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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 September 30, 2009

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 þNo o

Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes oNo 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.

| |                                               |  |                                      
| | --------------------------------------------- |  | -------------------------------------
| | Large accelerated filer
          o           |  | Accelerated filer
          o        
| | Non-accelerated filer
          o             |  | Smaller reporting company
          þ
| | (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 Noþ

As of November 12, 2009, 96,172,499
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 September 30, 2009 and June 30, 2009                       | 2   
|                                    | Consolidated Statements of Operations
     for the Three Months Ended September 30, 2009 and 2008 | 3   
|                                    | Consolidated Statements of Cash Flows
     for the Three Months Ended September 30, 2009 and 2008 | 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 4.                             | 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                                  | 14
|Item 4.  | Submission of Matters to a Vote of Security
     Holders         | 14
|Item 5.  | Other Information                                                | 14
|Item 6.  | Exhibits                                                         | 14

SIGNATURES

1

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Table of Contents

PART I - FINANCIAL
INFORMATION

Item 1. Financial Statements

PALATIN TECHNOLOGIES,
INC.and SubsidiaryConsolidated Balance Sheets(unaudited)

|                                                                  |                   |  |              |              |   |  |   |              |  
|----------------------------------------------------------------- | ----------------- |  | ------------ | ------------ | - |  | - | ------------ | -
|                                                                  | September 30,2009 |  | June 30,2009
|ASSETS                                                           
|Current assets:                                                   |                   |  |              |              |   |  |   |              |  
|Cash and cash equivalents                                         |                   |  | $            | 4,188,173    |   |  | $ | 4,378,662    |  
|Available-for-sale investments                                    |                   |  |              | 3,466,673    |   |  |   | 3,439,650    |  
|Accounts receivable                                               |                   |  |              | 3,233,278    |   |  |   | 508,528      |  
|Prepaid expenses and other current assets                         |                   |  |              | 364,239      |   |  |   | 492,824      |  
|Total current assets                                              |                   |  |              | 11,252,363   |   |  |   | 8,819,664    |  
|                                                                 
|Property and equipment, net                                       |                   |  |              | 3,338,705    |   |  |   | 3,650,783    |  
|Restricted cash                                                   |                   |  |              | 475,000      |   |  |   | 475,000      |  
|Other assets                                                      |                   |  |              | 250,022      |   |  |   | 254,364      |  
|Total assets                                                      |                   |  | $            | 15,316,090   |   |  | $ | 13,199,811   |  
|                                                                 
|LIABILITIES AND STOCKHOLDERS' EQUITY                              |                   | 
|Current liabilities:                                              |                   | 
|Capital lease obligations                                         |                   |  | $            | 45,154       |   |  | $ | 87,675       |  
|Accounts payable                                                  |                   |  |              | 410,984      |   |  |   | 206,363      |  
|Accrued expenses                                                  |                   |  |              | 1,048,974    |   |  |   | 1,420,741    |  
|Deferred revenue                                                  |                   |  |              | 6,311,416    |   |  |   | 6,955,553    |  
|Total current liabilities                                         |                   |  |              | 7,816,528    |   |  |   | 8,670,332    |  
|                                                                 
|Capital lease obligations                                         |                   |  |              | 29,224       |   |  |   | 33,954       |  
|Deferred rent                                                     |                   |  |              | 1,056,673    |   |  |   | 1,182,026    |  
|Total liabilities                                                 |                   |  |              | 8,902,425    |   |  |   | 9,886,312    |  
|                                                                 
|                                                                 
|Stockholders' equity:                                             |                   | 
|Preferred stock of $.01 par value - authorized 10,000,000 shares; |                   | 
|Series A Convertible; issued and outstanding 4,997 shares as of   |                   | 
|September 30, 2009 and June 30, 2009, respectively                |                   |  |              | 50           |   |  |   | 50           |  
|Common stock of $.01 par value - authorized 150,000,000 shares;   |                   | 
|issued and outstanding 96,155,249 and 86,662,901 shares as of     |                   | 
|September 30, 2009 and June 30, 2009, respectively                |                   |  |              | 961,552      |   |  |   | 866,629      |  
|Additional paid-in capital                                        |                   |  |              | 212,727,664  |   |  |   | 209,712,379  |  
|Accumulated other comprehensive income                            |                   |  |              | 143,134      |   |  |   | 116,111      |  
|Accumulated deficit                                               |                   |  |              | (207,418,735 | ) |  |   | (207,381,670 | )
|Total stockholders' equity                                        |                   |  |              | 6,413,665    |   |  |   | 3,313,499    |  
|Total liabilities and stockholders' equity                        |                   |  | $            | 15,316,090   |   |  | $ | 13,199,811   |  

