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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 December 31, 2007

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 February 6, 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 December 31, 2007 and June 30, 2007                               | 2   
|                                    | Consolidated Statements of Operations
     for the Three and Six Months Ended December 31, 2007 and 2006 | 3   
|                                    | Consolidated Statements of Cash Flows
     for the Six Months Ended December 31, 2007 and 2006           | 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         | 17
|Item 5.  | Other Information                                                | 17
|Item 6.  | Exhibits                                                         | 17

SIGNATURES

1

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Table of Contents

PART I  FINANCIAL
INFORMATION

Item 1. Financial Statements

PALATIN TECHNOLOGIES,
INC.Consolidated Balance Sheets(unaudited)

|                                                                            |  |  |                  |              |              |   |              |  
|--------------------------------------------------------------------------- |  |  | ---------------- | ------------ | ------------ | - | ------------ | -
|                                                                            |  |  | December 31,2007 |              | June 30,2007 |  
|ASSETS                                                                     
|Current assets:                                                             |  |  |                  |              |              |   |              |  
|Cash and cash equivalents                                                   |  |  | $                | 20,405,499   |              | $ | 31,447,615   |  
|Available-for-sale investments                                              |  |  |                  | 2,362,084    |              |   | 2,323,642    |  
|Accounts receivable                                                         |  |  |                  | 367,739      |              |   | 607,841      |  
|Prepaid expenses and other current assets                                   |  |  |                  | 456,458      |              |   | 1,008,464    |  
|Total current assets                                                        |  |  |                  | 23,591,780   |              |   | 35,387,562   |  
|Property and equipment, net                                                 |  |  |                  | 5,809,350    |              |   | 6,070,226    |  
|Restricted cash                                                             |  |  |                  | 475,000      |              |   | 475,000      |  
|Other assets                                                                |  |  |                  | 254,268      |              |   | 848,446      |  
|Total assets                                                                |  |  | $                | 30,130,398   |              | $ | 42,781,234   |  
|                                                                           
|LIABILITIES AND STOCKHOLDERS' EQUITY                                        |  | 
|Current liabilities:                                                        |  | 
|Capital lease obligations and notes payable,
         current portion       |  |  | $                | 306,609      |              | $ | 216,841      |  
|Accounts payable                                                            |  |  |                  | 583,192      |              |   | 1,120,894    |  
|Accrued expenses                                                            |  |  |                  | 2,393,544    |              |   | 2,420,837    |  
|Accrued compensation                                                        |  |  |                  | 467,104      |              |   | 941,300      |  
|Deferred revenue, current portion                                           |  |  |                  | 1,916,669    |              |   | 4,864,833    |  
|Total current
        liabilities                                           |  |  |                  | 5,667,118    |              |   | 9,564,705    |  
|                                                                           
|Capital lease obligations and notes payable, net of
        current portion |  |  |                  | 238,350      |              |   | 275,126      |  
|Deferred rent, net of current portion                                       |  |  |                  | 1,715,500    |              |   | 1,966,628    |  
|Deferred revenue, net of current portion                                    |  |  |                  | 6,805,553    |              |   | 12,443,087   |  
|Total liabilities                                                           |  |  |                  | 14,426,521   |              |   | 24,249,546   |  
|                                                                           
|Commitments and contingencies (Note 7)                                      |  | 
