                         other acts or things which may be reasonably necessary
                         or advisable to enable such holder to consummate the
                         public sale or other disposition in such jurisdictions
                         of such Registrable Securities; PROVIDED, HOWEVER, that
                         the Company shall not be required to consent to general
                         service of process, qualify to do business as a foreign
                         corporation where it would not be otherwise required to
                         qualify or submit to liability for state or local taxes
                         where it is not liable for such taxes or provide any
                         undertaking or make any change in its Certificate of
                         Incorporation; and

(e)                      at any time when a prospectus covered by such
                         Registration Statement is required to be delivered
                         under the Securities Act within the appropriate period
                         mentioned in Section 2.2(b) or Section 2.3(b) hereof,
                         as the case may be, notify each Selling Stockholder of
                         the happening of any event as a result of which the
                         prospectus included in such Registration Statement, as
                         then in effect, includes an untrue statement of a
                         material fact or omits to state a material fact
                         required to be stated therein or necessary to make the
                         statements therein not misleading in the light of the
                         circumstances then existing and, at the request of such
                         Selling Stockholder, prepare, file and furnish to such
                         Selling Stockholder a reasonable number of copies of a
                         supplement to or an amendment of such prospectus as may
                         be necessary so that, as thereafter delivered to the
                         purchasers of such shares, such prospectus shall not
                         include an untrue statement of a material fact or omit
                         to state a material fact required to be stated therein
                         or necessary to make the statement therein not
                         misleading in the light of the circumstances then
                         existing. The Company may delay amending or
                         supplementing the prospectus for a period of up to 90
                         days if the Company is then engaged in negotiations
                         regarding a material transaction that has not been
                         publicly disclosed, and the Selling Stockholders shall
                         suspend their sale of Shares until an appropriate
                         supplement or prospectus has been forwarded to them or
                         the proposed transaction is abandoned.

Notwithstanding the foregoing, with respect to the proposed Registration of
Registrable Securities pursuant to Section 2.3 hereof, the Company may withdraw
or cease proceeding with any proposed Registration of Registrable Securities if
it has withdrawn or ceased proceeding with the proposed Registration of Common
Stock of the Company with which the Registration of such Registrable Securities
was to be included.

2.5               Expenses. The Company shall pay all Registration Expenses
                  incurred by the Company in complying with this Section 2,
                  except for fees and expenses, if any, of a special counsel or
                  other advisors to the Purchasers, not to exceed $10,000.

2.6               Information Furnished by Purchaser. It shall be a condition
                  precedent to the Company's obligations under this Agreement as
                  to any Selling Stockholder that each Selling Stockholder
                  furnish to the Company in writing such information regarding
                  such Selling Stockholder and the distribution proposed by such
                  Selling Stockholder as the Company may reasonably request.

2.7      Indemnification.

2.7.1                     Company's Indemnification of Purchasers. The Company
                         shall indemnify each Selling Stockholder, each of its
                         officers, directors and constituent partners, and each
                         person controlling (within the meaning of the
                         Securities Act) such Selling Stockholder, against all
                         claims, losses, damages or liabilities (or actions in
                         respect thereof) suffered or incurred by any of them,
                         to the extent such claims, losses, damages or
                         liabilities arise out of or are based upon any untrue
                         statement (or alleged untrue statement) of a material
                         fact contained in any prospectus or any related
                         Registration Statement incident to any such
                         Registration, or any omission (or alleged omission) to
                         state therein a material fact required to be stated
                         therein or necessary to make the statements therein not
                         misleading, or any violation by the Company of any rule
                         or regulation promulgated under the Securities Act
                         applicable to the Company and relating to actions or
                         inaction required of the Company in connection with any
                         such Registration; and the Company will reimburse each
                         such Selling Stockholder, each of its officers,
                         directors and constituent partners and each person who
                         controls any such Selling Stockholder, for any
                         reasonable, documented legal and other expenses
                         incurred in connection with investigating or defending
                         any such claim, loss, damage, liability or action;
                         provided, however, that the indemnity contained in this
                         Section 2.7.1 shall not apply ------- to amounts paid
                         in settlement of any such claim, loss, damage,
                         liability or action if settlement is effected without
                         the consent of the Company (which consent shall not
                         unreasonably be withheld); and provided, further, that
                         the Company will not be liable -------- ------- in any
                         such case to the extent that any such claim, loss,
                         damage, liability or expense arises out of or is based
                         upon any untrue (or alleged untrue) statement or
                         omission based upon written information furnished to
                         the Company by such Selling Stockholder, underwriter,
                         controlling person or other indemnified person and
                         stated to be for use in connection with the offering of
                         securities of the Company.

2.7.2                     Selling Stockholder's Indemnification of Company. Each
                         Selling Stockholder shall indemnify the Company, each
                         of its directors and officers, each individual or
                         entity who controls the Company within the meaning of
                         the Securities Act, each underwriter, if any, of the
                         Company's securities covered by a Registration
                         Statement, each person who controls the Company or such
                         underwriter within the meaning of the Securities Act,
                         and each other Selling Stockholder, each of its
                         officers, directors and constituent partners and each
                         person controlling such other Selling Stockholder,
                         against all claims, losses, damages and liabilities (or
                         actions in respect thereof) suffered or incurred by any
                         of them and arising out of or based upon any untrue
                         statement (or alleged untrue statement) of a material
                         fact contained in such Registration Statement or
                         related prospectus, or any omission (or alleged
                         omission) to state therein a material fact required to
                         be stated therein or necessary to make the statements
                         therein not misleading, or any violation by such
                         Selling Stockholder of any rule or regulation
                         promulgated under the Securities Act applicable to such
                         Selling Stockholder and relating to actions or inaction
                         required of such Selling Stockholder in connection with
                         the Registration of the Registrable Securities pursuant
                         to such Registration Statement; and will reimburse the
                         Company, such other Selling Stockholders, such
                         directors, officers, partners, persons, underwriters
                         and controlling persons for any reasonable, documented
                         legal and other expenses incurred in connection with
                         investigating or defending any such claim, loss,
                         damage, liability or action; PROVIDED, HOWEVER, that
                         such indemnification and reimbursement
                         shall be to the extent, but only to the extent, that
                         such untrue statement (or alleged untrue statement) or
                         omission (or alleged omission) is made in such
                         Registration Statement or prospectus in reliance upon
                         and in conformity with written information furnished to
                         the Company by such Selling Stockholder and stated to
                         be for use in connection with the offering of
                         Registrable Securities.

2.7.3                    INDEMNIFICATION PROCEDURE. Promptly after receipt by
                         an indemnified party under this Section 2.7 of notice
                         of the commencement of any action which may give rise
                         to a claim for indemnification hereunder, such
                         indemnified party will, if a claim in respect thereof
                         is to be made against an indemnifying party under this
                         Section 2.7, notify the indemnifying party in writing
                         of the commencement thereof and generally summarize
                         such action. The indemnifying party shall have the
                         right to participate in and to assume the defense of
                         such claim, and shall be entitled to select counsel for
                         the defense of such claim with the approval of any
                         parties entitled to indemnification, which approval
                         shall not be unreasonably withheld. Notwithstanding the
                         foregoing, the parties entitled to indemnification
                         shall have the right to employ separate counsel
                         (reasonably satisfactory to the indemnifying party) to
                         participate in the defense thereof, but the fees and
                         expenses of such separate counsel shall be at the
                         expense of such indemnified parties unless the named
                         parties to such action or proceedings include both the
                         indemnifying party and the indemnified parties and the
                         indemnifying party or such indemnified parties shall
                         have been advised by counsel that there are one or more
                         legal defenses available to the indemnified parties
                         which are different from or additional to those
                         available to the indemnifying party (in which case, if
                         the indemnified parties notify the indemnifying party
                         in writing that they elect to employ separate counsel
                         at the reasonable expense of the indemnifying party,
                         the indemnifying party shall not have the right to
                         assume the defense of such action or proceeding on
                         behalf of the indemnified parties, it being understood,
                         however, that the indemnifying party shall not, in
                         connection with any such action or proceeding or
                         separate or substantially similar or related action or
                         proceeding in the same jurisdiction arising out of the
                         same general allegations or circumstances, be liable
                         for the reasonable, documented fees and expenses of
                         more than one separate counsel at any time for all
                         indemnified parties, which counsel shall be designated
                         in writing by the Purchasers of a majority of the
                         Registrable Securities).

2.7.4                    CONTRIBUTION. If the indemnification provided for in
                         this Section 2.7 from an indemnifying party is
                         unavailable to an indemnified party hereunder in
                         respect to any losses, claims, damages, liabilities or
                         expenses referred to herein, then the indemnifying
                         party, in lieu of indemnifying such indemnified party,
                         shall contribute to the amount paid or payable by such
                         indemnified party as a result of such losses, claims,
                         damages, liabilities or expenses in such proportion as
                         is appropriate to reflect the relative fault of the
                         indemnifying party and indemnified party in connection
                         with the statements or omissions which result in such
                         losses, claims, damages, liabilities or expenses, as
                         well as any other relevant equitable considerations.
                         The relative fault of such indemnifying party and
                         indemnified party shall be determined by reference to,
                         among other things, whether the untrue or alleged
                         untrue statement of a material fact or the omission or
                         alleged omission to state a material fact relates to
                         information supplied by such indemnifying party or
                         indemnified party and the parties' relative intent,
                         knowledge, access to information supplied by such
                         indemnifying party or indemnified party and opportunity
                         to correct or prevent such statement or omission. The
                         amount paid or payable by a party as a result of the
                         losses, claims, damages, liabilities and expenses
                         referred to above shall be deemed to include any
                         documented legal or other fees or expenses reasonably
                         incurred by such party in connection with investigating
                         or defending any action, suit, proceeding or claim, or
                         in collecting such indemnity or reimbursement from the
                         indemnifying party.

3. Covenants of the Company.

         The Company agrees to:

(a)                        Notify the holders of Registrable Securities included
                           in a Registration Statement (i) of the issuance by
                           the Commission of any stop order suspending the
                           effectiveness of such Registration Statement and (ii)
                           upon learning of the initiation of any proceedings
                           for the purpose of suspending such effectiveness, the
                           existence of such proceedings. The Company will make
                           every reasonable effort to prevent the issuance of
                           any stop order and, if any stop order is issued, to
                           obtain the lifting thereof at the earliest possible
                           time.

(b)                        If the Common Stock is then listed on a national
                           securities exchange, use its commercially reasonable
                           best efforts to cause the Registrable Securities to
                           be listed on such exchange. If the Common Stock is
                           not then listed on a national securities exchange,
                           use its commercially reasonable best efforts to
                           facilitate the reporting of the Registrable
                           Securities on Nasdaq.

(c)                        Take all other reasonable actions necessary to
                           expedite and facilitate disposition of the
                           Registrable Securities by the holders thereof
                           pursuant to the Registration Statement.

(d)                        With a view to making available to the holders of
                           Registrable Securities the benefits of Rule 144
                           promulgated under the Securities Act and any other
                           rule or regulation of the Commission that may at any
                           time permit the Purchasers to sell securities of the
                           Company to the public without registration, the
                           Company agrees to:

(i)                        make and keep adequate current public information
                           with respect to the Company available, as those terms
                           are understood and defined in Rule 144, at all times
                           after 90 days after the effective date of the first
                           Registration Statement filed by the Company for the
                           offering of its securities to the general public;

(ii)                       file with the Commission in a timely manner all
                           reports and other documents required of the Company
                           under the Securities Act and the Securities Exchange
                           Act of 1934 (the "1934 Act"); and

(iii)                    furnish to each holder of Shares, so long as such
                         holder of Shares owns any Shares, forthwith upon
                         written request (a) a written statement by the Company
                         as to whether it has complied with the reporting
                         requirements of Rule 144, the Securities Act and the
                         1934 Act, (b) a copy of the most recent annual or
                         quarterly report of the Company and such other reports
                         and documents so filed by the Company and (c) such
                         other information as may be reasonably requested and as
                         is publicly available in availing the holders of Shares
                         of any rule or regulation of the Commission which
                         permits the selling of any such securities without
                         registration.

(e)                        Prior to the filing of a Registration Statement or
                           any amendment thereto (whether pre-effective or
                           post-effective), and prior to the filing of any
                           prospectus or prospectus supplement related thereto,
                           the Company will provide each Selling Stockholder
                           with copies of all pages thereto, if any, which
                           reference such Selling Stockholder.

(f)                        If the Registration Statement relates to an
                           underwritten offering, enter into and perform its
                           obligations under an underwriting agreement, in usual
                           and customary form, including, without limitation,
                           customary indemnification and contribution
                           obligations, with the underwriter's representative.

(g)                        Make generally available to its security holders as
                           soon as practicable, but not later than forty five
                           (45) days after the close of the period covered
                           thereby, or such later date as may be required by the
                           provisions of the 1934 Act, the Company's financial
                           statements as filed with the Commission.

(h)                      At the request of the Purchasers who hold a majority in
                         interest of the Registrable Securities being sold,
                         furnish to the underwriters, if any, on the date that
                         Registrable Securities are delivered to the
                         underwriters for sale in connection with a registration
                         pursuant to this Agreement (i) an opinion, dated such
                         date, of the counsel representing the Company for the
                         purposes of such registration, in form and substance as
                         is customarily given to underwriters in an underwritten
                         public offering, addressed to the underwriters, and
                         (ii) a letter, dated such date, from the independent
                         certified public accountants of the Company, in form
                         and substance as is customarily given by independent
                         certified public accountants to underwriters in an
                         underwritten public offering, addressed to the
                         underwriters.

(i)                        Make available for inspection by any underwriters
                           participating in the offering and the counsel,
                           accountants or other agents retained by such
                           underwriter, all pertinent financial and other
                           records, corporate documents and properties of the
                           Company, and cause the Company's officers, directors
                           and employees to supply all information reasonably
                           requested by such underwriters in connection with the
                           Registration Statement.

(j)                        Provide a transfer agent and registrar, which may be
                           a single entity, for the Registrable Securities not
                           later than the effective date of the Registration
                           Statement.

(k)                        Take all actions reasonably necessary to facilitate
                           the timely preparation and delivery of certificates
                           (not bearing any restrictive legend) representing the
                           Registrable Securities sold pursuant to the
                           Registration Statement and to enable such
                           certificates to be in such denominations and
                           registered in such names as the Purchasers or any
                           underwriters may reasonably request.

4.   Miscellaneous.

(a)                        This Agreement shall be governed by and construed
                           under the laws of the State of New York.

(b)                        This Agreement may not be assigned by a Purchaser
                           other than to the purchaser or transferee of more
                           than 5,000 of the Purchaser's Shares, which purchaser
                           or transferee shall be a permitted assign hereunder
                           and under the Purchase Agreement. Except as otherwise
                           expressly provided herein, the provisions hereof
                           shall inure to the benefit of, and be binding upon,
                           the successors, permitted assigns, heirs, executors
                           and administrators of the parties hereto.

(c)                        This Agreement constitutes the full and entire
                           understanding and agreement among the parties with
                           regard to the subjects hereof and no party shall be
                           liable or bound to any other party in any manner by
                           any representations, warranties, covenants or
                           agreements except as specifically set forth herein or
                           therein. Nothing in this Agreement, express or
                           implied, is intended to confer upon any party, other
                           than the parties hereto and their respective
                           successors and permitted assigns, any rights,
                           remedies, obligations, or liabilities under or by
                           reason of this Agreement, except as expressly
                           provided herein.

(d)                        In the event that any provision of this Agreement
                           shall be invalid, illegal or unenforceable, it shall,
                           to the extent practicable, be modified so as to make
                           it valid, legal and enforceable and to retain as
                           nearly as practicable the intent of the parties, and
                           the validity legality, and enforceability of the
                           remaining provisions shall not in any way be affected
                           or impaired thereby. To the extent permitted by law,
                           the parties waive the benefit of any provision of law
                           that renders any provision of the Agreement invalid
                           or unenforceable in any respect.

(e)                        Except as otherwise provided herein, any term of this
                           Agreement may be amended, and the observance of any
                           term of this Agreement may be waived (either
                           generally or in a particular instance, either
                           retroactively or prospectively, and either for a
                           specified period of time or indefinitely), with the
                           written consent of the Company and the Purchaser.

(f)                        All notices and other communications required or
                           permitted hereunder shall be in writing and shall be
                           deemed effectively given upon personal delivery, on
                           the first business day following mailing by overnight
                           courier, or on the fifth day following mailing by
                           registered or certified mail, return receipt
                           requested, postage prepaid, addressed to the Company
                           at its address as set forth in the Purchase Agreement
                           and to the Purchaser at its address as shown on the
                           books of the Company.

(g)                        The titles of the paragraphs and subparagraphs of
                           this Agreement are for convenience of reference only
                           and are not to be considered in construing this
                           Agreement.

(h)                        This Agreement may be executed in any number of
                           counterparts, each of which shall be deemed an
                           original, but all of which together shall constitute
                           one instrument.

(i)                        No waiver by any party to this Agreement of any one
                           or more defaults by any other party or parties in the
                           performance of any of the provisions hereof shall
                           operate or be construed as a waiver of any future
                           default or defaults, whether of a like or different
                           nature. Except as expressly provided herein, no
                           failure or delay on the part of any party in
                           exercising any right, power or remedy hereunder shall
                           operate as a waiver thereof, nor shall any single or
                           partial exercise of any such right, power or remedy
                           preclude any other or further exercise thereof or the
                           exercise of any other right, power or remedy.






[PG NUMBER]

                                       13

                  IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the day and year first written above.


                By:
                     ---------------------------------------------------------
                     Name of Purchaser(s):
                     Address:


                       ---------------------------------------------------------
                       ---------------------------------------------------------
                       Social Security or Taxpayer
                       Identification Number of Purchaser(s)


                       ---------------------------------------------------------
                       Number of Shares Purchased
                       ---------------------------------------------------------
                       Number of Warrants Purchased

                     Date:                         , 2002
                          -------------------------


                PALATIN TECHNOLOGIES, INC.


                By:
                     ---------------------------------------------------------
                     Carl Spana, Ph.D.
                     Chief Executive Officer


                     Date:                         , 2002
                          -------------------------












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







                           PALATIN TECHNOLOGIES, INC.

                          REGISTRATION RIGHTS AGREEMENT



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





                                Table of Contents




                                        i                                  Page

1.    Securities Laws Representations and Covenants of Purchaser..............1

2.    Registration Rights.....................................................1

   2.1      Certain Definitions...............................................1

   2.2      Required Registration.............................................2

   2.3      Piggyback Registration............................................3

   2.4      Preparation and Filing............................................4

   2.5      Expenses..........................................................6

   2.6      Information Furnished by Purchaser................................6

   2.7      Indemnification....................................................6

      2.7.1    Company's Indemnification of Purchasers.........................6

      2.7.2    Selling Stockholder's Indemnification of Company................7

      2.7.3    Indemnification Procedure.......................................8

      2.7.4    Contribution....................................................8

3.    Covenants of the Company.................................................9

4.    Miscellaneous...........................................................11

EX-10

                                                                   EXHIBIT 10.32

                           FORM OF WARRANT CERTIFICATE

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.

                                                      _______ Warrants




                           PALATIN TECHNOLOGIES, INC.
                    COMMON STOCK PURCHASE WARRANT CERTIFICATE

                   THE WARRANTS EVIDENCED BY THIS CERTIFICATE
                      ARE NOT EXERCISABLE AFTER 5:00 P.M.,
                             NEW YORK CITY TIME, ON
                              ______________, 2007

THIS CERTIFIES THAT:

_____________________ or registered assigns is the registered holder (the
"Registered Holder") of the number of Warrants set forth above, each of which
represents the right to purchase ________ fully paid and nonassessable shares of
Common Stock, par value $0.01 per share (the "Common Stock"), of Palatin
Technologies, Inc., a Delaware corporation (the "Company"), at the initial
exercise price of $_____ per Warrant (the "Exercise Price") at any time after
the date on which the shares of Common Stock issuable upon exercise of the
Warrants evidenced hereby have been registered under the Securities Act of 1933,
as amended, or such other action as may be required by federal or state law
relating to the issuance or distribution of securities shall have been taken, or
prior to the Expiration Date (as hereinafter defined), by surrendering this
Warrant Certificate, with the Form of Election to Purchase duly executed at the
principal office of the Company and by paying in full the Exercise Price, plus
transfer taxes, if any. Payment of the Exercise Price shall be made in United
States currency, by certified check or money order payable to the order of the
Company. Unless otherwise defined herein, the capitalized terms used herein
shall have the meaning assigned to such terms in the Purchase Agreement.

         The Warrants have been issued pursuant to a private placement of Common
Stock and Warrants.

         This Warrant Certificate is issued under and in accordance with the
Purchase Agreement dated as of ___________, 2002, between the Company and the
Registered Holder, as amended and is subject to the terms and provisions
contained in said Purchase Agreement. The Registration Rights Agreement between
the Company and the Registered Holder governs the registration rights of the
shares of Common Stock underlying the Warrants.

