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U.S. SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549  FORM 10-Q  [X]
     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934       [  ]
     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934          PALATIN TECHNOLOGIES, INC.(Exact name of registrant as specified in its charter)   Delaware
     95-4078884(State or other jurisdiction of
     incorporation or organization)
     (I.R.S. Employer Identification
     No.)4C Cedar Brook DriveCranbury, New Jersey
     08512(Address of principal executive
     offices)
     (Zip Code)  (609) 495-2200


Check whether the Registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act
during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been
subject
to such filing requirements for the past 90 days.    Yes [X]   No [  ]

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

As of May 15, 2003, 41,816,651 shares of the issuer's common stock, par value $.01 per share, were
outstanding.

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PALATIN TECHNOLOGIES, INC.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

|Item 1. | Financial Statements (unaudited)                                                                                                                                                                         |        
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------
|        |                                                                                                                                                                                                          |        
|        | CONSOLIDATED BALANCE SHEETS -- As of March 31, 2003
     and June 30, 2002                                                                                                                               | Page 3 
|        |                                                                                                                                                                                                          |        
|        | CONSOLIDATED STATEMENTS OF OPERATIONS --
      For the Three and Nine Months Ended March 31, 2003 and
      March 31, 2002 and the Period from January 28, 1986
      (inception) through March 31, 2003 | Page 4 
|        |                                                                                                                                                                                                          |        
|        | CONSOLIDATED STATEMENTS OF CASH FLOWS --
      For the Nine Months Ended March 31, 2003 and
     March 31, 2002 and the Period from January 28, 1986
     (inception) through March 31, 2003             | Page 5 
|        |                                                                                                                                                                                                          |        
|        | Notes to Consolidated Financial Statements                                                                                                                                                               | Page 6 
|        |                                                                                                                                                                                                          |        
|Item 2. | Management's Discussion and Analysis of Financial Condition
     and Results of Operations                                                                                                               | Page 12
|        |                                                                                                                                                                                                          |        
|Item 3. | Quantitative and Qualitative Disclosures About Market Risk                                                                                                                                               | Page 18
|        |                                                                                                                                                                                                          |        
|Item 4. | Controls and Procedures                                                                                                                                                                                  | Page 18
|        |                                                                                                                                                                                                          |        

PART II - OTHER INFORMATION

|Item 1. | Legal Proceedings                                        | Page 19
|------- | -------------------------------------------------------- | -------
|        |                                                          |        
|Item 2. | Changes in Securities and Use of
     Proceeds           | Page 19
|        |                                                          |        
|Item 3. | Defaults Upon Senior Securities                          | Page 19
|        |                                                          |        
|Item 4. | Submission of Matters to a Vote of
     Security Holders | Page 19
|        |                                                          |        
|Item 5. | Other Information                                        | Page 19
|        |                                                          |        
|Item 6. | Exhibits and Reports on Form 8-K                         | Page 19
|        |                                                          |        
|        | Signatures                                               | Page 21
|        |                                                          |        

2

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# PART I - FINANCIAL INFORMATION

## Item 1. Financial Statements

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

`March 31, 2003     June 30, 2002
                                                                    ---------------     -------------
ASSETS
Current assets:
  Cash and cash equivalents                                          $  22,391,839      $   7,944,264
  Available for sale investments                                         3,108,902          1,160,773
  Prepaid expenses and other                                               649,939            349,883
                                                                     --------------     --------------
      Total current assets                                              26,150,680          9,454,920

Property and equipment, net                                              3,426,713          2,416,499
Restricted cash                                                            428,075            433,844
Other                                                                       59,577             52,953
                                                                     --------------     --------------
                                                                     $  30,065,045      $  12,358,216
                                                                     ==============     ==============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of long term debt                                  $     145,382      $           -
  Accounts payable                                                       1,385,495          1,579,336
  Accrued expenses                                                       2,933,446            661,883
  Accrued compensation                                                           -            236,200
  Accrued litigation settlement                                                  -            400,000
  Deferred revenue                                                         490,131            794,018
                                                                     --------------     --------------
      Total current liabilities                                          4,954,454          3,671,437
                                                                     --------------     --------------

Long term debt                                                             114,097                  -
                                                                     --------------     --------------

Commitments and contingencies (Note 5)


Stockholders' equity:
  Preferred stock of $.01 par value - authorized 10,000,000 shares;
    Series A Convertible; Issued and outstanding 24,867 and 26,192
      shares as of March 31, 2003 and June 30, 2002, respectively;             249                262
    Series C Convertible; 700,000 shares issued and outstanding
      as of March 31, 2003 and June 30, 2002 respectively;                   7,000              7,000
  Common stock of $.01 par value - authorized 75,000,000 shares;
      Issued and outstanding 41,816,653 and 17,423,076 shares as of
      March 31, 2003 and June 30, 2002, respectively                       418,167            174,231
  Additional paid-in capital                                           108,943,698         78,792,240
  Deferred compensation                                                    (35,070)           (53,942)
  Accumulated other comprehensive income                                     8,700             10,604
  Deficit accumulated during development stage                         (84,346,250)       (70,243,616)
                                                                     --------------     --------------
      Total stockholders' equity                                        24,996,494          8,686,779
                                                                     --------------     --------------
                                                                     $  30,065,045      $  12,358,216
                                                                     ==============     ==============`