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

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Table of Contents

PALATIN TECHNOLOGIES,
INC.and SubsidiaryConsolidated Statements of Operations(unaudited)

|                                            |                                  |  |      |            |   |  |   |            |  
|------------------------------------------- | -------------------------------- |  | ---- | ---------- | - |  | - | ---------- | -
|                                            | Three Months Ended September 30,
|                                            | 2009                             |  | 2008
|                                           
|REVENUES                                    |                                  |  | $    | 3,662,619  |   |  | $ | 753,846    |  
|                                           
|OPERATING EXPENSES:                         |                                  | 
|Research and development                    |                                  |  |      | 2,669,564  |   |  |   | 3,657,999  |  
|General and administrative                  |                                  |  |      | 1,153,731  |   |  |   | 1,456,848  |  
|Total operating expenses                    |                                  |  |      | 3,823,295  |   |  |   | 5,114,847  |  
|                                           
|Loss from operations                        |                                  |  |      | (160,676   | ) |  |   | (4,361,001 | )
|                                           
|OTHER INCOME (EXPENSE):                     |                                  | 
|Investment income                           |                                  |  |      | 33,312     |   |  |   | 82,980     |  
|Interest expense                            |                                  |  |      | (4,701     | ) |  |   | (4,494     | )
|Gain on sale of supplies                    |                                  |  |      | 95,000     |   |  |   | -          |  
|Total other income, net                     |                                  |  |      | 123,611    |   |  |   | 78,486     |  
|                                           
|NET LOSS                                    |                                  |  | $    | (37,065    | ) |  | $ | (4,282,515 | )
|                                           
|Basic and diluted net loss per common share |                                  |  | $    | (0.00      | ) |  | $ | (0.05      | )
|                                           
|Weighted average number of common shares    |                                  | 
|outstanding used in computing basic and     |                                  | 
|diluted net loss per common share           |                                  |  |      | 91,306,223 |   |  |   | 85,524,316 |  