|                                                                           
|Stockholders' equity:                                                       |  | 
|Preferred stock of $.01 par value -
        authorized 10,000,000 shares;   |  | 
|Series A Convertible; issued
        and outstanding 4,997 shares as of     |  | 
|December 31, 2007 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       |  | 
|December 31, 2007 and June 30,
        2007, respectively                   |  |  |                  | 852,042      |              |   | 851,269      |  
|Additional paid-in capital                                                  |  |  |                  | 207,039,292  |              |   | 205,875,438  |  
|Accumulated other comprehensive income                                      |  |  |                  | 38,442       |              |   | -            |  
|Accumulated deficit                                                         |  |  |                  | (192,225,949 | )            |   | (188,195,069 | )
|Total stockholders'
        equity                                          |  |  |                  | 15,703,877   |              |   | 18,531,688   |  
|Total liabilities
        and stockholders' equity                          |  |  | $                | 30,130,398   |              | $ | 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 December 31, |  | Six Months Ended December 31, |           
|                               | 2007                            |  | 2006                          |            | 2007 |   | 2006       |  
|REVENUES:                      |                                 |  |                               |            |      |   |            |   |   |            |   |   |             |  
|Licenses, grants and           |                                 | 
|contracts                      |                                 |  | $                             | 742,835    |      | $ | 3,743,109  |   | $ | 9,720,566  |   | $ | 8,678,211   |  
|                              
|OPERATING EXPENSES:            |                                 | 
|Research and                   |                                 | 
|development                    |                                 |  |                               | 3,791,344  |      |   | 9,569,483  |   |   | 11,735,221 |   |   | 21,693,180  |  
|General and                    |                                 | 
|administrative                 |                                 |  |                               | 2,329,052  |      |   | 1,654,932  |   |   | 3,988,062  |   |   | 3,217,408   |  
|Total operating                |                                 | 
|expenses                       |                                 |  |                               | 6,120,396  |      |   | 11,224,415 |   |   | 15,723,283 |   |   | 24,910,588  |  
|                              
|Loss from operations           |                                 |  |                               | (5,377,561 | )    |   | (7,481,306 | ) |   | (6,002,717 | ) |   | (16,232,377 | )
|                              
|OTHER INCOME (EXPENSE):        |                                 | 
|Investment income              |                                 |  |                               | 314,470    |      |   | 227,140    |   |   | 711,091    |   |   | 551,374     |  
|Interest expense               |                                 |  |                               | (12,469    | )    |   | (13,122    | ) |   | (30,698    | ) |   | (23,188     | )
|Total other income, net        |                                 |  |                               | 302,001    |      |   | 214,018    |   |   | 680,393    |   |   | 528,186     |  
|                              
|Loss before income taxes       |                                 |  |                               | (5,075,560 | )    |   | (7,267,288 | ) |   | (5,322,324 | ) |   | (15,704,191 | )
|Income tax benefit             |                                 |  |                               | 1,291,444  |      |   | 778,308    |   |   | 1,291,444  |   |   | 778,308     |  
|                              
|NET LOSS                       |                                 |  | $                             | (3,784,116 | )    | $ | (6,488,980 | ) | $ | (4,030,880 | ) | $ | (14,925,883 | )
|                              
|Basic and diluted net loss per |                                 | 
|common share                   |                                 |  | $                             | (0.04      | )    | $ | (0.09      | ) | $ | (0.05      | ) | $ | (0.21       | )
|                              
|Weighted average number of     |                                 | 
|common shares                  |                                 | 
|outstanding used in            |                                 | 
|computing basic and            |                                 | 
|diluted net loss per           |                                 | 
|common share                   |                                 |  |                               | 85,204,169 |      |   | 71,055,893 |   |   | 85,190,733 |   |   | 70,967,207  |  

