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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, 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
Securities Exchange Act of 1934 during the preceding 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 13, 2008, 86,662,901
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, 2008 and June 30, 2008                               | 2   
|                                    | Consolidated Statements of Operations
     for the Three and Six Months Ended December 31, 2008 and 2007 | 3   
|                                    | Consolidated Statements of Cash Flows
     for the Six Months Ended December 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                                          | 13  
|Item 4T.                            | Controls and Procedures                                                                                  | 13  

PART II - OTHER
INFORMATION

|         |                                                                  |   
|-------- | ---------------------------------------------------------------- | --
|Item 1.  | Legal Proceedings                                                | 14
|Item 1A. | Risk Factors                                                     | 14
|Item 2.  | Unregistered Sales of Equity Securities and
     Use of Proceeds | 14
|Item 3.  | Defaults Upon Senior Securities                                  | 15
|Item 4.  | Submission of Matters to a Vote of Security
     Holders         | 15
|Item 5.  | Other Information                                                | 15
|Item 6.  | Exhibits                                                         | 15

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 31,2008 |              | June 30,2008 |  
|ASSETS                                                           
|Current assets:                                                   |  | 
|Cash and cash equivalents                                         |  |  | $                | 2,953,366    |              | $ | 9,421,770    |  
|Available-for-sale investments                                    |  |  |                  | 3,375,074    |              |   | 3,352,771    |  
|Accounts receivable                                               |  |  |                  | 4,900,486    |              |   | 5,747        |  
|Prepaid expenses and other current assets                         |  |  |                  | 554,755      |              |   | 484,362      |  
|Total current assets                                              |  |  |                  | 11,783,681   |              |   | 13,264,650   |  
|                                                                 
|Property and equipment, net                                       |  |  |                  | 4,336,327    |              |   | 5,128,076    |  
|Restricted cash                                                   |  |  |                  | 475,000      |              |   | 475,000      |  
|Other assets                                                      |  |  |                  | 248,785      |              |   | 257,198      |  
|Total assets                                                      |  |  | $                | 16,843,793   |              | $ | 19,124,924   |  
|                                                                 
|LIABILITIES AND STOCKHOLDERS' EQUITY                              |  | 
|Current liabilities:                                              |  | 
|Capital lease obligations, current portion                        |  |  | $                | 193,034      |              | $ | 263,128      |  
|Accounts payable                                                  |  |  |                  | 344,447      |              |   | 635,183      |  
|Accrued expenses                                                  |  |  |                  | 1,367,961    |              |   | 1,666,628    |  
|Accrued compensation                                              |  |  |                  | -            |              |   | 767,509      |  
|Deferred revenue, current portion                                 |  |  |                  | 5,633,335    |              |   | 1,666,669    |  
|Total current liabilities                                         |  |  |                  | 7,538,777    |              |   | 4,999,117    |  
|                                                                 
|Capital lease obligations, net of current portion                 |  |  |                  | 52,646       |              |   | 121,629      |  
|Deferred rent, net of current portion                             |  |  |                  | 1,280,904    |              |   | 1,479,794    |  
|Deferred revenue, net of current portion                          |  |  |                  | 5,272,221    |              |   | 5,972,220    |  
|Total liabilities                                                 |  |  |                  | 14,144,548   |              |   | 12,572,760   |  
|                                                                 
|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   |  | 
|December 31, 2008 and June 30, 2008, respectively                 |  |  |                  | 50           |              |   | 50           |  
|Common stock of $.01 par value - authorized 150,000,000 shares;   |  | 
|issued and outstanding 86,662,901 and 85,524,077 shares as of     |  | 
|December 31, 2008 and June 30, 2008, respectively                 |  |  |                  | 866,629      |              |   | 855,241      |  
|Additional paid-in capital                                        |  |  |                  | 209,060,464  |              |   | 208,247,194  |  
|Accumulated other comprehensive income                            |  |  |                  | 51,420       |              |   | 29,117       |  
|Accumulated deficit                                               |  |  |                  | (207,279,318 | )            |   | (202,579,438 | )
|Total stockholders' equity                                        |  |  |                  | 2,699,245    |              |   | 6,552,164    |  
|Total liabilities and stockholders' equity                        |  |  | $                | 16,843,793   |              | $ | 19,124,924   |  