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

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Table of Contents

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

|                                                         |                                  |  |      |            |   |  |   |            |  
|-------------------------------------------------------- | -------------------------------- |  | ---- | ---------- | - |  | - | ---------- | -
|                                                         | Three Months Ended September 30,
|                                                         | 2009                             |  | 2008
|CASH FLOWS FROM OPERATING ACTIVITIES:                   
|Net loss                                                 |                                  |  | $    | (37,065    | ) |  | $ | (4,282,515 | )
|Adjustments to reconcile net loss to net cash            |                                  | 
|used in operating activities:                            |                                  | 
|Depreciation and amortization                            |                                  |  |      | 312,078    |   |  |   | 335,743    |  
|Gain on sale of supplies                                 |                                  |  |      | (95,000    | ) |  |   | -          |  
|Stock-based compensation                                 |                                  |  |      | 317,532    |   |  |   | 514,623    |  
|Changes in operating assets and liabilities:             |                                  | 
|Accounts receivable                                      |                                  |  |      | (2,724,750 | ) |  |   | (337,178   | )
|Prepaid expenses and other assets                        |                                  |  |      | 132,927    |   |  |   | 76,622     |  
|Accounts payable                                         |                                  |  |      | 204,621    |   |  |   | (54,339    | )
|Accrued expenses and other liabilities                   |                                  |  |      | (497,120   | ) |  |   | (451,500   | )
|Deferred revenues                                        |                                  |  |      | (644,137   | ) |  |   | (416,668   | )
|Net cash used in operating activities                    |                                  |  |      | (3,030,914 | ) |  |   | (4,615,212 | )
|                                                        
|CASH FLOWS FROM INVESTING ACTIVITIES:                    |                                  | 
|Sale of supplies                                         |                                  |  |      | 95,000     |   |  |   | -          |  
|Purchases of property and equipment                      |                                  |  |      | -          |   |  |   | (3,840     | )
|Net cash provided by (used in) investing activities      |                                  |  |      | 95,000     |   |  |   | (3,840     | )
|                                                        
|CASH FLOWS FROM FINANCING ACTIVITIES:                    |                                  | 
|Payments on capital lease obligations                    |                                  |  |      | (47,251    | ) |  |   | (66,743    | )
|Proceeds from sale of common stock and warrants          |                                  |  |      | 2,792,676  |   |  |   | -          |  
|Net cash provided by (used in) financing activities      |                                  |  |      | 2,745,425  |   |  |   | (66,743    | )
|                                                        
|NET DECREASE IN CASH AND                                 |                                  | 
|CASH EQUIVALENTS                                         |                                  |  |      | (190,489   | ) |  |   | (4,685,795 | )
|                                                        
|CASH AND CASH EQUIVALENTS, beginning                     |                                  | 
|of period                                                |                                  |  |      | 4,378,662  |   |  |   | 9,421,770  |  
|                                                        
|CASH AND CASH EQUIVALENTS, end of period                 |                                  |  | $    | 4,188,173  |   |  | $ | 4,735,975  |  
|                                                        
|SUPPLEMENTAL CASH FLOW INFORMATION:                      |                                  | 
|Cash paid for interest                                   |                                  |  | $    | 4,701      |   |  | $ | 10,494     |  
|Unrealized gain (loss) on available-for-sale investments |                                  |  | $    | 27,023     |   |  | $ | (59        | )

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

4

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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 bremelanotide and PL-6983, peptide melanocortin
receptor agonists for treatment of sexual dysfunction, and PL-3994, an agonist peptide
mimetic which binds to natriuretic peptide receptor A for treatment of heart failure. The
Company has an exclusive global 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 using its technology and expertise to
develop and commercialize therapeutic products; entering into alliances and partnerships
with pharmaceutical companies to facilitate the development, manufacture, marketing, sale
and distribution of product candidates the Company is developing; partially funding its
development and discovery programs with the cash flow from the Company's AstraZeneca
collaboration agreement and any future agreements with other companies; and, depending on
the availability of sufficient funding, expanding the Company's pipeline by using its
expertise in drug discovery technologies for melanocortin and natriuretic peptide
receptor systems and acquiring 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 September 30, 2009 and incurred a net loss for the three months ended September 30,
2009. 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.

In
August 2009, the Company sold 9,484,848 units in a registered direct offering for gross
proceeds of $3,130,000. Each unit consisted of one share of common stock and a five-year
warrant to purchase 0.35 shares of common stock at an exercise price of $0.33 per share.
Net proceeds to the Company, after offering costs, were approximately $2,800,000. The
placement agent was also provided with a warrant to purchase 474,242 shares of common
stock at an exercise price of $0.41 per share exercisable through November 27, 2012.

In
September 2009, the Company and AstraZeneca amended the collaboration agreement, which
provides for $5,000,000 in payments to the Company, with an initial payment of $2,500,000
payable within 30 days of signing and the balance payable in the first quarter of calendar
2010.

The
Company believes that its cash, cash equivalents, accounts receivable and
available-for-sale investments as of September 30, 2009, together with the additional
receipts from the September 2009 amendment to our AstraZeneca agreement and other
income, are adequate to fund operations through at least September 30, 2010. 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.

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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 September 30, 2009 consists primarily of amounts due
from AstraZeneca. For the three months ended September 30, 2009 and 2008, 100% of revenues
were from AstraZeneca.