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

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

`Inception
                                                                                                            (January 28,
                                                                                                                1986)
                                             Three Months Ended March 31,     Nine Months Ended March 31,      through
                                                   2003           2002            2003            2002     March 31, 2003
                                             -------------  -------------  --------------  --------------  --------------
REVENUES:

     Grants and contracts                    $    181,417   $     57,772   $     641,417   $      57,772   $  10,265,511

     License fees                                 148,878         41,667         545,887         125,001       2,647,276

     Other                                              -              -               -               -         318,917
                                             -------------  -------------  --------------  --------------  --------------
          Total revenues                          330,295         99,439       1,187,304         182,773      13,231,704
                                             -------------  -------------  --------------  --------------  --------------
OPERATING EXPENSES:
     Research and development                   4,744,379      3,537,765      12,015,910       8,889,591      66,989,223

     General and administrative                 1,280,305      1,123,885       3,651,738       3,039,047      31,032,996

     Net intangibles write down                         -              -               -               -         259,334
                                             -------------  -------------  --------------  --------------  --------------
          Total operating expenses              6,024,684      4,661,650      15,667,648      11,928,638      98,281,553
                                             -------------  -------------  --------------  --------------  --------------
OTHER INCOME (EXPENSES):
     Interest income                               50,120         64,527         147,079         246,587       2,600,658

     Interest expense                              (7,310)        (1,018)        (14,462)         (2,374)     (1,973,603)

     Merger costs                                       -              -               -               -        (525,000)
                                             -------------  -------------  --------------  --------------  --------------
          Total other income (expenses)            42,810         63,509         132,617         244,213         102,055
                                             -------------  -------------  --------------  --------------  --------------
          Loss before income taxes and
            cumulative effect of accounting
            change                             (5,651,579)    (4,498,702)    (14,347,727)    (11,501,652)    (84,947,794)

     Income tax benefit                                 -        230,400         245,093         392,410         962,655
                                             -------------  -------------  --------------  --------------  --------------
          Loss before cumulative effect of
            accounting change                  (5,651,579)    (4,268,302)    (14,102,634)    (11,109,242)    (83,985,139)

     Cumulative effect of accounting change             -              -               -               -        (361,111)
                                             -------------  -------------  --------------  --------------  --------------
NET LOSS                                       (5,651,579)    (4,268,302)    (14,102,634)    (11,109,242)    (84,346,250)

PREFERRED STOCK DIVIDEND                          (87,339)             -        (203,138)       (285,725)     (3,511,765)
                                             -------------  -------------  --------------  --------------  --------------
NET LOSS ATTRIBUTABLE TO COMMON
  STOCKHOLDERS                               $ (5,738,918)  $ (4,268,302)  $ (14,305,772)  $ (11,394,967)  $ (87,858,015)
                                             =============  =============  ==============  ==============  ==============

Basic and diluted net loss per common share  $      (0.19)  $      (0.26)  $       (0.58)  $       (0.85)
                                             =============  =============  ==============  ==============
Weighted average number of common shares
     outstanding used in computing basic
     and diluted net loss per common share     30,162,510     16,140,790      24,532,567      13,431,685
                                             =============  =============  ==============  ==============`

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

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

`Inception
                                                                                                  (January 28, 1986)
                                                             Nine Months Ended March 31,               Through
                                                             2003                  2002             March 31, 2003
                                                          --------------    ------------------  ---------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                $(14,102,634)         $(11,109,242)           $(84,346,250)                                                                                                           $
  Adjustments to reconcile net loss to net cash
    used for operating activities:
      Cumulative effect of accounting change                         -                     -                 361,111
      Depreciation and amortization                            434,502               865,754               2,965,232
      License fee                                                    -                     -                 500,000
      Interest expense on note payable                               -                     -                  72,691
      Accrued interest on long-term financing                        -                     -                 796,038
      Accrued interest on short-term financing                       -                     -                   7,936
      Intangibles and equipment write down                           -                     -                 278,318
      Common stock and notes payable issued for expenses             -                     -                 751,038
      Settlement with consultant                                     -                     -                 (28,731)
      Acceleration of options previously granted                     -                     -               1,505,315
      Stock based compensation                                   18,872                40,431              4,416,653
      Deferred revenue                                         (303,887)             (125,001)               129,020
      Changes in certain operating assets and
        liabilities:
          Prepaid expenses and other                           (308,418)             (160,448)            (1,459,771)
          Accounts payable                                     (193,841)              412,603              1,385,495
          Accrued expenses and other                            665,114                23,657              1,502,030
                                                          --------------    ------------------  ---------------------

