COLLABORATIVE DEVELOPMENT AND MARKETING AGREEMENT

        This COLLABORATIVE DEVELOPMENT AND MARKETING AGREEMENT is entered into as of August 12, 2004 (the ?Effective Date?), by and between PALATIN TECHNOLOGIES, INC., a Delaware corporation having an address of Cedar Brook Corporate Center, 4C Cedar Brook Drive, Cranbury, New Jersey 08512 (?Palatin?) and KING PHARMACEUTICALS, INC., a Tennessee corporation having an address of 501 Fifth Avenue, Bristol, Tennessee 37620, (?King?). Each of King and Palatin is sometimes referred to individually herein as a ?Party? and collectively as the ?Parties?.

        WHEREAS, Palatin Controls and develops certain Technology and/or Proprietary Materials related to its proprietary treatment for sexual dysfunction; and

        WHEREAS, King is engaged in the development and marketing of human therapeutics; and

        WHEREAS, the Parties desire to enter into a collaboration for the purpose of Developing and Marketing Products derived from Palatin Technology and Proprietary Materials; and

        WHEREAS, King has also agreed to make, simultaneous with the Closing and upon the occurrence of certain milestones specified herein, equity investments in Palatin common stock, such investments to be made pursuant to the terms of the Securities Purchase Agreement, in the form attached hereto as Exhibit H (the ?Securities Purchase Agreement?), dated as of the date of the Closing, which Securities Purchase Agreement requires the issuance by Palatin of Warrants pursuant to Section 6.2.4 hereof.

        NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration the receipt and sufficiency of which are acknowledged by the Parties, the Parties hereto, intending to be legally bound, agree as follows.

1. DEFINITIONS

        Whenever used in this Agreement with an initial capital letter, the terms defined in this Section 1 shall have the meanings specified.

1.1 ?Accounting and Finance Plans? means the written plans (which shall include a detailed strategy, budget, proposed timelines and all Collaboration Costs) describing the financial plans to be carried out by each Party during each Calendar Year pursuant to this Agreement which, with respect to Palatin, shall include the activities for which responsibility has been allocated to Palatin and, with respect to King, shall include the activities for which responsibility has been allocated to King. In addition, the Accounting and Finance Plan shall include all budgets for the Collaboration, including budgets for the overall Development and Marketing Program and each of the Program Plans. After the date hereof, each Accounting and Finance Plan will be set forth in a written document prepared by the Parties and approved by the JDMC and annexed as an amendment to Exhibit G. The Accounting and Finance Plans shall not create an obligation on the Parties to coordinate their accounting methods or undertake any sort of joint accounting, except to the extent specified in the definition of Collaboration Costs.

1.2 ?Action" has the meaning set forth in Section 12.5.

1.3 ?Adverse Event? means any life-threatening drug experience, serious adverse drug experience, unexpected adverse drug experience, expected drug experience or non-serious drug experience, all as defined in ICH Guidance ICH E2A or in any provision of the Food and Drug Act, any law, rule or regulation promulgated thereunder, or any foreign equivalent, or other similar experience in a human who is administered a Product, whether or not considered Product related, including, without limitation, any undesirable sign (including abnormal laboratory findings of clinical concern), symptom or disease associated with the use, abuse, or withdrawal of or from such Product.

1.4 ?Affiliate? means any corporation, firm, partnership or other entity which directly or indirectly controls or is controlled by or is under common control with a Party to this Agreement. For purposes of this definition, (x) ?control? means ownership, directly or through one or more Affiliates, of (a) fifty percent (50%) or more of the shares or voting rights in case of a corporation or limited company, (b) fifty percent (50%) or more of the shares of stock entitled to vote for the election of directors, in the case of a corporation, (c) fifty percent (50%) or more of the equity or controlling interests in the case of any other type of legal entity (including, without limitation, joint ventures) or status as a general partner in any partnership, or (d) any other arrangement whereby a Party controls or has the right to control the Board of Directors or equivalent governing body of an entity, and (y) following the Merger, shall exclude Somerset Pharmaceuticals, Inc.

1.5 ?Agreement? means this Collaborative Development and Marketing Agreement, including all attached exhibits, as well as all amendments, supplements and/or restatements thereof.

1.6 ?API? means, with respect to a Product, the active pharmaceutical ingredient used in the Product.

1.7 ?Applicable Law? means applicable U.S. and foreign laws, rules, regulations, guidelines and standards, including but not limited to those of the FDA and comparable foreign Regulatory Authorities.

1.8 ?Assets? has the meaning set forth in Section 5.5.2.

1.9 ?Bankruptcy Code? means the U.S. Bankruptcy Code, 11 U.S.C.ss.ss. 101 et seq.