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

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

|                                                        |  |  |                               |             |      |   |             |  
|------------------------------------------------------- |  |  | ----------------------------- | ----------- | ---- | - | ----------- | -
|                                                        |  |  | Six Months Ended December 31, |            
|                                                        |  |  | 2007                          |             | 2006 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                   |  |  |                               |             |      |   |             |  
|Net loss                                                |  |  | $                             | (4,030,880  | )    | $ | (14,925,883 | )
|Adjustments to reconcile net loss to net cash           |  | 
|used in operating activities:                           |  | 
|Depreciation and amortization                           |  |  |                               | 691,257     |      |   | 707,600     |  
|Stock-based compensation                                |  |  |                               | 1,054,398   |      |   | 713,958     |  
|Changes in operating assets and liabilities:            |  | 
|Accounts receivable                                     |  |  |                               | 240,102     |      |   | (78,678     | )
|Prepaid expenses and other                              |  |  |                               | 1,146,184   |      |   | 772,700     |  
|Accounts payable                                        |  |  |                               | (537,702    | )    |   | (637,894    | )
|Accrued expenses and other                              |  |  |                               | (752,617    | )    |   | 695,225     |  
|Deferred revenues                                       |  |  |                               | (8,585,698  | )    |   | (2,074,610  | )
|Net cash used in operating activities                   |  |  |                               | (10,774,956 | )    |   | (14,827,582 | )
|                                                       
|CASH FLOWS FROM INVESTING ACTIVITIES:                   |  | 
|Purchases of property and equipment                     |  |  |                               | (231,593    | )    |   | (434,903    | )
|Net cash used in investing activities                   |  |  |                               | (231,593    | )    |   | (434,903    | )
|                                                       
|CASH FLOWS FROM FINANCING ACTIVITIES:                   |  | 
|Payments on capital lease obligations and notes payable |  |  |                               | (145,796    | )    |   | (88,768     | )
|Proceeds from issuances of common stock and warrants    |  |  |                               | 110,229     |      |   | 691,966     |  
|Net cash provided by (used in) financing activities     |  |  |                               | (35,567     | )    |   | 603,198     |  
|                                                       
|NET DECREASE IN CASH AND                                |  | 
|CASH EQUIVALENTS                                        |  |  |                               | (11,042,116 | )    |   | (14,659,287 | )
|                                                       
|CASH AND CASH EQUIVALENTS, beginning                    |  | 
|of period                                               |  |  |                               | 31,447,615  |      |   | 28,333,211  |  
|                                                       
|CASH AND CASH EQUIVALENTS, end of period                |  |  | $                             | 20,405,499  |      | $ | 13,673,924  |  
|                                                       
|SUPPLEMENTAL CASH FLOW INFORMATION:                     |  | 
|Equipment acquired under financing agreements           |  |  | $                             | 198,788     |      | $ | 212,848     |  
|Cash paid for interest                                  |  |  | $                             | 30,698      |      | $ | 23,188      |  

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

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

(1)    ORGANIZATION

Nature
of Business  Palatin Technologies, Inc. (Palatin or the
Company) is a biopharmaceutical company primarily focused on discovering and
developing targeted, receptor-specific small molecule and peptide 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, skin
pigmentation disorders and inflammation-related diseases. The Company is exploring other
receptor-specific therapeutics, including congestive heart failure therapeutics.

Bremelanotide,
an MC receptor agonist, is a patented, nasally administered MC-based peptide in clinical
development for the treatment of male and female sexual dysfunction. In 2004, the Company
entered into a collaborative development and marketing agreement with King
Pharmaceuticals, Inc. (King) to jointly develop and commercialize
bremelanotide. In September 2007, the Company received notice from King terminating the
collaborative development and marketing agreement between the Company and King, in
accordance with its terms, effective December 5, 2007. Upon this termination, Palatin has
retained all rights to bremelanotide. See Note 4 regarding the agreement with King.

The
Company has a licensing and research collaboration agreement with AstraZeneca AB
(AstraZeneca) to discover, develop and commercialize small molecule compounds
that target MC receptors for the treatment of obesity, diabetes and related metabolic
syndrome. The Company is also conducting research on peptidomimetic compounds for the
treatment of other disorders, including congestive heart failure. Certain compounds under
investigation result from utilization of the Companys MIDAS(TM) 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 December 31, 2007 and incurred a net loss for the three and six months ended December
31, 2007. 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, conduct successful pre-clinical studies and clinical trials, obtain required
regulatory approvals and successfully manufacture and market such technologies and
proposed products. The time required to reach profitability is highly uncertain, and there
can be no assurance that the Company will be able to achieve profitability on a sustained
basis, if at all.

The
Company believes that its cash, cash equivalents and available-for-sale investments as of
December 31, 2007, 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

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financing efforts 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 December 31, 2007
consists of amounts due from its collaboration partners, and is comprised of $317,300 due from
AstraZeneca and $50,439 due from Mallinckrodt.

Revenues
from collaboration partners as a percentage of total revenues were as follows (see Note 4
regarding the agreement with King):

|             |                                 |     |                               |     |      |     |      |     | 
|------------ | ------------------------------- | --- | ----------------------------- | --- | ---- | --- | ---- | --- | 
|             | Three Months Ended December 31, |     | Six Months Ended December 31, |    
|             | 2007                            |     | 2006                          |     | 2007 |     | 2006 |    
|AstraZeneca  |                                 | 99% |                               | -%  |      | 15% |      | -%  | 
|Mallinckrodt |                                 | 1%  |                               | 2%  |      | 1%  |      | 2%  | 
|King         |                                 | -%  |                               | 98% |      | 84% |      | 98% | 

(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 December 31, 2007, and its
results of operations and its cash flows for the three and six months ended December 31,
2007 and 2006. The results of operations for the three- and six-month periods ended
December 31, 2007 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

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respective fair values based on
quoted market prices for investments and the short-term nature of the other instruments.

