STRATEGIC COLLABORATION AGREEMENT


                  THIS STRATEGIC  COLLABORATION AGREEMENT dated as of August 17,
1999 (the  "Agreement")  is made by and between  PALATIN  TECHNOLOGIES,  INC., a
Delaware corporation  ("Palatin") and MALLINCKRODT INC., a Delaware corporation,
by and through its unincorporated Medical Imaging division ("Mallinckrodt").

                                    RECITALS

          WHEREAS,  Palatin has certain intellectual property rights (including,
without  limitation,  certain  patents)  concerning,  and is in the  process  of
developing   a   proprietary   compound   called,   LeuTech(TM),   which   is  a
radiopharmaceutical product useful for imaging infection and inflammation;

          WHEREAS,   Mallinckrodt   is  interested  in  entering  into  a  joint
collaboration  with  Palatin  for the  development  of a  commercial  product or
products from  LeuTech(TM) and desires to obtain an exclusive  license to market
and sell any product or products developed from LeuTech(TM) in all the countries
of the world,  excluding  those  countries and other  sovereign  territories  in
Europe, in accordance with the principles set forth herein; and

          WHEREAS,  Palatin is willing to enter into such a collaboration and to
grant Mallinckrodt such a license upon the terms and conditions set forth below.

          NOW THEREFORE,  in  consideration of the premises and of the covenants
herein contained, the parties hereto mutually agree as follows:

                                    Article 1

                          DEFINITIONS OF CERTAIN TERMS

         For  purposes of this  Agreement,  the terms  defined in this  Article
shall have the meanings specified below:

         1.1 "Adverse Events" shall mean an adverse drug experience as defined
in 21 C.F.R.ss.314.80 (a).

         1.2  "Affiliate"  shall  mean any  corporation  or other  entity  which
directly or indirectly  controls,  is  controlled by or is under common  control
with a party to this Agreement.  A corporation or other entity shall be regarded
as in  control  of  another  corporation  or  entity if it owns or  directly  or
indirectly  controls  more than fifty percent (50%) of the voting stock or other
ownership  interest  of the other  corporation  or entity,  or if it  possesses,
directly  or  indirectly,  the power to direct  or cause  the  direction  of the
management and policies of the corporation or other entity or the power to elect
or appoint fifty  percent (50%) or more of the members of the governing  body of
the corporation or other entity.

         1.3 "Annual  Development Plan" shall have the meaning ascribed to it in
Section 3.1(f) and "Annual Marketing Plan" shall have the meaning ascribed to it
in Section 2.2(d).

         1.4  "BLA"  shall  mean  a  Biologics  License   Application,   or  its
substantial equivalent,  filed with the FDA (as defined below), or, with respect
to  countries  other  than the  United  States,  with the  governing  health  or
regulatory authority of such country.

         1.5 "cGMP" shall mean current Good Manufacturing Practices as
determined at any given time by the FDA.

         1.6  "Change in Control"  shall mean the  occurrence,  with  respect to
Palatin, of any one of the following events:

                  (a) any "person" as such term is defined in Section 3(a)(9) of
the  Securities  Exchange  Act of 1934  (and as used in  Sections  13(d)(3)  and
14(d)(2)  of such Act) is or becomes a  "beneficial  owner" (as  defined in Rule
13d-3  under  such  Act),  directly  or  indirectly,  of  securities  of Palatin
representing  greater than fifty percent  (50%) of the combined  voting power of
Palatin's then outstanding  securities  eligible to vote for the election of its
board of directors;  provided,  however, that the event described in this clause
(a)  shall  not be  deemed  to be a change  in  control  by virtue of any of the
following  acquisitions:  (i) by  Palatin  or  any  wholly-owned  subsidiary  of
Palatin, (ii) by any employee benefit plan sponsored or maintained by Palatin or
any  subsidiary  of  Palatin,  (iii)  by  any  underwriter  temporarily  holding
securities  pursuant  to an  offering  of such  securities,  or (iv)  except  as
provided in subsection  1.6(c) below, in which voting  securities of Palatin are
acquired from Palatin, if a resolution  providing expressly that the acquisition
pursuant to this clause (iv) does not constitute a change in control is approved
by a vote of at least a majority of the  directors  who are directors of Palatin
on and as of the date hereof;

                  (b) individuals who, on the date hereof,  constitute the board
of directors of Palatin  cease for any reason to  constitute at least a majority
thereof,  provided  that any person  becoming a director  subsequent to the date
hereof, whose election,  or nomination for election,  by Palatin's  stockholders
was approved by a vote of at least a majority of the  directors  comprising  the
current  board of  directors  (either by a specific  vote or by  approval of the
proxy  statement  of  Palatin  in which  such  person is named as a nominee  for
director,  without  objection to such nomination) shall be, for purposes of this
clause (b),  considered as though such person were a member of the current board
of  directors;  provided,  however,  that no  individual  initially  elected  or
nominated  as a  director  of  Palatin  as a result of an  actual or  threatened
election  contest with  respect to  directors or any other actual or  threatened
solicitation of proxies or consents by or on behalf of any person other than the
board of  directors  shall be  deemed  to be a member  of the  current  board of
directors;

                  (c) a merger, consolidation, share exchange or similar form of
corporate   reorganization  of  Palatin  requiring  the  approval  of  Palatin's
stockholders  (whether for such transaction or the issuance of securities in the
transaction or otherwise);  provided,  however, that a "change in control" shall
not be deemed to occur upon a merger,  consolidation,  share exchange or similar
form of corporate reorganization of Palatin, whether or not stockholder approval
is required,  so long as (A) the Board of  Directors of any entity  surviving or
resulting from such reorganization  contains at least fifty percent (50%) of the
directors  who were  members of the board of  directors  of Palatin  immediately
prior to such  reorganization  and (B) the Chief  Executive  Officer of any such
surviving  entity is the same person as the Chief  Executive  Officer of Palatin
immediately prior to such reorganization;

                  (d) the direct or indirect sale or other  disposition  of all,
substantially all or any substantial parts of the assets or lines of business of
Palatin,  whether or not approval of any such  transaction  by  stockholders  is
required;  provided, however, Palatin shall be able to sell or otherwise dispose
of  non-LeuTech  assets or lines of  business  in a  transaction  not  otherwise
qualifying as a "Change of Control" under  subsections  (a), (b) and (c) of this
Section 1.6,  whether or not approval of such  transaction  by  stockholders  is
required,  and such sale or other  disposition shall not constitute a "Change of
Control"; or

         (e) the stockholders of Palatin approve a plan of complete liquidation
or dissolution of Palatin.

         1.7 "Common Shares" shall mean, at any given time,  those shares of the
Common Stock,  owned by  Mallinckrodt  as a  consequence  of its exercise of the
conversion rights set forth in Section 5.2(c) or Section 5.2(e) below.

         1.8 "Common Stock" shall mean the publicly traded,  voting common stock
of Palatin.

         1.9 "Defective Product" shall have the meaning ascribed to it in
Section 2.3(k) below.

         1.10  "Development  Costs"  shall  mean all  external  costs and direct
internal costs incurred in connection with the  development of LeuTech  Products
for diagnosing and imaging  equivocal  appendicitis  and  osteomyelitis  for the
North  American  portion  (i.e.,  the United States and Canada) of the Territory
during the Development Phase, [INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION UNDER RULE 24b-2.]

         1.11  "Development  Criteria"  shall mean those  milestones and actions
that  Palatin is required to achieve,  in the manner and in the time  specified,
with respect to the development of LeuTech, which milestones and actions are set
forth in Section 3.2(a) set forth below.

         1.12   "Development   Payments"   shall  mean  those  payments  due  by
Mallinckrodt  to Palatin in  accordance  with  Section  5.7(b)  herein  below as
Mallinckrodt's  share of  Development  Costs with respect to the  development of
LeuTech  Products  for  diagnosing  and  imaging   equivocal   appendicitis  and
osteomyelitis for the North American portion of the Territory.

         1.13  "Development  Phase"  shall  mean,  as to each and every  LeuTech
Indication,  the  period of time with  respect to any  portion of the  Territory
during  which such LeuTech  Indication  is being  developed  and such phase will
terminate,  with respect to any given portion of the Territory,  on the later of
the date  approval for the  marketing  and sale of such LeuTech  Indication as a
LeuTech Product is granted by the appropriate  regulatory  authority in any such
portion  of  the  Territory  or  the  date  upon  which  post-approval   product
development activities required by any government organization are complete.

         1.14  "Development  Program"  shall mean the  development  program  for
LeuTech  Products  for  diagnosing  and  imaging   equivocal   appendicitis  and
osteomyelitis  for  commercial  sales  in  the  North  American  portion  of the
Territory,  as such  program  will be more fully  described  in the first Annual
Development  Plan to be prepared by Palatin and delivered to Mallinckrodt at the
first meeting of the Joint Steering  Committee in connection  herewith,  as such
program may be amended from time to time by the parties in accordance  with this
Agreement.

         1.15 "Dilutive  Event" shall have the meaning  ascribed to such term in
Section 5.2(e) below.

         1.16 "Europe" shall mean Ireland, Northern Ireland, the United Kingdom,
Iceland, Norway, Sweden, Finland, Denmark,  Portugal, Spain, Gibraltar,  France,
Monaco, Andorra, Belgium, the Netherlands, Luxembourg, Germany, Poland, Hungary,
Romania,  Bulgaria,  Slovakia,  the  Czech  Republic,  Austria,   Liechtenstein,
Switzerland,  Italy, San Marino, the Holy See, Malta, Greece,  Serbia,  Croatia,
Slovenia, Bosnia, Montenegro,  Macedonia, Kosovo, Albania, the Russian Republic,
the Ukraine, Belarus, Moldova, Latvia, Lithuania and Estonia.

         1.17 "FDA" shall mean the United States Food and Drug Administration.

         1.18 "First  Commercial  Sale" shall mean the first sale of any LeuTech
Products  for use or  consumption  by the  general  public in any portion of the
Territory, when such sale has been made with the required marketing approval, as
appropriate to the portion of the Territory,  granted by the governing health or
regulatory authority.

         1.19  "Indemnitee"  shall  have the  meaning  ascribed  to such term in
Section 8.5 below.

         1.20  "Indemnitor"  shall  have the  meaning  ascribed  to such term in
Section 8.5 below.

         1.21  "Information"  shall have the  meaning  ascribed  to such term in
Section 7.1(a) below.

         1.22 "Joint Steering Committee" shall have the meaning ascribed to such
term in Section 4.1(a) below.

         1.23 "Launch  Activities" shall mean those activities to be carried out
by  Mallinckrodt  in connection  with the  commencement  of commercial  sales of
LeuTech  Products  in any  portion  of the  Territory,  which  activities  shall
generally include those listed on Exhibit B attached hereto.

         1.24  "LeuTech(TM)"  shall mean and refer to that compound the chemical
structure of which is described generally on Exhibit C attached hereto.

         1.25  "LeuTech   Indication"   shall  mean  any  specific  imaging  and
diagnostic  use of  LeuTech(TM),  whether in the  process of  development  or as
approved by the appropriate governmental regulatory agency or agencies.

         1.26 "LeuTech  Products" shall mean each and every  commercial  product
that is or can be  developed  for sale  from  LeuTech(TM)  and  which is used or
usable for nuclear imaging of infection or inflammation,  and shall specifically
and in every instance (unless the context  otherwise  clearly requires and until
such time as the Joint  Steering  Committee  expands the universe of  commercial
products  to be  developed  hereunder)  refer  at  the  very  least  to  LeuTech
Indications for equivocal  appendicitis and osteomyelitis as developed hereunder
for sale as commercial  products in the North American  portion of the Territory
(i.e.,  all uses of the term "LeuTech  Products"  herein shall be a reference to
developed  commercial  products  usable for  diagnosis  and imaging of equivocal
appendicitis and/or osteomyelitis and appropriate for sale in the North American
portion of the Territory).

         1.27 "License Payments" shall mean the payments made by Mallinckrodt to
Palatin as described in Section 5.1 below in consideration of the license rights
granted by Palatin to Mallinckrodt in accordance with Section 2.1 below.

         1.28 "Mallinckrodt  Indemnitee" shall have the meaning ascribed to such
term in Section 5.6(a) below.

         1.29  "Marketing  Criteria"  shall mean those  milestones,  actions and
obligations  that,  with  respect  to any given  period of time and in any given
portion of the Territory,  Mallinckrodt  is required to achieve and perform,  in
the  manner  and time  specified,  with  respect  to the  sales,  marketing  and
distribution of LeuTech Products,  which Marketing Criteria shall be established
by the Joint Steering  Committee and shall be derived from any Annual  Marketing
Plan then in effect.

         1.30 "Net Sales" shall mean the gross sales prices for LeuTech Products
billed  to  customers  (including,   without  limitation,  any  distributors  or
sublicensees)  by a party or by its  Affiliates  less  [INFORMATION  OMITTED AND
FILED  SEPARATELY  WITH THE  COMMISSION  UNDER RULE 24b-2].  Reductions to gross
sales may include  [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
UNDER RULE 24b-2.] It is further  understood  that the amount of any adjustments
to the gross sales of LeuTech  Products  described  in this  Section 1.30 relate
solely to the sale of LeuTech  Products.  Net sales shall in all cases hereunder
be expressed in United  States  dollars  regardless of the currency in which any
sales transaction is made.

         With respect to Net Sales of Product  Units where sales of such Product
Units have been "bundled" with other products  (i.e.,  if a Product Unit is sold
pursuant  to  an  agreement  with  an  independent  customer  specifying,  for a
combination  of  products  and/or  services,   [INFORMATION  OMITTED  AND  FILED
SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]

         1.31 "Quarterly Net Sales Report" shall have the meaning ascribed to
such term in Section 2.2(c) below.

         1.32 "Palatin  Indemnitee" shall have the meaning ascribed to such term
in Section 5.6(b) below.

         1.33  "Palatin  Intellectual  Property  Rights" shall mean all of those
intellectual  property  rights of Palatin or any of its Affiliates of any nature
whatsoever (including, without limitation,



<PAGE>


         the Palatin Patent  Rights,  as defined herein below) which are used or
useful in connection with LeuTech(TM) or LeuTech Products.

         1.34 "Palatin Patent Rights" shall mean those patents and  applications
for patent owned by Palatin or any of its  Affiliates or which Palatin or any of
its  Affiliates  has the right to use and which are used or useful in connection
with LeuTech(TM) or LeuTech Products,  as set forth and described (including the
precise nature of Palatin's rights thereto) on Exhibit D attached hereto.

         1.35 "Preferred Stock" shall mean the class of non-voting, subordinated
preferred stock of Palatin to be issued to  Mallinckrodt in accordance  herewith
and in consideration of the payments by Mallinckrodt set forth in Section 5.2(b)
below, which preferred stock shall have those rights and privileges as are fully
described in the certificate of designation attached hereto as Exhibit E.

         1.36  "Pre-Launch  Activities"  shall mean the activities to be carried
out by  Mallinckrodt  to prepare  for the  commencement  of  commercial  sale of
LeuTech  Products in any portion of the Territory  prior to any such  activities
hereunder  that  are  defined  as  Launch  Activities,  which  activities  shall
generally include those listed on Exhibit B attached hereto.

         1.37 "Product Direct Cost" shall have the meaning ascribed to such term
in Section 2.3(f) below.

         1.38  "Product  Sample"  shall mean  Product  Units (as defined  below)
provided to  Mallinckrodt  by Palatin,  at Palatin's  Product  Direct Cost,  for
distribution  to  Mallinckrodt  customers.  Such Product  Samples  shall be used
solely for  marketing  purposes and shall be marked  "Sample not for  Commercial
Sale."

         1.39 "Product  Unit" shall mean one vial  (regardless  of the strength,
concentration or amount of active ingredients  contained therein) of any LeuTech
Product, including (without limitation) those described on Exhibit F hereto that
are  usable  for  the  diagnosis  and  imaging  of  equivocal  appendicitis  and
osteomyelitis  [INFORMATION  OMITTED AND FILED  SEPARATELY  WITH THE  COMMISSION
UNDER RULE  24b-2].  Exhibit F shall be amended from time to time by the parties
in  accordance  with this  Agreement to reflect the  development  of  additional
LeuTech Products based on a LeuTech  Indication other than for the diagnosis and
imaging of equivocal appendicitis or osteomyelitis.

         1.40 "Publishing Party" shall have the meaning ascribed to such term in
Section 7.3(a).

         1.41 "Reviewing  Party" shall have the meaning ascribed to such term in
Section 7.3(a).

         1.42 "Royalty Payment" shall mean the amount to be paid by Mallinckrodt
to Palatin for Net Sales of Product Units,  as further  described and defined in
Section 5.9 below.

         1.43  "SEC"  shall  mean the  United  States  Securities  and  Exchange
Commission.

         1.44  "Suspension  Period" shall have the meaning ascribed to such term
in Section 5.4(e) below.

         1.45  "Territory"  shall  mean  all  of  the  countries  of  the  world
(excluding Europe).

         1.46 [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
UNDER RULE 24b-2].

         1.47 "Wistar Agreement" shall have the meaning ascribed to such term in
Section 9.3(c).

                                    Article 2

                    MARKETING, SALES AND MANUFACTURING RIGHTS

         2.1  Grant  of  License   Rights  by  Palatin   to   Mallinckrodt.   In
consideration of the License Payments  provided for herein Palatin hereby grants
to  Mallinckrodt  and its Affiliates  the exclusive  right and license under the
Palatin Intellectual  Property to (i) use, market,  distribute for sale and sell
LeuTech  Products in the Territory and (ii)  sublicense  the rights set forth in
clause (i) to any third party for  distribution  of LeuTech  Products,  with the
prior  written  consent of  Palatin,  which  consent  shall not be  unreasonably
withheld.  Any such  sublicensee  shall be bound by the terms and  conditions of
this Agreement  (other than any of the provisions of this Agreement  relating to
the Preferred Stock) as if the sublicensee were  Mallinckrodt or its Affiliates,
and shall execute a sublicense  agreement to that effect.  The sublicensee shall
not have any rights  greater  than the rights  granted  Mallinckrodt  under this
Agreement  and shall not be  permitted to  sublicense  to any other party rights
sublicensed from Mallinckrodt. Mallinckrodt agrees to assume full responsibility
for any such  sublicensee's  performance and shall at all times diligently audit
the  performance of any such  sublicensee.  Mallinckrodt  shall promptly  inform
Palatin of any performance  difficulties it discovers or reasonably  anticipates
with  respect  to any  such  sublicensee,  as well as the  actions  Mallinckrodt
intends to take to alleviate or ameliorate  any such  difficulties.  The license
grant  set  forth  in this  Section  2.1  shall  be  deemed  to be  paid-up  and
irrevocable  for so long  as and to the  extent  this  Agreement  is in  effect,
subject only to such limitations as are expressly set forth herein below.

         2.2      Mallinckrodt's Marketing Obligations.

                  (a)  Mallinckrodt  agrees  (for  itself  and on  behalf of its
Affiliates and sublicensees) to exert its best commercial  efforts in the sales,
marketing and distribution of LeuTech Products,  which it shall  conclusively be
deemed to have done with respect to any particular  LeuTech  Product and for any
particular  period if  Mallinckrodt  (and its Affiliates or  sublicensees)  meet
those  Marketing   Criteria  or  other  marketing  and  sales  requirements  and
milestones  established  by  the  Joint  Steering  Committee  and  based  on the
marketing  details set forth in any applicable Annual Marketing Plan approved in
accordance  herewith.  If Mallinckrodt (and its Affiliates or sublicensees) have
properly  addressed  and  promoted  the sales,  marketing  and  distribution  of
applicable  LeuTech Products during any particular period in accordance with the
requirements of any applicable Annual Marketing Plan, then Mallinckrodt (and its
Affiliates or sublicensees) shall be deemed to have met all applicable marketing
obligations  hereunder,  notwithstanding  any failure to achieve  expected gross
revenue levels for one or more LeuTech Products in any particular market if such
shortfall is due primarily to the  occurrence  of market,  economic or technical
circumstances  which are beyond the reasonable  control of Mallinckrodt (and its
Affiliates or  sublicensees).  Mallinckrodt  and its Affiliates or  sublicensees
shall be responsible for the performance of and costs associated with all Launch
Activities and  Pre-Launch  Activities  relative to  preparation  for the sales,
marketing and  distribution of LeuTech  Products,  and shall otherwise engage in
those marketing activities set forth and described in Exhibit B attached hereto.

                  (b) In the event it is the determination of the Joint Steering
Committee  that,  with  respect  to any  particular  period  of time  and in any
substantial  portion of the  Territory,  Mallinckrodt  (and its  Affiliates  and
sublicensees)  have failed to meet any  applicable  Marketing  Criteria or other
marketing  and sales  requirements  and  milestones  contained  in or  developed
jointly  as  a  consequence  of  any  applicable  Annual  Marketing  Plan  under
circumstances  that clearly  warrant the conclusion that  Mallinckrodt  (and its
Affiliates and sublicensees)  have not exerted their best commercial  efforts in
the sale and marketing of LeuTech  Products  then, at Palatin's  option and upon
one hundred twenty (120) days advance written notice to Mallinckrodt  specifying
in detail the manner in which Mallinckrodt (and its Affiliates and sublicensees)
have failed to discharge their marketing obligations under Section 2.2(a) above,
Palatin may terminate or declare to be non-exclusive  some or all of the license
rights granted to Mallinckrodt  pursuant to Section 2.1 above; provided that, if
Mallinckrodt  (and its Affiliates and  sublicensees)  are able  substantially to
cure any failure to meet its (or their)  obligations under Section 2.2(a) to the
reasonable  satisfaction  of all of the members of the Joint Steering  Committee
within such one hundred twenty (120) day period, Palatin will not have the right
to terminate or alter any of Mallinckrodt's license rights hereunder.

                  (c) During  the term of this  Agreement  and for any  calendar
quarter in which  Mallinckrodt (or their  Affiliates or sublicensees)  have made
any sales of Product Units, Mallinckrodt shall, within sixty (60) days after the
end of each such calendar  quarter,  furnish to Palatin a written report showing
Net Sales of Product Units during such quarter  ("Quarterly  Net Sales  Report")
and including the following specific information: (i) total Net Sales of Product
Units broken down into such significant geographical regions as may be specified
by the Joint Steering Committee, and sufficient documentation to demonstrate the
calculation  of Net Sales from gross sales revenue and  applicable  adjustments,
(ii) an indication of the source of any gross revenue  (i.e.,  sales to end-user
customers, sales to distributors, fees or payments from sublicensees,  etc.) and
the calculation of the amount of Net Sales deriving from each source,  (iii) the
exchange  rates used in  determining  Net Sales in United States dollars for any
sales  outside  the  United  States,  (iv) the  estimated  allocated  sales  and
marketing expense incurred by Mallinckrodt  during the period of any such report
in each  specific  Sales Market and in total,  and (v) a comparison of sales and
marketing results against any Marketing  Criteria and Annual Marketing Plan then
in effect.

                  (d) The sales and marketing activities of Mallinckrodt and its
Affiliates  or  sublicensees  shall be subject to the review and approval of the
Joint  Steering  Committee.  To aid in review by the Joint  Steering  Committee,
Mallinckrodt  shall  develop  an annual  sales and  marketing  plan (an  "Annual
Marketing  Plan")  which shall  reasonably  describe  the sales,  marketing  and
distribution  activities to be conducted by  Mallinckrodt  and its Affiliates or
sublicensees  with regard to LeuTech  Products  and which shall  include,  among
other  things,  an annual  budget and a specific  description  of the timing and
nature of any resources to be allocated by  Mallinckrodt  and its  Affiliates to
the sales, marketing and distribution of LeuTech Products, the commissions to be
paid to sales  representatives,  training  programs  to be  provided  for  sales
representatives,  the nature of all  advertising  and  promotional  efforts  and
materials,  the proposed quantity and method of distribution of Product Samples,
and such other  information as the Joint  Steering  Committee  shall  reasonably
determine  to be  necessary.  Mallinckrodt  shall  develop and present the first
Annual  Marketing  Plan at the first  meeting of the Joint  Steering  Committee,
which  initial plan will set forth  Mallinckrodt's  overall  marketing  plan and
forecast  assumptions  in such detail as  possible  at this point in time.  Such
initial  plan will be refined  and amended or  supplemented  as, when and to the
extent the Joint Steering  Committee  shall  determine.  Thereafter,  the Annual
Marketing Plan shall be prepared by  Mallinckrodt  no later than sixty (60) days
prior to the  beginning  of each  calendar  or  fiscal  year in which  sales and
marketing activities will occur or are expected to occur in accordance herewith.
In addition,  if Mallinckrodt  receives notice from the Joint Steering Committee
that  government  approval  to market any  LeuTech  Products in a portion of the
Territory  for which such  approval was  previously  unavailable  is  reasonably
expected to occur within one hundred  eighty (180) days,  then within sixty (60)
days after  receipt of such  notice,  Mallinckrodt  will  supplement  any Annual
Marketing  Plan then in effect to include all required  information  relative to
the sales, marketing and distribution of LeuTech Products in any such portion of
the Territory or, if Mallinckrodt's receipt of such notice occurs within six (6)
months  from the end of any  calendar  or fiscal  year for which any  particular
Annual  Marketing  Plan is then in effect,  Mallinckrodt  will  include all such
information  in the Annual  Marketing  Plan to be  prepared  for the  succeeding
calendar or fiscal year. Notwithstanding the immediately preceding sentence, any
changes or supplements  to any Annual  Marketing Plan shall be subject to review
and approval of the Joint Steering Committee.

                  (e)  Mallinckrodt  (on its own  behalf  and on  behalf  of its
Affiliates,   sublicensees,   contract  consultants  or  other   subcontractors)
represents and warrants to Palatin as follows:

                           (i)  there  is  no   claim,   suit,   proceeding   or
         investigation pending or, to the knowledge of Mallinckrodt,  threatened
         against Mallinckrodt or any of its Affiliates,  sublicensees,  contract
         manufacturers, consultants or other subcontractors, which might prevent
         or interfere with Mallinckrodt's performance under this Agreement;

                           (ii) LeuTech and LeuTech  Products  marketed and sold
         hereunder  will not be marketed or sold in violation of any  applicable
         federal,  state or local  law or  regulation,  or  marketed  or sold in
         violation of any agreement (commercial or otherwise),  judgment,  order
         or decree to which any of Mallinckrodt or its Affiliates, sublicensees,
         contract   manufacturers,   consultants  or  other  subcontractors  are
         parties;

                           (iii) neither Mallinckrodt nor any of its Affiliates,
         sublicensees,  contract  consultants or other  subcontractors  (nor any
         employee of any of the foregoing) has been  disqualified or debarred by
         any governmental authority for any purpose;

                           (iv)  neither  Mallinckrodt  nor any of its  contract
         consultants or other  subcontractors (nor to the best of Mallinckrodt's
         knowledge any employee of any of the foregoing)  have been charged with
         or convicted under federal law for conduct relating to the marketing or
         sale of any drug product under the Generic Drug Enforcement Act of 1992
         or under any other relevant statute, law or regulation;

                           (v)   Mallinckrodt   and   any  of  its   Affiliates,
         sublicensees,  contract  consultants and other  subcontractors (and any
         employee of any of the  foregoing)  will treat  LeuTech  Products as an
         important product in the same manner  Mallinckrodt,  its Affiliates and
         sublicensees traditionally market their important products for purposes
         of  Mallinckrodt's  pre-marketing,  marketing,  sales and  distribution
         efforts  and   expenditures.   Mallinckrodt's   marketing,   sales  and
         distribution efforts regarding LeuTech Products shall place emphasis on
         all relevant  clinical  indications of LeuTech (covered by the scope of
         this Agreement),  market segments and appropriate  geographical regions
         in the Territory;

                           (vi)   Mallinckrodt   and  any  of  its   Affiliates,
         sublicensees,  contract  consultants and other  subcontractors (and any
         employee  of any of the  foregoing)  will  provide  an  adequate  sales
         organization  and facilities to assure  adequate sales  representation,
         representation,  prompt handling of inquiries and orders, and attention
         to customer service requirements for LeuTech Products in support of the
         activities described herein;

                           (vii)   Mallinckrodt   and  any  of  its  Affiliates,
         sublicensees,  contract  consultants and other  subcontractors (and any
         employee of any of the foregoing)  will provide  support and assistance
         in  establishing  efficient  communications  between  Mallinckrodt  and
         Palatin for shipping  information,  invoicing,  complaints and customer
         relations  information  including  support  of  computer  communication
         systems for information flow; and

                           (viii)   Mallinckrodt  and  any  of  its  Affiliates,
         sublicensees,  contract  consultants and other  subcontractors (and any
         employee of any of the  foregoing)  will provide  sales order entry and
         customer service.

