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UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549  FORM 10-Q  [X]
     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934   For the quarterly period ended December 31, 2004   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 001-15543      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 Cedar Brook DriveCranbury, New Jersey
     08512(Address of principal executive
     offices)
     (Zip Code) Registrant's telephone number:  (609) 495-2200


Indicate by check mark whether the Registrant (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 [  ]

Check whether the Registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).    Yes [X]   No [ ]

As of January 26, 2005, 54,020,706 shares of the issuer's common stock, par
value $.01 per share, were outstanding.

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PALATIN TECHNOLOGIES, INC.

TABLE OF CONTENTS

PART I  FINANCIAL
INFORMATION

|        |                                                                                                                      |     
|------- | -------------------------------------------------------------------------------------------------------------------- | ----
|Item 1. | Financial Statements                                                                                                 | Page
|        |                                                                                                                      |     
|        | Consolidated Balance Sheets
     (Unaudited) as of December 31, 2004 and June 30, 2004                               | 2   
|        |                                                                                                                      |     
|        | Consolidated Statements of Operations
     (Unaudited) for the Three and Six Months ended December 31, 2004 and 2003 | 3   
|        |                                                                                                                      |     
|        | Consolidated Statements of Cash Flows
     (Unaudited) for the Six Months ended December 31, 2004 and 2003           | 4   
|        |                                                                                                                      |     
|        | Notes to Consolidated Financial
     Statements (Unaudited)                                                          | 5   
|        |                                                                                                                      |     
|Item 2. | Management's Discussion and Analysis of
     Financial Conditionand Results of Operations                            | 10  
|        |                                                                                                                      |     
|Item 3. | Quantitative and Qualitative
     Disclosures About Market Risk                                                      | 15  
|        |                                                                                                                      |     
|Item 4. | Controls and Procedures                                                                                              | 16  
|        |                                                                                                                      |     

PART II - OTHER
INFORMATION

|        |                                                                  |   
|------- | ---------------------------------------------------------------- | --
|Item 1. | Legal Proceedings                                                | 17
|        |                                                                  |   
|Item 2. | Unregistered Sales of Equity Securities and Use
     of Proceeds | 17
|        |                                                                  |   
|Item 3. | Defaults Upon Senior Securities                                  | 17
|        |                                                                  |   
|Item 4. | Submission of Matters to a Vote of Security
     Holders         | 17
|        |                                                                  |   
|Item 5. | Other Information                                                | 18
|        |                                                                  |   
|Item 6. | Exhibits                                                         | 18
|        |                                                                  |   

SIGNATURES

1

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Table of Contents

PART I  FINANCIAL
INFORMATION

Item 1. Financial Statements

PALATIN TECHNOLOGIES,
INC.Consolidated Balance Sheets(unaudited)

`December 31,         June 30,
                                                                         2004              2004
                                                                   --------------    --------------
ASSETS
Current assets:
  Cash and cash equivalents                                        $  28,744,670     $  17,947,076
  Available for sale investments                                       2,400,154         2,465,350
  Accounts receivable                                                  2,808,991                 -
  Inventories                                                            683,559                 -
  Prepaid expenses and other                                             889,241           428,917
                                                                   --------------    --------------
      Total current assets                                            35,526,615        20,841,343

Property and equipment, net                                            2,712,299         2,934,739
Restricted cash                                                          350,000           428,075
Other                                                                    894,512           174,930
                                                                   --------------    --------------
      Total assets                                                 $  39,483,426     $  24,379,087
                                                                   ==============    ==============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Capital lease obligations, current portion                       $     10,851      $     33,491
  Accounts payable                                                     3,619,101         2,019,970
  Accrued expenses                                                     2,813,174         2,067,183
  Accrued compensation                                                   200,000           599,600
  Deferred revenue, current portion                                    4,340,331           242,000
                                                                   --------------    --------------
      Total current liabilities                                       10,983,457         4,962,244

Capital lease obligations, net of current portion                         23,754            30,203
Deferred revenue, net of current portion                              10,749,059                 -
                                                                   --------------    --------------
      Total liabilities                                               21,756,270         4,992,447
                                                                   --------------    --------------

Commitments and contingencies (Note 4)

Stockholders' equity:
  Preferred stock of $.01 par value - authorized 10,000,000 shares;
    Series A Convertible; issued and outstanding 11,697 shares
      as of December 31, 2004 and June 30, 2004                              117               117
  Common stock of $.01 par value - authorized 150,000,000 shares;
    issued and outstanding 54,020,706 and 52,790,589 shares as of
      December 31, 2004 and June 30, 2004, respectively                  540,207           527,906
  Additional paid-in capital                                         139,739,522       136,148,482
  Deferred compensation                                                        -           (78,407)
  Accumulated other comprehensive loss                                   (99,968)          (84,772)
  Accumulated deficit                                               (122,452,722)     (117,126,686)
                                                                   --------------    --------------
      Total stockholders' equity                                      17,727,156        19,386,640
                                                                   --------------    --------------
      Total liabilities and stockholders' equity                   $  39,483,426     $  24,379,087
                                                                   ==============    ==============`

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

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PALATIN TECHNOLOGIES,
INC.Consolidated Statements of Operations(unaudited)

`Three Months Ended December 31,   Six Months Ended December 31,
                             -------------------------------   -----------------------------
                                   2004            2003            2004             2003
                               ------------    ------------    ------------    -------------
REVENUES:
  Product and royalty          $ 1,505,859     $         -     $ 2,249,498     $          -
  Licenses, grants and
   contracts                     3,307,870         291,354       7,055,850        2,124,065
                               ------------    ------------    ------------    -------------
       Total revenues            4,813,729         291,354       9,305,348        2,124,065
                               ------------    ------------    ------------    -------------