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. Rent expense is being recognized ratably over the
life of the leases.

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. See Note 4 regarding the agreement with King.

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 the 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 three months ended December 31, 2007 and 2006, 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.

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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. As of December 31, 2007 and 2006,
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 16,149,527 and 16,962,992 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.

(4)    
          AGREEMENT WITH KING

In
September 2007, the Company received notice from King terminating the collaborative
development and marketing agreement between the Company and King, in accordance with its
terms, effective December 5, 2007. As of September 30, 2007, the Company had no further
obligation to perform any services for King. The notice followed communication with
representatives of the FDA, which raised serious concerns about the benefits and risks of
the progression of bremelanotide into Phase 3 clinical studies for erectile dysfunction.
Upon termination, Palatin regained sole ownership of all rights to bremelanotide without
any obligation for future payments to King, other than any amounts payable for the
reimbursement of bremelanotide costs incurred by King prior to termination. King has no
obligation for future payments to Palatin, other than any amounts payable for the
reimbursement of bremelanotide costs incurred by Palatin prior to termination.

In
connection with the termination of the agreement, the Company recognized $0 and
$6,499,796, respectively, of deferred up-front license fees received from King for the
three- and six-month period ended December 31, 2007, together with $0 and $815,561,
respectively, of associated deferred costs for the same periods, which prior to
termination were being recognized as revenues and amortized as research and development
costs over the estimated period of the Companys performance under the agreement.

(5)    COMPREHENSIVE
LOSS

Comprehensive
loss consists of the following:

|                                           |                                 |               |                               |               |      |               |      |                | 
|------------------------------------------ | ------------------------------- | ------------- | ----------------------------- | ------------- | ---- | ------------- | ---- | -------------- | 
|                                           | Three Months Ended December 31, |               | Six Months Ended December 31, |              
|                                           | 2007                            |               | 2006                          |               | 2007 |               | 2006 |               
|Net loss                                   |                                 | $ (3,784,116) |                               | $ (6,488,980) |      | $ (4,030,880) |      | $ (14,925,883) | 
|Unrealized gain (loss) on      investments |                                 | 22,628        |                               | (5,010)       |      | 38,442        |      | 2,543          | 
|Comprehensive loss                         |                                 | $ (3,761,488) |                               | $ (6,493,990) |      | $ (3,992,438) |      | $ (14,923,340) | 

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(6)    INVESTMENTS

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

|                               |  |                  |  |              | 
|------------------------------ |  | ---------------- |  | ------------ | 
|                               |  | December 31,2007 |  | June 30,2007 | 
|Cost                           |  | $ 2,323,642      |  | $ 2,323,642  | 
|Unrealized gain on investments |  | 38,442           |  | -            | 
|Fair value                     |  | $ 2,362,084      |  | $ 2,323,642  | 

(7)    COMMITMENTS
AND CONTINGENCIES

As
discussed in the Companys annual report on Form 10-K for the fiscal year ended June
30, 2007, Competitive Technologies, Inc. (CTI) initiated arbitration
proceedings with the Company for breach of the terms of its license agreement for patent
rights related to certain compounds and methods of treatment for sexual dysfunction and
for other actions asserted to arise out of the license agreement, and also initiated
litigation against the Company by filing a suit in Connecticut Superior Court for breach
of the settlement agreement of an earlier arbitration between CTI and the Company. In
January 2008, the Company entered into a settlement agreement and release with CTI,
resolving all outstanding disputes between the Company and CTI. See Note 9, Subsequent
Event, regarding the CTI settlement.