(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 September 30, 2009, and its
results of operations and its cash flows for the three months ended September 30, 2009 and
2008. The results of operations for the three-month period ended September 30, 2009 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, 2010.

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, 2009, filed with the Securities and
Exchange Commission (SEC), which includes consolidated financial statements as of June 30,
2009 and 2008 and for each of the fiscal years in the three-year period ended June 30,
2009.

(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 and computer 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

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determine recoverability of a
long-lived asset, management evaluates whether the estimated future undiscounted net cash
flows from the asset are less than its carrying amount. If impairment is indicated, the
long-lived asset would be written down to fair value. Fair value is determined by an
evaluation of available price information at which assets could be bought or sold,
including quoted market prices if available, or the present value of the estimated future
cash flows based on reasonable and supportable assumptions.

Deferred
Rent  The Companys operating leases provide for rent increases over the terms
of the leases. Deferred rent consists of the difference between periodic rent payments and
the amount recognized as rent expense on a straight-line basis, as well as tenant
allowances for leasehold improvements. Rent 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 that the Company performs the related
activities under the terms of the applicable agreements. Revenue resulting from the
achievement of milestone events stipulated in the applicable agreements is recognized when
the milestone is achieved, provided that such milestone is substantive in nature.

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

Stock-Based
Compensation  The Company charges to expense the fair value of stock options and
similar awards granted. 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. The Company has recorded a valuation
allowance against its deferred tax assets based on the history of losses incurred.

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. For the three months ended September 30, 2009 and
2008, there were no dilutive effects of such securities as the Company incurred a net loss
in each period. Common shares issuable upon conversion of Series A Convertible Preferred
Stock, the exercise of outstanding option and warrants and the vesting of restricted stock
units amounted to an aggregate of 19,267,487 and 15,754,226 shares as of September 30,
2009 and 2008, respectively.

Subsequent
Events  The Company has evaluated subsequent events through November 13, 2009.

Recently
Issued Accounting Pronouncements  In June 2009, the Financial Accounting Standards
Board (FASB) issued Accounting Standards Codification 105-10 (formerly Statement of
Financial Accounting Standards 168), The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles, which was effective for
the Company beginning July 1, 2009. The Financial Accounting Standards Board Accounting
Standards Codification (the Codification) officially became the single source of
authoritative nongovernmental generally accepted accounting principles (GAAP), superseding
existing FASB, American Institute of Certified Public Accountants, Emerging Issues Task
Force and related accounting literature. After that date, only one level of authoritative
GAAP exists. All other accounting literature is considered non-authoritative. The
Codification reorganizes the thousands of GAAP pronouncements into roughly 90 accounting
topics and displays them using a consistent structure. Also included in the Codification
is relevant SEC guidance organized using the same topical structure in separate sections
within the Codification. The Company adopted this statement and has updated its existing
GAAP references to the new codification.

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(4)     AGREEMENT WITH
ASTRAZENECA:

In
January 2007, the Company entered into an exclusive global licensing and research
collaboration agreement with AstraZeneca to discover, develop and commercialize compounds
that target melanocortin receptors for the treatment of obesity, diabetes and related
metabolic syndrome. In June 2008, the collaboration agreement was amended to include
additional compounds and associated intellectual property developed by the Company. In
December 2008, the collaboration agreement was further amended to include additional
compounds and associated intellectual property developed by the Company and extended the
research collaboration for an additional year through January 2010. In September 2009, the
collaboration agreement was further amended to modify royalty rates and milestone
payments. The collaboration is based on the Companys melanocortin receptor obesity
program and includes access to compound libraries, core technologies and expertise in
melanocortin receptor drug discovery and development.

In
December 2008, the Company also entered into a clinical trial sponsored research agreement
with AstraZeneca, under which the Company agreed to conduct a study of the effects of
melanocortin receptor specific compounds on food intake, obesity and other metabolic
parameters. Under the terms of the clinical trial agreement, AstraZeneca will pay all
costs associated with the study. The Company recognized $122,091 as revenue in the three
months ended September 30, 2009 under the clinical trial sponsored research agreement. As
part of the September 2009 amendment to the collaboration agreement, the Company agreed to
conduct additional studies on the effects of melanocortin receptor specific compounds on
food intake, obesity and other metabolic parameters.

