PALATIN TECHNOLOGIES, INC.

                             1996 STOCK OPTION PLAN

1.   PURPOSE.

     The purposes of the 1996 Stock Option Plan (the "Plan") are to induce
certain employees, consultants and directors to remain in the employ or service,
or to continue to serve as directors, of Palatin Technologies, Inc. (the
"Company") and its present and future subsidiary corporations (each a
"Subsidiary"), as defined in Section 424(f) of the Internal Revenue Code of
1986, as amended (the "Code"), to attract new individuals to enter into such
employment or service and to encourage such individuals to secure or increase on
reasonable terms their stock ownership in the Company. The Board of Directors of
the Company (the "Board") believes that the granting of stock options (the
"Options") under the Plan will promote continuity of management and increased
incentive and personal interest in the welfare of the Company by those who are
or may become primarily responsible for shaping and carrying out the long range
plans of the Company and securing its continued growth and financial success.
Options granted hereunder are intended to be either (a) "incentive stock
options" (which term, when used herein, shall have the meaning ascribed thereto
by the provisions of Section 422(b) of the Code) or (b) options which are not
incentive stock options ("non-incentive stock options") or (c) a combination
thereof, as determined by the Committee (the "Committee") referred to in Section
4 hereof at the time of the grant thereof.



2.   EFFECTIVE DATE OF THE PLAN.

     The Plan became effective on August 28, 1996, by action of the Board,
subject to ratification by stockholders of the Company.



3.   STOCK SUBJECT TO PLAN.

     5,000,000 of the authorized but unissued shares of the Common Stock, $0.01
par value, of the Company (the "Common Stock") are hereby reserved for issue
upon the exercise of Options granted under the Plan; provided, however, that the
number of shares so reserved may from time to time be reduced to the extent that
a corresponding number of issued and outstanding shares of the Common Stock are
purchased by the Company and set aside for issue upon the exercise of Options.
If any Options expire or terminate for any reason without having been exercised
in full, the unpurchased shares subject thereto shall again be available for the
purposes of the Plan.

                                     Page 1

<PAGE>

4.   COMMITTEE.

     The Committee shall consist of two or more members of the Board both or all
of whom shall be "non-employee directors" within the meaning of Rule
16b-3(b)(3)(i) promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and "outside directors" within the contemplation of Section
162(m)(4)(C)(i) of the Code. The President of the Company shall also be a member
of the Committee, ex-officio, whether or not he or she is otherwise eligible to
be a member of the Committee. The Committee shall be appointed annually by the
Board, which may at any time and from time to time remove any members of the
Committee, with or without cause, appoint additional members to the Committee
and fill vacancies, however caused, in the Committee. In the event that no
Committee shall have been appointed, the Board shall serve as the Committee. A
majority of the members of the Committee shall constitute a quorum. All
determinations of the Committee shall be made by a majority of its members
present at a meeting duly called and held. Any decision or determination of the
Committee reduced to writing and signed by all of the members of the Committee
shall be fully as effective as if it had been made at a meeting duly called and
held.



5.   ADMINISTRATION.

     Subject to the express provisions of the Plan, the Committee shall have
complete authority, in its discretion, to interpret the Plan, to prescribe,
amend and rescind rules and regulations relating to it, to determine the terms
and provisions of the respective option agreements or certificates (which need
not be identical), to determine the individuals (each a "Participant") to whom
and the times and the prices at which Options shall be granted, the periods
during which each Option shall be exercisable, the number of shares of the
Common Stock to be subject to each Option and whether such Option shall be an
incentive stock option or a non-incentive stock option and to make all other
determinations necessary or advisable for the administration of the Plan. In
making such determinations, the Committee may take into account the nature of
the services rendered by the respective employees and consultants, their present
and potential contributions to the success of the Company and the Subsidiaries
and such other factors as the Committee in its discretion shall deem relevant.
The Committee's determination on the matters referred to in this Section 5 shall
be conclusive. Any dispute or disagreement which may arise under or as a result
of or with respect to any Option shall be determined by the Committee, in its
sole discretion, and any interpretations by the Committee of the terms of any
Option shall be final, binding and conclusive. The Board may, at any time,
exercise any of the powers of the Committee.