(8)    
          STOCKHOLDERS EQUITY

On
September 25, 2007, the Company issued grants of restricted stock units under the Companys
2005 Stock Plan totaling in the aggregate 1,573,915 shares of common stock as retention
bonuses to its employees, other than the executive officers, that were not affected by a
contemporaneous reduction in workforce. The shares approved for grant initially exceeded
the number of authorized shares available for grant under the 2005 Stock Plan by 109,984.
As a result, for accounting purposes the 109,984 shares were not considered granted until
the date that sufficient authorized shares became available, which was on December 7,
2007, the date that the Company received stockholder approval to increase the number of
authorized shares available for grant under the 2005 Stock Plan by 5,000,000 shares.
These restricted stock units will vest on September 30, 2008, provided that the employee
remains continuously employed by the Company through such date or earlier if the employee
is involuntarily terminated by reason of a position elimination or change in control. The
Company is amortizing the fair value of the restricted stock units, initially totaling
approximately $725,000, on a straight-line basis through September 30, 2008.

(9)    
          SUBSEQUENT EVENT

On
January 21, 2008, the Company entered into a settlement agreement and release with 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.

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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 December 31, 2007. 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 small molecule and peptide 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, skin pigmentation disorders and
inflammation-related diseases. We are exploring other receptor-specific therapeutics,
including congestive heart failure therapeutics.

Bremelanotide
is our nasally administered MC-based peptide in clinical development for two distinct
indications, the treatment of male erectile dysfunction (ED) and the treatment
of female sexual dysfunction (FSD). In 2004, we entered into a collaborative
development and marketing agreement with King Pharmaceuticals, Inc. (King) to
jointly develop and commercialize bremelanotide. Pursuant to the agreement, we and King
shared all collaboration development costs based on an agreed percentage. In September
2007, we received notice from King terminating the agreement in accordance with its terms
effective December 5, 2007. As of September 30, 2007, we had no further obligation to
perform any services for King. Termination followed comments by the U.S. Food and Drug
Administration (FDA) raising serious concerns 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. As a result of termination, we solely
own all rights to bremelanotide.

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 small
molecule 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 small molecules for the treatment of obesity
and related disorders.

We
have developed a library of novel natriuretic (promoting sodium excretion) receptor
compounds, and identified a lead clinical candidate for which we submitted an
Investigational New Drug application with the FDA, and initiated Phase 1 clinical trials
for the treatment of congestive heart failure (CHF). We are also conducting

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research to identify additional
clinical candidate compounds for the treatment of both chronic CHF and acutely
decompensated (rapidly deteriorated) CHF.

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.

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.

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 Six Months Ended December
31, 2007 Compared to the Three and Six Months Ended December 31, 2006.

Licenses,
Grants and Contracts  For the three and six months ended December 31, 2007, we
recognized $0.7 million and $9.7 million, respectively, in licenses, grants and contracts
revenue consisting of (i) $0 and $8.2 million, respectively, related to bremelanotide
pursuant to our collaboration agreement with King, (ii) $0.7 million and $1.4 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 six months ended December 31, 2006, we recognized $3.7 million and $8.7
million, respectively, in licenses, grants and contracts revenue consisting of (i) $3.6
million and $8.5 million, respectively, related to bremelanotide pursuant to our
collaboration agreement with King, and (ii) $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 six months ended December 31, 2007 consists of
$0.3 million and $0.6 million, respectively, of revenue related to our research services
performed during said periods and $0.4 million and $0.8 million, respectively, of license
revenue related to AstraZenecas $10.0 million up-front license fee received at the
inception of the agreement. 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 $3.8 million for the
three months ended December 31, 2007 from $9.6 million for the three months ended December
31, 2006. Research and development expenses decreased to $11.7 million for the six months
ended December 31, 2007 from $21.7 million for the six months ended December 31, 2006.

Research
and development expenses related to bremelanotide decreased to $0.2 million and $2.7
million, respectively, for the three and six months ended December 31, 2007 compared to
$5.4 million and $13.3 million, respectively, for the same periods in 2006. 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 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 six months ended December 31, 2007 includes the

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recognition in September 2007 of
$0.8 million of deferred costs recorded based on the termination of our collaboration
agreement with King. Upon the completion of further discussions with the FDA and external
consultants, we will determine the next steps related to the further development of
bremelanotide for ED and FSD.