OPERATING EXPENSES:
  Cost of product and
    royalty revenues               220,291               -         380,235                -
  Research and development       6,116,359       3,814,355      11,765,124       10,832,717
  General and administrative     1,506,232       1,388,657       3,338,895        3,003,329
                               ------------    ------------    ------------    -------------
       Total operating           7,842,882       5,203,012      15,484,254       13,836,046
        expenses
                               ------------    ------------    ------------    -------------

Loss from operations            (3,029,153)     (4,911,658)     (6,178,906)     (11,711,981)
                               ------------    ------------    ------------    -------------

OTHER INCOME (EXPENSE):
  Investment income                167,346          86,573         279,634          173,091
  Interest expense                  (4,981)         (6,216)         (7,039)         (11,767)
                               ------------    ------------    ------------    -------------
       Total other income, net     162,365          80,357         272,595          161,324
                               ------------    ------------    ------------    -------------

Loss before income taxes        (2,866,788)     (4,831,301)     (5,906,311)     (11,550,657)
Income tax benefit                 580,275         240,836         580,275          240,836
                               ------------    ------------    ------------    -------------

NET LOSS                       $(2,286,513)    $(4,590,465)    $(5,326,036)    $(11,309,821)
                               ============    ============    ============    =============

Basic and diluted net loss
  per common share             $     (0.04)    $     (0.10)    $     (0.10)    $      (0.26)
                               ============    ============    ============    =============

Weighted average number of
  common shares outstanding
  used in computing basic
  and diluted net loss per
  common share                  53,997,547      44,531,302      53,686,347       43,846,291
                               ============    ============    ============    =============`

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

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PALATIN TECHNOLOGIES,
INC.Consolidated Statements of Cash Flows(unaudited)

`Six Months Ended December 31,
                                                           -----------------------------
                                                               2004             2003
                                                           ------------    -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                 $(5,326,036)    $(11,309,821)
  Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities:
      Depreciation and amortization                            324,692          317,597
      Stock-based compensation                                  (2,301)         761,379
      Changes in certain operating assets and liabilities:
        Accounts receivable                                 (2,808,991)        (250,000)
        Inventories                                           (683,559)               -
        Prepaid expenses and other                          (1,104,415)         109,389
        Accounts payable                                     1,599,131         (226,924)
        Accrued expenses and other                             346,391         (814,880)
        Deferred revenues                                   14,847,390         (124,065)
                                                           ------------    -------------
          Net cash provided by (used in) operating           7,192,302      (11,537,325)
            activities
                                                           ------------    -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Sale or maturity of short-term investments                50,000           50,049
      Purchases of property and equipment                      (99,668)         (81,431)
                                                           ------------    -------------
            Net cash used in investing activities              (49,668)         (31,382)
                                                           ------------    -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Payments on capital lease obligations                    (29,089)        (107,270)
      Proceeds from common stock, stock option
        and warrant issuances, net                           3,684,049        4,748,466
                                                           ------------    -------------
            Net cash provided by financing activities        3,654,960        4,641,196
                                                           ------------    -------------

NET INCREASE (DECREASE) IN CASH
  AND CASH EQUIVALENTS                                      10,797,594       (6,927,511)

CASH AND CASH EQUIVALENTS, beginning
   of period                                                17,947,076       14,294,603
                                                           ------------    -------------

CASH AND CASH EQUIVALENTS, end of period                   $28,744,670     $  7,367,092
                                                           ============    =============`

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

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PALATIN TECHNOLOGIES, INC.Notes to
Consolidated Financial Statements (unaudited)

(1)    
          Organization:

Nature
of Business  Palatin Technologies, Inc. (Palatin or the
Company) is a biopharmaceutical company focused on discovering and 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, cachexia (extreme wasting, generally secondary to a chronic disease)
and inflammation. The Companys objective is to become a worldwide leader in MC-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.

In
July 2004, the Company received approval from the U.S. Food and Drug Administration
(FDA) to market NeutroSpec, the Companys proprietary radiolabeled
monoclonal antibody product, for imaging equivocal appendicitis in patients. NeutroSpec is
marketed and distributed by the Companys strategic collaboration partner,
Mallinckrodt Imaging, a business unit of Tyco Healthcare (Mallinckrodt). The
Company is currently conducting additional clinical trials with NeutroSpec and evaluating its
market potential as an 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.

PT-141,
the Companys lead therapeutic drug candidate, is a patented, nasally administered
peptide that is in clinical development for the treatment of both male and female sexual
dysfunction. The Company completed various Phase 1 safety studies and Phase 2A efficacy
studies in male subjects and patients. The Company completed a Phase 2B at-home
dose-ranging study with PT-141 in male patients. The Company also completed a Phase 1
safety study in female subjects and a Phase 2A efficacy study in female patients
with Female Sexual Dysfunction.

In addition, the Company has
several preclinical drug candidates under investigation based on the MC family of receptors for various therapeutic indications
including obesity, cachexia, sexual dysfunction and inflammation.

In
August 2004, the Company entered into a Collaborative Development and Marketing Agreement
with King Pharmaceuticals, Inc. (King), a specialty pharmaceutical company, to
jointly develop and commercialize PT-141. Pursuant to the terms of the agreement, King and
Palatin will share all collaboration development and marketing costs and all collaboration
net profits derived from net sales of PT-141 in North America based on an agreed
percentage. King and Palatin currently plan to seek a partner for PT-141 for territories
outside of North America and will jointly share in collaboration development and marketing
costs and all collaboration revenues generated from those territories. Palatin has the
option to create, with King, a urology specialty sales force to co-promote the product in
the U.S. if the product is successfully developed and commercialized.

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 and
discovery programs with the cash flow from its NeutroSpec and PT-141 collaboration
agreements.

