EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 9th day of July,
1999, is entered into by Palatin Technologies, Inc., a Delaware corporation with
its principal place of business at 214 Carnegie Center, Suite 100, Princeton,
New Jersey 08540 (the "Company"), and Edward J. Quilty, residing at 1031
Creamery Road, Newtown, Pennsylvania 18940 (the "Employee").

     The Company desires to employ the Employee, and the Employee desires to be
employed by the Company. In consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
agree as follows:

     1. Term of Employment. The Company hereby agrees to employ the Employee,
and the Employee hereby accepts employment with the Company, upon the terms set
forth in this Agreement, for the period commencing on August 1, 1999 (the
"Commencement Date") and ending on July 31, 2002 (such period, as it may be
extended, the "Employment Period"), unless sooner terminated in accordance with
the provisions of Section 4.

     2. Title; Capacity.

          2.1 The Employee shall serve as Chairman of the Board and Chief
     Executive Officer of the Company with powers and duties as may be
     determined, from time to time, by the Company's Board of Directors (the
     "Board") which powers and duties shall not be inconsistent with the powers
     and duties customarily performed, undertaken and exercised by persons
     holding the positions of chairman of the board, president, chief executive
     officer or equivalents thereof. The Employee shall be based at the
     Company's headquarters in Princeton, New Jersey.

          2.2 The Employee hereby accepts such employment and agrees to
     undertake the duties and responsibilities inherent in such position and
     such other duties and responsibilities as the Board or its designee shall
     from time to time reasonably assign to him. The Employee agrees to devote
     as much of his business time, attention and energies to the business and
     interests of the Company during the Employment Period as may be reasonably
     necessary to adequately perform his duties hereunder, provided, however,
     that the Company recognizes that the Employee serves as the Chairman of the
     Board and is Chief Executive Officer of Derma Sciences, Inc., a publicly
     traded biopharmaceutical company and that such service does not present a
     conflict of interest with the Employee's employment with the Company
     insofar as Derma Sciences, Inc. is not a Competing Organization (as defined
     in Section 8). Nothing contained herein shall be deemed to restrict the
     Employee's right to continue in such a capacity. The Employee agrees to
     abide by the rules, regulations, instructions, personnel practices and
     policies of the Company and any changes therein which may be adopted from
     time to time by the Company. The Employee acknowledges receipt of copies of
     all such rules and policies committed to writing as of the date of this
     Agreement.

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     3. Compensation and Benefits. During the Employment Period, unless sooner
terminated in accordance with the provisions of Section 4, the Employee shall
receive the following compensation and benefits:

          3.1 Salary. The Company shall pay the Employee, in equal semi-monthly
     installments or otherwise in accordance with the Company's standard payroll
     policies as such policies may exist from time to time, an annual base
     salary of $360,643. Such salary shall be subject to review thereafter, as
     determined by the Company's Compensation Committee and approved by the
     Board, on an annual basis on June of each year, but the Board shall not
     decrease the Employee's annual base salary at any such annual review.

          3.2 Cash Performance Bonus. The Company shall pay the Employee, in
     consideration of the Employee's experience in building value via the
     establishment of strategic alliances and relationships, bonus compensation
     of up to one year's base salary (which base salary shall not be less than
     $360,643 per year) in an amount to be decided by the Company's Compensation
     Committee and approved by the Board, payable annually, no later than March
     31 of each year during the Employment Period. Such performance bonus
     compensation shall be based upon, inter alia, yearly objectives mutually
     agreed upon by and between the Employee and the Board.

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          3.3 Stock Options. As additional compensation for services rendered,
     the Company may from time to time grant to the Employee the right and
     option to purchase shares of the Company's Common Stock (the "Option"),
     subject to the vesting schedule and option term set forth in the relevant
     Option plan documents and the adjustments set forth in subparagraph f
     hereof, which Option is a nonqualified stock option. The Option is in all
     respects limited and conditioned as provided hereunder.