                  (f)  Palatin,  through  its  employees,  consultants  or other
representatives,  will have the right,  during  normal  business  hours and upon
advance  arrangements with  Mallinckrodt,  and no more often than quarterly,  to
inspect the marketing and sales and other related operations of Mallinckrodt and
its Affiliates,  sublicensees,  contract  consultants or other subcontractors to
determine  whether  or  not  Mallinckrodt  is  complying  in all  respects  with
obligations and performance for which it is responsible hereunder. Palatin shall
give  reasonable  advance  notice to  Mallinckrodt  of any such  inspection  and
Mallinckrodt  shall have the right to have a representative  present at all such
inspections.  Palatin  warrants  that all such  inspections  and audits shall be
carried  out in a  manner  calculated  not to  unreasonably  interfere  with the
audited party's conduct of business.  Further, Palatin agrees to comply with all
of the audited  party's  safety and security  requirements  during any visits to
such audited party's facilities.

         2.3      Manufacturing and Supply of the LeuTech Products.

                  (a)  Palatin  (either  itself or  through  the  efforts of its
contract   manufacturers,   consultants  or  other   subcontractors)   shall  be
responsible  for  manufacturing  Product  Units at the  required  quality and in
quantities  sufficient  for  preclinical  and  clinical  development  during the
Development  Phase with  respect to any LeuTech  Product  and in any  particular
portion  of the  Territory  until  the  termination  or  expiration  of any such
Development  Phase.  All costs  incurred  by  Palatin  in  connection  with this
subsection (a) shall be deemed  Development  Costs and subject to the provisions
of Section 5.7(b) hereof.

                  (b)  Prior  to the  termination  or  expiration  of  any  such
Development Phase, Palatin (either itself or through the efforts of its contract
manufacturers, consultants or other subcontractors) shall be responsible for (i)
the design,  testing and scale-up of the LeuTech Products manufacturing process,
(ii)  manufacturing  Product  Units at the  required  quality and in  quantities
sufficient for any further and final development  efforts that may be necessary,
(iii)  providing  documentation  regarding the  manufacture of LeuTech  Products
needed to secure the relevant governmental  approvals to market and sell LeuTech
Products in any portion of the Territory,  and (iv)  arranging for  pre-approval
and/or  routine  establishment  inspections  with respect to its  facilities (or
those of its contract  manufacturers or other  subcontractors) that are and will
be manufacturing  LeuTech Products.  All costs incurred by Palatin in connection
with this  subsection (b) shall be deemed  Development  Costs and subject to the
provisions of Section 5.7(b) hereof.

                  (c)  Mallinckrodt  will submit to Palatin,  in writing  within
sixty (60) days of the date of this  Agreement,  a  non-binding  forecast of the
anticipated  amounts of its orders for  finished  Product  Units of LeuTech  for
diagnosing and imaging  equivocal  appendicitis and  osteomyelitis  Products for
sale and  distribution  in North  America  during  each of the  first  two years
following  approval of the  marketing  and sale of such LeuTech  Products by the
FDA.  After such  approval  is  obtained,  Mallinckrodt  will  submit to Palatin
updated  and  non-binding  forecasts  on a  rolling  quarterly  basis.  Under no
circumstances  whatsoever  shall any forecasts made hereunder be deemed to be an
order  for  the  purchase  of  Product  Units  of  any  LeuTech  Products,   but
Mallinckrodt will at all times exercise  reasonable care that such forecasts are
as accurate as possible under the applicable facts and circumstances.

                  (d) Subject to the  provisions  of  subsection  (f) and (g) of
this Section 2.3, upon completion of the Development Phase for a LeuTech Product
in any  portion  of the  Territory,  and  for so long  as  Mallinckrodt  and its
Affiliates  retain any portion of the license rights granted pursuant to Section
2.1 above with respect to any such  portion of the  Territory,  Palatin  (either
itself or through  the efforts of its  contract  manufacturers,  consultants  or
other  subcontractors)  will be responsible for supplying  Mallinckrodt  and its
Affiliates with such commercial  quantities of LeuTech  Products as Mallinckrodt
and its Affiliates  shall require to carry out their  obligations  under Section
2.2 above,  including any  quantities of pre-launch  commercial  inventories  of
LeuTech  Products the parties  agree should be produced.  Mallinckrodt,  for its
part,  agrees to pay Palatin,  for each Product Unit delivered to its facilities
by  Palatin  (or by its  contract  manufacturers  or other  subcontractors)  and
accepted by  Mallinckrodt  in accordance with provisions set forth below in this
Section 2.3, an amount equal to the Transfer  Price,  as determined  pursuant to
Section 1.46 above.

                  (e)      [INFORMATION OMITTED AND FILED SEPARATELY WITH THE
                           COMMISSION UNDER RULE 24b-2].

                  (f)      [INFORMATION OMITTED AND FILED SEPARATELY WITH THE
                           COMMISSION UNDER RULE 24b-2].

                  (g)      [INFORMATION OMITTED AND FILED SEPARATELY WITH THE
                           COMMISSION UNDER RULE 24b-2].

                  (h) Although  Palatin shall have the right to subcontract  any
or  all  of  its   responsibilities   under  this  Section  2.3  to  a  contract
manufacturer,  consultant  or other  subcontractor,  Palatin  shall at all times
diligently audit the performance of any such  subcontractor  hereunder and shall
promptly inform  Mallinckrodt  of any  performance  difficulties it discovers or
reasonably  anticipates with respect to any such  subcontractor,  as well as the
actions   Palatin   intends  to  take  to  alleviate  or  ameliorate   any  such
difficulties.  Notwithstanding any other provision herein, it is understood that
Palatin  shall at all  times be fully  responsible  for the  performance  of any
contract  manufacturers,  consultants  or  other  subcontractors  to whom it may
delegate any of its responsibilities or performance under this Section 2.3. Upon
discovery by Palatin of an actual or anticipatory  breach by any of its contract
manufacturers or  subcontractors  of their  obligations to produce Product Units
and upon their failure, within a reasonably short period (in any event no longer
than sixty (60) days), to cure or remove the threat of any such breach,  Palatin
will commence all necessary steps to identify and qualify an alternate  supplier
to replace such contract  manufacturers  or  subcontractors  and will diligently
pursue all approvals  necessary to qualify such suppliers and resume  production
at appropriate levels and/or in an appropriate manner. In the event that Palatin
fails to discharge its obligations pursuant to this subsection (h), Mallinckrodt
shall have the right to  enforce  Palatin's  rights  under and  pursuant  to any
contracts   Palatin  may  have  with  its   contract   manufacturers   or  other
subcontractors  and Palatin  shall take all actions  necessary  and  possible to
ensure that Mallinckrodt will be able fully to exercise such rights.

                  (i) If  Mallinckrodt  at any time cancels a purchase order for
Product Units, then  Mallinckrodt  shall pay to Palatin a cancellation fee equal
to one hundred  percent (100%) of the Direct Product Cost incurred by Palatin in
accordance with such purchase order less such amount of Direct Product Cost with
respect to such  purchase  order that has already been paid by  Mallinckrodt  to
Palatin.  Payment of any such  cancellation fee shall be made within thirty (30)
days of  submission  of an  invoice  detailing  such  Direct  Product  Costs and
providing such support documentation and material as Mallinckrodt may reasonably
deem necessary. Any amounts not paid by Mallinckrodt within such thirty (30) day
period  shall  accrue  interest at an annual rate of eight  percent  (8%) on the
unpaid balance due until paid.

                  (j) The  manufacture  of Product  Units by Palatin  (or by its
contract   manufacturers,   consultants   or  other   subcontractors)   will  be
accomplished in accordance with all applicable  laws,  rules and regulations and
all   manufacturing   shall  be  performed  in  accordance   with  current  Good
Manufacturing Practices ("cGMP") as defined by the FDA.

                  (k) At the time of delivery of Product  Units,  Palatin  shall
supply to  Mallinckrodt a certificate of analysis for such Product Units setting
forth an  analysis  of the  Product  Units  in  question  as to each  applicable
specification. If Mallinckrodt determines that any Product Units it has received
are  not in  conformance  with  any one or more  applicable  specifications  for
Product Units to be supplied by Palatin to Mallinckrodt (hereinafter referred to
as a  "Defective  Product"),  then  Mallinckrodt  may reject any such  Defective
Product within thirty (30) days of delivery of such Product.  At the time of any
such  rejection,  Mallinckrodt  shall  provide  Palatin  with a  written  notice
describing   in  detail  the   circumstances   surrounding   the  rejection  and
Mallinckrodt's  reasons  therefor.  If  Mallinckrodt  rejects any such Defective
Product it will,  at Palatin's  option,  return the Product Units in question to
Palatin (or to any contract  manufacturer or other  subcontractor  Palatin shall
specify),  or  destroy  or  dispose  of them in the  least  expensive  and  most
environmentally  sound  manner,  or hold them in  quarantine  at a  Mallinckrodt
facility,  all at Palatin's  cost (subject to any other  relevant  provisions of
this  subsection  (k)).  If  Mallinckrodt  rejects any Defective  Product,  then
Palatin  reserves the right to retest or reexamine  such  Defective  Product for
conformity with specifications by an independent  laboratory or other consultant
mutually agreed upon by both parties. If such testing or reexamination  confirms
that the Product Units meet the  applicable  specifications,  Mallinckrodt  must
accept the Product  Units,  Mallinckrodt  must pay any charges and  expenses for
retesting or  reexamination  by such third party,  and any costs associated with
Mallinckrodt's  previous  rejection  of any such  Product  Units will be for the
account  and expense of  Mallinckrodt.  Otherwise,  the  charges for  retesting,
reexamination,  return,  destruction  and/or quarantine will be paid by Palatin,
and,  whether or not Palatin opts to retest or  reexamine  Product that has been
rejected by Mallinckrodt,  Palatin will replace all Defective Product at no cost
to Mallinckrodt.

                  (l) Palatin (and its contract  manufacturers,  consultants and
other  subcontractors)  will  comply  with all  federal,  state and local  laws,
regulations and standards  applicable to production of LeuTech  Products and the
performance  of any  obligations  for which  Palatin is  responsible  hereunder.
Palatin will promptly furnish  Mallinckrodt  with pertinent  portions of all FDA
inspection reports and related correspondence  directly related to and affecting
performance hereunder (including all such reports and correspondence relating to
its contract  manufacturers,  consultants or other  subcontractors)  as and when
such reports and correspondence become available to Palatin. Palatin will notify
Mallinckrodt  promptly of (i) any warning (including any FDA Form 483 or warning
letter), citation, indictment, claim, lawsuit or proceeding issued or instituted
by any federal,  state or local governmental entity or agency against Palatin or
any  of  its   Affiliates,   contract   manufacturers,   consultants   or  other
subcontractors,  (ii) any  revocation of any license or permit issued to Palatin
or  any  of  its  Affiliates,  contract  manufacturers,   consultants  or  other
subcontractors,  to the extent that any such occurrence  described in clause (i)
or (ii)  relates  directly  to  performance  for which  Palatin  is  responsible
hereunder.

                  (m) Palatin  (on its own behalf and on behalf of its  contract
manufacturers,  consultants or other subcontractors)  represents and warrants to
Mallinckrodt as follows:

                  (i)  All  Product  Units  supplied  to  Mallinckrodt  and  its
         Affiliates hereunder will be properly and safely packaged as reasonably
         required by the applicable BLA.  Palatin will be responsible to provide
         all vials,  boxes and other packaging  materials required by Palatin to
         perform its  obligations  hereunder  (i.e.,  these are  included in the
         Transfer Price to be paid by Mallinckrodt).

                  (ii)  Palatin  currently  has access to, and during the entire
         term  hereof  will make all  reasonable  efforts to ensure that it will
         continue  to have  access to,  sufficient  supplies  of raw  materials,
         utilities, container/closure systems, packaging materials and all other
         required items to perform the services required of it hereunder without
         interruption.

                  (iii) Palatin shall be responsible (through the efforts of its
         contract  manufacturers,  consultants and other subcontractors) for all
         process,  cleaning and methods  validation,  stability studies or other
         tests and  procedures  necessary  for the  manufacture  and  release of
         finished  Product  Units  hereunder  in  accordance  with  cGMP  and in
         accordance with the requirements of the relevant manufacturing process.
         Complete and accurate  documentation of all validation data,  stability
         testing data, batch records, quality control and laboratory testing and
         any other data required under cGMP or other FDA requirements,  or under
         any similar  requirements of the relevant  regulatory  framework of any
         other country (as such  requirements may be applicable),  in connection
         with  the  supply  of  finished   Product  Units   hereunder  shall  be
         maintained,   and  such  records  shall  be  available  for  review  by
         Mallinckrodt on reasonable advance notice.

                  (iv) All Product  Units  produced and sold  hereunder  will be
         produced in compliance with cGMPs applicable to LeuTech  Products,  and
         will meet all applicable specifications.

                  (v)  There is no  claim,  suit,  proceeding  or  investigation
         pending or, to the knowledge of Palatin,  threatened against Palatin or
         any   of  its   Affiliates,   sublicensees,   contract   manufacturers,
         consultants or other  subcontractors,  which might prevent or interfere
         with Palatin's performance under this Agreement.

                  (vi) Neither Palatin nor any of its Affiliates,  sublicensees,
         contract manufacturers, consultants or other subcontractors (nor to the
         knowledge  of Palatin any  employee of any of the  foregoing)  has been
         disqualified or debarred by the FDA for any purpose.

                  (vii) Neither Palatin nor any of its Affiliates, sublicensees,
         contract  manufacturers,  consultants or other  subcontractors  (nor to
         Palatin's  knowledge  any employee of any of the  foregoing)  have been
         charged with or convicted under federal law for conduct relating to the
         development or approval, or otherwise relating to the regulation of any
         drug product  under the Generic Drug  Enforcement  Act of 1992 or under
         any other relevant statute, law or regulation.

                  (viii) Product Units sold hereunder will not be:

                                    (A)     in  violation of Sections 5 or 12 of
                                            the Federal Trade  Commission Act or
                                            improperly  labeled under applicable
                                            Federal   Trade   Commission   Trade
                                            Practice Rules, as and to the extent
                                            applicable hereunder,

                                    (B)      adulterated  or  misbranded  within
                                             the  meaning of the  federal  Food,
                                             Drug and Cosmetic  Act, as amended,
                                             or  within   the   meaning  of  any
                                             applicable  state or municipal  law
                                             in   which   the   definitions   of
                                             adulteration  and  misbranding  are
                                             substantially  identical with those
                                             contained in the federal Food, Drug
                                             and Cosmetic Act, or articles which
                                             may not  under  the  provisions  of
                                             Sections  404 or 505 of said Act be
                                             introduced into interstate commerce
                                             or    which     may    not    under
                                             substantially similar provisions of
                                             any  state  or  municipal   law  be
                                             introduced into commerce,

                                    (C)     in  violation  of Section 351 of the
                                            Public   Health   Service   Act,  as
                                            amended,   as  and  to  the   extent
                                            applicable hereunder,

                                    (D)     manufactured  in  violation  of  any
                                            applicable  federal,  state or local
                                            law, rule or regulation, or

                                    (E)     manufactured  in  violation  of  any
                                            agreement (commercial or otherwise),
                                            judgment,  order or  decree to which
                                            any  of  Palatin  or  its   contract
                                            manufacturers,  consultants or other
                                            subcontractors are parties.

                  (n) Mallinckrodt,  through its employees, consultants or other
representatives,  will have the right,  during  normal  business  hours and upon
advance arrangement with Palatin,  and no more often than quarterly,  to inspect
the  manufacturing  and other  related  operations  of Palatin and its  contract
manufacturers,  consultants or other  subcontractors to determine whether or not
Palatin is complying in all respects with  obligations and performance for which
it is responsible  hereunder.  Mallinckrodt shall give reasonable advance notice
to Palatin of any such  inspection  and  Palatin  shall have the right to have a
representative  present at all such inspections.  Mallinckrodt warrants that all
such  inspections and audits shall be carried out in a manner  calculated not to
unreasonably  interfere with the audited party's  conduct of business.  Further,
Mallinckrodt  agrees  to  comply  with all of the  audited  party's  safety  and
security requirements during any visits to such audited party's facilities.

                  (o) If either  party  reasonably  decides to or is required to
initiate a product recall,  stock recovery,  withdrawal or field correction with
respect  to, or if there is any  governmental  seizure  of,  any  Product  Units
supplied hereunder which action is due, in whole or in part, to (i) a failure of
any of such  Product  Units  manufactured  hereunder  to conform  to  applicable
specifications  (including,  without  limitation,  any such Product  Units being
adulterated or  misbranded),  or any warranty or other  requirement set forth in
this  Agreement,  (ii) the  failure  of either  party (or any of their  contract
manufacturers,  consultants,  subcontractors or sublicensees) to comply with any
applicable law, rule, regulation,  standard,  court order or decree or (iii) the
negligent  or  intentional  wrongful  act or omission of either party (or any of
their contract  manufacturers,  consultants,  subcontractors or sublicensees) in
connection with  performance  hereunder,  such party will notify the other party
promptly of the details regarding such action, including providing copies of all
relevant documentation concerning such action. The party so notified will assist
the party  initiating any such action in investigating  any such situation.  All
regulatory contacts that are made and all activities concerning seizure, recall,
stock recovery,  withdrawal or field  correction will be jointly  coordinated by
Mallinckrodt  and Palatin,  regardless of which party  initiated or suffered any
applicable  action.  If any  such  recall,  stock  recovery,  withdrawal,  field
correction  or seizure  occurs due solely to (i) a failure of any Product  Units
provided hereunder to conform to applicable specifications  (including,  without
limitation,  any such Product  Units being  adulterated  or  misbranded)  or any
warranty or other  requirement set forth in this Agreement,  (ii) the failure by
Palatin (or any of their contract manufacturers,  consultants, subcontractors or
sublicensees)  to comply with any applicable law, rule,  regulations,  standard,
court order or decree or (iii) the  negligent  or  intentional  wrongful  act or
omission  of  Palatin  (or  any  of  its  contract  manufacturers,  consultants,
subcontractors  or  sublicensees)  in connection  with the production of LeuTech
Products  hereunder,  then  Palatin  shall bear the full cost and expense of any
such seizure, recall, stock recovery, withdrawal or field correction and, to the
extent Mallinckrodt has paid any expenses, it shall be entitled to reimbursement
by deduction of such costs and expenses  from the amount of any Royalty  Payment
otherwise  payable to Palatin  hereunder in  accordance  with Section 5.9,  such
deduction to occur with respect to the Royalty  Payment payable for the calendar
quarter in which any such recall, stock recovery,  withdrawal,  field correction
or  seizure  occurs.  If both  Palatin  and  Mallinckrodt  (or  either  of their
subcontractors, sublicenses or Affiliates) contribute to the cause of a seizure,
recall,  stock recovery,  withdrawal or field correction,  the cost and expenses
thereof will be shared in proportion to each party's contribution to the problem
(as determined by the Joint Steering  Committee or, in the absence of a decision
by the Joint Steering Committee,  in accordance with the procedures set forth in
Section 10.6  herein),  and any amount of cost and expense that is the liability
and responsibility of Palatin and is paid by Mallinckrodt shall be reimbursed to
Mallinckrodt  by deduction  from any Royalty  Payment due Palatin in  accordance
with the  procedures set forth in the  immediately  preceding  sentence.  If any
recall,  stock  recovery,  withdrawal,  field  correction or seizure  occurs due
solely to the failure of Mallinckrodt,  its Affiliates,  sublicensees,  contract
consultants or other  subcontractors  to comply with any  applicable  law, rule,
regulation,  standard,  court order or decree or the  negligent  or  intentional
wrongful  act  or  omission  of  Mallinckrodt  in  connection  with  performance
hereunder,  then  Mallinckrodt  shall  bear the full  cost and  expense  of such
seizure, stock recovery, withdrawal or field correction.

                  (p)   Mallinckrodt   shall  be  responsible   for  monitoring,
investigating   and  reporting  all  customer   complaints  and  Adverse  Events
concerning  the LeuTech  Products.  Palatin shall perform in a timely manner all
product testing in connection  with such customer  complaints and Adverse Events
as  requested by  Mallinckrodt.  Mallinckrodt  shall  prepare and submit in full
compliance with applicable  federal  statutes and regulations the Annual Adverse
Event  Report  required  to be  submitted  to the FDA and to prepare  and submit
within the Territory in full  compliance  with applicable law all other required
regulatory filings relating to customer complaints and Adverse Events.

                  (q) In addition to any rights  Mallinckrodt may otherwise have
hereunder (including, without limitation, any rights to terminate this Agreement
pursuant to Section 9.2 below),  in the event  Palatin is in material  breach of
any  obligations  under this Section 2.3 for which it is  responsible  and which
material breach places  Mallinckrodt in reasonable and imminent  apprehension of
Palatin's  continued  ability or  intention to supply  Product  Units of LeuTech
Products  to  Mallinckrodt  hereunder,  if such  breach is caused by the acts or
omissions  to act of Palatin,  and such  breach is not cured  within one hundred
twenty (120) days after notice thereof is given by Mallinckrodt to Palatin, then
Mallinckrodt   shall  have  the   irrevocable   right  to  manufacture  or  have
manufactured by any one or more contract  manufacturers  all of its requirements
for Product  Units of LeuTech  Products  for the  duration of any of its license
rights  granted  hereunder.  Mallinckrodt  may exercise the  foregoing  right by
giving  notice to Palatin of its intent to do so at any time after the elapse of
the one hundred  twenty (120) day cure period if, during such time,  Palatin has
been unable  substantially to cure any and all material breaches of this Section
2.3 to the reasonable  satisfaction of Mallinckrodt.  In the event  Mallinckrodt
exercises such right of manufacture,  Palatin shall, as soon after notice of the
exercise  of such right as  possible  (but in no event later than six (6) months
thereafter),  transfer  to  Mallinckrodt  such  contractual  rights  (i.e.,  its
contracts with all third party  contract  manufacturers,  consultants  and other
subcontractors)  and such rights to its intellectual  property and such know-how
as may  be  necessary  to  enable  Mallinckrodt  or a  third  party  or  parties
designated  by  Mallinckrodt  to  manufacture  LeuTech  Products  in  sufficient
quantity to meet Mallinckrodt's  requirements  therefor. Any repeated failure by
Palatin to supply the full amount of any Product Units  ordered by  Mallinckrodt
in  accordance  with the  provisions  hereof as and when such Products are to be
delivered  in  accordance  with any  accepted  purchase  order shall be deemed a
material breach for purposes hereof.

                  (r) Upon the written  request of  Mallinckrodt,  Palatin shall
permit an independent public accountant  selected by Mallinckrodt and acceptable
to Palatin,  which acceptance shall not be unreasonably  withheld or delayed, to
have access  during normal  business  hours to such records of Palatin as may be
reasonably necessary to verify (i) the accuracy of any changes in Transfer Price
made by Palatin  pursuant to Section  1.46 in respect of any  calendar  year (or
portion  thereof)  ending not more than twelve (12) months  prior to the date of
such request and (ii) the accuracy of any billings (and all credits, refunds and
similar  adjustments  thereto)  by Palatin to  Mallinckrodt  pursuant to Section
2.3(f) for the payment by  Mallinckrodt  of its  portion of Product  Direct Cost
applicable to any purchase order for Product Units made and accepted  hereunder.
Subject  to  other  relevant   provisions  of  this  subsection  (r),  all  such
verifications shall be conducted at Mallinckrodt's  expense, not more than twice
in each calendar year and no quarterly  period may be audited more than once. In
the event such  Mallinckrodt  representative  concludes  (i) that changes in the
Transfer Price were not made in accordance with the requirements of Section 1.46
or (ii) that the  amount of Product  Direct  Cost (and all  credits,  refunds or
similar adjustments  thereto) owed by or accruing to the benefit of Mallinckrodt
were not correctly stated and therefore, if either or both of clause (i) or (ii)
of  this  sentence  is  true  and in  such  representative's  determination  the
aggregate  amount of the Transfer Price charged to  Mallinckrodt  by Palatin for
Product Units during the audited  period is greater than the aggregate  Transfer
Price that should have been charged, then, at the option of Mallinckrodt, either
(x)  Palatin  will  refund  the  applicable   amount  to   Mallinckrodt  or  (y)
Mallinckrodt  may  offset  any  amount  due  against  amounts  otherwise  due by
Mallinckrodt to Palatin hereunder pursuant to Section 2.3(f),  Section 2.3(g) or
Section 5.8(a),  in any case such amount to include  interest at the annual rate
of eight percent (8%) on any amounts due Mallinckrodt, measured from the date on
which such payment  should have been made.  In the event that, if either or both
of  clause  (i) or (ii) of the  immediately  preceding  sentence  is true,  such
Mallinckrodt  representative concludes that the amount of the aggregate Transfer
Price  charged to  Mallinckrodt  by Palatin for Product Units during the audited
period is less than the aggregate  Transfer Price that should have been charged,
then  Mallinckrodt  will pay the  additional  amount to  Palatin,  plus  accrued
interest  at the annual  rate of eight  percent  (8%) on any amounts due Palatin
measured from the date on which such payment  should have been made. Any amounts
due pursuant to this  subsection  (r) shall be paid (unless  amounts are owed to
Mallinckrodt  and it  notifies  Palatin  of its  decision  to be  paid by way of
offset) by the party owing such  payment  within  fifteen  (15) days of the date
Mallinckrodt delivers to Palatin such representative's written report concerning
any Transfer Price audit period,  unless (in the event any such report reveals a
Transfer Price overcharge by Palatin) Palatin shall have a good faith dispute as
to the conclusions set forth in such written report, in which case Palatin shall
provide  written notice to  Mallinckrodt  within such fifteen (15) day period of
the nature of its  disagreement  with such  written  report and, if such written
notice has been given,  Palatin may withhold  payment of the disputed portion of
any such amount due and Mallinckrodt shall not be entitled to exercise any right
of offset with respect to any disputed  amount.  If Palatin has provided written
notice to Mallinckrodt that if disputes any of  Mallinckrodt's  representative's
conclusions,  the  parties  shall  thereafter,  for a period of sixty (60) days,
attempt in good faith to resolve  such  dispute  and if they are unable to do so
then the matter will be submitted  for  resolution  in  accordance  with Section
10.6.  The  fees  charged  by  Mallinckrodt's  representative  shall  be paid by
Mallinckrodt  unless the audit discloses that any aggregate Transfer Prices paid
by Palatin for the audited  period were  greater by more than five  percent (5%)
than the amount that should have been charged for the audited  period,  in which
case  Palatin  shall  pay the  reasonable  fees  and  expenses  charged  by such
representative. Mallinckrodt agrees that all information subject to review under
this subsection (r) is confidential and that it shall cause its  representatives
to retain all such information in confidence in accordance with the requirements
of Article 7 below.

