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U.S. SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 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 March 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 0-22686      PALATIN TECHNOLOGIES, INC.(Exact name of registrant as specified in its charter)   Delaware
     95-4078884(State or other jurisdiction of
     incorporation or organization)
     (I.R.S. Employer Identification
     No.)4C 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 [  ]   No [X]

As of May 13, 2004, 52,668,338 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 (unaudited)                                                                                                                                                                              |        
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------
|        |                                                                                                                                                                                                               |        
|        | CONSOLIDATED BALANCE SHEETS --
     As of March 31, 2004
     and June 30, 2003                                                                                                                               | Page 3 
|        |                                                                                                                                                                                                               |        
|        | CONSOLIDATED STATEMENTS OF
     OPERATIONS --
      For the Three and Nine Months Ended March 31, 2004 and
      March 31, 2003 and the Period from January 28, 1986
      (inception) through March 31, 2004 | Page 4 
|        |                                                                                                                                                                                                               |        
|        | CONSOLIDATED STATEMENTS OF CASH
     FLOWS --
      For the Nine Months Ended March 31, 2004 and
     March 31, 2003 and the Period from January 28, 1986
     (inception) through March 31, 2004             | Page 5 
|        |                                                                                                                                                                                                               |        
|        | Notes to Consolidated Financial
     Statements                                                                                                                                                               | Page 6 
|        |                                                                                                                                                                                                               |        
|Item 2. | Management's Discussion and Analysis of
     Financial Condition
     and Results of Operations                                                                                                               | Page 13
|        |                                                                                                                                                                                                               |        
|Item 3. | Quantitative and Qualitative
     Disclosures About Market Risk                                                                                                                                               | Page 20
|        |                                                                                                                                                                                                               |        
|Item 4. | Controls and Procedures                                                                                                                                                                                       | Page 20
|        |                                                                                                                                                                                                               |        

PART II - OTHER INFORMATION

|Item 1. | Legal Proceedings                                                                    | Page 21
|------- | ------------------------------------------------------------------------------------ | -------
|        |                                                                                      |        
|Item 2. | Changes in Securities,Use of Proceeds
     and Issuer Purchases of Equity Securities | Page 21
|        |                                                                                      |        
|Item 3. | Defaults Upon Senior
     Securities                                                 | Page 21
|        |                                                                                      |        
|Item 4. | Submission of Matters to a Vote of
     Security Holders                             | Page 21
|        |                                                                                      |        
|Item 5. | Other Information                                                                    | Page 21
|        |                                                                                      |        
|Item 6. | Exhibits and Reports on Form
     8-K                                                | Page 21
|        |                                                                                      |        
|        | Signatures                                                                           | Page 22
|        |                                                                                      |        

2

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# PART I - FINANCIAL INFORMATION

## Item 1. Financial Statements

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

`March 31, 2004    June 30, 2003
                                                                         ---------------    -------------
ASSETS
Current assets:
  Cash and cash equivalents                                              $   23,238,251     $ 14,294,603
  Contracts receivable                                                           26,258                -
  Available for sale investments                                              3,913,014        4,088,384
  Prepaid expenses and other                                                    146,320          347,510
                                                                         ---------------   --------------
      Total current assets                                                   27,323,843       18,730,497

Property and equipment, net                                                   3,030,053        3,399,181
Restricted cash                                                                428,075          428,075
Other                                                                           172,801          163,381
                                                                         ---------------   --------------
      Total assets                                                          $30,954,772     $ 22,721,134
                                                                         ===============   ==============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of long term debt, including capital leases            $       81,373     $    188,015
  Accounts payable                                                            2,254,488        1,344,789
  Accrued expenses                                                            1,979,782        1,619,382
  Accrued compensation                                                          200,000          428,500
  Deferred revenue                                                              252,339          407,420
                                                                         ---------------   --------------
      Total current liabilities                                               4,767,982        3,988,106
                                                                         ---------------   --------------

Long term debt, including capital leases                                         32,864           76,432
                                                                         ---------------   --------------

Commitments and contingencies (Note 5)


Stockholders' equity:
  Preferred stock of $.01 par value - authorized 10,000,000 shares;
    Series A Convertible; issued and outstanding 11,947 and 14,867 shares
      as of March 31, 2004 and June 30, 2003, respectively;                         119              149
  Common stock of $.01 par value - authorized 75,000,000 shares;
      issued and outstanding 52,668,359 and 42,994,050 shares as of
      March 31, 2004 and June 30, 2003, respectively                            526,684          429,941
  Additional paid-in capital                                                136,034,512      109,085,115
  Deferred compensation                                                        (124,134)         (37,977)
  Accumulated other comprehensive loss                                         (137,126)         (11,805)
  Deficit accumulated during development stage                             (110,146,129)     (90,808,827)
                                                                         ---------------   --------------
      Total stockholders' equity                                             26,153,926       18,656,596
                                                                         ---------------   --------------
      Total liabilities and stockholders' equity                         $   30,954,772     $ 22,721,134
                                                                         ===============   ==============`