1.10 ?Calendar Quarter? means, with respect to the first such Calendar Quarter, the period beginning on the Effective Date and ending on the last day of the calendar quarter within which the Effective Date falls and, thereafter, each successive period of three (3) consecutive calendar months ending on March 31, June 30, September 30 or December 31. In the event that the termination of this Agreement does not fall on the last day of a Calendar Quarter, the ?Final Calendar Quarter? shall mean the period from the last day of the most recent Calendar Quarter through the applicable date of termination of this Agreement.

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1.11 ?Calendar Year? means each successive twelve (12) month period commencing on January 1 and ending on December 31. The first Calendar Year of this Collaboration shall begin on the Effective Date and end on December 31, 2004. In the event that the termination of this Agreement does not fall on the last day of a Calendar Year, the ?Final Calendar Year? shall mean the period from the last day of the most recent Calendar Year through the applicable date of termination of this Agreement.

1.12 ?Chairman? has the meaning set forth in Section 2.2.

1.13 ?Change of Control? means that any of the following events, to the extent permitted hereunder, has occurred: (i) any person (as such term is used in Section 13(d) of the Securities Exchange Act of 1934, as amended (the ?Exchange Act?)), other than a Party, any employee benefit plan of a Party or any entity organized, appointed or established by a Party for or pursuant to the terms of any such plan, together with all ?affiliates? and ?associates? (as such terms are defined in Rule 12b-2 under the Exchange Act) becomes the beneficial owner or owners (as defined in Rule 13d-3 and 13d-5 promulgated under the Exchange Act), directly or indirectly, of more than 50% of the outstanding equity securities of the Party, or otherwise becomes entitled, directly or indirectly, to vote more than 50% of the voting power entitled to be cast at elections for directors (?Voting Power?) of the Party; (ii) a consolidation or merger (in one transaction or a series of related transactions) of a Party pursuant to which the holders of a Party?s equity securities immediately prior to such transaction or series of related transactions would not be the holders, directly or indirectly, immediately after such transaction or series of related transactions of more than 50% of the Voting Power of the entity surviving such transaction or series of related transactions; (iii) the sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of a Party; (iv) the liquidation or dissolution of a Party or a Party ceasing to do business; and (v) a permitted assignment pursuant to Section 15.10.

1.14 ?Clinical Plans? means the written plans (which shall include a detailed strategy, budget and proposed timelines) describing the clinical Development activities to be carried out by each Party during each Calendar Year pursuant to this Agreement which, with respect to Palatin, shall include the activities for which responsibility has been allocated to Palatin and, with respect to King, shall include the activities for which responsibility has been allocated to King. After the date hereof, each Clinical Plan will be set forth in a written document prepared by the Parties and approved by the JDMC and annexed as an amendment to Exhibit C.

1.15 ?Closing? shall mean, subject to the satisfaction or waiver of the conditions set forth in Section 6.1.3, the closing of the transactions contemplated by this Agreement.

1.16 ?Closing Date? shall mean the earlier of: (i) the first (1^st) day, unless the first (1^st) day falls on a weekend or holiday, in which case it shall be the next business day, after the expiration or termination of all applicable waiting periods under the HSR Act or (ii) the first (1^st) day, unless the first (1^st) day falls on a weekend or holiday, in which case it shall be the next business day, after the joint determination (by certification from each Party to the other) that notification under the HSR Act is not required.

1.17 ?CMC? means chemistry, manufacturing and controls activities related to Product and/or API for any Product.

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1.18 ?Collaboration? means the association of Palatin and King established pursuant to this Agreement for the purpose of conducting the Development and Marketing Program so as to accomplish the objectives of the Development and Marketing Program, including the Marketing of Products.