Research
and development expenses related to our obesity, CHF and other pre-clinical programs were
$0.7 million and $1.7 million, respectively, for the three and six months ended December
31, 2007 compared to $0.8 million and $1.5 million, respectively, for the three and six
months ended December 31, 2006. Spending to date has been primarily related to the
identification and optimization of lead compounds. We expect to spend approximately $2
million to $3 million of direct costs during fiscal 2008 on laboratory research and the
commencement of clinical trials on an identified compound. 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, pre-clinical studies, our
ability to progress a compound into human clinical trials and discussions with AstraZeneca
and other potential development partners.

The
historical amounts of project spending above exclude general research and development
spending, which decreased to $2.9 million for the three months ended December 31, 2007
compared to $3.4 million for the three months ended December 31, 2006. The decrease is
primarily related to the reduction in workforce initiated in September 2007. For the six
months ended December 31, 2007, general research and development spending increased to
$7.4 million compared to $6.9 million for six months ended December 31, 2006, primarily
due to severance costs recognized in September 2007.

Cumulative
spending from inception to December 31, 2007 on our bremelanotide, NeutroSpec and MIDAS
programs amounts to approximately $117.7 million, $58.2 million and $34.5 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,
significant related net cash inflows will be generated.

General
and Administrative  General and administrative expenses increased to $2.3 million
and $4.0 million, respectively for the three and six months ended December 31, 2007 as
compared to $1.7 million and $3.2 million, respectively, for the three and six months
ended December 31, 2006. The increase in expenses for the three and six months ended
December 31, 2007 primarily reflects the $0.8 million litigation settlement agreement and
release resolving all outstanding disputes with Competitive Technologies, Inc.
(CTI).

Income
Tax Benefit  Income tax benefits of $1.3 million in the three and six months ended
December 31, 2007 and $0.8 million in the three and six months ended December 31, 2006
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.

We
will need regulatory approval to market and sell our products. 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.

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During
the six months ended December 31, 2007, we used $10.8 million of cash for our operating
activities, compared to $14.8 million used in the six months ended December 31, 2006.
Lower net cash outflows from operations in the 2007 period resulted primarily from lower
operating expenses. Our periodic accounts receivable balances will continue to be highly
dependent on the timing of such receipts and the division of development responsibilities
between us and our collaboration partners.

During
the six months ended December 31, 2007, net cash used in investing activities amounted to
$0.2 million for the acquisition of capital equipment compared to $0.4 million used during
the six months ended December 31, 2006.

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 December 31, 2007, 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. 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 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.

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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 December 31, 2007, our cash and cash
equivalents were $20.4 million and investments, which consisted of mutual funds, were
$2.4 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 annual report on Form 10-K for our fiscal year ended June 30, 2007, we
were the respondent in an arbitration proceeding before the American Arbitration
Association initiated by CTI alleging breach of the terms of our license agreement for
patent rights related to certain compounds and methods of treatment for sexual dysfunction
and other actions asserted to arise out of the license agreement, and were also the
defendant in a suit filed by CTI in Connecticut Superior Court asserting, among other
claims, breach of the settlement agreement of an earlier arbitration between CTI and us.
On January 21, 2008, we entered into a settlement agreement and release with CTI,
resolving all outstanding disputes between us. The arbitration proceeding and the
Connecticut Superior Court proceeding have been dismissed with prejudice. The existing
license agreement between CTI and us 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 we expressly relinquished all claims to any contractual or intellectual
property rights to that peptide or any patents licensed under the terminated license
agreement. We retain 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. We ceased developing the peptide called MT-II or PT-14 in
2000. 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. We remitted a one-time payment of $800,000 to CTI
pursuant to the settlement; there are no obligations for any future payments to CTI with
respect to bremelanotide or any other matter.

Item 1A.  Risk Factors.

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

Stockholders may experience dilution
from the exercise of outstanding options and warrants and the vesting of restricted stock
units.

As
of December 31, 2007, options and warrants to purchase 13,471,915 shares of common stock
were outstanding at various exercise prices ranging from $0.26 per share to $6.50 per
share, 1,503,529 shares were issuable under restricted stock units granted to our
employees that will vest if the employee remains employed with Palatin through September
30, 2008 or earlier under certain conditions, and 975,000 shares were issuable under
restricted stock units that will vest if shares of our common stock trade at certain
share prices.  The issuance or potential issuance of common stock upon the exercise of
these options and warrants and vesting of restricted stock units may adversely affect the
market price of our common stock and result in substantial dilution to our existing
stockholders.