                                    Article 3

                               PRODUCT DEVELOPMENT

         3.1      Conduct of the Development Program and Development Generally.

                  (a) Palatin will be  responsible  for performing all remaining
tasks  associated  with the  development of LeuTech  Products for diagnosing and
imaging  equivocal   appendicitis  and  osteomyelitis  in  connection  with  the
Development  Program,  including  without  limitation  the design and conduct of
clinical  trials  and the  preparation  and  filing of all  required  regulatory
submissions.   It   is   understood   that   Mallinckrodt's   entire   financial
responsibility  with  respect  to  the  development  activities  comprising  the
Development  Program are the Development  Payments to be made by Mallinckrodt to
Palatin in accordance  with Section  5.7(b).  In addition to its  performance of
certain tasks in conjunction  with the  Development  Program,  Palatin will also
perform all remaining  tasks  associated  with the  development  of such LeuTech
Products as commercial  products fully available for marketing and sale in every
portion of the Territory, including without limitation the design and conduct of
clinical  trials  and the  preparation  and  filing of all  required  regulatory
submissions,  such development  activities to be conducted subject to the review
and  approval  of the  Joint  Steering  Committee  and at the joint  expense  of
Mallinckrodt  and Palatin,  as the Joint Steering  Committee shall determine (in
Mallinckrodt's  case and for the  avoidance  of doubt,  any such  expense  to be
additional to the  Development  Payments to be made in  accordance  with Section
5.7(b)). When available and subject to the Joint Steering Committee, Palatin may
use the resources of  Mallinckrodt  or its Affiliates to conduct the development
activities described in the preceding sentence or, subject to the concurrence of
the Joint  Steering  Committee,  Palatin may  utilize  the  services of contract
research organizations for development  activities.  In addition, the nature and
scope of all future development activities relative to LeuTech Products that may
be developed outside the Development  Program will be determined by Mallinckrodt
and Palatin and any such development activities will be conducted subject to the
review and approval of the Joint Steering  Committee and at the joint expense of
Mallinckrodt and Palatin, as the Joint Steering Committee shall determine.

                  (b) Notwithstanding the responsibility of Palatin with respect
to the Development  Program as described in the first sentence of subsection (a)
set forth  immediately  above, the development of LeuTech Products  generally by
Palatin  during the term hereof  shall be subject to review and  approval by the
Joint Steering  Committee  established  hereunder.  The Joint Steering Committee
will  work  on a  regular  basis  with  individuals  designated  by  Palatin  to
coordinate the Development  Program and any future  development of other LeuTech
Products. In the course of development of LeuTech Products, Palatin will provide
Mallinckrodt's   representatives   on  the  Joint  Steering  Committee  (or  any
individuals  whom such  representatives  shall  designate) with reasonable prior
notice  of  all  meetings  or  conferences  between  Palatin's   representatives
(including  any  contract  research   organizations,   contract   manufacturers,
consultants and other  subcontractors)  and any regulatory  authorities that are
concerned  with the securing of approval for the  marketing  and sale of LeuTech
Products as commercial  products and will give  Mallinckrodt the right to have a
representative attend all such meetings and conferences.

                  (c) At the quarterly meeting of the Joint Steering  Committee,
during any  Development  Phase  with  respect  to any  portion of the  Territory
(including  with respect to the  Development  Program),  Palatin  shall  provide
Mallinckrodt  with reasonably  detailed  reports which shall describe  Palatin's
progress with respect to its development efforts under this Agreement (including
a comparison of development  efforts and progress with the  requirements  of any
Annual  Development  Plan then in  effect),  detail  any  Adverse  Events to the
LeuTech  Products under  development and shall provide the available  results of
all studies and trials  conducted  by or under the  supervision  of Palatin with
respect to LeuTech Products.  In addition,  at such quarterly  meetings and with
respect to the Development  Program,  Palatin shall provide  Mallinckrodt with a
reasonably  detailed report which shall describe Palatin's progress in achieving
its  Development  Criteria set forth in Section 3.2(a) below and the Development
Costs incurred by Palatin during the preceding calendar quarter.

                  (d) Each party agrees to make its  employees  and those of its
subcontractors and consultants  reasonably  available at their respective places
of  employment  to consult  with the other  party on issues  arising  during the
Development  Phase with respect to the  development  of any LeuTech  Product and
with respect to any portion of the  Territory,  in  connection  with any request
from any regulatory  agency,  including all such requests related to regulatory,
scientific, technical, clinical testing and marketing issues.

                  (e)  Representatives  of  Mallinckrodt  may,  at any  time  as
Mallinckrodt may reasonably request,  with the prior approval of Palatin,  which
approval shall not be unreasonably  withheld or delayed,  visit the sites of any
clinical trials or other experiments being conducted by Palatin or by any of its
contract  research   organizations,   consultants  or  other  subcontractors  in
connection  with the  Development  Program or any future  development of LeuTech
Products.   Palatin  shall  cause  appropriate   individuals   involved  in  the
Development  Program  or  any  future  development  of  LeuTech  Products  to be
reasonably available for consultation with Mallinckrodt.

                  (f) The  Development  Program  or any  future  development  of
LeuTech Products shall be conducted under and pursuant to an annual  development
plan (the "Annual Development Plan") which shall reasonably describe the work to
be  conducted  by or under  the  supervision  of  Palatin  with  respect  to the
development of LeuTech  Products.  The Annual  Development  Plan shall contain a
budget  including,  with respect to the  Development  Program,  estimates of the
aggregate Development Costs to be incurred during the applicable year. The first
Annual  Development  Plan shall be presented  at the first  meeting of the Joint
Steering Committee.  Thereafter,  the Annual Development Plan for any given year
will be prepared by Palatin and  presented  to the Joint  Steering  Committee no
later than sixty (60) days prior to the  beginning  of each  calendar  or fiscal
year. Any Annual Development Plan and any changes to any Annual Development Plan
shall be subject to approval by the Joint Steering  Committee in accordance with
procedures set forth herein and, to the extent any such Annual  Development Plan
concerns the Development Program,  shall be subject to the limitations set forth
in Section 5.7(d) hereof.

         3.2      Development Criteria for the Development Program.

                  (a)  In  consideration  of  certain  payments  to be  made  by
Mallinckrodt to Palatin in accordance  generally with the provisions of Sections
5.7 herein below,  Palatin  agrees to employ its best efforts to carry out, in a
complete,  competent and timely  fashion,  its  obligations  to develop  LeuTech
Products in connection  with the Development  Program.  To ensure that Palatin's
development  obligations  hereunder with respect to the Development  Program are
fulfilled,  Palatin shall be subject to the following Development Criteria, each
expressed as a milestone with an associated time requirement:

                                             Milestone        Due  Date

(1)      [INFORMATION  OMITTED AND FILED  SEPARATELY  WITH THE COMMISSION  UNDER
         RULE 24b-2]

(2)      [INFORMATION  OMITTED AND FILED  SEPARATELY  WITH THE COMMISSION  UNDER
         RULE 24b-2]

(3)      [INFORMATION  OMITTED AND FILED  SEPARATELY  WITH THE COMMISSION  UNDER
         RULE 24b-2]

If and as circumstances  warrant, the Development Criteria set forth immediately
above may be amended, but only with the unanimous approval of the Joint Steering
Committee;  provided  that,  if Palatin is unable to achieve  one or more of the
Development  Criteria in a timely fashion due to circumstances  beyond Palatin's
reasonable  control,   Mallinckrodt's  representatives  to  the  Joint  Steering
Committee will not unreasonably  withhold  consent to a reasonable  extension of
time which would allow achievement of the particular milestone(s) in question.

                  (b) Subject only to the last  sentence of  subsection  (a) set
forth  immediately  above,  if Palatin  fails to achieve any of the  Development
Criteria  within the time  specified,  at  Mallinckrodt's  option and  effective
immediately  upon notice by Mallinckrodt to Palatin,  Mallinckrodt may terminate
this Agreement in its entirety; provided that, Mallinckrodt shall be responsible
to pay to Palatin all amounts then unpaid and due Palatin in accordance herewith
through  the  effective  date of such  termination.  In the  event  of any  such
termination  by   Mallinckrodt,   the  license  rights  granted  by  Palatin  to
Mallinckrodt  pursuant  to Section  2.1 above shall  immediately  terminate  and
Mallinckrodt  shall  thereafter  have no further rights to Palatin  Intellectual
Property Rights,  LeuTech or LeuTech Products.  In addition, in the event of any
such termination,  Mallinckrodt will have no further responsibilities to perform
any obligation provided for hereunder (except for any such obligations which, by
their express terms and purposes,  are intended to survive any such termination)
and, specifically and without limitation,  Mallinckrodt shall have no obligation
to pay any portion of any  Development  Costs  relating to any period of time or
any activity occurring after the effective date of such termination.

                                    Article 4

                         MANAGEMENT OF THE COLLABORATION

         4.1      Joint Steering Committee.

                  (a)  A  steering  committee   comprised  of  three  (3)  named
representatives  of Mallinckrodt and three (3) named  representatives of Palatin
(the "Joint  Steering  Committee")  shall be appointed and shall meet as needed,
but not less than once each calendar  quarter.  Such  meetings  shall be at such
times and places and in such form as the members of the Joint Steering Committee
shall agree.  At such  meetings,  the Joint  Steering  Committee will review and
approve the  Development  Program,  any Annual  Development  Plan and any Annual
Marketing  Plan.  A party may change one or more of its  representatives  to the
Joint Steering  Committee at any time.  Members of the Joint Steering  Committee
may be  represented  at any  meeting  by  another  member of the Joint  Steering
Committee,  or by an authorized designee.  Any approval,  determination or other
action  agreed to by a two-thirds  majority of the Joint  Steering  Committee or
their  authorized  designees  present at the relevant Joint  Steering  Committee
meeting  shall be the  approval,  determination  or other  action  of the  Joint
Steering  Committee,  provided  at least two  representatives  of each party are
present at such meeting.

                  (b) The Joint Steering Committee shall initially be chaired by
a Palatin  representative  to the Committee.  The Palatin  representative  shall
serve as the chair of the Joint  Steering  Committee  through and including June
30, 2001. On July 1, 2001, a Mallinckrodt  representative shall become the chair
of the Joint Steering Committee through and including June 30, 2003. Thereafter,
the chair of the Joint Steering  Committee shall rotate between a representative
of Palatin and a representative of Mallinckrodt, with each chair serving for two
(2) years in succession.

                  (c) The Joint Steering  Committee shall keep accurate  minutes
of its  deliberations  which  record  all  proposed  decisions  and all  actions
recommended  or taken.  The chair shall be  responsible  for the  preparation of
draft minutes.  Draft minutes shall be sent to all members of the Joint Steering
Committee  within ten (10) working days after each  meeting.  The draft  minutes
shall be edited by the chair  based on  comments  from the  members of the Joint
Steering  Committee  and shall be  distributed  to the members prior to the next
meeting of the Joint  Steering  Committee for review and final  approval at such
meeting.  All  records  of the Joint  Steering  Committee  shall at all times be
available to both parties.

                  (d) The Joint  Steering  Committee  may delegate its authority
and oversight  responsibility  to any one or more  subcommittees,  each of which
shall  have an equal  number of  members  from  Mallinckrodt  and  Palatin.  The
membership of such  subcommittees  will include at least one member of the Joint
Steering  Committee  appointed by each of Palatin and Mallinckrodt but otherwise
the  parties  are  free to  appoint  such  other  individuals  to  serve  on any
subcommittees  as they desire.  Any  decision on any matter by any  subcommittee
must be  reported  to and  approved  by the  Joint  Steering  Committee  and any
disputes or disagreements  among the members of any subcommittee  that cannot be
resolved by such members shall be referred to the Joint  Steering  Committee for
resolution.

                  (e) All disagreements  within the Joint Steering  Committee as
to matters for which the Joint  Steering  Committee  has the final  authority to
make a decision shall be resolved in accordance with the following procedures:

                           (i)  the   representatives   to  the  Joint  Steering
         Committee  will  negotiate  in good faith for a period of not more than
         sixty (60) days to attempt to resolve the dispute,

                           (ii) if the  representatives  to the  Joint  Steering
         Committee are unable to resolve the dispute  within such sixty (60) day
         period,   then  such   representatives   shall  promptly   present  the
         disagreement  to  the  Chief  Executive  Officer  of  Palatin  and  the
         President  of   Mallinckrodt's   Imaging  Group  or  their   respective
         designees,

                           (iii)  such  executives  shall  meet or  discuss in a
         telephone or video  conference  each party's view and explain the basis
         for such disagreement, and

                           (iv) if such executives  cannot promptly resolve such
         disagreement  within sixty (60) days after such issue has been referred
         to them, then the matter shall be referred to arbitration in accordance
         with the procedures set forth in Section 10.6 below.

                                    Article 5

                   PAYMENTS, PREFERRED STOCK AND COST SHARING

         5.1 License Payments. In consideration of the license rights granted by
Palatin to Mallinckrodt and its Affiliates in accordance with Section 2.1 herein
above,  Mallinckrodt  hereby  agrees to make the following  License  Payments to
Palatin:

         (a)  Mallinckrodt  will pay  [INFORMATION  OMITTED AND FILED SEPARATELY
WITH THE COMMISSION UNDER RULE 24b-2] on and as of the date of execution of this
Agreement,

         (b)  Mallinckrodt  will pay  [INFORMATION  OMITTED AND FILED SEPARATELY
WITH THE  COMMISSION  UNDER  RULE  24b-2.]  within  fifteen  (15) days after the
approval by the FDA of a BLA for any LeuTech  Product  useful for the imaging of
appendicitis, and

         (c)  Mallinckrodt  will pay  [INFORMATION  OMITTED AND FILED SEPARATELY
WITH THE COMMISSION UNDER RULE 24b-2] within thirty (30) days after [INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]

Remittance  of each of the  License  Payments  will be made by wire  transfer of
immediately available United States funds to an account designated by Palatin to
Mallinckrodt  at least  three (3)  business  days prior to the date on which any
such payment is due.

         5.2      Purchase of Palatin Preferred Stock.

                  (a) In  consideration  for the  performance by Mallinckrodt of
its  obligations  hereunder and the payments to be made by  Mallinckrodt  as set
forth immediately below in Section 5.2(b),  Palatin agrees that it will issue to
Mallinckrodt,  on and as of the date of execution hereof, seven hundred thousand
(700,000)  shares of the  Preferred  Stock,  which shares of stock will be, when
issued,  fully  paid  and  nonassessable  (except  for any  amounts  payable  in
accordance with Section 5.2(b) which are not due and payable at the time of such
issuance) and not subject to any  antidilution  rights,  preemptive  rights,  or
rights of first  refusal  of any kind,  except  as set  forth and  described  on
Exhibit G. The shares of Preferred  Stock will have the rights,  preferences and
limitations  set forth on the  certificate  of  designation  attached  hereto as
Exhibit E. Mallinckrodt  represents and warrants that at the time it was offered
the  Preferred  Stock to be acquired by it  hereunder,  it was,  and at the date
hereof it is, an  "accredited  investor"  as  defined in Rule  501(a)  under the
Securities Act of 1933, as amended ("Securities Act").  Mallinckrodt understands
that the shares of  Preferred  Stock  acquired  by it  hereunder  have no public
market  and are not  registered  and  may  not be  sold or  transferred  without
registration or unless an appropriate  exemption from  registration is available
under  applicable  law;  therefore,  Mallinckrodt  understands  that  it  may be
required to retain these shares of Preferred Stock and bear the economic risk of
such  investment  indefinitely.  Mallinckrodt  represents  and warrants  that it
possesses  such  knowledge,  sophistication  and  experience  in  financial  and
business matters as to be able to evaluate the merits and risks of an investment
in the  Preferred  Stock and that it has the  economic  ability to bear the high
degree of risk of such a speculative investment. Mallinckrodt further represents
and warrants  that it is acquiring the shares of Preferred  Stock  hereunder for
its own account and for investment  purposes only, and not with a view to resale
or  distribution  of any kind,  except for such resale or distribution as may be
consistent  with  the  requirements  of  applicable  law.  Mallinckrodt  further
acknowledges that it has been afforded (i) the opportunity to ask such questions
as it has deemed necessary of, and to receive answers from,  representatives  of
Palatin  concerning  the terms and  conditions  of the offering of the Preferred
Stock, and the merits and risks of investing in the Preferred Stock, (ii) access
to  information  about Palatin and  Palatin's  financial  condition,  results of
operations, business, properties,  management and prospects sufficient to enable
it to  evaluate  its  investment,  and (iii)  the  opportunity  to  obtain  such
additional   information   which  Palatin   possesses  or  can  acquire  without
unreasonable  effort or expense that is necessary to make an informed investment
decision with respect to such investment.

                  (b) In  consideration  for the  issuance  by  Palatin of seven
hundred  thousand  (700,000)  shares  of the  Preferred  Stock to  Mallinckrodt,
Mallinckrodt  will pay to Palatin  Thirteen Million Dollars  ($13,000,000).  The
amount to be repaid by Palatin to Mallinckrodt in accordance with Section 5.8(b)
below may be offset against the foregoing purchase price but will not reduce the
deemed actual  purchase price for the Preferred  Stock.  The amount set forth in
the immediately preceding sentence shall be paid on the date of execution hereof
by wire  transfer of  immediately  available  United  States funds to an account
designated by Palatin to Mallinckrodt.

                  (c) It is  understood  that, at any time and from time to time
on or after the fifth (5th)  anniversary  hereof or, if sooner, at any time upon
the  occurrence  of a Change of Control with  respect to Palatin,  and in either
such case effective upon written notice by Mallinckrodt to Palatin, Mallinckrodt
may convert some or all of the shares of  Preferred  Stock  purchased  hereunder
into  fully   paid  and   nonassessable   shares  of  the  Common   Stock  on  a
one-share-for-one-share  basis,  without payment of funds or other consideration
of any kind. Any shares so converted  (i.e.,  Common Shares) may be unregistered
and,  therefore,  subject to such  restrictions  on  transfer as may exist under
applicable  law and the rules and  regulations of the SEC and of any exchange or
association  on which such  securities  may be listed or  traded.  If and to the
extent,  subsequent to conversion of any of the shares of Preferred  Stock being
purchased hereunder, any of the Common Shares owned and held by Mallinckrodt are
unregistered, Mallinckrodt may have to continue to bear the economic risk of its
investment  hereunder for an indefinite period of time, unless and to the extent
the  Common  Shares  are  registered,   unless  an  appropriate  exemption  from
registration is available under applicable law, or until Mallinckrodt  exercises
its rights  under  Sections  5.3 and/or 5.4  below.  It is  understood  that the
700,000 shares of Preferred Stock being acquired by Mallinckrodt  hereunder,  if
it was fully  converted  on and as of the date  hereof into shares of the Common
Stock,  represents an eight percent (8%) interest in the voting capital stock of
Palatin.

                  (d) For so long as  Mallinckrodt  has at  least a two  percent
(2%) ownership  interest of the Common Stock of Palatin  (whether through direct
ownership  of  Common  Stock  or  ownership  of  securities  exercisable  for or
convertible  into  Common  Stock),  Palatin  covenants  that it will  furnish to
Mallinckrodt,  promptly  upon filing,  copies as filed with the SEC or any other
similar regulatory authority of (A) Palatin's annual reports of Form 10-KSB, (B)
Palatin's  quarterly  reports on Form 10-QSB,  (C) Palatin's  current reports on
Form 8-K and (D) all other SEC or other similar  reports  filed  pursuant to the
requirements of applicable law in any jurisdiction.

                  (e) From and  after  the date  hereof  and for so long as this
Agreement  is in effect with respect to any portion of the  Territory,  if, as a
result of (i) the  issuance  and sale by Palatin  of any shares of Common  Stock
(including  the  issuance  of  Common  Stock  upon  exercise  or  conversion  of
securities  exercisable  for or  convertible  into  Common  Stock)  or (ii)  the
issuance by Palatin of any Common Stock or other  securities in connection  with
any stock split,  stock  dividend or other  recapitalization  (any such issuance
described in clauses (i) or (ii) of this sentence  being referred to herein as a
"Dilutive  Event"),  a decrease occurs in the percentage of outstanding  Palatin
Common Stock owned by  Mallinckrodt  (assuming full  conversion of the Preferred
Stock) (the "Mallinckrodt  Ownership"),  then Mallinckrodt shall have the right,
exercisable  as provided  below,  (i) if, at the time of the  occurrence  of the
Dilutive  Event,  the Preferred Stock is not then  convertible,  to receive that
number of shares of Preferred  Stock which,  when converted along with all other
shares of  Preferred  Stock and  combined  with all other shares of Common Stock
then owned by  Mallinckrodt,  would be  required to  preserve  the  Mallinckrodt
Ownership at the same percentage immediately before and after the Dilutive Event
or (ii) if, at the time of the occurrence of the Dilutive  Event,  the Preferred
Stock is then  convertible,  to receive that number of Common Shares which, when
combined with all other shares of Common Stock owned by Mallinckrodt  (including
Common Stock underlying any Preferred Stock then owned by  Mallinckrodt),  would
be  required to  preserve  the  Mallinckrodt  Ownership  at the same  percentage
immediately  before and after the Dilutive  Event.  The foregoing right shall be
exercisable  by  payment  of the  purchase  price  and  delivery  of the  notice
described  below.  The  purchase  price per share of  Preferred  Stock or Common
Stock,  as the case may be,  to be paid by  Mallinckrodt  upon  exercise  of the
foregoing right shall be equal to the  consideration  per share (if any) paid or
to be paid by the person to whom  securities are being issued in connection with
the Dilutive Event. If the  consideration  paid by any such third party for such
securities is other than cash, such  consideration  shall be presumed to be cash
equal to the  fair  market  value  of such  consideration  as  determined  by an
independent  party  acceptable  to both  Mallinckrodt  and Palatin.  The cost of
making such  determination,  if any,  shall be borne by Palatin.  Palatin  shall
provide  written notice to Mallinckrodt of a Dilutive Event within five (5) days
after  the  issuance  of  any  securities  giving  rise  to  the  dilution,  and
Mallinckrodt  shall make its  election  to  purchase  all or any  portion of the
securities which it is entitled to purchase or receive in accordance herewith to
preserve  its  percentage  interest  in the Common  Stock by  written  notice to
Palatin no more than thirty (30) days following its receipt of Palatin's written
notice of a  Dilutive  Event.  Upon  failure  timely to give  written  notice to
Palatin of such election  Mallinckrodt  shall be deemed to have waived its right
to purchase or receive any  additional  securities of Palatin on such  occasion.
Mallinckrodt  shall pay the  purchase  price (if any) for the  securities  it so
elects to purchase or receive  within thirty (30) days  subsequent to its notice
of election to purchase or receive  additional  securities.  It is understood by
the parties hereto that any failure by  Mallinckrodt on any occasion to purchase
or receive  all or some of the  securities  which it is  entitled to purchase or
receive  pursuant to this subsection (e) as a consequence of the occurrence of a
single  Dilutive  Event  shall  not  affect  the right of  Mallinckrodt,  on the
subsequent  occurrence of any different  Dilutive  Event, to purchase or receive
all or any portion of the  securities  which it is then  entitled to purchase or
receive as a consequence of the operation of this subsection (e).

                  (f) In determining the amount of consideration paid to Palatin
for the issuance of Common Stock upon the exercise or conversion of  exercisable
or convertible securities,  all amounts paid to Palatin in consideration for the
issuance of the convertible or exercisable  securities shall be included as part
of the consideration paid.

                  (g) The  provisions of the foregoing  subsection (e) shall not
apply with respect to the issuance of Common Stock in  connection  with, or upon
the  exercise  or  conversion  of  securities  issued in  connection  with,  the
following transactions:

                           (i)  exercise  of rights or options  granted or which
         may be granted  under a stock  option or other plan for the  benefit of
         employees, directors and/or consultants;

                           (ii)   exercise   of  rights,   warrants  or  options
         outstanding on the date hereof (as described on Exhibit G;

                           (iii) after such time as  Mallinckrodt  first becomes
         eligible  to convert  any of the  Preferred  Stock in  accordance  with
         Section  5.2(c)  above,  upon the  issuance  and sale of any  shares of
         Common  Stock,  including the issuance of Common Stock upon exercise of
         convertible  or  exercisable  securities  sold  in  a  firm  commitment
         underwritten public offering,  including,  without  limitation,  shares
         sold upon the  exercise  of any  overallotment  option  granted  to the
         underwriters in connection with such offering;

                           (iv)   conversion   of  any   shares   of   Palatin's
         outstanding  preferred  stock  of any  other  series,  as  well  as any
         additional shares of Preferred Stock issued pursuant to Section 5.2(e);
         and

                           (v) issuance of Common Stock pursuant to antidilution
         provisions contained in existing employment agreements (as described on
         Exhibit G), and the issuance of Common Stock  pursuant to  antidilution
         provisions described on the certificate of designations with respect to
         the Series A Preferred Stock (also as described on Exhibit G).

                  (h) The purchase by Mallinckrodt of the Preferred Stock on and
as of the date hereof and any additional securities of Palatin that Mallinckrodt
may be  entitled to acquire in  accordance  with the  provisions  of the Section
5.2(e)  may  be  accomplished  in  accordance  with  the  terms  of  a  separate
subscription  agreement  or similar  agreement  if Palatin so desires;  provided
that,  such agreement  shall in all respects be consistent with the terms hereof
and in the event of any  conflict  or  inconsistency  between  the terms of such
agreement and the terms of this Agreement, the latter shall prevail.