         As soon as practicable after the date of exercise of any Warrants, the
Company shall issue, or cause the transfer agent for the Common Stock, if any,
to issue a certificate or certificates for the number of full shares of Common
Stock to which such Registered Holder is entitled, registered in accordance with
the instructions set forth in the Form of Election to Purchase. All shares of
Common Stock issued upon the exercise of any Warrants shall be validly
authorized and issued, fully paid and nonassessable, and free from all taxes,
liens and charges created by the Company in respect of the issue thereof. Each
person in whose name any such certificate for shares of Common Stock is issued
shall for all purposes be deemed to have become the holder of record of the
Common Stock represented thereby on the date of exercise of the Warrants
resulting in the issuance of such shares, irrespective of the date of issuance
or delivery of such certificate for shares of Common Stock.

         In the event that less than all of the Warrants represented by a
Warrant Certificate are exercised, the Company shall execute and mail, by
first-class mail, within 30 days of the date of exercise, to the Registered
Holder of such Warrant Certificate, or such other person as shall be designated
in the Form of Election to Purchase, a new Warrant Certificate representing the
number of full Warrants not exercised. In no event shall a fraction of a Warrant
be exercised, and the Company shall distribute no Warrant Certificates
representing fractions of Warrants. Final fractions of shares shall be treated
as provided for herein.

         The Company shall at all times reserve and keep available for issuance
upon the exercise of Warrants a number of its authorized but unissued shares of
Common Stock that will be sufficient to permit the exercise in full of all
outstanding Warrants.

         Subject to the provisions hereof, the Exercise Price in effect from
time to time shall be subject to adjustment, as follows:

(a) In case the Company shall at any time after the date hereof (i) declare a
dividend on the outstanding Common Stock payable in shares of its capital stock,
(ii) subdivide the outstanding Common Stock, (iii) combine the outstanding
Common Stock into a smaller number of shares, or (iv) issue any shares of its
capital stock by reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), then, in each case, the Exercise Price,
and the number of shares of Common Stock issuable upon exercise of the Warrants
in effect at the time of the record date for such dividend or of the effective
date of such subdivision, combination, or reclassification, shall be
proportionately adjusted so that the Holders of the Warrants after such time
shall be entitled to receive the aggregate number and kind of shares which, if
such Warrants had been exercised immediately prior to such time, such Registered
Holders would have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any event listed above shall
occur.

(b) In case the Company shall issue or fix a record date for the issuance to all
holders of Common Stock of rights, options, or warrants to subscribe for or
purchase Common Stock (or securities convertible into or exchangeable for Common
Stock) at a price per share (or having a conversion or exchange price per share,
if a security convertible into or exchangeable for Common Stock) less than the
Current Market Price per share of Common Stock (as determined below) on such
record date, then, in each case, the Exercise Price shall be adjusted by
multiplying the Exercise Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding on such record date plus the number of shares of Common Stock
which the aggregate offering price of the total number of shares of Common Stock
so to be offered (or the aggregate initial conversion or exchange price of the
convertible or exchangeable securities so to be offered) would purchase at such
Current Market Price and the denominator of which shall be the number of shares
of Common Stock outstanding on such record date plus the number of additional
shares of Common Stock to be offered for subscription or purchase (or into which
the convertible or exchangeable securities so to be offered are initially
convertible or exchangeable). Such adjustment shall become effective at the
close of business on such record date; provided, however, that, to the extent
the shares of Common Stock (or securities convertible into or exchangeable for
shares of Common Stock) are not delivered, the Exercise Price shall be
readjusted after the expiration of such rights, options, or warrants (but only
with respect to Warrants exercised after such expiration), to the Exercise Price
which would then be in effect had the adjustments made upon the issuance of such
rights, options, or warrants been made upon the basis of delivery of only the
number of shares of Common Stock (or securities convertible into or exchangeable
for shares of Common Stock) actually issued. Notwithstanding anything to the
contrary contained herein, no adjustment shall be made to the Exercise Price
until any condition to the vesting of such rights, options or warrants shall be
fulfilled or satisfied (and then only with respect to the portion thereof which
shall have vested). In case any subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the board of
directors of the Company, whose determination shall be conclusive absent
manifest error. Shares of Common Stock owned by or held for the account of the
Company or any majority-owned subsidiary shall not be deemed outstanding for the
purpose of any such computation.

(c) In case the Company shall distribute to all holders of Common Stock
(including any such distribution made to the stockholders of the Company in
connection with a consolidation or merger in which the Company is the continuing
corporation) evidences of its indebtedness, cash (other than any cash dividend
which, together with any cash dividends paid within the twelve (12) months prior
to the record date for such distribution, does not exceed 5% of the Current
Market Price at the record date for such distribution) or assets (other than
distributions and dividends payable in shares of Common Stock), or rights,
options, or warrants to subscribe for or purchase Common Stock, or securities
convertible into or exchangeable for shares of Common Stock (excluding those
with respect to the issuance of which an adjustment of the Exercise Price is
provided pursuant to the foregoing paragraph), then, in each case, the Exercise
Price shall be adjusted by multiplying the Exercise Price in effect immediately
prior to the record date for the determination of stockholders entitled to
receive such distribution by a fraction, the numerator of which shall be the
Current Market Price per share of Common Stock on such record date, less the
fair market value (as determined in good faith by the board of directors of the
Company, whose determination shall be conclusive absent manifest error) of the
portion of the evidences of indebtedness or assets so to be distributed, or of
such rights, options, or warrants or convertible or exchangeable securities, or
the amount of such cash, applicable to one share, and the denominator of which
shall be such Current Market Price per share of Common Stock. Such adjustment
shall become effective at the close of business on such record date.

         For the purpose of any computation under this Warrant, the Current
Market Price per share of Common Stock on any date shall be deemed to be the
average of the daily closing prices for the five (5) consecutive trading days
immediately preceding the date in question. The closing price for each day shall
be (a) the last reported sales price regular way or, in case no such reported
sale takes place on such day, the closing bid price regular way, in either case
on the principal national securities exchange or market system (including, for
purposes hereof, the American Stock Exchange ("AMEX") Market System on which the
Common Stock, is listed (Symbol, PTN) or admitted to trading, (b) if the Common
Stock, is not listed or admitted to trading on any national securities exchange
or market system, the highest reported bid price for the Common Stock, as
furnished by the National Association of Securities Dealers, Inc. or a similar
organization if AMEX is no longer reporting such information, or (c) if on any
such date the Common Stock is not listed or admitted to trading on any national
securities exchange and is not quoted by AMEX or any similar organization, as
determined by reference to the "pink sheets" published by the National Quotation
Bureau or, if not so published, by such other method of determining the market
value of a share of Common Stock, as the board of directors of the Company shall
in good faith from time to time deem to be fair, whose determination shall be
conclusive absent manifest error shall be used.

         No adjustment in the Exercise Price shall be required if such
adjustment is less than $.05; provided, however, that any adjustments which by
reason of this Warrant are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Warrant shall be made to the nearest cent or to the nearest one thousandth of a
share, as the case may be.

         In any case in which this Warrant shall require that an adjustment in
the Exercise Price be made effective as of a record date for a specified event,
the Company may elect to defer, until the occurrence of such event, issuing to
the Registered Holders of the Warrants, if any Registered Holder has exercised a
Warrant after such record date, the shares of Common Stock, if any, issuable
upon such exercise over and above the shares of Common Stock, if any, issuable
upon such exercise on the basis of the Exercise Price in effect prior to such
adjustment; provided, however, that the Company shall deliver to such exercising
Registered Holder a due bill or other appropriate instrument evidencing such
Registered Holder's right to receive such additional shares upon the occurrence
of the event requiring such adjustment.

         Upon each adjustment of the Exercise Price as a result of the
calculations made above the Warrants shall thereafter evidence the right to
purchase, at the adjusted Exercise Price, that number of shares (calculated to
the nearest thousandth) obtained by dividing (A) the product obtained by
multiplying the number of shares purchasable upon exercise of the Warrants prior
to adjustment of the number of shares by the Exercise Price in effect prior to
adjustment of the Exercise Price by (B) the Exercise Price in effect after such
adjustment of the Exercise Price.

         In case of any capital reorganization, other than in the cases referred
to above, or the consolidation or merger of the Company with or into another
corporation (other than a merger or consolidation in which the Company is the
continuing corporation and which does not result in any reclassification of the
outstanding shares of Common Stock or the conversion of such outstanding shares
of Common Stock into shares of other stock or other securities or property), or
the sale of the property of the Company as an entirety or substantially as an
entirety (collectively such actions being hereinafter referred to as
"Reorganizations"), there shall thereafter be deliverable upon exercise of any
Warrant (in lieu of the number of shares of Common Stock theretofore
deliverable) the number of shares of stock or other securities or property to
which a Registered Holder of the number of shares of Common Stock which would
otherwise have been deliverable upon the exercise of such Warrant would have
been entitled upon such Reorganization if such Warrant had been exercised in
full immediately prior to such Reorganization. In case of any Reorganization,
appropriate adjustment, as determined in good faith by the Board of Directors of
the Company, shall be made in the application of the provisions herein set forth
with respect to the rights and interests of Registered Holders so that the
provisions set forth herein shall thereafter be applicable, as nearly as
practicable, in relation to any shares or other property thereafter deliverable
upon exercise of Warrants. The Company shall not effect any such Reorganization,
unless upon or prior to the consummation thereof the successor corporation, or
if the Company shall be the surviving corporation in any such Reorganization and
is not the issuer of the shares of stock or other securities or property to be
delivered to holders of shares of the Common Stock outstanding at the effective
time thereof, then such issuer, shall assume by written instrument the
obligation to deliver to the Registered Holder of any Warrant Certificate such
shares of stock, securities, cash or other property as such holder shall be
entitled to purchase in accordance with the foregoing provisions.
Notwithstanding anything to the contrary contained herein, in the event of sale
or conveyance or other transfer of all or substantially all of the assets of the
Company as a part of a plan for liquidation of the Company, all rights to
exercise any Warrant shall terminate thirty (30) days after the Company gives
written notice to each Registered Holder of a Warrant Certificate that such sale
or conveyance of other transfer has been consummated.

         In case of any reclassification or change of the shares of Common Stock
issuable upon exercise of the Warrants (other than a change in par value or from
no par value to a specified par value, or as a result of a subdivision or
combination, but including any change in the shares into two or more classes or
series of shares), the Registered Holders of the Warrants shall have the right
thereafter to receive upon exercise of the Warrants solely the kind and amount
of shares of stock and other securities, property, cash, or any combination
thereof receivable upon such reclassification or change by a Registered Holder
of the number of shares of Common Stock for which the Warrants might have been
exercised immediately prior to such reclassification or change. Thereafter,
appropriate provision shall be as nearly equivalent as practicable to the
adjustments in this Warrant. The above provisions of this paragraph shall
similarly apply to successive reclassifications and changes of shares of Common
Stock.

         Notwithstanding anything to the contrary herein contained, in the event
of a transaction contemplated by the prior paragraph in which the surviving,
continuing, successor, or purchasing corporation demands that all outstanding
Warrants be extinguished prior to the closing date of the contemplated
transaction, the Company shall give prior notice (the "Merger Notice") thereof
to the Registered Holders advising them of such transaction. The Registered
Holders shall have ten (10) days after the date of the Merger Notice to elect to
(i) exercise the Warrants in the manner provided herein or (ii) receive from the
surviving, continuing, successor, or purchasing corporation, with respect to
outstanding Warrants, the same consideration receivable by a Registered Holder
of the number of shares of Common Stock for which the Warrants might have been
exercised immediately prior to such consolidation, merger, sale, or purchase
reduced by such amount of the consideration as has a market value equal to the
exercise price of the Warrants, as determined by the Board of Directors of the
Company, whose determination shall be conclusive absent manifest error. If any
Registered Holder fails to timely notify the Company of its election, the Holder
shall be deemed for all purposes to have elected the option set forth in (ii)
above. Any amounts receivable by a Holder who has elected the option set forth
in (ii) above shall be payable at the same time as amounts payable to
stockholders in connection with any such transaction.

         Whenever the Exercise Price is adjusted as provided in this Warrant,
the Company will promptly obtain a certificate of the chief financial officer of
the Company setting forth the Exercise Price as so adjusted and a brief
statement of the facts accounting for such adjustment, and will make available a
brief summary thereof to the Registered Holders of the Warrant Certificates, at
their addresses listed on the register maintained for the purpose by the
Company.

In no event shall the Exercise Price be adjusted below the par value per share
of the Common Stock.

In case at any time the Company shall propose:

(a)      to pay any dividend or make any distribution on shares of Common Stock
         in shares of Common Stock or make any other distribution (other than
         regularly scheduled cash dividends which are not in a greater amount
         per share than the most recent such cash dividend) to all holders of
         Common Stock; or

(b)      to issue any rights, warrants, or other securities to all holders of
         Common Stock entitling them to purchase any additional shares of Common
         Stock or any other rights, warrants, or other securities; or

(c)      to effect any reclassification or change of outstanding shares of
         Common Stock, or any consolidation, merger, sale, lease, or conveyance
         of property, described above; or

(d)      to effect any liquidation, dissolution, or winding-up of the Company;

then, in each such case, the Company shall cause notice of such proposed action
to be mailed to each Registered Holder of a Warrant Certificate. Such notice
shall be mailed, at least ten (10) days prior to the record date for determining
holders of the Common Stock for purposes of receiving such payment or offer or
at least ten (10) days prior to the earlier of the date upon which such action
is to take place or any record date to determine holders of Common Stock
entitled to receive such securities or other property, as the case may be.

         Whenever any adjustment is made pursuant to this Warrant, the Company
shall cause notice of such adjustment to be mailed to each Registered Holder of
a Warrant Certificate within fifteen (15) days thereafter, such notice to
include in reasonable detail (i) the events precipitating the adjustment, (ii)
the computation of any adjustments, and (iii) the Exercise Price, the number of
shares or the securities or other property purchasable upon exercise of each
Warrant after giving effect to such adjustment.

         Irrespective of any adjustments pursuant to this Warrant, Warrant
Certificates theretofore or thereafter issued need not be amended or replaced,
but certificates thereafter issued shall bear an appropriate legend or other
notice of any adjustments.

         The Company shall not be required upon the exercise of any Warrant to
issue fractional shares of Common Stock which may result from adjustments in
accordance with this Warrant to the Exercise Price or number of shares of Common
Stock purchasable under each Warrant. If more than one Warrant is exercised at
one time by the same Registered Holder, the number of full shares of Common
Stock which shall be deliverable shall be computed based on the number of shares
deliverable in exchange for the aggregate number of Warrants exercised. With
respect to any final fraction of a share called for upon the exercise of any
Warrant or Warrants, the Company shall pay a cash adjustment in respect of such
final fraction in an amount equal to the same fraction of the Current Market
Price of a share of Common Stock calculated in accordance with this Warrant.

         If any change to the capitalization of the Company should occur with
respect to which a favorable adjustment to the rights and interests of the
Registered Holders of the Warrants should be made, and such adjustment is not
otherwise provided for in this Warrant, such appropriate adjustment should be
made as determined in good faith by the Board of Directors of the Company.

         No Warrant may be exercised after 5:00 P.M., New York City time, on the
expiration date (the "Expiration Date") which will be ____________, 2007. All
Warrants evidenced hereby shall thereafter become void.

         No Warrant Certificate shall entitle the registered holder thereof to
any of the rights of a stockholder of the Company, including, without
limitation, the right to vote, to receive dividends and other distributions, to
receive any notice of, or to attend, meetings of stockholders or any other
proceedings of the Company.

         If any Warrant Certificate shall be mutilated, lost, stolen or
destroyed, the Company in its discretion may execute and deliver, in exchange
and substitution for and upon cancellation of a mutilated Warrant Certificate,
or in lieu of or in substitution for a lost, stolen or destroyed Warrant
Certificate, a new Warrant Certificate for the number of Warrants represented by
the Warrant Certificate so mutilated, lost, stolen or destroyed but only upon
receipt of evidence of such loss, theft or destruction of such Warrant
Certificate, and of the ownership thereof, and indemnity, if requested, all
satisfactory to the Company. Applicants for such substitute Warrant Certificates
shall also comply with such other reasonable regulations and pay such other
reasonable charges incidental thereto as the Company may prescribe. Any such new
Warrant Certificate shall constitute an original contractual obligation of the
Company, whether or not the allegedly lost, stolen, mutilated or destroyed
Warrant Certificate shall be at any time enforceable by anyone.

         Prior to the latest time at which the Warrants may be exercised,
subject to any applicable laws, rules or regulations restricting
transferability, Warrant Certificates, subject to the provisions hereof, may be
split up, combined or exchanged for other Warrant Certificates representing a
like aggregate number of Warrants or may be transferred in whole or in part. Any
holder desiring to split up, combine or exchange a Warrant Certificate or
Warrant Certificates shall make such request in writing delivered to the Company
at its principal office and shall surrender the Warrant Certificate or Warrant
Certificates so to be split up, combined or exchanged at said office with the
Form of Assignment. Upon any such surrender for split up, combination, exchange
or transfer, the Company shall execute and deliver to the person entitled
thereto a Warrant Certificate or Warrant Certificates, as the case may be, as so
requested in the Form of Assignment. The Company may require the holder to pay a
sum sufficient to cover any tax or governmental charge that may be imposed in
connection with any split up, combination, exchange or transfer of Warrant
Certificates prior to the issuance of any new Warrant Certificate.

         Any Warrant Certificate surrendered upon the exercise of Warrants or
for split up, combination, exchange or transfer, or purchased or otherwise
acquired by the Company, shall be canceled and shall not be reissued by the
Company; and, except as otherwise provided herein in case of the exercise of
less than all of the Warrants evidenced by a Warrant Certificate or in case of a
split up, combination, exchange or transfer, no Warrant Certificate shall be
issued hereunder in lieu of such canceled Warrant Certificate. Any Warrant
Certificate so canceled shall be destroyed by the Company.

         Every holder of a Warrant Certificate by accepting the same consents
and agrees with the Company and with every other holder of a Warrant Certificate
that:

(a)      transfer of the Warrant Certificates shall be registered on the books
         of the Company only if surrendered at the principal office of the
         Company, duly endorsed or accompanied by a proper instrument of
         transfer; and

(b)      prior to due presentment for registration of transfer, the Company may
         deem and treat the person in whose name the Warrant Certificate is
         registered as the absolute owner thereof and of the Warrants evidenced
         thereby (notwithstanding any notations of ownership or writing on the
         Warrant Certificates made by anyone other than the Company) for all
         purposes whatsoever, and the Company shall not be affected by any
         notice to the contrary.

         The laws of the State of New York shall govern this Warrant
Certificate.

         IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed.


                          PALATIN TECHNOLOGIES, INC.





                          By:
                              --------------------------------------------------




                                     FORM OF
                              ELECTION TO PURCHASE


         The undersigned hereby irrevocably elects to exercise of the Warrants
represented by this Warrant Certificate and to purchase the shares of Common
Stock issuable upon the exercise of said Warrants, and requests that
certificates for such shares be issued and delivered as follows:

ISSUE
TO:
    ----------------------------------------------------------
                                     (NAME)




                          (ADDRESS, INCLUDING ZIP CODE)



at
   -----------------------------------------------------------------------------

                (SOCIAL SECURITY OR OTHER TAX IDENTIFYING NUMBER)


DELIVER
TO:
    ----------------------------------------------------------
                                     (NAME)

at
   -----------------------------------------------------------------------------

                          (ADDRESS, INCLUDING ZIP CODE)
         If the number of Warrants hereby exercised is less than all the
Warrants represented by this Warrant Certificate, the undersigned requests that
a new Warrant Certificate representing the number of full Warrants not exercised
be issued and delivered as set forth below.



         In full payment of the purchase price with respect to the Warrants
exercised and transfer taxes, if any, the undersigned hereby tenders payment of
$ by certified check or money order payable in United States currency to the
order of the Company.




         Dated:
                -----------------------------



- ---------------------------         -------------------------------------------
(Insert Social Security or          (Signature of registered
other identifying number            holder)
of holder)

                                    -------------------------------------------
                                    (Signature of registered
                                    holder, if co-owned)



     NOTE: Signature must conform in all respects to name of holder as specified
     on the face of the Warrant Certificate.




                                     FORM OF

                                   ASSIGNMENT

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto the
Assignee named below all of the rights of the undersigned represented by the
within Warrant Certificate, with respect to the number of Warrants set forth
below:

Name of Assignee              Address                           No. of Warrants






and does hereby irrevocably constitute and appoint Attorney to make such
transfer on the books of Palatin Technologies, Inc. maintained for that purpose,
with full power of substitution in the premises.

Dated:                    , 200_.
       -------------------


- -------------------------------         ---------------------------------------
(Insert Social Security or other        Signature
identifying number of holder)

                    (Signature must conform in all respects to name of holder as
                    specified on the face of the Warrant Certificate.)

EX-10

                                                                   EXHIBIT 10.30

                          SECURITIES PURCHASE AGREEMENT

Palatin Technologies, Inc.
4C Cedarbrook Drive
Cranbury, New Jersey  08512.

