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Table of Contents

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549

FORM 10-Q

(Mark One)

|[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934
|--- | --------------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2008

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

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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 Drive                                                |                                     
|Cranbury, New Jersey                                                | 08512                               
|(Address of principal executive
     offices)                       | (Zip code)                          

(609) 495-2200(Registrant's telephone number,
including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the 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 xNo o

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of large accelerated filer, accelerated
filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):

| |                                               |  |                                      
| | --------------------------------------------- |  | -------------------------------------
| | Large accelerated filer
          o           |  | Accelerated filer
          o        
|
| | Non-accelerated filer
          o             |  | Smaller reporting company
          x
| | (Do not check if a smaller reporting company) |  |                                      

Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).  Yeso Nox

As of May 9, 2008, 85,204,169
shares of the registrants common stock, par value $.01 per share, were outstanding.

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PALATIN TECHNOLOGIES, INC.Table of Contents

|                                    |                                                                                                        |     
|----------------------------------- | ------------------------------------------------------------------------------------------------------ | ----
|                                    |                                                                                                        | Page
|PART I  FINANCIAL
     INFORMATION
|Item 1.                             | Financial Statements (Unaudited)                                                                       |     
|                                    | Consolidated Balance Sheets
     as of March 31, 2008 and June 30, 2007                                | 2   
|                                    | Consolidated Statements of Operations
     for the Three and Nine Months ended March 31, 2008 and 2007 | 3   
|                                    | Consolidated Statements of Cash Flows
     for the Three and Nine Months ended March 31, 2008 and 2007 | 4   
|                                    | Notes to Consolidated Financial
     Statements                                                        | 5   
|Item 2.                             | Management's Discussion and Analysis of
     Financial Condition and Results of Operations             | 10  
|Item 3.                             | Quantitative and Qualitative
     Disclosures About Market Risk                                        | 14  
|Item 4.                             | Controls and Procedures                                                                                | 14  

PART II - OTHER
INFORMATION

|         |                                                                  |   
|-------- | ---------------------------------------------------------------- | --
|Item 1.  | Legal Proceedings                                                | 15
|Item 1A. | Risk Factors                                                     | 15
|Item 2.  | Unregistered Sales of Equity Securities and
     Use of Proceeds | 16
|Item 3.  | Defaults Upon Senior Securities                                  | 16
|Item 4.  | Submission of Matters to a Vote of Security
     Holders         | 16
|Item 5.  | Other Information                                                | 16
|Item 6.  | Exhibits                                                         | 16

SIGNATURES

1

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Table of Contents

PART I  FINANCIAL
INFORMATION

Item 1. Financial Statements

PALATIN TECHNOLOGIES,
INC.Consolidated Balance Sheets(unaudited)

|                                                                    |               |                  |              |                  |  
|------------------------------------------------------------------- | ------------- | ---------------- | ------------ | ---------------- | -
|                                                                    | March 31,2008 |                  | June 30,2007 |                 
|ASSETS                                                             
|Current assets:                                                     |              
|Cash and cash equivalents                                           |               | $   14,223,326   |              | $   31,447,615   |  
|Available-for-sale investments                                      |               | 3,385,752        |              | 2,323,642        |  
|Accounts receivable                                                 |               | 338,870          |              | 607,841          |  
|Prepaid expenses and other current assets                           |               | 707,261          |              | 1,008,464        |  
|Total current assets                                                |               | 18,655,209       |              | 35,387,562       |  
|                                                                   
|Property and equipment, net                                         |               | 5,478,267        |              | 6,070,226        |  
|Restricted cash                                                     |               | 475,000          |              | 475,000          |  
|Other assets                                                        |               | 258,926          |              | 848,446          |  
|Total assets                                                        |               | $   24,867,402   |              | $   42,781,234   |  
|                                                                   
|LIABILITIES AND STOCKHOLDERS' EQUITY                                |              
|Current liabilities:                                                |              
|Capital lease obligations and notes payable, current portion        |               | $        281,840 |              | $        216,841 |  
|Accounts payable                                                    |               | 979,142          |              | 1,120,894        |  
|Accrued expenses                                                    |               | 1,582,027        |              | 2,420,837        |  
|Accrued compensation                                                |               | 715,036          |              | 941,300          |  
|Deferred revenue, current portion                                   |               | 1,916,669        |              | 4,864,833        |  
|Total current liabilities                                           |               | 5,474,714        |              | 9,564,705        |  
|                                                                   
|Capital lease obligations and notes payable, net of current portion |               | 180,371          |              | 275,126          |  
|Deferred rent, net of current portion                               |               | 1,597,647        |              | 1,966,628        |  
|Deferred revenue, net of current portion                            |               | 6,388,886        |              | 12,443,087       |  
|Total liabilities                                                   |               | 13,641,618       |              | 24,249,546       |  
|                                                                   
|Commitments and contingencies (Note 6)                              |              
|                                                                   
|Stockholders' equity:                                               |              
|Preferred stock of $.01 par value - authorized 10,000,000 shares;   |              
|Series A Convertible; issued and outstanding 4,997 shares as of     |              
|March 31, 2008 and June 30, 2007                                    |               | 50               |              | 50               |  
|Common stock of $.01 par value - authorized 150,000,000 shares;     |              
|issued and outstanding 85,204,169 and 85,126,915 shares as of       |              
|March 31, 2008 and June 30, 2007, respectively                      |               | 852,042          |              | 851,269          |  
|Additional paid-in capital                                          |               | 207,648,737      |              | 205,875,438      |  
|Accumulated other comprehensive income                              |               | 62,098           |              | -                |  
|Accumulated deficit                                                 |               | (197,337,143     | )            | (188,195,069     | )
|Total stockholders' equity                                          |               | 11,225,784       |              | 18,531,688       |  
|Total liabilities and stockholders' equity                          |               | $   24,867,402   |              | $   42,781,234   |  