         5.3      Piggyback Registration Rights.

                  (a) In the  event  that,  at any  time  during a five (5) year
period  following  the date on which  Mallinckrodt  first  becomes  eligible  to
convert any of the  Preferred  Stock in  accordance  with Section  5.2(c) above,
Palatin proposes to register any of its Common Stock under the Securities Act in
connection  with the public  offering of such  securities  utilizing a form that
would  additionally  permit the registration of all or any portion of the Common
Shares then held by Mallinckrodt, Palatin shall notify Mallinckrodt of such fact
at least thirty (30) days prior to the date established for such public offering
and shall give Mallinckrodt, subject to the limitations and restrictions of this
Section 5.3, the right to have included in any such  registered  public offering
all or any portion of the Common  Shares as  Mallinckrodt  shall notify  Palatin
within  twenty  (20) days after  Mallinckrodt  is given  notice of any  intended
registered  public offering by Palatin.  If  Mallinckrodt  shall not provide any
such notice to Palatin within said twenty (20) day period, Mallinckrodt shall be
conclusively presumed to have waived its right to have all or any portion of the
Common Shares included in any such Palatin registered public offering,  but such
waiver  shall  not  affect  Mallinckrodt's  rights  at  any  later  date  and in
connection with any subsequent public offering by Palatin to have some or all of
its Common Shares  registered in accordance  with the provisions and limitations
of this Section 5.3.  Palatin shall use reasonable  commercial  efforts to cause
the managing  underwriter or  underwriters,  if any, of a proposed  underwritten
offering to permit Mallinckrodt, if Mallinckrodt has validly requested that some
or all of its Common Shares be included in the registration for such offering in
accordance with the provisions of this subsection, to include such Common Shares
in such offering on the same terms and  conditions as any similar  securities of
Palatin included therein.  Nothing herein shall prevent Palatin from at any time
abandoning  or  delaying  any such  registration  or prevent  Mallinckrodt  from
exercising its registration rights under this Section 5.3(a) any number of times
prior to the  expiration  of the period  during which such rights are  available
hereunder.   Notwithstanding   anything  to  the  contrary   contained   herein,
Mallinckrodt  shall  not have the right to  include  all or any  portion  of the
Common  Shares in a  registered  public  offering by  Palatin,  pursuant to this
Section  5.3,  if all of the  Common  Shares  then held by  Mallinckrodt  become
eligible for sale in any three (3) month  period  pursuant to Rule 144 under the
Securities Act or any successor Rule.

                  (b) Notwithstanding the provisions of subsection (a) set forth
immediately  above,  Mallinckrodt shall not have the right to include all or any
portion of the Common Shares in a registered  public  offering by Palatin if, in
the reasonable judgment of the underwriter(s) or managing underwriter(s) for any
such  registered  public  offering,  the  addition  of some or all of the Common
Shares that Mallinckrodt wishes to have registered in connection therewith might
reasonably materially adversely affect the sale of all of the shares included in
such offering under the terms of the  registered  offering and during the period
of  effectiveness of the  registration  statement with respect  thereto.  In the
event that the  underwriter(s)  or managing  underwriter(s)  with respect to any
such public offering determines,  in its reasonable judgment,  that some but not
all of the Common Shares that Mallinckrodt  requested be included in any Palatin
registered  public offering may be included in such offering,  then Palatin will
notify  Mallinckrodt  as to the  portion  of the  Common  Shares  that may be so
included  and,  unless  Mallinckrodt  notifies  Palatin to the  contrary  within
fifteen (15) days of being so notified,  that  portion,  and only that  portion,
will be included in the registration  relative to any such public  offering.  If
Mallinckrodt  does timely  notify  Palatin to the  contrary,  none of its Common
Shares shall be included in such registration.

                  (c) In the event that Mallinckrodt  exercises its rights under
this  Section 5.3 and, in  connection  with any  registered  public  offering by
Palatin,  some  portion of the Common  Shares is  included  in the  registration
statement with respect  thereto,  Mallinckrodt  shall furnish  Palatin with such
information  concerning the Common Shares to be registered or otherwise incident
to the registration as Palatin shall reasonably request.  Mallinckrodt's  rights
pursuant to this  Section 5.3 shall be subject to its  compliance  with any such
Palatin request.

                  (d) Palatin shall bear all expenses of any  registered  public
offering  made pursuant to Section 5.3 in which all or any portion of the Common
Shares is included;  provided that,  Mallinckrodt  shall be responsible  for any
cost or expense (i) of its employees, agents, advisors or representatives to the
extent utilized in connection with any such registered public offering, (ii) for
the  preparation  of any  financial  statements,  documents  or the  assembly or
preparation  of any  other  information  concerning  Mallinckrodt  requested  by
Palatin  pursuant  to  subsection  (c) set  forth  immediately  above  and (iii)
underwriters' discounts and commissions applicable to the Common Shares included
in the offering.

                  (e)  Palatin  shall have an  obligation,  with  respect to any
registered  public  offering  made  pursuant  to Section 5.3 in which all or any
portion of the Common Shares is included,  to use reasonable  commercial efforts
to keep any registration statement effective,  subject to Section 5.5(b), for at
least thirty (30) days.

         5.4      Demand Registration Rights.

                  (a) Mallinckrodt  will have the right, on no more than two (2)
occasions,  and at any  time  within  five  (5)  years  after  the date on which
Mallinckrodt  first becomes  eligible to convert any of the  Preferred  Stock in
accordance  with  Section  5.2(c)  above,  to demand by notice to  Palatin  that
Palatin  register  all or any  portion  of  the  Common  Shares  then  owned  by
Mallinckrodt,  which  notice  must  specify  the  number of Common  Shares to be
registered and the intended method of disposition of those shares.  Upon receipt
of any such notice from  Mallinckrodt,  Palatin will take all actions reasonably
necessary  and  appropriate  to insure  that,  subject to the  restrictions  and
limitations  set forth in this Section 5.4 and otherwise  subject to any delays,
requirements or  restrictions  that may be imposed by the SEC, the NASD or other
regulatory  authority,  within  forty-five  (45)  days  of any  such  demand  by
Mallinckrodt,  a  registration  statement  shall  be  filed  on Form S-3 (or any
successor similar form if the use of such form is available) with respect to the
Common  Shares  for which  Mallinckrodt  demanded  registration,  subject to any
limitations set forth in Section 5.5 below. Palatin will use its best efforts to
cause such  registration  statement to become  effective as soon as possible and
subject to Section 5.5(b) will use its best commercial  efforts to keep any such
registration  statement effective for such period of time as may be necessary to
sell all of the Common Shares to be sold thereunder. Notwithstanding anything to
the contrary  contained herein,  Mallinckrodt shall not have the right to demand
registration  of all or any  portion  of the  Common  Shares,  pursuant  to this
Section  5.4,  if all of the  Common  Shares  then held by  Mallinckrodt  become
eligible for sale in any three (3) month  period  pursuant to Rule 144 under the
Securities Act or any successor Rule.

                  (b) In the event that Mallinckrodt  exercises its rights under
this Section  5.4,  Mallinckrodt  shall  furnish  Palatin with such  information
concerning  the Common  Shares to be  registered  or  otherwise  incident to the
registration as Palatin shall reasonably request. Mallinckrodt's rights pursuant
to Section 5.4 shall be subject to its compliance with any such Palatin request.

                  (c)  Mallinckrodt  shall bear all  expenses of any  registered
public  offering  made  pursuant to Section  5.4(a) above.  If  Mallinckrodt  so
elects, the offering of Common Shares pursuant to any demand  registration shall
be in the form of an underwritten offering. If any demand registration is in the
form of an  underwritten  offering,  Mallinckrodt  will  select  and  obtain the
managing underwriter or underwriters that will administer the offering, provided
that such managing  underwriter or underwriters must be reasonably  satisfactory
to Palatin.

                  (d)  Notwithstanding any other provisions of this Section 5.4,
in the event that,  with  respect to  Palatin's  Common  Stock,  a  registration
statement  has been  effective  at any time  during  a  ninety  (90) day  period
immediately  prior  to  the  giving  of a  demand  notice  for  registration  by
Mallinckrodt  pursuant  to  Section  5.4(a),   Palatin  shall  have  the  right,
exercisable by giving notice to Mallinckrodt  within fifteen (15) days after any
such notice from Mallinckrodt, to delay the filing of any registration statement
by Palatin  pursuant  to this  Section  5.4 for up to ninety (90) days after the
date on which any such  registration  statement  would  otherwise be required to
have been filed in accordance herewith.

                  (e)  Notwithstanding  any other provisions of this Section 5.4
and in addition to the provisions of subsection (d) set forth immediately above,
Palatin may delay the filing of any  registration  demanded  pursuant to Section
5.4(a) above if (i) it is in possession of material non-public information,  the
Chief Executive Officer of Palatin  determines (based on advice of counsel) that
such  delay  is  necessary  in order to avoid a  requirement  to  disclose  such
material  non-public  information  and the Chief  Executive  Officer  of Palatin
determines in good faith that disclosure of such material non-public information
would not be in the best  interests  of  Palatin  and its  shareholders  or (ii)
Palatin or any of its  Affiliates  is engaged  in or  proposes  to engage in any
material  transaction,  including  a purchase  or sale of assets or  securities,
financing  transaction,  merger,  consolidation,   tender  offer  or  any  other
transaction that would require disclosure under any applicable  securities laws,
rules or  regulations,  with  respect  to which the Chief  Executive  Officer of
Palatin in good faith  determines that the filing of the  registration  demanded
pursuant to this  Section  5.4(a) could  reasonably  be expected  materially  to
interfere  with  Palatin's  ability to consummate  such  transaction in a timely
fashion.  The period  during  which any delay  contemplated  by the  immediately
preceding sentence is in effect shall be referred to as a "Suspension Period." A
Suspension  Period  shall  commence  on and  include  the date on which  Palatin
provides written notice to Mallinckrodt of such  determination and Palatin shall
be entitled to postpone the filing of a  registration  statement  in  accordance
with this Section  5.4(e) for a reasonable  period of time not to exceed  ninety
(90)  days  with  respect  to any  particular  demand  by  Mallinckrodt  for the
registration of Common Shares pursuant to Section 5.4(a); provided that, Palatin
shall deliver to Mallinckrodt a statement, signed by the Chief Executive Officer
of Palatin,  of the general reasons for such  postponement or restriction on use
and an estimate of the anticipated delay, which Palatin agrees shall be as short
as possible  given the  circumstances  justifying  any such delay.  Mallinckrodt
agrees to keep the information relating to the delay confidential. Palatin shall
promptly notify  Mallinckrodt of the expiration of a Suspension Period or of its
decision to shorten any Suspension Period.

                  (f) In the event Mallinckrodt  determines,  as a result of any
delay  occasioned  by the  operation  of  either  subsection  (d) or (e) of this
Section 5.4, that it wishes to withdraw its demand for registration it may do so
upon notice to  Palatin.  If, and only if,  such  withdrawal  notice is given by
Mallinckrodt  less  than  ten  (10)  days  prior  to  the  scheduled  end of any
suspension period, the demand shall be with prejudice to its right on any future
occasion  (subject  to  the  limitations  set  forth  herein)  to  again  demand
registration  of all or any  portion of the  Common  Shares in  accordance  with
Section  5.4(a).  Failing such notice  Palatin shall  register the Common Shares
demanded to be registered by Mallinckrodt pursuant to Section 5.4(a).

         5.5      Registration Procedures.

                  (a) In  connection  with any  registration  to be  effected in
accordance with Section 5.3, Palatin will use reasonable  commercial  efforts to
effect such  registration  to permit the sale of the Common Shares being sold in
accordance  with the intended  method or methods of  distribution or disposition
thereof,  and  pursuant  thereto  Palatin  will comply with the  procedures  and
principles set forth in this Section 5.5, as they are applicable.  In connection
with any  registration  to be effected in accordance  with Section 5.4,  Palatin
will use its best efforts to effect such  registration to permit the sale of the
Common  Shares being sold in accordance  with the intended  method or methods of
distribution or disposition  thereof,  and pursuant  thereto Palatin will comply
with the  procedures  and  principles set forth in this Section 5.5, as they are
applicable.

                  (b)  Palatin  will  prepare  and file  with the SEC,  whenever
required to do so by the terms of Sections 5.3 and 5.4, a registration statement
relating to the  registration  on Form S-3 (or any successor or similar form) if
the use of such form is available,  unless  Palatin shall  reasonably  determine
that it is in the best  interest of both  Palatin and  Mallinckrodt  to file the
registration  statement  by  using  a  different  form  or  procedure,  and  use
reasonable  commercial  efforts  (with  respect to a  registration  pursuant  to
Section 5.3) or its best efforts  (with  respect to a  registration  pursuant to
Section 5.4) to cause any such  registration  statement to become  effective and
remain effective for (i) at least thirty (30) days if Mallinckrodt exercises its
piggyback  registration  rights pursuant to Section 5.3, or (ii) for such period
of time as may be necessary to sell all of the Common  Shares being  offered for
sale if Mallinckrodt  demands the  registration of any Common Shares pursuant to
Section 5.4, but  regardless of whether  piggyback or demand  registration,  not
later  than the date that all Common  Shares  then held by  Mallinckrodt  become
eligible for sale in any three (3) month  period  pursuant to Rule 144 under the
Securities  Act  or  any  successor  rule.  With  respect  to  the  exercise  by
Mallinckrodt of any piggyback registration rights pursuant to Section 5.3 or any
demand  registration  pursuant  to Section  5.4 with  respect  to which  Palatin
includes  any shares of Common  Stock,  before  the  filing of any  registration
statement or any prospectus,  or any amendments or supplements thereto,  Palatin
will furnish to Mallinckrodt and the managing  underwriter or  underwriters,  if
any, copies of all such documents proposed to be filed and Mallinckrodt,  within
a period of five (5)  business  days of receipt of such  copies,  shall have the
right to review and comment on such  documents;  provided  that,  Palatin  shall
consider any comments  Mallinckrodt  may have with respect to such documents but
shall not be required to make any changes based on such comments  unless Palatin
believes  any such  changes  would be in the best  interest  of Palatin  and its
shareholders and would be of benefit in the successful  completion of the public
offering.   With  respect  to  the  exercise  by   Mallinckrodt  of  any  demand
registration  rights  pursuant to Section  5.4 hereof and with  respect to which
Palatin is not offering any shares, before filing any registration  statement or
any prospectus,  or any amendments or supplements thereto,  Palatin will furnish
to Mallinckrodt and the managing underwriter or underwriters,  if any, copies of
all  such  documents  proposed  to be  filed,  and  Palatin  will  not  file any
registration  statement or amendment thereto or any prospectus or any supplement
thereto  to which  the  managing  underwriter  or  underwriters,  if any,  shall
reasonably object or to which  Mallinckrodt  shall reasonably object, as long as
such objection is provided by notice to Palatin within twenty (20) business days
after the receipt by the managing underwriter or underwriters or Mallinckrodt of
any documents for review.  For purposes of the immediately  preceding  sentence,
Mallinckrodt  or the managing  underwriter  or  underwriters,  if any,  shall be
deemed to have  reasonably  objected  to such  filing  if any such  registration
statement, amendment, prospectus or supplement, as applicable, as proposed to be
filed  contains  any untrue  statement  of a  material  fact or omits to state a
material fact required to be stated  therein or necessary to make the statements
therein  not  misleading,   which   misstatement  or  omission  is  specifically
identified  to Palatin in writing in  accordance  with the  requirements  of the
immediately preceding sentence.

                  (c) Palatin will prepare and file with the SEC such amendments
and post-effective  amendments to any registration statement as may be necessary
to keep any such registration statement effective for the respective periods set
forth in Sections 5.3 and 5.4 hereof and  reiterated in subsection (b) set forth
immediately  above  and will  cause the  prospectus  to be  supplemented  by any
required supplement thereto,  and as so supplemented to be filed pursuant to SEC
Rule 424(b) (or any  successor  or similar  rule),  and to comply fully with the
applicable provisions of SEC Rule 424(b) (or any successor or similar rule) in a
timely manner.

                  (d) Palatin will notify  Mallinckrodt  promptly in writing (i)
when the prospectus or any supplement thereto or post-effective amendment to any
registration  statement has been filed,  and,  with respect to the  registration
statement  or any  post-effective  amendment  thereto,  when the same has become
effective,  (ii) of any request by the SEC for an amendment of or  supplement to
any registration statement, any preliminary prospectus, or the prospectus or for
additional  information,  (iii)  of  the  issuance  by the  SEC  (or  any  state
securities  commission  or  other  governmental  authority)  of any  stop  order
suspending the effectiveness of any registration  statement or of the suspension
of qualification of the Common Shares for offering or sale in any  jurisdiction,
or the  initiation of any proceeding for such purposes and (iv) of the happening
of any event,  including  the filing of any  information,  documents  or reports
pursuant to the Securities Exchange Act of 1934 that makes any statement made in
any  registration  statement or the prospectus (as then amended or supplemented)
untrue in any material  respect or which requires the making of any additions to
or changes in any  registration  statement or the prospectus (as then amended or
supplemented)  in order to state a material fact required by the  Securities Act
of 1933,  as amended,  or the  regulations  thereunder  to be stated  therein or
necessary  in order to make the  statements  therein not  misleading,  or of the
necessity  to  amend  or  supplement   the   prospectus   (as  then  amended  or
supplemented)  to comply with the  Securities  Act of 1933,  as amended,  or any
other law.

                  (e) Palatin will,  concurrent  with the filing of any document
that is to be incorporated by reference into any  registration  statement or the
prospectus  subsequent  to the  initial  filing of any  registration  statement,
provides a copy of such document to Mallinckrodt, at Mallinckrodt's expense.

                  (f) Palatin will furnish to Mallinckrodt,  without charge, one
copy of every  registration  statement  as first filed with the SEC, and of each
amendment thereto.

                  (g) Palatin will deliver to Mallinckrodt,  without charge,  as
many copies of any preliminary  prospectus and the prospectus and any amendments
or  supplements  thereto as  Mallinckrodt  may reasonably  request,  and Palatin
hereby consents to the use of any preliminary prospectus and the prospectus (and
any  amendments  or  supplements  thereto)  by  Mallinckrodt  and  the  managing
underwriter and each of the underwriters,  if any, in connection with the public
offering  and the sale of any of the Common  Shares  covered by any  preliminary
prospectus and the prospectus (or any amendments or supplements  thereto) in the
manner specified therein.

                  (h)  Palatin  will use  reasonable  commercial  efforts  (with
respect to any registration to be effected pursuant to Section 5.3) and its best
efforts (with  respect to any  registration  to be effected  pursuant to Section
5.4) to cause the Common  Shares  covered by any  registration  statement  to be
registered with or approved by such other governmental  authorities  (including,
without limitation,  any applicable state securities or blue sky commissions) as
may be necessary to enable the seller or sellers thereof or the  underwriter(s),
if any, to consummate the disposition of such Common Shares.

                  (i) Palatin will make available for inspection,  at reasonable
times and intervals,  by a representative  of  Mallinckrodt,  by any underwriter
participating  in any  disposition  pursuant  to the filing of any  registration
statement in accordance herewith,  and by any attorney or accountant retained by
Mallinckrodt  or any of the  underwriters,  all  relevant  financial  and  other
records,  pertinent  corporate  documents  and  properties  of Palatin and cause
Palatin's officers, directors and employees to supply all information reasonably
requested by Mallinckrodt, any underwriter, attorney or accountant in connection
with the filing of any such registration statement prior to its effectiveness.

                  (j)  Palatin  will  cause all  Common  Shares  covered  by any
registration statement to be accepted for listing, subject to official notice of
issuance,  on each  securities  exchange or  quotation  system on which  similar
securities issued by Palatin are then listed.

                  (k) Palatin will enter into such  underwriting  agreements  as
are  reasonably  requested  by any  underwriter(s)  or  managing  underwriter(s)
containing such terms and conditions as are reasonably acceptable to Palatin.

                  (l) Palatin will otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC.

         5.6      Indemnification with respect to Registration Rights.

                  (a) In  connection  with any  registration  statement in which
Mallinckrodt is included as a selling  stockholder,  Palatin agrees to indemnify
and hold harmless (i)  Mallinckrodt  and (ii) each person,  if any, who controls
Mallinckrodt  within the meaning of Section 15 of the Securities Act of 1933, as
amended,  or  Section  20 of the  Securities  Exchange  Act of 1934 (any  person
referred to in clause (i) or (ii) may sometimes  hereinafter be referred to as a
("Mallinckrodt  Indemnitee")  from  and  against  any  and all  losses,  claims,
damages,  liabilities and expenses (including reasonable costs of investigation)
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any preliminary  prospectus or in any  registration
statement or the  prospectus  or in any  amendment  or  supplement  thereto,  or
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated  therein or necessary to make the statements
therein,  in light of the  circumstances in which such statements were made, not
misleading,  except  insofar as such losses,  claims,  damages,  liabilities  or
expenses  arise out of or are based upon any untrue  statement  or  omission  or
alleged  untrue  statement  or omission  which has been made  therein or omitted
therefrom in reliance upon and in conformity with the  information  furnished to
Palatin by or on behalf of such Mallinckrodt Indemnitee.

                  (b) In  connection  with any  registration  statement in which
Mallinckrodt  is  included  as a  selling  stockholder,  Mallinckrodt  agrees to
indemnify  and hold  harmless  (i) Palatin  and (ii) each  person,  if any,  who
controls Palatin within the meaning of Section 15 of the Securities Act of 1933,
as amended,  or Section 20 of the  Securities  Exchange  Act of 1934 (any person
referred to in clause (i) or (ii) may sometimes  hereinafter be referred to as a
"Palatin  Indemnitee")  from and against any and all  losses,  claims,  damages,
liabilities and expenses (including  reasonable costs of investigation)  arising
out of or based  upon any untrue  statement  or alleged  untrue  statement  of a
material fact  contained in any  preliminary  prospectus or in any  registration
statement or the  prospectus  or in any  amendment  or  supplement  thereto,  or
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated  therein or necessary to make the statements
therein,  in light of the  circumstances in which such statements were made, not
misleading,  to the extent and only to the extent such losses, claims,  damages,
liabilities or expenses  arise out of or are based upon any untrue  statement or
omission or alleged untrue  statement or omission which has been made therein or
omitted  therefrom  in  reliance  upon and in  conformity  with the  information
furnished  by  Mallinckrodt  to  Palatin  by or on  behalf  of any  Mallinckrodt
Indemnitee.

                  (c) If any action is brought  against any Palatin  Indemnitee,
Mallinckrodt Indemnitee or selling stockholder in respect of which indemnity may
be sought  against  Palatin or  Mallinckrodt,  as the case may be,  pursuant  to
either Section 5.6(a) or 5.6(b) above,  such indemnified  party or parties shall
promptly  notify the  indemnifying  party in writing of the  institution of such
action (but the failure so to notify  shall not relieve the  indemnifying  party
from any liability  pursuant to this Section 5.6, unless the indemnifying  party
shall have been  materially  prejudiced  by such  failure) and the  indemnifying
party shall promptly assume the defense of such action, including the employment
of counsel  (reasonably  satisfactory to such indemnified  party or parties) and
payment of expenses.  Such indemnified  party or parties shall have the right to
employ its or their own counsel in any such case,  but the fees and  expenses of
such counsel shall be at the expense of such indemnified party or parties unless
the  employment  of such counsel  shall have been  authorized  in writing by the
indemnifying  party in connection  with the defense of such action.  Anything in
this Section 5.6 to the contrary  notwithstanding,  the indemnifying party shall
not be liable for any  settlement of any such claim or action  effected  without
its written consent, which shall not be unreasonably withheld.

         5.7      Development Costs.

                  (a) All Development  Costs of Palatin which have been incurred
by Palatin prior to July 1, 1999 shall be the liability  and  responsibility  of
Palatin.

                  (b) Subject to Section 5.7(d) below, all Development  Costs of
Palatin that are incurred by Palatin  after date hereof shall be shared  equally
by the parties  and  Mallinckrodt  shall,  therefore,  pay  one-half of all such
Development   Costs  (i.e.,  the  "Development   Payments")  to  Palatin,   such
Development  Payments to be made (subject to offset in  accordance  with Section
5.8(a)  below  and  subject  to  audit in  accordance  with  the  provisions  of
subsection  (c) set forth  immediately  below) on a monthly  basis within thirty
(30) days after the  submission  by Palatin to  Mallinckrodt  of an invoice  and
written report  (accompanied  by a statement of the  principles and  assumptions
utilized by Palatin in calculating  such  Development  Costs, a breakdown of the
Development  Costs  between and among  wages,  supplies  and  contract  research
expenses which constitute  "qualified  research  expenses" within the meaning of
Section 41(b)(1) of the Internal  Revenue Code of 1986, as amended,  and by such
supporting   documentation   and  information  as   Mallinckrodt   may  request)
demonstrating the amount of qualifying  Development Costs incurred by Palatin in
the previous calendar month. All Development Payments shall be payable in United
States  dollars.  Any amounts  payable under this subsection (b) and not paid by
Mallinckrodt  within the applicable thirty (30) day period shall accrue interest
at an annual rate of eight percent (8%) on the unpaid balance due until paid.

                  (c) Upon the written  request of  Mallinckrodt,  Palatin shall
permit an independent public accountant  selected by Mallinckrodt and acceptable
to Palatin,  which acceptance shall not be unreasonably  withheld or delayed, to
have access  during normal  business  hours to such records of Palatin as may be
necessary to verify the amount of any  Development  Costs incurred by Palatin in
accordance  herewith in respect of any calendar year (or portion thereof) ending
not more than twelve (12) months prior to the date of such  request.  Subject to
other relevant  provisions of this subsection (c), all such verifications  shall
be conducted at Mallinckrodt's  expense and not more than twice in each calendar
year. In the event that Mallinckrodt's representative concludes that adjustments
should be made in Mallinckrodt's  favor with respect to any audited period, then
any appropriate  refund of Development  Payments,  plus accrued  interest at the
annual rate of eight percent (8%) on any amounts due Mallinckrodt  measured from
the date on which any amount to be refunded was originally paid by Mallinckrodt,
shall be made by  Palatin  within  thirty  (30)  days of the  date  Mallinckrodt
delivers to Palatin such  representative's  written report so concluding (or, at
Mallinckrodt's  option,  shall be  offset by  Mallinckrodt  against  any  future
Development  Payments due by Mallinckrodt to Palatin hereunder),  unless Palatin
shall have a good faith dispute as to the  conclusions set forth in such written
report,  in which  case  Palatin  need not make  the  disputed  portion  of such
repayment and shall provide  written notice to  Mallinckrodt  within such thirty
(30) day period of the nature of its disagreement  with such written report.  If
Palatin shall have in writing so disputed such written report by  Mallinckrodt's
representative,  the parties shall  thereafter,  for a period of sixty (60) days
after Palatin has provided written notice of such dispute, attempt in good faith
to resolve  such dispute and if they are unable to do so then the matter will be
submitted to  arbitration  in  accordance  with  Section  10.6 hereof.  The fees
charged by Mallinckrodt's  representative  shall be paid by Mallinckrodt  unless
the audit  discloses  that  adjustments in  Mallinckrodt's  favor for the period
under review are greater  than five  percent  (5%) of the amount of  Development
Costs invoiced by Palatin to Mallinckrodt for such period, in which case Palatin
shall pay the  reasonable  fees and  expenses  charged  by such  representative.
Mallinckrodt agrees that all information subject to review under this subsection
(c) is confidential  and that it shall cause its  representatives  to retain all
such  information in confidence in accordance with the requirements of Article 7
below.

                  (d)  Notwithstanding  the  provisions of Section 5.7(b) above,
(i) no  Development  Payments  will be made for any  costs  incurred  after  the
termination  of the  Development  Phase in any  portion  of the  Territory  with
respect to a LeuTech  Indication which is being developed in accordance with the
Development Program and (ii) [INFORMATION  OMITTED AND FILED SEPARATELY WITH THE
COMMISSION  UNDER RULE 24b-2].  Mallinckrodt  hereby  represents and warrants to
Palatin that the Development Payments have been approved by all necessary action
on the  part  of the  Board  of  Directors  of  Mallinckrodt  Inc.,  a New  York
corporation  publicly  traded on the New York Stock  Exchange  and the  ultimate
parent of Mallinckrodt,  and that  Mallinckrodt will take all steps necessary to
ensure  that  Development  Payments  will be made to  Palatin as and when due in
accordance herewith.