Our stock price is, and we expect it
to remain, volatile, which could limit investors ability to sell stock at a profit.

The
volatile price of our stock makes it difficult for investors to predict the value of their
investment, to sell shares at a profit at any given time, or to plan purchases and sales
in advance. A variety of factors may affect the market price of our common stock. These
include, but are not limited to:

| |  |  | publicity
regarding actual or potential clinical results relating to products under development
                  by our competitors or us;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | delay
or failure in initiating, completing or analyzing pre-clinical or clinical trials or
                  unsatisfactory designs or results of these trials;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | interim
decisions by regulatory agencies, including the FDA, as to clinical trial designs,
                  acceptable safety profiles, and the benefit/risk ratio of products
under development;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | achievement
or rejection of regulatory approvals by our competitors or by us;
| | - |  | -----------------------------------------------------------------------------

| |  |  | announcements
of technological innovations or new commercial products by our competitors or by
                  us;
| | - |  | --------------------------------------------------------------------------------------------------------------------

| |  |  | developments
concerning proprietary rights, including patents;
| | - |  | --------------------------------------------------------------

| |  |  | developments
concerning our collaborations;
| | - |  | -------------------------------------------

| |  |  | regulatory
developments in the U.S. and foreign countries;
| | - |  | ----------------------------------------------------------

| |  |  | economic
or other crises and other external factors;
| | - |  | ----------------------------------------------------

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| |  |  | period-to-period
fluctuations in our revenue and other results of operations;
| | - |  | -----------------------------------------------------------------------------

| |  |  | changes
in financial estimates by securities analysts; and
| | - |  | ----------------------------------------------------------

| |  |  | sales
of our common stock.
| | - |  | --------------------------

We
will not be able to control many of these factors, and we believe that period-to-period
comparisons of our financial results will not necessarily be indicative of our future
performance. If our revenues, if any, in any particular period do not meet expectations,
we may not be able to adjust our expenditures in that period, which could cause our
operating results to suffer further. If our operating results in any future period fall
below the expectations of securities analysts or investors, our stock price may fall by a
significant amount.

For
the six months ended December 31, 2007, the price of our stock has been extremely
volatile, ranging from a high of $2.09 per share to a low of $0.19 per share.  The
volatility in our stock price related primarily to our announcement that we delayed
initiation of Phase 3 clinical trials of bremelanotide for ED, following responses in
late August 2007 from the FDA raising serious concerns about the acceptable benefit/risk
ratio to support progression into Phase 3 as a first-line therapy in the general
population.

In
addition, the stock market in general, and the market for biotechnology companies in
particular, has experienced extreme price and volume fluctuations that may have been
unrelated or disproportionate to the operating performance of individual companies. These
broad market and industry factors may seriously harm the market price of our common stock,
regardless of our operating performance.

The
American Stock Exchange and other national stock exchanges maintain standards for initial
and continued listing of shares for trading. These standards include requirements for
minimum per share stock prices, aggregate market values of shares outstanding, minimum
stockholders equity and related factors. We are listed on the American Stock
Exchange, and continue to meet standards for continued listing. If we are unable to meet
these requirements and are delisted, the ability of investors to buy or sell our shares
will be restricted, in which case the market value of our common stock and our ability to
obtain additional financing on acceptable terms may be adversely affected.

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

None.

Item 3.  Defaults Upon Senior
Securities.

None.

16

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Table of Contents

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

At
our annual meeting of stockholders, which convened on December 7, 2007, the stockholders
voted on the following issues:

| |  |  | Election
of dirctors;
| | - |  | ---------------------

| |  |  | Ratification
of the appointment of our independent registered public accounting firm for the
         fiscal year ending June 30, 2008; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Approval
of the 2005 Stock Plan amendment to increase the shares of common stock available for
         issuance from 5,000,000 to 10,000,000.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------

Common
stock and Series A convertible preferred stock voted as a single class on all matters. The
following tables show the votes cast. All directors identified below were re-elected and
their term of office continues after the meeting.