Business
Risk and Liquidity  The Company has incurred negative cash flows from operations
since its inception, and has expended, and expects to continue to expend in the future,
substantial funds to complete its planned product development efforts. As shown in the
accompanying financial statements, the Company incurred a net loss of $5,326,036 for the
six months ended December 31, 2004 and has an accumulated deficit of $122,452,722 as of
December 31, 2004. The Company anticipates incurring additional losses in the future as it
continues to expand clinical trials for other indications of NeutroSpec and continues
research and development of PT-141 and its MIDAS (Metal Ion-induced Distinctive
Array of Structures) technology. To achieve profitability, the Company, alone or with
others, must successfully develop and commercialize its technologies and proposed
products, conduct successful 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.

The
Company has cash and cash equivalents of $28,744,670 and investments of $2,400,154 as of
December 31, 2004. The Company expects that its existing capital resources will be
adequate to fund the Companys projected operations through at least December 31,
2005, based on current and projected expenditure levels. Management plans to continue to
refine its operations, control expenses, evaluate alternative methods to

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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, the Companys financial condition will be
materially and adversely affected.

Concentrations
 Financial instruments that potentially subject the Company to concentrations of
credit risk primarily consist of cash and cash equivalents, short-term investments and
accounts receivable. The Company invests its excess cash and cash equivalents primarily in
one money market fund sponsored by a highly-rated financial institution.

The
Companys accounts receivable as of December 31, 2004 consist of amounts due from
Mallinckrodt and King under its collaboration agreements.

Revenue
from King represented 68% and 54% of the Companys total revenue in the three and six
months ended December 31, 2004, respectively, and revenue from Mallinckrodt represented
31% and 46% of the Companys total revenue in the three and six months ended December
31, 2004, respectively. Revenue from Mallinckrodt represented 100% of the Companys
revenue in the corresponding periods of 2003.

(2)       
          BASIS OF PRESENTATION:

The
accompanying unaudited consolidated financial statements have been prepared in accordance
with U.S. generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnote disclosures required to be presented for complete financial
statements. In the opinion of management, these financial statements contain all
adjustments (consisting of only normal recurring adjustments) considered necessary to
present fairly the Companys financial position as of December 31, 2004, its results
of operations for the three and six months ended December 31, 2004 and 2003 and its cash
flows for the six months ended December 31, 2004 and 2003. The results of operations for
the three and six month periods ended December 31, 2004 may not necessarily be indicative
of the results of operations expected for the full year, except that the Company expects
to incur a significant loss for the fiscal year ending June 30, 2005.

The
accompanying financial statements should be read in conjunction with the audited financial
statements and notes thereto included in our annual report on Form 10-K, filed with the
Securities and Exchange Commission, which includes financial statements as of June 30,
2004 and 2003 and for each of the three fiscal years ended June 30, 2004. Prior to the
Companys current fiscal year, the Company was considered to be a development-stage
enterprise. As a result, certain related disclosures and cumulative amounts presented in
prior years have been omitted, as they are no longer required.

(3)    
          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Investments
 The Company accounts for its investments in accordance with Statement of Financial
Accounting Standards (SFAS) 115, Accounting For Certain Investments in
Debt and Equity Securities. The Company classifies such investments as available for
sale investments and all such investments are recorded at fair value. The investments
consist of mutual funds. Unrealized holding gains and losses, net of the related tax
effect, if any, are excluded from earnings and are reported in other comprehensive loss
and as a separate component of stockholders equity until realized. Interest on
securities classified as available for sale is included in investment 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 December 31, 2004:

`Gross           Gross
                                                Unrealized      Unrealized
                                  Cost            Gains           Losses       Fair Value
                             --------------    -------------   -----------    ------------
Mutual funds                 $ 2,500,122       $         -     $  (99,968)    $ 2,400,154
                             ------------      ------------    -----------    ------------
Total                        $ 2,500,122       $         -     $  (99,968)    $ 2,400,154
                             ============      ============    ===========    ============`

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The following is a summary of
available for sale investments as of June 30, 2004:

`Gross           Gross
                                                Unrealized      Unrealized
                                  Cost            Gains           Losses       Fair Value
                             --------------    -------------   -----------    ------------
Corporate debt securities    $      50,000     $        521    $              $    50,521
Mutual funds                     2,500,122                -       (85,293)      2,414,829
                             --------------    -------------   -----------    ------------
Total                        $   2,550,122     $        521    $  (85,293)    $ 2,465,350
                             ==============    =============   ===========    ============`

Inventories
 The Companys inventories are related to NeutroSpec. Inventories are valued at
the lower of cost or market using the first-in, first-out method and exclude certain costs
incurred prior to the FDA approval of NeutroSpec in July 2004, which were charged directly
to research and development. As of December 31, 2004, all inventories consist of
work-in-progress materials.

Deferred
Charges  Certain license fee payments related to PT-141 and the Companys
collaborative agreement with King are being amortized over the period in which the Company
performs certain development activities under the agreement.

Revenue
Recognition  Product and royalty revenues consist of revenue from the sale of
NeutroSpec pursuant to our collaboration agreement with Mallinckrodt. Product revenues are
recognized upon delivery and acceptance of the product to Mallinckrodt, which is when
title transfers. Upon acceptance of the product, Mallinckrodt does not have the right of
return or right to cancel or terminate the sale. Royalty revenues are recognized based on
Mallinckrodts reported net sales of product.

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 period in which it performs certain development activities under
the applicable agreement. The actual performance period may vary. The Company adjusts the
performance period estimate based upon available facts and circumstances. Estimated
reimbursements for research and development activities and government grants are recorded
in the period that the Company performs the related activities under the terms of the
applicable agreements. Revenue resulting from the achievement of milestone events
stipulated in the applicable 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. Grant and
other 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.