            Net cash used for operating activities          (13,790,292)          (10,052,246)           (71,163,875)
                                                          --------------    ------------------  ---------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Sales/(Purchases) of investments, net                      (1,950,034)                     -            (3,122,041)
  Purchases of property and equipment                        (1,019,289)             (956,814)            (5,827,024)
                                                          --------------    ------------------  ---------------------

            Net cash provided/(used) for investing
              activities                                     (2,969,323)             (956,814)            (8,949,065)
                                                          --------------    ------------------  ---------------------

 CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from notes payable, related party                         -                     -                 302,000
  Payments on notes payable, related party                           -                     -                (302,000)
  Proceeds from senior bridge notes payable                          -                     -               1,850,000
  Payments on senior bridge notes payable                            -                     -              (1,850,000)
  Payments on capital lease obligations                       (158,441)                    -                (158,441)
  Proceeds from notes payable and long-term debt                     -                     -               3,951,327
  Payments on notes payable and long-term debt                       -                     -              (1,951,327)
  Proceeds from common stock, stock option
     and warrant issuances, net                             31,365,631            10,204,608              76,454,561
  Proceeds from preferred stock, net                                 -                     -              24,210,326
  Purchase of treasury stock                                         -                     -                  (1,667)
                                                          --------------    ------------------  ---------------------

            Net cash provided by financing activities       31,207,190            10,204,608             102,504,779
                                                          --------------    ------------------  ---------------------

NET INCREASE/(DECREASE)  IN CASH AND CASH
   EQUIVALENTS                                              14,447,575              (804,452)             22,391,839
CASH AND CASH EQUIVALENTS, beginning of period               7,944,264            11,456,424                       -
                                                          --------------    ------------------  ---------------------

CASH AND CASH EQUIVALENTS, end of period                  $ 22,391,839          $ 10,651,972            $ 22,391,839                                                                                                            $
                                                          ==============    ==================  =====================`

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

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

# (1) Organization
Activities:

Nature
of Business  Palatin Technologies, Inc. (Palatin or the
Company) is a development-stage biopharmaceutical company. The Company does
not currently offer any products for sale. The Company is currently conducting clinical
investigations with its lead drug, PT-141, for the treatment of male and female sexual
dysfunction, and is developing additional therapeutic compounds, discovered using its
enabling peptide platform technology, MIDAS. Additionally, Palatin is developing a
product for infection imaging, LeuTech®, based on a proprietary radiolabeled
monoclonal antibody.

Business
Risk and Liquidity  As shown in the accompanying financial statements, the
Company incurred a substantial net loss of $14,102,634 for the nine months ended March 31,
2003 and has a deficit accumulated during development stage of $84,346,250, cash and cash
equivalents of $22,391,839 and available for sale investments of $3,108,902 as of March
31, 2003. The Company anticipates incurring additional losses in the future as it
continues development of LeuTech for diagnosis of appendicitis and expands clinical trials
for other indications of LeuTech and continues research and development of PT-141 and its
MIDAS technology. To achieve profitability, the Company, alone or with others, must
successfully develop and commercialize its 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 there can be no assurance that
the Company will be able to achieve profitability on a sustained basis, if at all.

In
March 2003, the Company concluded a private placement of its common stock and warrants,
which yielded gross proceeds of approximately $19.1 million (see Note 6).

The
Company has incurred negative cash flows from operations since its inception. The Company
has expended and expects to continue to expend in the future, substantial funds to
complete its planned product development efforts. The Company expects that its existing
capital resources will be adequate to fund the Companys projected operations through
the fiscal year ending June 30, 2004, based on current expenditure levels. No assurance
can be given that the Company will not consume a significant amount of its available
resources before that time. Management plans to continue to refine its operations, control
expenses, evaluate alternative methods to conduct its business, and seek available and
attractive sources of financing and sharing of development costs through strategic
collaboration agreements or other resources. Should appropriate sources of financing not
be available, management would delay certain clinical trials and research activities until
such time as appropriate financing was available. There can be no assurance that the
Companys financing efforts will be successful. If adequate funds are not available,
our financial condition and results of operations will be materially and adversely
affected.

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# (2) Basis of
Presentation:

The
accompanying unaudited consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States for interim financial
information and with the instructions to Form 10-Q. Accordingly, they do not include all
of the information and footnote disclosures required to be presented for complete
financial statements. In the opinion of management, these financial statements contain all
adjustments (consisting of only normal recurring adjustments) considered necessary to
present fairly the financial position as of March 31, 2003 and the results of operations
and cash flows for the three and nine month periods ended March 31, 2003 and 2002 and for
the period from inception (January 28, 1986) to March 31, 2003. The results of operations
for the nine month period ended March 31, 2003 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, 2003.

The
accompanying financial statements should be read in conjunction with the audited financial
statements and notes thereto included in our annual report on Form 10-K, filed with the
Securities and Exchange Commission, which includes financial statements as of June 30,
2002 and 2001 and for each of the three fiscal years in the period ended June 30, 2002.

# (3) Summary of
Significant Accounting Policies:

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

Use
of Estimates  The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and disclosure of
assets and contingent liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.