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

2

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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, |           
|                                  | 2008                            |  | 2007                          |            | 2008 |   | 2007       |  
|REVENUES:                        
|Licenses and contracts            |                                 |  | $                             | 1,211,405  |      | $ | 742,835    |   | $ | 1,965,251  |   | $ | 9,720,566  |  
|                                 
|OPERATING EXPENSES:               |                                 | 
|Research and development          |                                 |  |                               | 2,839,451  |      |   | 3,791,344  |   |   | 6,497,450  |   |   | 11,735,221 |  
|General and administrative        |                                 |  |                               | 1,151,475  |      |   | 2,329,052  |   |   | 2,608,323  |   |   | 3,988,062  |  
|Total operating                  
|expenses                          |                                 |  |                               | 3,990,926  |      |   | 6,120,396  |   |   | 9,105,773  |   |   | 15,723,283 |  
|                                 
|Loss from operations              |                                 |  |                               | (2,779,521 | )    |   | (5,377,561 | ) |   | (7,140,522 | ) |   | (6,002,717 | )
|                                 
|OTHER INCOME (EXPENSE):           |                                 | 
|Investment income                 |                                 |  |                               | 77,236     |      |   | 314,470    |   |   | 160,216    |   |   | 711,091    |  
|Interest expense                  |                                 |  |                               | (7,524     | )    |   | (12,469    | ) |   | (12,018    | ) |   | (30,698    | )
|Gain
        on sale of equipment |                                 |  |                               | 550,968    |      |   |           |   |   | 550,968    |   |   |           |  
|Total other income, net           |                                 |  |                               | 620,680    |      |   | 302,001    |   |   | 699,166    |   |   | 680,393    |  
|                                 
|Loss before income taxes          |                                 |  |                               | (2,158,841 | )    |   | (5,075,560 | ) |   | (6,441,356 | ) |   | (5,322,324 | )
|Income tax benefit                |                                 |  |                               | 1,741,476  |      |   | 1,291,444  |   |   | 1,741,476  |   |   | 1,291,444  |  
|                                 
|NET LOSS                          |                                 |  | $                             | (417,365   | )    | $ | (3,784,116 | ) | $ | (4,699,880 | ) | $ | (4,030,880 | )
|                                 
|Basic and diluted net loss per    |                                 | 
|common share                      |                                 |  | $                             | 0.00       |      | $ | (0.04      | ) | $ | (0.05      | ) | $ | (0.05      | )
|                                 
|Weighted average number of        |                                 | 
|common shares outstanding         |                                 | 
|used in computing basic           |                                 | 
|and diluted net loss per          |                                 | 
|common share                      |                                 |  |                               | 86,640,647 |      |   | 85,204,169 |   |   | 86,082,481 |   |   | 85,190,733 |  

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

3

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Table of Contents

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

|                                                    |  |  |                               |            |      |   |             |  
|--------------------------------------------------- |  |  | ----------------------------- | ---------- | ---- | - | ----------- | -
|                                                    |  |  | Six Months Ended December 31, |           
|                                                    |  |  | 2008                          |            | 2007 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:               |  |  |                               |            |      |   |             |  
|Net loss                                            |  |  | $                             | (4,699,880 | )    | $ | (4,030,880  | )
|Adjustments to reconcile net loss to net cash       |  | 
|used in operating activities:                       |  | 
|Depreciation and amortization                       |  |  |                               | 671,749    |      |   | 691,257     |  
|Gain on sale of property and equipment              |  |  |                               | (550,968   | )    |   |            |  
|Stock-based compensation                            |  |  |                               | 824,658    |      |   | 1,054,398   |  
|Changes in operating assets and liabilities:        |  | 
|Accounts receivable                                 |  |  |                               | (4,894,739 | )    |   | 240,102     |  
|Prepaid expenses and other assets                   |  |  |                               | 138,020    |      |   | 1,146,184   |  
|Accounts payable                                    |  |  |                               | (290,736   | )    |   | (537,702    | )
|Accrued expenses and other liabilities              |  |  |                               | (1,265,066 | )    |   | (752,617    | )
|Deferred revenues                                   |  |  |                               | 3,266,667  |      |   | (8,585,698  | )
|Net cash used in operating activities               |  |  |                               | (6,800,295 | )    |   | (10,774,956 | )
|                                                   
|CASH FLOWS FROM INVESTING ACTIVITIES:               |  | 
|Purchases of property and equipment                 |  |  |                               | (29,032    | )    |   | (231,593    | )
|Proceeds from sale of equipment                     |  |  |                               | 500,000    |      |   |            |  
|Net cash provided by (used in) investing activities |  |  |                               | 470,968    |      |   | (231,593    | )
|                                                   
|CASH FLOWS FROM FINANCING ACTIVITIES:               |  | 
|Payments on capital lease obligations               |  |  |                               | (139,077   | )    |   | (145,796    | )
|Proceeds from exercise of common stock warrants     |  |  |                               |           |      |   | 110,229     |  
|Net cash used in financing activities               |  |  |                               | (139,077   | )    |   | (35,567     | )
|                                                   
|NET DECREASE IN CASH AND                            |  | 
|CASH EQUIVALENTS                                    |  |  |                               | (6,468,404 | )    |   | (11,042,116 | )
|                                                   
|CASH AND CASH EQUIVALENTS, beginning                |  | 
|of period                                           |  |  |                               | 9,421,770  |      |   | 31,447,615  |  
|                                                   
|CASH AND CASH EQUIVALENTS, end of period            |  |  | $                             | 2,953,366  |      | $ | 20,405,499  |  
|                                                   
|SUPPLEMENTAL CASH FLOW INFORMATION:                 |  | 
|Cash paid for interest                              |  |  | $                             | 18,018     |      | $ | 30,698      |  
|Equipment acquired under financing agreements       |  |  | $                             |           |      | $ | 186,989     |  
|Unrealized gain on available-for-sale investments   |  |  | $                             | 22,303     |      | $ | 38,442      |  