         5.8      Loans and Advances.

                  (a) Throughout the term of this  Agreement,  Palatin shall use
its best efforts to maintain an amount of cash and cash  equivalents  sufficient
to cover its anticipated  operating expenses,  including its estimated amount of
the Development Costs as set forth in the Annual  Development Plan for any year.
If at any  time  Palatin's  cash  reserves  are  not  sufficient  to  cover  its
anticipated  operating  expenses  and/or its portion of any  Development  Costs,
Mallinckrodt  will  consider  loaning (but shall not be under any  obligation to
loan) funds to Palatin,  but only to the extent of any actual cash shortfall and
only if commercial funding is demonstrably not available to Palatin. Any amounts
loaned by Mallinckrodt to Palatin in accordance herewith shall be evidenced by a
promissory note with terms  reasonably  acceptable to Mallinckrodt  and shall be
secured by such  assets of Palatin as Palatin  would  normally  be  required  to
pledge as collateral in any commercial loan  transaction.  All amounts loaned by
Mallinckrodt  to  Palatin  shall  bear  interest  at the  prime  rate  plus  two
percentage  points,  as determined  from the prime interest rate as published by
the Wall  Street  Journal  on the last day of the month  preceding  the month in
which any such loan is made and shall be  repayable in full as soon as Palatin's
cash reserves are restored,  but in no event later than the third anniversary of
the First  Commercial  Sale of LeuTech  Products in the  Territory or the second
(2nd)  anniversary of the date of any such loan,  whichever  occurs first. It is
also  understood  that, if Palatin fails to make any payment with respect to any
such loan as and when due under the  terms of any  applicable  promissory  note,
Mallinckrodt  shall have the right to offset  against the principal and interest
of any  amounts  loaned to Palatin  and due and  payable  under the terms of any
applicable promissory note all or any portion of any Development Payments due by
Mallinckrodt  to Palatin in  accordance  with the  provisions  of Section 5.7 or
Royalty  Payments  due  by  Mallinckrodt  to  Palatin  in  accordance  with  the
provisions of Section 5.9; provided that, Mallinckrodt shall give written notice
to Palatin of the amount and nature of any such  offset  contemporaneously  with
Mallinckrodt's exercise of such right.

                  (b) Prior to the date hereof,  Mallinckrodt  advanced  Palatin
the sum of Two Million Dollars  ($2,000,000)  secured by a promissory note and a
security agreement, copies of which are attached hereto as Exhibit H and Exhibit
I. It is understood  that the principal  amount of such advance plus all accrued
interest  thereon is being  repaid by Palatin to  Mallinckrodt  on and as of the
date hereof by offset  against that portion of the amount  otherwise  payable by
Mallinckrodt  to Palatin in accordance  with Section  5.2(b) above.  On the date
hereof,  Mallinckrodt will return to Palatin the original of the promissory note
attached  hereto as Exhibit H marked as cancelled and paid in full together with
collateral under the Security Agreement.

         5.9      Royalty Payments.

                  (a)      [INFORMATION  OMITTED AND FILED  SEPARATELY  WITH THE
                           COMMISSION UNDER RULE 24b-2].

                  (b) During the term of this  Agreement and with respect to any
calendar quarter during which there are commercial sales of any LeuTech Products
in the  Territory,  Mallinckrodt  shall  within sixty (60) days after the end of
each such  calendar  quarter  furnish  to  Palatin a  written  quarterly  report
showing:  (i) the gross sales of LeuTech  Products sold by Mallinckrodt  and its
Affiliates  during the quarter just ended and the  calculation of Net Sales from
such gross sales revenue,  (ii) any other revenues relating to LeuTech Products,
including but not limited to royalties and any other payments from  sublicensees
and  amounts  paid  by  distributors,  and  (iii)  the  exchange  rates  used in
determining Net Sales in United States dollars. Mallinckrodt shall keep complete
and accurate  records in sufficient  detail to properly  reflect all information
contained in such report,  and to enable Net Sales and Royalty  Payments payable
hereunder to be determined with accuracy.

                  (c) Upon the written  request of Palatin,  Mallinckrodt  shall
permit an independent  public  accountant  selected by Palatin and acceptable to
Mallinckrodt, which acceptance shall not be unreasonably withheld or delayed, to
have access during normal  business hours to such records of Mallinckrodt as may
be  reasonably  necessary  to  verify  the  accuracy  of  the  reports  made  by
Mallinckrodt  pursuant to Section 5.9(b) and the consequent Royalty Payments due
Palatin in respect of any  calendar  year (or portion  thereof)  ending not more
than  twelve  (12) months  prior to the date of such  request.  Subject to other
relevant  provisions of this  subsection  (c), all such  verifications  shall be
conducted at Palatin's expense, not more than twice in each calendar year and no
quarterly  period may be  audited  more than  once.  In the event  such  Palatin
representative  concludes that additional  Royalty Payments were owed to Palatin
during such  audited  period,  the  additional  Royalty  Payments,  plus accrued
interest  at the annual  rate of eight  percent  (8%) on any amounts due Palatin
measured from the date on which any amount owed to Palatin should have been paid
by  Mallinckrodt,  shall be paid by Mallinckrodt  within thirty (30) days of the
date Palatin delivers to Mallinckrodt  such  representative's  written report so
concluding,  unless  Mallinckrodt  shall  have a good  faith  dispute  as to the
conclusions set forth in such written report, in which case  Mallinckrodt  shall
provide  written  notice to Palatin  within  such  thirty (30) day period of the
nature of its  disagreement  with such  written  report and may, if such written
notice has been  given,  withhold  payment of the  disputed  portion of any such
Royalty Payment.  If Mallinckrodt has provided written notice to Palatin that it
disputes any of Palatin's auditor's  conclusions,  the parties shall thereafter,
for a period of sixty (60) days,  attempt in good faith to resolve  such dispute
and if they are unable to do so then the matter will be submitted to arbitration
in accordance with Section 10.6. The fees charged by such  representative  shall
be paid by Palatin unless the audit discloses that any Royalty  Payments made by
Mallinckrodt  for the audited  period were  incorrect  by more than five percent
(5%),  in which case  Mallinckrodt  shall pay the  reasonable  fees and expenses
charged by such  representative.  Palatin agrees that all information subject to
review under this  subsection  (c) is  confidential  and that it shall cause its
representatives  to retain all such information in confidence in accordance with
the requirements of Article 7 below.

                                    Article 6

                              INTELLECTUAL PROPERTY

         6.1  General  Principles.   It  is  understood  by  the  parties  that,
notwithstanding  any  payments  that  may be made  by  Mallinckrodt  to  Palatin
hereunder  and  further  notwithstanding  the joint  cooperation  of the parties
hereunder,  throughout  the existence of this  Agreement  and  subsequent to its
expiration,  the  Palatin  Intellectual  Property  Rights  (including,   without
limitation,  the Palatin  Patent Rights and the LeuTech  compound)  shall be and
remain the sole  property of Palatin,  subject  only to such  licenses as may be
granted to Mallinckrodt in accordance with any relevant  provisions  hereof. Any
inventions or developments  relating to LeuTech or any LeuTech Products pursuant
to this Agreement, whether or not patentable, shall belong to Palatin.

         6.2  Cross-Licensing.  The parties understand that during the existence
of  this  Agreement,  one  party  may  develop  modifications,  improvements  or
technology  (whether  patentable  or not) in  connection  with their  activities
hereunder  that may be of use to the  parties in  connection  with  their  joint
endeavors  hereunder  concerning  LeuTech Products.  The party that develops any
such  modifications,  improvements  or  technology  will  notify the other party
promptly  of  the  existence  and  nature  thereof.   Any  such   modifications,
improvements  or technology  developed by one party that are useful to the other
party in performing its obligations  hereunder concerning LeuTech Products shall
be licensed  by the  developing  party to the other party for use in  connection
with such other party's  performance  hereunder on a  royalty-free  basis,  such
license to be coterminous  with the existence of this  Agreement,  except and to
the extent otherwise provided in Section 3.2(b) or Article 9 hereof, as they may
be  applicable.  Neither this Section nor any other  provision of this Agreement
shall be  construed  as  granting  any party a direct or implied  license to any
Intellectual Property Rights except as they apply to LeuTech Products.



         6.3  Filing,   Prosecution  and  Maintenance  of  Palatin  Intellectual
Property Rights.

                  (a)  Palatin  shall  be  responsible  for  maintenance  of the
Palatin Patent Rights and all other Palatin Intellectual  Property Rights in its
own name and at its own expense,  keeping Mallinckrodt informed.  Palatin agrees
that it will not abandon the  prosecution  of any patent  applications  included
within the Palatin Patent Rights nor will it fail to make any payment or fail to
take any other  action  necessary  to  maintain  its rights to an issued  patent
included in the Palatin  Patent  Rights  without  the prior  written  consent of
Mallinckrodt.

                  (b) Palatin and  Mallinckrodt  shall each promptly  notify the
other in writing of any alleged or threatened  infringement of patents or patent
applications  included in the Palatin  Patent Rights of which they become aware.
If any such actual or alleged  infringement  poses any reasonable  threat to the
commercial  viability  or success of any LeuTech  Product  that is being sold or
marketed or is in the process of development hereunder,  Palatin shall prosecute
any such  infringement  using  counsel of its  selection  and no  settlement  or
compromise  or consent to the entry of any  judgment  or other  voluntary  final
disposition  of the suit may be entered  into by Palatin  without the consent of
the Joint Steering Committee,  which consent shall not unreasonably be withheld.
[INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2].

                  (c) In any infringement  suit instituted by Palatin to enforce
the Palatin Patent Rights pursuant to this Agreement, each party shall cooperate
in all respects and, to the extent  possible,  have its  employees  testify when
requested and make available relevant records, papers, information,  samples and
the like.
[INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2].

                  (d) In the event that a declaratory  judgment  action alleging
invalidity  or  non-infringement  of any of the Palatin  Patent  Rights shall be
brought against Palatin,  Palatin shall notify  Mallinckrodt in writing.  Unless
the Joint  Steering  Committee  decides that such action should not be defended,
Palatin  will  defend  said  action  using  counsel  of  its  selection,  and no
settlement,  consent judgment or other voluntary final disposition of the action
may be  entered  into by  Palatin  without  the  consent  of the Joint  Steering
Committee,  which  consent  shall not  unreasonably  be  withheld.  [INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2].

         6.4 Infringement  Action Against Either Party. In the event that a suit
or action is brought  against  either party alleging  infringement  of any third
party  patent  right  as a  result  of the  exercise  of  Mallinckrodt's  or its
Affiliates'  rights  pursuant  to  the  license  granted  Mallinckrodt  and  its
Affiliates under Section 2.1 hereof,  such party shall notify the Joint Steering
Committee.  Palatin will defend said action,  using counsel of its selection and
reasonably  acceptable to Mallinckrodt,  and no settlement,  consent judgment or
other voluntary  final  disposition of the action may be entered into by Palatin
without the consent of the Joint  Steering  Committee,  which  consent shall not
unreasonably  be withheld.  [INFORMATION  OMITTED AND FILED  SEPARATELY WITH THE
COMMISSION UNDER RULE 24b-2].

         6.5 Cooperation Generally. Mallinckrodt shall make available to Palatin
(or  to  Palatin's  authorized  attorneys,   agents  or  representatives),   its
employees, agents,  representatives or consultants (at Mallinckrodt's reasonable
expense) to the extent reasonably  necessary or appropriate to enable Palatin to
file,  prosecute and maintain patent applications and resulting patents included
in the  Palatin  Patent  Rights  and  relevant  to the  strategic  collaboration
hereunder for periods of time  reasonably  sufficient  for Palatin to obtain the
assistance it needs from such personnel.

         6.6 No  Ownership.  Except  as  otherwise  expressly  provided  in this
Agreement,  under no  circumstances  shall a party  hereto,  as a result of this
Agreement or  performance  of its  obligations  hereunder,  obtain any ownership
interest in or other right to any technology,  know-how, patents, pending patent
applications, products or biological materials of the other party.

                                    Article 7

                                 CONFIDENTIALITY

         7.1      Nondisclosure Obligations.

                  (a) Except as otherwise provided in this Article 7, during the
term of this Agreement and for a period of ten (10) years thereafter, each party
shall maintain in confidence and use only for purposes  specifically  authorized
under this  Agreement (i) all  information  and data,  whether  written or oral,
received  from the other  party  resulting  from or related to the  development,
manufacture,  marketing or sale of LeuTech Products and (ii) all information and
data not  described  in clause (i) but  supplied by one party to the other party
under this Agreement and marked "Confidential", or with words of similar import,
or, if delivered orally, summarized and confirmed in writing in a manner clearly
indicating its confidentiality.  For purposes of this Article 7, information and
data  described  in clause  (i) or (ii) set forth in the  immediately  preceding
sentence shall be referred to as "Information."

                  (b) To the extent it is reasonably necessary or appropriate to
fulfill its obligations or exercise its rights under this Agreement, a party may
disclose  Information  it is otherwise  obligated  under this Section 7.1 not to
disclose to its Affiliates,  sublicensees,  distributors,  consultants,  agents,
representatives  and clinical  investigators,  only on a need-to-know  basis and
only on  condition  that such  entities or persons  agree in writing to keep the
Information  confidential  for the same time  periods  and to the same extent as
such party is required  to keep the  Information  confidential  and agree to use
such Information only for purposes relevant to the performance by a party of its
obligations under this Agreement. In addition, a party or its Affiliates (or any
of  their  sublicensees  or  distributors)  may  disclose  such  Information  to
government or other regulatory authorities to the extent that such disclosure is
reasonably  necessary to obtain patents or  authorizations  to conduct  clinical
trials of, and to commercially market and sell, LeuTech Products.

                  (c) In addition to the exceptions to non-disclosure  set forth
in subsection (b) set forth immediately above, the obligation not to disclose or
misuse  Information shall not apply to any part of such Information that: (i) is
or becomes  part of the public  domain  other than by  unauthorized  acts of the
party obligated not to disclose such Information or those of its Affiliates,  or
its or  their  distributors  or  sublicensees,  (ii)  can be  shown  by  written
documents to have been disclosed to the receiving party or its Affiliates, or to
its or their distributors or sublicensees, by a third party without violation of
an obligation of confidentiality  with respect to such disclosure,  (iii) can be
demonstrated by competent  evidence,  prior to disclosure  under this Agreement,
already to have been in possession of the receiving party or its Affiliates,  or
its or their  distributors or  sublicensees,  provided such  Information was not
obtained  directly  or  indirectly  from  any  third  party  that  was  under an
obligation of confidentiality  with respect to such Information and in violation
of such obligation,  (iv) can be demonstrated by competent evidence to have been
independently  developed by the receiving party or its Affiliates,  or by its or
their  distributors or  sublicenses,  without breach of any of the provisions of
this Agreement, or (v) is disclosed by the receiving party or its Affiliates, or
by its or their  distributors  or  sublicensees,  pursuant  to  interrogatories,
requests for information or documents,  subpoenas or civil investigative demands
(or similar process) issued by a court or governmental agency or pursuant to any
other  requirement  of law,  provided  that the party so  disclosing,  if at all
possible,  notifies  the other party prior to any such  disclosure  so that such
other party (with the cooperation of the receiving  party) can seek a protective
order or other order  limiting or  preventing  disclosure  (if and to the extent
available  under the  circumstances),  and  provided  further  that the party so
disclosing  furnishes only that portion of the  Information  which it is legally
required to disclose under the circumstances.

         7.2 Terms of this Agreement. Palatin and Mallinckrodt each agree not to
disclose any terms or  conditions  of this  Agreement to any third party without
the prior consent of the other party,  except as required by applicable  law. If
either party  determines that it is required to file this Agreement with the SEC
or  other  governmental   agency  for  any  reason,  such  party  shall  request
confidential  treatment of such portions of this  Agreement as the parties shall
together  determine as  appropriate.  Notwithstanding  the  foregoing,  prior to
execution  of this  Agreement,  Palatin  and  Mallinckrodt  have agreed upon the
substance of  information  that can be used as a routine  reference in the usual
course of business to describe  the terms of this  transaction,  and Palatin and
Mallinckrodt may disclose such information, as modified by mutual agreement from
time to time,  without  the other  party's  consent as may  periodically  become
necessary or appropriate.

         7.3      Publications.

                  (a)  Procedure.  The parties hereto  acknowledge  their mutual
interest in obtaining  patent  protection for inventions  which arise under this
Agreement.  In the event that either party,  its employees or consultants or any
other third party under  contract to either party  wishes to make a  publication
pertaining  to the technical  aspects of LeuTech  Products  (including  any oral
disclosure  made  without  obligation  of  confidentiality)   relating  to  work
performed  under this  Agreement  (the  "Publishing  Party"),  such party  shall
transmit  to the other  party  (the  "Reviewing  Party") a copy of the  proposed
written  publication  at least  forty-five  (45) days  prior to  submission  for
publication  or an abstract of such oral  disclosure  at least  thirty (30) days
prior to  submission of the abstract or oral  disclosure,  whichever is earlier.
The  Reviewing  Party shall have the right (i) to propose  modifications  to the
publication,  (ii) to request a delay in publication or presentation in order to
protect  patentable  information,  or (iii) to request that the  information  be
maintained as a trade secret and, in such case, the  Publishing  Party shall not
make such publication.

                  (b)  Delay.  If  the  Reviewing  Party  requests  a  delay  as
described in Section 7.3(a)(ii),  the Publishing Party shall delay submission or
presentation  of the  publication  for a period  of  ninety  (90) days to enable
patent  applications  protecting  each party's rights in such  information to be
filed.

                  (c)  Resolution.  Upon the receipt of written  approval of the
Reviewing Party,  the Publishing Party may proceed with the written  publication
or the oral presentation.

         7.4 Injunctive  Relief.  The parties  hereto  understand and agree that
remedies at law may be  inadequate  to protect a party against any breach by the
other party (or any other  person  acting in concert with such other party or on
its behalf) of any of the provisions of this Article 7. Accordingly,  each party
shall be entitled to the granting of injunctive relief or other equitable relief
by a court of competent  jurisdiction  against any action that  constitutes  any
breach of this Article 7, in addition to any monetary damages or other relief to
which a party may be entitled.

                                    Article 8

                                    INDEMNITY

         8.1  Mallinckrodt  Indemnity   Obligations.   Subject  to  all  of  the
applicable   provisions   of  this  Article  8,  and   excepting   the  separate
indemnification and procedures set forth in Section 5.6,  Mallinckrodt agrees to
defend,  indemnify  and  hold  Palatin,  its  Affiliates  and  their  respective
directors,  officers,  employees and agents harmless from and against all costs,
judgments,  liabilities  and damages  resulting from claims  asserted by a third
party against Palatin, its Affiliates or their respective  directors,  officers,
employees or  representatives  arising in connection  with or as a result of (i)
actual  or  asserted   violations  of  any   applicable  law  or  regulation  by
Mallinckrodt, its Affiliates,  sublicensees,  distributors or representatives in
connection  with the  sales,  marketing  and  distribution  (including,  without
limitation,  storage and  radiolabeling) of LeuTech Products,  including without
limitation,  actual,  alleged or asserted  violations  relating to  adulterated,
misbranded,  mislabeled or LeuTech  Products  otherwise  not in compliance  with
applicable law or regulation,  (ii) claims for bodily injury,  death or property
damage  attributable to a recall ordered by a governmental agency or required by
a  confirmed  failure of  LeuTech  Products  to the extent  caused by any act or
omission to act by Mallinckrodt or its Affiliate or representative in connection
herewith,  and (iii) any negligent or willful or intentional  act or omission to
act  by  Mallinckrodt,  its  Affiliates  or  representatives  in any  manner  in
connection with performance hereunder.

         8.2 Palatin  Indemnity  Obligations.  Subject to all of the  applicable
provisions of this Article 8 and in addition to any obligations Palatin may have
under Article 6 set forth above, and excepting the separate  indemnification and
procedures  set forth in Section 5.6,  Palatin  agrees to defend,  indemnify and
hold  Mallinckrodt,  its Affiliates and their  respective  directors,  officers,
employees and agents harmless from and against all costs, judgments, liabilities
and  damages   resulting   from  claims   asserted  by  a  third  party  against
Mallinckrodt,  its Affiliates or their respective directors, officers, employees
or  representatives  arising in connection  with or as a result of (i) actual or
asserted  violations  of  any  applicable  law or  regulation  by  Palatin,  its
Affiliates,   sublicensees,   distributors  or   representatives  in  connection
herewith,  including (without limitation) any such actual or asserted violations
by Palatin or by any third party  contract  manufacturer  employed by Palatin by
virtue of which any LeuTech  Products  manufactured,  distributed or sold in any
manner in connection  herewith shall be alleged or determined to be adulterated,
misbranded,  mislabeled or otherwise not in compliance  with such applicable law
or  regulation,  (ii)  claims  for  bodily  injury,  death  or  property  damage
attributable  to a recall  ordered by a  governmental  agency or  required  by a
confirmed  failure  of  LeuTech  Products  to the  extent  caused  by any act or
omission to act by Palatin or its  Affiliates or  representatives  in connection
herewith,  (iii) any negligent or willful or intentional  act or omission to act
by Palatin,  its Affiliates or  representatives in any manner in connection with
performance  hereunder,  and (iv) claims for bodily injury or death attributable
to the toxicology,  biologic activity or manufacture of LeuTech Products.  It is
understood between the parties,  however, that since the LeuTech Products may be
radiolabeled and stored by Mallinckrodt, or its Affiliates or sublicensees, then
with  respect  to  any  claims  asserted  by any  third  party  concerning  said
radiolabeling  and storage,  Mallinckrodt  shall indemnify  Palatin  pursuant to
Section 8.1.

         8.3 Product  Liability.  Mallinckrodt and Palatin  understand and agree
that,  because  of the  nature  of the  collaborative  effort  set forth in this
Agreement,  should any third party claims be asserted  against either or both of
them or any of  their  Affiliates,  agents  or  representatives  that are in the
nature of product  liability  claims  (i.e.,  third party claims  covered by the
indemnification  obligation  of Palatin  pursuant  to clause (iv) of Section 8.2
above),  the parties  will  cooperate  to ensure that such claims are  defended,
settled and  compromised  in a manner that best  protects the  interests of both
parties hereunder.  However, unless and until Palatin can demonstrate otherwise,
it shall be presumed that any third party claims relating to the toxicology,  to
the biologic  activity or to the  manufacture  of LeuTech  Products shall be the
responsibility  and  liability  of Palatin in  accordance  with  clause  (iv) of
Section  8.2 above  and  Palatin  shall  defend  such  claim.  Palatin  shall be
responsible for defending any such claims with counsel of its selection and will
have the daily  responsibility  for managing the defense of such claim,  keeping
Mallinckrodt continually informed of any developments,  issues or decisions that
arise as a  consequence  of such claim.  It is  understood  between the parties,
however,  that since the LeuTech  Products will be radiolabelled by Mallinckrodt
or its  Affiliates,  then with respect to any claims asserted by any third party
concerning said radiolabelling, Mallinckrodt shall indemnify Palatin pursuant to
Section  8.1.  As the Joint  Steering  Committee  shall  determine,  Palatin and
Mallinckrodt  will  procure  and  maintain  product  liability   insurance  with
responsible carriers in amounts and with coverages and deductibles determined by
the Joint Steering Committee to be reasonable.

         8.4 Contribution.  Notwithstanding  any other provision of this Article
8, to the extent it is possible to  determine  with  accuracy,  each party shall
only be responsible  hereunder for and shall only have the duty to indemnify and
hold  harmless the other party  hereunder  for that  portion of any loss,  cost,
damages or expense  attributable to its acts or omissions to act,  provided that
(except as and to the extent set forth in the last  sentence  of Section 8.2 and
the penultimate  sentence of Section 8.3),  Palatin shall be responsible for all
product  liability claims related to LeuTech  Products without  reference to its
acts or omissions to act in connection  with the  circumstances  surrounding any
such claim.  If, in connection with any third party claim for which both parties
have  responsibility for any loss, cost, damage or expense,  it is impossible to
determine or fairly estimate the relative  proportion of  responsibility  of the
parties,  they shall each be  responsible  for an equal  share of any such loss,
cost,  damage or expense.  In the event there is any dispute between the parties
concerning their relative proportion of responsibility with respect to any third
party claim the parties shall attempt to resolve such dispute  within sixty (60)
days of the date it arises but, if they are unable to do so, the matter shall be
referred to arbitration for resolution pursuant to Section 10.6.

         8.5 Procedure. Unless and to the extent otherwise specifically provided
herein,  a party or any of its  Affiliates  (the  "Indemnitee")  that intends to
claim indemnification under this Article 8 shall promptly notify the other party
(the  "Indemnitor") of any loss, claim,  damage, or liability arising out of any
third party claim or action in respect of which the Indemnitee  intends to claim
such  indemnification,  and the Indemnitor shall assume the defense thereof with
counsel of its own choosing;  provided,  however,  that an Indemnitee shall have
the right to retain its own  counsel,  with the fees and  expenses to be paid by
the Indemnitor,  if representation of such Indemnitee by the counsel retained by
the Indemnitor, in the opinion of an independent counsel chosen by both parties,
would be inappropriate  due to actual or potential  differing  interests between
such  Indemnitee  and  any  other  party  represented  by such  counsel  in such
proceedings.  An Indemnitee shall not be entitled to indemnification  under this
Article 8 if any  settlement or compromise of a third party claim is effected by
the Indemnitee without the consent of the Indemnitor, which consent shall not be
unreasonably  withheld  or  delayed.  An  Indemnitee  shall not be  entitled  to
indemnification  with respect to any third party claim in an amount in excess of
the amount which such third party has  unequivocally  and in writing agreed with
the  Indemnitor  it is willing to accept in settlement or compromise of any such
third  party  claim.  The  failure by the  Indemnitee  to deliver  notice to the
Indemnitor  within a reasonable  time after the  commencement  of any such third
party claim or action, if materially  prejudicial to the Indemnitor's ability to
defend such  action,  shall  relieve  such  Indemnitor  of any  liability to the
Indemnitee  under this Article 8. An Indemnitee,  and its employees,  agents and
representatives,  shall  cooperate  fully  with  the  Indemnitor  and its  legal
representatives  in the investigation of any action,  claim or liability covered
by this indemnification.

                                    Article 9

                           EXPIRATION AND TERMINATION

         9.1 Termination and Expiration of the Development Phase.

                  (a) Unless this Agreement is sooner terminated by either party
in  accordance  with the  provisions  of this  Article 9 or by  Mallinckrodt  in
accordance  with  the  provision  of  Section  3.2(b)  above,  the  term  of the
Development  Phase as to any LeuTech  Product shall terminate in accordance with
Section 1.13.

                  (b) In  addition  to  the  right  of  termination  granted  to
Mallinckrodt by the provisions of Section 3.2(b) above, the Development Phase as
to any LeuTech Product may be terminated  prior to the completion of development
of such LeuTech  Product with respect to all or any portion of the Territory (i)
at any time by the mutual consent of the parties, (ii) by one party, upon notice
to the other party, if the terminating party has substantial evidence to support
the  conclusion  that any such LeuTech  Product is not likely to become a viable
and profitable  commercial  product or (iii) by either party upon written notice
to the  other if the  Joint  Steering  Committee  does not  approve  the  Annual
Development  Plan for such LeuTech Product pursuant to Section 3.1(f) and, after
the matter has been submitted for dispute resolution  pursuant to Section 4.1(e)
hereof,  the  terminating  party  determines  in good faith that it is unable to
proceed with  development of such LeuTech Product based on the  determination of
the arbitrator.