               (a) Purchase Price. Except as otherwise provided in subparagraph
          f hereof, the purchase price (the "Option Price") of the shares
          covered by the Option ("Option Shares") shall be the closing price of
          the Company's Common Stock on the National Association of Securities
          Dealers Automated Quotation System (Nasdaq) on the date of the Option
          grant.

               (b) Exercise of Option.

                    (i) Except as otherwise provided herein, the right of the
               Employee to exercise the Option is conditioned upon the Employee:
               (A) being in the employ of the Company, whether pursuant to this
               Agreement or otherwise, or (B) serving as a director of the
               Company.

                    (ii) The Option may be exercised, to the extent vested, in
               whole or in part, at any time or times prior to the expiration or
               other termination thereof.

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               (c) Method Of Exercising Option.

                    (i) The Option may be exercised by giving written notice, in
               form substantially as set forth in Exhibit 1 hereof, to the
               Company at its principal office, specifying the number of Option
               Shares to be purchased and accompanied by payment in full of the
               aggregate purchase price for the Shares. Only full Shares shall
               be delivered and any fractional share which might otherwise be
               deliverable upon exercise of an Option granted hereunder shall be
               forfeited.

                    (ii) The purchase price shall be payable in cash or its
               equivalent.

                    (iii) Upon receipt of such notice and payment, the Company,
               within three (3) business days after Exercise, shall deliver or
               cause to be delivered a certificate or certificates representing
               the Shares with respect to which the Option is exercised. The
               certificate or certificates for such Shares shall be registered
               in the name of the person exercising the Option (or, if the
               Employee shall so request in the notice exercising the Option, in
               the name of the Employee and his spouse, jointly, with right of
               survivorship) and shall be delivered as provided above to or upon
               the written order of the person exercising the Option. In the
               event the Option is exercised by any person after the death or
               Legal Disability of the Employee, such notice shall be
               accompanied by appropriate proof of the right of such

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               person to exercise  the  Option.  All Shares  purchased  upon the
               exercise of the Option as provided herein shall be fully paid and
               nonassessable by the Company.

               (d) Non-transferability of Option. The Option is not assignable
          or transferable, in whole or in part, by the Employee, otherwise than
          by will or by the laws of descent and distribution. During the
          lifetime of the Employee, the Option shall be exercisable only by the
          Employee or, in the event of his Legal Disability, by his legal
          representative.

               (e) Withholding of Taxes. The obligation of the Company to
          deliver Shares upon the exercise of any Option shall be subject to any
          applicable federal, state and local tax withholding requirements.

               (f) Adjustments. The number of Option Shares and the Option Price
          shall be adjusted as set forth herein:

                    (i) In the event that a stock dividend shall be declared on
               the Common Stock payable in shares of the Common Stock, the
               Option Shares shall be adjusted by adding to each Option Share
               the number of shares which would be distributable thereon if such
               Option Share had been outstanding on the date fixed for
               determining the shareholders entitled to receive such stock
               dividend.

                    (ii) In the event that the outstanding shares of the Common
               Stock shall be changed into or exchanged for a

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               different  number or kind of shares of stock or other  securities
               of the Company  whether  through  recapitalization,  stock split,
               combination  of  shares,  or  otherwise,   then  there  shall  be
               substituted  for each Option  Share the number and kind of shares
               of stock or the securities into which each  outstanding  share of
               the Common Stock shall be so changed or for which each such share
               shall be exchanged.

                    (iii) In the event that the outstanding shares of the Common
               Stock shall be changed into or exchanged for shares of stock or
               other securities of another corporation, whether through
               reorganization, sale of assets, merger or consolidation in which
               the Company is the surviving corporation, then there shall be
               substituted for each Option Share the number and kind of shares
               of stock or the securities into which each outstanding share of
               the Common Stock shall be so changed or for which each such share
               shall be exchanged.