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

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Table of Contents

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

|                                |  |                              |   |                             |   |                  |   |                   |  
|------------------------------- |  | ---------------------------- | - | --------------------------- | - | ---------------- | - | ----------------- | -
|                                |  | Three Months Ended March 31, |   | Nine Months Ended March 31, |  
|                                |  | 2008                         |   | 2007                        |   | 2008             |   | 2007              |  
|REVENUES:                       |  |                              |   |                             |   |                  |   |                   |  
|Licenses, grants and            | 
|contracts                       |  | $      746,957               |   | $   3,090,036               |   | $ 10,467,523     |   | $ 11,768,247      |  
|                               
|OPERATING EXPENSES:             | 
|Research and                    | 
|development                     |  | 4,561,047                    |   | 8,128,584                   |   | 16,296,268       |   | 29,821,764        |  
|General and administrative      |  | 1,480,167                    |   | 2,021,734                   |   | 5,468,229        |   | 5,239,142         |  
|                               
|Total operating                
|expenses                        |  | 6,041,214                    |   | 10,150,318                  |   | 21,764,497       |   | 35,060,906        |  
|                               
|Loss from operations            |  | (5,294,257                   | ) | (7,060,282                  | ) | (11,296,974      | ) | (23,292,659       | )
|                               
|OTHER INCOME         (EXPENSE): | 
|Investment income               |  | 197,199                      |   | 348,337                     |   | 908,290          |   | 899,711           |  
|Interest expense                |  | (14,136                      | ) | (9,223                      | ) | (44,834          | ) | (32,411           | )
|                               
|Total other income, net         |  | 183,063                      |   | 339,114                     |   | 863,456          |   | 867,300           |  
|                               
|Loss before income taxes        |  | (5,111,194                   | ) | (6,721,168                  | ) | (10,433,518      | ) | (22,425,359       | )
|Income tax benefit              |  | -                            |   | -                           |   | 1,291,444        |   | 778,308           |  
|                               
|NET LOSS                        |  | $ (5,111,194                 | ) | $ (6,721,168                | ) | $ (9,142,074     | ) | $ (21,647,051     | )
|                               
|Basic and diluted net loss per  | 
|common share                    |  | $          (0.06             | ) | $          (0.09            | ) | $          (0.11 | ) | $           (0.30 | )
|                               
|Weighted average number of      | 
|common shares outstanding       | 
|used in computing basic         | 
|and diluted net loss per        | 
|common share                    |  | 85,204,169                   |   | 78,052,712                  |   | 85,195,179       |   | 73,329,042        |  

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

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Table of Contents

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

|                                                     |                             |                 |      |                 |  
|---------------------------------------------------- | --------------------------- | --------------- | ---- | --------------- | -
|                                                     | Nine Months Ended March 31, |                
|                                                     | 2008                        |                 | 2007 |                
|CASH FLOWS FROM OPERATING ACTIVITIES:                |                             |                 |      |                 |  
|Net loss                                             |                             | $(9,142,074     | )    | $(21,647,051    | )
|Adjustments to reconcile net loss to net cash        |                            
|used in operating activities:                        |                            
|Depreciation and amortization                        |                             | 1,038,208       |      | 1,061,399       |  
|Stock-based compensation                             |                             | 1,663,843       |      | 1,247,078       |  
|Changes in operating assets and liabilities:         |                            
|Accounts receivable                                  |                             | 268,971         |      | (345,423        | )
|Prepaid expenses and other                           |                             | 890,723         |      | 791,095         |  
|Accounts payable                                     |                             | (141,752        | )    | 11,746          |  
|Accrued expenses and other                           |                             | (1,434,055      | )    | (1,561,559      | )
|Deferred revenues                                    |                             | (9,002,365      | )    | 7,283,032       |  
|                                                    
|Net cash used in operating activities                |                             | (15,858,501     | )    | (13,159,683     | )
|                                                    
|CASH FLOWS FROM INVESTING ACTIVITIES:                |                            
|Purchase of available-for-sale investments           |                             | (1,000,012      | )    | -               |  
|Purchases of property and equipment                  |                             | (247,461        | )    | (685,834        | )
|                                                    
|Net cash used in investing activities                |                             | (1,247,473      | )    | (685,834        | )
|                                                    
|CASH FLOWS FROM FINANCING ACTIVITIES:                |                            
|Payments on capital lease obligations                |                             | (228,544        | )    | (115,416        | )
|Proceeds from issuances of common stock and warrants |                             | 110,229         |      | 26,204,019      |  
|                                                    
|Net cash provided by (used in) financing activities  |                             | (118,315        | )    | 26,088,603      |  
|                                                    
|NET INCREASE (DECREASE) IN CASH AND                  |                            
|CASH EQUIVALENTS                                     |                             | (17,224,289     | )    | 12,243,086      |  
|                                                    
|CASH AND CASH EQUIVALENTS, beginning                 |                            
|of period                                            |                             | 31,447,615      |      | 28,333,211      |  
|                                                    
|CASH AND CASH EQUIVALENTS, end of period             |                             | $ 14,223,326    |      | $ 40,576,297    |  
|                                                    
|SUPPLEMENTAL CASH FLOW INFORMATION:                  |                            
|Equipment acquired under financing agreements        |                             | $      198,788  |      | $      316,632  |  
|                                                    
|Cash paid for interest                               |                             | $        44,834 |      | $        32,411 |  

The accompanying notes are an integral part of these
consolidated 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 primarily focused on discovering and
developing targeted, receptor-specific peptide and small molecule therapeutics, including
melanocortin (MC)-based therapeutics. Therapeutics affecting the activity of
the MC family of receptors may have the potential to treat a variety of conditions and
diseases, including sexual dysfunction, obesity and related disorders, cachexia,
hemorrhagic shock and inflammation-related diseases. The Company is exploring other
receptor-specific therapeutics, including natriuretic peptide receptor A
(NPRA) agonist compounds for use in treatment of acute systemic hypertension,
congestive heart failure and other diseases.

The
Company has commenced a program for use of bremelanotide, an MC receptor agonist peptide,
as a therapeutic agent for treatment of hemorrhagic shock, and has discontinued
development of bremelanotide for the treatment of male and female sexual dysfunction. The
Company has an ongoing program to develop other MC-based peptides for the treatment of
male and female sexual dysfunction.

The
Company has a licensing and research collaboration agreement with AstraZeneca AB
(AstraZeneca) to discover, develop and commercialize compounds that target MC
receptors for the treatment of obesity, diabetes and related metabolic syndrome.

The
Company is conducting research on peptidomimetic NPRA agonist compounds for treatment of
acute systemic hypertension, congestive heart failure and other diseases. Certain
compounds under investigation result from utilization of the Companys MIDAS
technology, a proprietary platform technology to design and synthesize compounds that
mimic the activity of peptides.