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

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

`Inception
                                                                                                                   (January 28,
                                                                                                                       1986)
                                               Three Months Ended March 31,      Nine Months Ended March 31,          through
                                                   2004            2003            2004              2003         March 31, 2004
                                               ------------    ------------    -------------     -------------    --------------
REVENUES:
  Grants and contracts                         $   149,738     $   181,417     $  2,149,738      $    641,417     $  12,415,249
  License fees                                      31,016         148,878          155,081           545,887         2,885,068
  Other                                                  -               -                -                 -           318,917
                                               ------------    ------------    -------------     -------------    --------------
    Total revenues                                 180,754         330,295        2,304,819         1,187,304        15,619,234
                                               ------------    ------------    -------------     -------------    --------------
OPERATING EXPENSES:
  Research and development                       7,127,006       4,744,379       17,959,723        12,015,910        90,372,226
  General and administrative                     1,164,992       1,280,305        4,168,322         3,651,738        36,416,222
  Net intangibles write down                             -               -                -                 -           259,334
                                               ------------    ------------    -------------     -------------    --------------
    Total operating expenses                     8,291,998       6,024,684       22,128,045        15,667,648       127,047,782
                                               ------------    ------------    -------------     -------------    --------------
OTHER INCOME (EXPENSES):
  Interest income                                   88,297          50,120          261,389           147,079         2,962,521
  Interest expense                                  (4,535)         (7,310)         (16,302)          (14,462)       (1,997,481)
  Merger costs                                           -               -                -                 -          (525,000)
                                               ------------    ------------    -------------     -------------    --------------
    Total other income (expenses)                   83,763          42,810          245,087           132,617           440,040
                                               ------------    ------------    -------------     -------------    --------------
    Loss before income taxes and cumulative
      effect of accounting change               (8,027,481)     (5,651,579)     (19,578,139)      (14,347,727)     (110,988,508)
  Income tax benefit                                     -               -          240,836           245,093         1,203,490
                                               ------------    ------------    -------------     -------------    --------------
    Loss before cumulative effect of
      accounting change                         (8,027,481)     (5,651,579)     (19,337,303)      (14,102,634)     (109,785,018)
  Cumulative effect of accounting change                 -               -                -                 -          (361,111)
                                               ------------    ------------    -------------     -------------    --------------
NET LOSS                                        (8,027,481)     (5,651,579)     (19,337,303)      (14,102,634)     (110,146,129)
PREFERRED STOCK DIVIDEND                                 -         (87,339)               -          (203,138)       (3,511,765)
                                               ------------    ------------    -------------     -------------    --------------
NET LOSS ATTRIBUTABLE TO COMMON
  STOCKHOLDERS                                 $(8,027,481)    $(5,738,918)    $(19,337,303)     $(14,305,772)    $(113,657,894)
                                               ============    ============    =============     =============    ==============

Basic and diluted net loss per common share    $     (0.16)    $     (0.19)    $      (0.42)     $      (0.58)
                                               ============    ============    =============     =============
Weighted average number of common shares
  outstanding used in computing basic and
  diluted net loss per common share             50,455,484      30,162,510       46,033,334        24,532,567
                                               ============    ============    =============     =============`

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

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

`Inception
                                                                                                 (January 28, 1986)
                                                                Nine Months Ended March 31,          Through
                                                                2004             2003            March 31, 2004
                                                              -------------    -------------     --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                    $(19,337,303)    $(14,102,634)     $(110,146,129)
  Adjustments to reconcile net loss to net cash
    used for operating activities:
      Cumulative effect of accounting change                             -                -            361,111
      Depreciation and amortization                                486,715          434,502          3,596,703
      License fee                                                        -                -            500,000
      Interest expense and accrued interest on note
        payable and financings                                           -                -            876,665
      Intangibles and equipment write down                               -                -            278,318
      Common stock and notes payable issued for expenses                 -                -            751,038
      Settlement with consultant                                         -                -            (28,731)
      Acceleration of options previously granted                         -                -          1,505,315
      Stock based compensation                                     858,982           18,872          5,314,356
      Deferred revenue                                            (155,081)        (303,887)          (108,772)
      Changes in certain operating assets and liabilities:
        Contracts receivable                                       (26,258)               -            (26,258)
        Prepaid expenses and other                                 183,039         (308,418)        (1,060,172)
        Accounts payable                                           909,699         (193,841)         2,254,488
        Accrued expenses and other                                 131,900          665,114          1,718,615
                                                              -------------    -------------     --------------
          Net cash used for operating activities               (16,948,307)     (13,790,292)       (94,213,453)
                                                              -------------    -------------     --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Sales/maturities of investments                                   50,049           49,966          2,168,650
  Purchases of investments                                               -       (2,000,000)        (6,261,061)
  Purchases of property and equipment                             (108,856)      (1,019,289)        (6,050,606)
                                                              -------------    -------------     --------------
          Net cash provided/(used) for investing activities        (58,807)      (2,969,323)       (10,143,017)
                                                              -------------    -------------     --------------

 CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from notes payable and other long-term debt                  -                -           6,103,327
  Payments on notes payable and other long-term debt                    -                -          (4,103,327)
  Payments on capital lease obligations                          (150,210)         (158,441)          (303,683)
  Proceeds from common stock, stock option
     and warrant issuances, net                                 26,100,972       31,365,631        101,689,745
  Proceeds from preferred stock, net                                     -                -         24,210,326
  Purchase of treasury stock                                             -                -             (1,667)
                                                              -------------    -------------     --------------
          Net cash provided by financing activities             25,950,762       31,207,190        127,594,721
                                                              -------------    -------------     --------------

NET INCREASE  IN CASH AND CASH EQUIVALENTS                       8,943,648       14,447,575         23,238,251
CASH AND CASH EQUIVALENTS, beginning of period                  14,294,603        7,944,264                  -
                                                              -------------    -------------     --------------

CASH AND CASH EQUIVALENTS, end of period                      $ 23,238,251     $ 22,391,839      $  23,238,251
                                                              =============    =============     ==============`

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

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

(1)    
          Organization Activities:

Nature
of Business  Palatin Technologies, Inc. (Palatin or the
Company) is a development-stage biopharmaceutical company. The Company does
not currently offer any products for sale. The Company is primarily focused on developing
melanocortin (MC)-based therapeutics, which the Company believes is one of the fastest
growing areas of pharmaceutical research and development. The MC family of receptors has
been identified with a variety of conditions and diseases, including sexual dysfunction,
obesity, 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.

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. LeuTech® is the Companys proprietary
radiolabeled monoclonal antibody for imaging and diagnosing infections. The Company
commenced the biologics license application (BLA) amendment filings for equivocal
appendicitis to the Food and Drug Administration (FDA) in the first half of calendar year
2003, filed a majority of the responses to the FDA in September 2003 and remitted the
final BLA amendment filing to the FDA in the first quarter of calendar year 2004. The
Company expects to receive a complete response from the FDA regarding its BLA amendment
filings in the second quarter of calendar year 2004. The Company is also conducting
additional clinical trials with LeuTech to expand 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.
In addition, the Company has several preclinical drug candidates under investigation based
on the MC family of receptors for various therapeutic indications including sexual
dysfunction, obesity, cachexia and inflammation.

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

Business
Risk and Liquidity  As shown in the accompanying financial statements, the Company
incurred a substantial net loss of $19,337,303 for the nine months ended March 31, 2004
and has a deficit accumulated during development stage of $110,146,129, cash and cash
equivalents of $23,238,251 and investments of $3,913,014 as of March 31, 2004. The Company
anticipates incurring additional losses in the future as it continues development of
LeuTech for diagnosis of appendicitis and expands clinical trials for other indications of
LeuTech and

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

(2)    
          Basis of Presentation:

The
accompanying unaudited consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America 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 financial position as of March 31, 2004 and the results of
operations for the three and nine month periods ended March 31, 2004 and 2003 and for the
period from inception (January 28, 1986) to March 31, 2004, and cash flows for the nine
month periods ended March 31, 2004 and 2003 and for the period from inception (January 28,
1986) to March 31, 2004. The results of operations for the nine month period ended March
31, 2004 may not necessarily be indicative of the results of operations expected for the
full year, however the Company does expect to incur a significant loss for the fiscal year
ending June 30, 2004.

The
accompanying consolidated 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 consolidated financial
statements as of June 30, 2003 and 2002 and for each of the three fiscal years in the
period ended June 30, 2003.

(3)    
          Summary of Significant Accounting Policies:

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

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

Statements
of Cash Flows  Cash and cash equivalents include cash on hand, cash in banks and all
highly liquid investments with an original maturity of less than three months at time of
purchase. As of March 31, 2004 and June 30, 2003, approximately $428,000 of cash was
restricted to secure letters of credit for security deposits on leases.

Investments
 The Company accounts for its investments in accordance with Statement of Financial
Accounting Standards No. 115, Accounting For Certain Investments in Debt and Equity
Securities. The Company classifies such investments as available for sale
investments and as such all investments are recorded at fair value. The investments
consist principally of corporate debt securities and 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 earned on securities classified as available for sale is
included in interest income. Realized gains and losses are recorded in the statement of
operations in the period that the transaction occurs.