In
August 2004, the Company entered into a collaboration agreement with King to jointly
develop and commercialize PT-141. Pursuant to the terms of the agreement, King and Palatin
will share all collaboration development and marketing costs and all collaboration net
profits derived from net sales of PT-141 in North America based on an agreed percentage.
King and Palatin currently plan to seek a partner for PT-141 for territories outside of
North America and will jointly share in collaboration development and marketing costs and
all collaboration revenues generated from those territories. Palatin has the option to
create, with King, a urology specialty sales force to co-promote the product in the U.S.,
upon commercialization.

King
paid the Company $20,000,000 at closing and may pay potential milestone payments to the
Company totaling up to $100,000,000 for achieving certain male Erectile Dysfunction
(ED) and Female Sexual Dysfunction (FSD) development and
regulatory approval targets. After regulatory approval and commercialization of PT-141,
King may also pay milestone payments to the Company totaling up to an additional
$130,000,000 upon achieving specified annual North American net sales thresholds, a
portion of which may be received in the form of equity contributions.

Of
the $20,000,000 payment received at closing, $3,606,672 was recorded as an equity
contribution and $16,393,328 was recorded as deferred revenue to be recognized as revenue
over the remaining development term of this agreement. The amount attributable to the
equity contribution was based on the fair value of 1,176,125 shares of common stock and
three-year warrants to purchase 235,225 shares of common stock at $4.25 per share which
were issued to King. For the three and six months ended December 31, 2004, the Company
recognized $1,024,583 and $1,545,937, respectively, of the deferred revenue.

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

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Stock Options 
The Company applies the intrinsic-value-based method of accounting prescribed by Accounting Principles Board Opinion
(APB) 25, Accounting for Stock Issued to Employees, and related interpretations, to account for its
fixed-plan stock options. Under this method, compensation cost is recorded only if the current market price of the underlying
stock on the date of grant exceeded the exercise price. SFAS 123, Accounting for Stock-Based Compensation, established
accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans.
As permitted by SFAS 123, as amended in SFAS 148, Accounting for Stock-Based Compensation  Transition and Disclosure,
an Amendment of FASB Statement No. 123", 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
options. 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, the Companys net loss attributable to common stockholders and net loss per
common share would have been equal to the following pro forma amounts:

`Three Months Ended December 31,   Six Months Ended December 31,
                               -------------------------------   -----------------------------
                                     2004            2003            2004             2003
                                 ------------    ------------    ------------    -------------
Net loss attributable to
      common stockholders:
As reported                      $(2,286,513)    $(4,590,465)    $(5,326,036)    $(11,309,821)
Stock-based employee
      compensation expense
      included in the
      determination of net
      loss as reported                      -         308,415          68,333          778,815
Impact of total stock-based
      compensation expense
      determined under
      fair-value-based method       (264,245)       (724,009)       (585,203)      (1,490,469)
                                 ------------    ------------    ------------    -------------
Pro forma                        $(2,550,758)    $(5,006,059)    $(5,842,906)    $(12,021,475)
                                 ============    ============    ============    =============
Basic and diluted net loss
      per common share:

As reported                      $     (0.04)    $     (0.10)    $     (0.10)           (0.26)
Impact of SFAS 123                     (0.01)          (0.01)          (0.01)           (0.01)
                                 ------------    ------------    ------------    -------------
Pro forma                        $     (0.05)    $     (0.11)    $     (0.11)    $      (0.27)
                                 ============    ============    ============    =============`

The
assumptions used in the Black-Scholes option-pricing model are as follows: dividend yield
of 0%; weighted average risk-free interest rate of approximately 3.4% and 3.4% in the
three and six months ended December 31, 2004, respectively, and 3.3% and 3.3% in the three
and six months ended December 31, 2003, respectively; expected volatility of approximately
90% and 90% in the three and six months ended December 31, 2004, respectively, and 93% and
93% in the three and six months ended December 31, 2003, respectively; and an expected
option life of seven years.

The
Company accounts for options granted to consultants in accordance with EITF 96-18,
Accounting for Equity Instruments with Variable Terms That Are Issued for
Consideration Other Than Employee Services. The Company determines the value of
consultants stock options utilizing the Black-Scholes option pricing model.

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 SFAS 109,
Accounting for Income Taxes which requires, among other things, the use of the
liability method in computing deferred income taxes.

The
Company provides for deferred income taxes relating to net operating loss and credit
carryforwards and temporary differences in the recognition of income and expense items
(primarily relating to accrued expenses, depreciation, amortization, certain leases and,
in the fiscal year ending June 30, 2005, deferred revenue from King)

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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 net operating loss carryforwards.

Net
Loss per Common Share  The Company applies SFAS 128, Earnings per Share,
which 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 and warrants. For the
three and six months ended December 31, 2004 and 2003, there were no dilutive effects of
stock options or warrants as the Company incurred a net loss in each period. Common shares
issuable upon conversion of Series A Convertible Preferred Stock and the exercise of
outstanding options and warrants at prices ranging from $0.01 to $21.70 per share amounted
to 13,189,335 at December 31, 2004.

Other
Comprehensive Loss  Other comprehensive loss consists of the following:

`Three months ended December 31,  Six months ended December 31,
                                 ------------------------------   -----------------------------
                                      2004            2003            2004             2003
                                  ------------    ------------    ------------    -------------
Net loss                          $(2,286,513)    $(4,590,465)    $(5,326,036)    $(11,309,821)
Unrealized loss on investments        (10,420)        (56,737)        (15,196)        (121,678)
                                  ------------    ------------    ------------    -------------
Comprehensive loss                $(2,296,933)    $(4,647,202)    $(5,341,232)    $(11,431,499)
                                  ============    ============    ============    =============`

Use
of Estimates  The preparation of consolidated financial statements in conformity
with U.S. generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and disclosure
of contingent 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.