1.19 ?Collaboration Costs? means, to the extent approved by the JDMC, the sum of (a) Development Costs, (b) Manufacturing/CMC Costs, (c) Marketing Costs, (d) Regulatory and IP Costs, (e) product liability costs, as contemplated by Section 5.4, (f) any other cost or expense expressly stated to be a Collaboration Cost in this Agreement or under a Program Plan, (g) quantity, trade or cash discounts, chargebacks, returns, allowances, rebates (including without limitation any and all federal, state or local government rebates, such as Medicaid rebates) and costs incurred in connection with processing the foregoing and price adjustments, to the extent actually allowed in any invoice relating to Product (to the extent not already deducted as part of the calculation of Net Sales), (h) sales and other excise taxes and duties or similar governmental charges directly related to the sale of Product (to the extent not already deducted as part of the calculation of Net Sales), and (i) any other direct and allocable internal costs and direct and allocable external costs incurred in conducting the Development and Marketing Program, all calculated in accordance with GAAP and all approved by the JDMC. Except to the extent this Agreement expressly provides for payments that do not require JDMC approval, and except to the extent the JDMC has approved any payment hereunder, neither Party shall (y) be obligated to incur any costs or expend any funds that have not been approved by such Party or (z) have the authority to cause the other party to incur any costs or expend any funds that have not been approved by such other Party. Notwithstanding anything to the contrary contained herein, Collaboration Costs shall not include (i) indirect costs, overhead, general and administrative costs and other similar costs, (ii) any costs which relate to the business of a Party as a whole without specifically referencing a Product or (iii) costs required to be paid by Palatin under the CT License Agreement (which shall be the responsibility of Palatin), including without limitation pursuant to the indemnification provisions thereof except to the extent the same are the result of the acts or omissions of King. In calculating the Collaboration Costs, the following principles shall apply: (x) there shall be no double counting of any costs or expenses or of any revenues, and to the extent a cost or expense has been included in one category or sub-category, it shall not be included in another, and to the extent any revenue has been taken into account in one category or sub-category, it shall not be taken into account in another; (y) when allocating costs and expenses under this Agreement, each Party shall utilize the same policies and principles as it utilizes consistently within its group and business units when making internal cost allocations; and (z) all costs and expenses shall be determined, and all calculations shall be made, in accordance with GAAP.

1.20 ?Collaboration License Fee? has the meaning set forth in Section 6.2.1.

1.21 ?Collaboration Manager? has the meaning set forth in Section 2.5.

1.22 ?Collaboration Revenue? means the sum of (a) Net Sales and (b) all other consideration or revenue paid to or received by or on the account of a Party in connection with this Agreement, the Collaboration or the Development and Marketing Program (including, without limitation, any and all Net Sales and all consideration and revenues resulting from Development and Marketing in the ROW).

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1.23 ?Completion of Phase II Clinical Trials? means achievement of clinical endpoints agreed upon by the Clinical Committee for specific Phase II Clinical Trials for the relevant Product for a specific indication and the specific dosage strengths, which data enables the Parties to proceed with Phase III Clinical Trials, without any objection from the FDA that prevents proceeding with such Phase III Clinical Trials, as documented by FDA contact reports. For the avoidance of doubt, the ?Completion of Phase II Clinical Trials? for FSD and for ED shall be independent events, and the conduct of additional Preclinical Plan and Clinical Plan activities for a given Product for a given indication (including, without limitation, additional Phase II Clinical Trials for such Product and such indication) subsequent to the first Completion of Phase II Clinical Trials for such Product shall not be deemed to and shall not be dispositive of the prior occurrence of the Completion of Phase II Clinical Trials for such Product and for such indication.

1.24 ?Completion of Phase III Clinical Trials? means achievement of clinical endpoints agreed upon by the Clinical Committee for Phase III Clinical Trials, which data enables the Parties to file for Regulatory Approval on the relevant Product for the relevant indication.

1.25 ?Confidential Information? means (a) all Technology produced or developed by either Party in the Development and Marketing Program, (b) all information exchanged by the Parties prior to the date hereof, and (c) with respect to a Party (the ?Receiving Party?), all information, Technology and Proprietary Materials which are disclosed by the other Party (the ?Disclosing Party?) to the Receiving Party hereunder or to any of its employees, Consultants, Affiliates or Sublicensees, except to the extent that any such information (i) as of the date of disclosure is demonstrably known to the Receiving Party or its Affiliates, as demonstrated by credible written documentation; (ii) as of the date of disclosure is in, or subsequently enters, the public domain, through no fault or omission of the Receiving Party; (iii) is obtained from a Third Party having a lawful right to make such disclosure free from any obligation of confidentiality to the Disclosing Party; or (iv) is independently developed by or for the Receiving Party without reference to or reliance upon any Confidential Information of the Disclosing Party as demonstrated by credible written documentation. All Palatin Technology, King Technology and Joint Technology that is used in or, in the judgment of the JDMC, reasonably likely to be used in the Development and Marketing Program shall be considered, during the Term and, if the Agreement terminates earlier pursuant to Article 11, for so long as any Product is being Developed or Marketed, Confidential Information of both Parties, regardless of which Party provided or developed same; provided, however, that (x) during the Term hereof, neither Party shall be restricted from using any of its own Confidential Information outside the Field, provided, and only to the extent, that such use outside the Field does not, and would not reasonably be expected to adversely impact any intellectual property rights or commercial interests of the Collaboration, including without limitation the Development and Marketing Program; and (y) after termination of this Agreement pursuant to Section 11.2, (i) the Party with the right to Develop and Market Product after termination shall be permitted to use any of either party?s Confidential Information as reasonably required in connection with such Development and Marketing and (ii) neither Party shall be restricted from using any of its own Confidential Information outside the Field, provided, and only to the extent, that such use outside the Field does not, and would not reasonably be expected to adversely impact any intellectual property rights or commercial interests of the Party with the right to Develop and Market Product after termination, with respect to such Development and Marketing.