Statements
of Cash Flows Cash and cash equivalents include cash on hand, cash in banks and
all highly liquid investments with a maturity of less than three months. As of March 31,
2003 and June 30, 2002, approximately $428,000 and $434,000, respectively, of cash was
restricted to secure letters of credit for security deposits on leases.

Investments The Company accounts for its investments in accordance with
Statement of Financial Accounting Standards No. 115 Accounting For Certain
Investments in Debt and Equity Securities. The Company classifies such investments
as available for sale investments and as such all investments are recorded at fair value.
The investments consist principally of corporate debt securities with a minimum credit
rating of A2 and mutual funds with average durations ranging from one to three years and
credit ratings of AAA. Unrealized holding gains and losses, net of the related tax effect,
if any, are excluded from earnings and are reported in other comprehensive income and as a
separate component of stockholders equity until realized. Interest on securities
classified as available for sale is included in interest income. Realized gains and losses
are recorded in the statement of operations in the period that the transaction occurs.

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The following is a summary of
available for sale investments as of March 31, 2003:

`Cost               Gross              Gross             Fair Value
                                                     Unrealized          Unrealized
                                                        Gains              Losses
Corporate debt securities      $     100,000     $          2,101     $              -    $       102,101
Mutual funds                       3,000,202                6,599                    -          3,006,801
                               --------------    -----------------    -----------------   ----------------
Total                          $   3,100,202     $          8,700     $              -    $     3,108,902
                               ==============    =================    =================   ================`

The following is a summary of available for sale investments as of June 30,
2002:

`Cost               Gross              Gross             Fair Value
                                                     Unrealized          Unrealized
                                                        Gains              Losses
Government securities          $       50,000    $             672    $              -    $        50,672
Corporate debt securities             100,000                  860                   -            100,860
Mutual funds                        1,000,169                9,072                   -          1,009,241
                               ---------------   ------------------   -----------------   ----------------
Total                          $    1,150,169    $          10,604    $              -    $     1,160,773
                               ===============   ==================   =================   ================`

Property
and Equipment  Property and equipment consist of office and laboratory
equipment, office furniture and leasehold improvements. Property and equipment are
recorded at cost. Depreciation is recognized using the straight-line method over the
estimated useful lives of five years for equipment, seven years for office furniture and
over the term of the lease for leasehold improvements. 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 its long-lived assets,
management evaluates the probability that future undiscounted net cash flows, without
interest charges, will be less than the carrying amount of the assets. Impairment is
measured at 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 discounted cash flows based on
reasonable and supportable assumptions.

Revenue
Recognition Grant and contract revenues are recognized as the Company provides
the services stipulated in the underlying grants and/or contracts based on the time and
materials incurred. License revenues are recognized when the license fee is received and
the Company has no future performance obligations.

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

The
Company recognized $44,000 and $504,000, respectively, for the three and nine months ended
March 31, 2003 in contract revenue related to the attainment of certain milestones and
other shared development costs of LeuTech pursuant to our collaboration agreement, as
amended, with Mallinckrodt, Inc. a division of Tyco International, Ltd. described below.

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

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

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

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

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

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Had
compensation cost for the Companys common stock options been determined based upon
the fair value of the options at the date of grant, as prescribed under SFAS 123, as
amended by SFAS 148, the Companys net income and net income per share would have
been reduced to the following pro forma amounts:

`For the three months ended    For the nine months ended
                                                          March 31,                      March 31,
                                                     2003          2002            2003            2002
Net loss attributable to common stockholders:
    As reported                                $ (5,738,918)  $(4,268,302)  $(14,305,772)  $(11,394,967)
    Impact of total stock-based compensation
         expense determined under fair-value
         based method                              (244,804)     (395,667)    (1,000,769)    (1,198,018)
                                               -------------  ------------  -------------  -------------
    Pro forma net loss attributable to common
         stockholders                          $ (5,983,722)  $(4,663,969)  $(15,306,541)  $(12,592,985)
                                               =============  ============  =============  =============
Basic and diluted net loss per common share:
    As reported                                $      (0.19)  $     (0.26)  $      (0.58)  $      (0.85)
                                               =============  ============  =============  =============

    Pro forma                                  $      (0.20)  $     (0.29)  $      (0.62)  $      (0.94)
                                               =============  ============  =============  =============`

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

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

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

Net
Loss per Common Share  The Company applies Statement of Financial Accounting
Standards No. 128, Earnings per Share (SFAS 128). SFAS 128
requires dual presentation of basic and diluted earnings per share (EPS) for
complex capital structures on the face of the statement of operations. Basic EPS is
computed by dividing the income (loss) by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution from the exercise
or conversion of securities into Common stock, such as stock options. For the three and
nine months ended March 31, 2003 and 2002, there were no dilutive effects of stock options
or warrants as the Company incurred a net loss in each period. Options and warrants to
purchase 15,305,190 shares of Common Stock at prices ranging from $0.01 to $21.70 per
share were outstanding at March 31, 2003.