Recently
Issued Accounting Standards  In December 2004, the Financial Accounting Standards
Board revised SFAS 123, Accounting for Stock-Based Compensation, by
issuing SFAS 123(R), Share-Based Payment. SFAS 123(R) replaces
SFAS 123 and APB  25 and establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or services.
SFAS 123(R) requires that the compensation cost relating to share-based payment
transactions be recognized in financial statements, measured by the fair value of the
equity or liability instruments issued, and is effective as of the beginning of the first
reporting period that begins after June 15, 2005 for public entities that do not file
as small business issuers. The Company has previously disclosed the pro forma impact on
its earnings of adopting the fair value method of accounting for stock-based compensation
under SFAS 123 in notes to its Consolidated Financial Statements for the years ended
June 30, 2004, 2003, and 2002 and the three months ended September 30, 2004 and the pro
forma impact on the three and six months ended December 31, 2004 is shown above. The
fair-value-based method of SFAS 123 is similar in most respects to the
fair-value-based method under SFAS 123(R), however certain transition rules of
SFAS 123(R) may affect the impact on the Companys consolidated financial
position or results of operations. Such impact, if any, on the Companys consolidated
financial position or results of operations has not yet been determined.

(4)    
          COMMITMENTS AND CONTINGENCIES

On
October 29, 2004, Competitive Technologies, Inc. (CTI) commenced an
arbitration with the Company before the American Arbitration Association to settle
assertions of breach of the terms of the Companys license agreement with CTI. In the
arbitration demand, CTI alleges it is owed $4,000,000, or 20% of the $20,000,000 received
by the Company upon the closing of the Companys Collaborative Development and
Marketing Agreement with King.

A dispute exists between CTI
and the Company concerning the interpretation of this license agreement related to whether PT-141 is a Licensed Product and to
amounts that may be owed to CTI thereunder. The license agreement provides for binding arbitration as the remedy for dispute
resolution. Palatin disputes CTIs assertions and believes the Company has meritorious defenses. Palatin intends to
vigorously defend itself in arbitration and assert all rights accorded it, including under the license agreement and at law.

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Item 2. 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 consolidated financial statements filed as part of
this report.

Statements
in this quarterly report on Form 10-Q, 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 Exchange Act). The forward-looking statements in
this quarterly report on Form 10-Q do not constitute guarantees of future performance.
Investors are cautioned that statements in this quarterly report on Form 10-Q that are not
strictly historical statements 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 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 in our annual report on
Form 10-K for the fiscal year ended June 30, 2004, as well as in our other Securities and
Exchange Commission filings.

We
expect to incur additional losses in the future as we conduct FDA required post-marketing
studies related to the approval of NeutroSpec for diagnosis of appendicitis and expand
clinical trials for other indications of NeutroSpec and continue research and development
of PT-141 and our MIDAS technology. Operating losses may fluctuate from quarter to quarter
as a result of differences in the timing of when we incur expenses.

Critical Accounting
Policies and Estimates

We
have prepared the accompanying consolidated financial statements in conformity with U.S.
generally accepted accounting principles, which require management to make estimates and
assumptions that affect the reported amount of assets and liabilities and disclosure of
contingent 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.

Our significant accounting
policies and our commitments and contingencies are described in the "Notes to Consolidated Financial Statements" contained in our
annual report on Form 10-K for the fiscal year ended June 30, 2004. We believe that our accounting policies and estimates relating
to revenue recognition, accrued expenses and stock-based compensation charges are the most critical.

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 consider our performance
period to be the initial research term. The actual performance period may vary. We will
adjust the performance period estimate based upon available facts and circumstances. As a
result of such adjustments, the period over which such deferred revenue will be recognized
may change.

Accrued Expenses

A
significant portion of our development activities are performed by third-parties. We
review the activities performed under significant contracts each quarter and accrue
expenses and the amount of any reimbursement to be received from our collaborators based
upon the estimated amount of work completed.

Stock-based Compensation

Stock-based
compensation to consultants and advisors and pro forma disclosures of stock-based
compensation to employees includes the fair value of options granted calculated using the
Black-Scholes method, which requires us to estimate interest rates volatility and expected
option lives. In addition, certain options are subject to periodic remeasurement over the
vesting period as services are rendered, based on changes in the fair value of our common
stock. As a result, stock-based compensation charges may vary significantly from period to
period.

Overview

We
are primarily focused on discovering and developing melanocortin (MC)-based
therapeutics, which we believe is one of the fastest growing areas of pharmaceutical
research and development. The MC family of

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receptors has been identified with a variety of
conditions and diseases, including sexual dysfunction, obesity, cachexia (extreme wasting,
generally secondary to a chronic disease), and inflammation. 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.

In
August 2004, we entered into a collaboration agreement with King Pharmaceuticals, Inc.
(King), a specialty pharmaceutical company, to jointly develop and
commercialize PT-141, our lead therapeutic drug candidate for the treatment of both male
and female sexual dysfunction.

In
July 2004, we received approval from the FDA to market NeutroSpec, our proprietary
radiolabeled monoclonal antibody product, for imaging equivocal appendicitis in patients.
NeutroSpec is marketed and distributed by our strategic collaboration partner,
Mallinckrodt Imaging, a business unit of Tyco Healthcare (Mallinckrodt).

Our
near-term business strategy focuses on the continued development of PT-141 and supporting
the commercial sale of NeutroSpec. 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 and discovery programs with the cash flow from our NeutroSpec and PT-141
collaboration agreements.
|- | -------------------------------------------------------------------------------------------------------------------------------------

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, 4 and 5, 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 quarterly report on Form 10-Q.