The
Company received a $10,000,000 up-front payment from AstraZeneca on execution of the
collaboration agreement. Under the September 2009 amendment the Company will be paid an
additional $5,000,000 in consideration of reduction of future milestones and royalties and
providing specified materials to AstraZeneca. The Company is now eligible for milestone
payments totaling up to $145,250,000, with up to $85,250,000 contingent on development and
regulatory milestones and the balance contingent on achievement of sales targets. In
addition, the Company will receive royalties on sales of any approved products.
AstraZeneca assumed responsibility for product commercialization, product discovery and
development costs, with both companies contributing scientific expertise in the research
collaboration. The Company is providing research services to AstraZeneca through January
2010 at a contractual rate per full-time-equivalent employee.

The
Company has determined that the license agreement and research services should be
evaluated together as a single unit for purposes of revenue recognition. Accordingly, the
aggregate payments of $15,000,000 are being recognized as revenue on a straight-line basis
over the period during which the Company may perform research services under the
agreement. The Company must continually evaluate the estimated remaining performance
period, and has revised the estimated performance period to end January 2010 based on the
September 2009 amendment. For the three months ended September 30, 2009 and 2008 the
Company recognized as revenue $2,694,137, and $416,667, respectively, related to the
payments. Per-employee compensation from AstraZeneca for research services is recognized
as earned at the contractual rate, which approximates the fair value of such services.
Revenue recognized for research services for the three months ended September 30, 2009 and
2008 were $846,391 and $337,178, respectively.

(5)     INVESTMENTS:

The
following table summarizes investments at September 30, 2009 and 2008:

|                                     |               |          |   |           |   |   |           |  
|------------------------------------ | ------------- | -------- | - | --------- | - | - | --------- | -
|                                     | September 30, | June 30,
|                                     | 2009          | 2009    
|                                     |              
|Cost                                 |               |          | $ | 3,323,539 |   | $ | 3,323,539 |  
|Gross unrealized gains               |               |          |   | 143,193   |   |   | 116,170   |  
|Gross unrealized losses              |               |          |   | (59       | ) |   | (59       | )
|                                     |              
|Total available-for-sale investments |               |          | $ | 3,466,673 |   | $ | 3,439,650 |  
|                                     |              

The
fair value of investments are classified using a hierarchy prioritized based on inputs.
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities. Level 2 inputs are 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. A

8

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financial asset or liabilitys
classification 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 carried at fair value as of September 30, 2009:

|             |  |                  |  |                                         |  |                                         |  |                                         | 
|------------ |  | ---------------- |  | --------------------------------------- |  | --------------------------------------- |  | --------------------------------------- | 
|             |  | Fair Value       |  | Quoted prices inactive markets(Level 1) |  | Quoted prices inactive markets(Level 2) |  | Quoted prices inactive markets(Level 3) | 
|Mutual Funds |  | $      3,466,673 |  | $      3,466,673                        |  | $               -                       |  | $               -                       | 

(6)     COMPREHENSIVE LOSS:

Comprehensive
loss consists of the following:

|                                                         |  |  |                                  |         |   |   |            |  
|-------------------------------------------------------- |  |  | -------------------------------- | ------- | - | - | ---------- | -
|                                                         |  |  | Three Months Ended September 30,
|                                                         |  |  |                                  | 2009    |   |   | 2008       |  
|Net loss                                                 |  |  | $                                | (37,065 | ) | $ | (4,282,515 | )
|Unrealized gain (loss) on available-for-sale investments |  |  |                                  | 27,023  |   |   | (59        | )
|Comprehensive loss                                       |  |  | $                                | (10,042 | ) | $ | (4,282,574 | )

(7)     STOCKHOLDERS' EQUITY:

In
August 2009, the Company sold 9,484,848 units in a registered direct offering for gross
proceeds of $3.1 million. Each unit consisted of one share of common stock and a
five-year warrant to purchase 0.35 shares of common stock at an exercise price of $0.33
per share.  Net proceeds to the Company, after costs of the offering, were $2.8 million.
 In addition, the Company issued to the placement agent warrants to purchase 474,242
shares at an exercise price of $0.41 per share.