6.   ELIGIBILITY.

     A. An Option may be granted only to (i) an employee or consultant of the
Company or a Subsidiary, (ii) a director of the Company who is not employed by
the Company or any of the Subsidiaries (a "Non-Employee Director") and (iii)
employees of a corporation or other business enterprise which has been acquired
by the Company or a Subsidiary, whether by exchange or

                                     Page 2

<PAGE>

purchase of stock, purchase of assets, merger or reverse merger or otherwise,
who hold options with respect to the stock of such corporation which the Company
has agreed to assume or for which the Company has agreed to provide substitute
options.

     B. (i) On August 28, 1996, each Non-Employee Director shall be granted an
Option (a "Non-Employee Director's Formula Option") to purchase 20,000 shares of
the Common Stock at the initial per share option price of $1.36 per share.

     (ii) At the first meeting of the Board immediately following the annual
meeting of the Stockholders of the Company held following the effective date of
the Plan, and at the first meeting of the Board immediately following each
subsequent annual meeting of the Stockholders of the Company, each Non-Employee
Director shall be granted an Option (a "Non-Employee Director's Formula Option")
to purchase 10,000 shares (after giving effect to the reverse stock split
effected on September 5, 1997) of the Common Stock at the initial per share
option price equal to the fair market value of a share of the Common Stock on
the date of grant.

     (iii) Each Non-Employee Director who becomes a director subsequent to the
adoption date of the Plan shall be granted, as of a date determined by the
Board, which date shall be not earlier than the date he or she agrees to become
a director and not later than the date he or she becomes a director, an Option
(a "Non-Employee Director's Initial Option") to purchase the number of shares
(after giving effect to the reverse stock split effected on September 5, 1997)
of the Common Stock determined by the Board, but not more than 10,000 shares, at
the initial per share option price equal to the fair market value of a share of
the Common Stock on the date of grant.

     (iv) A Non-Employee Director may not exercise a Non-Employee Director's
Formula Option during the period commencing on the date of the granting of such
Option to him or her and ending on the day next preceding the first anniversary
of such date. A Non-Employee Director may (i) during the period commencing on
the first anniversary of the date of the granting of a Non-Employee Director's
Formula Option to him or her and ending on the day next preceding the second
anniversary of such date, exercise such Option with respect to one-fourth of the
shares granted thereby, (ii) during the period commencing on such second
anniversary and ending on the day next preceding the third anniversary of the
date of the granting of such Option, exercise such Option with respect to
one-half of the shares granted thereby, (iii) during the period commencing on
such third anniversary and ending on the date next preceding the fourth
anniversary of the date of the granting of such Option, exercise such Option
with respect to three-fourths of the shares granted thereby and (iv) during the
period commencing on such fourth anniversary and ending on the date of the
expiration of such Option, exercise such Option with respect to all of the
shares granted thereby.


7.   OPTION PRICES.

     A. Except as otherwise provided in Sections 6 and 17, the initial per share
option price of any Option shall be the price determined by the Committee, but
not less than the fair market value of a share of the Common Stock on the date
of grant; provided, however, that, in the case of a Participant who owns (within
the meaning of Section 424(d) of the Code) more than 10% of

                                     Page 3

<PAGE>

the total combined voting power of the Common Stock at the time an Option which
is an incentive stock option is granted to him or her, the initial per share
option price shall not be less than 110% of the fair market value of a share of
the Common Stock on the date of grant.

     B. For all purposes of the Plan, the fair market value of a share of the
Common Stock on any date shall be determined by the Committee as follows:

          (i) If the Common Stock is listed on the OTC Electronic Bulletin
     Board, its fair market value shall be the closing selling price on such
     date for the Common Stock as reported on the OTC Electronic Bulletin Board.
     If there are no sales of the Common Stock on that date, then the reported
     closing selling price for the Common Stock on the next preceding date for
     which such closing selling price is quoted shall be determinative of fair
     market value; or,

          (ii) If the Common Stock is listed on any established stock exchange
     or a national market system, including without limitation, the Nasdaq
     National Market System or the Nasdaq SmallCap Market System, its fair
     market value shall be the reported closing selling price for the Common
     Stock on the principal securities exchange or national market system on
     which the Common Stock is at such date listed for trading. If there are no
     sales of Common Stock on that date, then the reported closing selling price
     for the Common Stock on the next preceding day for which such closing
     selling price is quoted shall be determinative of fair market value; or,

          (iii) If the Common Stock is not traded on the OTC Electronic Bulletin
     Board, an exchange, or a national market system, its fair market value
     shall be determined in good faith by the Committee, and such determination
     shall be conclusive and binding on all persons.