The following is a summary of
available for sale investments as of March 31, 2004:

`Gross         Gross
                                             Unrealized    Unrealized       Fair
                                   Cost         Gains        Losses         Value
                               ----------    ----------    ----------    ----------
Corporate debt securities      $   50,000    $      895    $        -    $   50,895
Mutual funds                    4,000,140             -       138,021     3,862,119
                               ----------    ----------    ----------    ----------
Total                          $4,050,140    $      895    $  138,021    $3,913,014
                               ==========    ==========    ==========    ==========`

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

`Gross         Gross
                                             Unrealized    Unrealized       Fair
                                   Cost         Gains        Losses         Value
                               ----------    ----------    ----------    ----------
Corporate debt securities      $  100,000    $    2,243    $        -    $  102,243
Mutual funds                    4,000,189             -        14,048     3,986,141
                               ----------    ----------    ----------    ----------
Total                          $4,100,189    $    2,243    $   14,048     4,088,384
                               ==========    ==========    ==========    ==========`

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

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

The
Company recognized $149,738 in grant revenue pursuant to the Small Business Technology
Transfer programs of the Department of Health and Human Services for the three and nine
months ended March 31, 2004 compared to $137,417 for the three and nine months ended March
31, 2003.

The
Company recognized nothing and $2,000,000, respectively, for the three and nine months
ended March 31, 2004 in contract revenue related to the attainment of certain milestones
related to LeuTech pursuant to our collaboration agreement, as amended, with Mallinckrodt,
Inc., a division of Tyco International, Ltd., described below, compared to $44,000 and
$504,000, respectively, for the three and nine months ended March 31, 2003.

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

In
fiscal 2001, the Company adopted U.S. Securities and Exchange Commission Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements (SAB
101) which requires up front, non-refundable license fees to be deferred and
recognized over the performance period. The cumulative effect of adopting SAB 101 resulted
in a one-time, non-cash charge of $361,111 or $0.04 per share, which reflects the deferral
of the $500,000 up-front license fee received from Mallinckrodt in August 1999. Under SAB
101, this payment has been recorded as deferred revenue to be recognized as license
revenue over the remaining development term of this agreement. For the three and nine
months ended March 31, 2004, the Company recognized $2,170 and $10,851, respectively, in
license revenue that was included in the cumulative effect adjustment as of July 1, 2000,
compared to $10,418 and $38,199, respectively, for the three and nine months ended March
31, 2003.

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In
May 2002, the Company entered into an agreement with Mallinckrodt to amend the original
agreement. Under the terms of this amended agreement, Mallinckrodt committed, among other
things, up to an additional $3.2 million, subject to certain conditions and attainment of
certain milestones, to cover half of the Companys estimated expenses associated with
completing the FDA review process of LeuTech. Pursuant to, and upon execution of this
amendment, $800,000 was received. Under SAB 101, this payment has been recorded as
deferred revenue to be recognized as license revenue over the remaining development term
of this agreement. For the three and nine months ended March 31, 2004, the Company
recognized $28,846 and $144,230, respectively, in license revenue under this agreement,
compared to $138,460 and $507,688, respectively, for the three and nine months ended March
31, 2003. The $3.2 million has been paid in full as of March 31, 2004.

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

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

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

`Three Months Ended March 31,   Nine Months Ended March 31,
                                                  -------------------------------------------------------------
                                                      2004            2003             2004            2003
                                                  -------------------------------------------------------------
Net loss attributable to common stockholders:
  As reported                                     $(8,027,481)    $(5,738,918)    $(19,337,303)   $(14,305,772)
  Stock based employee compensation
     expense included in the determination
     of net loss as reported                                -               -          778,815               -
  Impact of total stock-based compensation
     expense determined under fair-value-based
     method                                          (261,051)       (249,769)      (1,739,876)     (1,057,549)
                                                  ------------    ------------    -------------   -------------
  Pro forma                                       $(8,288,532)    $(5,988,687)    $(20,298,364)   $(15,363,321)
                                                  ============    ============    =============   =============
Basic and diluted net loss per common share:
  As reported                                     $     (0.16)    $     (0.19)    $      (0.42)   $      (0.58)
  Impact of stock-based compensation                        -           (0.01)           (0.02)          (0.05)
                                                  ------------    ------------    -------------   -------------
  Pro forma                                       $     (0.16)    $     (0.20)    $      (0.44)   $      (0.63)
                                                  ============    ============    =============   =============`

The
assumptions used in the Black-Scholes option-pricing model are as follows: dividend yield
of 0%, weighted average risk-free interest rate of 2.61% in 2004 and 2.90 % in 2003,
expected volatility of 91.6% in 2004 and 101% in 2003, and an expected option life of
seven years.