                    (iv) In the event that any sale of shares of Common Stock
               (except any such sale made pursuant to any right, option, warrant
               or convertible security outstanding prior to the date of this
               Agreement), or the issuance of any rights, options, or warrants
               to subscribe for or purchase Common Stock (or securities
               convertible into or exchangeable for Common Stock) occurs after
               the date of this Agreement, which sale or issuance, in the
               aggregate, will increase the

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               number of shares of Common Stock  outstanding  during the Term by
               Forty percent (40%),  then, upon each such sale or issuance,  the
               Employee shall be issued additional Option Shares such that, when
               the  additional  Option  Shares  are  aggregated  with the Option
               Shares  heretofore  owned by the  Employee,  the Employee has the
               right to purchase, at the same times set forth in paragraph 4(c),
               the same  percentage  of Common Stock at the same price per share
               as the Employee maintained prior to such sale or issuance.

               (g) Share Ownership. Neither the Employee nor the Employee's
          legal representatives nor the executors or administrators of his
          estate shall be or be deemed to be the holder of any share of Common
          Stock covered by an Option unless and until a certificate for such
          share shall have been issued.

          3.4 Fringe-Benefits. The Employee shall be entitled to participate in
     all bonus and benefit programs that the Company establishes and makes
     available to its employees, if any, to the extent that the Employee's
     position, tenure, salary, age, health and other qualifications make him
     eligible to participate. In addition, during the Employment Period the
     Corporation shall reimburse the Employee for any premiums, co-payments,
     deductibles and other expenses incurred by the Employee to maintain the
     $1,000,000 term life insurance policy issued in 1992, procured by the
     Employee from New England Life Insurance Company for his

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     benefit  and the  benefit  of his  designees.  The  Employee  shall also be
     entitled to  holidays  and annual  vacation  leave in  accordance  with the
     Company's policy as it exists from time to time.

          3.5 Reimbursement of Expenses. The Company shall reimburse the
     Employee for all reasonable travel, entertainment and other expenses
     incurred or paid by the Employee in connection with, or related to, the
     performance of his duties, responsibilities or services under this
     Agreement, upon presentation by the Employee of documentation, expense
     statements, vouchers and/or such other supporting information as the
     Company may request, provided, however, that the amount available for such
     travel, entertainment and other expenses may be fixed in advance by the
     Board.

          3.6 Insurance. The Employee will be covered under the Company's
     Directors' and Officers' liability insurance to the same extent the
     Company's directors and officers are covered.

     4. Employment Termination. The employment of the Employee by the Company
pursuant to this Agreement shall terminate upon the occurrence of any of the
following:

          4.1 Expiration of the Employment Period in accordance with Section 1;

          4.2 At the election of the Company, for Cause (as defined in Section
     7), immediately upon written notice by the

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     Company  to the  Employee,  which  notice of  termination  shall  have been
     approved by a majority of the Board;

          4.3 Immediately upon the death or determination of Legal Disability
     (as defined in Section 7) of the Employee;

          4.4 At the election of the Employee, for Good Reason (as defined in
     Section 7), immediately upon written notice by the Employee to the Company;

          4.5 At the election of the Employee, within twelve (12) months
     following a Change in Control (as defined in Section 7), immediately upon
     written notice by the Employee to the Company;

          4.6 At the election of either party, upon not less than thirty (30)
     days' prior written notice of termination (the "Notice of Termination").

     5. Effect of Termination.

          5.1 Termination for Cause or at Election of the Employee other than
     for Good Reason or due to a Change in Control. If, prior to the expiration
     of this Agreement, the Employee's employment is terminated for Cause
     pursuant to Section 4.2 (except in the case where such termination occurs
     within 12 months following a Change in Control), or at the election of the
     Employee pursuant to Section 4.6 other than for Good Reason or due to a
     Change in Control,

               (a) the Company shall pay to the Employee the base salary and
          benefits otherwise payable to him under Section 3

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<PAGE>


          through  the last day of his actual  employment  by the  Company  (the
          "Date of Termination");

               (b) the Employee shall cease to have the right to exercise any
          options to purchase shares of capital stock of the Company previously
          granted to the Employee pursuant to any stock option plan or other
          employee benefit plan with the Company, regardless of the extent to
          which they have vested, on or after the Date of Termination.