8.   OPTION TERM.

     Participants shall be granted Options for such term as the Committee shall
determine, not in excess of ten years from the date of the granting thereof;
provided, however, that, except as otherwise provided in Section 17, in the case
of a Participant who owns (within the meaning of Section 424(d) of the Code)
more than 10% of the total combined voting power of the Common Stock of the
Company at the time an Option which is an incentive stock option is granted to
him or her, the term with respect to such Option shall not be in excess of five
years from the date of the granting thereof; provided, further, however, that
the term of each Non-Employee Director's Formula Option shall be ten years from
the date of the granting thereof.



9.   LIMITATIONS ON AMOUNT OF OPTIONS GRANTED.

     A. Except as otherwise provided in Section 17, the aggregate fair market
value of the shares of the Common Stock for which any Participant may be granted
incentive stock options which are exercisable for the first time in any calendar
year (whether under the terms of the Plan or any other stock option plan of the
Company) shall not exceed $100,000.

                                     Page 4

<PAGE>

     B. Except as otherwise provided in Section 17, no Participant shall, during
any fiscal year of the Company, be granted Options to purchase more than 500,000
shares of the Common Stock.



10.  EXERCISE OF OPTIONS.

     A. Except as otherwise provided in Section 17 and except as otherwise
determined by the Committee at the time of the grant of an Option other than a
Non-Employee Director's Formula Option, a Participant may not exercise an Option
during the period commencing on the date of the granting of such Option to him
or her and ending on the day next preceding the first anniversary of such date.
Except as otherwise set forth in Sections 9A and 17 and in the preceding
sentence, a Participant may (i) during the period commencing on the first
anniversary of the date of the granting of an Option to him or her and ending on
the day next preceding the second anniversary of such date, exercise such Option
with respect to one-fourth of the shares granted thereby, (ii) during the period
commencing on such second anniversary and ending on the day next preceding the
third anniversary of the date of the granting of such Option, exercise such
Option with respect to one-half of the shares granted thereby, (iii) during the
period commencing on such third anniversary and ending on the date next
preceding the fourth anniversary of the date of the granting of such Option,
exercise such Option with respect to three-fourths of the shares granted thereby
and (iv) during the period commencing on such fourth anniversary and ending on
the date of the expiration of such Option, exercise such Option with respect to
all of the shares granted thereby.

     B. Except as hereinbefore otherwise set forth, an Option may be exercised
either in whole at any time or in part from time to time.

     C. An Option may be exercised only by a written notice of intent to
exercise such Option with respect to a specific number of shares of the Common
Stock and payment to the Company of the amount of the option price for the
number of shares of the Common Stock so specified.

     D. Except in the case of a Non-Employee Director's Formula Option, the
Board may, in its discretion, permit any Option to be exercised, in whole or in
part, prior to the time when it would otherwise be exercisable.

     E. Notwithstanding any other provision of the Plan to the contrary,
including, but not limited to, the provisions of Section 10D, if any Participant
shall have effected a "Hardship Withdrawal" from a "401(k) Plan" maintained by
the Company and/or one or more of the Subsidiaries, then, during the period of
one year commencing on the date of such Hardship Withdrawal, such Participant
may not exercise any Option. For the purpose of this paragraph E, a Hardship
Withdrawal shall mean a distribution to a Participant provided for in Reg. ss.
1.401(k)-1(d)(1)(ii) promulgated under Section 401(k)(2)(B)(i)(iv) of the Code
and a 401(k) Plan shall mean a plan which is a "qualified plan" within the
contemplation of section 401(a) of the Code which contains a "qualified cash or
deferred arrangement" within the contemplation of section 401(k)(2) of the Code.

                                     Page 5

<PAGE>

11.  TRANSFERABILITY.

     Except as provided in this Section 11, no Option shall be assignable or
transferable except by will and/or by the laws of descent and distribution and,
during the life of any Participant, each Option granted to him or her may be
exercised only by him or her. An option which is not an "incentive stock
option," as defined in Section 422(b) or any similar successor provision of the
Code, may be assigned or transferred to and exercised by a Participant's "family
member" as defined in SEC Form S-8, General Instruction A(5), or any similar
successor provision. Transfer of an option for value is permitted under this
Section 11 only to the extent not prohibited under Form S-8, General Instruction
A(5), or any similar successor provision.