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

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

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

Net
Loss per Common Share  The Company applies Statement of Financial Accounting
Standards No. 128, Earnings per Share (SFAS 128). SFAS 128
requires dual presentation of basic and diluted earnings per share (EPS) for
complex capital structures on the face of the statement of operations. Basic EPS is
computed by dividing the net income (loss) attributable to common stockholders 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 nine months ended March 31, 2004 and
2003, there were no dilutive effects of stock options or warrants as the Company incurred
a net loss in each period. Options and warrants to purchase 12,638,184 shares of common
stock at prices ranging from $0.01 to $21.70 per share were outstanding at March 31, 2004.

(4)    
          Accrued Expenses:

Accrued
expenses consist of the following:

`March 31, 2004       June 30, 2003
                                              ----------------------------------
           Product development costs            $1,433,000          $  784,007
           Accrued rent                            387,179             397,872
           Other                                   159,603             437,503
                                              ----------------------------------
                                                $1,979,782          $1,619,382
                                              ==================================`

(5)    
          Commitments and Contingencies:

Leases
 The Company currently leases two facilities in New Jersey under non-cancelable
operating leases and is seeking to terminate one of those leases, which is for the
Companys former corporate offices located in Princeton. In July 2002, the Company
moved into a new facility in Cranbury, New Jersey that combined both the research and
development facility in Edison, New Jersey and corporate offices in Princeton, New Jersey.

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As
of March 31, 2004, the Company had accrued approximately $32,000 related to the
Companys share of estimated costs until termination of the Princeton lease, which is
currently being subleased and is scheduled to expire in December 2004.

Capital
Leases  In September 2002, the Company acquired $417,920 of laboratory equipment
under capital leases. The original term of these leases range from 24 to 60 months. As of
March 31, 2004, $114,237 of principal payments remains outstanding pursuant to these lease
obligations.

License
Agreements  The Company has three license agreements that require minimum yearly
payments. The cost to maintain these license agreements for the fiscal year ending June
30, 2004 amounts to $250,000, which was expensed during the nine months ended March 31,
2004 under these agreements.

(6)    
          Stockholders Equity:

In
January 2004, the Company completed a private placement of its common stock and warrants,
which yielded gross proceeds of approximately $22.7 million (net proceeds of approximately
$21.0 million). Investors purchased 6,992,500 shares of common stock at $3.25 per share
and received five year warrants to purchase 1,048,875 shares of common stock at an
exercise price of $4.06 per share.

(7)    
          Income Tax Benefit:

In
December 2003 and December 2002, the Company sold New Jersey net operating losses pursuant
to the New Jersey Economic Development Authoritys Tax Transfer Program. As a result,
the Company received $240,836 and $245,093, respectively, which is reflected as an income
tax benefit in the consolidated statements of operations.

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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

General

The
following discussion and analysis should be read in conjunction with the consolidated
financial statements and accompanying notes 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 forward-looking statements in this quarterly report on Form 10-Q
do not constitute guarantees of future performance. Shareholders are cautioned that
statements which are not strictly historical statements contained in this quarterly report
on Form 10-Q including, without limitation, current or future financial performance,
managements plans and objectives for future operations, clinical trials and results,
product plans and performance, managements assessment of market factors, as well as
statements regarding the strategy and plans of the Company and its strategic partners,
constitute forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that could cause the actual results of the
Company to be materially different from the historical results or from any results
expressed or implied by such forward-looking statements. The Companys future
operating results are subject to risks and uncertainties and are dependent upon many
factors, including, without limitation, the risks identified in our annual report on Form
10-K for the year ended June 30, 2003, as well as in our other Securities and Exchange
Commission filings.

We
expect to incur additional losses in the future as we continue development of LeuTech for
diagnosis of appendicitis and expand clinical trials for other indications of LeuTech 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

Our
significant accounting policies are described in Note 3 to the consolidated financial
statements included in this report. We believe our most critical accounting policy is
revenue recognition. Revenue from corporate collaborations and licensing agreements
consists of up-front fees, research and development funding, and milestone payments.
Non-refundable up-front fees are deferred and amortized to revenue over the related
performance period. We estimate our performance period as the initial research term. The
actual performance period may vary. We adjust the performance period estimate based upon
available facts and circumstances. Periodic payments for research and development
activities and government grants are recognized over the period that we perform the
related activities under the terms of the agreements. Revenue resulting from the
achievement of milestone events stipulated in the agreements is recognized when the
milestone is achieved. Milestones are based on the occurrence of a substantive element
specified in the contract or as a measure of substantive progress towards completion under
the contract.

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Overview

We
are a development-stage biopharmaceutical company primarily focused on developing
melanocortin (MC)-based therapeutics, which we believe is one of the fastest growing areas
of pharmaceutical research and development. The MC family of receptors has been identified
with a variety of conditions and diseases, including sexual dysfunction, obesity, 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.