          5.2 Termination by Reason of the Employee's Death or Legal Disability.
     If, prior to the expiration of this Agreement, the Employee's employment is
     terminated by the Employee's death or Legal Disability pursuant to Section
     4.3,

               (a) the Company shall, no later than the fifth business day
          following the death or determination of Legal Disability (the "Date of
          Termination"), pay to the Employee, or in the case of the Employee's
          death, to the estate of the Employee,

                    (i) the Employee's base salary and benefits otherwise
               payable to him through the Date of Termination, and

                    (ii) an amount equal to the greater of the aggregate base
               salary payments which the Employee would have received for a
               six-month period after the Date of Termination if such
               termination had not occurred, or $180,321.50, and

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               (b) all options to purchase shares of capital stock of the
          Company previously granted to the Employee pursuant to any stock
          option plan or other employee benefit plan with the Company which have
          not vested at such time but which would have vested on and prior to
          the next Anniversary Date shall immediately vest and become fully
          exercisable in accordance with their terms for a period of ninety (90)
          days following the Date of Termination.

          5.3 Termination for Any Other Reason. If, prior to the expiration of
     this Agreement, the Employee's employment is terminated by the Employee for
     circumstances constituting Good Reason pursuant to Section 4.4 or due to a
     Change in Control pursuant to Section 4.5, or by the Company for any basis
     other than for Cause (as defined in Section 7) or for Cause pursuant to
     Section 4.2 if within twelve (12) months following a Change in Control, the
     Company shall provide the Employee with the following benefits:

               (a) the Company shall pay to the Employee

                    (i) the Employee's base salary at the rate in effect at the
               time the Notice of Termination is given, benefits and all other
               compensation, including Employee's prorated cash performance
               bonus calculated by multiplying the Applicable Percentage (as
               defined in Section 7) by the greater of (x) the amount of the
               cash performance bonus awarded or awarded or paid to the Employee
               with respect to

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               the Company's most recent full fiscal year for which such a bonus
               was  awarded  or paid  to the  Employee  or (y) in the  case of a
               Change in Control,  the amount of cash performance  bonus awarded
               or paid to the Employee with respect to the  Company's  last full
               fiscal year prior to the Change in Control for which such a bonus
               was  awarded  or  paid  to the  Employee,  through  the  Date  of
               Termination,  no later than the fifth full day following the Date
               of  Termination,  plus all other amounts to which the Employee is
               entitled under any  compensation  plan of the Company at the time
               such payments are due and

                    (ii) if the Employee so elects, in lieu of his right to
               continue to receive deferred compensation under any deferred
               compensation plan of the Company then in effect, no later than
               the fifth full day following the Date of Termination, a lump-sum
               amount, in cash, equal to the deferred amounts together with any
               earnings credited on such amounts under such plan;

               (b) the Company will pay as severance to the Employee an amount
          equal to the sum of

                    (i) the greatest of (x) the aggregate Salary payments which
               the Employee would have received during the balance of the Term
               if such termination had not occurred, (y) in the case of a Change
               in Control, the aggregate Salary payments which the Employee
               would have received during the

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               balance of the Term based on the Employee's annual base salary in
               effect  immediately  prior to the  Change in  Control,  or (z) an
               amount  equal  to  the  Employee's  highest  annual  base  salary
               achieved while employed by the Company, plus

                    (ii) the greater of (x) the amount of the cash performance
               bonus awarded or paid to the Employee with respect to the
               Company's most recent full fiscal year for which such a bonus was
               awarded or paid to the Employee or (y) in the case of a Change in
               Control, the amount of cash performance bonus awarded or paid to
               the Employee with respect to the Company's last full fiscal year
               prior to the Change in Control for which such a bonus was awarded
               or paid to the Employee;

               (c) all options to purchase shares of capital stock of the
          Company previously granted to the Employee pursuant to any stock
          option plan or other employee benefit plan with the Company which have
          not vested at such time shall immediately vest and become fully
          exercisable in accordance with their terms for a period of ninety (90)
          days following the Date of Termination;