Ladies & Gentlemen:

         The undersigned, (the "Investor"), hereby confirms its agreement with
you as follows:

1. This Securities Purchase Agreement (the "Agreement") is made effective as of
___________ __, 2003 between Palatin Technologies, Inc., a Delaware corporation
(the "Company"), and the Investor.

2. The Company has authorized, subject to adjustment by the Company's Board of
Directors, the issuance and sale of up to 14,000,000 shares of common stock of
the Company, $0.01 par value per share (the "Common Stock"), and warrants to
purchase 3,500,000 shares of Common Stock (the "Warrant"), with an exercise
price of 125% of the Price Per Share (as defined below), pursuant to the form of
Warrant attached hereto as Exhibit A, to certain investors in a private
placement (the "Offering"). For every four (4) shares of Common Stock purchased
by the Investor, such Investor shall be entitled to receive a warrant to
purchase one (1) share of Common Stock. The purchase price for the Common Stock
and Warrants will be (i) the average reported closing sales price ("Price Per
Share") for the Common Stock on the American Stock Exchange for the ten (10)
business days immediately prior to the date hereof for each share of Common
Stock purchased and (ii) $0.03125, which reflects the value assigned to the
warrants for each share of Common Stock purchased.

3. The Company and the Investor agree that the Investor will purchase from the
Company and the Company will issue and sell to the Investor _____ shares of
Common Stock and _____ Warrants, for a Price Per Share of $1.39 per share of
Common Stock and $0.03125 per quarter of a Warrant purchased, or an aggregate
purchase price of $1.42, pursuant to the Terms and Conditions for Purchase of
Common Stock and Warrants attached hereto as Annex I and incorporated herein by
reference as if fully set forth herein. Unless otherwise requested by the
Investor, certificates representing the Common Stock and Warrants purchased by
the Investor will be registered in the Investor's name and address as set forth
below.

4. The Investor represents that, except as set forth below, (a) it has had no
position, office or other material relationship within the past three years with
the Company or its affiliates, (b) neither it, nor any group of which it is a
member or to which it is related, beneficially owns (including the right to
acquire or vote) any securities of the Company and (c) it has no direct or
indirect affiliation or association with any NASD member. Exceptions:


(If no exceptions, write "none." If left blank, response will be deemed to be
"none.")






         Please confirm that the foregoing correctly sets forth the agreement
between us by signing in the space provided below for that purpose.


               "INVESTOR"
               By:
                    ----------------------------------------------------
               Print Name:
                            --------------------------------------------
               Title:
                       -------------------------------------------------
               Address:
                         -----------------------------------------------
               Tax ID No.:
                            --------------------------------------------
               Contact name:
                              ------------------------------------------
               Telephone:
                           ---------------------------------------------
               Facsimile:
                           ---------------------------------------------
               Name in which shares should be registered
               (if different):
                                ----------------------------------------

               Number of shares of Common Stock: _________

               Number of Warrants: __________

               U.S. Dollar Amount Invested: $__________

               Date: ________ __, 2003

         If Purchaser is a Registered Representative with a NASD member firm,
have the following acknowledgment signed by the appropriate party:

The undersigned NASD member firm acknowledges receipt of the notice required by
Article 3, Sections 28(a) and (b) of the Rules of Fair Practice.

                   By:
                        --------------------------------------------------------
                        Name of NASD Member Firm:


                   By:
                        --------------------------------------------------------
                        Authorized Officer:

AGREED AND ACCEPTED:
- -------------------

Palatin Technologies, Inc.



By:      _________________________
Title:   _________________________

Date: __________ __, 2003

                  [SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]






                                       24


                                     ANNEX I

         TERMS AND CONDITIONS FOR PURCHASE OF COMMON STOCK AND WARRANTS

         1. Authorization and Sale of the Common Stock and Warrants. Subject to
the terms and conditions of this Agreement, the Company has authorized the sale
of up to 14,000,000 shares of Common Stock and Warrants to purchase 3,500,000
shares of Common Stock. The Company reserves the right to increase or decrease
these numbers.

         2. Agreement to Sell and Purchase the Common Stock and Warrants;
Subscription Date.

                  2.1 At the Closing (as defined in Section 3), the Company will
sell to the Investor, and the Investor will purchase from the Company, upon the
terms and conditions hereinafter set forth, the number of shares of Common Stock
and Warrants set forth on the signature page hereto at the purchase price set
forth on such signature page.

                  2.2 The Company is entering into this same form of Securities
Purchase Agreement with certain other investors (the "Other Investors")
effective as of the date hereof (the "Subscription Date") and expects to
complete sales of Common Stock and Warrants to them. (The Investor and the Other
Investors are hereinafter sometimes collectively referred to as the "Investors,"
and this Agreement and the Securities Purchase Agreements executed by the Other
Investors are hereinafter sometimes collectively referred to as the
"Agreements.")

         3. Delivery of the Securities at Closing. The completion of the
purchase and sale of the Common Stock and Warrants (the "Closing") shall occur
(the "Closing Date") on the business day after the Subscription Date (or upon
such earlier date as the Company and the Investors shall agree), at the offices
of the Company's counsel, but in no event earlier than such date and time as the
escrow agent (as identified in Section 8) shall have received all of the
executed Agreements. At the Closing, upon written instruction of the Company,
the escrow agent shall release the Escrowed Property (as defined in Section 8)
to the Company and the Company shall deliver to the Investor one or more stock
certificates representing the number of shares of Common Stock and Warrants set
forth on the signature page hereto, each such certificate to be registered in
the name of the Investor or, if so indicated on the signature page hereto, in
the name of a nominee designated by the Investor. The Company's obligation to
issue the Common Stock and Warrants to the Investor shall be subject to the
following conditions, any one or more of which may be waived by the Company: (a)
receipt by the escrow agent of a certified or official bank check or wire
transfer of funds (in accordance with the wire transfer instructions attached
hereto as Exhibit B) in the full amount of the purchase price for the Common
Stock and Warrants being purchased hereunder as set forth on the signature page
hereto; (b) completion of the purchases and sales under the Agreements with the
Other Investors such that a minimum of $ 10,000,000 shares of Common Stock and
Warrants are sold pursuant to the Agreements; and (c) the accuracy of the
representations and warranties made by the Investors and the fulfillment of
those undertakings of the Investors to be fulfilled prior to the Closing. The
Investor's obligation to purchase the Common Stock and Warrants shall be subject
to the following conditions, any one or more of which may be waived by the
Investor: (a) receipt by the Investor or its authorized agent of one or more
certificates representing the number of shares of Common Stock and Warrants set
forth on the signature page hereto; (b) receipt by the Investor of an opinion
letter, dated as of the Closing Date, from Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C., counsel to the Company in form reasonably satisfactory to the
Investor; (c) the accuracy of the representations and warranties when made by
the Company and as if made by the Company at the Closing and the fulfillment of
those undertakings of the Company to be fulfilled prior to the Closing; (d) on
the Closing Date, no legal action, suit or proceeding shall be pending or
threatened which seeks to restrain or prohibit the transactions contemplated by
the Agreements; (e) the Company shall have delivered to the Investors its
certificate, dated the Closing Date, duly executed by its Chief Executive
Officer to the effect set forth in clause (c) above; (f) the receipt by the
Investors of a certificate, dated the Closing Date, of the Secretary or
Assistant Secretary of the Company certifying as to (i) the accuracy of the
certificate of incorporation and bylaws of the Company as in effect on the
Closing Date (which shall be attached to such certificate as an exhibit), (ii)
the accuracy of all resolutions of the board of directors (and committees
thereof) of the Company relating to the Agreements and the transactions
contemplated thereby (which shall be attached to such certificate as an exhibit)
and (iii) the incumbency and signatures of all officers of the Company executing
the Agreements and any other agreement or document contemplated thereby.
Investor acknowledges that the final approval of the American Stock Exchange is
required in connection with the issuance of the Common Stock and Warrants, and,
accordingly, the shares of Common Stock and Warrants may be subject to return to
the Company in exchange for the return of the full purchase price of the Common
Stock and Warrants.

         4. Representations, Warranties and Covenants of the Company. Except as
otherwise described in the Company's SEC Documents (as defined in Section 4.4),
which qualifies the following representations, warranties and covenants in their
entirety, the Company hereby represents and warrants to, and covenants with, the
Investor, as follows:

                  4.1 Organization. Each of the Company and its Subsidiaries is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. Each of the Company and its Subsidiaries (as
defined in Rule 405 under the Securities Act of 1933, as amended (the
"Securities Act")) has full power and authority to own, operate and occupy its
properties and to conduct its business as presently conducted and is registered
or qualified to do business and in good standing in each jurisdiction in which
it owns or leases property or transacts business and where the failure to be so
qualified would have a material adverse effect upon the financial condition or
business, operations or assets of the Company and its Subsidiaries, considered
as one enterprise, and no proceeding has been instituted in any such
jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification.

                  4.2 Due Authorization. The Company has all requisite power and
authority to execute, deliver and perform its obligations under the Agreements,
and the Agreements have been duly authorized and validly executed and delivered
by the Company and constitute legal, valid and binding agreements of the Company
enforceable against the Company in accordance with their terms, except as rights
to indemnity and contribution may be limited by state or federal securities laws
or the public policy underlying such laws, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' and contracting parties' rights generally and
except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).

                  4.3 Non-Contravention. The execution and delivery of the
Agreements, the issuance and sale of the Common Stock and Warrants to be sold by
the Company under the Agreements, the fulfillment of the terms of the Agreements
and the consummation of the transactions contemplated thereby will not (A)
conflict with or constitute a violation of, or default (with or without the
giving of notice or the passage of time or both) under, (i) any material bond,
debenture, note or other evidence of indebtedness, or under any material lease,
indenture, mortgage, deed of trust, loan agreement, joint venture or other
agreement or instrument to which the Company or any Subsidiary is a party or by
which it or any of its Subsidiaries or their respective properties are bound,
(ii) the charter, by-laws or other organizational documents of the Company or
any Subsidiary, or (iii) any law, administrative regulation, ordinance or order
of any court or governmental agency, arbitration panel or authority applicable
to the Company or any Subsidiary or their respective properties, except where
such conflict, violation or default would not have a material adverse effect on
the financial condition or results of operations of the Company and Subsidiaries
taken as one enterprise, (B) result in the creation or imposition of any lien,
encumbrance, claim, security interest or restriction whatsoever upon any of the
material properties or assets of the Company or any Subsidiary or an
acceleration of indebtedness pursuant to any obligation, agreement or condition
contained in any material bond, debenture, note or any other evidence of
indebtedness or any material indenture, mortgage, deed of trust or any other
agreement or instrument to which the Company or any Subsidiary is a party or by
which any of them is bound or to which any of the property or assets of the
Company or any Subsidiary is subject. No consent, approval, authorization or
other order of, or registration, qualification or filing with, any regulatory
body, administrative agency, self-regulatory organization, stock exchange or
market, or other governmental body in the United States is required for the
execution and delivery of the Agreements and the valid issuance and sale of the
Common Stock and Warrants to be sold pursuant to the Agreements, other than such
as have been made or obtained, and except for any securities filings required to
be made under federal or state securities laws. Notwithstanding the foregoing,
the final approval of the American Stock Exchange is required in connection with
the issuance of the Common Stock and Warrants.

                  4.4 Reporting Status. The Company has filed in a timely manner
all documents that the Company was required to file under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), during the 12 months
preceding the date of this Agreement. The following documents complied in all
material respects with the Securities and Exchange Commission's ("SEC")
requirements as of their respective filing dates, and the information contained
therein as of the date thereof did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein in light of the circumstances under where they
were made not misleading, except to the extent that information contained in any
such document has been revised or superseded by a later filed SEC Document (as
defined below):

                  (i)    The Company's Annual Report on Form 10-K for the year
                         ended June 30, 2002, including the exhibits thereto
                         (the "Form 10-K"); and

                  (ii)   all other documents, including the exhibits thereto,
                         filed by the Company with the SEC since June 30, 2002
                         pursuant to the reporting requirements of the Exchange
                         Act (together with the Form 10-K, the "SEC Documents").


                  4.5 Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of 75,000,000 shares of Common Stock and
10,000,000 shares of preferred stock, par value $0.01 per share, of the Company
(the "Preferred Stock"). As of March 18, 2003, there were approximately (i)
28,383,557 shares of Common Stock issued and outstanding, (ii) 24,867 shares of
Series A Convertible Preferred Stock issued and outstanding which are
convertible into 804,757 shares of Common Stock, (iii) 700,000 shares of Series
C Convertible Preferred Stock issued and outstanding which are convertible into
700,000 shares of Common Stock, (iv) 5,075,540 shares of Common Stock reserved
for issuance under the Company's stock option plans, including 3,818,371 shares
issuable upon exercise of outstanding stock options issued by the Company to
current or former employees, consultants and directors of the Company and its
Subsidiaries and (v) 7,727,318 shares issuable upon exercise of warrants to
acquire shares of Common Stock. All outstanding shares of Common Stock are duly
authorized, validly issued, fully paid and nonassessable, free from any liens or
any other encumbrances created by the Company with respect to the issuance and
delivery thereof and not subject to preemptive rights. Other than as disclosed
in the SEC Documents, there are no outstanding rights, options, warrants,
preemptive rights, rights of first refusal agreements, commitments or similar
rights for the purchase or acquisition from the Company of any securities of the
Company. The Common Stock and Warrants to be sold pursuant to the Agreements
have been duly authorized, and when issued and paid for in accordance with the
terms of the Agreements will be duly and validly issued, fully paid and
nonassessable, free and clear of all pledges, liens, encumbrances and other
restrictions (other than those arising under federal or state securities laws as
a result of the private placement of the Common Stock and Warrants to the
Investors). Other than with respect to the outstanding Series C convertible
preferred stock, no preemptive right, co-sale right, right of first refusal or
other similar right exists with respect to the Common Stock and Warrants or the
issuance and sale thereof. No further approval or authorization of any
stockholder, the Board of Directors of the Company or others is required for the
issuance and sale of the Common Stock and Warrants, other than the approval of
the American Stock Exchange. Except as set forth in the SEC Documents, no holder
of any of the securities of the Company has any rights ("demand," "piggyback" or
otherwise) to have such securities registered by reason of the intention to
file, filing or effectiveness of a Registration Statement (as defined in Section
7.1 hereof). The outstanding Series A Convertible Preferred Stock contains a
price protection provision such that the conversion price will be adjusted with
respect to future issuances of securities at less than $3.09, and upon issuance
of the maximum number of securities pursuant to this Agreement, the conversion
price of the Series A Convertible Preferred Stock will be lowered to $2.66,
resulting in the additional issuance of 130,091 shares of Common Stock upon
conversion of such Series A Convertible Preferred Stock. The number of shares of
common stock issuable on exercise of certain warrants with similar price
protection provisions will increase by 87,075.


                  4.6 Legal Proceedings. There is no material legal or
governmental proceeding pending or, to the knowledge of the Company, threatened
to which the Company or any Subsidiary or any officer or director of the Company
or any Subsidiary in their capacity as such officer or director is or may be a
party or of which the business or property of the Company or any Subsidiary is
subject that is not disclosed in the SEC Documents. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board or
body (including, without limitation, the SEC) pending or, to the knowledge of
the Company, threatened against or affecting the Company or any of its
Subsidiaries wherein an unfavorable decision, ruling or finding could adversely
affect the validity or enforceability of, or the authority or ability of the
Company to perform its obligations under the Agreements.

                  4.7 No Violations. Neither the Company nor any Subsidiary is
in violation of its charter, bylaws, or other organizational document, or in
violation of any law, administrative regulation, ordinance or order of any court
or governmental agency, arbitration panel or authority applicable to the Company
or any Subsidiary, including the rules, regulations and policies of the SEC and
the Food and Drug Administration of the U.S. Department of Health and Human
Services (the "FDA") and which violation, individually or in the aggregate,
would be reasonably likely to have a material adverse effect on the business,
operations, assets or financial condition of the Company and its Subsidiaries,
considered as one enterprise, or is in default (and there exists no condition
which, with or without the passage of time or giving of notice or both, would
constitute a default) in any material respect in the performance of any bond,
debenture, note or any other evidence of indebtedness in any indenture,
mortgage, deed of trust or any other material agreement or instrument to which
the Company or any Subsidiary is a party or by which the Company or any
Subsidiary is bound or by which the properties of the Company or any Subsidiary
are bound, which would be reasonably likely to have a material adverse effect
upon the business, operations, assets or financial condition of the Company and
it s Subsidiaries, considered as one enterprise.

                  4.8 Governmental Permits, Etc. With the exception of the
matters which are dealt with separately in Section 4.1, 4.4, 4.13 and 4.14, each
the Company and it Subsidiaries has all necessary franchises, licenses,
certificates and other authorizations from any foreign, federal, state or local
government or governmental agency, department, or body that are currently
necessary for the operation of the business of the Company and its Subsidiaries
as currently conducted, except where the failure to currently possess could not
reasonably be expected to have a material adverse effect upon the business,
operations, assets or financial condition of the Company and its Subsidiaries,
considered as one enterprise.

                  4.9 Intellectual Property. Each of the Company and its
Subsidiaries owns or possesses sufficient rights to use all patents, patent
rights, trademarks, copyrights, licenses, inventions, trade secrets, trade names
and know-how (collectively, "Intellectual Property") that are necessary for the
conduct of its business as now conducted, and as proposed to be conducted in the
SEC Documents, except where the failure to currently own or possess could not
reasonably be expected to have a material adverse effect on the financial
condition or business of the Company and its Subsidiaries considered as one
enterprise. Except as set forth in the SEC Documents, (i) neither the Company
nor any of its Subsidiaries has received any notice of, or has any knowledge of,
any infringement of asserted rights of a third party with respect to any
Intellectual Property that, individually or in the aggregate, would have a
material adverse effect on the financial condition or business, operations or
assets of the Company and its Subsidiaries considered as one enterprise and (ii)
neither the Company nor any of its Subsidiaries has received any notice of any
infringement rights by a third party with respect to any Intellectual Property
that, individually or in the aggregate, would have a material adverse effect
upon the business, operations, assets or financial condition of the Company and
its Subsidiaries, considered as one enterprise.

                  4.10 Environmental Matters. The Company and its Subsidiaries
(i) are in compliance in all material respects with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii)
have received all material permits, licenses or other approvals required of them
under applicable Environmental Laws to conduct their respective businesses and
(iii) are in compliance with all terms and conditions of any permit, license or
approval, except where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a material adverse effect on the Company and
its Subsidiaries taken as a whole.

                  4.11 Financial Statements. The financial statements of the
Company and the related notes thereto included in the SEC Documents present
fairly in all material respects, in accordance with generally accepted
accounting principles, the financial position of the Company and its
Subsidiaries as of the dates indicated, and the results of its operations and
cash flows for the periods therein specified. Such consolidated financial
statements (including the related notes) have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods therein specified, except as set forth in the SEC
Documents and subject in the case of unaudited financial statements, to normal
year-end audit adjustments.

                  4.12 No Material Adverse Change. Except as disclosed in the
SEC Documents, since June 30, 2002 there has not been (i) any material adverse
change in the financial condition or earnings of the Company and its
Subsidiaries considered as one enterprise nor has any material adverse event
occurred to the Company or its Subsidiaries, (ii) any material adverse event
affecting the Company or any of its Subsidiaries, (iii) any obligation, direct
or contingent, that is material to the Company and its Subsidiaries considered
as one enterprise, incurred by the Company, except obligations incurred in the
ordinary course of business, (iv) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company or any of its
Subsidiaries, or (v) any loss or damage (whether or not insured) to the physical
property of the Company which has been sustained which has a material adverse
effect on the condition (financial or otherwise), earnings, operations or
business of the Company and its Subsidiaries considered as one enterprise.
Except as disclosed in the SEC Documents, neither the Company nor any of its
Subsidiaries has (i) sold, assigned, transferred, abandoned, mortgaged, pledged
or subjected to lien any of its material properties, tangible or intangible, or
rights under any material contract, permit, license, franchise or other
agreement or (ii) waived or cancelled any material indebtedness or other
obligations owed to the Company or any such Subsidiary.

                  4.13 AMEX Listing. The Company's Common Stock is registered
pursuant to Section 12(b) of the Exchange Act and is listed on the American
Stock Exchange (the "AMEX"), and the Company has taken no action designed to, or
likely to have the effect of, terminating the registration of the Common Stock
under the Exchange Act or de-listing the Common Stock from AMEX, nor to the
Company's knowledge is the AMEX currently contemplating terminating such
listing. The Company and the Common Stock meet the criteria for continued
listing and trading on the AMEX.

                  4.14 Listing of the Common Stock. The Company shall comply
with all requirements of the AMEX with respect to the issuance of the Common
Stock and Warrants and the listing of the Common Stock and the Common Stock
underlying the Warrants on the AMEX. In furtherance thereof, the Company shall
use its best efforts to take such actions as may be necessary and as soon as
practicable and in no event later than 20 days after the Closing Date to seek
the approval of AMEX for the issuance of the Common Stock and Warrants and to
file with the AMEX an application or other document required by the AMEX and pay
all applicable fees for the listing of the Common Stock and the Common Stock
underlying the Warrants with the AMEX and shall provide evidence of such filing
to the Investors. The Company knows of no reason why the Common Stock and the
Common Stock underlying the Warrants will not be eligible for listing on the
AMEX.