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. We
have completed various Phase 1 safety studies and Phase 2A efficacy studies in male
subjects and patients. We have completed a Phase 2B at-home dose-ranging study with PT-141
in male patients. We have also completed a Phase 1 safety study in female subjects.
LeuTech® is our proprietary radiolabeled monoclonal antibody for imaging and
diagnosing infections. We commenced the biologics license application (BLA) amendment
filings for equivocal appendicitis to the Food and Drug Administration (FDA) in the first
half of calendar year 2003, filed a majority of the responses to the FDA in September 2003
and remitted the final BLA amendment filing to the FDA in the first quarter of calendar
year 2004. We expect to receive a complete response from the FDA regarding its BLA
amendment filings in the second quarter of calendar year 2004. We are also conducting
additional clinical trials with LeuTech to expand 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.
In addition, we have several preclinical drug candidates under investigation based on the
MC family of receptors for various therapeutic indications including sexual dysfunction,
obesity, cachexia and inflammation.

Products and Technologies
in Research and Development

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

PT-141. PT-141, our
lead therapeutic drug candidate, is a patented, nasally administered peptide that is under investigation for the treatment of both
male erectile dysfunction (MED) and female sexual arousal disorders (FSAD). We have completed various Phase 1 safety studies and
Phase 2A efficacy studies in male subjects and patients. We have completed a Phase 2B at-home dose-ranging study with PT-141 in
male patients. We have also completed a Phase 1 safety study in female subjects. PT-141 is a synthetic analog of the naturally
occurring hormone alpha-MSH (melanocyte-stimulating hormone). It is an MC receptor-based therapeutic. The MSH class of hormones
are potent regulators of a variety of physiological and behavioral functions, including the natural physiological sexual response.
Our research suggests that PT-141 works through activation of MC receptors in the central nervous system rather than acting
directly on the vascular system, which is a different mechanism of action from currently marketed MED therapies. As a result, it
may offer significant safety and therapeutic benefits over currently marketed products.

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

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

In
December 1999, the FDA accepted our LeuTech BLA for the diagnosis of appendicitis in
patients with equivocal signs and symptoms. In July 2000, the FDA Medical Imaging Drugs
Advisory Committee (MIDAC) unanimously voted that LeuTech is safe and effective for use in
the diagnosis of appendicitis in patients with equivocal signs and symptoms and that the
data presented support the clinical utility of LeuTech in managing these patients. In
September 2000, we received a complete response letter from the FDA where they determined
that the efficacy and safety data were complete, yet additional manufacturing and process
validation data were required prior to final approval. We commenced the BLA amendment
filings to the FDA in the first half of calendar year 2003 and remitted the final BLA
amendment filing to the FDA in the first quarter of 2004. We expect to receive a complete
response from the FDA regarding our BLA amendment filings in the second quarter of
calendar year 2004.

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

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.

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

Under
the terms of the amended agreement, Mallinckrodt committed to fund up to an additional
$3.2 million, subject to certain conditions and attaining certain milestones, to offset a
portion of the estimated expenses associated with completing the FDA review process.
Additionally, timing of the original $10 million in milestone payments has been revised to
coincide with LeuTechs anticipated FDA approval and achievement of future sales
goals. The $3.2 million has been paid in full as of March 31, 2004.

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

We
have initiated a MIDAS program to discover and develop compounds that interact with the MC
family of receptors. MC receptors regulate a diverse array of functions such as
pigmentation, adrenocortical function, immune modulation, sexual arousal and energy
maintenance. Based on this effort, we have identified several MIDAS molecules that are now
in preclinical development as potential treatments for sexual dysfunction, obesity,
cachexia and inflammation. We expect to file an investigational new drug application (IND)
with the FDA for at least one of these preclinical compounds and initiate clinical testing
within the next 12 months.

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

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Results of Operations

Three
and Nine Month Periods Ended March 31, 2004 Compared to Three and Nine Month Periods Ended
March 31, 2003.

Grants and
Contracts  For the three and nine months ended March 31, 2004, we recognized nothing and $2,000,000, respectively, in
contract revenue related to LeuTech pursuant to our collaboration agreement with Mallinckrodt, Inc., a division of Tyco
International, Ltd. compared to $44,000 and $504,000, respectively, for three and nine months ended March 31, 2003. The increase
in contract revenue for the nine months ended March 31, 2004 was attributable to the achievement of milestone events stipulated in
the collaboration agreement. For the three and nine months ended March 31, 2004, we recorded $149,738 in grant revenue pursuant to
the Small Business Technology Transfer programs of the Department of Health and Human Services compared to $137,417 for both the
three and nine months ended March 31, 2003.