|                                                             |            |           |        
|------------------------------------------------------------ | ---------- | --------- | -------
|Election of directors:                                       | For        | Withheld  |        
|Carl Spana, Ph.D.                                            | 67,516,203 | 3,565,175
|John K.A. Prendergast, Ph.D.                                 | 67,817,647 | 3,263,731
|Perry B. Molinoff, M.D.                                      | 67,742,322 | 3,339,056
|Robert K. deVeer, Jr.                                        | 67,779,393 | 3,301,985
|Zola P. Horovitz, Ph.D.                                      | 63,748,963 | 7,332,415
|Robert I. Taber, Ph.D.                                       | 67,811,837 | 3,269,541
|Errol De Souza, Ph.D.                                        | 67,832,662 | 3,248,716
|J. Stanley Hull                                              | 67,806,119 | 3,275,259
|                                                            
|Other                                                        | For        | Against   | Abstain
|Ratification of independent registeredpublic accounting firm | 69,877,041 | 1,081,532 | 122,805
|Approval of the 2005 Stock Planamendment                     | 21,682,884 | 2,517,953 | 120,956

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibits
filed with this report:

| | 3.1 |  | Bylaws,
as amended effective December 14, 2007. *
| | --- |  | -------------------------------------------------

| | 10.1 |  | First
Amendment to the Employment Agreement dated as of July 1, 2007 Between Palatin and
Carl Spana. *
| | ---- |  | -------------------------------------------------------------------------------------------------------

| | 10.2 |  | First
Amendment to the Employment Agreement dated as of July 1, 2007 Between Palatin and
Stephen T. Wills.  *
| | ---- |  | --------------------------------------------------------------------------------------------------------------

| | 10.3 |  | First
Amendment to the Employment Agreement dated as of July 1, 2007 Between Palatin and
Trevor Hallam.  *
| | ---- |  | -----------------------------------------------------------------------------------------------------------

| | 10.4 |  | Palatin
Technologies, Inc. 2007 Change in Control Severance Plan.  *
| | ---- |  | ---------------------------------------------------------------------

| | 10.5 |  | 2005
Stock Plan, as amended effective December 7, 2007.  Incorporated by reference to
Exhibit 4 of our registration statement on Form S-8, Commission File No.
333-149093, filed with the SEC on February 7, 2008.  
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.  *
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------

17

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Table of Contents

| | 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.  *
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------

_________________

* Exhibit filed with this report.
 Management contract or compensatory plan or arrangement.

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: February 8, 2008 |  | /s/ Carl
     SpanaCarl
     Spana, Ph.D.President andChief Executive Officer                                                           
|                       |  |                                                                                                                                         
|                       |  |                                                                                                                                         
|Date: February 8, 2008 |  | /s/ Stephen T. WillsStephen T. WillsExecutive Vice President andChief Financial Officer
     (PrincipalFinancial and Accounting Officer)

18

---



Table of Contents

EXHIBIT INDEX

| | 3.1 |  | Bylaws,
as amended effective December 14, 2007. *
| | --- |  | -------------------------------------------------

| | 10.1 |  | First
Amendment to the Employment Agreement dated as of July 1, 2007 Between Palatin and
Carl Spana. *
| | ---- |  | -------------------------------------------------------------------------------------------------------

| | 10.2 |  | First
Amendment to the Employment Agreement dated as of July 1, 2007 Between Palatin and
Stephen T. Wills.  *
| | ---- |  | --------------------------------------------------------------------------------------------------------------

| | 10.3 |  | First
Amendment to the Employment Agreement dated as of July 1, 2007 Between Palatin and
Trevor Hallam.  *
| | ---- |  | -----------------------------------------------------------------------------------------------------------

| | 10.4 |  | Palatin
Technologies, Inc. 2007 Change in Control Severance Plan.  *
| | ---- |  | ---------------------------------------------------------------------

| | 10.5 |  | 2005
Stock Plan, as amended effective December 7, 2007.  Incorporated by reference to
Exhibit 4 of our registration statement on Form S-8, Commission File No.
333-149093, filed with the SEC on February 7, 2008.  
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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. *
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------

_________________

* Exhibit filed with this report.
 Management contract or compensatory plan or arrangement.