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

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Table of Contents

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 dedicated to the development of peptide, peptide mimetic and
small molecule agonist compounds with a focus on melanocortin and natriuretic peptide
receptor systems. Palatin has a diverse pipeline of active development programs targeting
melanocortin and natriuretic receptors. The melanocortin system is involved in a large and
diverse number of physiologic functions, and therapeutic agents modulating this system may
have the potential to treat a variety of conditions and diseases, including sexual
dysfunction, obesity and related disorders, ischemiareperfusion injury, hemorrhagic
shock and inflammation-related diseases. The natriuretic peptide receptor system has
numerous cardiovascular functions, and therapeutic agents modulating this system may be
useful in treatment of heart failure, hypertension and other cardiovascular diseases.

The
Companys products in development include PL-3994, a peptidomimetic natriuretic
peptide receptor A agonist, for treatment of heart failure and PL-6983, a peptide
melanocortin receptor agonists, for treatment of sexual dysfunction. The Company has a
licensing and research collaboration agreement with AstraZeneca AB (AstraZeneca) to
discover, develop and commercialize compounds that target melanocortin receptors for the
treatment of obesity, diabetes and related metabolic syndrome.

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, partial funding of the Companys development and discovery programs with
the cash flow from collaboration agreements and, depending on the availability of
sufficient funding, expansion of the Companys pipeline through the utilization of
its melanocortin expertise and drug discovery technologies and opportunistic acquisition
of synergistic products and technologies.

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, 2008 and incurred a net loss for the three and six months ended December
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, conduct successful 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 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 and cash equivalents, available-for-sale investments and
accounts receivable, together with expected receipts from collaboration and license
agreements and other income, will be adequate to fund the Companys projected
operations through calendar year 2009.

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 sources
of public or private financing and sharing of development costs through collaborative
agreements or other arrangements. Should appropriate sources of financing not be
available, management will curtail operations and delay clinical trials and research
activities until such time, if ever, as appropriate financing is available. There can be
no assurance that the Company will be able to obtain financing when required or that
financing efforts will be successful.

Concentrations
 Concentrations in the Companys assets and operations subject it to certain
related risks. Financial instruments that 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, 2008 consists of amounts due from
AstraZeneca.

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

|            |                                 |      |                               |     |      |      |      |     | 
|----------- | ------------------------------- | ---- | ----------------------------- | --- | ---- | ---- | ---- | --- | 
|            | Three Months Ended December 31, |      | Six Months Ended December 31, |    
|            | 2008                            |      | 2007                          |     | 2008 |      | 2007 |    
|AstraZeneca |                                 | 100% |                               | 99% |      | 100% |      | 15% | 
|King        |                                 | -%   |                               | -%  |      | -%   |      | 84% | 

5

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Table of Contents

(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, 2008, and its
results of operations and its cash flows for the three and six months ended December 31,
2008 and 2007. The results of operations for the three and six month periods ended
December 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, 2009.

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 for the year ended June 30, 2008, filed with the Securities and
Exchange Commission (SEC), which includes consolidated financial statements as of June 30,
2008 and 2007 and for each of the fiscal years in the three-year period ended June 30,
2008.

(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 less than three months.
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, and capital lease obligations. 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.