                  4.15 No Manipulation of Stock. The Company has not taken and
will not, in violation of applicable law, take, any action designed to or that
might reasonably be expected to cause or result in stabilization or manipulation
of the price of the Common Stock to facilitate the sale or resale of the Common
Stock and the Common Stock issuable upon exercise of the Warrants.

                  4.16 S-3 Status. The Company meets the requirements for filing
Form S-3 for the registration of the resale of the Common Stock and the Common
Stock issuable upon exercise of the Warrants by the Investors and will use its
best efforts to maintain S-3 status with the SEC during the Registration Period
(as defined in Section 7.1(c)).

                  4.17 Insurance. The Company maintains and will continue to
maintain insurance against loss or damage by fire or other casualty and such
other insurance, including, but not limited to, product liability insurance, in
such amounts and covering such risks as is reasonably adequate consistent with
industry practice for the conduct of its business and the value of its
properties, all of which insurance is in full force and effect.

                  4.18 Tax Matters. The Company has filed all material federal,
state and local income and franchise and other tax returns required to be filed
and has paid or accrued all taxes due in accordance therewith, and no tax
deficiency has been determined adversely to the Company which has had (nor does
the Company have any knowledge of any tax deficiency which, if determined
adversely to the Company, might have) a material adverse effect on the condition
(financial or otherwise), earnings, operations or business of the Company and
its Subsidiaries considered as one enterprise.

                  4.19 Investment Company. The Company is not an "investment
company" within the meaning of such term under the Investment Company Act of
1940 and the rules and regulations of the SEC thereunder and will not become an
investment company upon the receipt and application of the net proceeds of this
offering.

                  4.20 No Registration. Assuming the accuracy of the
representations and warranties made by, and compliance with the covenants of,
the Investors in Section 5 hereof, no registration of the Common Stock and
Warrants under the Securities Act of 1933, as amended (the "Securities Act") is
required in connection with the offer and sale of the Common Stock and Warrants
by the Company to the Investors as contemplated by the Agreements.

                  4.21      Intentionally Omitted.

                  4.22 Form D. The Company agrees to file one or more Forms D
with respect to the Common Stock and Warrants on a timely basis as required
under Regulation D under the Securities Act to claim the exemption provided by
Rule 506 of Regulation D and to, upon request, provide a copy thereof to the
Investors and their counsel.

                  4.23      Certain Future Financings and Related Actions.

                            (a) The Company will not sell, offer to sell,
solicit offers to buy or otherwise
negotiate in respect of any "security" (as defined in the Securities Act) that
is or could be integrated with the sale of the Common Stock and Warrants in a
manner that would require the registration of the Common Stock and Warrants
under the Securities Act.

                            (b) The Company shall not offer, sell, contract to
sell or issue (or engage any
person to assist the Company in taking any such action) any equity securities or
securities convertible into, exchangeable for or otherwise entitling the holder
to acquire, any Common Stock at a price below the market price of the Common
Stock during the period from the date of this Agreement to the effective date of
the Registration Statement; provided, however, that nothing in this Section
4.23(b) shall prohibit the Company from issuing securities (v) to employees,
directors, officers, advisors or consultants of the Company; (w) upon exercise
of conversion, exchange, purchase or similar rights issued, granted or given by
the Company and outstanding as of the date of this Agreement; (x) pursuant to a
public offering underwritten on a firm commitment basis registered under the
Securities Act; (y) for the purpose of funding the acquisition of securities or
assets of any entity in a single transaction or a series of related
transactions; or (z) pursuant to a strategic partnership or alliance agreement,
loan agreement, equipment lease or similar commercial agreement (including
licensing and similar arrangements).

                  4.24 Use of Proceeds. The Company will use the net proceeds
from the sale of the Common Stock and Warrants for continued research and
development of the Company's MIDAS technology, PT-141 and LeuTech programs, as
well as working capital and other general corporate purposes.

         5. Representations, Warranties and Covenants of the Investor. The
Investor hereby represents and warrants to, and covenants with, the Company as
follows:

5.1 (i) The Investor is an "accredited investor" as defined in Regulation D
under the Securities Act and the Investor has the knowledge, sophistication and
experience necessary to make, and is qualified to make decisions with respect
to, investments in shares presenting an investment decision like that involved
in the purchase of the Common Stock and Warrants, including investments in
securities issued by the Company and investments in comparable companies, and
has requested, received, reviewed and considered all information it deemed
relevant in making an informed decision to purchase the Common Stock and
Warrants, including without limitation, the Confidential Private Placement
Memorandum dated _______ 2003, and all exhibits attached thereto and
incorporated by reference therein (the "Memorandum") and the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 2002 delivered to the
Investor; (ii) the Investor is acquiring the number of shares of Common Stock
and Warrants set forth on the signature page hereto for its own account for
investment only and with no present intention of distributing any of the shares
of Common Stock, Warrants and shares of Common Stock issuable upon exercise of
the Warrants, in violation of the Securities Act or any arrangement or
understanding with any other persons regarding the distribution of the shares of
Common Stock, Warrants and the shares of Common Stock issuable upon exercise of
the Warrants; (iii) the Investor will not, directly or indirectly, offer, sell,
pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase
or otherwise acquire or take a pledge of) any of the Common Stock, Warrants and
shares of Common Stock issuable upon exercise of the Warrants except in
compliance with the Securities Act, applicable state securities laws and the
respective rules and regulations promulgated thereunder; (iv) the Investor has
filled in all requested information on the signature page hereto for use in
preparation of the Registration Statement and the answers thereto are true and
correct as of the date hereof and will be true and correct as of the Closing
Date; (v) the Investor will notify the Company promptly of any change in any of
such information until such time as the Investor has sold all of its Common
Stock, Warrants and shares of Common Stock issued upon exercise of the Warrants
or until the Company is no longer required to keep the Registration Statement
effective; and (vi) the Investor has, in connection with its decision to
purchase the number of shares of Common Stock and Warrants set forth on the
signature page hereto, relied only upon the SEC Documents, other publicly
available information and the representations and warranties of the Company
contained herein. The Investor understands that its acquisition of the Common
Stock and Warrants has not been registered under the Securities Act or
registered or qualified under any state securities laws in reliance on specific
exemptions therefrom, which exemptions may depend upon, among other things, the
truth and accuracy of, and the Investor's compliance with, the representations,
warranties, agreements and covenants of the Investor set forth in this Agreement
and the bona fide nature of the Investor's investment intent as expressed
herein.

                  5.2 The Investor acknowledges that the Company has represented
that no action has been or will be taken in any jurisdiction outside the United
States by the Company that would permit an offering of the Common Stock and
Warrants, or possession or distribution of offering materials in connection with
the issuance of the Common Stock and Warrants, in any jurisdiction outside the
United States where action for that purpose is required. If the Investor is
located or domiciled outside the United States it agrees to comply with all
applicable laws and regulations in each foreign jurisdiction in which it
purchases, offers, sells or delivers the shares of Common Stock and Warrants or
has in its possession or distributes any offering material, in all cases at its
own expense.

                  5.3 The Investor hereby covenants with the Company not to make
any sale of the Common Stock and Warrants without complying with the provisions
of this Agreement, including Section 7.2 hereof, provided that the Company
complies with its obligations under Section 7.1, without effectively causing the
prospectus delivery requirement under the Securities Act to be satisfied, if
applicable, and the Investor acknowledges that the certificates evidencing the
Common Stock and Warrants will be imprinted with a legend that prohibits their
transfer except in accordance therewith. The Investor acknowledges that there
may occasionally be times when the Company, based on the advice of its counsel,
determines that, subject to the limitations of Section 7.2, it must suspend the
use of the Prospectus forming a part of the Registration Statement until such
time as an amendment to the Registration Statement has been filed by the Company
and declared effective by the SEC or until the Company has amended or
supplemented such Prospectus.

                  5.4 The Investor further represents and warrants to, and
covenants with, the Company that (i) the Investor has full right, power,
authority and capacity to enter into this Agreement and to consummate the
transactions contemplated hereby and has taken all necessary action to authorize
the execution, delivery and performance of this Agreement and (ii) this
Agreement constitutes a valid and binding obligation of the Investor enforceable
against the Investor in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' and contracting parties' rights generally and
except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) and except as the indemnification and contribution agreements
of the Investors herein may be legally unenforceable.

                  5.5 Investor will not, prior to the effectiveness of the
Registration Statement, directly or indirectly, sell, offer to sell, solicit
offers to buy, dispose of, loan, pledge or grant any right with respect to
(collectively, a "Disposition"), the Common Stock of the Company in violation of
the Securities Act, nor will Investor engage in any hedging or other transaction
which is designed to or could reasonably be expected to lead to or result in a
Disposition of Common Stock of the Company by the Investor or any other person
or entity in violation of the Securities Act. Such prohibited hedging or other
transactions would include without limitation effecting any short sale or having
in effect any short position (whether or not such sale or position is against
the box and regardless of when such position was entered into) or any purchase,
sale or grant of any right (including without limitation any put or call option)
with respect to the Common Stock of the Company or with respect to any security
(other than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from the Common Stock of the Company.
The Investor acknowledges that the Common Stock, Warrants and shares of Common
Stock issuable upon exercise of the Warrants shall bear a restrictive legend to
the effect that the Common Stock, Warrants and Common Stock issuable upon
exercise of the Warrants have not been registered under the Securities Act of
1933, as amended and such securities may not be sold or transferred in the
absence of an effective registration statement or pursuant to an exemption from
registration.

                  5.6 The Investor understands that nothing in this Agreement or
any other materials presented to the Investor in connection with the purchase
and sale of the Common Stock and Warrants constitutes legal, tax or investment
advice. The Investor has consulted such legal, tax and investment advisors as
it, in its sole discretion, has deemed necessary or appropriate in connection
with its purchase of the Common Stock and Warrants.

                  5.7 The Investor shall hold in strict confidence all
information concerning this Agreement and the Offering of the Common Stock and
Warrants until the earlier of such time as the Company has made a public
announcement concerning this Agreement or the Offering of the Common Stock and
Warrants.

                  5.8 If the Investor is an individual, the Investor certifies
that he or she is not nor to his or her knowledge has been designated, a
"suspected terrorist" as defined in Executive Order 13224. If the Investor is a
corporation, trust, partnership, limited liability company or other
organization, the Investor certifies that, to the best of its knowledge, the
Investor has not been designated, and is not owned or controlled by, a
"suspected terrorist" as defined in Executive Order 13224. The Investor hereby
acknowledges that the Company seeks to comply with all applicable laws covering
money laundering and related activities. In furtherance of those efforts, the
Investor hereby represents, warrants and agrees that: (a) none of the cash or
property that the Investor will pay or will contribute to the Company ahs been
or shall be derived from, or related to, any activity that is deemed criminal
under United States law; and (b) no contribution or payment by the Investor to
the Company, to the extent that they are within the Investor's control, shall
cause the Company to be in violation of the Untied States Bank Secrecy Act, the
United States Money Laundering Control Act of 1986 or the Untied States
International Money Laundering Abatement and Anti-Terrorist Financing Act of
2001. The Investor shall promptly notify the Company if any of these
representations ceases to be true and accurate regarding the Investor. The
Investor agrees to provide the Company any additional information regarding the
Investor that the Company deems necessary or convenient to ensure compliance
with all applicable laws concerning money laundering and similar activities. The
Investor understands and agrees that if at any time it is discovered that any of
the foregoing representations are incorrect, or if otherwise required by
applicable law or regulation related to money laundering similar activities, the
Company may undertake appropriate actions to ensure compliance with applicable
law or regulation, including but not limited to segregation and/or redemption of
the Investor's investment in the Company. The Investor further understands that
the Company may release confidential information about the Investor and, if
applicable, any underlying beneficial owners, to proper authorities if the
Company, in its sole discretion, determines that it is in the best interest of
the Company in light of relevant rules and regulations under the laws set forth
in subsection (b) above.

         6. Survival of Representations, Warranties and Agreements.
Notwithstanding any investigation made by any party to this Agreement, all
covenants, agreements, representations and warranties made by the Company and
the Investor herein shall survive the execution of this Agreement, the delivery
to the Investor of the Common Stock and Warrants being purchased and the payment
therefor for a period of one (1) year from the Closing Date.

         7. Registration; Compliance with the Securities Act.

                  7.1   Registration Procedures and Expenses. The Company shall:
                        ------------------------------------

                            (a) subject to receipt of necessary information from
the Investors, use its best
efforts to prepare and file with the SEC, within 30 days after the Closing Date,
a registration statement (the "Registration Statement") on Form S-3 to enable
the resale of the Registrable Shares (as defined below) by the Investors on a
delayed or continuous basis under Rule 415 of the Securities Act. The
Registration Statement may include shares of common stock other than those held
by the Investor and the Other Investors, provided that the inclusion of those
shares would not affect the plan of distribution included in the Registration
Statement. "Registrable Shares" means (a) all shares of Common Stock purchased
in the Offering, (b) all shares of Common Stock underlying the Warrants, (c)
Penalty Shares (as defined below), if any, and (d) any shares of capital stock
issued or issuable, from time to time, upon any reclassification, share
combination, share subdivision, stock split, share dividend, merger,
consolidation or similar transaction or event or otherwise as a distribution on,
in exchange for or with respect to any of the foregoing, in each case held at
the relevant time by an Investor;

                            (b) use its best efforts, subject to receipt of
necessary information from the
Investors, to cause the Registration Statement to become effective within 90
days after the Closing Date;

                            (c) use its best efforts to prepare and file with
the SEC such amendments and
supplements to the Registration Statement and the Prospectus used in connection
therewith and take all such other actions as may be necessary to keep the
Registration Statement current and effective for a period (the "Registration
Period") not exceeding, with respect to each Investor's Registrable Shares, the
earlier of (i) the second anniversary of the Closing Date, (ii) the date on
which the Investor may sell all the shares of Common Stock, Warrants and shares
of Common Stock issuable upon exercise of the Warrants then held by the Investor
without restriction by the volume limitations of Rule 144(e) of the Securities
Act, and (iii) such time as all Registrable Shares held by such Investor have
been sold (A) pursuant to a registration statement, (B) to or through a broker
or dealer or underwriter in a public distribution or a public securities
transaction, and/or (C) in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act under Section 4(1)
thereof so that all transfer restrictions and restrictive legends with respect
thereto, if any, are removed upon the consummation of such sale;

                            (d) promptly furnish to the Investor with respect to
the Registrable Shares
registered under the Registration Statement such number of copies of the
Registration Statement, Prospectuses and Preliminary Prospectuses in conformity
with the requirements of the Securities Act and such other documents as the
Investor may reasonably request, in order to facilitate the public sale or other
disposition of all or any of the Registrable Shares by the Investor;

                            (e) promptly take such action as may be necessary to
qualify, or obtain, an
exemption for the Registrable Shares under such of the state securities laws of
United States jurisdictions as shall be necessary to qualify, or obtain an
exemption for, the sale of the Registrable Shares in states specified in writing
by the Investor; provided, however, that the Company shall not be required to
qualify to do business or consent to service of process in any jurisdiction in
which it is not now so qualified or has not so consented;

                            (f) bear all expenses in connection with the
procedures in paragraph (a) through
(c) of this Section 7.1 and the registration of the Registrable Shares pursuant
to the Registration Statement, regardless of whether a Registration Statement
becomes effective, including without limitation: (i) all registration and filing
fees and expenses (including filings made with the AMEX); (ii) fees and expenses
of compliance with federal securities and state "blue sky" or securities laws;
(iii) expenses of printing (including printing certificates for the Registrable
Shares and Prospectuses), messenger and delivery services and telephone; (iv)
all application and filing fees in connection with listing the Registrable
Shares on a national securities exchange or automated quotation system pursuant
to the requirements hereof; and (v) all fees and disbursements of counsel of the
Company and independent certified public accountants of the Company; provided,
however, that each Investor shall be responsible for paying the underwriting
commissions or brokerage fees, and taxes of any kind (including, without
limitation, transfer taxes) applicable to any disposition, sale or transfer of
such Investor's Registrable Shares and any fees and expenses of counsel or other
advisors to the Investor or Other Investors. The Company shall, in any event,
bear its internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual audit, rating agency fees and the fees and expenses of
any person, including special experts, retained by the Company;

                            (g) advise the Investors, within two business days
by e-mail, fax or other type of
communication, and, if requested by such person, confirm such advice in writing:
(i) after it shall receive notice or obtain knowledge of the issuance of any
stop order by the SEC delaying or suspending the effectiveness of the
Registration Statement or of the initiation or threat of any proceeding for that
purpose, or any other order issued by any state securities commission or other
regulatory authority suspending the qualification or exemption from
qualification of such Registrable Shares under state securities or "blue sky"
laws; and it will promptly use its best efforts to prevent the issuance of any
stop order or other order or to obtain its withdrawal at the earliest possible
moment if such stop order or other order should be issued; (ii) when the
Prospectus or any Prospectus Supplement or post-effective amendment has been
filed, and, with respect to the Registration Statement or any post-effective
amendment thereto, when the same has become effective; and (iii) after the
Company shall receive notice or obtain knowledge of the existence of any fact or
the happening of any event that makes any statement of a material fact made in
the Registration Statement, the Prospectus, any amendment or supplement thereto,
or any document incorporated by reference therein untrue, or that requires the
making of any additions to or changes in the Registration Statement or the
Prospectus in order to make the statements therein not misleading;

                            (h) otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC which could affect the sale of
the Registrable Shares;

                            (i) use its best efforts to cause all Registrable
Shares to be listed on each securities exchange or market, if any, on which
equity securities issued by the Company are then listed;

                            (j) use its best efforts to take all other steps
necessary to effect the registration of the Registrable Shares contemplated
hereby and to enable the Investors to sell the Registrable Shares under Rule
144; and

                            (k) The Company further agrees that, in the event
that the Registration Statement
has not (i) been filed with the SEC within 30 days after the Closing Date or
(ii) been declared effective by the SEC within 90 days after the Closing Date
(each such event referred to in clauses (i) and (ii), a "Registration Default"),
for all or part of each 30-day period (a "Penalty Period") during which the
Registration Default remains uncured, the Company shall issue or pay, as
applicable, to each Investor 1% for each Penalty Period of the aggregate
purchase price paid by the Investor for its Common Stock and Warrants, payable
in validly issued, fully paid and nonassessable shares of Common Stock (valued
at the average of the closing price of the Common Stock for the three trading
days ending on the last trading day of such Penalty Period) (the "Penalty
Shares") or cash, or a combination thereof, at the option of the Company;
provided, however, that the maximum aggregate payment of cash, or issuance of
Penalty Shares to each Investor, as the case may be, in respect of a
Registration Default shall not exceed 5% of the aggregate purchase price paid by
such Investor for its Common Stock and Warrants and provided further, that if
the issuance of Penalty Shares by the Company would result in the Company being
required under AMEX rules or other applicable rules to obtain the approval of
the Company's stockholders, then the Company shall pay cash rather than issue
such Penalty Shares to the extent needed to avoid such stockholder approval. The
Company shall deliver said shares or cash payment to the Investor by the fifth
business day after the end of each such Penalty Period. Notwithstanding anything
to the contrary in Section 7.3 or any other provision of this Agreement, the
issuance of the Penalty Shares or cash as provided in this Section 7.1(k) shall
be the Investor's sole and exclusive remedy in the event of any Registration
Default; provided, however, that if the foregoing remedy is deemed unenforceable
by a court of competent jurisdiction then the Investor shall have all other
remedies available at law or in equity.

                  7.2       Transfer; Suspension.

                            (a) The Investor agrees that it will not effect any
Disposition of the Common
Stock or shares of Common Stock issuable upon exercise of the Warrants or its
right to purchase the Common Stock or shares of Common Stock issuable upon
exercise of the Warrants that would constitute a sale within the meaning of the
Securities Act except as contemplated in the Registration Statement referred to
in Section 7.1 and as described below or otherwise in accordance with the
Securities Act, and that it will promptly notify the Company of any changes in
the information set forth in the Registration Statement regarding the Investor
or its plan of distribution.

                            (b) Except in the event that paragraph (c) below
applies, the Company shall, at
all times during the Registration Period, promptly (i) prepare and file from
time to time with the SEC a post-effective amendment to the Registration
Statement or a supplement to the related Prospectus or a supplement or amendment
to any document incorporated therein by reference or file any other required
document so that such Registration Statement will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
so that, as thereafter delivered to purchasers of the Registrable Shares being
sold thereunder, such Prospectus will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; (ii) provide the Investor copies of any
documents filed pursuant to Section 7.2(b)(i); and (iii) inform each Investor
that the Company has complied with its obligations in Section 7.2(b)(i) (or
that, if the Company has filed a post-effective amendment to the Registration
Statement which has not yet been declared effective, the Company will notify the
Investor to that effect, will use its best efforts to secure the effectiveness
of such post-effective amendment as promptly as possible and will promptly
notify the Investor pursuant to Section 7.2(b)(i) hereof when the amendment has
become effective).