Fair
Value of Financial Instruments  Statement of Financial Accounting Standards No.
107 Disclosure about Fair Value of Financial Instruments (SFAS
107), requires disclosures of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to estimate
the value. In cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. These techniques are
significantly affected by the assumptions used, including discount rate and estimates of
future cash flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could not be
realized in immediate settlement of the instrument. SFAS 107 excludes certain financial
instruments and all non-financial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the underlying
value of the Company.

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# (4) Accrued Expenses:

Accrued
expenses consist of the following:

`March 31, 2003     June 30, 2002
                                          --------------------------------
     Product development costs            $   988,800        $  208,000
     Private placement offering costs         970,250                 -
     Other                                    974,396           453,883
                                          ------------------------------
                                          $ 2,933,446        $  661,883
                                          ==============================`

# (5) Commitments and
Contingencies:

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

As
of March 31, 2003, the Company had accrued approximately $100,000 related to the estimated
additional costs to terminate the Princeton lease.

Capital
Leases In September 2002, the Company acquired $417,920 of laboratory equipment
under capital leases. The term of these leases range from 24 to 60 months. As of March 31,
2003, $259,479 remains outstanding pursuant to these lease obligations.

License
Agreements The Company has three license agreements that require minimum annual
payments. The cost to maintain these license agreements for the fiscal year ending June
30, 2003 amounts to $250,000, of which $187,500 was expensed during the nine months ended
March 31, 2003 under these agreements.

# (6) Stockholders
Equity:

In
March 2003, the Company concluded a private placement of its common stock and warrants,
which yielded gross proceeds of approximately $19.1 million. Investors, consisting of
domestic financial institutions and accredited investors purchased 13,433,096 shares of
common stock and 3,358,275 warrants at a market value of approximately $1.42 per share.
For every four shares purchased, the investors also received a five-year warrant. Each
warrant entitles the purchaser to purchase one share of common stock at an exercise price
of approximately $1.77 per share. Based on the sales price of the common stock and
warrants in this private placement, the conversion price of the Companys outstanding
Series A Preferred Stock and the exercise price of certain outstanding warrants have been
adjusted downward in accordance with the existing terms of those securities. As a result,
a non-cash, deemed dividend of $87,339 has been reflected in the Companys
consolidated statement of operations during the three months ended March 31, 2003.
Included in accrued expenses, as of March 31, 2003, are $970,250 of private placement
offering costs. These accrued expenses were paid in April 2003.

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In
November 2002, the Company concluded a private placement of its common stock and warrants,
which yielded gross proceeds of $11.5 million. Investors, consisting of domestic and
European financial institutions and other domestic accredited investors purchased
approximately 9,373,940 shares of common stock and 1,874,788 warrants at a market value of
approximately $1.23 per share. For every five shares of common stock purchased, the
investors also received a five-year warrant. Each warrant entitles the purchaser to
purchase one share of common stock at an exercise price of approximately $1.54 per share.
Based on the sales price of the common stock and warrants in this private placement, the
conversion price of the Companys outstanding Series A Preferred Stock and the
exercise price of certain outstanding warrants have been adjusted downward in accordance
with the existing terms of those securities. As a result, a deemed dividend of $98,340 has
been reflected in the Companys consolidated statement of operations.

In
July 2002, the Company received gross proceeds of $1.8 million pursuant to the second
tranche of the Spring 2002 private placement of common stock and warrants. Investors,
consisting of domestic and European financial institutions and other domestic accredited
investors purchased 1,545,063 shares of common stock and 309,012 warrants at a market
value of approximately $1.17 per share. For every five shares of common stock purchased,
the investors also received a five-year warrant. Each warrant entitles the purchaser to
purchase one share of common stock at an exercise price of approximately $1.46 per share.
Based on the sales price of the common stock and warrants in this private placement, the
conversion price of the Companys outstanding Series A Preferred Stock and the
exercise price of certain outstanding warrants have been adjusted downward in accordance
with the existing terms of those securities. As a result, a deemed dividend of $17,459 has
been reflected in the Companys consolidated statement of operations

# (7) Income Tax Benefit:

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

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

# General

The
following discussion and analysis should be read in conjunction with the consolidated
financial statements and accompanying notes filed as part of this report.

We
make forward-looking statements in this report. Sometimes these statements contain words
such as anticipates, plans, intends,
expects and similar expressions to identify forward-looking statements. These
statements are not guarantees of our future performance. Our business involves known and
unknown risks, uncertainties and other factors, which may cause our actual results,
performance or achievements to be materially different from what we say in this report. We
describe a number of these factors in our annual report on Form 10-K for the year ended
June 30, 2002. Given these uncertainties, you should not place undue reliance on these
forward-looking statements, which speak only as of the date of this report. We may not
revise these forward-looking statements to reflect events or circumstances after the date
of this report or to reflect the occurrence of unanticipated events.