                  (c) In the event that,  pursuant to  subsection  (b) set forth
immediately  above, the Development  Phase is terminated prior to the completion
of development  of any LeuTech  Product for all or any portion of the Territory,
then all rights with respect to the use,  manufacture,  marketing,  distribution
for sale,  licensing and  sublicensing  of such LeuTech  Product with respect to
such portion of the Territory shall revert to Palatin.

                  (d) The  expiration or termination  of the  Development  Phase
with  respect to any LeuTech  Product  for all or any  portion of the  Territory
shall not  relieve the  parties of any  obligation  that  accrued  with  respect
thereto prior to such expiration or termination,  including either party's right
to recover all costs and expenses incurred or committed prior to such expiration
or termination.  Furthermore,  notwithstanding  any other provisions hereof, the
expiration or  termination of the  Development  Phase with respect to any or all
LeuTech  Products  shall have no effect  whatsoever  on (i) the rights of either
party under the  provisions of Sections 5.2, 5.3, 5.4, 5.5 and 5.6 above or (ii)
the issuance and sale of the Preferred Stock.

         9.2      Termination and Expiration of this Agreement.

                  (a) This  Agreement  may be  terminated  by either  party upon
thirty  (30) days  notice  (i) by reason of a  material  breach  (other  than as
provided in clauses (ii) or (iii) below) if the breaching  party fails to remedy
such  breach  within  ninety  (90) days  after  written  notice  thereof  by the
non-breaching  party,  (ii) if the other party fails to make any payments of any
kind as and when due in  accordance  with the  terms  and  procedures  set forth
herein  and such  failure  is not  remedied  within  forty  five (45) days after
written notice thereof by the nonbreaching party (unless and to the extent there
exists a good faith  dispute as to the amount of any such  payment due) or (iii)
upon the  bankruptcy,  insolvency,  dissolution  or winding up the other  party,
except, in the case of a petition  relative to any of the immediately  foregoing
filed  involuntarily  against a party if such petition is dismissed within sixty
(60) days of the date of its filing.

                  (b) Unless renewed in writing by both Palatin and Mallinckrodt
or unless terminated earlier in accordance herewith, this Agreement shall expire
on and as of the end of the calendar quarter  subsequent to the calendar quarter
in which the last  commercial  sale of Product  Units of any LeuTech  Product by
Mallinckrodt occurs. This Agreement shall expire if, after the date of the First
Commercial Sale of any LeuTech Product, there are no commercial sales of LeuTech
Products for two full calendar quarters.

         9.3      Effect of Expiration or Termination of this Agreement.

                  (a) The  expiration or  termination  of this Agreement for any
reason shall not relieve the parties of any  obligation  that  accrued  prior to
such expiration or termination. Furthermore, notwithstanding any other provision
hereof,  the  expiration or  termination  of this Agreement for any reason shall
have no effect whatsoever on (i) the rights of either party under the provisions
of Sections  5.2,  5.3,  5.4, 5.5 and 5.6 above or (ii) the issuance and sale of
the Preferred Stock.

                  (b) In the event that this Agreement is rightfully  terminated
by Palatin  pursuant to Section 9.2(a),  Palatin shall be entitled to claim from
Mallinckrodt  in a court of competent  jurisdiction  all damages or other relief
which  would  otherwise  be  available  to  Palatin  at law or in equity and the
following shall also apply:

                           (i) all licenses and rights  granted to  Mallinckrodt
         hereunder  shall  terminate,  on and as of the  effective  date of such
         termination  (except for any license granted by Palatin to Mallinckrodt
         pursuant to the last sentence of Section 6.2 above);

                           (ii)  for a  period  of one (1)  year  following  the
         effective date of termination Mallinckrodt may dispose of its inventory
         of Product Units on hand as of the effective  date of  termination  and
         may fill any orders for Product Units  accepted  prior to the effective
         date of termination,  and within thirty (30) days after  disposition of
         such inventory and  fulfillment of such orders (and in any event within
         thirty (30) days after the first  anniversary  of the effective date of
         termination)  Mallinckrodt  will  forward to Palatin a final  report of
         sales activity containing the details required by Section 5.9(b) hereof
         and   Mallinckrodt   shall  pay  all  Royalty  Payments  payable  as  a
         consequence  of the Net  Sales of  Product  Units  for such  period  as
         reflected in such report;

                           (iii)  Mallinckrodt  shall take all action reasonably
         necessary  to  assign  all of its  right,  title  and  interest  in any
         trademark or trade name owned by Palatin under which Mallinckrodt shall
         have  marketed or sold  LeuTech  Products,  together  with the goodwill
         associated  therewith,  to Palatin (provided that, this provision shall
         not affect Mallinckrodt's right to any trademark or trade name owned by
         Mallinckrodt); and

                           (iv)  Mallinckrodt  shall,  (A) to the extent legally
         permissible,  take all additional action reasonably necessary to assign
         all of its right,  title and interest in, and transfer  possession  and
         control to,  Palatin of the  regulatory  filings  (if any)  prepared by
         Mallinckrodt,   and   regulatory   approvals   if  (any)   received  by
         Mallinckrodt,  to the extent that such filings and approvals  relate to
         LeuTech  Products  and (B)  deliver  to Palatin at the end of the first
         anniversary  of the  effective  date  of  termination  all  Information
         supplied by Palatin to Mallinckrodt.

                  (c) In the event that this Agreement is rightfully  terminated
by Mallinckrodt  pursuant to Section 9.2(a),  Mallinckrodt  shall be entitled to
claim from  Palatin in a court of  competent  jurisdiction  all damages or other
relief which would  otherwise be available to  Mallinckrodt  at law or in equity
and the following shall also apply:

                           (i)  Mallinckrodt's  license rights under Section 2.1
         hereof  (exclusive  of any rights  under the MCA 480 Cell Line  License
         Agreement  between  the Wistar  Institute  of Anatomy  and  Biology and
         Palatin dated June 16, 1997,  hereinafter the "Wistar Agreement") shall
         (notwithstanding  any other  provisions  hereof)  be  considered  to be
         exclusive,  perpetual  and  irrevocable,  and  shall not  otherwise  be
         restricted  or limited in any manner  from the  license  granted as set
         forth herein,  except that Mallinckrodt  shall continue to make Royalty
         Payments to Palatin in accordance with the provisions of Section 5.9;

                           (ii) Palatin shall  continue to  manufacture  LeuTech
         Products for  Mallinckrodt,  at Palatin's  Product Direct Cost for such
         manufacture  (i.e.,  not at the  Transfer  Price  that  may  then be in
         effect), for a period of up to three (3) years after the effective date
         of such termination or, at Mallinckrodt's option, and as soon after the
         effective  date of such  termination  as possible  (but in any event no
         later than six (6) months thereafter),  shall transfer to Mallinckrodt,
         on a non-exclusive  basis, such contractual rights (i.e.,  rights under
         its contracts with all third party contract manufacturers,  consultants
         or other  subcontractors) and such rights to its intellectual  property
         and such know-how as may be necessary to enable Mallinckrodt or a third
         party or parties  designated by  Mallinckrodt  to  manufacture  LeuTech
         Products  in  sufficient  quantity  thereafter  to meet  Mallinckrodt's
         requirements for LeuTech Products;

                           (iii)  Palatin  shall  (A)  to  the  extent   legally
         permissible,  take all actions  necessary to assign to Mallinckrodt all
         of the  regulatory  filings  and  approvals  Palatin  has  that  may be
         necessary or useful to  Mallinckrodt  in exercising  its license rights
         and  manufacturing  rights  as set  forth  in  clauses  (i)  and  (ii),
         respectively,  of  this  subsection  (c) or if such  assignment  is not
         readily  available,  take all actions available to it in support of any
         new filings or approvals made or sought by Mallinckrodt, (B) deliver to
         Mallinckrodt copies any and all documents it has containing Information
         or other  data  that may be  necessary  or useful  to  Mallinckrodt  in
         exercising its license rights and manufacturing  rights as set forth in
         clauses  (i) and (ii),  respectively,  of this  subsection  (c),  which
         Information  may be employed by  Mallinckrodt  as needed in  connection
         with such rights subject to the  requirements of Article 7 hereof,  (C)
         grant to  Mallinckrodt  a  non-exclusive,  worldwide,  paid-up  license
         (including the goodwill associated  therewith) to the rights of Palatin
         in and to any trademarks or trade names under which  Mallinckrodt shall
         have  marketed  or sold  LeuTech  Products  at any  time  prior  to the
         effective date of  termination,  and (D) deliver to Mallinckrodt at the
         end of the first (1st) anniversary of the effective date of termination
         all Information supplied by Mallinckrodt to Palatin; and

                           (iv) Palatin shall assign its rights under the Wistar
Agreement to Mallinckrodt.

         9.4  Survival.   The  provisions  of  this   Agreement   shall  survive
termination or expiration to the extent necessary for them to be fully performed
in accordance with their express terms.

                                   Article 10

                                  MISCELLANEOUS

         10.1 Force  Majeure.  Neither party shall be held liable or responsible
to the  other  party  nor be deemed to have  defaulted  under or  breached  this
Agreement  for failure or delay in  fulfilling  or  performing  any term of this
Agreement  when such failure or delay is caused by or results from causes beyond
the control of the affected  party,  including but not limited to fire,  floods,
embargoes,  war,  acts of war (whether  war is declared or not),  insurrections,
riots,  civil commotions,  the existence or administration of any laws, rules or
regulations, strikes, lockouts or other labor disturbances, acts of God or acts,
omissions or delays in acting by any governmental  authority or the other party;
provided,  however,  that the party so affected shall use reasonable  commercial
efforts to avoid or remove such  causes of  nonperformance,  and shall  continue
performance hereunder with reasonable dispatch whenever such causes are removed.
Each party shall provide the other party with prompt written notice of any delay
or failure to perform that occurs by reason of force majeure.  The parties shall
mutually  seek a  resolution  of the delay or the  failure  to  perform as noted
above.

         10.2  Assignment.  This  Agreement  may not be  assigned  or  otherwise
transferred  by either  party  without  the prior  written  consent of the other
party,  except that,  either Palatin or Mallinckrodt  may, without such consent,
assign its rights and obligations under this Agreement, (i) in connection with a
corporate reorganization,  to any Affiliate, or (ii) to an unrelated third party
in connection with a merger,  consolidation  or sale of  substantially  all of a
party's assets to such unrelated  third party (which shall include,  in the case
of  Mallinckrodt,  a sale of substantially  all of the assets of  Mallinckrodt's
Imaging  Group);  provided  that,  in the case of either  clause (i) or (ii) the
assigning or transferring  party's rights and  obligations  under this Agreement
shall be assumed in writing by its successor in interest in any such transaction
and shall not be transferred separate from all or substantially all of its other
business  assets  (except  as  otherwise  specifically  noted  with  respect  to
Mallinckrodt),  including  those  business  assets  that are the subject of this
Agreement. Any purported assignment in violation of the preceding sentence shall
be void.  Any permitted  assignee  shall assume all  obligations of its assignor
under this Agreement.

         10.3  Severability.  Should one or more provisions of this Agreement be
or become  invalid or  unenforceable,  the parties hereto shall  substitute,  by
mutual  consent,   valid  and   enforceable   provisions  for  such  invalid  or
unenforceable  provisions  which new  provisions,  in their  economic  and other
effects,  are sufficiently  similar to the invalid or  unenforceable  provisions
that it can be reasonably assumed that the parties would have originally entered
into this Agreement with such new provisions. In case such new provisions cannot
be agreed upon, the invalidity or  unenforceability of one or several provisions
of this Agreement  shall not affect the validity of this Agreement as a whole or
the  validity  of any  portions  hereof,  unless the  invalid  or  unenforceable
provisions are of such  essential  importance to this Agreement that it is to be
reasonably  assumed that the parties would not originally have entered into this
Agreement without such invalid or unenforceable provisions.

         10.4 Notices. Any consent, notice or report required or permitted to be
given or made under this  Agreement  by one of the  parties  hereto to the other
shall  be in  writing,  delivered  personally  or  by  facsimile  (and  promptly
confirmed  by  telephone,  personal  delivery or  courier)  or courier,  postage
prepaid  (where  applicable),  addressed  to such  other  party  at its  address
indicated  below,  or to such  other  address as the  addressee  shall have last
furnished in writing to the addressor and shall be effective upon receipt by the
addressee.

           If to Palatin:          Palatin Technologies, Inc.
                                   214 Carnegie Center, Suite 100
                                   Princeton, New Jersey  08540
                                   Telephone:  (609) 520-1911
                                   Facsimile:  (609) 452-0880

           with a copy to:         Graham & James LLP
                                   885 Third Avenue, 21st floor
                                   New York, New York  10022-4834
                                   Attn:     Faith Charles, Esq.
                                   Telephone :  (212) 848-1000
                                   Facsimile:  (212) 688-2449

           If to Mallinckrodt:     Mallinckrodt Inc.
                                   675 McDonnell Boulevard
                                   P.O. Box 5840
                                   St. Louis, Missouri 63134
                                   Attn:     President, Imaging Group
                                   Telephone:
                                   Facsimile:

           with a copy to:         Mallinckrodt Inc.
                                   675 McDonnell Boulevard
                                   P.O. Box 5840
                                   St. Louis, Missouri 63134
                                   Attn:     Vice President and General Counsel
                                   Telephone:     (314) 654-5240
                                   Facsimile:    (314) 654-5366


         10.5  Applicable Law. This Agreement shall be governed by and construed
in accordance  with the laws of the State of New York,  without giving effect to
its choice of laws provisions that might apply the law of another jurisdiction.

         10.6     Dispute Resolution.

                  (a) The parties  hereby  agree that they will  attempt in good
faith to resolve  any  controversy  or claim  arising out of or relating to this
Agreement  promptly by negotiations  and, where provided for, in accordance with
any  specific  provisions  for dispute  resolution  set forth  elsewhere in this
Agreement. If a controversy or claim should arise hereunder, the representatives
of the parties will confer at least once and will attempt to resolve the matter.
Except as specifically  provided elsewhere in this Agreement,  if the matter has
not  been  resolved  within  sixty  (60)  days  of  their  first  meeting,   the
representatives shall refer the matter to the Chief Executive Officer of Palatin
and the President of  Mallinckrodt's  Imaging Group.  If the matter has not been
resolved  within  sixty (60) days of the first  meeting  of the Chief  Executive
Officer of Palatin and the  President  of  Mallinckrodt's  Imaging  Group (which
period may be extended by mutual  agreement),  subject to a party's rights in an
appropriate case to seek injunctive relief or specific  performance from a court
of appropriate  jurisdiction,  and unless  otherwise  specifically  provided for
herein,  any  controversy or claim arising out of or relating to this Agreement,
or the breach thereof,  will be settled as set forth in subsection (b) set forth
immediately below.

                  (b)  Subject to the  provisions  of  subsection  (a) set forth
immediately  above,  all  disputes,  controversies  or  differences  which arise
between the parties  out of or in relation to this  Agreement  or any default or
breach thereof will be resolved by  arbitration in accordance  with the American
Arbitration  Association by one or more arbitrators appointed in accordance with
the said Rules.  The  arbitration  shall take place in New York. Any decision or
award  resulting  from the  arbitration  provided  for herein shall be final and
binding  on  the  parties  hereto.  Notwithstanding  the  immediately  foregoing
provisions of this  subsection  (b),  without resort to arbitration in the first
instance,  either  party  has the  right to bring  suit in a court of  competent
jurisdiction  against the other  party for (i) any breach of such other  party's
duties of  confidentiality  pursuant  to Article 7 of this  Agreement,  (ii) any
infringement of its own proprietary  rights by the other party,  (iii) or in any
other  circumstance  in which the  right to bring  suit is  contemplated  by the
express language hereof.  Judgment upon the arbitrator's award may be entered in
any court of competent  jurisdiction.  The award of the  arbitrator  may include
compensatory  damages against either party, but under no circumstances  will the
arbitrator be  authorized to award  punitive  damages,  consequential,  special,
exemplary,  indirect or multiple damages against either party. The parties agree
not to institute any litigation or proceedings  against each other in connection
with this  Agreement  unless  they have  complied  with the  provisions  of this
subsection (b), as they may be applicable,  unless otherwise provided or allowed
herein.  The fees and  expenses  associated  with  arbitration  shall be  shared
equally between Palatin and Mallinckrodt.

         10.7 Public  Announcements.  The parties agree that press  releases and
other  public  announcements  to be made by either of them in  relation  to this
Agreement, including disclosing the name of the other party, shall be subject to
the written consent of the other party,  which consent shall not be unreasonably
withheld or delayed, except that the parties may (without such consent) (i) make
any such press release that is required to be made by law, if the consent of the
other party has been sought but has not been timely  obtained  after  reasonable
efforts to do so and (ii)  disclose any  information  covered by a prior consent
obtained in accordance with this Section 10.7. The parties will agree to issue a
joint press release immediately  following the execution of this Agreement,  the
form and content of which shall be reasonably satisfactory to both parties.

         10.8 Entire Agreement.  This Agreement,  together with the exhibits and
appendices hereto, contains the entire understanding of the parties with respect
to  the  subject   matter  hereof.   All  express  or  implied   agreements  and
understandings,  either oral or written, heretofore made are expressly merged in
and made a part of this  Agreement.  This Agreement may be amended,  or any term
hereof  modified,  only by a written  instrument  duly  executed  by  authorized
representatives of both parties hereto.

         10.9 Headings. The captions to the several articles and sections hereof
are not a part of this  Agreement,  but are merely guides or labels to assist in
locating and reading the several articles and sections hereof.

         10.10  Waiver.  The waiver by a party hereto of any right  hereunder or
the  failure  of a party to object on any  occasion  to a breach or  failure  of
performance  by the other party shall not be deemed a waiver of a party's  other
rights hereunder or its right, on any subsequent occasion, to object to a breach
by the other party of any terms hereof or to insist upon the  performance by the
other party of its obligations hereunder.

         10.11  Counterparts.  This  Agreement  may be  executed  in two or more
counterparts,  each of  which  shall be  deemed  an  original,  but all of which
together shall constitute one and the same instrument.

         10.12  Agreement  Not to  Solicit  Employees.  During  the term of this
Agreement  and for a  period  of two  (2)  years  following  the  expiration  or
termination of this  Agreement,  Palatin and  Mallinckrodt  agree not to seek to
persuade or induce any employee of the other company to  discontinue  his or her
employment  with that company in order to become  employed by or associated with
any business, enterprise or effort that is associated with its own business.



<PAGE>


           IN WITNESS  WHEREOF,  the parties have executed this  Agreement as of
the date first set forth above.

PALATIN TECHNOLOGIES, INC.




By:      /ss/ Edward J. Quilty






MALLINCKRODT INC.




By:      /ss/ Richard T. Higgons



<PAGE>


                       LIST OF EXHIBITS

       Exhibit A  Development Costs - Overhead Cost Allocation Principles

       Exhibit B  Launch and Pre-Launch Activities

       Exhibit C  Chemical Structure of LeuTech Compound

       Exhibit D  Palatin Patent Rights

       Exhibit E  Certificate of Designation for Preferred Stock

       Exhibit F  Available LeuTech Products

       Exhibit G  Characteristics of Preferred Stock

       Exhibit H  Promissory Note

       Exhibit I  Security Agreement




<PAGE>

                                   EXHIBIT "A"

                           PALATIN TECHNOLOGIES, INC.
                           Cost Allocation Principles



[INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]


<PAGE>


                                    EXHIBIT B
                        Launch and Pre-Launch Activities
Launch Plan

o   Design and establishment of sales and marketing programs

o   Establishment of distribution network

o   Design and production of sales aids  oabCreation  and  distribution of sales
    brochures

o   Design and execution of product premium programs

o   Establishment of a journal advertising campaign

o   Design and distribution of educational package for radiopharmacies

o   Design and production of direct mail offerings

o   Establishment of sampling program

o   Design and production of journal advertisements

o   Trade show scheduling and attendance

o   Creation of trade show displays

o   Establishment of a Physician Advisory Board

o   Scheduling of symposia and speaker program

o   Design and establishment of Internet based information/advertising

o   Creation and distribution of physician information packages

o   Establishment of a speakers' bureau

o   Development of a Phase IV protocol



<PAGE>


                                    EXHIBIT C
                          (LeuTech Biological Molecule)

The biological  molecule that is the active component of LeuTech is [INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24b-2.]






<PAGE>


         EXHIBIT D
                             (Palatin Patent Rights)

United States Patents:



<PAGE>


1.  U.S.  Patent  No.   5,346,687,   Issued   September  13,  1994,  for  Direct
    Radiolabeling  of Antibody  against  Stage  Specific  Embryonic  Antigen for
    Diagnostic Imaging

2.  U.S. Patent No.  RE35,500,  issued May 6, 1997, for Direct  Radiolabeling of
    Antibodies  and Other  Proteins  with  Technetium  for Rhenium by  Regulated
    Reduction

3.  U.S.  Patent No.  RE35,457,  issued  February  18, 1997,  for  Radiolabeling
    Antibodies  and Other  Proteins  with  Technetium  or Rhenium  by  Regulated
    Reduction

      Corresponding Australian patent No. 650629
      Canadian patent application No. 2,065,299-3
      EP No. 0 486 622 B1 - Confirmed in Austria, Belgium, Denmark, France,
      Germany, Italy, Netherlands, Spain, Sweden, Switzerland and United Kingdom
      Japanese application No. 2-514515

4.  U.S.  Patent  4,917,878,   issued  April  17,  1990,  for  Novel  Use  of  a
    Radiolabeled  Antibody  against  Stage  Specific  Embryonic  Antigen for the
    Detection  of Occult  Abscesses  in Mammals  (Subject  to License  Agreement
    between Thomas Jefferson University and RhoMed, Incorporated)

5.  U.S.  Patent  5,011,676,  issued  April 30,  1991,  for  Improved  Method to
    Directly  Radiolabel  Antibodies for Diagnostic Imaging and Therapy (Subject
    to  License  Agreement  between  Thomas  Jefferson  University  and  RhoMed,
    Incorporated)

6.  U.S. Patent 5,308,603, issued May 3, 1994, for Method to Directly Radiolabel
    Antibodies for Diagnostic  Imaging and Therapy (Subject to License Agreement
    Between Thomas Jefferson University and RhoMed, Incorporated)

License Agreements:

1.  MCA 480 Cell Line License  Agreement between The Wistar Institute of Anatomy
    and Biology and Palatin Technologies, Inc. dated May 1997.



                                        1


<PAGE>


2.  License   Agreement   between  Thomas   Jefferson   University  and  RhoMed,
    Incorporated effective as of February 1, 1992.








                                        2





<PAGE>


                                    EXHIBIT E

                           CERTIFICATE OF DESIGNATIONS
                                       of
                      SERIES C CONVERTIBLE PREFERRED STOCK
                                       of
                           PALATIN TECHNOLOGIES, INC.

[Filed  separately as Exhibit 3.7 to Palatin's  annual report on Form 10-KSB for
the year ended June 30, 1999, filed with the SEC on September 28, 1999.]






<PAGE>


                                    EXHIBIT F
                          (Available LeuTech Products)

LeuTech Products


1.  LeuTech  kit  for  producing  99mTc   radiolabeled  RB5  IgM  for  injection
    containing  one (1)  [INFORMATION  OMITTED  AND  FILED  SEPARATELY  WITH THE
    COMMISSION UNDER RULE 24b-2.]






<PAGE>


                           Palatin Technologies, Inc.

                                    Exhibit G

o   Warrants and options  outstanding  as of August 10, 1999  totaled  4,692,999
    (See common stock dilution table attached)

o   Existing employment agreements with anti-dilution provisions include:

        o   Edward Quilty

        o   Charles Putnam

        o   Carl Spana

        o   Stephen T. Wills

        o   A summary of  anti-dilution  protections  in  employment  agreements
            follows:

                  Edward J. Quilty: Palatin must issue additional  anti-dilution
                  options at $.20 per share,  so that Mr. Quilty  shall,  at all
                  times, have options in the aggregate to purchase the number of
                  shares of common stock (together with common stock  previously
                  purchased on the exercise of such  options)  equal to not less
                  than 3.75% of the outstanding  common stock on a fully diluted
                  basis. The amount of common stock purchasable will be adjusted
                  proportionately  in the  event of any  stock  dividend,  stock
                  split, recapitalization, exchange, merger, etc.

                  Charles L. Putnam, Carl Spana and Stephen T. Wills: If Palatin
                  issues new common stock or common stock derivative  securities
                  which  increase  the  outstanding  common stock by 40% or more
                  over the  amount  outstanding  at the time of the  agreements,
                  then Palatin must issue additional  options at $2.50 per share
                  so that each of the three officers has options to purchase the
                  same percentage of the outstanding common stock as he was able
                  to purchase  before the  issuance of the new  securities.  The
                  amount  of  common   stock   purchasable   will  be   adjusted
                  proportionately in the event of any stock dividend,


<PAGE>


                  stock split, recapitalization exchange, merger, etc.

                  Such  contracts  are on file with the SEC (via Edgar) and will
                  be provided on request.

o Warrants (five groups) containing anti-dilution provisions
         (price protection) include:

        o   Class A Warrants

        o   Class A Placement Warrants

        o   Class B Warrants

        o   Class B Placement Agent Warrants

        o   Common Stock Placement Agent Warrants

        o   See Provisions relating to Price Protection (I and II)


o Securities with  anti-dilution  provisions  (price  protection)  include  the
         Series A Preferred issue.


        o   See Provisions relating to Price Protection (III)




<PAGE>




                           PALATIN TECHNOLOGIES, INC.
                           COMMON STOCK DILUTION TABLE
                              AS OF AUGUST 10, 1999

All stock amounts for derivative securities represent the maximum issuable if an
entire class were exercised  together,  making no allowance for  cancellation of
fractional  shares  upon  individual  exercise.  The  39,186  shares of Series A
Convertible  Preferred  Stock  outstanding  and  the  warrants  to  purchase  an
additional  13,362 shares of Series A Convertible  Preferred Stock are stated as
if  converted  to common  stock at the  adjusted  conversion  price of $4.67 per
share.  The 12,875  non-voting  shares of Series B Convertible  Preferred  Stock
outstanding  are stated as if converted to common stock at the reset  conversion
price of $3.52 per share.