                            (c) Subject to paragraph (d) below, in the event (i)
of any request by the SEC or
any other federal or state governmental authority during the period of
effectiveness of the Registration Statement for amendments or supplements to a
Registration Statement or related Prospectus or for additional information; (ii)
of the issuance by the SEC or any other federal or state governmental authority
of any stop order suspending the effectiveness of a Registration Statement or
the initiation of any proceedings for that purpose; (iii) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; or (iv) of any event or circumstance which necessitates the making of
any changes in the Registration Statement or Prospectus, or any document
incorporated or deemed to be incorporated therein by reference, so that, in the
case of the Registration Statement, it will not contain any untrue statement of
a material fact or any omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and that in
the case of the Prospectus, it will not contain any untrue statement of a
material fact or any omission to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; then the Company shall
deliver a certificate in writing to the Investor (the "Suspension Notice") to
the effect of the foregoing and, upon receipt of such Suspension Notice, the
Investor will refrain from selling any Registrable Shares pursuant to the
Registration Statement (a "Suspension") until the Investor's receipt of copies
of a supplemented or amended Prospectus prepared and filed by the Company, or
until it is advised in writing by the Company that the current Prospectus may be
used, and has received copies of any additional or supplemental filings that are
incorporated or deemed incorporated by reference in any such Prospectus. In the
event of any Suspension, the Company will use its best efforts to cause the use
of the Prospectus so suspended to be resumed as soon as reasonably practicable
after the delivery of a Suspension Notice to the Investor. In addition to and
without limiting any other remedies (including, without limitation, at law or at
equity) available to the Investor, the Investor shall be entitled to specific
performance in the event that the Company fails to comply with the provisions of
this Section 7.2(c).

                            (d) Notwithstanding the foregoing paragraphs of this
Section 7.2, the Investor
shall not be prohibited from selling Registrable Shares under the Registration
Statement as a result of Suspensions on more than two occasions (for two
separate suspension events) of not more than 30 days each in any twelve month
period.

                            (e) Provided that a Suspension is not then in
effect, the Investor may sell
Registrable Shares under the Registration Statement, provided that it arranges
for delivery of a current Prospectus to the transferee of such Registrable
Shares. Upon receipt of a request therefor, the Company has agreed to provide,
at its own expense, an adequate number of current Prospectuses (including
documents incorporated by reference therein) to the Investor and to supply
copies to any other parties requiring such Prospectuses.

                            (f) In the event of a sale of Registrable Shares by
the Investor under the
Registration Statement, the Investor must also deliver to the Company's transfer
agent, with a copy to the Company, a Certificate of Subsequent Sale
substantially in the form attached hereto as Exhibit C, so that the Registrable
Shares may be properly transferred.

                  7.3      Indemnification. For the purpose of this Section 7.3:
                           ---------------

                  (i) the term "Selling Stockholder" shall include the Investor
and any affiliate of such Investor;

                  (ii) the term "Registration Statement" shall include any final
Prospectus, exhibit, supplement or amendment included in or relating to the
Registration Statement referred to in Section 7.1; and

                  (iii) the term "untrue statement" shall include any untrue
statement or alleged untrue statement, or any omission or alleged omission to
state in the Registration Statement or Prospectus a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

                            (a) The Company agrees to indemnify and hold
harmless each Selling Stockholder
from and against any losses, claims, damages, liabilities or expenses to which
such Selling Stockholder may become subject (under the Securities Act or
otherwise) insofar as such losses, claims, damages, liabilities or expenses (or
actions or proceedings in respect thereof) arise out of, or are based upon (i)
any untrue statement of a material fact contained in the Registration Statement
or Prospectus, (ii) any failure by the Company to fulfill any undertaking
included in the Registration Statement, or (iii) any breach of any
representation, warranty or covenant made by the Company in this Agreement, and
the Company will promptly reimburse such Selling Stockholder for any reasonable
legal or other expenses incurred in investigating, defending or preparing to
defend, settling, compromising or paying any such action, proceeding or claim,
provided, however, that the Company shall not be liable in any such case to the
extent that such loss, claim, damage, liability or expense arises solely out of,
or is based solely upon, an untrue statement made in such Registration Statement
in reliance upon and in conformity with written information furnished to the
Company by such Selling Stockholder specifically for use in preparation of the
Registration Statement or the failure of such Selling Stockholder to comply with
its covenants and agreements contained in Sections 5.3 or 7.2 hereof respecting
sale of the Common Stock and Warrants or any statement or omission in any
Prospectus that is corrected in any subsequent Prospectus that was delivered to
the Investor at least three business days prior to the pertinent sale or sales
by the Investor. Notwithstanding the foregoing, the Company shall not be liable
to any Selling Stockholder for any consequential damages, including lost
profits, solely with respect to losses, claims, damages, liabilities or expenses
to which such Selling Stockholder may become subject arising out of, or based
upon, any breach of any representation, warranty or covenant made by the Company
in this Agreement.

                            (b) The Investor agrees (severally and not jointly
with any other Investor) to
indemnify and hold harmless the Company (and each person, if any, who controls
the Company within the meaning of Section 15 of the Securities Act, each officer
of the Company who signs the Registration Statement and each director of the
Company) from and against any losses, claims, damages, liabilities or expenses
to which the Company (or any such officer, director or controlling person) may
become subject (under the Securities Act or otherwise), insofar as such losses,
claims, damages, liabilities or expenses (or actions or proceedings in respect
thereof) arise solely out of, or are based solely upon, (i) any failure to
comply with, or breach of, the representations, covenants and agreements
contained in Section 5 or 7.2 hereof respecting sale of the Common Stock and
Warrants, or (ii) any untrue statement of a material fact contained in the
Registration Statement if such untrue statement was made in reliance upon and in
conformity with written information furnished by the Investor specifically for
use in preparation of the Registration Statement (provided, however, that no
Investor shall be liable in any such case for any untrue statement in any
Registration Statement or Prospectus if such statement has been corrected in
writing by such Investor and delivered to the Company at least three business
days prior to the pertinent sale or sales by the Investor), and the Investor
will reimburse the Company (or such officer, director or controlling person), as
the case may be, for any legal or other expenses reasonably incurred in
investigating, defending or preparing to defend, settling, compromising or
paying any such action, proceeding or claim. Notwithstanding the foregoing, (x)
the Investor's aggregate liability pursuant to this subsection (b) and
subsection (d) shall be limited to the net amount received by the Investor from
the sale of the Registrable Shares and (y) the Investor shall not be liable to
the Company for any consequential damages, including lost profits, solely with
respect to losses, claims, damages, liabilities or expenses to which the Company
(or any officer, director or controlling person as set forth above) may become
subject (under the Securities Act or otherwise), arising out of, or based upon,
any failure to comply with the covenants and agreements contained in Section 5.3
or 7.2 hereof respecting sale of the Registrable Shares.

                            (c) Promptly after receipt by any indemnified person
of a notice of a claim or the
beginning of any action in respect of which indemnity is to be sought against an
indemnifying person pursuant to this Section 7.3, such indemnified person shall
notify the indemnifying person in writing of such claim or of the commencement
of such action, but the omission to so notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified party under
this Section 7.3 (except to the extent that such omission materially and
adversely affects the indemnifying party's ability to defend such action) or
from any liability otherwise than under this Section 7.3. Subject to the
provisions hereinafter stated, in case any such action shall be brought against
an indemnified person, the indemnifying person shall be entitled to participate
therein, and, to the extent that it shall elect by written notice delivered to
the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, shall be entitled to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified person. After notice from the
indemnifying person to such indemnified person of its election to assume the
defense thereof, such indemnifying person shall not be liable to such
indemnified person for any legal expenses subsequently incurred by such
indemnified person in connection with the defense thereof, provided further,
however, that if there exists or shall exist a conflict of interest that would
make it inappropriate, in the opinion of counsel to the indemnified person, for
the same counsel to represent both the indemnified person and such indemnifying
person or any affiliate or associate thereof, the indemnified person shall be
entitled to retain its own counsel at the expense of such indemnifying person;
provided, however, that no indemnifying person shall be responsible for the fees
and expenses of more than one separate counsel (together with appropriate local
counsel) for all indemnified parties. In no event shall any indemnifying person
be liable in respect of any amounts paid in settlement of any action unless the
indemnifying person shall have approved the terms of such settlement; provided
that such consent shall not be unreasonably withheld. No indemnifying person
shall, without the prior written consent of the indemnified person, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified person is or could have been a party and indemnification could have
been sought hereunder by such indemnified person, unless such settlement
includes an unconditional release of such indemnified person from all liability
on claims that are the subject matter of such proceeding.

                            (d) If the indemnification provided for in this
Section 7.3 is unavailable to or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above in respect of any losses, claims, damages, liabilities or expenses (or
actions or proceedings in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) in such proportion as is appropriate to
reflect the relative fault of the Company on the one hand and the Investor on
the other in connection with the statements or omissions or other matters which
resulted in such losses, claims, damages, liabilities or expenses (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, in the
case of an untrue statement, whether the untrue statement relates to information
supplied by the Company on the one hand or an Investor on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement. The Company and the Investor each
agree that it would not be just and equitable if contribution pursuant to this
subsection (d) were determined by pro rata allocation (even if the Investor and
its affiliates were treated as one entity for such purpose) or by any other
method of allocation which does not take into account the equitable
considerations referred to above in this subsection (d). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this subsection
(d) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this subsection (d), the
Investor shall not be required to contribute any amount in excess of the net
amount received by the Investor from the sale of the Registrable Shares. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Investor's
obligations in this subsection to contribute are several in proportion to their
sales of Registrable Shares to which such loss relates and not joint.

                            (e) The parties to this Agreement hereby acknowledge
that they are sophisticated
business persons who were represented by counsel during the negotiations
regarding the provisions hereof including, without limitation, the provisions of
this Section 7.3, and are fully informed regarding said provisions.

                  7.4 Rule 144. For a period of two years following the date
hereof, the Company agrees with each holder of Registrable Shares to:

(a) comply with the requirements of Rule 144(c) under the Securities Act with
respect to current public information about the Company;

(b) use its best efforts to file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act (at any time it is subject to such reporting requirements); and

                           (c) furnish to any holder of Registrable Shares upon
request (i) a written
statement by the Company as to its compliance with the requirements of said Rule
144(c) and the reporting requirements of the Securities Act and the Exchange Act
(at any time it is subject to such reporting requirements), (ii) a copy of the
most recent annual or quarterly report of the Company, and (iii) such other
publicly-filed reports and documents of the Company as such holder may
reasonably request to avail itself of any similar rule or regulation of the SEC
allowing it to sell any such securities without registration.

                  7.5 Termination of Conditions and Obligations. The conditions
precedent imposed by Section 5 or this Section 7 upon Dispositions of the
Registrable Shares by the Investor shall cease and terminate as to any
particular number of the Registrable Shares and the restrictive legend shall be
removed when such Registrable Shares shall have been effectively registered
under the Securities Act and sold or otherwise disposed of in accordance with
the intended method of disposition set forth in the Registration Statement
covering such Registrable Shares or at such time as an opinion of counsel
reasonably satisfactory to the Company shall have been rendered to the effect
that such conditions are not necessary in order to comply with the Securities
Act (provided that such opinion shall not be required if the Company shall be
furnished with written documentation reasonably satisfactory to it that such
Registrable Shares are being transferred in a customary transaction exempt from
registration under Rule 144 under the Securities Act).

         8. Escrow Agent. To induce Mintz Levin Cohn Ferris Glovsky and Popeo,
P.C. to serve as the escrow agent and to act in such capacity hereunder, it is
agreed by the parties hereto that:

8.1 The escrow agent shall not be under any duty to give the property held by it
hereunder (the "Escrowed Property") any greater degree of care than it gives its
own similar property.

8.2 This Section 8 of this Agreement expressly sets forth all the duties of the
  escrow agent with respect to any and all matters pertinent hereto. No implied
  duties or obligations shall be read into this Agreement against the escrow
  agent. The escrow agent shall not be bound by the provisions of any agreement
  among the other parties hereto except this Section 8 of this Agreement.

8.3 The escrow agent shall not be liable, except for its own gross negligence or
  willful misconduct and, except with respect to claims based upon such gross
  negligence or willful misconduct that are successfully asserted against the
  escrow agent, the other parties hereto shall jointly and severally indemnify
  and hold harmless the escrow agent from and against any and all losses,
  liabilities, claims, actions, damages and expenses, including, without
  limitation, reasonable attorneys' fees and disbursements, arising out of or in
  connection with this Agreement.

8.4 The escrow agent shall be entitled to rely upon any order, judgment,
  certification, demand, notice, instrument or other writing delivered to it
  hereunder without being required to determine the authenticity or the
  correctness of any fact stated therein or the propriety or validity of the
  service thereof. The escrow agent may act in reliance upon any instrument or
  signature believed by it to be genuine and may assume that any person
  purporting to give receipt or advice or make any statement or execute any
  document in connection with the provisions hereof has been duly authorized to
  do so.

8.5 The escrow agent may act pursuant to the advice of counsel with respect to
  any matter relating to this Agreement and shall not be liable for any action
  taken or omitted in accordance with such advice.

8.6 The escrow agent does not have any interest in the Escrowed Property
  deposited hereunder but is serving as escrow holder only and having only
  possession thereof. The other parties shall, on a joint and several basis, pay
  or reimburse the escrow agent upon request for any and all expenses, if any,
  incurred by the escrow agent in connection with this Agreement and transfer
  taxes or other taxes relating to the Escrowed Property incurred in connection
  herewith and shall indemnify and hold harmless the escrow agent from any
  amounts that it is obligated to pay in the way of such expenses and taxes. The
  escrow agent shall first seek such payment or reimbursement from the Company,
  and in the event is unable to do so, shall seek such payment and reimbursement
  from the Investors. This Section 8.6 and Section 8.3 shall survive
  notwithstanding any termination of this Agreement or the resignation of the
  escrow agent.

8.7 The escrow agent makes no representation as to the validity, value,
  genuineness or the collectability of any security or other document or
  instrument held by or delivered to it.

8.8 The escrow agent may at any time resign as such by delivering the Escrowed
  Property to any successor escrow agent jointly designated by the other parties
  hereto in writing, or to any court of competent jurisdiction, whereupon the
  escrow agent shall be discharged of and from any and all further obligations
  arising in connection with this Agreement. The resignation of the escrow agent
  will take effect on the earlier of (a) the appointment of a successor
  (including a court of competent jurisdiction) or (b) the day which is 30 days
  after the date of delivery of its written notice of resignation to the other
  parties hereto. If at that time the escrow agent has not received a
  designation of a successor escrow agent, the escrow agent's sole
  responsibility after that time shall be to safekeep the Escrowed Property
  until receipt of a designation of successor escrow agent or a joint written
  disposition instruction by the other parties hereto or a final order of a
  court of competent jurisdiction.

8.9 In the event of any disagreement between the other parties hereto resulting
  in adverse claims or demands being made in connection with the Escrowed
  Property, or in the event that the escrow agent in good faith is in doubt as
  to what action it should take hereunder, the escrow agent shall be entitled to
  retain the Escrowed Property until the escrow agent shall have received (i) a
  final non-appealable order of a court of competent jurisdiction directing
  delivery of the Escrowed Property or (ii) a written agreement executed by the
  other parties hereto directing delivery of the Escrowed Property, in which
  event the escrow agent shall disburse the Escrowed Property in accordance with
  such order or agreement. Any court order shall be accompanied by a legal
  opinion by counsel for the presenting party satisfactory to the escrow agent
  to the effect that said opinion is final and non-appealable.

8.10 Notwithstanding anything to the contrary contained herein, the escrow
  agent's duties and obligations hereunder shall terminate upon the release and
  distribution of the Escrowed Property in accordance with the terms of this
  Agreement.

         Each of the Company and the Investor understands and agrees that,
notwithstanding its duties as escrow agent hereunder, the escrow agent is the
attorney for the Company, and, accordingly, neither any services as escrow agent
hereunder nor any provisions hereof, either express or implied, shall restrict
or inhibit the escrow agent in any way from representing the Company or its
affiliates in any action, dispute, controversy, arbitration, suit or negotiation
arising under this Agreement or under any other agreement or in any manner or
context whatsoever, whether or not directly or indirectly involving the Company
or its affiliates. Notwithstanding anything to the contrary contained herein, if
at any time a law firm representing either Company or Investor serves or is
serving as escrow agent, then with respect to such law firm's capacity as escrow
agent, such counsel shall not for these purposes serve as the agent for either
of the parties, but shall be a fiduciary of both parties.

         9. Notices. All notices, requests, consents and other communications
hereunder shall be in writing, shall be mailed (A) if within domestic United
States by first-class registered or certified airmail, or nationally recognized
overnight express courier, postage prepaid, or by facsimile, or (B) if delivered
from outside the United States, by International Federal Express or facsimile,
and shall be deemed given (i) if delivered by first-class registered or
certified mail domestic, three business days after so mailed, (ii) if delivered
by nationally recognized overnight carrier, one business day after so mailed,
(iii) if delivered by International Federal Express, two business days after so
mailed, and (iv) if delivered by facsimile, upon electric confirmation of
receipt and shall be delivered as addressed as follows:

                  (a) if to the Company, to:

                            Palatin Technologies, Inc.
                            4C Cedarbrook Drive
                            Cranbury, New Jersey  08512
                            Phone: (609) 495-2200
                            Fax: (609) 495-2203
                            Attention:  Stephen T. Wills, Chief
                                                  Financial Officer

                        with a copy to:

                            Faith L. Charles, Esq.
                            Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
                            666 Third Avenue
                            New York, NY 10017
                            Phone: (212) 935-3000
                            Fax: (212) 935-3115

                  (b) if to the Investor, at its address on the signature page
hereto, or at such other address or addresses as may have been furnished to the
Company in writing.

         10. Changes. This Agreement may not be modified or amended except
pursuant to an instrument in writing signed by the Company and the Investor.

         11. Headings. The headings of the various sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed to
be part of this Agreement.

         12. Severability. In case any provision contained in this Agreement
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.

         13. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of New York, without giving
effect to the principles of conflicts of law.

         14. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof, and any and
all other written or oral agreements relating to such subject matter are
expressly cancelled.

         15. Finders Fees. Except for commissions payable to Legg Mason Wood
Walker, Incorporated by the Company, neither the Company nor the Investor nor
any affiliate thereof has incurred any obligation which will result in the
obligation of the other party to pay any finder's fee or commission in
connection with this transaction.

         16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument, and shall become effective
when one or more counterparts have been signed by each party hereto and
delivered to the other parties.

         17. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of the Company and
the Investors, including without limitation and without the need for an express
assignment, affiliates of the Investors. With respect to transfers that are not
made pursuant to the Registration Statement, the rights and obligations of an
Investor under this Agreement shall be automatically assigned by such Investor
to any transferee of all or any portion of such Investor's Registrable Shares
who is a Permitted Transferee (as defined below); provided, however, that within
two business days prior to the transfer, (i) the Company is provided notice of
the transfer including the name and address of the transferee and the number of
Registrable Shares transferred; and (ii) that such transferee agrees in writing
to be bound by the terms of this Agreement. (For purposes of this "Agreement, a
"Permitted Transferee" shall mean any Person who is an "accredited investor," as
that term is defined in Rule 501(a) of Regulation D under the Securities Act.
Upon any transfer permitted by this Section 16, the Company shall be obligated
to such transferee to perform all of its covenants under this Agreement as if
such transferee were an Investor.

         18. Expenses. Each of the Company and the Investors shall bear its own
expenses in connection with the preparation and negotiation of the Agreement.







                                    EXHIBIT A


                                 FORM OF WARRANT


                  SEE EXHIBIT J IN PRIVATE PLACEMENT MEMORANDUM




                                    EXHIBIT B


                           WIRE TRANSFER INSTRUCTIONS


Wire transfers should be made to Mintz Levin Cohn Ferris Glovsky and Popeo PC,
as Escrow Agent, Fleet Bank of Massachusetts, N.A., Malden MA 02148,
ABA#011000390, Account Name: Mintz Levin Cohn Ferris Glovsky and Popeo PC IOLTA
Account, Account Number 534-66888, Reference: Palatin Technologies.






                                    EXHIBIT C


                                             CERTIFICATE OF SUBSEQUENT SALE

American Stock Transfer & Trust Company
59 Maiden Lane, Ground Floor
New York, NY 10038


RE:  Sale of Shares of Common Stock and Warrants of Palatin Technologies, Inc.
     (the "Company") pursuant to the Company's Registration Statement on Form
     S-3 dated _____________ (the "Registration Statement")

Ladies and Gentlemen:

         The undersigned hereby certifies, in connection with the sale of shares
of Common Stock of the Company included in the table of Selling Stockholders in
the Registration Statement, that the undersigned has sold the shares pursuant to
the Registration Statement and in a manner described under the caption "Plan of
Distribution" in the Registration Statement and that such sale complies with all
applicable securities laws, including, without limitation, the Registration
Statement delivery requirements of the Securities Act of 1933, as amended.