NeutroSpec
is the Companys radiolabeled monoclonal antibody product for imaging and diagnosing
infection and the subject of a strategic collaboration agreement with the Mallinckrodt
division of Covidien Ltd. (Mallinckrodt). In July 2004, the Company received
approval from the U.S. Food and Drug Administration (FDA) to market NeutroSpec
for imaging and diagnosing equivocal appendicitis. In December 2005, the Company and
Mallinckrodt voluntarily suspended the sales, marketing and distribution of NeutroSpec
following the occurrence of certain serious adverse events involving patients who received
NeutroSpec. Significant development activities pertaining to NeutroSpec are currently
suspended while the Company and Mallinckrodt evaluate future development and marketing
alternatives.

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
development, 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 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 consolidated financial statements, the Company has an accumulated deficit as
of March 31, 2008 and incurred a net loss for the three and nine months ended March 31,
2008. The Company anticipates incurring additional losses in the future as a result of
spending on its development programs. To achieve profitability, the Company, alone or with
others, must successfully develop and commercialize its technologies and proposed
products, which would require it to conduct successful preclinical studies and clinical
trials, obtain required regulatory approvals and successfully manufacture and market such
technologies and proposed products. The time period 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 believes that its cash, cash equivalents and available-for-sale investments as of
March 31, 2008, together with expected receipts from collaboration and license agreements
and other income, are adequate to fund operations for at least the next twelve months.
The nature and timing of the Companys development activities are highly dependent
on its financing activities. 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

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will be successful. If adequate
funds are not available, the Companys financial condition will be materially and
adversely affected, due to the Companys expected negative cash flows from
operations.

Concentrations Concentrations in the Companys assets and operations subject it to certain
related risks. Financial instruments that potentially subject the Company to
concentrations of credit risk primarily consist of cash and cash equivalents,
available-for-sale investments and accounts receivable. The Companys cash and cash
equivalents are primarily invested in one money market fund sponsored by a large financial
institution. The Companys accounts receivable balance as of March 31, 2008 consists
of amounts due from its collaboration partners, and is comprised of $314,046 due from
AstraZeneca and $24,824 due from Mallinckrodt.

Revenues
from collaboration partners as a percentage of total revenues were as follows:

|             |                              |     |                             |     |      |     |      |     | 
|------------ | ---------------------------- | --- | --------------------------- | --- | ---- | --- | ---- | --- | 
|             | Three Months Ended March 31, |     | Nine Months Ended March 31, |    
|             | 2008                         |     | 2007                        |     | 2008 |     | 2007 |    
|AstraZeneca  |                              | 98% |                             | 17% |      | 21% |      | 4%  | 
|Mallinckrodt |                              | 2%  |                             | 1%  |      | 1%  |      | 2%  | 
|King         |                              | -%  |                             | 82% |      | 78% |      | 94% | 

(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 consolidated financial statements contain
all adjustments (consisting of normal recurring adjustments) considered necessary to
present fairly the Companys financial position as of March 31, 2008, its results of
operations for the three and nine months ended March 31, 2008 and 2007, and its cash flows
for the nine months ended March 31, 2008 and 2007. The results of operations for the
three- and nine-month periods ended March 31, 2008 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, 2008.

The
accompanying consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto included in the Companys
annual report on Form 10-K, filed with the Securities and Exchange Commission
(SEC), which includes consolidated financial statements as of June 30, 2007
and 2006 and for each of the fiscal years in the three-year period ended June 30, 2007.

(3)    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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.

Cash
and Cash Equivalents Cash and cash equivalents include cash on hand, cash in banks
and all highly liquid investments with a purchased maturity of three months or less.
Restricted cash secures letters of credit for security deposits on leases.

Investments The Company classifies its investments as available-for-sale investments and all
such investments are recorded at fair value based on quoted market prices. Unrealized
holding gains and losses, net of the related tax effect, if any, are generally excluded
from earnings and are reported in accumulated other comprehensive income/loss until
realized. Interest and dividends on securities classified as available-for-sale are
included in investment income. Gains and losses are recorded in the statement of
operations when realized or when unrealized holding losses are determined to be other than
temporary, on a specific-identification basis.

Fair
Value of Financial Instruments The Companys financial instruments consist
primarily of cash and cash equivalents, available-for-sale investments, accounts
receivable, accounts payable, capital lease obligations and notes payable. Management
believes that the carrying value of these assets and liabilities are representative of
their respective fair values based on quoted market prices for investments and the
short-term nature of the other instruments.

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Property
and Equipment Property and equipment consists of office and laboratory equipment,
office furniture and leasehold improvements and includes assets acquired under capital
leases. Property and equipment are recorded at cost. Depreciation is recognized using the
straight-line method over the estimated useful lives of the related assets, generally five
years for laboratory equipment, seven years for office furniture and equipment and the
lesser of the term of the lease or the useful life for leasehold improvements.
Amortization of assets acquired under capital leases is included in depreciation.
Maintenance and repairs are expensed as incurred while expenditures that extend the useful
life of an asset are capitalized.

Impairment
of Long-Lived Assets The Company reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of the
assets may not be fully recoverable. To determine recoverability of a long-lived asset,
management evaluates whether the estimated future undiscounted net cash flows from the
asset are less than its carrying amount. If impairment is indicated, the long-lived asset
would be written down to fair value. Fair value is determined by an evaluation of
available price information at which assets could be bought or sold, including quoted
market prices if available, or the present value of the estimated future cash flows based
on reasonable and supportable assumptions.

Deferred
Rent The Companys operating leases provide for rent increases over the terms
of the leases. Deferred rent consists of the difference between periodic rent payments and
the amount recognized as rent expense on a straight-line basis, as well as tenant
allowances for leasehold improvements.

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.
The Company estimates the performance period as the period in which it performs certain
development activities under the applicable agreement. 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, provided that such milestone is
substantive in nature.

Research
and Development Costs The costs of research and development activities are charged
to expense as incurred, including the cost of equipment for which there is no alternative
future use.

Stock
Options The Company accounts for options granted to employees in accordance with
Statement of Financial Accounting Standards (SFAS) 123(R), Share-Based
Payment. SFAS 123(R) establishes standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods or services and requires that
the compensation cost relating to share-based payment transactions be recognized in the
financial statements, measured by the fair value of the equity or liability instruments
issued, adjusted for estimated forfeitures.

The
Company accounts for options granted to consultants in accordance with Emerging Issues
Task Force (EITF) Issue 96-18, Accounting for Equity Instruments That
Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services, and SFAS 123(R).