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 expense.
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

6

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Table of Contents

on a straight-line basis, as well as
tenant allowances for leasehold improvements. Rent expenses are being recognized ratably
over the terms 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. Reimbursements for research and
development activities are recorded in the period in which 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 i) such milestone is substantive in nature;
ii) the milestone payment is non-refundable; iii) achievement of the milestone involves a
degree of risk and was not reasonably assured at the inception of the arrangement; iv) the
amount of the milestone payment is reasonable in relation to the effort expended or the
risk associated with achievement of the milestone; and v) a reasonable amount of time
passes between the up-front license payment and the first milestone payment as well as
between each subsequent milestone payment. Determination as to whether a milestone meets
these conditions involves the judgment of management. If any of these conditions are not
met, the resulting payment would not be considered a substantive milestone and, therefore,
the resulting payment would be considered part of the up-front consideration and be recognized as
revenue as such performance obligations are performed in accordance with the policies
described above.

On
December 5, 2008, the Company entered into both an amendment to the Research Collaboration
and License Agreement (the License Agreement) with AstraZeneca, dated January 30, 2007,
and a Clinical Trial Sponsored Research Agreement (the Clinical Trial Agreement). Pursuant
to the amendment, the Company will receive an up-front payment of $1.6 million and
quarterly payments totaling up to $1.4 million over the one year contract period. The
up-front payment has been recorded as deferred revenue and the total consideration of up to
$3.0 million will be recognized as revenue over the one year contract period beginning
February 1, 2009.

Under
the Clinical Trial Agreement, the Company will be responsible for conducting a study of
the effects of melanocortin receptor-specific compounds on food intake, obesity and other
metabolic parameters. The Company is eligible for milestone payments totaling $5.0 million
in connection with the License Agreement and Clinical Trial Agreement, of which a $2.5
million was due as of December 31, 2008. The total consideration under the Clinical Trial
Agreement will be recognized as revenue as services are provided over the expected six
month trial period.

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  Effective July 1, 2005, the Company adopted Statement of Financial
Accounting Standards (SFAS) 123(R), Share-Based Payment, using the modified
prospective method. 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
financial statements, based on 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 value of stock 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 basis 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.

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During
the three months ended December 31, 2008 and 2007, the Company sold New Jersey state net
operating loss carryforwards, which resulted in the recognition of $1,741,476 and
$1,291,444, 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. As of December 31, 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 15,201,545 and 16,149,527 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.

Recently
Issued Accounting Pronouncements  In September 2006, the Financial Accounting
Standards Board (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 interim periods
within those fiscal years; however, the FASB did provide a one-year deferral for the
implementation of SFAS 157 for certain non-financial assets and liabilities.

SFAS
157 establishes a valuation hierarchy for disclosure of the inputs to valuation used to
measure fair value. This hierarchy prioritizes the inputs into three broad levels. Level 1
inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities. Level 2 inputs include quoted prices for identical or similar assets and
liabilities that are not active, quoted prices for similar assets and liabilities in
active markets or inputs that are observable for the asset or liability, either directly
or indirectly through market corroboration, for substantially the full term of the
financial instrument. Level 3 inputs are unobservable inputs based on managements
own assumptions used to measure assets and liabilities at fair value. The classification
of a financial asset or liability within the hierarchy is determined based on the lowest
level input that is significant to the fair value measurement.

The
following table provides the assets and liabilities carried at fair value measured on a
recurring basis as of December 31, 2008:

|                               |  |                                            |  |                                         |  |                                         |  |                                         | 
|------------------------------ |  | ------------------------------------------ |  | --------------------------------------- |  | --------------------------------------- |  | --------------------------------------- | 
|                               |  | Total carrying valueas ofDecember 31, 2008 |  | Quoted prices inactive markets(Level 1) |  | Quoted prices inactive markets(Level 2) |  | Quoted prices inactive markets(Level 3) | 
|Available-for-sale-investments |  | $      3,375,074                           |  | $      3,375,074                        |  | $               -                       |  | $               -                       | 

The adoption of SFAS 157 did not
have any impact on the Companys consolidated results of operations and financial
position.

In
December 2007, the 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 consolidated results of operations and financial position.

(4)    COMPREHENSIVE
LOSS

Comprehensive
loss consists of the following:

|                               |                                 |  |                               |          |      |  |      |            |   |  |   |            |   |  |   |            |  
|------------------------------ | ------------------------------- |  | ----------------------------- | -------- | ---- |  | ---- | ---------- | - |  | - | ---------- | - |  | - | ---------- | -
|                               | Three Months Ended December 31, |  | Six Months Ended December 31,
|                               | 2008                            |  | 2007                          |          | 2008 |  | 2007
|Net loss                       |                                 |  | $                             | (417,365 | )    |  | $    | (3,784,116 | ) |  | $ | (4,699,880 | ) |  | $ | (4,030,880 | )
|Unrealized gain on investments |                                 |  |                               | 22,362   |      |  |      | 22,628     |   |  |   | 22,303     |   |  |   | 38,442     |  
|Comprehensive loss             |                                 |  | $                             | (395,003 | )    |  | $    | (3,761,488 | ) |  | $ | (4,677,577 | ) |  | $ | (3,992,438 | )