Selling Stockholder (the beneficial owner):

Record Holder (e.g., if held in name of nominee):
                                                  ------------------------------

Restricted Stock Certificate No.(s):
                                     -------------------------------------------

Number of Shares Sold:
                       ---------------------------------------------------------

Date of Sale:
              ------------------------------------------------------------------

         In the event that you receive a stock certificate(s) representing more
shares of Common Stock than have been sold by the undersigned, then you should
return to the undersigned a newly issued certificate for such excess shares in
the name of the Record Holder and BEARING A RESTRICTIVE LEGEND. Further, you
should place a stop transfer on your records with regard to such certificate.

                                   Very truly yours,

Dated:                             By:
       -------------                   -----------------------------------------

                                   Print Name:
                                               ---------------------------------

                                   Title:
                                          --------------------------------------

EX-10

EXHIBIT 10.34

                           FORM OF WARRANT CERTIFICATE

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.

                                                             _______ Warrants




                           PALATIN TECHNOLOGIES, INC.
                    COMMON STOCK PURCHASE WARRANT CERTIFICATE

                   THE WARRANTS EVIDENCED BY THIS CERTIFICATE
                      ARE NOT EXERCISABLE AFTER 5:00 P.M.,
                             NEW YORK CITY TIME, ON
                              ______________, 2008

THIS CERTIFIES THAT:

_____________________ or registered assigns is the registered holder (the
"Registered Holder") of the number of Warrants set forth above, each of which
represents the right to purchase ________ fully paid and nonassessable shares of
Common Stock, par value $0.01 per share (the "Common Stock"), of Palatin
Technologies, Inc., a Delaware corporation (the "Company"), at the initial
exercise price of $_____ per Warrant (the "Exercise Price") at any time prior to
the Expiration Date (as hereinafter defined), by surrendering this Warrant
Certificate, with the Form of Election to Purchase duly executed at the
principal office of the Company and by paying in full the Exercise Price, plus
transfer taxes, if any. Payment of the Exercise Price shall be made (i) in
United States currency, by certified check or money order payable to the order
of the Company, or (ii) by "cashless exercise" in accordance with the provisions
below, but only when a registration statement under the Act for the resale of
the shares of Common Stock issuable upon exercise of the Warrants is not then in
effect. Unless otherwise defined herein, the capitalized terms used herein shall
have the meaning assigned to such terms in the Purchase Agreement.

         The Warrants have been issued pursuant to a private placement of Common
Stock and Warrants.

         This Warrant Certificate is issued under and in accordance with the
Securities Purchase Agreement dated as of _________ __, 2003, between the
Company and the Registered Holder, as amended and is subject to the terms and
provisions contained in said Purchase Agreement. Section 7 of the Securities
Purchase Agreement governs the registration rights of the shares of Common Stock
underlying the Warrants.

         Notwithstanding any provisions herein to the contrary, if (i) the Per
Share Market Value of one share of Common Stock is greater than the Exercise
Price (at the date of calculation as set forth below) and (ii) a registration
statement under the Act for the resale of the shares of Common Stock issuable
upon exercise of the Warrants is not then in effect, in lieu of exercising this
Warrant by payment of cash, the Registered Holder may exercise this Warrant by a
cashless exercise and shall receive the number of shares of Common Stock equal
to an amount (as determined below) by surrender of this Warrant at the principal
office of the Company together with the properly endorsed Election to Purchase
in which event the Company shall issue to the Registered Holder a number of
shares of Common Stock computed using the following formula:

                  X = Y - (A)(Y)
                      ----------
                           B

Where             X =      the number of shares of Common Stock to be issued to
                           the Registered Holder.

                  Y        = the number of shares of Common Stock purchasable
                           upon exercise of all of the Warrant or, if only a
                           portion of the Warrant is being exercised, the
                           portion of the Warrant being exercised.

                  A =      the Exercise Price.

                  B = the Per Share Market Value of one share of Common Stock.

                  "Per Share Market Value" means on any particular date (a) the
         closing bid price per share of the Common Stock on such date on Nasdaq
         or another registered national stock exchange on which the Common Stock
         is then listed, or if there is no such price on such date, then the
         closing bid price on such exchange or quotation system on the date
         nearest preceding such date, or (b) if the Common Stock is not listed
         then on Nasdaq or any registered national stock exchange, the closing
         bid price for a share of Common Stock in the over-the-counter market,
         as reported by the over-the-counter electronic bulletin board (the "OTC
         Bulletin Board") or in the National Quotation Bureau Incorporated or
         similar organization or agency succeeding to its functions of reporting
         prices) at the close of business on such date, or (c) if the Common
         Stock is not then reported by the OTC Bulletin Board or the National
         Quotation Bureau Incorporated (or similar organization or agency
         succeeding to its functions of reporting prices), then the average of
         the "Pink Sheet" quotes for the relevant conversion period, as
         determined in good faith by the holder, or (d) if the Common Stock is
         not then publicly traded the fair market value of a share of Common
         Stock as determined by the Board of Directors of the Company.

         As soon as practicable after the date of exercise of any Warrants, the
Company shall issue, or cause the transfer agent for the Common Stock, if any,
to issue a certificate or certificates for the number of full shares of Common
Stock to which such Registered Holder is entitled, registered in accordance with
the instructions set forth in the Form of Election to Purchase. All shares of
Common Stock issued upon the exercise of any Warrants shall be validly
authorized and issued, fully paid and nonassessable, and free from all taxes,
liens and charges created by the Company in respect of the issue thereof. Each
person in whose name any such certificate for shares of Common Stock is issued
shall for all purposes be deemed to have become the holder of record of the
Common Stock represented thereby on the date of exercise of the Warrants
resulting in the issuance of such shares, irrespective of the date of issuance
or delivery of such certificate for shares of Common Stock.

         In the event that less than all of the Warrants represented by a
Warrant Certificate are exercised, the Company shall execute and mail, by
first-class mail, within 30 days of the date of exercise, to the Registered
Holder of such Warrant Certificate, or such other person as shall be designated
in the Form of Election to Purchase, a new Warrant Certificate representing the
number of full Warrants not exercised. In no event shall a fraction of a Warrant
be exercised, and the Company shall distribute no Warrant Certificates
representing fractions of Warrants. Final fractions of shares shall be treated
as provided for herein.

         The Company shall at all times reserve and keep available for issuance
upon the exercise of Warrants a number of its authorized but unissued shares of
Common Stock that will be sufficient to permit the exercise in full of all
outstanding Warrants.

         Subject to the provisions hereof, the Exercise Price in effect from
time to time shall be subject to adjustment, as follows:

(a) In case the Company shall at any time after the date hereof (i) declare a
dividend on the outstanding Common Stock payable in shares of its capital stock,
(ii) subdivide the outstanding Common Stock, (iii) combine the outstanding
Common Stock into a smaller number of shares, or (iv) issue any shares of its
capital stock by reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), then, in each case, the Exercise Price,
and the number of shares of Common Stock issuable upon exercise of the Warrants
in effect at the time of the record date for such dividend or of the effective
date of such subdivision, combination, or reclassification, shall be
proportionately adjusted so that the Holders of the Warrants after such time
shall be entitled to receive the aggregate number and kind of shares which, if
such Warrants had been exercised immediately prior to such time, such Registered
Holders would have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any event listed above shall
occur.

(b) In case the Company shall issue or fix a record date for the issuance to all
holders of Common Stock of rights, options, or warrants to subscribe for or
purchase Common Stock (or securities convertible into or exchangeable for Common
Stock) at a price per share (or having a conversion or exchange price per share,
if a security convertible into or exchangeable for Common Stock) less than the
Current Market Price per share of Common Stock (as determined below) on such
record date, then, in each case, the Exercise Price shall be adjusted by
multiplying the Exercise Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding on such record date plus the number of shares of Common Stock
which the aggregate offering price of the total number of shares of Common Stock
so to be offered (or the aggregate initial conversion or exchange price of the
convertible or exchangeable securities so to be offered) would purchase at such
Current Market Price and the denominator of which shall be the number of shares
of Common Stock outstanding on such record date plus the number of additional
shares of Common Stock so issued or to be offered for subscription or purchase
(or into which the convertible or exchangeable securities so to be offered are
initially convertible or exchangeable). Such adjustment shall become effective
at the close of business on such record date; provided, however, that, to the
extent the shares of Common Stock (or securities convertible into or
exchangeable for shares of Common Stock) are not delivered, the Exercise Price
shall be readjusted after the expiration of such rights, options, or warrants
(but only with respect to Warrants exercised after such expiration), to the
Exercise Price which would then be in effect had the adjustments made upon the
issuance of such rights, options, or warrants been made upon the basis of
delivery of only the number of shares of Common Stock (or securities convertible
into or exchangeable for shares of Common Stock) actually issued and the
Exercise Price shall also be adjusted for any subsequent adjustment or other
change to the number of shares of Common Stock issuable upon exercise, exchange
or conversion of such rights, options, warrants or other securities.
Notwithstanding anything to the contrary contained herein, no adjustment shall
be made to the Exercise Price until any condition to the vesting of such rights,
options or warrants shall be fulfilled or satisfied (and then only with respect
to the portion thereof which shall have vested). In case any subscription price
may be paid in a consideration part or all of which shall be in a form other
than cash, the value of such consideration shall be as determined in good faith
by the board of directors of the Company, whose determination shall be
conclusive absent manifest error. Shares of Common Stock owned by or held for
the account of the Company or any majority-owned subsidiary shall not be deemed
outstanding for the purpose of any such computation. If any event occurs of the
type contemplated by the provisions of this paragraph but not expressly provided
for by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Board shall make an appropriate adjustment in the Exercise Price so as
to equitably protect the rights of holders of this Warrant.

(c) In case the Company shall distribute to all holders of Common Stock
(including any such distribution made to the stockholders of the Company in
connection with a consolidation or merger in which the Company is the continuing
corporation) evidences of its indebtedness, cash (other than any cash dividend
which, together with any cash dividends paid within the twelve (12) months prior
to the record date for such distribution, does not exceed 5% of the Current
Market Price at the record date for such distribution) or assets (other than
distributions and dividends payable in shares of Common Stock), or rights,
options, or warrants to subscribe for or purchase Common Stock, or securities
convertible into or exchangeable for shares of Common Stock (excluding those
with respect to the issuance of which an adjustment of the Exercise Price is
provided pursuant to the foregoing paragraph), then, in each case, the Exercise
Price shall be adjusted by multiplying the Exercise Price in effect immediately
prior to the record date for the determination of stockholders entitled to
receive such distribution by a fraction, the numerator of which shall be the
Current Market Price per share of Common Stock on such record date, less the
fair market value (as determined in good faith by the board of directors of the
Company, whose determination shall be conclusive absent manifest error) of the
portion of the evidences of indebtedness or assets so to be distributed, or of
such rights, options, or warrants or convertible or exchangeable securities, or
the amount of such cash, applicable to one share, and the denominator of which
shall be such Current Market Price per share of Common Stock. Such adjustment
shall become effective at the close of business on such record date.

         For the purpose of any computation under this Warrant, the Current
Market Price per share of Common Stock on any date shall be deemed to be the
average of the daily closing prices for the five (5) consecutive trading days
immediately preceding the date in question. The closing price for each day shall
be (a) the last reported sales price regular way or, in case no such reported
sale takes place on such day, the closing bid price regular way, in either case
on the principal national securities exchange or market system (including, for
purposes hereof, the American Stock Exchange ("AMEX") Market System on which the
Common Stock, is listed (Symbol, PTN) or admitted to trading, (b) if the Common
Stock, is not listed or admitted to trading on any national securities exchange
or market system, the highest reported bid price for the Common Stock, as
furnished by the National Association of Securities Dealers, Inc. or a similar
organization if AMEX is no longer reporting such information, or (c) if on any
such date the Common Stock is not listed or admitted to trading on any national
securities exchange and is not quoted by AMEX or any similar organization, as
determined by reference to the "pink sheets" published by the National Quotation
Bureau or, if not so published, by such other method of determining the market
value of a share of Common Stock, as the board of directors of the Company shall
in good faith from time to time deem to be fair, whose determination shall be
conclusive absent manifest error shall be used.

         No adjustment in the Exercise Price shall be required if such
adjustment is less than $.05; provided, however, that any adjustments which by
reason of this Warrant are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Warrant shall be made to the nearest cent or to the nearest one thousandth of a
share, as the case may be.

         In any case in which this Warrant shall require that an adjustment in
the Exercise Price be made effective as of a record date for a specified event,
the Company may elect to defer, until the occurrence of such event, issuing to
the Registered Holders of the Warrants, if any Registered Holder has exercised a
Warrant after such record date, the shares of Common Stock, if any, issuable
upon such exercise over and above the shares of Common Stock, if any, issuable
upon such exercise on the basis of the Exercise Price in effect prior to such
adjustment; provided, however, that the Company shall deliver to such exercising
Registered Holder a due bill or other appropriate instrument evidencing such
Registered Holder's right to receive such additional shares upon the occurrence
of the event requiring such adjustment.

         Upon each adjustment of the Exercise Price as a result of the
calculations made above the Warrants shall thereafter evidence the right to
purchase, at the adjusted Exercise Price, that number of shares (calculated to
the nearest thousandth) obtained by dividing (A) the product obtained by
multiplying the number of shares purchasable upon exercise of the Warrants prior
to adjustment of the number of shares by the Exercise Price in effect prior to
adjustment of the Exercise Price by (B) the Exercise Price in effect after such
adjustment of the Exercise Price.

         In case of any capital reorganization, other than in the cases referred
to above, or the consolidation or merger of the Company with or into another
corporation (other than a merger or consolidation in which the Company is the
continuing corporation and which does not result in any reclassification of the
outstanding shares of Common Stock or the conversion of such outstanding shares
of Common Stock into shares of other stock or other securities or property), or
the sale of the property of the Company as an entirety or substantially as an
entirety (collectively such actions being hereinafter referred to as
"Reorganizations"), there shall thereafter be deliverable upon exercise of any
Warrant (in lieu of the number of shares of Common Stock theretofore
deliverable) the number of shares of stock or other securities or property to
which a Registered Holder of the number of shares of Common Stock which would
otherwise have been deliverable upon the exercise of such Warrant would have
been entitled upon such Reorganization if such Warrant had been exercised in
full immediately prior to such Reorganization. In case of any Reorganization,
appropriate adjustment, as determined in good faith by the Board of Directors of
the Company, shall be made in the application of the provisions herein set forth
with respect to the rights and interests of Registered Holders so that the
provisions set forth herein shall thereafter be applicable, as nearly as
practicable, in relation to any shares or other property thereafter deliverable
upon exercise of Warrants. The Company shall not effect any such Reorganization,
unless upon or prior to the consummation thereof the successor corporation, or
if the Company shall be the surviving corporation in any such Reorganization and
is not the issuer of the shares of stock or other securities or property to be
delivered to holders of shares of the Common Stock outstanding at the effective
time thereof, then such issuer, shall assume by written instrument the
obligation to deliver to the Registered Holder of any Warrant Certificate such
shares of stock, securities, cash or other property as such holder shall be
entitled to purchase in accordance with the foregoing provisions.
Notwithstanding anything to the contrary contained herein, in the event of sale
or conveyance or other transfer of all or substantially all of the assets of the
Company as a part of a plan for liquidation of the Company, all rights to
exercise any Warrant shall terminate thirty (30) days after the Company gives
written notice to each Registered Holder of a Warrant Certificate that such sale
or conveyance of other transfer has been consummated.

         In case of any reclassification or change of the shares of Common Stock
issuable upon exercise of the Warrants, including, without limitation, in any
reorganization (other than a change in par value or from no par value to a
specified par value, or as a result of a subdivision or combination, but
including any change in the shares into two or more classes or series of
shares), the Registered Holders of the Warrants shall have the right thereafter
to receive upon exercise of the Warrants solely the kind and amount of shares of
stock and other securities, property, cash, or any combination thereof
receivable upon such reclassification or change by a Registered Holder of the
number of shares of Common Stock for which the Warrants might have been
exercised immediately prior to such reclassification or change and the term
"Common Stock" shall thereafter include, without limitation, such stock and
other securities. Thereafter, appropriate provision shall be as nearly
equivalent as practicable to the adjustments in this Warrant. The above
provisions of this paragraph shall similarly apply to successive
reclassifications and changes of shares of Common Stock.

         Notwithstanding anything to the contrary herein contained, in the event
of a transaction contemplated by the prior paragraph in which the surviving,
continuing, successor, or purchasing corporation demands that all outstanding
Warrants be extinguished prior to the closing date of the contemplated
transaction, the Company shall give prior notice (the "Merger Notice") thereof
to the Registered Holders advising them of such transaction. The Registered
Holders shall have ten (10) days after the date of the Merger Notice to elect to
(i) exercise the Warrants in the manner provided herein or (ii) receive from the
surviving, continuing, successor, or purchasing corporation, with respect to
outstanding Warrants, the same consideration receivable by a Registered Holder
of the number of shares of Common Stock for which the Warrants might have been
exercised immediately prior to such consolidation, merger, sale, or purchase
reduced by such amount of the consideration as has a market value equal to the
exercise price of the Warrants, as determined by the Board of Directors of the
Company, whose determination shall be conclusive absent manifest error. If any
Registered Holder fails to timely notify the Company of its election, the Holder
shall be deemed for all purposes to have elected the option set forth in (ii)
above. Any amounts receivable by a Holder who has elected the option set forth
in (ii) above shall be payable at the same time as amounts payable to
stockholders in connection with any such transaction.

         Whenever the Exercise Price is adjusted as provided in this Warrant,
the Company will promptly obtain a certificate of the chief financial officer of
the Company setting forth the Exercise Price as so adjusted and a brief
statement of the facts accounting for such adjustment. Whenever any adjustment
is made pursuant to this Warrant, the Company shall cause notice of such
adjustment to be mailed to each Registered Holder of a Warrant Certificate
within fifteen (15) days thereafter, such notice to include in reasonable detail
(i) the events precipitating the adjustment, (ii) the computation of any
adjustments, and (iii) the Exercise Price, the number of shares or the
securities or other property purchasable upon exercise of each Warrant after
giving effect to such adjustment.

In no event shall the Exercise Price be adjusted below the par value per share
of the Common Stock.

In case at any time the Company shall propose:

(a)      to pay any dividend or make any distribution on shares of Common Stock
         in shares of Common Stock or make any other distribution (other than
         regularly scheduled cash dividends which are not in a greater amount
         per share than the most recent such cash dividend) to all holders of
         Common Stock; or

(b)      to issue any rights, warrants, or other securities to all holders of
         Common Stock entitling them to purchase any additional shares of Common
         Stock or any other rights, warrants, or other securities; or

(c)      to effect any reclassification or change of outstanding shares of
         Common Stock, or any consolidation, merger, sale, lease, or conveyance
         of property, described above; or

(d)      to effect any liquidation, dissolution, or winding-up of the Company;

then, in each such case, the Company shall cause notice of such proposed action
to be mailed to each Registered Holder of a Warrant Certificate. Such notice
shall be mailed, at least ten (10) days prior to the record date for determining
holders of the Common Stock for purposes of receiving such payment or offer or
at least ten (10) days prior to the earlier of the date upon which such action
is to take place or any record date to determine holders of Common Stock
entitled to receive such securities or other property, as the case may be.

         Irrespective of any adjustments pursuant to this Warrant, Warrant
Certificates theretofore or thereafter issued need not be amended or replaced,
but certificates thereafter issued shall bear an appropriate legend or other
notice of any adjustments.

         The Company shall not be required upon the exercise of any Warrant to
issue fractional shares of Common Stock which may result from adjustments in
accordance with this Warrant to the Exercise Price or number of shares of Common
Stock purchasable under each Warrant. If more than one Warrant is exercised at
one time by the same Registered Holder, the number of full shares of Common
Stock which shall be deliverable shall be computed based on the number of shares
deliverable in exchange for the aggregate number of Warrants exercised. With
respect to any final fraction of a share called for upon the exercise of any
Warrant or Warrants, the Company shall pay a cash adjustment in respect of such
final fraction in an amount equal to the same fraction of the Current Market
Price of a share of Common Stock calculated in accordance with this Warrant.

         If any change to the capitalization of the Company should occur with
respect to which a favorable adjustment to the rights and interests of the
Registered Holders of the Warrants should be made, and such adjustment is not
otherwise provided for in this Warrant, such appropriate adjustment should be
made as determined in good faith by the Board of Directors of the Company.

         No Warrant may be exercised after 5:00 P.M., New York City time, on the
expiration date (the "Expiration Date") which will be ____________, 2008. All
Warrants evidenced hereby shall thereafter become void.

         No Warrant Certificate shall entitle the registered holder thereof to
any of the rights of a stockholder of the Company, including, without
limitation, the right to vote, to receive dividends and other distributions, to
receive any notice of, or to attend, meetings of stockholders or any other
proceedings of the Company.