Products and Technologies
in Research and Development

We
are concentrating our efforts on the following proposed products and indications:

PT-141.
 PT-141, our lead therapeutic drug candidate, is a patented, nasally administered peptide that is in clinical development for
the treatment of both male and female sexual dysfunction. 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 male Erectile Dysfunction
(ED) 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 and Phase 2B efficacy studies
in male subjects and patients. We plan to initiate an additional Phase 2B efficacy study
in male patients with ED during the second half of calendar year 2005. We have completed a
Phase 1 safety study in female subjects and a Phase 2A efficacy study in female
patients with Female Sexual Dysfunction (FSD).

Collaborative
Development and Marketing Agreement with King. In August 2004, we entered into a
collaboration agreement with King to jointly develop and commercialize PT-141. Pursuant to
the terms of the agreement, we will share all collaboration development and marketing
costs and all collaboration net profits derived from net sales of PT-141 in North America
based on an agreed percentage. We currently plan to seek a partner for PT-141 for
territories outside of North America with whom we would jointly share in collaboration
development and marketing costs and all collaboration revenues generated from those
territories. However, there can be no assurance that we will be able to enter into any
such alliance or arrangement on terms acceptable to us or at all.

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King paid us $20.0 million at
closing and may pay potential milestone payments to Palatin totaling up to $100.0 million for achieving certain ED and FSD
development and regulatory approval targets. After regulatory approval and commercialization of PT-141, King may also pay
milestone payments to us totaling up to an additional $130.0 million upon achieving specified annual North American net sales
thresholds.

ED
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 ED. According to the
Massachusetts Male Aging Study, more than 50% of men aged 40-70 report episodes of ED and
more than 30 million men in the United States may be afflicted with some form of ED, with
less than 20% seeking treatment. The current market size for ED is estimated to be more
than $2 billion per year. FSD is a multifactorial condition that has anatomical,
physiological, medical, psychological and social components. Studies estimate FSD 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 FSD. FSD includes
disorders associated with desire, arousal, orgasm and pain. There is tremendous
competition to develop, market and sell drugs for the treatment of ED and FSD.

NeutroSpec.
 NeutroSpec includes a radioactive technetium-labeled anti-CD 15 monoclonal antibody which selectively binds to a type of white
blood cell, neutrophils, involved in the immune response. When injected into the blood stream, NeutroSpec binds to neutrophils
accumulated at the infection site, labeling these cells with a radioactive tracer. As a result, physicians can rapidly image and
locate an infection using a gamma camera, a common piece of hospital equipment that detects radioactivity within the body.
NeutroSpec 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 radiolabeled 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 usually not available until 12-24 hours later.

In
July 2004, we received approval from the FDA to market NeutroSpec, a novel imaging agent,
indicated for imaging of patients with equivocal signs and symptoms of appendicitis who
are five years of age or older. NeutroSpec is marketed and distributed by our strategic
collaboration partner, Mallinckrodt.

We
are also conducting additional clinical trials with NeutroSpec to evaluate its market
potential as an 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.

Strategic
Collaboration Agreement with Mallinckrodt. On May 13, 2002, we entered into an agreement
with Mallinckrodt 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 $0.5 million and an additional $13.0 million to
purchase 700,000 restricted unregistered shares of our preferred stock. We shared
NeutroSpec development expenses prior to FDA approval equally with Mallinckrodt.
Mallinckrodt agreed to pay us milestone payments of an additional $10.0 million on FDA
approval of the first NeutroSpec indication and on attainment of certain sales goals
following product launch. We agreed to be responsible for the manufacture of NeutroSpec
and Mallinckrodt agreed to pay us a transfer price on each product unit transferred to
Mallinckrodt and a royalty on the net sales of NeutroSpec.

Under
the terms of the amended agreement, Mallinckrodt 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 $10.0 million in milestone payments was revised to
coincide with NeutroSpecs FDA approval and achievement of future sales goals. The
$3.2 million has been paid in full and we received a $2.0 million milestone payment upon
FDA approval.

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 misdiagnosed 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 NeutroSpec may improve patient diagnosis for appendicitis and that it has the
potential to improve diagnosis of other acute and chronic infections, such as
osteomyelitis, fever of unknown origin, post-surgical abscess, inflammatory bowel disease
and pulmonary imaging. In 2003, over 700,000 patients were diagnosed with
NeutroSpecs target indications.

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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 small molecule, non-peptide
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 Investigational New Drug Application
(IND) for at least one of these preclinical compounds to initiate clinical
testing within the next 12 months.

We
have identified a series of lead compounds that decrease food intake and body weight in
normal and genetically-obese animals. In January 2005, we announced that data on this
activity of our lead series of MC receptor, small molecule agonists, under development for
the treatment of obesity, were presented at the 2005 Keystone Symposia on Obesity:
Molecular Physiology and Genetics of the Control of Body Weight.

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 would simplify 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. However, there can be no assurance that we will
be able to enter into any such alliance or arrangement.

Results of Operations

Three and Six Months Ended December
31, 2004 Compared to the Three and Six Months Ended December 31, 2003.

Product and Royalty
Revenues  For the three and six months ended December 31, 2004, we recognized product and royalty revenues of $1.5
million and $2.2 million, respectively, related to NeutroSpec, pursuant to our collaboration agreement with Mallinckrodt. The
Company received FDA approval to market NeutroSpec in July 2004. Accordingly, there was no product revenue or royalty revenue
recognized for the three and six months ended December 31, 2003.