               (d) for a one-year period after the Date of Termination, the
          Company shall arrange to provide the Employee with life, disability,
          dental, accident, travel and group health insurance benefits
          substantially similar to those which the Employee was receiving
          immediately prior to

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          the Notice of Termination.  Notwithstanding the foregoing, the Company
          shall not provide any benefit  otherwise  receivable  by the  Employee
          pursuant to this  paragraph (d) if an  equivalent  benefit is actually
          received by the Employee during the one-year period following the Date
          of Termination and any such benefit actually  received by the Employee
          shall be reported to the Company; and

               (e) for a six-month period after the Date of Termination, the
          Company shall reimburse the Employee for reasonable fees and expenses
          incurred by him for the purpose of locating employment in an amount
          mutually agreed upon by and between the Employee and the Company,
          including the fees and expenses of consultants and other persons
          retained by him for such purpose, promptly upon receipt by the Company
          of satisfactory evidence of payment of such fees and expenses.

          5.4 No Requirement to Mitigate. The Employee shall not be required to
     mitigate the amount of any payment provided for herein by seeking other
     employment or otherwise.

          5.5 Survival. The provisions of Sections 5, 6, 7, 8 and 9 shall
     survive the termination of this Agreement.

     6. Withholding and Deductions. All payments hereunder shall be subject to
withholding and to such other deductions as shall at the time of such payment be
required pursuant to any income tax or other law, whether of the United States
or any

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other jurisdiction, and, in the case of payments to the executors or
administrators to the Employee's estate, the delivery to the Company of all
necessary tax waivers and other documents.

     7. Definitions. For purposes of this Agreement the following definitions
apply:

          7.1 "Cause" for termination shall mean the occurrence of any of the
     following circumstances:

               (a) a good faith finding by the Company of the Employee's willful
          breach or habitual neglect or failure to perform the material duties
          which he is required to perform under the terms of this Agreement,
          materially fails to follow the reasonable directives or policies
          established by or at the direction of the Board, or conducts himself
          in a manner materially detrimental to the interests of the Company
          such that the Company sustains a material loss or injury as a result
          thereof and such breach or failure of performance is not cured within
          thirty (30) days of the delivery to the Employee of written notice
          thereof, which notice of breach or failure of performance shall have
          been approved by a majority of the Board,

               (b) the willful breach by the Employee of Section 8 of this
          Agreement or any provision of any confidentiality, invention and
          non-disclosure, non-competition or similar agreement between the
          Employee and the Company, or

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               (c) the conviction of the Employee of, or the entry of a pleading
          of guilty or nolo contendere by the Employee to, any crime involving
          moral turpitude or any felony.

          7.2 "Legal Disability" shall mean the inability of the Employee, by
     reason of illness, accident or other physical or mental disability, for a
     period of 120 days, whether or not consecutive, during any 360-day period,
     to perform the services contemplated under this Agreement. A determination
     of disability shall be made by a physician satisfactory to both the
     Employee and the Company; provided, however, that if the Employee and the
     Company do not agree on a physician, the Employee and the Company shall
     each select a physician and these two together shall select a third
     physician, whose determination as to disability shall be binding on all
     parties.


<PAGE>


                                                                     -1-

          7.3 "Good Reason" shall mean the occurrence of any of the following
     circumstances, and the Company fails to cure such circumstances within
     thirty (30) days of the delivery to the Company of written notice of such
     circumstances:

               (a) any failure of the shareholders of the Company to elect or
          re-elect the Employee as a director of the Company;

               (b) any significant diminution in the Employee's duties and
          responsibilities as in effect on the Commencement Date;

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               (c) any reduction in the Employee's annual compensation as in
          effect on the Commencement Date or as the same may be increased from
          time to time;