         If any Warrant Certificate shall be mutilated, lost, stolen or
destroyed, the Company in its discretion may execute and deliver, in exchange
and substitution for and upon cancellation of a mutilated Warrant Certificate,
or in lieu of or in substitution for a lost, stolen or destroyed Warrant
Certificate, a new Warrant Certificate for the number of Warrants represented by
the Warrant Certificate so mutilated, lost, stolen or destroyed but only upon
receipt of evidence of such loss, theft or destruction of such Warrant
Certificate, and of the ownership thereof, and indemnity, if requested, all
satisfactory to the Company. Applicants for such substitute Warrant Certificates
shall also comply with such other reasonable regulations and pay such other
reasonable charges incidental thereto as the Company may prescribe. Any such new
Warrant Certificate shall constitute an original contractual obligation of the
Company, whether or not the allegedly lost, stolen, mutilated or destroyed
Warrant Certificate shall be at any time enforceable by anyone.

         Prior to the latest time at which the Warrants may be exercised,
subject to any applicable laws, rules or regulations restricting
transferability, Warrant Certificates, subject to the provisions hereof, may be
split up, combined or exchanged for other Warrant Certificates representing a
like aggregate number of Warrants or may be transferred in whole or in part. Any
holder desiring to split up, combine or exchange a Warrant Certificate or
Warrant Certificates shall make such request in writing delivered to the Company
at its principal office and shall surrender the Warrant Certificate or Warrant
Certificates so to be split up, combined or exchanged at said office with the
Form of Assignment. Upon any such surrender for split up, combination, exchange
or transfer, the Company shall execute and deliver to the person entitled
thereto a Warrant Certificate or Warrant Certificates, as the case may be, as so
requested in the Form of Assignment. The Company may require the holder to pay a
sum sufficient to cover any tax or governmental charge that may be imposed in
connection with any split up, combination, exchange or transfer of Warrant
Certificates prior to the issuance of any new Warrant Certificate.

         Any Warrant Certificate surrendered upon the exercise of Warrants or
for split up, combination, exchange or transfer, or purchased or otherwise
acquired by the Company, shall be canceled and shall not be reissued by the
Company; and, except as otherwise provided herein in case of the exercise of
less than all of the Warrants evidenced by a Warrant Certificate or in case of a
split up, combination, exchange or transfer, no Warrant Certificate shall be
issued hereunder in lieu of such canceled Warrant Certificate. Any Warrant
Certificate so canceled shall be destroyed by the Company.

         Every holder of a Warrant Certificate by accepting the same consents
and agrees with the Company and with every other holder of a Warrant Certificate
that:

(a)      transfer of the Warrant Certificates shall be registered on the books
         of the Company only if surrendered at the principal office of the
         Company, duly endorsed or accompanied by a proper instrument of
         transfer; and

(b)      prior to due presentment for registration of transfer, the Company may
         deem and treat the person in whose name the Warrant Certificate is
         registered as the absolute owner thereof and of the Warrants evidenced
         thereby (notwithstanding any notations of ownership or writing on the
         Warrant Certificates made by anyone other than the Company) for all
         purposes whatsoever, and the Company shall not be affected by any
         notice to the contrary.

         The laws of the State of New York shall govern this Warrant
Certificate.

         IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed.


                           PALATIN TECHNOLOGIES, INC.





                           By:
                              --------------------------------------------------

                                     FORM OF
                              ELECTION TO PURCHASE


         The undersigned hereby irrevocably elects to exercise of the Warrants
represented by this Warrant Certificate and to purchase the shares of Common
Stock issuable upon the exercise of said Warrants, and requests that
certificates for such shares be issued and delivered as follows:

ISSUE
TO:
    ----------------------------------------------------------
                                     (NAME)




                          (ADDRESS, INCLUDING ZIP CODE)

at
   -----------------------------------------------------------------------------

                (SOCIAL SECURITY OR OTHER TAX IDENTIFYING NUMBER)


DELIVER
TO:
    ----------------------------------------------------------
                                     (NAME)

at
   -----------------------------------------------------------------------------

                          (ADDRESS, INCLUDING ZIP CODE)
         If the number of Warrants hereby exercised is less than all the
Warrants represented by this Warrant Certificate, the undersigned requests that
a new Warrant Certificate representing the number of full Warrants not exercised
be issued and delivered as set forth below.



         In full payment of the purchase price with respect to the Warrants
exercised and transfer taxes, if any, the undersigned hereby tenders payment of
$ by certified check or money order payable in United States currency to the
order of the Company. In the event payment is being made by means of a cashless
exercise, then the undersigned authorizes the surrender of the number of shares
of Common Stock necessary for the full payment of the Exercise Price in
accordance with the terms and provisions of the Warrant Certificate.




         Dated:
                -----------------------------



- --------------------------             ----------------------------------------
(Insert Social Security or             (Signature of registered
other identifying number               holder)
of holder)

                                       ----------------------------------------
                                       (Signature of registered
                                       holder, if co-owned)



NOTE: Signature must conform in all respects to name of holder as specified on
the face of the Warrant Certificate.




                                     FORM OF

                                   ASSIGNMENT

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto the
Assignee named below all of the rights of the undersigned represented by the
within Warrant Certificate, with respect to the number of Warrants set forth
below:

Name of Assignee               Address                           No. of Warrants






and does hereby irrevocably constitute and appoint Attorney to make such
transfer on the books of Palatin Technologies, Inc. maintained for that purpose,
with full power of substitution in the premises.

Dated:                    , 200_.
       -------------------


- -------------------------------         ---------------------------------------
(Insert Social Security or other        Signature
identifying number of  holder)

                    (Signature must conform in all respects to name of holder as
                    specified on the face of the Warrant Certificate.)

EX-10

      DEVELOPMENT AND MANUFACTURING AGREEMENT

This Development and Manufacturing Agreement is dated as of _________________

BY AND BETWEEN: Palatin Technologies, Inc., a Delaware corporation, having an address of 4-C Cedar Brook Drive, Cedar Brook Corporate Center, Cranbury, NJ 08512 (hereinafter referred to as "Palatin");

AND: DSM Biologics Company B.V., a company incorporated under Dutch law, having a registered address of Zuiderweg 72/2, Groningen, The Netherlands (hereinafter referred to as "DSM Biologics");

Palatin and DSM Biologics hereinafter sometimes individually referred to as “Party” and collectively as “Parties”.

SECTION 1 — PREAMBLE

WHEREAS, Palatin has a Product and a basic process for manufacturing the Product and wishes to have this process developed further and have manufactured one or more Batches of Product under cGMP conditions that meet regulatory requirements;

WHEREAS, DSM Biologics has expertise and know-how in the area of development and cGMP production of biopharmaceutical products and is willing to perform such development and manufacturing activities for Palatin with respect to the Product;

WHEREAS, Palatin wishes, subject to the execution of a separate final contract acceptable to the Parties, to have DSM Biologics also perform (if any) the commercial manufacturing and supply of Product;

WHEREAS, Palatin and DSM have been working together under the Manufacturing Agreement (as defined below) and most recently signed a Letter Agreement (as defined below), outlining the intent of Parties to terminate the Manufacturing Agreement and to terminate the Letter Agreement, which Letter Agreement will be superceded by this Development and Manufacturing Agreement governing the collaboration between Parties,

NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL COVENANTS AND AGREEMENTS HEREIN CONTAINED, IT IS HEREBY AGREED BY THE PARTIES HERETO AS FOLLOWS:

SECTION 2 — DEFINITIONS

In this Agreement the following terms, whether used in the singular or plural, shall, as used herein, have the following respective meanings:

“Acceptance” has the meaning ascribed thereto in Section 5.3. “Accept” and “Accepted” shall be similarly defined as “Acceptance” of either RB5 Bulk Drug Substance or of Intermediate Drug Product;

“Affiliate” means any individual, company, partnership or other entity, which directly or indirectly, at present or in the future, controls, is controlled by or is under common control with a Party. For this purpose “control” shall mean direct or indirect beneficial ownership of at least fifty per cent (50%) of the voting share capital in such company or other business entity. With respect to DSM Biologics, in this section “Party” shall mean DSM N.V. of Heerlen, The Netherlands;

“Agreement” means this Development and Manufacturing Agreement, including all the Schedules and annexes hereto;

“Batch” means a unique specific quantity of materials as defined by and processed according to the requirements of the batch production records and all applicable cGMP requirements during the same cycle of manufacture. The Batch is intended to have homogeneous character and quality, as defined by the approved limits and specification requirements;

“Batch Records” means documents containing written evidence of the activities that have been executed for the manufacture of a Batch, including materials used and results of in-process testing;

“Bill of Testing” means a [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

“CCN” means a [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

“Cell Clones” means the [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

“Certificate of Analysis” means the [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

“cGMP” means current good manufacturing practices and general biological products standards, including the regulations promulgated under the United States Federal Food Drug and Cosmetic Act, 21 CFR §§ 210 et seq., as amended from time to time, applicable guidance documents issued by the United States Food and Drug Administration (“FDA”), applicable documents developed by the International Conference on Harmonization (“ICH”), and similar requirements of other countries to the extent that they are applicable;

“Claims” means any and all claims, demands, losses, obligations, liabilities, damages, deficiencies, actions, settlements, judgments, costs and expenses, which a Party may incur or suffer (including reasonable costs and legal fees incident thereto or in seeking indemnification therefore);

“Consistency Run” means a Production Run performed as part of a Consistency Series as further defined in the validation protocols;

“Consistency Series” means [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

“Costs” means [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

“Defaulting Party” has the meaning ascribed thereto in Section 15.5;

[INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

“Documents” means the Specifications, Bill of Testing, Batch Records and Certificate of Analysis;

2

“DSM Biologics” means DSM Biologics Company B.V;

“DSM Biologics Technology” means any and all current and future Intellectual Property Rights proprietary to DSM Biologics and used by or disclosed by DSM Biologics in the process of performing the Project, pertaining to fermentation, primary recovery and purification of biopharmaceutical products and related analytics;

“Effective Date” shall have the meaning defined in Section 15.1;

“Force Majeure” has the meaning ascribed thereto in Section 20;

“Intellectual Property Rights” means, whether or not protected or protectable under any particular law, all patents, patent applications, patentable subject matter, copyrights, copyrightable subject matter, ideas, inventions, discoveries, devices, designs, apparatuses, practices, processes, methods, products, cell lines, samples, trade secrets, technology, know-how, software, hardware, improvements, trademarks and service marks (and the goodwill pertaining thereto);

“Invoice” means an itemized bill sent by DSM Biologics to Palatin for performance of DSM Biologics’ obligations under this Agreement, such bill to be finalized according to the procedures set forth in Annex 2;

“Letter Agreement” means the [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

“Manufacturing Agreement” means the [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

“Manufacturing Work” means the [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

“Manufacturing Instructions” means the production protocols and all amendments thereto for manufacturing of Product, as agreed upon between the Parties;

“Manufacturing Slot” means the timeframe allotted according to the Schedule for the performance of a cGMP Production Run at DSM Biologics;

“Milestone” means a specific milestone of the Project, as described in more detail in the Schedule;

“Palatin Process” means the process of manufacturing the Product, at the Effective Date at 50 liter fermentation scale, which is proprietary to Palatin as of the date of this Agreement;

“Palatin Proprietary Information” has the meaning ascribed thereto in Section 14.1;

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“Palatin Technology” means any and all current and future Intellectual Property Rights proprietary to or licensed to Palatin and used by or disclosed to DSM Biologics during the term of this Agreement;

“Parties” means DSM Biologics and Palatin collectively;

“Party” means either DSM Biologics or Palatin;

[INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

“Price” means [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

“Process” means [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

“Product” means [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

“Production Run” means [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

“Project” means[INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.], to be performed by DSM Biologics in connection with the Palatin Process, as further described in the Schedule, to be agreed upon between the Parties;

“Project Manager” means the individual assigned to the Project by a Party who will be responsible on behalf of the respective Party for the scientific and technical components of the Project as set forth herein;

“QA Manager” means the individual employed by each Party to monitor quality assurance and quality control; more specifically, the individuals identified in the QA Schedule;

“QA Schedule” means the Quality Assurance Schedule attached hereto as Annex 4, incorporating all material quality assurance and quality control obligations and responsibilities for the Parties;

“RB5 Bulk Drug Substance” means [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

“RB5 Intermediate Drug Product” means [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

“Schedule”shall mean [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]; and

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“Specifications” means [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.].

SECTION 3 — OBJECTIVES AND OBLIGATIONS OF THE PARTIES

3.1 Subject to the terms and conditions of this Agreement, Palatin hereby engages DSM Biologics to carry out the Project and DSM Biologics, subject to the terms and conditions of this Agreement, hereby undertakes to use commercially reasonable efforts to carry out the Project in accordance with the Schedule and Annexes attached hereto and a part hereof.

3.2 The Project includes the manufacture by DSM Biologics of [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.].

3.3 The Parties hereby acknowledge and agree that there is no guarantee:

(a) that the Product, Palatin Process or the Process will be suitable for any intended purpose of Palatin, commercially exploitable, profitable or approved by any regulatory authority;

(b) that the Milestones (if any) identified in the Schedule to this Agreement will be achieved; or

(c) that, unless agreed upon otherwise, any Product resulting from the Project will fulfill certain specifications, certain yields or will be delivered in time for any further use or clinical programs intended therefore by Palatin.

3.4 Palatin shall timely provide the Palatin Process and all Palatin Technology necessary for the execution of the Project as well as, if so requested by DSM Biologics, provide reasonable technical assistance needed by DSM Biologics for the execution of the Project. In addition, Palatin shall timely submit to DSM Biologics one or more Cell Clones for the manufacture of Product, if applicable, and all documentation and data reasonably required by DSM Biologics for the execution of this Agreement.

3.5 Any material change to the Project shall not take effect unless approved by Palatin in writing as part of a CCN.

SECTION 4 — EXECUTION OF THE PROJECT – [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]

4.1 [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]

4.2 [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]

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4.3 [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]

4.4 [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]

SECTION 5 — EXECUTION OF THE PROJECT – MANUFACTURING WORK

5.1 If the Parties make a Decision to Proceed according to Section 4.3, DSM Biologics shall commence performance of the Manufacturing Work under the Project, subject to the receipt by DSM Biologics of the payments as set forth in Section 6.

(a) For each Production Run, DSM Biologics shall use reasonable efforts and applicable quality assurance procedures to provide all related Documents to Palatin (i) within [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]; (ii) within [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]; and (ii) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]. However, if the relevant Documents are available any sooner, these will be provided to Palatin.

(b) DSM Biologics shall notify Palatin promptly if it expects that completion of any part of the Manufacturing Work will not be possible within the timeframe described in the Schedule, whereupon such matter shall be referred to the Steering Committee for determination of any remedies. If the Steering Committee cannot agree upon a remedy in reasonable time, such matter shall be referred to the CEOs of the respective Parties for discussion.

5.2 (a) The Product to be manufactured during the Manufacturing Work (as described in the Schedule) shall be manufactured in accordance with [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.].

(b) If, based upon such tests, DSM Biologics reasonably concludes that a Batch of Product conforms to the Specifications and was manufactured according to cGMP and the Manufacturing Instructions, a Certificate of Analysis will be completed and approved by the quality assurance department of DSM Biologics. This Certificate of Analysis, which includes a statement of compliance with cGMP and the Manufacturing Instructions, and all other Documents, will be delivered to Palatin for each Batch of Product. DSM Biologics shall sample each Batch according to the Bill of Testing. Retained samples, taken by DSM Biologics according to the Bill of Testing, shall be stored in accordance with the Bill of Testing and DSM Biologics’ standard operating procedures for [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.].

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5.3 [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]

(a) With respect to RB5 Bulk Drug Substance, DSM Biologics shall store each Batch of RB5 Bulk Drug Substance according to cGMP requirements. Responsibility for the Batch shall remain with DSM Biologics as long as such Batch is stored by DSM Biologics.

(b) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]

(c) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.].

5.4 If there is any dispute between the Parties as to whether Product (i) complies with the Specifications, (ii) was manufactured in compliance with the Manufacturing Instructions, (iii) was manufactured or stored in compliance with cGMP, (iii) has defects resulting from the acts or omissions of Palatin after delivery of Product or (iv) any combination of the foregoing, a sample of the rejected Product and a sample retained by DSM Biologics as set forth above shall be exchanged between Palatin and DSM Biologics for a counter-check. If such counter-check does not resolve the dispute, a sample of the rejected Product and a sample retained by DSM Biologics shall be submitted to an independent, qualified third-party laboratory that is mutually acceptable and selected by the Parties promptly and in good faith. Such laboratory shall determine whether the rejected Product met the Specifications at the time of delivery by DSM Biologics to the carrier and such laboratory’s determinations shall be final and determinative for purposes of this Agreement save for manifest error. The Party against whom the laboratory rules shall bear all costs of the third party laboratory activities.

5.5 Notwithstanding the provisions of Section 5.4 above, if there is any dispute concerning only whether Product was manufactured or stored in compliance with cGMP, the QA Managers of the Parties shall discuss in good faith to attempt to resolve such dispute. If the QA Managers of the Parties fail to reach agreement in reasonable time, such dispute shall be submitted to the Steering Committee, as defined in Section 7.6 of this Agreement. If the Steering Committee fails to reach agreement in reasonable time, such dispute shall be submitted to an independent, qualified third-party expert that is mutually acceptable and selected by the Parties promptly in good faith. Such expert shall determine whether the rejected Product was manufactured and stored in compliance with cGMP and such expert’s determinations shall be final and determinative for purposes of this Agreement save for manifest error. The Party against whom the expert rules shall bear all costs of the expert’s activities. [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]

5.6 [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]

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(a) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.].

(b) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.].

i) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.].

ii) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.].

iii) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.].

(c) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.].

SECTION 6 — PRICE AND PAYMENTS

6.1 (a) It is understood between the Parties that the Price for the Project shall be based upon the assumptions contained in the Schedule hereto. If, during the execution of the Project, the Parties agree that these assumptions are not correct, any change in the assumptions or the Price shall be made using a CCN.

(b) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.].

(c) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.].

(d) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]. Each Party shall promptly notify the other Party in the event of a regulatory change relevant to the Project.

6.2 [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]

6.3 [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]

6.4 The Costs for the activities for a specific Milestone of the Project shall be invoiced to Palatin [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]

6.5 All Invoices shall be paid by Palatin within [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.] of receipt of any such Invoice by Palatin. Payments shall be made by wire transfer to the bank account specified on the Invoice. [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.].

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6.6 Notwithstanding anything to the contrary herein, any change in Price or Cost [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.].

SECTION 7 — MANAGEMENT OF THE PROJECT

7.1 The Parties hereby agree that the Project [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.].

7.2 The Parties shall work together through the respective Project Managers to ensure the satisfactory completion of the Project.

7.3 Each Project Manager shall be entitled to propose recommendations to the Parties to ensure that the Project meets its objectives.

7.4 Each Project Manager shall be in charge of all scientific and technical components of the Project within its own organization and shall maintain communication with the other Party in connection therewith.

7.5 Each Party intends and shall use reasonable efforts not to replace its Project Manager and, in case of replacement, to timely notify the other Party of such replacement.

7.6 [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]

7.7 DSM Biologics shall permit any Palatin employee so authorized by Palatin, under appropriate confidentiality provisions reasonably acceptable to DSM Biologics, to visit, during regular business hours, the site where the Project is being conducted to inspect such site or to evaluate the progress thereof, unless such visit would conflict with a prearranged visit by another client or an inspection by or for another client. Said visit shall only be made subject to ten (10) business days prior written notice of the requirement of such visit, such notice to be given to DSM Biologics by Palatin. Under certain circumstances DSM will allow Palatin to visit with limited notification. DSM Biologics shall also permit any such Palatin employee access to any DSM Biologics employee working on or who has worked on the Project, subject to DSM Biologics’ approval, which shall not be unreasonably withheld.

[INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]

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7.8 The DSM Biologics Project Manager will use project management tools to manage and communicate the progress relating to the Project. The DSM Biologics Project Manager will:

(a) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

(b) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

(c) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

SECTION 8 — RECORDS AND REPORTS

DSM Biologics hereby undertakes that it shall have the Project Manager submit to Palatin, at the times identified in the Schedule, a report detailing the progress and results of the Project and highlighting any issues encountered during the previous period in form and substance acceptable to Palatin.

SECTION 9 — AUDITS AND REGULATORY APPROVALS

9.1 DSM Biologics grants Palatin the right to perform a financial review, at any reasonable time, of the allocation of hours and occupancy and Costs involved in the Project. Palatin may appoint third parties to perform such review, provided Palatin warrants that such third party will abide by confidentiality and non-use obligations no less stringent than those contained in this Agreement and provided that DSM Biologics shall approve of such third party in writing, such approval not to be unreasonably or untimely withheld. Palatin will notify DSM Biologics at least ten (10) business days in advance of such review by Palatin and twenty (20) days in advance of such a review by a third party. If such review reveals that DSM Biologics has overcharged Palatin, whether in Price or Costs, DSM Biologics shall promptly reimburse Palatin such overcharge and interest at twelve percent (12%) per annum. [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]

9.2 DSM Biologics grants Palatin the right to perform quality assurance audits, at any reasonable time, of the facilities employed and the documentation utilized by DSM Biologics for performing the Project. Palatin may appoint third parties to perform such audit, provided Palatin warrants that such third party will abide by confidentiality and non-use obligations no less stringent than those contained in this Agreement and provided that DSM Biologics shall approve of such third party in writing, such approval not to be unreasonably or untimely withheld. Palatin will notify DSM Biologics at least twenty (20) days in advance of such an audit by Palatin and thirty (30) days in advance of such an audit by a third party. Under certain circumstances DSM will allow Palatin to audit with limited notification.