<TABLE>
<CAPTION>

----------------------------------------------------------- ------------------
                          Class                                  Amount                      Comment
----------------------------------------------------------- ------------------
<S>                                                                <C>         <C>
Common Stock outstanding (actual):                                  7,215,560
----------------------------------------------------------- ------------------
*Series A Conv. Prfd. @ $4.67 conversion price                        839,100
----------------------------------------------------------- ------------------
Series A Conv. Prfd. converted, issuance pending                       12,504  Masada and Vinson Trust
----------------------------------------------------------- ------------------
Series A Conv. Prfd. converted, make-up due                             5,623  to be issued to holders who
                                                                               converted at $4.87
----------------------------------------------------------- ------------------
Series A Conv. Prfd. converted, make-up due                               578  to be issued to holders who
                                                                               converted at $4.68
----------------------------------------------------------- ------------------
Series B Conv. Prfd. @ $3.52 conversion price                         365,767
----------------------------------------------------------- ------------------
Series B Conv. Prfd. converted, issuance pending                            0
------------------------------------------------------------------------------ -------------------------------------
                    Total Common Outstanding, with Preferred As If Converted:                             8,439,132
----------------------------------------------------------- ------------------ -------------------------------------
                         Warrants
----------------------------------------------------------- ------------------
Common Stock Warrants ('98-'99 offering)                              939,250  exercise prices:  $4.375 & $4.70
----------------------------------------------------------- ------------------
Placement/Consulting warrants ('98-'99 offering)                      254,600    exercise prices: $3.75 to $4.70
----------------------------------------------------------- ------------------
Common Stock Warrants ('99 offering)                                  565,629  exercise prices:  $4.48 to $5.06
----------------------------------------------------------- ------------------
Placement Warrants ('99 offering)                                     114,073  exercise prices:  $4.48 to $5.57
----------------------------------------------------------- ------------------
*Placement Warrants (Series A Conv. Prfd.)                            286,145  effective exercise price:  $5.137
----------------------------------------------------------- ------------------
*Class A Warrants                                                      65,668  exercise price:  $0.22
----------------------------------------------------------- ------------------
*Placement Agent Warrants (Class A)                                    20,737  exercise price:  $0.22
----------------------------------------------------------- ------------------
*Class B Warrants                                                      30,766  exercise price:  $2.64
----------------------------------------------------------- ------------------
*Placement Agent Warrants (Class B)                                     2,334  exercise price:  $5.43
----------------------------------------------------------- ------------------
Class C Warrants                                                       69,124  exercise price:  $8.68
----------------------------------------------------------- ------------------
*Placement Agent Warrants (RhoMed offering)                           212,329  exercise price:  $5.43
----------------------------------------------------------- ------------------
*McInerney (Fin. Serv. Adv. Agr.) Warrants                             17,052  exercise prices:  $6.45 to $6.56
----------------------------------------------------------- ------------------
Old Interfilm Warrants                                                  1,875  exercise price:  $282.00
------------------------------------------------------------------------------ -------------------------------------
                                           Total of All Outstanding Warrants:                             2,579,582
----------------------------------------------------------- ------------------ -------------------------------------
                         Options
----------------------------------------------------------- ------------------
1996 SOP (Palatin)                                                  1,564,277  includes 225,000 granted 7/8/99
----------------------------------------------------------- ------------------
1995 EISOP (RhoMed)                                                    80,359
----------------------------------------------------------- ------------------
1995 NQSOP (RhoMed)                                                    40,114
----------------------------------------------------------- ------------------
1993 EIP (Interfilm)                                                      750
----------------------------------------------------------- ------------------
1987 EISOP (RhoMed)                                                    25,368
----------------------------------------------------------- ------------------
1987 NQSOP (RhoMed)                                                    38,478
----------------------------------------------------------- ------------------
Quilty anti-dilution options through 3/24/98                          106,609
----------------------------------------------------------- ------------------
other options: 1997 Exec. Off. SOA = 103,004. Spana SOA =             257,462
74,196.  Putnam SOA = 74,196.  Murphy SOA = 6,066.
------------------------------------------------------------------------------ -------------------------------------
                                            Total of All Outstanding Options:                             2,113,417
------------------------------------------------------------------------------ -------------------------------------
                                 Total of All Outstanding Warrants & Options:                             4,692,999
----------------------------------------------------------- ------------------ -------------------------------------
                           COMBINED TOTAL (Fully Diluted):         13,132,131
----------------------------------------------------------- ------------------
</TABLE>


*Preferred stock and warrants with price protection.  The conversion or exercise
price of these  securities will be adjusted  downward if Palatin sells common or
common-equivalent  securities  with a per  share  price  less  than the  current
conversion  or  exercise  price  (shown in the  table).  In the case of Series A
preferred stock, the conversion price will also be adjusted  downward if Palatin
sells common or  common-equivalent  securities  with a per share price less than
the current market price of common stock.

All outstanding  derivative securities have standard  anti-dilution  protection,
preserving  their  proportional  share of  common  stock  in the  event of stock
dividends, stock splits, recapitalizations, merger, etc.




<PAGE>




         Provisions Relating to Price Protection


                           I. Selected Provisions of:

                                Class A Warrants
                        Class A Placement Agent Warrants
                                Class B Warrants
                        Class B Placement Agent Warrants
                      Common Stock Placement Agent Warrants

         These five  groups of  warrants  have  identical  provisions  for price
protection in the event of the issuance of Common Stock (including  warrants and
options)  at a price per share  less than the Per Share  Warrant  Price  then in
effect:

Section 3 (c)

                  (c) Except as provided in  Subsections  3(a) and 3(d), in case
         the Company  shall  hereafter  issue or sell any Common  Stock,  or any
         securities  convertible  into Common  Stock or any  rights,  options or
         Warrants to purchase Common Stock or securities convertible into Common
         Stock,  in each  case for a price per share or  entitling  the  holders
         thereof to purchase  Common Stock at a price per share  (determined  by
         dividing (i) the total  amount,  if any,  received or receivable by the
         Company in  consideration  of the  issuance or sale of such  securities
         plus the total  consideration,  if any,  payable  to the  Company  upon
         exercise or conversion thereof (the "TOTAL  CONSIDERATION") by (ii) the
         number of additional  shares of Common Stock  issuable upon exercise or
         conversion  of such  securities)  less than the then  current Per Share
         Warrant Price in effect on the date of such  issuance or sale,  the Per
         Share  Warrant  Price shall be adjusted as of the date of such issuance
         or sale so that the same shall equal the price  determined  by dividing
         (i) the sum of (A) the number of shares of Common Stock  outstanding on
         the date of such  issuance or sale  multiplied by the Per Share Warrant
         Price plus (B) the Total  Consideration by (ii) the number of shares of
         Common Stock  outstanding on the date of such issuance or sale plus the
         maximum  number of  additional  shares of Common  Stock  issuable  upon
         exercise or conversion of such securities.





<PAGE>


   II. Selected Provisions of Financial Advisory Services (McInerney) Warrants

There are two outstanding  Financial Advisory Services  Warrants,  which contain
identical terms including the following provisions:

Section 3(c)

                  (c) Except as provided in  subsections  3(a) and 3(d), in case
         the  Company  shall  hereafter  issue or sell  any  Common  Stock,  any
         securities  convertible  into Common  Stock or any  rights,  options or
         warrants to purchase Common Stock or securities convertible into Common
         Stock,  other  than an  offering  of  securities  for  which  Paramount
         Capital,  Inc.  serves as  placement  agent  initiated  within 180 days
         following September 1, 1996 (the "Private Placement"), in each case for
         a price per share or entitling the holders  thereof to purchase  Common
         Stock at a price  per  share  (determined  by  dividing  (i) the  total
         amount,  if any, received or receivable by the Company in consideration
         of  the   issuance   or  sale  of  such   securities   plus  the  total
         consideration,  if  any,  payable  to  the  Company  upon  exercise  or
         conversion  thereof (the "TOTAL  CONSIDERATION")  by (ii) the number of
         additional  shares  of  Common  Stock  issued,  sold or  issuable  upon
         exercise or conversion of such  securities)  less than the then current
         Market Price of the Common Stock or the current Per Share Warrant Price
         in effect on the date of such  issuance or sale,  the Per Share Warrant
         Price shall be adjusted by multiplying the Per Share Warrant Price then
         in effect by a fraction, the numerator of which shall be (x) the sum of
         (A) the number of shares of Common Stock outstanding on the record date
         of such  issuance or sale plus (B) the Total  Consideration  divided by
         either the current  Market Price of the Common Stock or the current Per
         Share Warrant Price, whichever is greater, and the denominator of which
         shall be (y) the number of shares of Common  Stock  outstanding  on the
         record  date of such  issuance  or sale  plus  the  maximum  number  of
         additional  shares  of  Common  Stock  issued,  sold or  issuable  upon
         exercise or conversion of such securities.




<PAGE>


        III. Selected Provisions of Series A Convertible Preferred Stock
                           Certificate of Designations

Section 3 (b) (i) (selected portions):

         "Market Price" of a security  shall mean the average  Closing Bid Price
         (as  defined  below) of such  security,  for  twenty  (20)  consecutive
         trading  days,  ending  with the day  prior to the date as of which the
         Market Price is being determined.

         The  "Closing Bid Price" for any security for each trading day shall be
         the  reported  closing  bid  price  of such  security  on the  national
         securities  exchange  on which such  security  is listed or admitted to
         trading,  or, if such  security is not listed or admitted to trading on
         any national securities  exchange,  shall mean the reported closing bid
         price of such  security  on the  Nasdaq  SmallCap  Market or the Nasdaq
         National Market System  (collectively  referred to as, "Nasdaq") or, if
         such  security  is not listed or  admitted  to trading on any  national
         securities  exchange  or  quoted on  Nasdaq,  shall  mean the  reported
         closing bid price of such security on the principal securities exchange
         on which such  security is listed or admitted to trading  (based on the
         aggregate dollar value of all securities listed or admitted to trading)
         or, if such security is not listed or admitted to trading on a national
         securities exchange,  quoted on Nasdaq or listed or admitted to trading
         on any other securities  exchange,  shall mean the closing bid price in
         the  over-the-counter  market  as  furnished  by any NASD  member  firm
         selected from time to time by the Corporation for that purpose.

         "Trading  day" shall  mean a day on which the  securities  exchange  or
         NASDAQ  used to  determine  the  Closing  Bid  Price  is  open  for the
         transaction  of business or the  reporting of trades or, if the Closing
         Bid Price is not so determined, a day on which such securities exchange
         is open for the transaction of business.

Section 4 (c) (i):

                  (i)  Except as  otherwise  provided  herein,  in the event the
         Corporation  shall,  at any time or from  time to time  after  the date
         hereof,(1) sell or issue any shares of Common Stock for a consideration
         per share less than  either (i) the  Conversion  Price in effect on the
         date of such sale or  issuance  or (ii) the Market  Price of the Common
         Stock as of the date of the sale or  issuance,  (2) issue any shares of
         Common Stock as a stock dividend to the holders of Common Stock, or (3)
         subdivide  or combine  the  outstanding  shares of Common  Stock into a
         greater  or  lesser   number  of  shares  (any  such  sale,   issuance,
         subdivision or  combination  being herein called a "Change of Shares"),
         then, and thereafter upon each further Change of Shares, the Conversion
         Price in effect  immediately  prior to such  Change of Shares  shall be
         changed  to a  price  (rounded  to  the  nearest  cent)  determined  by
         multiplying the Conversion Price in effect immediately prior thereto by
         a fraction,  the  numerator  of which shall be the sum of the number of
         shares of Common  Stock  outstanding  immediately  prior to the sale or
         issuance of such additional  shares or such  subdivision or combination
         and  the  number  of  shares  of  Common  Stock  which  the   aggregate
         consideration received (determined as provided in subsection 4(c)(v)(F)
         below) for the issuance of such additional shares would purchase at the
         greater  of (i) the  Conversion  Price  in  effect  on the date of such
         issuance or (ii) the Market Price as of such date, and the  denominator
         of which  shall be the  number of shares  of Common  Stock  outstanding
         immediately  after the sale or  issuance of such  additional  shares or
         such  subdivision  or  combination.   Such  adjustment  shall  be  made
         successively whenever such an issuance is made.

It should be noted that the foregoing  provides  price  protection  both for (i)
issuances  under the Conversion  Price and (ii) issuances under the Market Price
of the Common Stock.

For purposes of the foregoing,  the Certificate of Designation  further provides
the following definition:

Section 4(c)(v):

                  (v) For  purposes of Section  4(c)(i)  hereof,  the  following
         provisions (A) to (F) shall also be applicable:

                           (A) The  number  of shares  of  Common  Stock  deemed
                  outstanding  at any given  time  shall  include  all shares of
                  capital  stock  convertible  into or  exchangeable  for Common
                  Stock  and all  shares  of  Common  Stock  issuable  upon  the
                  exercise of any convertible debt, warrants  outstanding on the
                  date thereof and options outstanding on the date thereof.

Accordingly,  calculations  are  based  on  a  fully-diluted  number,  including
issuance of Common Stock on conversion of Series A Convertible  Preferred  Stock
at the Conversion Price in effect prior to the recalculation.





<PAGE>


                                    EXHIBIT H

                   SUBORDINATED NON-NEGOTIABLE PROMISSORY NOTE

$2,000,000                 St. Louis, Missouri
                                                                   May __, 1999

                  PALATIN    TECHNOLOGIES,    INC.,   a   Delaware   corporation
(hereinafter called the "COMPANY"),  for value received,  hereby promises to pay
to MALLINCKRODT INC., a Delaware corporation (hereinafter called "MALLINCKRODT")
the principal sum of Two Million  Dollars  ($2,000,000),  on the date  specified
herein  below,  and to pay simple  interest  from the date  hereof on the unpaid
principal amount hereof at the rate of 9% per annum, payable in full on the date
when the principal  amount hereof shall have become due and payable,  whether at
maturity or by acceleration  or otherwise,  and thereafter on demand at the rate
of 12% per annum on any overdue principal amount and (to the extent permitted by
applicable law) on any overdue interest until paid.

                  All payments of  principal  and interest on this Note shall be
in such coin or  currency  of the  United  States of  America  as at the time of
payment shall be legal tender for payment of public and private debts, and shall
be made at the offices of MALLINCKRODT, 675 McDonnell Boulevard, P. O. Box 5840,
St. Louis, Missouri 63134, or its successors or assigns, as applicable.

                  1. Events Requiring Payment.  The principal  hereunder and all
interest  accrued  thereon  shall be due and payable in full on the  earliest to
occur  of  either  of the  following  dates  or  events:  (i) the  execution  by
MALLINCKRODT and COMPANY of a Strategic  Collaboration Agreement relative to the
development,    manufacture,    marketing    and   sale   of    LeuTech(R),    a
radiopharmaceutical imaging product useful in imaging infection and inflamation,
or (ii) December 31, 2000. In the event of the occurrence of the event set forth
in clause (i) of the immediately preceding sentence,  the principal and interest
due hereunder will be paid by offset against  amounts  otherwise due and payable
to COMPANY by  MALLINCKRODT  as a consequence of the execution of said Strategic
Collaboration Agreement.

                  2.  Security  for  Repayment.  Repayment of this Note shall be
secured by an interest in substantially  all of the assets of COMPANY  ("Secured
Assets"),  as more fully  described in and in accordance  with the terms of that
certain Security Agreement between  MALLINCKRODT and the COMPANY attached hereto
as  Exhibit I and  expressly  made a part  hereof  (the  "Security  Agreement").
COMPANY  affirms  and  MALLINCKRODT  understands  that  the  lien  securing  the
repayment  obligations  under  this Note  shall be  secondary  in  priority  and
subordinate  to any  security  interest  held by any  banks,  lenders,  or other
financial  institutions  (collectively  "Banks") to whom the COMPANY has granted
any  security  interest  or other  lien on or prior to the date  hereof,  and in
accordance  with the terms and conditions  specifically  governing such security
interest or other liens as such terms and conditions exist on and as of the date
hereof.


<PAGE>


                  3.  Loss,  Theft,  Destruction  or  Mutilation  of Note.  Upon
receipt of evidence  reasonably  satisfactory to the COMPANY of the loss, theft,
destruction or mutilation of this Note, and, in the case of any such loss, theft
or  destruction,  upon  receipt  of an  affidavit  of loss  and  indemnity  from
MALLINCKRODT reasonably satisfactory to the COMPANY, or, in the case of any such
mutilation,  upon surrender and cancellation of this Note, the COMPANY will make
and deliver, in lieu of this Note, a new Note of like tenor and unpaid principal
amount and dated as of the original date hereof.

                  4.  Prepayment.  Upon notice given to MALLINCKRODT the COMPANY
may, at its option, prepay the Note, as a whole at any time or in part from time
to time together with interest  accrued thereon to the date of such  prepayment.
Upon  any  prepayment  of a  portion  of the  principal  amount  of  this  Note,
MALLINCKRODT,  at its option,  may require the COMPANY to execute and deliver at
the expense of the  COMPANY,  upon  surrender  of this Note,  a new Note for the
principal amount of this Note then remaining unpaid, or may present this Note to
the COMPANY for notation  hereon of the payment of the portion of the  principal
amount of this Note so prepaid.

                  5. Covenants.  The COMPANY  covenants and agrees that, so long
as any Note shall be outstanding;

                  (a) The COMPANY will promptly pay and discharge or cause to be
paid and discharged,  before the same shall become in default,  all lawful taxes
and  assessments  imposed upon the COMPANY or any  subsidiary or upon the income
and  profits  of the  COMPANY or any  subsidiary,  or upon any  property,  real,
personal or mixed, belonging to the COMPANY or any subsidiary,  or upon any part
thereof by the United States or any State thereof,  as well as all lawful claims
for labor,  materials  and  supplies  which,  if unpaid,  would become a lien or
charge upon the Secured  Assets  thereof;  provided,  however,  that neither the
COMPANY nor any subsidiary shall be required to pay and discharge or to cause to
be paid and discharged any such tax,  assessment,  charge, levy or claim so long
as the  COMPANY or its  subsidiary  (as  appropriate)  shall be  contesting  the
validity thereof in good faith by appropriate  proceedings or the COMPANY shall,
in its good faith judgment, deem the validity thereof to be questionable.

                  (b) The COMPANY will at all times  maintain and keep, or cause
to be  maintained  and  kept,  in  good  repair,  working  order  and  condition
(reasonable  wear and tear excepted) all  significant  properties of the COMPANY
and its  subsidiaries  which  are  included  in the  Secured  Assets  (including
maintenance of fees for filing or  registration  due and payable with respect to
any  intellectual  property rights included in the Secured Assets) and will from
time to time  make or cause  to be made  all  reasonably  necessary  and  proper
repairs, renewals, replacements, betterments and improvements thereto.

                                                         2


<PAGE>


                  (c) The COMPANY will keep adequately  insured,  and will cause
each of its subsidiaries to keep adequately  insured,  by financially  sound and
reputable  insurers,  all property included in the Secured Assets of a character
usually  insured  by  corporations  engaged  in the same or a  similar  business
similarly  situated  against  loss or damage of the  kinds  customarily  insured
against by such corporations.

                  (d) The COMPANY will at all times keep,  and cause each of its
subsidiaries to keep, proper books of record and account in which proper entries
will  be  made  of  its  transactions  in  accordance  with  generally  accepted
accounting principles consistently applied.

                  (e)  The  COMPANY  will do or  cause  to be  done  all  things
necessary and lawful to preserve and keep in full force and effect its corporate
existence,  rights  and  franchises  and the  corporate  existence,  rights  and
franchises  of each  of its  operating  subsidiaries;  provided,  however,  that
nothing in this paragraph (e) shall prevent (i) a consolidation or merger of, or
a sale,  transfer or disposition of all or any substantial  part of the property
and assets of the COMPANY not  prohibited  by the  provisions  of paragraph  (f)
below, or (ii) the abandonment or termination of any rights or franchises of the
COMPANY,  or  the  liquidation  or  dissolution  of,  or  a  sale,  transfer  or
disposition (whether through merger, consolidation, sale or otherwise) of all or
any  substantial  part of the  property  and  assets  of any  subsidiary  or the
abandonment or termination of the corporate existence,  rights and franchises of
any subsidiary if such abandonment, termination, liquidation, dissolution, sale,
transfer or disposition is, in the good faith business  judgment of the COMPANY,
in the best interests of the COMPANY and does not prejudice  MALLINCKRODT in any
material respect.

                  (f) The COMPANY will not consolidate or merge with or into, or
sell or otherwise  dispose of all or  substantially  all of its property to, any
other corporation or other entity, unless:

                  (i) the surviving  corporation  or other entity (if other than
the  COMPANY)  shall  expressly  and  effectively  assume in writing the due and
punctual  payment of the principal of and interest on the Note,  and the due and
punctual performance and observation of all the terms, covenants, agreements and
conditions  of this Note and the Security  Agreement to be performed or observed
by the COMPANY to the same extent as if such surviving  corporation had been the
original maker of the Note,

                  (ii) the  COMPANY or such other  corporation  or other  entity
shall not  otherwise  be in  default in the  performance  or  observance  of any
material  covenant,  agreement  or  condition  of the  Note  or of the  Security
Agreement, and



                                                         3


<PAGE>


                  (iii)   MALLINCKRODT   shall  have  received,   in  connection
therewith,  immediately  prior to the closing of such  transaction an opinion of
counsel for the COMPANY (or other counsel satisfactory to MALLINCKRODT), in form
and  substance  satisfactory  to  MALLINCKRODT,  to the  effect  that  any  such
consolidation,  merger, sale or conveyance and any such assumption complies with
the provisions of this paragraph (f).

                  6.  Events  of  Default.  If any one or more of the  following
events,  herein  called  "Events  of  Default,"  shall  occur,  for  any  reason
whatsoever, and whether such occurrence shall, on the part of the COMPANY or any
subsidiary,  be  voluntary  or  involuntary  or come  about  or be  effected  by
operation of law or pursuant to or in compliance  with any  judgment,  decree or
order of a court of competent  jurisdiction or any order,  rule or regulation of
any  administrative or other governmental  authority,  and such Event of Default
shall be continuing:

                  (a) default  shall be made in the payment of the  principal or
interest  of this Note when and as the same  shall  become  due and  payable  in
accordance with the terms provided herein, or

                  (b) default shall be made in the due observance or performance
of any other covenant,  representation,  warranty, condition or agreement on the
part of the COMPANY to be observed or performed  pursuant to the terms hereof or
pursuant to the Security  Agreement and such default  shall  continue for thirty
(30) days after receipt of written notice  thereof,  specifying such default and
requesting that the same be remedied, by the COMPANY from MALLINCKRODT, or

                  (c) the  entry of a  decree  or order  for  relief  by a court
having  jurisdiction  in  respect  of  the  COMPANY  or  any  subsidiary  in any
involuntary  case under the  federal  bankruptcy  laws,  as now  constituted  or
hereafter  amended,  or  any  other  applicable  federal  or  state  bankruptcy,
insolvency  or  other  similar  laws,  or  appointing  a  receiver,  liquidator,
assignee,  custodian, trustee, sequestrator (or similar official) of the COMPANY
or any subsidiary or for any substantial  part of any of their property,  or for
all or any  portion  of the  Secured  Assets,  or  ordering  the  winding-up  or
liquidation  of any of their affairs and the  continuance  of any such decree or
order unstayed and in effect for a period of sixty (60) days, or

                  (d) the  commencement  by the COMPANY or any  subsidiary  of a
voluntary  case  under  the  federal  bankruptcy  laws,  as now  constituted  or
hereafter  amended,  or  any  other  applicable  federal  or  state  bankruptcy,
insolvency  or  other  similar  laws,  or the  consent  by any  of  them  to the
appointment  of  or  taking  possession  by a  receiver,  liquidator,  assignee,
trustee,  custodian,  sequestrator (or other similar official) of the COMPANY or
any subsidiary or for any substantial part of their property,  or for all or any
portion of the Secured  Assets,  or the making by any of them of any  assignment
for the benefit of creditors, or
                                                         4


<PAGE>


                  (e) any default,  as defined in any  instrument  evidencing or
under  which the  COMPANY  or any  subsidiary  has  outstanding  at the time any
indebtedness  for money  borrowed  in excess of $50,000 in  aggregate  principal
amount, shall occur,

then,  MALLINCKRODT may, at its option,  by notice to the COMPANY,  declare this
Note to be, and this Note  shall  thereupon  be and  become,  forthwith  due and
payable  together with interest  accrued  thereon without  presentment,  demand,
protest or further notice of any kind, all of which are expressly  waived to the
extent permitted by law.

                   7.  Suits  for  Enforcement.  In case  any one or more of the
Events  of  Default  specified  in  Section 6 of this  Note  shall  occur and be
continuing,  MALLINCKRODT  may proceed to protect and enforce its rights by suit
in equity, action at law and/or by other appropriate proceeding, whether for the
specific  performance of any covenant or agreement  contained in this Note or in
aid of the exercise of any power granted in this Note, or may proceed to enforce
the  payment  of this Note or to  enforce  any other  legal or  equitable  right
hereunder.

                  In case of any default  under this Note,  the COMPANY will pay
to  MALLINCKRODT  such  amounts  as shall be  sufficient  to cover the costs and
expenses of  MALLINCKRODT  directly  attributable  to said  default,  including,
without  limitation,  collection  costs and reasonable  attorneys'  fees, to the
extent actually incurred.

                  8.  Remedies  Cumulative.  No  remedy  herein  conferred  upon
MALLINCKRODT  is intended to be exclusive of any other remedy and each and every
such remedy shall be  cumulative  and shall be in addition to every other remedy
given  hereunder or now or hereafter  existing at law on in equity or by statute
or otherwise.

                  9. No Waiver.  No course of dealing  between  the  COMPANY and
MALLINCKRODT  or any delay on the part of  MALLINCKRODT in exercising any rights
hereunder shall operate as a waiver of any of its rights  hereunder.  No failure
by  MALLINCKRODT  on any occasion to exercise any rights or remedies it may have
hereunder shall prejudice or operate as a waiver of any rights  MALLINCKRODT may
have on any  subsequent  occasion to enforce its rights or take advantage of its
remedies pursuant to this Note.

                  10.  Subordination.

                  (a) Anything in this Note to the contrary notwithstanding, the
obligation of the COMPANY to pay the principal of and interest on this Note, and
to  discharge  all  its  other  obligations  hereunder  or  under  the  Security
Agreement,  shall  be  subordinate  and  junior  in  right  of  payment  to  any
indebtedness  of  COMPANY  to Banks  that is  outstanding  on and as of the date
hereof.  The  obligations of the COMPANY to which this Note is  subordinate  and
junior in the right of payment in accordance with said  Subordination  Agreement
are  sometimes  herein  referred  to  as  "Senior  Debt."   MALLINCKRODT  hereby
acknowledges that the Senior Debt includes,
                                                         5


<PAGE>


without  limitation,  debt under a patent  assignment and license agreement with
Aberlyn Capital Management Limited Partnership dated as of July 15, 1993.

                  (b)  Subject  to the  payment  in  full  of all  Senior  Debt,
MALLINCKRODT  shall be subrogated to the rights of the holders of Senior Debt to
receive  payments or  distributions  of any kind or character,  whether in cash,
property,  stock or obligations  (including any delivery of the Secured Assets),
which may be payable or  deliverable  to the holders of Senior Debt.  Subject to
the rights of the holders of the Senior Debt,  in  accordance  with the terms of
any  agreements  between  any of such  holders  and  COMPANY,  to receive  cash,
property, stock or obligations otherwise payable or deliverable to the holder of
this Note,  nothing  herein  shall  either  impair,  as between  the COMPANY and
MALLINCKRODT,  the  obligation  of  the  COMPANY,  which  is  unconditional  and
absolute,  to pay  MALLINCKRODT  the  principal  hereof and  interest  hereon in
accordance   with  the  terms  and  the  provisions  of  this  Note  or  prevent
MALLINCKRODT from exercising all remedies otherwise  permitted by applicable law
or upon  default  hereunder.  In  addition,  nothing set forth  herein  shall be
construed  as having  any effect or purpose to limit or change in any manner any
rights or  remedies  MALLINCKRODT  may have  under any other  agreement  between
MALLINCKRODT  and the  COMPANY,  whether  currently  in effect or  entered  into
hereafter.