               (d) the failure of the Company to continue in effect any material
          compensation or benefit plan in which the Employee participates as in
          effect on the Commencement Date, unless an equitable arrangement
          (embodied in an ongoing substitute or alternative plan) has been made
          with respect to such plan, or the failure by the Company to continue
          the Employee's participation therein (or in such substitute or
          alternative plan) on a basis not materially less favorable, both in
          terms of the amount of benefits provided and the level of the
          Employee's participation relative to other participants, as in effect
          on the Commencement Date or the failure by the Company to award cash
          bonuses to its executives in amounts substantially consistent with
          past practice in light of the Company's financial performance;

               (e) the failure by the Company to continue to provide the
          Employee with benefits substantially similar to those enjoyed by the
          Employee under any of the Company's insurance, medical, health and
          accident, or disability plans in which the Employee was participating
          as in effect on the Commencement Date, the taking of any action by the
          Company which would directly or indirectly materially reduce any of
          such benefits, or the failure by the Company to provide the

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          Employee with the number of paid vacation days to which he is entitled
          in accordance  with the Company's  normal vacation policy in effect on
          the Commencement  Date or in accordance with any agreement between the
          Employee and the Company existing at that time;

               (f) any purported termination of the Employee's employment which
          is not effected pursuant to a Notice of Termination satisfying the
          requirements of Section 9, which purported termination shall not be
          effective for purposes of this Agreement.

          7.4 Change in Control:

               (a) "Change in Control" shall mean the occurrence of any of the
          following events:

                    (i) any "person," as such term is used in Sections 13(d) and
               14(d) of the Securities Exchange Act of 1934, as amended (the
               "Exchange Act") (other than the Company, any trustee or other
               fiduciary holding securities under an employee benefit plan of
               the Company, or any corporation owned directly or indirectly by
               the stockholders of the Company in substantially the same
               proportion as their ownership of stock of the Company) is or
               becomes the "beneficial owner" (as defined in Rule 13d-3 under
               the Exchange Act), directly or indirectly, of securities of the
               Company representing 40% or more of the combined voting power of
               the Company's then outstanding securities;

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                    (ii) individuals who, as of the Commencement Date,
               constitute the Board (as of the Commencement Date, the "Incumbent
               Board") cease for any reason to constitute at least a majority of
               the Board, provided that any person becoming a director
               subsequent to the Commencement Date whose election, or nomination
               for election by the Company's stockholders, was approved by a
               vote of at least a majority of the directors then comprising the
               Incumbent Board (other than an election or nomination of an
               individual whose initial assumption of office is in connection
               with an actual or threatened election contest relating to the
               election of the directors of the Company, as such terms are used
               in Rule 14a-11 of Regulation 14A under the Exchange Act) shall
               be, for purposes of this Agreement, considered as though such
               person were a member of the Incumbent Board;

                    (iii) the stockholders of the Company approve a merger or
               consolidation of the Company with any other corporation, other
               than

                         (x) a merger or consolidation which would result in the
                    voting securities of the Company outstanding immediately
                    prior thereto continuing to represent (either by remaining
                    outstanding or by being converted into voting securities of
                    the surviving entity) more than 80% of the combined voting
                    power of the voting securities of the Company or such
                    surviving

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<PAGE>


                    entity   outstanding   immediately   after  such  merger  or
                    consolidation or

                         (y) a merger or consolidation effected to implement a
                    recapitalization of the Company (or similar transaction) in
                    which no "person" (as hereinabove defined) acquires more
                    than 50% of the combined voting power of the Company's then
                    outstanding securities; or

                    (iv) the stockholders of the Company approve a plan of
               complete liquidation of the Company or an agreement for the sale
               or disposition by the Company of all or substantially all of the
               Company's assets.

               (b) Nothing contained in the definition of Change in Control
          shall limit or restrict the right of the Employee, in his capacity as
          a member of the Board, from participating any discussions or voting on
          any matter referred to in said definition at any meeting of the Board.

          7.5 "Applicable Percentage" means the percentage obtained by dividing
     the number of full or partial months worked in the most recent fiscal year
     for which the Employee has not been awarded or paid a cash performance
     bonus by twelve.