(5)    
INVESTMENTS

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

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|                 |  |                  |  |                  | 
|---------------- |  | ---------------- |  | ---------------- | 
|                 |  | December 31,2008 |  | June 30,2008     | 
|Cost             |  | $      3,323,654 |  | $      3,323,654 | 
|                
|Unrealized gains |  | 51,420           |  | 29,117           | 
|                
|Fair Value       |  | $      3,375,074 |  | $      3,352,771 | 

(6)    
CONTINGENCIES

The Company
accounts for litigation losses in accordance with SFAS 5, Accounting for
Contingencies. Under SFAS 5, loss contingency provisions are recorded for probable
losses when management is able to reasonably estimate the loss. Any outcome upon
settlement that deviates from the Companys best estimate may result in additional
expense or in a reduction in expense in a future accounting period. The Company records
legal expenses associated with such contingencies as incurred.

(7)    STOCKHOLDERS EQUITY

On
December 10, 2008, the Company issued restricted stock units to its executive officers
under the Companys 2005 Stock Plan totaling 750,000 shares of common stock. The
restricted stock units vest on December 31, 2009 provided that the officer remains
employed by the Company 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 is amortizing the fair value of the restricted stock units, totaling approximately
$68,000, on a straight-line basis through December 31, 2009. For the three and six month
period ended December 31, 2008, the Company recognized approximately $5,000 of stock-based
compensation expense related to these restricted stock units.

On
September 25, 2007, the Company issued grants of restricted stock units under the
Companys 2005 Stock Plan totaling 1,573,915 shares of common stock as retention
bonuses to its employees, other than the executive officers, that were not affected by the
September 2007 reduction in workforce. On September 30, 2008, after adjusting for
forfeitures and early vesting due to involuntary position elimination, 1,138,824 shares of
common stock vested. The Company amortized the fair value of these restricted stock units,
totaling approximately $676,000, on a straight-line basis over a one-year period. For the
six month period ended December 31, 2008, the Company recognized approximately $133,000 of
stock-based compensation expense related to these restricted stock units.

Stock-based
compensation costs for the three and six months ended December 31, 2008 for stock options
and equity-based instruments issued other than the restricted stock units described above
totaled approximately $305,000 and $687,000, respectively.

(8)    
          OTHER REVENUE

On
October 28, 2008, the Company sold manufacturing equipment and supplies that had been
purchased pursuant to research collaboration agreements and expensed on the Statement of
Operations. Proceeds from this sale, totaling $500,000, have been included in gain on
sale of equipment on the Statement of Operations for the three and six months
ended December 31, 2008.

(9)    
          SUBLEASE AGREEMENT

On
December 31, 2008, the Company subleased approximately 10,000 square feet of office space
under a sublease agreement beginning on January 1, 2009 and expiring on February 29, 2012.
The sublessee will directly pay rent under the sublease to the Companys landlord.
The Company will make payments related to an increase in the underlying lease rate which
is effective June 30, 2010, and will pay rent from expiration of the sublease through the
expiration of the underlying lease, June 30, 2015.

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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 as amended
(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, 2008 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.

In
this quarterly report on Form 10-Q, references to we, our,
us or Palatin means Palatin Technologies, Inc.

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, 2008, and have not changed during the six month period ended December 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 dedicated to the development of peptide, peptide mimetic
and small molecule compounds with a focus on melanocortin and natriuretic peptide receptor
systems. We have a diverse pipeline of active development programs, including development
of proposed products for treatment of heart failure, sexual dysfunction, obesity, diabetes
and metabolic syndrome. The melanocortin system is involved in a large and diverse number
of physiologic functions, and therapeutic agents modulating this system may have the
potential to treat a variety of conditions and diseases, including sexual dysfunction,
obesity and related disorders, ischemiareperfusion injury (injury resulting from
inadequate blood flow or reintroduction of blood flow), hemorrhagic shock and
inflammation-related diseases. The natriuretic peptide receptor system has numerous
cardiovascular functions, and therapeutic agents modulating this system may be useful in
treatment of heart failure, hypertension and other cardiovascular diseases.