The
Company determines the fair value of options utilizing the Black-Scholes option-pricing
model. Compensation costs for share-based awards with pro rata vesting are allocated to
periods on a straight-line basis.

Income
Taxes The Company and its subsidiary file consolidated federal and separate-company
state income tax returns. Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences or
operating loss and tax credit carryforwards are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in
the period that includes the enactment date.

In
accordance with SFAS 109, Accounting for Income Taxes, the Company has
recorded a valuation allowance against its deferred tax assets. The valuation allowance is
based on managements estimates and analysis, which includes consideration of tax
laws that may limit the Companys ability to utilize its net operating loss
carryforwards.

During
the nine months ended March 31, 2008 and 2007, the Company sold New Jersey state net
operating loss carryforwards, which resulted in the recognition of $1,291,444 and
$778,308, respectively, in tax benefits.

Net
Loss per Common Share Basic earnings per share (EPS) is computed
by dividing net 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, including stock options and warrants, restricted stock
units and shares of Series A Convertible Preferred Stock, if the effect is not
antidilutive. As of March 31,

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2008 and 2007, common shares
issuable upon conversion of Series A Convertible Preferred Stock, the vesting of
restricted stock units and the exercise of outstanding options and warrants amounted to
an aggregate of 14,470,945 and 16,801,691 shares, respectively, and were not included in
the computation of Diluted EPS because to do so would have been anti-dilutive for the
periods presented.

New
Accounting Pronouncements In December 2007, the Financial Accounting Standards
Board (FASB) issued EITF Issue 07-1, Accounting for Collaborative
Arrangements, which applies to collaborative arrangements that are conducted by the
participants without the creation of a separate legal entity for the arrangements and
clarifies, among other things, how to determine whether a collaborative agreement is
within the scope of this issue. EITF Issue 07-1 is effective for financial statements
issued for fiscal years beginning after December 15, 2008. The Company does not expect the
adoption of EITF Issue 07-1 to have a material impact on its results of operations and
financial position.

In
June 2007, the FASB issued EITF Issue 07-3, Accounting for Nonrefundable Advance
Payments for Goods or Services Received for Use in Future Research and Development
Activities, which applies to companies involved in research and development
activities that make non-refundable advance payments for goods that will be used or for
services that will be performed in future research and development activities. EITF Issue
07-3 is effective for financial statements issued for fiscal years beginning after
December 15, 2007. The Company does not expect the adoption of EITF Issue 07-3 to have a
material impact on its results of operations and financial position.

In
September 2006, the FASB issued SFAS 157, Fair Market Measurements. SFAS 157
clarifies the definition of fair value, establishes a framework for measuring fair value
and expands disclosure on fair value measurement. SFAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and will be applied
on a prospective basis. The Company does not expect the adoption of SFAS 157 to have a
material impact on its consolidated financial position, results of operation and cash
flows.

In
February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets
and Financial Liabilities. SFAS 159 permits entities to measure many financial
instruments and certain other items at fair value at specified election dates. Under SFAS
159, any unrealized holding gains and losses on items for which the fair value option has
been elected are reported in earnings at each subsequent reporting date. If elected, the
fair value option (1) may be applied instrument by instrument, with a few exceptions, such
as investments otherwise accounted for by the equity method; (2) is irrevocable (unless a
new election date occurs); and (3) is applied only to entire instruments and not to
portions of instruments. SFAS 159 is effective as of an entitys first fiscal year
that begins after November 15, 2007. The Company is currently evaluating the potential impact
of SFAS 159 on its consolidated results of operations and financial position.

(4)    
COMPREHENSIVE LOSS

Comprehensive
loss consists of the following:

|                               |                              |              |                             |              |      |              |      |               |  
|------------------------------ | ---------------------------- | ------------ | --------------------------- | ------------ | ---- | ------------ | ---- | ------------- | -
|                               | Three Months Ended March 31, |              | Nine Months Ended March 31, |             
|                               | 2008                         |              | 2007                        |              | 2008 |              | 2007 |              
|Net loss                       |                              | $ (5,111,194 | )                           | $ (6,721,168 | )    | $ (9,142,074 | )    | $ (21,647,051 | )
|Unrealized gain on investments |                              | 23,656       |                             | 5,040        |      | 62,098       |      | 7,583         |  
|Comprehensive loss             |                              | $ (5,087,538 | )                           | $ (6,716,128 | )    | $ (9,079,976 | )    | $ (21,639,468 | )

(5)    INVESTMENTS

The
following is a summary of available-for-sale investments, which consist of mutual funds
that invest primarily in debt instruments:

|                               |  |               |  |              | 
|------------------------------ |  | ------------- |  | ------------ | 
|                               |  | March 31,2008 |  | June 30,2007 | 
|Cost                           |  | $3,323,654    |  | $2,323,642   | 
|Unrealized gain on investments |  | 62,098        |  | -            | 
|Fair value                     |  | $3,385,752    |  | $2,323,642   | 

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(6)    COMMITMENTS
AND CONTINGENCIES

On
January 21, 2008, the Company entered into a settlement agreement and release with
Competitive Technologies, Inc. (CTI), resolving all outstanding disputes
between the Company and CTI. The arbitration proceeding and the Connecticut Superior Court
proceeding have been dismissed with prejudice. The existing license agreement between CTI
and the Company has been terminated. CTI retains all rights to a peptide called variously
MT-II or PT-14, which peptide was developed at the University of Arizona, and the Company
expressly relinquished all claims to any contractual or intellectual property rights to
that peptide or any patents licensed under the terminated license agreement. The Company
retains all rights to bremelanotide, and CTI expressly relinquished all claims to any
contractual or intellectual property rights to bremelanotide, including any claim that
making, using or selling bremelanotide infringes any patents licensed under the terminated
license agreement. The settlement agreement and release also includes mutual covenants not
to sue and releases of all claims by either party against the other based on, arising out
of or in any way involving the subject matter of the license agreement, the arbitration or
the Connecticut Superior Court proceeding. As part of the settlement, the Company remitted
a one-time payment to CTI of $800,000 that was accrued and charged to general and
administrative expense as of December 31, 2007.