     8. Restrictive Covenants.

               (a) For the purposes of this Agreement:

                    (i) "Proprietary Information" means all information and
               know-how, whether or not in writing, of a private, secret or
               confidential nature concerning the

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               company's  business  or  financial  affairs,  including,  without
               limitation, inventions, products, processes, methods, techniques,
               formulas, compositions, compounds, projects, developments, plans,
               research data,  clinical data,  financial  data,  personnel data,
               computer programs and customer and supplier lists.

                    (ii) "Competing Products" means any products or processes of
               any person or organization other than the Company in existence or
               under development, which are substantially the same, may be
               substituted for, or applied to substantially the same end use as
               the products or processes that the Company is developing or has
               developed or commercialized during the time of the Employee's
               employment with the Company.

                    (iii) "Competing Organization" means any person or
               organization engaged in, or about to become engaged in, research
               or development, production, distribution, marketing or selling of
               a Competing Product.

               (b) The Employee understands that information regarding the
          Company and its affiliates including, without limitation, Proprietary
          Information, is considered confidential to the Company and is of
          substantial commercial value to the Company. Any entrusting of such
          confidential information to the Employee by the Company is done so in
          reliance upon the confidential relationship arising from the

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<PAGE>


          terms of his employment with the Company.  Therefore, in consideration
          of his employment with the Company,

                    (i) the Employee will not, during or after the Employment
               Period, disclose any such confidential information to any person,
               firm, corporation, association, or other entity for any reason or
               purpose whatsoever, except within the scope of his duties and
               responsibilities in the normal course of business, unless ordered
               to do so by a court or other tribunal or government agency with
               jurisdiction over the subject matter and Employee;

                    (ii) the Employee acknowledges that he has, on or prior to
               the date of the Agreement, executed and delivered to the Company
               a Non-Disclosure Agreement (the "Confidentiality Agreement") and
               the Employee hereby affirms and ratifies his obligation
               thereunder; and

                    (iii) the  Employee  agrees  that after  termination  by the
               Company  for Cause  pursuant  to Section  4.2 (except in the case
               where such termination occurs within 12 months following a Change
               in  Control),  or by the  Employee  pursuant to Section 4.6 other
               than for Good Reason or due to a Change in  Control,  he will not
               render  services of any nature,  directly or  indirectly,  to any
               Competing  Organization in connection with any Competing  Product
               within  such  geographical  territory  as the  Company  and  such
               Competing Organization are or would be in actual competition, for
               a

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<PAGE>


               period  of  eighteen  (18)  months,  commencing  on the  Date  of
               Termination,  provided,  however, the aforementioned restrictions
               shall not be  applicable to activities in which the Employee was,
               and  continued  to  be,  engaged  in on  the  Commencement  Date,
               including the activities  provided for in Section 2.2 hereof. The
               Employee  understands  that services  rendered to such  Competing
               Organization may have the effect of supporting actual competition
               in  various  geographic  areas,  and  may be  prohibited  by this
               Agreement  regardless  of  the  geographic  area  in  which  such
               services are  physically  rendered.  The Company may, in its sole
               discretion,  elect to waive,  in whole or in part, the obligation
               set forth in the previous  sentence,  such waiver to be effective
               only if given in writing by the Company.

               (c) The Employee agrees that he will not, during the Employment
          Period and for a period of nine (9) months commencing on the Date of
          Termination, directly or indirectly employ, solicit for employment, or
          advise or recommend to any other person that they employ or solicit
          for employment, any person whom he knows to be an employee of the
          Company or any parent, subsidiary or affiliate of the Company.

               (d) In the event a court of competent jurisdiction should find
          any provision in this Section 8 to be unfair or unreasonable, such
          finding shall not render such provision

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<PAGE>


          unenforceable,  but,  rather,  this provision  shall be modified as to
          subject  matter,  time and geographic  area so as to render the entire
          Section valid and enforceable.