License
Fees and Royalties  During the fiscal year ended June 30, 2001, we adopted U.S.
Securities and Exchange Commission Staff Accounting Bulletin No. 101 Revenue
Recognition in Financial Statements (SAB 101), which required up-front,
non-refundable license fees to be deferred and recognized over the performance period. The
cumulative effect of adopting SAB 101 resulted in a one-time, non-cash charge of $361,111
in fiscal 2001, which reflected the deferral portion of an up-front license fee received
from Mallinkrodt, Inc. related to licensing of LeuTech recognized in the fiscal year ended
June 30, 2000. Previously we had recognized up-front license fees when they were received
and we had no obligations to return the fees under any circumstances. Under SAB 101 these
payments should be recorded as deferred revenue and recognized over the remaining term of
the related agreements. For the three and nine months ended March 31, 2004, we recorded
$31,016 and $155,081, respectively, of license revenue compared to $148,878 and $545,887,
respectively, for the three and nine months ended March 31, 2003. For the three and nine
months ended March 31, 2004, $2,170 and $10,851, respectively of license revenue recorded
was included in the cumulative effect adjustment as of July 1, 2000 and $28,846 and
$144,230, respectively, was recorded as a result of the initial $800,000 payment received
from Mallinckrodt pursuant to our amended collaboration agreement in May 2002. For the
three and nine months ended March 31, 2003, $10,418 and $38,199, respectively, of license
revenue recorded was included in the cumulative effect adjustment as of July 1, 2000 and
$138,460 and $507,688, respectively, was recorded as a result of the initial $800,000
payment received from Mallinckrodt.

Research
and development  Research and development expenses (R&D) increased
to $7,127,006 and $17,959,723, respectively, for the three and nine months ended March 31,
2004 compared to $4,744,379 and $12,015,910, respectively, for the three and nine months
ended March 31, 2003. The increase in R&D is primarily related to our increased
development efforts and expanding clinical trials of PT-141 and LeuTech. Our R&D
efforts, and their respective allocated costs, are currently concentrated on the
following:

| |  | PT-141, As of March 31, 2004, we have incurred approximately $30,700,000 in allocated
R&D expenses. For the three and nine months ended March 31, 2004, approximately
$4,100,000 and $8,600,000, respectively, of R&D expense was allocated to PT-141
compared to $1,700,000 and $5,200,000 million, respectively, for the three and nine months
ended March 31, 2003. We anticipate incurring approximately $10,000,000 of R&D
expenses over the next 12 months as we progress with our clinical trials and product
development programs. We will seek to enter into a strategic collaboration agreement,
which we anticipate will offset a portion of the estimated costs.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | LeuTech, As of March 31, 2004, we have incurred approximately $47,600,000 in allocated
R&D expenses. For the three and nine months ended March 31, 2004, approximately
$2,100,000 and $6,900,000, respectively, of R&D expense was allocated to LeuTech
compared to approximately $2,300,000 and $4,700,00, respectively, for the three and nine
months ended March 31, 2003. We anticipate incurring approximately $3,000,000 of R&D
expenses over the next 12 months.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | MIDAS, As of March 31, 2004, we have incurred approximately $12,100,000 in allocated
R&D expenses. For the three and nine months ended March 31, 2004, approximately
$900,000 and $2,500,000, respectively, of R&D expense was allocated to MIDAS compared
to approximately $800,000 and $2,100,000, respectively, for the three and nine months
ended March 31, 2003. Based on this effort, we have identified several molecules that are
now in preclinical development as potential treatments for obesity, sexual dysfunction and
inflammation. We expect to file an IND with the FDA for at least one of these preclinical
compounds and initiate clinical testing within the next 12 months. We anticipate incurring
approximately $3,000,000 of R&D expenses over the next 12 months.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

General
and administrative  General and administrative expenses increased overall to
$1,164,992 and $4,168,322, respectively, for the three and nine month periods ended March
31, 2004 compared to $1,280,305 and $3,651,738, respectively, for the three and nine month
periods ended March 31, 2003. The overall increase in general and administrative expenses
is primarily attributable to an increase in salaries and other stock based compensation
and related personnel expenses.

Interest
income  Interest income increased to $88,297 and $261,389, respectively, for the
three and nine month periods ended March 31, 2004 compared to $50,120 and $147,079,
respectively, for the three and nine month periods ended March 31, 2003. The increase in
interest income is attributable to higher amounts of cash, cash equivalents and
investments available to be invested.

Net
loss  Net loss increased to $8,027,481 and $19,337,303, respectively, for the three
and nine month periods ended March 31, 2004 compared to $5,651,579 and $14,102,634,
respectively, for the three and nine month periods ended March 31, 2003. The increase was
attributable to the increase in expenses explained above.

Liquidity and Capital
Resources

Since
inception, we have incurred net operating losses. As of March 31, 2004, we had a deficit
accumulated during development stage of $110,146,129. We have financed our net operating
losses through March 31, 2004 by a series of debt and equity financings. As of March 31,
2004, we had cash and cash equivalents of $23,238,251 and available for sale investments
of $3,913,014. On January 28, 2004, we completed a private placement of our common stock
and warrants, which yielded gross proceeds of approximately $22,700,000. Pursuant to the
private placement, investors purchased 6,992,500 shares of common stock at $3.25 per share
and received five year warrants to purchase 1,048,875 shares of common stock at an
exercise price of $4.06. The net proceeds of approximately $21,000,000 will be used for
the continued development of PT-141, LeuTech, drug discovery efforts and general corporate
purposes.