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1.26 ?Consultant? means a third party who has entered into or hereafter enters into a written agreement with Palatin or King or both to provide consulting services that are material or are reasonably likely, in the judgment of the JDMC, to become material to the Development and Marketing Program, which written agreement, (a) includes an assignment of all right, title and interest in and to all work product and all inventions arising from the performance of such agreement, and all intellectual property rights attaching thereto, to Palatin or King, as applicable and (b) binds the relevant third party by obligations of confidentiality and non-use with respect to all such work product, inventions, Confidential Information and intellectual property rights that are at least as stringent as those set forth herein.

1.27 ?Control? or ?Controlled? means (a) with respect to Technology (other than Proprietary Materials) and/or Patent Rights, the possession by a Party of the ability to grant a license or sublicense of such Technology and/or Patent Rights as provided herein without the payment of additional consideration (other than any additional consideration to be paid pursuant to the CT License Agreement) and/or without violating the terms of any agreement or arrangement between such Party and any Third Party and (b) with respect to Proprietary Materials, the possession by a Party of the ability to supply such Proprietary Materials to the other Party as provided herein without the payment of additional consideration and without violating the terms of any agreement or arrangement between such Party and any Third Party.

1.28 ?Copromote? or ?Copromotion? means the right of Palatin, consistent with the allocation of responsibilities under the Marketing Plan, to the extent amended pursuant to Section 5.1, to copromote with King, Product in any legal manner in the Territory to the urology specialty only.

1.29 ?Copromotion Option? has the meaning set forth in Section 5.1.

1.30 ?CT License Agreement? means the License Agreement dated as of March 31, 1998 by and between Palatin and Competitive Technologies, Inc. (?CT?), a copy of which has been provided to King, as it may be amended from time to time hereafter, with the consent of King, to the extent required pursuant to Section 7.4.

1.31 ?CTM? or ?Clinical Trial Materials? means any Product manufactured, packaged and labeled as required by Applicable Law to be used as investigational drug or placebo for use in the conduct of clinical trials in humans.

1.32 ?Default? means (a) a material breach, default or violation, (b) the occurrence of an event that with or without the passage of time or the giving of notice, or both, would constitute a material breach, default or violation or cause any material mortgages, liens, security interests, charges, covenants, options, claims, restrictions and encumbrances of any kind to arise, or (c) respect to a contract, the occurrence of an event that with or without the passage of time or the giving of notice, or both, would give rise to a right of termination, renegotiation or acceleration or a material right to receive damages or a payment of material monies or penalties of or under such contract by a party other than a Party.

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1.33 ?Defaulting Party? has the meaning set forth in Section 3.10.

1.34 ?Developing Party? has the meaning set forth in Section 11.2.2(d).

1.35 ?Development? or ?Develop? means, with respect to a Product, all research, preclinical, pharmaceutical and clinical activities and other activities undertaken in order to obtain Regulatory Approval of such Product in accordance with this Agreement prior to Regulatory Approval of such Product. These activities shall include preclinical and clinical drug development activities, including, among other things: research, test method development and stability testing, toxicology, animal studies, statistical analysis and report writing, clinical trial design and performance prior to obtaining Regulatory Approvals, obtaining Regulatory Approvals, and regulatory affairs related to the foregoing. ?Development? shall also include relevant formulation, process development, manufacturing, manufacturing scale-up, CMC, development-stage manufacturing, quality assurance, and quality control development. All of the items in the immediately preceding sentence shall be subject to King?s final decision-making authority to the extent set forth in Section 2.10.2 hereof, notwithstanding the inclusion of any or all of the foregoing activities in the Preclinical Plans or Clinical Plans.

1.36 ?Development and Marketing Program? means the collaborative development and marketing program in the Field commencing on the date hereof and conducted by Palatin and King pursuant to this Agreement and the Preclinical Plans, Clinical Plans, Manufacturing/CMC Plans, Regulatory Plans, Marketing Plans, and Accounting and Finance Plans.

1.37 ?Development Costs? means, with respect to a Product, all costs incurred by a Party directly attributable to Development of such Product, but not including applicable Manufacturing/CMC Costs and Regulatory Costs.

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