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

# Critical Accounting
Policies

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

# Overview

We
are a development-stage biopharmaceutical company committed to the discovery, development
and commercialization of novel therapeutics. We do not currently offer any products for
sale. We are concentrating our efforts on the following:

| | PT-141,
is a new, nasally administered peptide for the treatment of male and female sexual
dysfunction. Our research suggests this mechanism may involve the central nervous system,
which, is a different mechanism from currently marketed male erectile dysfunction (MED)
therapies. We believe PT-141 has the potential to treat both male and female sexual
dysfunction (FSD) and that it may offer significant benefits in terms of safety and
efficacy over currently marketed products. We have completed various Phase 1 safety
studies and Phase 2A efficacy studies in male subjects and patients and a Phase 1 study in
female subjects. We are planning to start a placebo-controlled Phase 2B at
home efficacy study in male patients in the first half of calendar year 2003.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | LeuTech®,
is a product in development that is to be used to rapidly image and diagnose sites of
infection. When injected into the blood stream, LeuTech binds to white blood cells present
at the infection site, labeling these cells with a radioactive tracer. As a result,
physicians can rapidly image and detect an infection using a gamma camera, a common piece
of hospital equipment that records radioactivity. The FDA Medical Imaging Drugs Advisory
Committee unanimously voted that LeuTech is safe and effective for the diagnosis of
equivocal appendicitis. The FDA reviewed the biologics license application (BLA) and
determined that the efficacy and safety data are complete, yet additional manufacturing
and process validation data were required prior to final approval. We are working to
resolve the outstanding issues and we intend to commence the filing of an amendment to the
BLA for equivocal appendicitis in the first half of calendar year 2003.We are
testing LeuTech for detection of other infections, including osteomyelitis (infection deep
inside a bone), fever of unknown origin, post-surgical abscess, inflammatory bowel
disease, and pulmonary imaging, which are now in Phase 2 studies.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

# Results of Operations

Three
and Nine Month Periods Ended March 31, 2003 Compared to Three and Nine Month Periods Ended
March 31, 2002.

Grants and Contracts
 For the three and nine months ended March 31, 2003, we recognized $44,000 and $504,000, respectively, in contract
revenue related to the shared development costs of LeuTech pursuant to our collaboration agreement with Mallinckrodt, Inc., a
division of Tyco International, Ltd. compared to nothing for the three and nine months ended March 31, 2002. The increase in
contract revenue was attributable to additional shared development costs of LeuTech pursuant to the amended agreement. (See Notes to
Consolidated Financial Statements). For the three and nine months ended March 31, 2003, we recorded $137,417 in grant revenue
pursuant to the Small Business Technology Transfer programs of the Department of Health and Human Services compared to $57,772 for
both the three and nine months ended March 31, 2002.

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License
Fees and Royalties  During the fiscal year ended June 30, 2001, we adopted U.S.
Securities and Exchange Commission Staff Accounting Bulletin No. 101 Revenue
Recognition in Financial Statements (SAB 101), which requires up-front,
non-refundable license fees to be deferred and recognized over the performance period. The
cumulative effect of adopting SAB 101 resulted in a one-time, non-cash charge of $361,111
in fiscal 2001, which reflects the deferral portion of an up-front license fee received
from Mallinkrodt, Inc. related to licensing of LeuTech recognized in the fiscal year ended
June 30, 2000. Previously we had recognized up-front license fees when they were received
and we had no obligations to return the fees under any circumstances. Under SAB 101 these
payments are recorded as deferred revenue to be recognized over the remaining term of the
related agreements. For the three and nine months ended March 31, 2003, we recorded
$148,878 and $545,887, respectively, of license revenue and for the three and nine months
ended March 31, 2002, we recorded $41,667 and $125,001, respectively, of license revenue.
Of the license revenue recorded for the three and nine months ended March 31, 2003,
$10,418 and $38,199 was included in the cumulative effect adjustment as of July 1, 2000
and $138,460 and $507,688, respectively, was recorded as a result of the initial $800,000
payment received from Mallinckrodt pursuant to our amended collaboration agreement in May
2002. We recorded $41,667 and $125,001, respectively, of license revenue for the three and
nine months ended March 31, 2002 that was included in the cumulative effect adjustment as
of July 1, 2000.

Research
and development Research and development expenses (R&D)
increased to $4,744,379 and $12,015,910, respectively, for the three and nine months ended
March 31, 2003 compared to $3,537,765 and $8,889,591, respectively, for the three and nine
months ended March 31, 2002. The increase in R&D is primarily related to our increased
development efforts and expanding clinical trials of PT-141 and LeuTech. Our R&D
efforts, and their respective allocated costs, are currently concentrated on the
following:

| |  |  | PT-141, to date we have incurred approximately $18.3 million in allocated R&D
expenses. For the three and nine months ended March 31, 2003, $1,660,432 and $5,205,918,
respectively, of R&D expense was allocated to PT-141 compared to $1,672,376 and
$4,290,922, respectively, for the three and nine months ended March 31, 2002. We
anticipate incurring approximately $15.0 million over the next 12 months as we progress
with our clinical trials and product development programs.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | LeuTech, to date we have incurred approximately $39.9 million in allocated R&D
expenses. For the three and nine months ended March 31, 2003, $2,324,689 and $4,697,395,
respectively, of R&D expense was allocated to LeuTech compared to $1,172,321 and
$3,003,248, respectively, for the three and nine months ended March 31, 2002. Currently,
we are in the process of resolving outstanding manufacturing issues with the FDA and we
intend to commence the filing of an amendment to the Biologics License Application for
equivocal appendicitis in the first half of calendar year 2003. We are also currently
conducting various Phase 2 studies with respect to other infection indications. We
anticipate incurring approximately $3.0 million in additional R&D expenses during
calendar year 2003.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | MIDAS, to date we have incurred approximately $8.8 million in allocated R&D
expenses. For the three and nine months ended March 31, 2003, $759,258 and $2,112,597,
respectively, of R&D expense was allocated to MIDAS compared to $693,068 and
$1,595,421, respectively, for the three and nine months ended March 31, 2002. Based on
this effort, we have identified several molecules that are now in preclinical development
as potential treatments for obesity, sexual dysfunction and inflammation. We expect to
file an IND with the FDA for at least one of these preclinical compounds and initiate
clinical testing within the next 12 months.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

General
and administrative  General and administrative expenses increased to $1,280,305
and $3,651,738, respectively, for the three and nine month periods ended March 31, 2003
compared to $1,123,885 and $3,039,047, respectively, for the three and nine month periods
ended March 31, 2002. The increase in general and administrative expenses is primarily
attributable to an increase in salaries and related personnel expenses and the costs
associated with the consolidation and move of our previous locations in New Jersey to
Cranbury, New Jersey.

Interest
income  Interest income decreased to $50,120 and $147,079, respectively, for the
three and nine month periods ended March 31, 2003 compared to $64,527 and $246,587,
respectively, for the three and nine month periods ended March 31, 2002. The decrease in
interest income is attributable to lower amounts of cash, cash equivalents and investments
available to be invested and the decrease in interest rates these deposits earn.

Net
loss  Net loss increased to $5,651,579 and $14,102,634, respectively, for the
three and nine month periods ended March 31, 2003 compared to $4,268,302 and $11,109,242,
respectively, for the three and nine month periods ended March 31, 2002. The increase was
attributable to the increase in expenses explained above.

# Liquidity and Capital
Resources

Since
inception, we have incurred net operating losses. As of March 31, 2003, we had a deficit
accumulated during development stage of $84,346,250. We have financed our net operating
losses through March 31, 2003 by a series of debt and equity financings. At March 31,
2003, we had cash and cash equivalents of $22,391,839 and available for sale investments
of $3,108,902.

For
the nine months ended March 31, 2003, the net increase in cash was $14,447,575. Net cash
used for operating activities was $13,790,292, net cash used by investing activities was
$2,969,323 and net cash provided by financing activities was $31,207,190.

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

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

In
March 2003, we concluded a private placement of our common stock and warrants, which
yielded gross proceeds of approximately $19.1 million. Investors, consisting of domestic
financial institutions and accredited investors, purchased 13,433,096 shares of common
stock and 3,358,275 warrants at a market value of approximately $1.42 per share. For every
four shares purchased, the investors also received a five-year warrant. Each warrant
entitles the purchaser to purchase one share of common stock at an exercise price of
approximately $1.77 per share. Included in accrued expenses, as of March 31, 2003, are
$970,250 of private placement offering costs. These accrued expenses were paid in April
2003. The net proceeds of approximately $18 million will be used primarily for general
corporate purposes, including the development and clinical trials of new products based on
certain of our proprietary technologies.

On
November 15, 2002, we concluded a private placement of our common stock and warrants,
which yielded gross proceeds of $11.5 million. Investors, consisting of domestic and
European financial institutions and other domestic accredited investors, purchased
9,373,940 shares of common stock and 1,874,788 warrants at a market value of approximately
$1.23 per share. For every five shares purchased, the investors also received a five-year
warrant. Each warrant entitles the purchaser to purchase one share of common stock at an
exercise price of approximately $1.54 per share. The net proceeds of approximately $10.7
million are being used primarily for general corporate purposes, including the development
and clinical trials of new products based on certain of our proprietary technologies.

In
July 2002, we received gross proceeds of $1.8 million pursuant to the second tranche of
the Spring 2002 private placement of common stock and warrants. Investors, consisting of
domestic and European financial institutions and other domestic accredited investors,
purchased approximately 1.5 million shares of common stock shares at approximately $1.17
per share. For every five shares purchased, the investors also received a five-year
warrant to purchase one share of common stock at an exercise price of approximately $1.46
per share. The net proceeds of approximately $1.7 million were used primarily for general
corporate purposes, especially for the development and clinical trials of new products
based on our proprietary technologies.

On
July 17, 2002, we moved into our new leased facility of approximately 28,000 square feet
in Cranbury, New Jersey that combines both the research and development facility formerly
located in Edison, New Jersey and the corporate offices formerly located in Princeton, New
Jersey. Our initial cash outlay related to the move was approximately $1.6 million.
Minimum annual future lease payments escalate from approximately $920,000 per year to
$1,550,000 per year. The lease will expire in July 2012.