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

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

During
the nine months ended March 31, 2004, our operating activities used net cash of
approximately $16,900,000 and during the nine months ended March 31, 2003 our operating
activities used net cash of approximately $13,800,000. The increase resulted primarily
from increased R&D spending on both PT-141 and LeuTech.

During
the nine months ended March 31, 2004, we used cash in investing activities of $58,807
consisting of $108,856 in capital expenditures partially offset by $50,049 received
pursuant to the maturity of a bond. During the nine months ended March 31, 2003, we used
cash in investing activities of approximately $3,000,000, consisting of approximately
$2,000,000 for purchases of investment securities and approximately $1,000,000 for capital
expenditures.

During
the nine months ended March 31, 2004, net cash provided by financing activities was
approximately $26,000,000, consisting of approximately $26,100,000 million from the sale
of common stock and the exercise of common stock options and warrants, partially offset by
approximately $150,000 for payments on capital lease obligations. During the nine months
ended March 31, 2003, net cash provided by financing activities was approximately
$31,200,000, consisting of approximately $31,400,000 from the proceeds of the sale of
common stock and warrants, partially offset by approximately $158,000 for payments on
capital lease obligations.

We
have three license agreements that require minimum yearly payments. Future minimum
payments under the license agreements for the following fiscal years ending June 30 are:
2004  $250,000, 2005  $200,000, 2006  $200,000, 2007  $200,000 and
2008  $200,000.

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

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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 the fiscal year ending June 30, 2005,
based on current and projected expenditure levels. No assurance can be given that we will
not consume a significant amount of our available resources before that time. We plan to
continue to refine our operations, control expenses, evaluate alternative methods to
conduct our business and seek available and attractive sources of financing and sharing of
development costs through strategic collaboration agreements or other resources. Should
appropriate sources of financing not be available, we would delay certain 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 we limit the amount of credit exposure as to any one issue, issuer
and type of investments.

As
of March 31, 2004, our cash and cash equivalents were $23,238,251 and available for sale
investments, which consisted of corporate debt securities and mutual funds, were
$3,913,014. Due to the average maturity and conservative nature of our investment
portfolio, we do not believe that short-term fluctuations in interest rates would
materially affect the value of our securities.

Item 4. Controls and Procedures.

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

Changes
in Internal Controls. There were no significant changes in our internal controls over
financial reporting or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, nor were there any significant deficiencies or
material weaknesses in our internal controls over our financial reporting. Accordingly, we
did not require or undertake any corrective actions.

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Table of Contents

PART II  OTHER
INFORMATION

Item 1. Legal Proceedings.

None.

Item 2. Changes in Securities,Use of Proceeds and Issuer
Purchases of Equity Securities.

In
January 2004, we concluded a private placement of common stock and warrants in which we
sold 6,992,500 shares of our $.01 par value common stock at an offering price of $3.25 per
share. The investors also received 15% warrant coverage on the number of shares they
purchased. Each five-year warrant entitles the holder to purchase one share of common
stock at an exercise price of $4.06 per share. The gross proceeds were approximately
$22,700,000 and the net proceeds were approximately $21,000,000. We made the private
placement solely to financial institutions and accredited investors pursuant to Regulation
D under the Securities Act of 1933. The investors represented to us that they were
purchasing the securities for their own accounts for investment and not with a view toward
resale or distribution to others. The certificates representing the shares of common stock
and warrants bear restrictive legends. A registration statement covering the resale of the
shares by the investors was filed and subsequently declared effective by the Security and
Exchange Commission in April 2004. In connection with the private placement, we paid
placement fees totaling approximately $1,600,000.

Item 3. Defaults Upon Senior
Securities.

None.

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

None.

Item 5. Other Information.

None.

Item 6. Exhibits and Reports on Form
8-K.

(a)  
          Exhibits filed with this report:

| | 31.1 | Certification of Chief Executive Officer
| | ---- | ----------------------------------------

| | 31.2 | Certification of Chief Financial Officer
| | ---- | ----------------------------------------

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

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

(b)  
          Reports on Form 8-K

| | None.
| | -----

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Table of Contents

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: May 13, 2004 |  | /s/ Carl
     Spana Carl
     Spana, Ph.D. President and  Chief Executive Officer                                                             
|                   |  |                                                                                                                                               
|                   |  |                                                                                                                                               
|Date: May 13, 2004 |  | /s/ Stephen T. Wills Stephen T. Wills Executive Vice President and  Chief Financial Officer
     (Principal  Financial and Accounting Officer)

22

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