(7)    
STOCKHOLDERS EQUITY

On
March 26, 2008, the Companys compensation committee revised the vesting conditions
of restricted stock units granted to its executive officers on October 6, 2006. Under the
revised conditions, the 375,000 restricted stock units granted to Carl Spana and the
300,000 restricted stock units granted to each of Stephen T. Wills and Trevor Hallam will
vest on March 26, 2010, provided that each officer remains employed by Palatin through
such date, subject to earlier vesting in the event of a change in control or termination
of employment other than voluntary or for cause. The Company will recognize the adjusted
fair value of these restricted stock units, totaling $273,000, on a straight-line basis
through March 26, 2010.

(8)    
SUBSEQUENT EVENT

On
May 12, 2008, the Company reduced its work force by approximately 30% and incurred
approximately $400,000 in severance and related costs to be paid over the following six
months. The expense, which will be recorded in the quarter ended June 30, 2008, will be
allocated between research and development and general and administrative expenses in the
amounts of $375,000 and $25,000, respectively, based on the respective positions
eliminated. Additionally, approximately 320,000 shares of common stock vested due to
employees being involuntarily terminated by reason of position elimination, pursuant to
restricted stock units granted on September 25, 2007 to the Companys then employees
under the Companys 2005 Stock Plan, resulting in an incremental non-cash charge to compensation
expense of approximately $90,000.

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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 us
or by our officers, directors, or employees acting on our 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 that 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 our strategy and plans and our strategic partners, constitute
forward-looking statements. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that could cause our actual results to be
materially different from historical results or from any results expressed or implied by
such forward-looking statements. Our future operating results are subject to risks and
uncertainties and are dependent upon many factors, including, without limitation, the
risks identified in this report, in our annual report on Form 10-K for the year ended June
30, 2007 and in our other Securities and Exchange Commission (SEC) filings.

We
expect to incur losses in the future as a result of spending on our planned development
programs and losses may fluctuate significantly from quarter to quarter.

Critical Accounting
Policies and Estimates

Our
significant accounting policies are described in the notes to our consolidated financial
statements included in this report and in our annual report on Form 10-K for the year
ended June 30, 2007, and have not changed as of March 31, 2008. We believe that our
accounting policies and estimates relating to revenue recognition, accrued expenses and
stock-based compensation are the most critical.

Overview

We
are a biopharmaceutical company focused on discovering and developing targeted,
receptor-specific peptide and small molecule therapeutics. Our proprietary drug
development pipeline is based primarily on melanocortin (MC)-based
therapeutics, and we believe we are a leader in this area of pharmaceutical research and
development. Therapeutics affecting the activity of the MC family of receptors may have
the potential to treat a variety of conditions and diseases, including sexual dysfunction,
obesity and related disorders, cachexia, hemorrhagic shock and inflammation-related
diseases. We are exploring other receptor-specific therapeutics, including natriuretic
peptide receptor A (NPRA) agonist compounds for use in treatment of acute
systemic hypertension, congestive heart failure and other cardiovascular diseases.

Bremelanotide
- Development Program for Hemorrhagic Shock-Related Indications We have
initiated a program for use of bremelanotide as a therapeutic agent for treatment of
hemorrhagic shock (shock induced by blood loss, such as secondary to surgery or trauma).
As part of the repositioning of bremelanotide, we have discontinued development of it for
the treatment of male erectile dysfunction (ED) and the treatment of female
sexual dysfunction (FSD). We have conducted animal studies for use of
bremelanotide for hemorrhagic shock, and have demonstrated increases in blood pressure,
survival and end organ preservation upon intravenous administration of bremelanotide
following surgically induced hemorrhagic shock. Use of MC-specific compounds for treatment
of hemorrhagic shock and related indications has been studied by a number of academic
groups, including limited human clinical trials conducted using an endogenous MC-specific
compound. However, there are no approved MC agents for this indication.

Bremelanotide
for hemorrhagic shock will be administered by intravenous administration, and we will
conduct additional preclinical toxicology and safety studies of bremelanotide by this
route of administration. We are also conducting additional animal studies with the
objective of showing efficacy for treatment of hemorrhagic shock. Depending on results
from further preclinical and animal studies, we anticipate that an Investigational New
Drug (IND) application for use of bremelanotide for hemorrhagic shock will be
submitted in the first half of calendar 2009, with human clinical trials starting
thereafter. We currently anticipate that human clinical trials of bremelanotide for
hemorrhagic shock will be conducted in patients undergoing surgery in high blood-loss
procedures, such as certain cardiac, abdominal and orthopedic surgeries. One anticipated
endpoint will be the ability to maintain adequate blood pressure in patients with
significant blood loss while decreasing otherwise required blood transfusions.

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MC-Based
Peptides for ED and FSD We have developed and are evaluating a series of MC-based
peptides for treatment of ED and FSD. Certain of these peptides cause a significantly
lower increase in blood pressure in relevant animal models than does bremelanotide, but
with comparable efficacy in relevant animal models for ED. Concerns raised by the U.S.
Food and Drug Administration (FDA) about the acceptable benefit/risk ratio to
support the progression of bremelanotide into Phase 3 studies for ED as a first-line
therapy in the general population related primarily to increases in blood pressure
observed in some patients. Based on animal model data, we believe that the new series of
MC-based peptides will cause significantly less increase in blood pressure than that seen
with bremelanotide. We have identified multiple potential lead MC-based peptides for ED
and FSD, and are in the process of making a final lead selection in preparation for
manufacturing scale-up and preclinical studies required to support an IND application with
the FDA. We currently anticipate that Phase 1 studies with the selected peptide, assuming
acceptable outcomes in toxicity and other preclinical studies, will be initiated in the
first half of calendar 2009.

Obesity In January 2007, we entered into an exclusive global licensing and research
collaboration agreement with AstraZeneca AB (AstraZeneca), a major
international pharmaceutical and healthcare business, to discover, develop and
commercialize compounds that target MC receptors for the treatment of obesity, diabetes
and related metabolic syndrome. The collaboration is based on Palatins MC receptor
obesity program and includes access to compound libraries, core technologies and expertise
in MC receptor drug discovery and development. We and AstraZeneca are in the process of
identifying clinical candidate MC therapeutic compounds for the treatment of obesity and
related disorders.