Licenses,
Grants and Contracts  For the three and six months ended December 31, 2004, we
recognized $3.3 million and $7.1 million, respectively, in licenses, grants and contracts
revenue consisting primarily of (i) $3.3 million and $5.0 million, respectively, related
to PT-141 pursuant to our collaboration agreement with King, completed in August 2004, and
(ii) $0 and $2.0 million related to NeutroSpec pursuant to our collaboration agreement
with Mallinckrodt. For the three and six months ended December 31, 2003, we recognized
$0.3 million and $2.1 million, respectively, in contract revenue, primarily related to
NeutroSpec pursuant to our collaboration agreement with Mallinckrodt. The Company expects
to continue to earn contract revenue from King as the development of PT-141 continues, in
the form of reimbursement of shared development costs and the recognition of deferred
license fees. The Company may also earn contract revenue from Mallinckrodt and King based
on the attainment of certain development milestones.

Cost of Product and
Royalty Revenues  For the three and six months ended December 31, 2004, we recognized $0.2 million and $0.4 million,
respectively, in cost of product and royalty revenues related to NeutroSpec, which was approved by the FDA in July 2004. There was
no corresponding cost of product revenues or royalties for the three and six months ended December 31, 2003. Prior to the FDA
approval of NeutroSpec in July 2004, all costs associated with the manufacturing of NeutroSpec were included in research and
development expenses when incurred, including costs of usable raw materials and finished goods in inventory at the date of
approval. As we use and sell this inventory, the cost of product revenues we recognize will exclude amounts previously expensed.
Therefore, we expect our cost of product revenue to increase significantly in future periods as this inventory is consumed and
replaced.

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Research and
Development  Research and development expenses ("R&D") increased to $6.1 million and $11.8 million for the three and six
months ended December 31, 2004, respectively, compared to $3.8 million and $10.8 million for the three and six months ended
December 31, 2003, respectively, as increases in development spending on PT-141 were partially offset by lower spending on
NeutroSpec, which was approved by the FDA in July 2004. Research and development expenses related to PT-141 increased $3.2 million
and $3.7 million for the three and six months ended December 31, 2004, respectively compared to the three and six months ended
December 31, 2003, primarily due to increased nonclinical development activities. For the three and six months ended December 31,
2004, research and development spending on NeutroSpec decreased $1.2 million and $3.2 million, respectively, from the three and
six months ended December 31, 2003. The three and six month periods of 2003 included greater nonclinical development spending,
prior to FDA approval in July 2004. We anticipate incurring additional development expenses to evaluate NeutroSpec's market
potential as an imaging agent for other indications such as osteomyelitis (infection deep inside a bone), fever of unknown origin,
post surgical infection, inflammatory bowel disease and pulmonary imaging. The Company expects to continue to incur significant
research and development expenses on these programs and on its MIDAS program. The amount and timing of such expenses will depend
on a number of factors described in our annual report on Form 10-K for the fiscal year ended June 30, 2004, including the results
of the Company's research activities, its collaboration agreements and the availability and sources of financing.

General
and Administrative  General and administrative expenses increased to $1.5 million
and $3.3 million for the three and six months ended December 31, 2004, respectively,
compared to $1.4 million and $3.0 million for the three and six months ended December 31,
2003, respectively, as increases related to the general expansion of the Companys
business activities were partially offset by lower stock-based compensation charges.

Income
Taxes  Income tax benefits of $0.6 million in the three and six months ended
December 31, 2004 and $0.2 million in the three and six months ended December 31, 2003
relate to the sale of New Jersey State net operating loss carryforwards and research and
development credits. The amount of such losses and tax credits we may sell depends on
annual pools and allocations established by the State of New Jersey.

Liquidity and Capital
Resources

Since
inception, we have incurred net operating losses, primarily related to spending on our
research and development programs. As of December 31, 2004, we had an accumulated deficit
of $122.5 million. We have financed our net operating losses through December 31, 2004
primarily through a series of debt and equity financings and revenue received under
collaborative agreements. As of December 31, 2004, we had cash and cash equivalents of
$28.7 million and investments of $2.4 million.

Our
product candidates are at various stages of research and development and some may never be
successfully developed or commercialized. We received regulatory approval to market and
sell NeutroSpec for diagnosis of appendicitis, and we will need regulatory approval to
market and sell PT-141, MIDAS products and NeutroSpec for other indications. PT-141, MIDAS
products and NeutroSpec 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 timely regulatory approval for our other products and indications would impact
our ability to increase sales and could make it more difficult to attract investment
capital for funding our operations. Any of these possibilities could materially and
adversely affect our operations.

In
July 2004, we received approval from the FDA to market NeutroSpec. Approval of NeutroSpec
does not assure the products commercial success. If NeutroSpec does not achieve
adequate market acceptance, our financial condition and results of operations will be
adversely affected.

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During
the six months ended December 31, 2004, our operating activities provided net cash of $7.2
million. During the six months ended December 31, 2003, our operating activities used net
cash of $11.5 million. The difference is primarily the result of cash received under our
collaboration agreement with King, which was completed in August 2004.

During
the six months ended December 31, 2004 and 2003, cash used in investing activities was
$50,000 and $31,000, respectively, consisting of capital expenditures, net of cash
received upon maturity of investments. As a result of planned increases in its development
and other business activities and related employment, the Company intends to expand its
facilities in Cranbury, NJ. The Company projects that related capital expenditures will be
approximately $1.0 million and be completed by June 30, 2005.

During
the six months ended December 31, 2004, net cash provided by financing activities was $3.7
million, due primarily to proceeds from the issuance of common stock and warrants to King
and the exercise of options and warrants. During the six months ended December 31, 2003,
net cash provided by financing activities was $4.6 million, primarily from the exercise of
options and warrants.

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 through at least December 31, 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 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.

Item 3. 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 with respect to our investments, we limit the amount of credit
exposure as to any one issue, issuer and type.

As
of December 31, 2004, our cash and cash equivalents were $28.7 million and our
investments, which consisted of mutual funds, were $2.4 million. 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 investments.