We
have the following products in development:

| |  |  | PL-3994,
a peptidomimetic natriuretic peptide receptor A (NPRA) agonist, for treatment of heart
failure.
| | - |  | --------------------------------------------------------------------------------------------------------

| |  |  | PL-6983,
a peptide melanocortin receptor agonist, for treatment of sexual dysfunction.
| | - |  | --------------------------------------------------------------------------------------

| |  |  | Melanocortin
receptor-based compounds for treatment of obesity, diabetes and related metabolic
syndrome pursuant to an ongoing research collaboration and global license with
AstraZeneca AB (AstraZeneca).
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We
have had a strategic collaboration agreement with the Mallinckrodt division of Covidien
Ltd. (Mallinckrodt) relating to Neutrospec®, a radiolabeled monoclonal antibody
product for imaging and diagnosing infection. We do not anticipate that any significant
work will be done relating to this product during the current fiscal year.

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; partially funding our development
and discovery programs with the cash flow from our collaboration agreements; and,
depending on the availability of sufficient funding, expanding our pipeline by using our
expertise in drug discovery technologies for melanocortin and natriuretic peptide receptor
systems and acquiring synergistic products and technologies.

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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 in it
or connected to it 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, 2008 Compared to the Three and Six Months Ended December 31, 2007

Licenses
and Contracts  For the three and six months ended December 31, 2008, we recognized
$1.2 million and $2.0 million, respectively, in licenses and contract revenue related to
our license agreement with AstraZeneca. For the three and six months ended December 31,
2007, we recognized $0.7 million and $9.7 million, respectively, in licenses and contract
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.

There
was no revenue related to King in 2008 as a result of the termination of our collaboration
agreement with King and the recognition in September 2007 of the remaining deferred
license revenue pursuant to Kings up-front payment. License and contract revenue
from AstraZeneca for the three and six months ended December 31, 2008 consists of $0.8
million and $1.1 million, respectively, of revenue related to our research services
performed during said period and $0.4 million and $0.9 million, respectively, of license
revenue related to AstraZenecas up-front license and access fees. 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 and access 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 $2.8 million for the
three months ended December 31, 2008 from $3.8 million for the three months ended December
31, 2007. Research and development expenses decreased to $6.5 million for the six months
ended December 31, 2008 from $11.7 million for the six months ended December 31, 2007.

There
were no research and development expenses related to bremelanotide for sexual dysfunction
for the three and six months ended December 31, 2008 compared to $0.2 million and $2.7
million, respectively, for the same periods in 2007. The amount for the three and six
months ended December 31, 2007 included 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 sexual dysfunction
changed as a result of (i) the completion of certain Phase 2B trials on both men and
women, and (ii) the decision to not initiate Phase 3 clinical trials for erectile
dysfunction, and (iii) the strategic restructuring and refocusing of our clinical-stage
product portfolio development programs. Similar to the recognition of license revenue
explained above, the three and six months ended December 31, 2007 includes the recognition
of $0.8 million of deferred costs based on the termination of our collaboration agreement
with King.

Research
and development expenses related to our PL-3994, PL-6983, obesity and other preclinical
programs were $0.6 million and $1.7 million, respectively, for the three and six months
ended December 31, 2008 compared to $0.7 million and $1.7 million, respectively, for the
three and six months ended December 31, 2007. Spending to date has been related to the
identification and optimization of lead compounds, preclinical studies and a Phase 1 and
Phase 2a trial with PL-3994. The amount of such spending and the nature of future
development activities are dependant on a number of factors, including primarily the
availability of funds to support future development activities, success of our clinical
trials, preclinical and discovery programs, and our ability to progress compounds in
addition to PL-3994 into human clinical trials.

The
historical amounts of project spending above exclude general research and development
spending, which decreased to $2.2 million and $4.8 million, respectively, for the three
and six months ended December 31, 2008 compared to $2.9 million and
$7.4 million, respectively, for the three and six months ended December 31, 2007. The
decrease is primarily related to the reductions in workforce initiated in September 2007
and May 2008.

Cumulative
spending from inception to December 31, 2008 on our bremelanotide, NeutroSpec and other
programs (which includes PL-3994, PL-6983, obesity, and other discovery programs) amounts
to approximately

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$122.5 million, $55.4 million and $48.9 million, respectively. Due to
various 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 $1.1 million
and $2.6 million, respectively, for the three and six months ended December 31, 2008
compared to $2.3 million and $4.0 million, respectively, for the three and six months
ended December 31, 2007. The decrease is primarily related to the reductions in workforce
initiated in September 2007 and May 2008.

Gain on Sale  Gain on sale of
equipment for the three and six months ended December 31, 2008, includes of proceeds of
$0.5 million from the sale of equipment and supplies previously purchased under our
research collaboration agreements and charged to expense at the time of purchase. There
was no such activity for the three and six months ended December 31, 2007.