NPRA
Agonist Compounds - Acute Systemic Hypertension and Congestive Heart Failure 
We have developed a library of novel NPRA agonist compounds, and completed a Phase 1
single ascending dose safety trial with PL-3994, our lead clinical candidate, during this
quarter. The Phase 1 trial was a randomized, double-blind, placebo-controlled, study in 26
healthy volunteers who received the medication or placebo subcutaneously. The evaluations
included safety, tolerability, pharmacokinetics and several pharmacodynamic endpoints,
including levels of cyclic guanosine monophosphate (cGMP), a natural messenger nucleotide.
Dosing concluded with the successful achievement of the primary endpoint of the study, a
prespecified reduction in systemic blood pressure. No volunteer experienced a serious or
severe adverse event. Elevations in plasma cGMP levels, increased diuresis (urine
excretion) and increased natriuresis (sodium excretion) were all observed for several
hours after single subcutaneous doses.

We
intend to initiate a Phase 2A study this quarter to evaluate the effect of PL-3994 on
blood pressure and other endpoints on patients with controlled hypertension. Based upon
results of this study, we intend to initiate further studies evaluating PL-3994 as a
therapeutic for the treatment of acute systemic hypertension, including hypertensive
urgency (acute hypertension without evidence of target end-organ damage). In the present
formulation, PL-3994 is administered by subcutaneous injection, permitting administration
without establishing an intravenous line but with more rapid onset of action than most
currently approved oral anti-hypertension therapies. A percentage of patients presenting
at emergency rooms and other urgent care centers have severe increases in blood pressure,
presenting a significant health risk because prolonged severe hypertension is known to
cause irreversible organ damage, including damage to the heart, brain, kidneys and blood
vessels. Current treatment options are limited to intravenous drugs, which require
establishing and maintaining an intravenous line, and oral therapies, which typically have
a gradual and prolonged onset of action, and which are time-consuming to titrate or reach
an effective dose without resulting in an unacceptable decrease in blood pressure.

Depending
in part on results of the Phase 2A study of PL-3994 in patients with controlled
hypertension, we also intend to initiate a Phase 2A study during the next fiscal year to
evaluate the effect of PL-3994 for treatment of acute congestive heart failure
(CHF). This study will evaluate the effect of PL-3994 on patients hospitalized
with CHF, and will include measures of pulmonary capillary wedge pressure, which is
predictive of the extent of acute pulmonary edema, a major complication of CHF. CHF is the
single largest cause of hospital admissions of people over the age of 65.

NeutroSpec We are evaluating future development and marketing activities involving NeutroSpec,
our radiolabeled monoclonal antibody product for imaging and diagnosing infection, with
the Mallinckrodt division of Covidien Ltd. (Mallinckrodt), with whom we have a
strategic collaboration agreement. In July 2004, the Company received approval from the
FDA to market NeutroSpec for imaging and diagnosing equivocal appendicitis. In December
2005, we and Mallinckrodt voluntarily suspended the sales, marketing and distribution of
NeutroSpec following certain serious adverse events involving patients who received
NeutroSpec.

Business
Strategy Key elements of our business strategy include: entering into alliances and
partnerships with pharmaceutical companies to facilitate the development, manufacture,
marketing, sale and distribution of product candidates we are developing; expanding our
pipeline through the utilization of our MC expertise and patented drug discovery platform;
acquiring synergistic products and technologies; and partially funding our development and
discovery programs with the cash flow from our collaboration agreements.

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We
incorporated in Delaware in 1986 and commenced operations in the biopharmaceutical area in
1996. Our corporate offices and research and development 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 SEC. 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.

Results of Operations

Three and Nine Months Ended March 31,
2008 Compared to the Three and Nine Months Ended March 31, 2007

Licenses,
Grants and Contracts For the three and nine months ended March 31, 2008, we
recognized $0.7 million and $10.5 million, respectively, in licenses, grants and contracts
revenue consisting of (i) $0 and $8.2 million, respectively, related to bremelanotide for
ED and FSD pursuant to our collaboration agreement with King Pharmaceuticals, Inc.
(King), which agreement was terminated effective December 5, 2007, (ii) $0.7
million and $2.2 million, respectively, related to our license agreement with AstraZeneca,
and (iii) $0 and $0.1 million related to NeutroSpec pursuant to our collaboration
agreement with Mallinckrodt. For the three and nine months ended March 31, 2007, we
recognized $3.1 million and $11.8 million, respectively, in licenses, grants and contracts
revenue consisting of (i) $2.5 million and $11.1 million, respectively, related to
bremelanotide for ED and FSD pursuant to our collaboration agreement with King, (ii) $0.5
million in license revenue related to the amortization of AstraZenecas $10.0 million
up-front license fee received in January 2007, and (iii) $0.1 million and $0.2 million
related to NeutroSpec pursuant to our collaboration agreement with Mallinckrodt.

The
fluctuation in revenue related to King primarily reflects the recognition in September
2007 of the remaining deferred license revenue pursuant to Kings up-front payment,
based on the termination of our collaboration agreement with King. License and contract
revenue from AstraZeneca for the three and nine months ended March 31, 2008 consists of
$0.3 million and $0.9 million, respectively, of revenue related to our research services
performed during said periods and $0.4 million and $1.3 million, respectively, of license
revenue related to AstraZenecas up-front license fee. Contract revenue from
Mallinckrodt reflects Mallinckrodts share of the costs incurred in certain
NeutroSpec development activities. Future contract revenue from AstraZeneca and
Mallinckrodt, in the form of reimbursement of shared development costs or the recognition
of deferred license fees, will fluctuate based on development activities in our obesity
and NeutroSpec programs. We may also earn contract revenue based on the attainment of
certain development milestones.

Research
and Development Research and development expenses decreased to $4.6 million for the
three months ended March 31, 2008 from $8.1 million for the three months ended March 31,
2007. Research and development expenses decreased to $16.3 million for the nine months
ended March 31, 2008 from $29.8 million for the nine months ended March 31, 2007.

Research
and development expenses related to bremelanotide, primarily for ED and FSD, decreased to
$0.3 million and $3.0 million, respectively, for the three and nine months ended March 31,
2008 compared to $3.0 million and $16.1 million, respectively, for the same periods in
2007. These amounts include both third-party costs incurred by us and partially reimbursed
by King and our share of costs for development activities performed by King. Research and
development expenses related to bremelanotide for ED and FSD decreased in the periods as a
result of (i) the completion of certain Phase 2B trials on both men and women, and (ii)
the delay in the initiation of Phase 3 clinical trials for ED. Similar to the recognition
of license revenue explained above, the nine months ended March 31, 2008 includes the
recognition in September 2007 of $0.8 million of deferred costs recorded based on the
termination of our collaboration agreement with King.