Foreign
Currency Risk. A significant portion of the cost of manufacturing NeutroSpec is
denominated in Euros. Therefore, a fluctuation in exchange rates between the Euro and the
U.S. dollar would affect the Companys future cost of product revenues. The impact on
the Companys future results of operations of any such change will be dependent on
the volume and timing of the Companys future purchases. In addition, the Company
incurs certain research and development costs denominated in foreign currency, which
fluctuate from period to period.

As
of December 31, 2004, the amount of accounts payable and accrued expenses denominated in
Euros was approximately $1,048,000. Percentage increases in the U.S. dollar cost of Euros
would result in corresponding increases in such liabilities. The Company has not hedged
its exposures to foreign exchange fluctuations. However, the Company monitors its
foreign-currency denominated liabilities and commitments on an ongoing basis and may enter
into hedging transactions in the future.

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Item 4. Controls and Procedures.

Our
management, with the participation of our Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of our disclosure controls and procedures, as
defined in Exchange Act Rule 13a-15(e) and 15d-15(e), as of December 31, 2004. Based on
that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that
our disclosure controls and procedures were adequate and effective to ensure that material
information relating to Palatin was made known to them by others within Palatin,
particularly during the period in which this quarterly report on Form 10-Q was being
prepared. There were no changes in our internal control over financial reporting that
occurred during our most recent fiscal quarter that materially affected or that are
reasonably likely to materially affect our internal control over financial reporting.

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PART II  OTHER
INFORMATION

Item 1.   Legal Proceedings.

On
October 29, 2004, Competitive Technologies, Inc. (CTI) commenced an
arbitration with us before the American Arbitration Association to settle assertions of
breach of the terms of our license agreement with CTI. In the arbitration demand, as a
result of the closing of the Companys Collaborative Development and Marketing
Agreement, CTI alleges damages in the amount of at least $4.0 million, plus
interest, costs and attorneys fees. CTI reserves the right to adjust the claimed
damages if additional information is discovered during the course of the
arbitration.

A dispute exists between CTI
and us concerning the interpretation of this license agreement related to whether PT-141 is a Licensed Product and amounts that
may be owed to CTI thereunder. The license agreement provides for binding arbitration as the remedy for dispute resolution. We
dispute CTIs assertions and believe we have meritorious defenses. We intend to vigorously defend ourselves in arbitration
and assert all rights accorded to us, including under the license agreement and at law. We believe that the ultimate resolution of
this matter will not have a material adverse effect on our financial position or results of operations.

Item 2.   Unregistered Sales of Equity
Securities and Use of Proceeds

None.

Item 3.   Defaults Upon Senior
Securities.

None.

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

At our annual meeting of stockholders, which convened on December 9, 2004
and re-convened on January 7, 2005, the stockholders voted on the following issues:

| |   |                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------
| |  | Election of directors;                                                                                        
| |  | Ratification of the appointment of our independent auditors for the
     fiscal year ending June 30, 2005; and
| |  | Approval of an increase in common stock available for issuance under
     the 1996 Stock Option Plan          

Common stock and Series
A convertible preferred stock voted as a single class on all matters. The following tables show the votes cast.

|                             |  |  |            |          
|---------------------------- |  |  | ---------- | ---------
|Election of directors:       |  |  |           
|                             |  |  | For        | Withheld 
|Carl Spana, Ph.D.            |  |  | 33,404,069 | 5,698,257
|John K.A. Prendergast, Ph.D. |  |  | 33,379,898 | 5,722,428
|Perry B. Molinoff, M.D.      |  |  | 33,585,405 | 5,516,921
|Robert K. deVeer, Jr.        |  |  | 33,569,373 | 5,532,953
|Zola P. Horovitz, Ph.D.      |  |  | 32,805,750 | 6,296,576
|Robert I. Taber, Ph.D.       |  |  | 33,578,630 | 5,523,696
|Errol De Souza, Ph.D.        |  |  | 33,581,405 | 5,520,921

|                                                                                      |            |           |             |                
|------------------------------------------------------------------------------------- | ---------- | --------- | ----------- | ---------------
|Other:                                                                                |            |           |             |                
|                                                                                      | For        | Against   | Abstentions | Broker Nonvotes
|Ratification of auditors                                                              | 38,817,680 | 229,348   | 52,298      | 0              
|Increase in common stock available for issuance under the 1996 Stock
     Option Plan | 11,164,279 | 7,392,798 | 120,229     | 20,425,020     

Abstentions and broker non-votes were
counted neither for nor against the election of directors or the ratification of auditors.
Due to a special majority requirement under the 1996 Stock Option Plan (the
Plan), abstentions and broker non-votes were counted against the proposal to
increase the common stock available for issuance under the Plan, which proposal did not
pass.

17

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Item 5.   Other Information.

None.

Item 6.   Exhibits

| | Exhibits filed with this report:
| | --------------------------------

| | 31.1 | Certifications of Chief Executive Officer
| | ---- | -----------------------------------------

| | 31.2 | Certifications of Chief Financial Officer
| | ---- | -----------------------------------------

| | 32.1 | Certification by CEO pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002
| | ---- | ------------------------------------------------------------------------------------------------------------------

| | 32.2 | Certification by CFO pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002
| | ---- | ------------------------------------------------------------------------------------------------------------------

18

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

|                       |  | Palatin Technologies, Inc. (Registrant)                                                                                                       
|---------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|                       |  |                                                                                                                                               
|                       |  |                                                                                                                                               
|                       |  |                                                                                                                                               
|Date: February 9, 2005 |  | /s/ Carl
     Spana Carl
     Spana, Ph.D. President and  Chief Executive Officer                                                             
|                       |  |                                                                                                                                               
|                       |  |                                                                                                                                               
|Date: February 9, 2005 |  | /s/ Stephen T. Wills Stephen T. Wills Executive Vice President and  Chief Financial Officer
     (Principal  Financial and Accounting Officer)

19

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