(8)     OTHER INCOME:

In
September 2009, the Company sold supplies for gross proceeds of $95,000. The supplies
were previously charged to expense on the statement of operations. The total gain of
$95,000 is included on the statement of operations for the three months ended September
30, 2009.

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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, 2009 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. and subsidiary.

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, 2009, and have not changed as of September 30, 2009. 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 agonist compounds with a focus on melanocortin and natriuretic peptide
receptor systems. We have a diverse pipeline of active development programs targeting
melanocortin and natriuretic receptors, including development of proposed products for
treatment of heart failure, sexual dysfunction, obesity, diabetes and metabolic syndrome.

We
currently have the following active drug development programs:

| |  |  | Bremelanotide,
a peptide melanocortin receptor agonist, for treatment of sexual dysfunction, targeting
female sexual dysfunction (FSD) and erectile dysfunction (ED) in patients
non-responsive to current therapies.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| |  |  | 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).
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Key
elements of our business strategy include: using our technology and expertise to develop
and commercialize therapeutic products; 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 AstraZeneca collaboration agreement
and any future agreements with other companies; 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.

10

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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 Months Ended September 30,
2009 Compared to the Three Months Ended September 30, 2008

Revenue- For the three months ended September 30, 2009, we recognized $3.7 million in revenue
pursuant to our license agreement with AstraZeneca, compared to $0.7 million for three
months ended September 30, 2008.

Revenue
for the three months ended September 30, 2009 and 2008 consisted of $1.0 million and $0.3
million, respectively, related to our research services performed during those periods,
and $2.7 million and $0.4 million, respectively, of revenue related to AstraZeneca's
up-front license fee. The increase in revenue relating to AstraZeneca's up-front license
fee is related to revision of the period during which we may perform research services
for purposes of revenue recognition. Currently, the research services obligation under
our agreement with AstraZeneca expires in January 2010. There were no substantive
development activities on our NeutroSpec program during the three months ended September
30, 2009 and 2008, and we do not anticipate any substantive development activities on the
NeutroSpec program in the fiscal year ending June 30, 2010, though the agreement with
Mallinckrodt has not been terminated. Future contract revenue from AstraZeneca and
Mallinckrodt, in the form of reimbursement of shared development costs or the recognition
of deferred license fees, will fluctuate based on development activities in our obesity
and NeutroSpec programs. We may also earn contract revenue based on the attainment of
development milestones.

Research
and Development - Research and development expenses decreased to $2.7 million for the
three months ended September 30, 2009 from $3.7 million for the three months ended
September 30, 2008. The decrease is the result of the restructuring of our clinical-stage
product portfolio and development programs.

Research
and development expenses related to our bremelanotide, PL-3994, PL-6983, obesity,
NeutroSpec and other preclinical programs were $0.5 million for the three months ended
September 30, 2009 compared to $1.1 million for the three months ended September 30,
2008. Spending to date has been primarily related to the identification and optimization
of lead compounds, and secondarily to a study of the effects of melanocortin
receptor-specific compounds on food intake, obesity and other metabolic parameters and
preclinical studies and a Phase 1 trial with subcutaneously administered bremelanotide.
The amount of such spending and the nature of future development activities are dependent
on a number of factors, including primarily the availability of funds to support future
development activities, success of our clinical trials and preclinical and discovery
programs, and our ability to progress compounds in addition to bremelanotide and 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 for three months ended September 30, 2009
compared to $2.6 million for three months ended September 30, 2008. The decrease is
primarily related to management's refinement of operations and expense control.

