Palatin Technologies (PTN)

Three and Nine Months Ended March 31, 2009 Compared to the Three and Nine Months Ended March 31, 2008

        Licenses and Contracts – For the three and nine months ended March 31, 2009, we recognized $5.2 million and $7.1 million, respectively, in licenses and contract revenue related to our license agreement with AstraZeneca. For the three and nine months ended March 31, 2008, we recognized $0.7 million and $10.5 million, respectively, in licenses and contract revenue consisting of (i) $0 and $8.2 million, respectively, related to bremelanotide pursuant to our collaboration agreement with King, (ii) $0.7 million and $2.2 million, respectively, related to our license agreement with AstraZeneca, and (iii) $0 and $0.1 million related to NeutroSpec pursuant to our collaboration agreement with Mallinckrodt.

        There was no revenue related to King in fiscal 2009 as a result of the termination of our collaboration agreement with King and the recognition in September 2007 of the remaining deferred license revenue pursuant to King’s up-front payment. License and contract revenue from AstraZeneca for the three and nine months ended March 31, 2009 consisted of $4.5 million and $5.6 million, respectively, of revenue related to our research services performed during said period and $0.7 million and $1.5 million, respectively, of license revenue related to AstraZeneca’s up-front license and access fees. Contract revenue from Mallinckrodt reflects Mallinckrodt’s share of the costs incurred in certain NeutroSpec development activities. Future contract revenue from AstraZeneca and Mallinckrodt, in the form of reimbursement of shared development costs or the recognition of deferred license and access fees, will fluctuate based on development activities in our obesity and NeutroSpec programs. We may also earn contract revenue based on the attainment of certain development milestones.

        Research and Development – Research and development expenses decreased to $3.8 million for the three months ended March 31, 2009 from $4.6 million for the three months ended March 31, 2008. Research and development expenses decreased to $10.3 million for the nine months ended March 31, 2009 from $16.3 million for the nine months ended March 31, 2008.

        There were no research and development expenses related to bremelanotide for sexual dysfunction for the three and nine months ended March 31, 2009 compared to $0.3 million and $3.0 million, respectively, for the same periods in 2008. The amount for the three and nine months ended March 31, 2008 included both third-party costs incurred by us and partially reimbursed by King and our share of costs for development activities performed by King. Research and development expenses related to bremelanotide for sexual dysfunction changed as a result of (i) the completion of certain Phase 2B trials on both men and women, (ii) the decision to not initiate Phase 3 clinical trials for erectile dysfunction, and (iii) the strategic restructuring and refocusing of our clinical-stage product portfolio development programs. Similar to the recognition of license revenue explained above, the three and nine months ended March 31, 2008 included the recognition of $0.8 million of deferred costs based on the termination of our collaboration agreement with King.

        Research and development expenses related to our PL-3994, PL-6983, obesity and other preclinical programs were $1.6 million and $3.2 million, respectively, for the three and nine months ended March 31, 2009 compared to $0.9 million and $2.6 million, respectively, for the three and nine months ended March 31, 2008. Spending to date has been related to the identification and optimization of lead compounds, preclinical studies and a Phase 1 and Phase 2a trial with PL-3994 and a study of the effects of melanocortin receptor-specific compounds on food intake, obesity and other metabolic parameters. The amount of such spending and the nature of future development activities are dependent on a number of factors, including primarily the availability of funds to support future development activities, success of our clinical trials, preclinical and discovery programs, and our ability to progress compounds in addition to PL-3994 into human clinical trials.

        The historical amounts of project spending above exclude general research and development spending, which decreased to $2.2 million and $7.1 million, respectively, for the three and nine months ended March 31, 2009

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compared to $3.4 million and $10.7 million, respectively, for the three and nine months ended March 31, 2008. The decrease is primarily related to the reductions in workforce initiated in September 2007 and May 2008.

        Cumulative spending from inception to March 31, 2009 on our bremelanotide, NeutroSpec and other programs (which includes PL-3994, PL-6983, obesity, and other discovery programs) amounts to approximately $125.0 million, $55.4 million and $49.8 million, respectively. Due to various risk factors described in our periodic filings with the SEC, including the difficulty in currently estimating the costs and timing of future Phase 1 clinical trials and large-scale Phase 2 and Phase 3 clinical trials for any product under development, we cannot predict with reasonable certainty when, if ever, a program will advance to the next stage of development or be successfully completed, or when, if ever, related net cash inflows will be generated.

        General and Administrative – General and administrative expenses decreased to $1.3 million and $3.9 million, respectively, for the three and nine months ended March 31, 2009 compared to $1.5 million and $5.5 million, respectively, for the three and nine months ended March 31, 2008. The decrease is primarily related to the reductions in workforce initiated in September 2007 and May 2008.

        Gain on Sale – Gain on sale of equipment for the nine months ended March 31, 2009, includes proceeds of $0.2 from the sale of office furniture and $0.5 million from the sale of equipment and supplies previously purchased under our research collaboration agreements and charged to expense at the time of purchase. There was no such activity for the nine months ended March 31, 2008.

        Income Tax Benefit – Income tax benefits of $1.7 million in the nine months ended March 31, 2009 and $1.3 million in the nine months ended March 31, 2008 relate to the sale of New Jersey net operating loss carryforwards. The amount of such losses and tax credits that we are able to sell depends on annual pools and allocations established by the state of New Jersey.