We
have three license agreements that require minimum yearly payments. Future minimum
payments under the license agreements are: 2003  $250,000, 2004  $250,000,
2005  $200,000, 2006  $200,000 and 2007  $200,000.

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

We
have incurred negative cash flows from operations since our inception, and have expended,
and expect to continue to expend in the future, substantial funds to complete our planned
product development efforts. We expect that our existing capital resources will be
adequate to fund our projected operations through fiscal year ending June 30, 2004, based
on current expenditure levels.No assurance can be given that we will not consume a
significant amount of our available resources before that time. We plan to continue to
refine our operations, control expenses, evaluate alternative methods to conduct our
business and seek available and attractive sources of financing and sharing of development
costs through strategic collaboration agreements or other resources. Should appropriate
sources of financing not be available, we would delay certain clinical trials and research
activities until such time as appropriate financing was available. There can be no
assurance that our financing efforts will be successful. If adequate funds are not
available, our financial condition and results of operations will be materially and
adversely affected, and we may be forced to cease operations.

We
anticipate incurring additional losses over at least the next several years, and we expect
our losses to increase as we expand our research and development activities relating to
LeuTech, PT-141 and our MIDAS technology. To achieve profitability, we, alone or with
others, must successfully develop and commercialize our technologies and proposed
products, conduct pre-clinical studies and clinical trials, obtain required regulatory
approvals and successfully manufacture and market such technologies and proposed products.
The time required to reach profitability is highly uncertain, and we do not know whether
we will be able to achieve profitability on a sustained basis, if at all.

# Item 3. Quantitative and Qualitative
Disclosures About Market Risk.

Interest
Rate Risk. Our exposure to market risk related to changes in interest rates relates
primarily to our investment portfolio. We invest in instruments that meet high credit
quality standards, and we limit the amount of credit exposure as to any one issue, issuer
and type of investments.

As
of March 31, 2003, our cash, cash equivalents and available for sale investments totaled
$25,500,741, most of which were short term investments having an original maturity of less
than three months. Due to the average maturity and conservative nature of our investment
portfolio, we do not believe that short-term fluctuationsin interest rates would
materially affect the value of our securities.

# Item 4. Controls and
Procedures.

Evaluation
of Disclosure Controls and Procedures. Within the 90 days before we filed this report,
our chief executive officer and chief financial officer evaluated the effectiveness of our
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and
15d-14(c)). Based on their evaluation, they concluded that our disclosure controls and
procedures were adequate and effective to ensure that other persons within Palatin and its
consolidated subsidiaries informed those officers in a timely manner of material
information relating to Palatin and its subsidiaries, particularly during the period in
which we were preparing this report.

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Changes in Internal
Controls. There were no significant changes in our internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation. There were no significant deficiencies or material weaknesses in our internal
controls. Accordingly, we did not require or undertake any corrective actions.

# PART II  OTHER
INFORMATION

# Item 1. Legal
Proceedings.

None.

# Item 2. Changes in
Securities and Use of Proceeds.

In
March 2003, we concluded a private placement of common stock and warrants in which we sold
13,433,096 shares of our $.01 par value common stock at a market value of approximately
$1.42 per unit. For every four shares purchased, the investors also received a five-year
warrant which entitles the holder to purchase one share of common stock at an exercise
price of approximately $1.77 per share. The gross proceeds were approximately $19.1
million and the net proceeds were approximately $18 million. We made the private placement
solely to domestic financial institutions and accredited investors pursuant to Regulation
D under the Securities Act of 1933. The investors represented to us that they were
purchasing the securities for their own accounts for investment and not with a view toward
resale or distribution to others. The certificates representing the shares of common stock
and warrants bear restrictive legends. In connection with the private placement, we paid
placement fees totaling $985,250.

# Item 3. Defaults Upon
Senior Securities.

None.

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

None.

# Item 5. Other
Information.

None.

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

(a) Exhibits filed with this
report:



| | 99.1   Section 302 Certification of Chief Executive Officer
| | -----------------------------------------------------------
| | 99.2   Section 302 Certification of Chief Financial Officer
| | 99.3   Section 906 Certifications                          

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(b) Reports on Form
8-K

| |  |  | On February 14, 2003, we filed a current report on Form 8-K reporting an Item 9 Regulation
FD disclosure regarding a certification pursuant to Section 906 of the Sarbanes 
Oxley Act of 2002.
| |  | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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# Signatures

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

|                   |  | Palatin Technologies, Inc. (Registrant)                                                                                                                      
|------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|                   |  |                                                                                                                                                              
|                   |  |                                                                                                                                                              
|                   |  |                                                                                                                                                              
|Date: May 15, 2003 |  | /s/ Carl Spana
     Carl Spana, Ph.D.
     President and 
     Chief Executive Officer                                                                       
|                   |  |                                                                                                                                                              
|                   |  |                                                                                                                                                              
|Date: May 15, 2003 |  | /s/ Stephen T. Wills
     Stephen T. Wills
     Executive Vice President and 
     Chief Financial Officer (Principal 
     Financial and Accounting Officer)

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