Research
and development expenses related to our obesity, NeutroSpec, NPRA, peptide program for ED and FSD and
other preclinical programs were $0.9 million and $2.6 million, respectively, for the three
and nine months ended March 31, 2008 compared to $1.4 million and $3.2 million,
respectively, for the three and nine months ended March 31, 2007. Spending to date has
been primarily related to the identification and optimization of lead compounds, and
secondarily to preclinical studies and Phase 1 safety trials with an NPRA agonist,
PL-3994. We expect to spend between $3 million and $4 million of direct costs during
fiscal 2008 on laboratory research, preclinical studies, and clinical trials. The amount
of such spending and the nature of future development activities are dependent on a number
of factors, including primarily the success of our discovery programs, preclinical
studies, our ability to progress one or more compounds into human clinical trials.

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The
historical amounts of project spending above exclude general research and development
spending, which decreased to $3.4 million for the three months ended March 31, 2008
compared to $3.7 million for the three months ended March 31, 2007. The decrease is
primarily related to the reduction in workforce initiated in September 2007. For the nine
months ended March 31, 2008, general research and development spending increased to $10.7
million compared to $10.5 million for nine months ended March 31, 2007, primarily due to
reduction in workforce costs recognized in September 2007.

Cumulative
spending from inception to March 31, 2008 on our bremelanotide, NeutroSpec and other
programs (which includes NPRA, obesity, ED and FSD and other discovery programs) amounts
to approximately $118.0 million, $58.2 million and $35.4 million, respectively. Due to
risk factors described in our periodic filings with the SEC, including the difficulty in
currently estimating the costs and timing of future Phase 1 clinical trials and
large-scale Phase 2 and Phase 3 clinical trials for any product under development, we
cannot predict with reasonable certainty when, if ever, a program will advance to the next
stage of development or be successfully completed, or when, if ever, related net cash
inflows will be generated.

General
and Administrative General and administrative expenses decreased to $1.5 million
for the three months ended March 31, 2008 compared to $2.0 million for the three months
ended March 31, 2007. The decrease is primarily related to the reduction in workforce
initiated in September 2007. For the nine months ended March 31, 2008, general and
administrative expenses increased to $5.5 million compared to $5.2 million for the nine
months ended March 31, 2007, primarily due to reduction in workforce costs recognized in
September 2007.

Income
Tax Benefit Income tax benefits of $1.3 million in the nine months ended March 31,
2008 and $0.8 million in the nine months ended March 31, 2007 relate to the sale of New
Jersey state net operating loss carryforwards. The amount of such losses and tax credits
that we are able to 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. We have financed our net operating losses primarily
through equity financings and amounts received under collaborative agreements.

Our
product candidates are at various stages of development and will require significant
further research, development and testing and some may never be successfully developed or
commercialized. 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 product candidates and indications would impact our ability to increase
revenues 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.

During
the nine months ended March 31, 2008, we used $15.9 million of cash for our operating
activities, compared to $13.2 million used in the nine months ended March 31, 2007. Net
cash outflows from operations in the nine months ended March 31, 2007 were favorably
impacted by the receipt of an up-front license payment of $10.0 million from AstraZeneca
in January 2007. Our periodic accounts receivable balances will continue to be highly
dependent on the timing of receipts from collaboration partners and the division of
development responsibilities between us and our collaboration partners.

During
the nine months ended March 31, 2008, net cash used in investing activities amounted to
$1.2 million, consisting of $0.2 million used for the acquisition of capital equipment and
$1.0 million used to purchase additional available-for-sale investments, compared to $0.7
million used for the acquisition of capital equipment during the nine months ended March
31, 2007.

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During
the nine months ended March 31, 2008, net cash used in financing activities amounted to
$0.1 million, consisting of $0.2 million in payments on capital lease obligations
partially offset by $0.1 million in proceeds from the exercise of common
stock warrants. During the nine months ended March 31, 2007, net cash provided by
financing activities amounted to $26.1 million, primarily from the sale of 13,750,000
shares of common stock in a registered offering in February 2007.

We
have incurred cumulative 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 believe that our cash, cash equivalents and
available-for-sale investments as of March 31, 2008, together with expected receipts from
collaboration and license agreements and other income, will be adequate to fund the
Companys operations for at least the next twelve months. The nature and timing of
our development activities are highly dependent on our financing activities. No assurance
can be given that we will earn future milestone payments that are contingent on specified
events or that we will not consume a significant amount of our available resources before
that time. We plan to continue to monitor the progress of our development programs and the
timing and amount of related expenditures and potential milestone receipts, refine our
operations, control expenses, evaluate alternative methods to conduct our business and
seek additional financing and sharing of development costs through strategic collaboration
agreements or other resources.

We
are actively searching for certain products and technologies to license or acquire, now or
in the future, and expect to continue to do so. 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 be able to obtain
additional funding if such an acquisition is identified.

Our
license agreement related to NeutroSpec requires royalty payments by us based on
commercial net sales and payments of up to $2.25 million contingent on the achievement of
specified cumulative net margins on sales by Mallinckrodt. No contingent amounts will be
payable related to NeutroSpec unless sales and marketing of NeutroSpec recommence. We do
not reasonably expect to make any such contingent payments during the next twelve months.

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 preclinical 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 from changes in interest rates relates primarily to
our cash, cash equivalents and available-for-sale investments (collectively referred to as
our investment portfolio). As of March 31, 2008, our cash and cash equivalents were $14.2
million and investments, which consisted of mutual funds, were $3.4 million. Due to the
average maturity of our investment portfolio, we do not believe that short-term
fluctuations in interest rates would materially affect the value of it.

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 Rules 13a-15(e) and 15d-15(e), as of the end of the period covered
by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures were effective. 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.

As
discussed in our quarterly report on Form 10-Q for the quarter ended December 31, 2007 and
in Note 6 of the Notes to Consolidated Financial Statements in this quarterly report, on
January 21, 2008, we entered into a settlement agreement and release with Competitive
Technologies, Inc. resolving all outstanding disputes between us.

Item 1A. Risk Factors.

There
have been no material changes in our risk factors disclosed in Item 1A., Part I of our
annual report on Form 10-K for the fiscal year ended June 30, 2007, as supplemented in
Item 1A., Part II of our quarterly report on Form 10-Q for the quarter ended December 31,
2007, with the exception of the following:

We have no experience in marketing,
distributing and selling products and will substantially rely on our marketing partners to
provide these capabilities.