Income
Tax Benefit  Income tax benefits of $1.7 million in the three and six months ended
December 31, 2008 and $1.3 million in the three and six months ended December 31, 2007
relate to the sale of New Jersey 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;
|- |  | ---------------------

| |  | marketing,
sales and competition; and
|- |  | -------------------------------------

| |  | obtaining
sufficient capital.
|- |  | -----------------------------

Failure
to obtain timely regulatory approval for our product candidates and indications would
impact our ability to generate 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 and require us to curtail or cease certain programs.

During
the six months ended December 31, 2008, we used $6.8 million of cash for our operating
activities, compared to $10.8 million used in the six months ended December 31, 2007.
Lower net cash outflows from operations in the six months ended December 31, 2008 resulted
primarily from lower operating expenses. 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.

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. As of December 31, 2008, our cash and cash
equivalents were $3.0 million, available-for-sale investments were $3.4 million and
accounts receivable were $4.9 million. This $11.3 million, coupled with $2.5 million in
milestone payments earned in January 2009 pursuant to Palatins agreements with
AstraZeneca and expected receipts from collaboration and license agreements and other
income, will be adequate to fund our projected operations through calendar year 2009.

We
intend to seek additional capital through public or private equity financings,
collaborative arrangements on our product candidates, milestone payments or other
sources. However, additional funding may not be available

12

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on acceptable terms or at all. If
adequate funds are not available, we will further curtail operations significantly,
including the delay, modification or cancelation of product candidate development plans
and further decreases in staffing levels. We may also be required to seek collaborators
for our product candidates at an earlier stage than otherwise would be desirable and on
terms that are less favorable than might otherwise be available, and relinquish, license
or otherwise dispose of rights on unfavorable terms to technologies and product
candidates that we would otherwise seek to develop or commercialize ourselves.

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.

Future
capital requirements will also depend on the extent to which we acquire or invest in
businesses, products and technologies or sell or license our product candidates to others.
If we are successful in identifying a product or technology for an 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 we identify such an
acquisition.

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.

Not
required to be provided by smaller reporting companies.

Item 4T. 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.

We
may be involved, from time to time, in various claims and legal proceedings arising in the
ordinary course of our business. We are not currently a party to any such claims or
proceedings that, if decided adversely to us, would either individually or in the
aggregate have a material adverse effect on our business, financial condition or results
of operations.

Item 1A. Risk Factors.

There
have been no material changes to our risk factors disclosed in Part I, Item 1A. of our
annual report on Form 10-K for the fiscal year ended June 30, 2008, with the exception of
the following:

Our
common stock may be delisted from the NYSE Alternext US, making it difficult to trade
shares of our common stock.

On
December 23, 2008, we received notice from the NYSE Alternext US LLC (formerly known as
the American Stock Exchange) (the Exchange) notifying us that the Exchange had determined
that we did not meet continued listing standards based on a review of our Form 10-Q for
the fiscal quarter ended September 30, 2008. In a letter to us, the Exchange stated that
Palatin was not in compliance with Section 1003(a)(ii) of the Exchanges Company
Guide (the Company Guide) because our stockholders equity was less than the required
$4,000,000 and we had losses from continuing operations and net losses in three of our
four most recent fiscal years and not in compliance with Section 1003(a)(iii) of the
Company Guide because our stockholders equity was less than the required $6,000,000
and we had losses from continuing operations and net losses in our five most recent fiscal
years. The letter from the Exchange also stated that because our stock had been trading
below $0.25 per share over the previous seven months, the Exchange deemed it appropriate
for us to effect a reverse stock split in accordance with Section 1003(f)(v) of the
Company Guide.

In
order to maintain our Exchange listing, we submitted a plan on January 23, 2009 advising
the Exchange what we intend to do to bring us into compliance with the continued listing
standards identified above by June 23, 2010. If the Exchange accepts the plan, we may be
able to continue our listing during the plan period through June 23, 2010, subject to
periodic review by the Exchange to determine if we are making progress consistent with the
plan. If the Exchange does not accept the plan, or if we do not regain compliance with
Sections 1003(a)(ii) and (iii) by June 23, 2010, or if we do not make progress consistent
with the plan during the plan period, the Exchange may initiate delisting procedures.

If
we are delisted from the Exchange then our common stock will trade, if at all, only on the
over-the-counter market, such as the OTC Bulletin Board securities market, and then only
if one or more registered broker-dealer market makers comply with quotation requirements.
In addition, delisting of our common stock could further depress our stock price,
substantially limit liquidity of our common stock and materially adversely affect our
ability to raise capital on terms acceptable to us, or at all. Delisting from the Exchange
could also have other negative results, including the potential loss of confidence by
suppliers and employees, the loss of institutional investor interest and fewer business
development opportunities.