12.  TERMINATION OF EMPLOYMENT.

     A. Unless otherwise provided by the Committee, in the event a Participant
leaves the employ of the Company and the Subsidiaries or ceases to serve as a
consultant to the Company and/or as a Non-Employee Director of the Company,
whether voluntarily or otherwise, each Option theretofore granted to him or her
which shall not have theretofore expired or otherwise been cancelled shall, to
the extent not theretofore exercised, terminate upon the earlier to occur of the
expiration of 90 days after the date of such Participant's termination of
employment or service and the date of termination specified in such Option.
Notwithstanding the foregoing, if a Participant's employment by the Company and
the Subsidiaries or service as a consultant and/or as a Non-Employee Director of
the Company is terminated for "cause" (as defined herein), each Option
theretofore granted to him or her which shall not have theretofore expired or
otherwise been cancelled shall, to the extent not theretofore exercised,
terminate forthwith.

     B. For purposes of the foregoing, the term "cause" shall mean: (i) the
commission by a Participant of any act or omission that would constitute a crime
under federal, state or equivalent foreign law, (ii) the commission by a
Participant of any act of moral turpitude, (iii) fraud, dishonesty or other acts
or omissions that result in a breach of any fiduciary or other material duty to
the Company and/or the Subsidiaries or (iv) continued alcohol or other substance
abuse that renders a Participant incapable of performing his or her material
duties to the satisfaction of the Company and/or the Subsidiaries.



13.  ADJUSTMENT OF NUMBER OF SHARES.

     A. In the event that a dividend shall be declared upon the Common Stock
payable in shares of the Common Stock, the number of shares of the Common Stock
then subject to any Option and the number of shares of the Common Stock reserved
for issuance in accordance with the provisions of the Plan but not yet covered
by an Option and the number of shares set forth in Sections 6B and 9B shall be
adjusted by adding to each share the number of shares which would be
distributable thereon if such shares had been outstanding on the date fixed for
determining the stockholders entitled to receive such stock dividend. In the
event that the outstanding shares of the Common Stock shall be changed into or
exchanged for a different number or kind of shares

                                     Page 6

<PAGE>


of stock or other securities of the Company or of another corporation, whether
through reorganization, recapitalization, stock split-up, combination of shares,
sale of assets, merger or consolidation in which the Company is the surviving
corporation, then, there shall be substituted for each share of the Common Stock
then subject to any Option and for each share of the Common Stock reserved for
issuance in accordance with the provisions of the Plan but not yet covered by an
Option and for each share of the Common Stock referred to in Sections 6B and 9B,
the number and kind of shares of stock or other securities into which each
outstanding share of the Common Stock shall be so changed or for which each such
share shall be exchanged.

     B. In the event that there shall be any change, other than as specified in
Section 13, in the number or kind of outstanding shares of the Common Stock, or
of any stock or other securities into which the Common Stock shall have been
changed, or for which it shall have been exchanged, then, if the Committee
shall, in its sole discretion, determine that such change equitably requires an
adjustment in the number or kind of shares then subject to any Option and the
number or kind of shares reserved for issuance in accordance with the provisions
of the Plan but not yet covered by an Option and the number or kind of shares
referred to in Sections 6B and 9B, such adjustment shall be made by the
Committee and shall be effective and binding for all purposes of the Plan and of
each stock option agreement or certificate entered into in accordance with the
provisions of the Plan.

     C. In the case of any substitution or adjustment in accordance with the
provisions of this Section 13, the option price in each stock option agreement
or certificate for each share covered thereby prior to such substitution or
adjustment shall be the option price for all shares of stock or other securities
which shall have been substituted for such share or to which such share shall
have been adjusted in accordance with the provisions of this Section 13.

     D. No adjustment or substitution provided for in this Section 13 shall
require the Company to sell a fractional share under any stock option agreement
or certificate.

     E. In the event of the dissolution or liquidation of the Company, or a
merger, reorganization or consolidation in which the Company is not the
surviving corporation, then, except as otherwise provided in the second sentence
of Section 13A, each Option, to the extent not theretofore exercised, shall
terminate forthwith.



14.  PURCHASE FOR INVESTMENT, WITHHOLDING AND WAIVERS.

     A. Unless the shares to be issued upon the exercise of an Option by a
Participant shall be registered prior to the issuance thereof under the
Securities Act of 1933, as amended, such Participant will, as a condition of the
Company's obligation to issue such shares, be required to give a representation
in writing that he or she is acquiring such shares for his or her own account as
an investment and not with a view to, or for sale in connection with, the
distribution of any thereof.