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If such visit reveals cGMP compliance deficiencies, a visit report will be submitted to the DSM Biologics QA Manager and within thirty (30) days a report will be provided to Palatin detailing the corrective action plan. If, as a result of any visit by Palatin to the facilities of DSM Biologics, Palatin notes any deficiency, the correction of which is reasonably necessary for the progress of the Project, then an immediate response by DSM Biologics is warranted and an investigation shall be initiated immediately so that corrective action may be taken by DSM Biologics.

9.3 DSM Biologics shall promptly provide copies of any and all part of reports regarding any regulatory agency inspections, in as far as such parts of reports could reasonably affect DSM Biologics’ performance under this Agreement or the timely and successful completion of any Milestone or the Project.

SECTION 10 — SUBCONTRACTING

DSM Biologics shall not be entitled to subcontract portions of the Project to any third party or Affiliate without Palatin’s prior written permission thereto, which permission shall not be unreasonably or untimely withheld.

SECTION 11 — INTELLECTUAL PROPERTY RIGHTS

11.1 Palatin declares that it has title to or the right to make available the Palatin Technology to DSM Biologics. DSM Biologics shall use the Palatin Technology solely for the purpose of performing the Project.

11.2 All Palatin Technology shall be the sole and exclusive property of Palatin. All DSM Biologics Technology shall be the sole and exclusive property of DSM Biologics.

11.3 (a) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]

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11.4 [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]

11.5 (a) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]

(b) Palatin shall have the right, but not the obligation, at its own expense, to bring suit or other appropriate legal action against any actual or suspected infringement of Palatin Technology. DSM Biologics shall have the right, but not the obligation, at its own expense, to bring suit or other appropriate legal action against any actual or suspected infringement of DSM Biologics Technology. The Party bringing the suit shall have the right to settle such suit. Any amount recovered, whether by judgment or settlement, shall be allocated to the Party bringing suit.

SECTION 12 — REPRESENTATIONS, WARRANTIES AND COVENANTS

12.1 DSM Biologics hereby represents and warrants to Palatin that on the date of this Agreement:

(a) It is a corporation duly organized, validly existing and in good standing under the laws of The Netherlands, and has full corporate power to conduct the business in which it is presently engaged and to enter into and perform its obligations under this Agreement.

(b) It has taken all necessary corporate action under the applicable laws and its articles of incorporation and bylaws to authorize the execution by its undersigned officers and consummation of this Agreement. This Agreement shall constitute a valid and legally binding agreement, enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles.

(c) To its knowledge, the conduct by it of the activities contemplated by the Project in accordance with this Agreement will not infringe upon the rights of any third party, nor conflict with any law or regulation applicable to DSM Biologics.

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12.2 Palatin hereby represents and warrants to DSM Biologics that on the date of this Agreement:

(a) It is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware and has full corporate power to conduct the business in which it is presently engaged and to enter into and perform its obligations under this Agreement.

(b) It has taken all necessary corporate action under the applicable laws and its articles of incorporation and bylaws to authorize the execution by its undersigned officers and the consummation and delivery of this Agreement. This Agreement shall constitute a valid and legally binding agreement, enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles.

(c) To its knowledge, the conduct by it of the activities contemplated by the Project in accordance with this Agreement will not infringe upon the rights of any third party, nor conflict with any law or regulation applicable to Palatin.

12.3 (a) DSM Biologics covenants that the Product:

i) will not be adulterated or misbranded under the Federal Food, Drug and Cosmetic Act, 21 U.S.C. §§ 321 et seq., as amended from time to time (“FFDCA”), or under any other applicable laws, rules, regulations or requirements and

ii) will not be manufactured in violation of any agreement (commercial or otherwise), judgment, order or decree to which any of DSM Biologics, its consultants or other subcontractors are parties.

(b) DSM Biologics covenants that during the term of this Agreement it shall not violate, or cause Palatin to violate, the US Foreign Corrupt Practices Act, as amended.

12.4 DSM Biologics represents and warrants to Palatin that it will use Palatin Technology exclusively for the Project.

12.5 DSM Biologics represents and warrants to Palatin that as of the date of this Agreement, to its knowledge, the use of DSM Biologics Technology or third party technology to perform DSM Biologics’ obligations under this Agreement does not infringe any third party Intellectual Property Rights and DSM Biologics does not know of any pending or threatened legal actions relating to DSM Biologics Technology.

12.6 DSM Biologics acknowledges that DSM Biologics shall take reasonable steps to ensure that neither its employees and agents nor any other party reproduces the cell line or develops any derivative or variant thereof without the express written consent of Palatin.

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SECTION 13 — NO WARRANTY; LIABILITY AND INDEMNIFICATION

13.1 [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]

13.2 [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]

13.3 (a) Palatin shall indemnify, defend and hold harmless DSM Biologics and its Affiliates against and in respect of:

i) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]; or

ii) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]; or

iii) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.].

(b) DSM Biologics shall indemnify, defend and hold harmless Palatin and its Affiliates against and in respect of:

i) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]; or

[INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]

13.4 (a) Furthermore, Palatin agrees to indemnify DSM Biologics and its Affiliates and save and hold it harmless from and against any Claims which DSM Biologics is or may become liable for or may incur or may be called upon to pay or may pay and that result from the infringement of any Palatin Intellectual Property Rights through the conduct by DSM Biologics or its subcontractors of the Project, provided that DSM Biologics notifies Palatin immediately of any demand, claim, action, suit or other proceeding. Palatin shall however not be liable to indemnify or hold harmless DSM Biologics for payment of any settlement unless Palatin has consented to the settlement.

(b) Either indemnifying Party shall have the right to assume the defense of any demand, claim, action, suit or proceeding brought against the indemnified Party by reason of any of the foregoing indemnifications and pay any and all damages assessed or that are payable by the indemnified Party as a result of the disposition of any such demand, claim, action, suit or proceeding, provided it shall consult with the indemnified Party regularly on the status of the proceeding and intended line of defense. Any amount recovered, whether by judgment or settlement, shall be allocated to the indemnifying Party. Notwithstanding the foregoing, the indemnified Party may be represented in any such action, suit or proceeding at its own expense and by its own counsel.

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SECTION 14 — CONFIDENTIALITY

14.1 DSM Biologics shall maintain the confidentiality of the Palatin Technology, the Documents, the Manufacturing Instructions, the Palatin Process, all other information and data obtained directly or indirectly from Palatin, including all information and data obtained from Palatin by DSM pursuant to the Manufacturing Agreement or Letter Agreement (together, the “Palatin Proprietary Information”) and Palatin shall maintain the confidentiality of the DSM Biologics Technology and any and all other information and data obtained directly or indirectly from DSM Biologics and the Parties shall not in any way or at any time make use thereof for any purpose other than (i) pursuant to and in order to carry out the terms and objectives of this Agreement or (ii) with respect to Palatin only, to share the same with Mallinckrodt.

14.2 DSM Biologics’ obligations contained in Section 14.1 shall not apply to Palatin Proprietary Information, and Palatin’s obligations contained in Section 14.1 shall not apply to DSM Biologics Technology which:

(a) at the time of disclosure either is or was part of the public knowledge or literature;

(b) after disclosure becomes part of the public knowledge or literature through no fault or action of the receiving Party;

(c) the receiving Party can establish by documentary evidence either such information is or was at the time of disclosure in its lawful possession from a source other than the disclosing Party;

(d) after disclosure is acquired by the receiving Party from a third party who was not known to have obtained such Palatin Proprietary Information respectively DSM Biologics Technology, directly or indirectly, from the disclosing Party;

(e) is independently developed by Palatin or DSM Biologics without the use of DSM Biologics Technology or Palatin Proprietary Information, respectively.

14.3 The obligations set forth under Section 14.1 shall, furthermore, not apply to Palatin Proprietary Information or DSM Biologics Technology which the receiving Party is required to disclose in initiating, prosecuting or defending litigation or in complying with applicable governmental regulations, provided that (i) such the disclosing Party uses its reasonable effort to obtain confidential treatment for all information to be disclosed whether by agreement by the receiving party or by seeking all applicable governmental or judicial protection available for like material and (ii) reasonable advance notice is given to the nondisclosing Party. For the sake of clarity it is understood between the Parties that the obligations set forth under Section 14.1 shall otherwise remain applicable.

14.4 DSM Biologics shall not disclose Palatin Proprietary Information and Palatin shall not disclose DSM Biologics Technology to any persons other than to its Affiliates, agents, employees, consultants, subcontractors and other authorized representatives, who have a need to know the same and are necessarily connected with the Project. From all such persons the Parties will, prior to his or her receipt of Palatin Proprietary Information respectively DSM Biologics Technology, obtain undertakings to maintain the confidentiality of any such disclosure containing the obligations as set forth in Section 14.1.

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14.5 The obligations as set forth in this Section 14 shall expire five (5) years from the date this Agreement terminates or expires.

SECTION 15 — TERM AND TERMINATION

15.1 This Agreement shall be effective as of [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.] (the “Effective Date”) and shall govern the full execution of the Project and shall remain in effect until the earlier date of the [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]. Notwithstanding anything in the Manufacturing Agreement or the Letter Agreement to the contrary, the Parties hereby acknowledge and agree that the [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]. Any disputes between the Parties arising under any prior agreements between the Parties shall be (i) resolved pursuant to the procedures set forth herein and (ii) subject to the limits on liability set forth herein.

15.2 This Agreement shall terminate if [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.].

15.3 (a) Except upon termination of this Agreement by Palatin pursuant to Section 15.5, DSM Biologics shall [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]:

i) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

ii) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

iii) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

iv) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

(b) If DSM Biologics terminates the Agreement for any reason other than provided for in Section 15.5, DSM Biologics shall [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.].

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15.4 The [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]:

(a) with respect to [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]:

(b) with respect to [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]:

i) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

ii) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

iii) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

iv) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

It is understood that [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]:

15.5 A Party shall have the right to terminate this Agreement in the event that:

(a) the other Party (the “Defaulting Party”) fails to [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

(b) the Defaulting Party [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]; or

(c) the Defaulting Party [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.].

15.6 The effective date of termination will be the date stated in any termination notice delivered hereunder, which date will not be before the expiration of any applicable cure period provided for in this Agreement.

15.7 Termination of this Agreement will not affect the rights and obligations of the Parties accrued under this Agreement prior to termination nor the provisions contained in this Agreement, which by their purpose have a term beyond the termination of this Agreement.

15.8 Upon the termination of this Agreement:

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(a) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

(b) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

(c) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

(d) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.].

15.9 Notwithstanding anything to the contrary contained herein, if DSM Biologics decides to terminate its business in whole or in part such that DSM Biologics is unable to satisfy its obligations under this Agreement:

(a) shall provide Palatin [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

(b) shall [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

(c) shall [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

(d) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.];

(e) shall [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.].

15.10 Upon termination or expiration of this Agreement, [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]

SECTION 16 — NOTICES

All notices, requests, demands and other communications to be given in accordance with this Agreement shall be given in writing and shall be given by prepaid registered mail, receipt return requested, or by telecopier, to the other Party at the following addresses:

if to Palatin: Palatin Technologies, Inc.
4-C Cedar Brook Drive
Cedar Brook Corporate Center
Cranbury, NJ 08512
Fax/Telecopier: (609) 495-2203
Attention of: Stephen T. Wills, Chief Financial Officer

18

With a copy to: Faith L. Charles, Esq.
Mintz Levin Cohn Ferris Glovsky & Popeo PC
The Chrysler Center
666 Third Avenue
New York, New York 10017
Fax/Telecopier: (212) 983-3115

if to DSM Biologics: DSM Biologics Company B.V.
Zuiderweg 72/2
9744 AP Groningen, The Netherlands
Fax/Telecopier: +31.50.5222333
Attention of : Site Director
With a copy to: legal counsel

or at such other address as a Party may have previously indicated to the other Party in writing in conformity with the foregoing. Any such notice, request, demand or other communication shall be deemed to have been received on the seventh (7th) business day following the date of its mailing if sent by registered mail, or the next business day immediately following the date of transmission if sent by facsimile or telecopier.

SECTION 17 — ASSIGNMENT

[INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]

SECTION 18 — DISPUTES AND APPLICABLE LAW

18.1 (a) Except with respect to disputes relating to breaches of [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.] in the event of a dispute between the Parties, the Parties shall [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.].

18.1 (b) Section 18.1(a) shall [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.].

18.2 This Agreement is governed by and interpreted in accordance with the laws of [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.] without regard to conflicts of laws principles.

18.3 All disputes, which cannot be settled amicably, shall be referred to [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.].

SECTION 19 — NON-SOLICITATION

During the term of this Agreement and for one (1) year thereafter, either Party shall not, without the prior written consent of the other Party, directly or indirectly, whether on its own behalf or on behalf of or in conjunction with any person, company, business entity or other organization (“Person”), solicit for employment any employee of the other Party who is or has been involved in the Project pursuant to this Agreement.

19

SECTION 20 — FORCE MAJEURE

Neither Party shall lose any rights hereunder or be liable to the other party for damages or losses on account of failure of performance by the defaulting party if the failure is caused by government action, war, fire, explosion, flood, strike, lockout, embargo, act of God or any other cause beyond the reasonable control and without the fault or negligence of the defaulting party; provided that the Party claiming force majeure has exerted commercially reasonable efforts to avoid or remedy such force majeure. Such excuse shall continue as long as the condition preventing the performance continues. Upon cessation of such condition, the affected Party shall promptly resume performance hereunder. Each Party agrees to give the other Party prompt written notice of the occurrence of any such condition, the nature thereof, and the extent to which the affected Party will be unable to perform its obligations hereunder. Each Party further agrees to use all commercially reasonable efforts to correct the condition as quickly as possible.

SECTION 21 — MISCELLANEOUS PROVISIONS

21.1 DSM Biologics shall obtain all permits and governmental or other licenses required in connection with its activities under this Agreement. If DSM Biologics is not able at any time to obtain the relevant permits and licenses, Palatin is entitled to (i) terminate this Agreement forthwith and (ii) receive any deposit monies or reservation fees paid to DSM Biologics as described in Section 15.3(a). Upon such termination, neither Party shall have any further liability with respect to this Agreement.

21.2 Palatin shall obtain all permits and governmental licenses required in connection with its activities under this Agreement.

21.3 DSM Biologics and Palatin will negotiate in good faith to obtain [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.].

21.4 All rights and recourses of a Party under this Agreement are cumulative and the exercise by a Party of any of its rights or recourses will not prevent it from exercising any other right or recourse available under this Agreement or at law.

21.5 If any covenant, obligation or term hereunder or the application of any part of this Agreement to any person, party or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Agreement or the application of such covenants, agreements or obligations other than those which are held to be invalid or unenforceable shall not be affected thereby and each covenant, obligation and agreement contained herein shall be separately valid and enforceable to the full extent permitted by law.

21.6 This is an agreement between separate entities and neither is the agent, representative, master or servant of or possesses the power to obligate the other or to make any warranties or representations on behalf of the other. Nothing in this Agreement will be interpreted so as to create a relationship of partners, joint ventures, agents, fiduciaries or any other similar relationship between the Parties.

20

21.7 Failure by either Party to take action against the other will not affect its right to require the other party to fulfill its obligations hereunder. The waiver by either Party of the breach of any term of this Agreement by the other Party will not operate or be interpreted as a waiver of any subsequent breach by such Party. No term of this Agreement will be deemed to have been waived by either Party unless such waiver is in writing.

21.8 This Agreement, including the Annexes hereto, constitute the entire agreement between the Parties with respect to the subject matter hereof and supersede all prior discussions, negotiations and agreements with respect thereto. No amendment of, change to or variance from this Agreement will be binding on either Party unless in writing and signed by the Parties.

21.9 Each of the Parties agrees to perform such acts, sign and deliver such other agreements, cause such meetings to be held, resolutions passed and by-laws enacted, exercise their vote and influence as may be necessary or desirable from time to time in order to give full effect to this Agreement.

21.10 This Agreement may be executed in two (2) counterparts, each of which shall be an original and all of which shall constitute together but one and the same document.

21.11 The headings and subheadings of the sections of this Agreement have been included solely for ease of reference and do not form part of this Agreement.

21.12 The representations, warranties, covenants and agreements set forth in this Agreement are for the sole benefit of the Parties hereto and their successors and permitted assigns, and they shall not be construed as conferring any rights on any parties other than the Parties.

*    *    *    *    *

21

        IN WITNESS WHEREOF, the Parties have executed this Development and Manufacturing Agreement as of the date first above written.

PALATIN TECHNOLOGIES, INC.

_________________

Name:
Title:

DSM BIOLOGICS COMPANY B.V.

_________________
Name:
Title: _________________
Name:
Title:

22

Annex 1

[INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
UNDER RULE 24b-2.]

Annex 2

[INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
UNDER RULE 24b-2.]

Annex 3

[INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
UNDER RULE 24b-2.]

Annex 4

[INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
UNDER RULE 24b-2.]

Annex 5

[INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
UNDER RULE 24b-2.]

Annex 6

[INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
UNDER RULE 24b-2.]

Annex 7

[INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
UNDER RULE 24b-2.]

EX-21

Exhibit 21

                         SUBSIDIARIES OF THE REGISTRANT

                                   State of            Name under which
Name of subsidiary              incorporation      subsidiary does business
- ------------------              -------------      -------------------------

RhoMed Incorporated               New Mexico        RhoMed Incorporated

Interfilm Technologies, Inc.      New York          Interfilm Technologies, Inc.

EX-23

Independent Auditors’ Consent

The Board of Directors
Palatin Technologies, Inc.:

We consent to the incorporation by reference in the registration statements (No. 333-33569, 333-56605, 333-64951, 333-72873, 333-84421, 333-52024, 333-54981, 333-74990, 333-100469, 333-101764, 333-104370) on Form S-3 and in the registration statements (No. 333-57079, 333-83876) on Form S-8, of Palatin Technologies, Inc. of our report dated September 19, 2003, with respect to the consolidated balance sheets of Palatin Technologies, Inc. and subsidiaries as of June 30, 2003 and 2002, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for the years then ended, and the period from January 28, 1986 (inception) through June 30, 2003, which report appears in the June 30, 2003, annual report on Form 10-K of Palatin Technologies, Inc.

/s/ KPMG LLP

Philadelphia, Pennsylvania
September 29, 2003

EX-31

                                                                    EXHIBIT 31.1

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Carl Spana, certify that:

1. I have reviewed this annual report on Form 10-K of Palatin Technologies,
Inc.;

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

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

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

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

(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.

Date:  September 29, 2003

/s/  Carl Spana
Carl Spana, Chief Executive Officer

EX-31

                                                                    EXHIBIT 31.2
                    CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Stephen T. Wills, certify that:

1. I have reviewed this annual report on Form 10-K of Palatin Technologies,
Inc.;

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

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

4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:

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

(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.

Date:  September 29, 2003

/s/  Stephen T. Wills
Stephen T. Wills, Chief Financial Officer

EX-32

                                                                    EXHIBIT 32.1

                  Certification of Principal Executive Officer
                         Pursuant to U.S.C. Section 1350
      As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, Carl Spana, President and Chief Executive Officer of Palatin Technologies,
Inc., hereby certify, to my knowledge, that the annual report on Form 10-K for
the period ending June 30, 2003 of Palatin Technologies, Inc. (the "Form 10-K")
fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and the information contained in the Form 10-K fairly
presents, in all material respects, the financial condition and results of
operations of Palatin Technologies, Inc.

Dated: September 29, 2003             /s/ Carl Spana
                                      --------------
                                      Carl Spana
                                      President and Chief Executive Officer
                                      (Principal Executive Officer)

EX-32

                                                                    EXHIBIT 32.2

                  Certification of Principal Financial Officer
                         Pursuant to U.S.C. Section 1350
      As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, Stephen T. Wills, Executive Vice President and Chief Financial Officer of
Palatin Technologies, Inc., hereby certify, to my knowledge, that the annual
report on Form 10-K for the period ending June 30, 2003 of Palatin Technologies,
Inc. (the "Form 10-K") fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 and the information contained in
the Form 10-K fairly presents, in all material respects, the financial condition
and results of operations of Palatin Technologies, Inc.

Dated: September 29, 2003                   /s/ Stephen T. Wills
                                            --------------------
                                            Stephen T. Wills
                                            Executive Vice President and Chief
                                                Financial Officer
                                            (Principal Financial Officer)