Cumulative
spending from inception to September 30, 2009 on our bremelanotide, NeutroSpec and other
programs (which includes PL-3994, PL-6983, obesity, and other discovery programs) amounts
to approximately $127.6 million, $55.5 million and $52.8 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 larger-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, net cash
inflows will be generated.

General
and Administrative - General and administrative expenses decreased to $1.2 million for
the three months ended September 30, 2009 compared to $1.5 million for the three months
ended September 30, 2008. The decrease is primarily related to management's refinement of
operations and expense control.

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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 increase
revenues and could make it more difficult to attract investment capital for funding our
operations. Any of these possibilities could materially and adversely affect our
operations and require us to curtail or cease certain programs or our operations.

During
the three months ended September 30, 2009, we used $3.0 million of cash for our operating
activities, compared to $4.6 million used in the three months ended September 30, 2008.
Lower cash outflows from operations in the three months ended September 30, 2009 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.

During
the three months ended September 30, 2009, cash provided by investing activities of $0.1
million consisted solely of the sale of supplies. During the three months ended September
30, 2008, cash used in investing activities consisted of $4,000 for the purchase of
equipment.

During
the three months ended September 30, 2009, cash provided by financing activities was $2.7
million, consisting of payments on capital lease obligations offset by net proceeds of
approximately $2.8 million from the sale of 9,484,848 units in a registered direct
offering. Each unit consisted of one share of common stock and a five-year warrant to
purchase 0.35 shares of common stock at an exercise price of $0.33 per share.

In
September 2009, we signed an amendment to our collaboration agreement with AstraZeneca
which provides for $5.0 million in payments to us, with an initial payment of $2.5 million
payable within 30 days of signing and the balance payable in the first quarter of calendar
2010.

As
of September 30, 2009, our cash and cash equivalents were $4.2 million, our
available-for-sale investments were $3.5 million and our accounts receivable were $3.2
million (including $2.5 million referenced above). We believe that these amounts, together
with the additional receipts from the September 2009 amendment to our AstraZeneca
agreement and other income, are adequate to fund operations through at least September 30,
2010. We will need additional funds to continue development of bremelanotide, PL-3994 and
PL-6983, as well as our early stage research and discovery programs, and to fund
operations after that date.

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 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 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. 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 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

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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.

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 4. Controls and Procedures.

Our management,
with the participation of our Chief Executive Officer and Chief Financial Officer, has
evaluated the effectiveness of our disclosure controls and procedures, as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e), as of the end of the period covered by this
report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective. There were no
changes in our internal control over financial reporting that occurred during our most
recent fiscal quarter that materially affected, or that are reasonably likely to
materially affect, our internal control over financial reporting.

13

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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, 2009.

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

On
August 17, 2009, in connection with the closing of our registered direct offering of
common stock and warrants to purchase common stock, we issued to Rodman & Renshaw, LLC
or its permitted designees, as partial consideration for its services as placement agent,
warrants to purchase up to 474,242 shares of our common stock at an exercise price of
$0.41 per share. The warrants are exercisable at the option of the holder at any time
beginning on issuance through and including December 27, 2012. These warrants were offered
and sold by us in reliance upon exemptions from the registration statement requirements by
Section 4(2) of the Securities Act of 1933, as amended.

Item 3. Defaults Upon Senior
Securities.

None.

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

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibits
filed or furnished with this report:

| | 10.1 |  | Third Amendment dated September 24, 2009 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. *
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.

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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: November 13, 2008 |  | /s/ Carl Spana                                                                                                           | 
|                        |  | Carl Spana, Ph.D.President andChief Executive Officer
        (PrincipalExecutive Officer)                               | 
|                       
|                       
|Date: November 13, 2008 |  | /s/ Stephen T. Wills                                                                                                     | 
|                        |  | Stephen T. WillsExecutive Vice President and
        Chief Financial Officer (PrincipalFinancial and Accounting Officer) | 

15

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EXHIBIT INDEX

| | 10.1 |  | Third Amendment dated September 24, 2009 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. *
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.