We
are developing bremelanotide for treatment of hemorrhagic shock, MC-specific peptides for
ED and FSD and PL-3994, an NPRA agonist, for the treatment of acute systemic hypertension
and CHF. We do not have marketing partners for any of these products. If any of these
products are approved by the FDA or other regulatory authorities, we must either develop
marketing, distribution and selling capacity and expertise, which will be costly and time
consuming, or enter into agreements with other companies to provide these capabilities.
There can be no assurance that we will be able to enter into suitable agreements on
acceptable terms.

If
we recommence sales of NeutroSpec, we will depend on Mallinckrodt, our strategic
collaboration partner, to market, sell and distribute the product. If Mallinckrodt fails
to adequately market NeutroSpec or devote enough resources to NeutroSpec, our potential
revenues will be adversely affected. If the arrangement with Mallinckrodt fails, we may
have difficulty establishing new marketing relationships, and in any event, we will have
limited control over these activities.

Competing products and technologies
may make our proposed products noncompetitive.

We
are not aware of any FDA-approved product for treatment of hemorrhagic shock that works by
the same mechanism as bremelanotide. However, there are a large number of products and
technologies that are used for treatment of hemorrhagic shock, including fluid replacement
therapies, transfusion therapies, artificial blood therapies, blood salvage techniques and
various therapeutic agents to increase blood pressure and control other relevant clinical
parameters. In order to achieve approval and market acceptance, bremelanotide may be
required to demonstrate efficacy and safety equivalent or superior to these other products
and technologies.

We
are aware of three oral FDA-approved PDE-5 inhibitor drugs for the treatment of ED. These
products are also approved in Europe, Japan and most of the worlds pharmaceutical
markets. In addition, other products are being developed for ED and FSD. In order to
achieve approval and market acceptance, our MC-specific peptides for ED and FSD may be
required to demonstrate efficacy and safety equivalent or superior to these other
products.

There
are a large number of approved oral and intravenous drugs for control of hypertension,
some of which are used for control of acute systemic hypertension. We are aware of one
company developing a new intravenous drug for control of acute systemic hypertension.
While PL-3994 is believed to decrease hypertension by a different mechanism than existing
approved drugs, in order to achieve approval and market acceptance, we may be required to
demonstrate efficacy and safety equivalent or superior to these other products.

We
are aware of one recombinant natriuretic peptide product for acutely decompensated CHF
approved and marketed in the United States, and another recombinant natriuretic peptide
product approved and marketed in Japan. Clinical trials on another recombinant product are
being conducted in Europe. In addition, other products for treatment of CHF are either
currently being marketed or in development.

We
are aware of one company developing a technetium imaging product and another company
marketing an antibody-based technetium product in some European countries, both of which
may compete with NeutroSpec for certain indications. In addition, other technologies may
also be used to diagnose osteomyelitis and other infection-related diseases, including CT
and ultrasound technologies.

The
biopharmaceutical and diagnostic industries are highly competitive. We are likely to
encounter significant competition with respect to bremelanotide, PL-3994, NeutroSpec and
our other potential products. Many of our competitors have substantially greater
financial and technological resources than we do. Many of them also have significantly
greater experience in research and development, marketing, distribution and sales than we
do. Accordingly, our competitors may succeed in developing, marketing, distributing and
selling products and underlying technologies more rapidly than we may. These competitive
products or technologies may be more

15

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Table of Contents

effective and useful or less costly
than bremelanotide, PL-3994, NeutroSpec or our other potential products. In addition,
academic institutions, hospitals, governmental agencies and other public and private
research organizations are also conducting research and may develop competing products or
technologies on their own or through strategic alliances or collaborative arrangements.

We are highly dependent on our
management team, senior research professionals and third-party contractors and
consultants, and the loss of their services could materially adversely affect our
business.

We
have decreased staffing levels to 45 employees, the minimum we believe can execute our
currently planned preclinical and clinical programs. We will rely on various contractors
and consultants to provide critical services, some of which were previously provided by
our employees. Our ability to execute our preclinical and clinical programs depends on
our continued retention and motivation of remaining management and scientific personnel,
including executive officers and senior members of research, development and management
that possess significant technical expertise and experience and oversee our development
programs. Our success also depends on our ability to develop and maintain relationships
with contractors, consultants and scientific advisors. If we lose the services of
existing personnel or fail to attract required new personnel, our development programs
could be adversely affected. Competition for personnel is intense. In addition, we will
need to hire additional personnel or consultants to increase our research and development
activities if we are to expand research and development on new product opportunities.

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.

None

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibits
filed or furnished with this report:

| | 10.1 |  | Form
of Executive Officer Option Certificate. 
| | ---- |  | -----------------------------------------------

| | 10.2 |  | Form
of Amended Restricted Stock Unit Agreement. 
| | ---- |  | --------------------------------------------------

| | 10.3 |  | Form
of Amended Option Certificate (incentive option) under the 2005 Stock Plan. 
| | ---- |  | ----------------------------------------------------------------------------------

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

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

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

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

|                                                                   | 
|------------------------------------------------------------------ | 
| Management contract or
        compensatory plan or arrangement.

16

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Table of Contents

SIGNATURES

Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.

|                   |  |                                                                                                                                         
|------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------
|                   |  | Palatin Technologies, Inc.(Registrant)                                                                                                  
|                   |  |                                                                                                                                         
|                   |  |                                                                                                                                         
|Date: May 13, 2008 |  | /s/ Carl
     SpanaCarl
     Spana, Ph.D.President andChief Executive Officer                                                           
|                   |  |                                                                                                                                         
|                   |  |                                                                                                                                         
|Date: May 13, 2008 |  | /s/ Stephen T. WillsStephen T. WillsExecutive Vice President andChief Financial Officer
     (PrincipalFinancial and Accounting Officer)

17

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Table of Contents

EXHIBIT INDEX

| | 10.1 |  | Form
of Executive Officer Option Certificate. 
| | ---- |  | -----------------------------------------------

| | 10.2 |  | Form
of Amended Restricted Stock Unit Agreement. 
| | ---- |  | --------------------------------------------------

| | 10.3 |  | Form
of Amended Option Certificate (incentive option) under the 2005 Stock Plan. 
| | ---- |  | ----------------------------------------------------------------------------------

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

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

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

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

|                                                                   | 
|------------------------------------------------------------------ | 
| Management contract or
        compensatory plan or arrangement.