                  11. Successors and Assigns.  All the covenants,  stipulations,
promises and  agreements  in this Note  contained by or on behalf of the COMPANY
shall bind its successors and assigns, whether so expressed or not.

                  12.  Governing  Law. This Note shall be enforced and construed
in accordance  with the laws of the State of New York,  without giving effect to
its conflict of laws principles.

                  13.  Headings.  The headings of the Sections and paragraphs of
this Note are inserted for convenience only and do not constitute a part of this
Note.

                  14. Validity.  The execution and delivery of this Note and the
Security  Agreement  and  the  performance  by the  COMPANY  of its  obligations
hereunder and thereunder  have been duly  authorized by all requisite  corporate
action by the COMPANY and will not violate  any  provisions  of law,  any of the
corporate governing documents of the COMPANY or any provisions of any indenture,
agreement or other  instrument  to which  COMPANY or any of its assets is bound.
This Note has been duly  executed and  delivered by the COMPANY and  constitutes
the legal, valid and binding obligation of the COMPANY,  enforceable against the
COMPANY in  accordance  with its terms.  The execution and delivery of this Note
and the  performance by the COMPANY of its  obligations  hereunder and under the
Security Agreement does not and will not violate any judicial decree or order.

                                                         6


<PAGE>


                  IN WITNESS WHEREOF, PALATIN TECHNOLOGIES, INC. has caused this
Note to be signed in its corporate  name by one of its officers  thereunto  duly
authorized and to be dated as of the date and year first above written.

                                        PALATIN TECHNOLOGIES, INC.



                                        By:_________________________________

                                        Name:
                                        Title:





<PAGE>


                                    EXHIBIT I

                               SECURITY AGREEMENT

                  THIS SECURITY AGREEMENT (the "Security  Agreement") is entered
into as of May __, 1999,  by and among  Palatin  Technologies,  Inc., a Delaware
corporation,  with its principal executive offices in Princeton, New Jersey (the
"Debtor"),  and Mallinckrodt  Inc., a Delaware  corporation,  with its principal
offices in St. Louis, Missouri (the "Secured Party").

                  WHEREAS, on and as of the date hereof, the Debtor has executed
and delivered to Secured Party a certain Subordinated  Non-Negotiable Promissory
Note in the original principal amount of Two Million Dollars  ($2,000,000) (such
promissory  note,  and  any  and  all  amendments,  modifications,   extensions,
restatements,  renewals,  refinancings and/or replacements  thereof from time to
time being herein referred to as the "Note");

                  WHEREAS,  the  indebtedness  evidenced  by the  Note  will  be
secured  as  provided  in  Section 2  thereof  and as  consistently  hereinafter
provided; and

                  WHEREAS,  Debtor,  in  consideration of and in order to induce
Secured  Party to make the  advance  of Two  Million  Dollars  ($2,000,000)  has
determined  that it is in the best interest of Debtor and has agreed to execute,
deliver and perform this Security Agreement;

                  NOW, THEREFORE,  for valuable  consideration,  the sufficiency
and receipt of which are hereby  acknowledged,  the Debtor and the Secured Party
hereby agree as follows:

                  1.  Definitions.  As  used  in this  Security  Agreement,  the
following  terms,  which are in  addition  to terms  defined  elsewhere  in this
Security Agreement, shall have the respective meanings as listed below:

                  "Accounts"  shall mean (i) any right to payment  for  services
rendered  and/or for goods sold or leased,  now or hereafter owing to or held by
Debtor,  whether such right to payment be  classified  by law as an  instrument,
chattel paper,  contract right, account,  general intangible or otherwise,  (ii)
the security, if any, for such right to payment, (iii) Debtor's right, title and
interest (including,  without limitation, any applicable right of reclamation or
stoppage in transit) in or to the personal property, if any, that is the subject
of such right to payment,  and (iv) all books, ledgers and records pertaining to
such right to payment (whether written or electronic),  all whether now owned or
hereafter acquired by Debtor.

                  "Deposit  Accounts"  means  any  and all  accounts,  deposits,
investments, monies, securities or other property of Debtor.




<PAGE>


                  "Equipment"  shall mean all machinery,  computer  hardware and
software,  equipment,  appliances,  furniture,  fixtures,  tools,  supplies  and
tangible  personal  property  (except  Inventory) of every kind and description,
including but not limited to, property  included within the term  "Equipment" as
defined in the UCC, now owned or hereafter acquired by Debtor.
                  "General  Intangibles"  shall mean all  property  (other  than
Accounts, Equipment, Inventory, and Deposit Accounts) including, but not limited
to,  all  rights  in  patents,   patent   applications,   trademarks  and  other
intellectual property, choses in action, contract rights, tax refunds, rights in
respect of employee  benefit plan  assets,  trademarks,  trade names,  licenses,
consents,   permits,   marketing   agreements,   copyrights,   customer   lists,
identification of suppliers,  data, plans,  specifications,  recorded knowledge,
manuals,  standards,  catalogs, books, records, sales data and other information
relating  to  sales,  certifications  and  approvals  of  governmental  agencies
pertaining to Debtor's  operations or business,  all rights of Debtor to receive
return of deposits  and trust  payments,  all  judgments,  awards and  warehouse
receipts,  in each case  whether now owned or  hereafter  acquired by Debtor and
whether now existing or hereafter arising.

                  "Inventory"  shall mean all  merchandise,  finished goods, raw
materials, work in process, packaging, supplies, all types of property of Debtor
included  within the term  "Inventory"  as defined in the UCC and other tangible
personal  property held for sale or lease or furnished or to be furnished  under
contracts of service or used or consumed in Debtor's business, wherever located,
whether  now  owned  or  hereafter  acquired  by  Debtor   (including,   without
limitation,  goods which are returned to or  repossessed  by Debtor) and whether
now existing or hereafter arising.

                  "Secured  Assets"  shall mean and  include  all  property  and
interests therein of every kind and description  (tangible or intangible,  real,
personal or mixed),  wherever  located,  now owned or hereafter  acquired by the
Debtor and  whether  now  existing  or  hereafter  arising,  including,  without
limitation,  (i) all Accounts, (ii) all Equipment, (iii) all Inventory, (iv) all
General  Intangibles,  (v) all  Deposit  Accounts,  (vi) all  accessions  to and
products of any of the foregoing,  (vii) all additions to, or  substitutions  or
replacements  for any of the foregoing,  (viii) all proceeds of, or from, any of
the foregoing,  (including insurance proceeds,  whether or not the Secured Party
is the loss  payee  thereunder),  and (ix) in all  cases,  whether  now owned or
existing or hereafter acquired or arising.

                  "UCC" shall mean the Uniform  Commercial  Code as amended from
time to time,  and any successor  statute,  enacted and in effect at any time in
the State of New York.

                                                         2


<PAGE>


                  2.  Definitions  Incorporated.  The  following  terms  as used
herein have the meanings given to them in the Note: "Banks," "Event of Default,"
and  "Senior  Debt." In the event that the Note is from time to time  amended or
modified  or  any  instrument  is  substituted  in  replacement  thereof,   such
amendment,  modification or substitution shall, from and after the date thereof,
be  included  within the  definition  of the "Note" as used  herein.  Terms used
herein, if not otherwise  defined herein,  shall have the meanings given them in
the UCC as enacted and as from time to time in effect in New York.

                  3.  Security  Interest.  The Debtor,  and its  successors  and
assigns,  hereby give and grant to the Secured Party a security  interest in all
the Secured Assets and all of their right,  title and interest therein,  whether
now owned or  existing or  hereafter  acquired  or  arising,  together  with all
proceeds  therefrom  to secure (i) the payment of all  principal of and interest
heretofore or hereafter  owing or outstanding  on the Note  (including any notes
substituted therefor),  (ii) the payment by the Debtor of all costs and expenses
(including  reasonable  attorneys'  fees)  incurred by the Secured  Party in the
collection  of amounts due under the Note or in  enforcing  its rights under the
Note or this Security  Agreement and (iii) the  performance by the Debtor of all
its  obligations  under the Note or this Security  Agreement.  The foregoing set
forth in clauses (i), (ii) and (iii) of the previous  sentence shall hereinafter
be referred to as the "Obligations."  Anything in this Security Agreement to the
contrary notwithstanding, the Obligations are subordinate and junior in right of
payment to any rights of the Senior  Debt,  as those rights may appear and exist
on and as of the date hereof.

                  4. Debtor  Remains  Liable.  Anything  herein to the  contrary
notwithstanding,  (i)  Debtor  shall  remain  liable  under  all  contracts  and
agreements  included  in the Secured  Assets to the extent set forth  therein to
perform all of its duties and  obligations  thereunder  to the same extent as if
this Security Agreement had not been executed,  (ii) the exercise by the Secured
Party of any of its rights  hereunder  shall not release  Debtor from any of its
duties or obligations under the contracts and agreements included in the Secured
Assets,  and (iii) the Secured Party shall not have any  obligation or liability
under  the  contracts  and  agreements  included  in the  Secured  Assets  or be
obligated to perform any of the obligations or duties of Debtor thereunder or to
take any action to collect or enforce any claim for payment assigned hereunder.

                  5.  Accounts.  Subject  to the rights of holders of the Senior
Debt as described in Section 10 of the Note,  with respect to Accounts  included
within the Secured Assets, Debtor covenants and agrees as follows:

                  (a)  Subject to the  rights of  holders of the Senior  Debt as
         described  in  Section  10 of the Note,  the  Debtor  shall,  after the
         occurrence  and during  the  continuance  of an Event of Default  which
         remains uncured (if by the express

                                                         3


<PAGE>


         terms of the  Note it may be  cured),  at the  request  of the  Secured
         Party,  execute and  deliver a form of  agreement  satisfactory  to the
         Secured  Party  and its  counsel,  establishing  a lock  box  and  cash
         collateral arrangement with the Secured Party.

                  (b) In the event a  government  (including  the United  States
         Government, the government of any state or any local government) or any
         department,  agency,  instrumentality  or  subdivision  thereof  is  an
         account debtor or obligor on any Accounts or is a party to any contract
         or order out of which will arise an Account,  the Debtor shall promptly
         notify the Secured Party of that fact and will execute such instruments
         and take such steps  required  by the  Secured  Party in order that the
         Account and all moneys due to the Secured Party and due notice  thereof
         is given to the appropriate governmental official.

                  (c) After an Event of Default and the repayment in full of the
         Senior Debt and the termination of any agreements relating thereto, the
         Secured  Party  shall have the right  from time to time to arrange  for
         verification  of all Accounts  directly with the account  debtors or by
         other methods  reasonably  satisfactory to the Secured Party.  Any such
         verification  shall be conducted in such a manner as to prevent  (where
         possible) or minimize disruption to Debtor's business.

                  (d) In the event any Accounts are  evidenced by chattel  paper
         or other negotiable instruments, the Debtor shall, after the occurrence
         and during the  continuance  of an Event of Default  and subject to the
         Senior Debt,  deliver the same to the Secured Party (with all requisite
         endorsements,  in favor of the Secured  Party,  which the Secured Party
         may make as  attorney-in-fact  for the Debtor) as soon as possible  and
         prior to such delivery shall hold (subject to the Senior Debt) the same
         in trust for the benefit of the Secured Party.

                  (e)  Except as  otherwise  provided  in this  subsection,  the
         Debtor shall use its  commercially  reasonable best efforts to collect,
         at its own expense,  all amounts due or to become due on the  Accounts.
         After  the  occurrence  and  continuance  of an Event of  Default,  the
         Secured  Party shall have the right at any time,  subject to the Senior
         Debt, upon written notice to the Debtor,  at the expense of the Debtor,
         to take such action to collect the Accounts as the Secured  Party deems
         proper,  including,  without  limitation,  the right to notify  account
         debtors  to remit all  payments  to the  Secured  Party and to  adjust,
         settle and compromise  payment  thereof,  in the same manner and to the
         same extent as the Debtor might have done.  At such time as the Secured
         Party is entitled to exercise and in fact exercises its rights pursuant
         to the  preceding  sentence,  the  Debtor  shall not take any action to
         collect,  adjust,  settle or  compromise  any  Account  except with the
         written  consent of the Secured Party and any  collections  of Accounts
         received or held by the Debtor shall be

                                                         4


<PAGE>


         property of the Secured  Party,  shall be held in trust for the benefit
         of the  Secured  Party  and shall be  delivered  to the  Secured  Party
         immediately  with all  requisite  endorsements  in favor of the Secured
         Party  which the  Secured  Party may make as  attorney-in-fact  for the
         Debtor. The Secured Party does not have any obligation to the Debtor to
         collect or attempt to collect any  Accounts  or to preserve  any rights
         against any party in connection therewith.

                  (f) Debtor shall upon reasonable  request by the Secured Party
         and  immediately  after the  occurrence of an Event of Default give the
         Secured Party notice of all of the Deposit Accounts.

                  6. Inventory.  So long as no Event of Default  exists,  Debtor
may sell the Inventory in the ordinary course of business on customary  business
and  payment  terms,  but no sale in bulk shall be  permitted  without the prior
written consent of the Secured Party.

                  7. Equipment--Possession. Debtor is entitled to the possession
of its Equipment and to use the same in connection with its business, subject to
the rights of the Secured Party hereunder upon the occurrence and continuance of
an Event of Default.

                  8.  Records.  Debtor  will  at all  times  keep  accurate  and
complete  records  of  its  Accounts,  Deposit  Accounts,   Inventory,   General
Intangibles,  Equipment and other items included in the Secured Assets,  and the
Secured Party shall have the right at all reasonable times,  without  disruption
to the  business  of the  Debtor,  to examine  and  inspect the same and to make
copies thereof.

                  9.  Representations,  Warranties  and Covenants of the Debtor.
With  respect to the Secured  Assets,  Debtor  hereby  represents,  warrants and
covenants to the Secured Party as follows:

                  (a) Debtor is, and will be, the sole owner of all Accounts now
         or hereafter  appearing  on the books of Debtor,  and that the same are
         and will be, during the term of this Security Agreement, free and clear
         from any and all assignments,  liens, and security interests except for
         the security  interests of the holders of the Senior Debt and except as
         created hereby.

                  (b) All  Accounts  as shown on the books of Debtor or as shown
         in any certificate,  statement or other report, delivered by the Debtor
         to the Secured Party, shall represent valid and existing obligations of
         the  account  debtors  (except as  consistent  with past  practice  and
         experience of the Debtor)  representing  goods or services delivered or
         performed,  and  invoiced,  and which are not  subject to any  defense,
         counterclaim  or  right  of  setoff  unless  otherwise  stated  on such
         certificate, statement, or other report.

                                                         5


<PAGE>


                  (c) Debtor is and, during the term of this Security Agreement,
         will be the owner of each item of the Secured Assets;  the same will be
         used  solely  in  connection  with the  Debtor's  business;  all of the
         Equipment,  Inventory and General Intangibles are free and clear of all
         liens and encumbrances whatsoever,  except as otherwise provided herein
         and  except for the  security  interests  of the  holders of the Senior
         Debt.

                  (d)  Debtor  will  execute  all   financing   statements   and
         amendments  and  supplements  thereto,  if any,  and will attend to the
         filing of any and all  continuation  statements,  as may be  reasonably
         requested by the Secured Party in order to continue the validity of the
         security interests of the Secured Party hereunder.

                  (e)  Debtor  shall,  from  time to time  as  requested  by the
         Secured Party,  take such action and execute and deliver to the Secured
         Party  all  such  instruments,   supplements,  further  assurances  and
         security or other agreements as may be required or reasonably requested
         by the  Secured  Party in order to perfect  and  continue  the  Secured
         Party's security interest in the Secured Assets hereunder.

                  (f)  Debtor  agrees  to pay,  and to save  the  Secured  Party
         harmless from, any and all liabilities,  costs and expenses (including,
         without  limitation,  reasonable  legal fees and expenses) except those
         caused by willful  misconduct or gross  negligence of the Secured Party
         (i) with respect to, or resulting  from,  any delay in paying,  any and
         all excise,  sales or other taxes which may be payable or determined to
         be payable  with  respect  to any of the  Secured  Assets,  and (ii) in
         connection with any of the  transactions  contemplated by this Security
         Agreement.

                  (g) Debtor will not create,  incur or permit to exist,  and it
         will defend the  Secured  Assets  against,  and it will take such other
         action  as is  necessary  to  remove,  any  lien or  claim on or to the
         Secured  Assets,  other  than the liens  created  hereby  and the liens
         created  pursuant  to the Senior  Debt,  and it will  defend the right,
         title and  interest of the  Secured  Party in and to any of the Secured
         Assets against the claims and demands of all persons whomsoever, except
         for any claims and demands of the Senior Debt.

                  (h) Debtor will not sell, transfer, lease or otherwise dispose
         of any of the Secured  Assets,  except for sales of Inventory by Debtor
         in the ordinary course of its business.

                                                         6


<PAGE>


                  (i) Debtor has the power to execute and deliver this  Security
         Agreement  and to perform its  obligations  hereunder and has taken all
         necessary  action and has received all required  consents  (private and
         governmental)  to authorize such execution,  delivery and  performance,
         and therefore this Security Agreement  constitutes the legal, valid and
         binding  obligation  of the  Debtor,  enforceable  against  it and  the
         Secured Assets in accordance with its terms.  Furthermore,  to the best
         of Debtor's  knowledge,  this Security  Agreement does not and will not
         violate any judicial  decree or order,  or any rules or  regulations of
         any  federal,  state or local  government,  or any  branch,  agency  or
         instrumentality of same.

                  (j) The execution,  performance  and delivery of this Security
         Agreement does not violate or conflict with the terms or provisions of,
         or  the  Debtor's   performance  under,  any  agreement,   document  or
         instrument by which the Debtor is bound.

                  10.  Secured  Party's  Duties.  The  powers  conferred  on the
Secured Party hereunder are solely to protect its interest in the Secured Assets
and shall not impose any duty upon it to exercise any such powers. Secured Party
shall have no obligation to preserve rights against prior parties.

                  11. Default  Remedies.  Except as expressly and  unambiguously
set forth herein,  this Security  Agreement shall be deemed absolute and without
conditions and,  subject to the rights of the Senior Debt, the Secured Party may
enforce  its rights  with  respect to the  Secured  Assets  without  first being
required to attempt  collection of any sums due from the Debtor.  If an Event of
Default shall occur and remain uncured (if it is curable by the express terms of
the Note) for thirty  (30) days after  receipt of notice  thereof by Debtor from
the Secured Party,  the Secured Party shall have the following  rights  (subject
only to Section 10 of the Note and the rights of the  holders of the Senior Debt
generally):

                  (a) to perform any  defaulted  covenant or  agreement  of this
         Security Agreement to such extent as the Secured Party shall reasonably
         determine and advance such moneys as it shall deem reasonably advisable
         for the  aforesaid  purpose and all moneys so advanced,  together  with
         interest  thereon from the date advanced until paid at a rate per annum
         equal to the rate then in effect on the Note,  shall be secured  hereby
         and shall be repaid  promptly  after  notice of the amount due  without
         demand,  provided,  however,  that nothing  herein  contained  shall be
         construed to require the Secured  Party to advance money for any of the
         aforesaid purposes;

                  (b) to notify all account debtors,  to the extent permitted by
         applicable law or regulations,  to pay directly to the Secured Party or
         otherwise as the Secured Party may specify all amounts they owe then or
         thereafter to Debtor;

                                                         7


<PAGE>


                  (c) to take  control  of any and all  proceeds  to  which  the
         Secured Party may be entitled under this Security Agreement,  the Note,
         or under any applicable laws;

                  (d) to take  immediate  possession of the Secured  Assets and,
         with or without taking possession of the Secured Assets, to sell, lease
         or  otherwise  dispose of any or all of the Secured  Assets,  either at
         public or private sale, upon  commercially  reasonable  terms,  and the
         Secured Party may become the purchaser thereof at public sale; provided
         that,  any sale may be adjourned at any time and from time to time to a
         reasonably  specified  time and place by  announcement  at the time and
         place of sale as publication or otherwise of the time and place of such
         adjourned sale;  provided further that, subject to the Senior Debt, the
         proceeds  of any sale shall be  applied  (i) first to the  expenses  of
         taking,  holding and  preparing  for sale or  disposition,  and sale or
         disposition and the like (including  reasonable  attorneys' fees), (ii)
         next to the  principal  and  interest  due under the Note and the other
         amounts  secured under clauses (i) and (ii) of Section 3 hereof,  (iii)
         next to amounts  secured  under clause (iii) of Section 3 hereof,  (iv)
         next to the  holder of any  subordinate  security  interest  therein if
         written notification of demand therefor is received and verified by the
         Debtor before  distribution of the proceeds and (v) lastly, any surplus
         to Debtor and  Debtor  shall  remain  liable  for any  deficiency;  and
         provided further that, any such sale, public or private, may be made on
         credit at the option of the Secured Party;  and provided  finally that,
         the  Secured  Party  shall have the right to  conduct  any such sale on
         Debtor's  premises,  and the  Secured  Party  shall  have such right of
         possession  of said  premises as shall be necessary or  convenient  for
         such purpose but the Secured Party shall make every  reasonable  effort
         to avoid (where possible) or minimize  disruption of Debtor's  business
         activities in so doing;

                  (e) to take immediate  possession of the Secured Assets and to
         use or operate  the  Secured  Assets in order to  preserve  the same or
         their value,  and collect,  receive and use all of the net profits from
         such use or  operation  to pay  indebtedness  secured  by such  Secured
         Assets;

                  (f) to require Debtor, to the extent practicable,  to assemble
         the Secured Assets and make them available to the Secured Party at such
         locations  within the county wherein such Secured Assets are located as
         the Secured Party shall designate;

                  (g) to enter all of the  Debtor's  facilities  to  remove  the
         Secured Assets  therefrom and take possession of the Debtor's books and
         records and computer hardware and software,  and to use all of the same
         in a manner the Secured  Party deems  appropriate  in order to preserve
         and sell or otherwise

                                                         8


<PAGE>


         dispose of the Secured Assets;

                  (h)  to  (without   assuming  any   obligations  or  liability
         thereunder),  at any time and from time to time,  enforce  against  any
         licensee or  sublicensee  all rights and  remedies of the Debtor in, to
         and under any patent  licenses or  trademark  licenses  included in the
         General Intangibles and, in the exercise of commercial  reasonableness,
         take or refrain from taking any action under any such licenses, and the
         Debtor  hereby  releases the Secured  Party free and harmless  from and
         against  any  claims  arising  out of,  any  lawful  action so taken or
         omitted to be taken under applicable law with respect thereto;

                  (i) to proceed to protect  and  enforce  its rights  under the
         Note and this  Security  Agreement  by a suit or suits in  equity or at
         law,  whether for  specific  performance  or  observance  of any terms,
         provisions, covenants or conditions herein or therein contained, in aid
         of the  execution  of any power  herein  or  therein  granted,  for any
         foreclosure  hereunder or  thereunder,  or for the  enforcement  of any
         other proper legal or equitable remedy;

                  (j) to exercise any such additional and/or different rights or
         remedies as are provided for in the Note; and

                  (k) to act as true and lawful  attorney-in-fact of the Debtor,
         with  full  power of  substitution,  with  full  irrevocable  power and
         authority  in the  place and  stead of the  Debtor,  in the name of the
         Debtor,  or in its own name,  for the purpose of carrying out the terms
         of this Security Agreement,  to take any and all appropriate action and
         to  execute  any  and  all  documents  and  instruments  which  may  be
         reasonably  necessary or desirable to  accomplish  the purposes of this
         Security Agreement.

                  The  Secured  Party  shall  have any and all other  rights and
remedies provided by law or equity,  including,  without limitation,  the rights
and remedies of a secured party.  All of the Secured Party's rights and remedies
will  be  cumulative,  and no  waiver  of any  default  will  affect  any  other
subsequent default.  The rights and remedies provided in this Security Agreement
are cumulative,  may be exercised  concurrently or separately,  may be exercised
from time to time and in such  order,  without any  marshalling,  as the Secured
Party shall determine.

                  Subject to the Senior Debt,  nothing herein contained shall be
construed as preventing  the Secured Party from taking all reasonable and lawful
actions to protect  its  interest  in the event  that  liquidation,  insolvency,
bankruptcy,  reorganization or foreclosure  proceedings of any nature whatsoever
affecting the property or assets of Debtor should be instituted.

                  The Secured  Party's  sole duty with  respect to the  custody,
safekeeping

                                                         9


<PAGE>


 and physical preservation of the Secured Assets in its possession,  shall be to
deal with it in the same manner as the Secured Party deals with similar property
for its own  account.  Neither  the  Secured  Party,  nor any of its  respective
directors,  officers, employees or agents shall be liable for failure to demand,
collect or realize  upon all or any part of the Secured  Assets or for any delay
in doing so or shall be under any obligation to sell or otherwise dispose of any
Secured Assets upon the request of the Debtor or otherwise.

                  12. General  Provisions.  (a) This Security  Agreement and the
security  interests of the Secured Party in the Secured  Assets  created  hereby
shall cease and terminate  only upon  repayment in full of the principal and any
accrued interest under and pursuant to the Note or upon cancellation of the Note
by Secured Party.

                  (b) Debtor hereby waives all demands,  notices,  presentments,
         claims,  defenses  and protests of any kind,  except as  expressly  and
         unambiguously  provided  herein and unless not  permitted by applicable
         law, which might in any manner  adversely  affect the rights of Secured
         Party herein.

                  (c) Except where the  application of another law is mandatory,
         this Security  Agreement shall be construed to be a contract made under
         and pursuant to the laws of New York,  and all of the terms,  covenants
         and conditions  contained  herein shall be governed by and construed in
         accordance  with such laws,  without  giving  effect to the conflict of
         laws principles contained in such laws.

                  (d) This Security  Agreement,  all supplements  hereto and all
         amendments  hereof,  shall inure to the benefit of and be binding  upon
         the Debtor,  the Secured  Party,  and their  respective  successors and
         assigns,  but this  Security  Agreement  may not be  assigned by Debtor
         without the written consent of the Secured Party.

                  (e) No waiver of any term,  provision,  covenant or  condition
         contained  in this  Security  Agreement,  or of any  breach of any such
         term,  provision,  covenant or condition,  shall constitute a waiver of
         any subsequent breach or justify or authorize the non-observance on any
         other occasion of such term, provision, covenant or condition contained
         in this Security Agreement.

                  (f)  The  invalidity  or   unenforceability  of  any  term  or
         condition hereof shall not affect the validity or enforceability of any
         other  term or  condition  hereof or of this  Security  Agreement  as a
         whole.

                  (g) In the event of any conflict or inconsistency  between the
         terms of the Note and  those of this  Security  Agreement,  the  former
         shall prevail.

                                                        10


<PAGE>


                  IN WITNESS  WHEREOF,  the parties  have  caused this  Security
Agreement to be executed in St. Louis,  Missouri at the time first above written
by their officers thereunto duly authorized.


                                        MALLINCKRODT INC.
                                        ("SECURED PARTY")


                                        By:________________________________




                                        PALATIN TECHNOLOGIES, INC.
                                        ("DEBTOR")


                                        By:________________________________



                                                        11