     9. Notices. All notices required or permitted under this Agreement shall be
in writing and shall be deemed effective upon personal delivery or upon deposit
in the United States Post Office, by registered or certified mail, postage
prepaid, addressed to the other party at the address shown above, or at such
other address or addresses as either party shall designate to the other in
accordance with this Section 9.

     10. Indemnification. The Company shall indemnify the Employee to the
fullest extent permitted by the General Corporation Law of the State of
Delaware, as amended from time to time, for all amounts (including, without
limitation, judgments, fines, settlement payments, expenses and attorney's fees)
incurred or paid by the Employee in connection with any action, suit,
investigation or proceeding arising out of or relating to the performance by the
Employee of services for, or acting by the Employee as a director, officer or
employee of, the Company or any other person or enterprise at the Company's
request, and shall to the fullest extent permitted by the General Corporation
Law of the State of Delaware, as amended from time to time, advance all expenses
incurred or paid by the Employee in connection with, and until disposition of
any action, suit, investigation or proceeding arising out of or relating to the

                                       25

<PAGE>


performance by the Employee of services for, or acting by the Employee as a
director, officer or employee of, the Company or any other person or enterprise
at the Company's request.

     11. Pronouns. Whenever the context may require, any pronouns used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular forms of nouns and pronouns shall include the plural, and vice
versa.

     12. Entire Agreement. This Agreement, together with the Confidentiality
Agreement, constitutes the entire agreement between the parties and supersedes
all prior agreements and understandings, whether written or oral, relating to
the subject matter of this Agreement, including a certain employment agreement
by and between the Company and the Employee dated as of November 16, 1995, as
amended September 27, 1996 (the "September 1996 Amended Agreement"), except that
Article SIXTH of the September 1996 Amended Agreement with respect to the
granting, vesting and exercise of certain stock options to the Employee shall
continue in full force and effect with respect to such options, subject to the
provisions in Section 5 herein with respect to the vesting and exercise of
options upon termination.

     13. Amendment. This Agreement may be amended or modified only by a written
instrument executed by both the Company and the Employee.

     14. Governing Law. Except as otherwise provided in Section 10, this
Agreement shall be construed, interpreted and enforced

                                       26

<PAGE>


in accordance  with the laws of New Jersey,  without regard to its principles of
conflict of laws.

     15. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of both parties and their respective successors and assigns,
including any corporation with which or into which the Company may be merged or
which may succeed to its assets or business; provided, however, that the
obligations of the employee are unique and personal and shall not be assigned by
him.

     16. Waiver of Breach.

          16.1 Waiver by the Company. No delay or omission by the Company in
     exercising any right under this Agreement shall operate as a waiver of that
     or any other right. A waiver or consent given by the Company on any one
     occasion shall be effective only in that instance and shall not be
     construed as a bar or waiver of any right on any other occasion. No waiver
     by the Company shall be valid unless in a writing signed by an authorized
     officer of the Company and approved by an absolute majority of the Board.

          16.2 Waiver by the Employee. No delay or omission by the Employee in
     exercising any right under this Agreement shall operate as a waiver of that
     or any other right. A waiver or consent given by the Employee on any one
     occasion shall be effective only in that instance and shall not be
     construed as a bar or waiver of any right on any other occasion. No waiver
     by

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<PAGE>


     the Employee shall be valid unless in a writing signed by the Employee.

     17. Miscellaneous.

          17.1 The captions of the sections of this Agreement are for
     convenience of reference only and in no way define, limit or affect the
     scope or substance of any section of this Agreement.

          17.2 In case any provision of this Agreement shall be invalid, illegal
     or otherwise unenforceable, the validity, legality and enforceability of
     the remaining provisions shall be no way be affected or impaired thereby.


     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as an
instrument under seal as of the day and year set forth above.


                                            PALATIN TECHNOLOGIES, INC.

                                            By: /s/ James T. O'Brien
                                                ---------------------
                                            Name:
                                            Title:


                                            EMPLOYEE
                                            /s/  Edward J. Quilty
                                            --------------------------
                                            Edward J. Quilty



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