     B. In the event of the death of a Participant, a condition of exercising
any Option shall be the delivery to the Company of such tax waivers and other
documents as the Committee shall determine.

                                     Page 7

<PAGE>

     C. In the case of each non-incentive stock option, a condition of
exercising the same shall be the entry by the person exercising the same into
such arrangements with the Company with respect to withholding as the Committee
may determine.



15.  NO STOCKHOLDER STATUS.

     Neither any Participant nor his or her legal representatives, legatees or
distributees shall be or be deemed to be the holder of any share of the Common
Stock covered by an Option unless and until a certificate for such share has
been issued. Upon payment of the purchase price thereof, a share issued upon
exercise of an Option shall be fully paid and non-assessable.



16.  NO RESTRICTIONS ON CORPORATE ACTS.

     Neither the existence of the Plan nor any Option shall in any way affect
the right or power of the Company or its stockholders to make or authorize any
or all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Common Stock or the rights thereof, or
dissolution or liquidation of the Company, or any sale or transfer of all or any
part of its assets or business, or any other corporate act or proceeding whether
of a similar character or otherwise.



17.  OPTIONS GRANTED IN CONNECTION WITH ACQUISITIONS.

     In the event that the Committee determines that, in connection with the
acquisition by the Company or a Subsidiary of another corporation which will
become a Subsidiary or division of the Company or a Subsidiary (such corporation
being hereafter referred to as an "Acquired Subsidiary"), Options may be granted
hereunder to employees and other personnel of an Acquired Subsidiary in exchange
for then outstanding options to purchase securities of the Acquired Subsidiary.
Such Options may be granted at such option prices, may be exercisable
immediately or at any time or times either in whole or in part, and may contain
such other provisions not inconsistent with the Plan, or the requirements set
forth in Section 19 that certain amendments to the Plan be approved by the
stockholders of the Company, as the Committee, in its discretion, shall deem
appropriate at the time of the granting of such Options.



18.  NO EMPLOYMENT OR SERVICE RIGHT.

     Neither the existence of the Plan nor the grant of any Option shall require
the Company or any Subsidiary to continue any Participant in the employ of the
Company or such Subsidiary or require the Company to continue any Participant as
a director of the Company.

                                     Page 8

<PAGE>


19.  TERMINATION AND AMENDMENT OF THE PLAN.

     The Board may at any time terminate the Plan or make such modifications of
the Plan as it shall deem advisable; provided, however, that the Board may not
without further approval of the holders of a majority of the shares of the
Common Stock present in person or by proxy at any special or annual meeting of
the stockholders, increase the number of shares as to which Options may be
granted under the Plan (as adjusted in accordance with the provisions of Section
13), or change the manner of determining the option prices, or extend the period
during which an Option may be granted or exercised; provided, however, the
provisions of the Plan governing the grant of Non-Employee Director's Formula
Options may not be amended except by the vote of a majority of the members of
the Board and by the vote of a majority of the members of the Board who are
employees of the Company or a Subsidiary and shall not be amended more than once
every six months, other than to comport with changes in the Code, the Employee
Retirement Income Security Act of 1974 or the Rules of the Securities and
Exchange Commission promulgated under Section 16 of the Exchange Act. Except as
otherwise provided in Section 13, no termination or amendment of the Plan may,
without the consent of the Participant to whom any Option shall theretofore have
been granted, adversely affect the rights of such Participant under such Option.



20.  EXPIRATION AND TERMINATION OF THE PLAN.

     The Plan shall terminate on August 27, 2006 or at such earlier time as the
Board may determine. Options may be granted under the Plan at any time and from
time to time prior to its termination. Any Option outstanding under the Plan at
the time of the termination of the Plan shall remain in effect until such Option
shall have been exercised or shall have expired in accordance with its terms.



                                      [END]



As adopted by the stockholders at a special meeting of stockholders held on
August 21, 1997;

as amended by the board of directors pursuant to a unanimous written consent
dated January 12, 1998;

as amended by the board of directors pursuant to a unanimous written consent
dated March 26, 1999;

as amended upon shareholder approval of amendments at the reconvened annual
meeting of stockholders on July 1, 1999;

as amended upon shareholder approval of an amendment at the reconvened annual
meeting of stockholders on November 21, 2000;

as amended by the board of directors effective January 1, 2001.

                                     Page 9