We
intend to seek authorization for and may later implement a reverse stock split, which will
reduce our trading volume and may result in a decrease in our market capitalization.

As
discussed above, the Exchange deems it appropriate for us to implement a reverse stock
split because our stock has been trading below $0.25 per share over the past seven months.
We intend to seek stockholder approval for a reverse stock split at the next annual
meeting of stockholders, with the split to be implemented by our Board of Directors. If
the reverse stock split is approved, we intend to implement it in conjunction with raising
additional equity capital. We believe that a reverse stock split will increase the market
price of our common stock in an amount sufficient to regain compliance with Exchange
standards and generate interest in the Company among investors. However, it is likely that
our trading volume, measured by the number of shares bought and sold, will decrease, which
may result in increased volatility. We cannot predict the effect of a reverse stock split
upon the market price for our common stock, and the history of similar reverse stock
splits for companies in like circumstances is varied. The market price per share of our
common stock after a reverse stock split may not rise in proportion to the reduction in
the number of shares of our common stock outstanding resulting from the reverse split,
which would reduce our market capitalization. The market price of our common stock may
also be based on our performance and other factors, the effect of which we cannot predict.

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

None.

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Item 3.  Defaults Upon Senior
Securities.

None.

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

None.

Item 5. Other Information.

We
intend to schedule our annual meeting of stockholders for May 13, 2009, and to set a
record date for the annual meeting of March 26, 2009. The scheduled date of this
years annual meeting constitutes a change of more than thirty days from the
anniversary of last years annual meeting, which was held on December 7, 2007. As a
result, we have extended the deadline for submitting stockholder proposals for inclusion
in the proxy statement pursuant to Rule 14a-8 under the Exchange Act and for submitting
non-Rule 14a-8 stockholder proposals for presentation at the annual meeting. In last
years proxy statement, we requested that stockholder proposals be delivered by July
12, 2008. We did not receive any stockholder proposals in connection with this years
annual meeting by July 12, 2008 or subsequently through February 12, 2009. The new
deadline is the close of business on March 2, 2009. Stockholder proposals should be
delivered to our executive offices, 4C Cedar Brook Drive, Cranbury, NJ 08512. Proposals
should be directed to the attention of the Secretary.

For
any proposal that is not submitted for inclusion in the proxy statement (as described in
the preceding paragraph) but is instead sought to be presented directly at the annual
meeting, SEC rules permit proxies to be voted at the discretion of management if (a) we
received notice of the proposal before the close of business on March 2, 2009 and we
advised stockholders in the proxy statement about the nature of the matter and how
management intends to vote on such matter, or (b) we did not receive notice of the
proposal prior to March 2, 2009.

Item 6. Exhibits.

Exhibits
filed or furnished with this report:

| | 10.1 |  | Form
of Executive Officer Restricted Stock Unit Agreement. * 
| | ---- |  | --------------------------------------------------------------

| | 10.2 |  | Second
Amendment dated December 5, 2008 to the Research Collaboration and License Agreement
between Palatin and AstraZeneca AB. We have requested confidential
treatment of certain provisions contained in this exhibit. The copy
filed as an exhibit omits the information subject to the
confidentiality request. *
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.3 |  | Clinical
Trail Sponsored Research Agreement dated December 5, 2008 between Palatin and AstraZeneca
AB. We have requested confidential treatment of certain provisions
contained in this exhibit. The copy filed as an exhibit omits the
information subject to the confidentiality request. *
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.

15

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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: February 13, 2009 |  | /s/ Carl Spana                                                                                                           | 
|                        |  | Carl Spana, Ph.D.President andChief Executive Officer
        (PrincipalExecutive Officer)                               | 
|                       
|                       
|Date: February 13, 2009 |  | /s/ Stephen T. Wills                                                                                                     | 
|                        |  | Stephen T. WillsExecutive Vice President and
        Chief Financial Officer (PrincipalFinancial and Accounting Officer) | 

16

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Table of Contents

EXHIBIT INDEX

| | 10.1 |  | Form
of Executive Officer Restricted Stock Unit Agreement. * 
| | ---- |  | --------------------------------------------------------------

| | 10.2 |  | Second
Amendment dated December 5, 2008 to the Research Collaboration and License Agreement
between Palatin and AstraZeneca AB. We have requested confidential
treatment of certain provisions contained in this exhibit. The copy
filed as an exhibit omits the information subject to the
confidentiality request. *
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.3 |  | Clinical
Trail Sponsored Research Agreement dated December 5, 2008 between Palatin and AstraZeneca
AB. We have requested confidential treatment of certain provisions
contained in this exhibit. The copy filed as an exhibit omits the
information subject to the confidentiality request. *
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.