##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 
 FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from
 to
 001-33357
(Commission file number)
 PROTALIX BIOTHERAPEUTICS, INC.
 
 Florida
    
    65-0643773State or other jurisdiction 
of incorporation or organization
    
    (I.R.S. Employer
Identification No.)2 Snunit Street Science Park 
POB 455
Carmiel, Israel
    
    20100(Address of principal executive offices)
    
    (Zip Code)
 972-4-988-9488  Registrants telephone number, including area code
 Securities registered pursuant to Section 12(b) of the Act:
 Title of each class
    
    Name of each exchange on which registeredCommon stock, par value $0.001 per share
    
    NYSE AMEX
 Securities registered pursuant to Section 12(g) of the Act:
 None
 
 o þ
 o þ
 þ o
 o o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




---



##### 



FORM 10-K
TABLE OF CONTENTS
 PagePART ICautionary Statement Regarding Forward-Looking Statements
    
    
    1Item 1. Business
    
    
    2Item 1A. Risk Factors
    
    
    28Item 1B. Unresolved Staff Comments
    
    
    45Item 2. Properties
    
    
    45Item 3. Legal Proceedings
    
    
    46Item 4. Submission of Matters to a Vote of Security Holders
    
    
    46PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    47Item 6. Selected Financial Data
    
    
    49Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    50Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    59Item 8. Financial Statements and Supplementary Data
    
    
    59Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    59Item 9A. Controls and Procedures
    
    
    59Item 9B. Other Information
    
    
    61PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    62Item 11. Executive Compensation
    
    
    65Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    74Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    75Item 14. Principal Accountant Fees and Services
    
    
    78PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    79Signatures
    
    
    82EX-10.16EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2




---



##### Table of Contents



PART I
 Except where the context otherwise requires, the terms, we, us, our or the Company, refer
to the business of Protalix BioTherapeutics, Inc. and its consolidated subsidiaries, and Protalix
or Protalix Ltd. refers to the business of Protalix Ltd., our wholly-owned subsidiary and sole
operating unit.
 
 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
   
    
    the inherent risks and uncertainties in developing drug platforms and products of
the type we are developing;
    
    delays in our preparation and filing of applications for regulatory approval;
    
    delays in the approval or the potential rejection of any applications we file with
the U.S. Food and Drug Administration, or the FDA, or other regulatory authorities;
    
    any lack of progress of our research and development (including the results of
clinical trials we are conducting);
    
    obtaining on a timely basis sufficient patient enrollment in our clinical trials;
    
    the impact of development of competing therapies and/or technologies by other
companies;
    
    our ability to obtain additional financing required to fund our research programs;
    
    the risk that we will not be able to develop a successful sales and marketing
organization in a timely manner, if at all;
    
    our ability to establish and maintain strategic license, collaboration and
distribution arrangements and to manage our relationship with Pfizer Inc., Teva Ltd. or
with any other collaborator, distributor or partner;
    
    potential product liability risks and risks of securing adequate levels of product
liability and clinical trial insurance coverage;
    
    the availability of reimbursement to patients from health care payors for any of our
product candidates, if approved;
    
    the possibility of infringing a third partys patents or other intellectual property
rights;
    
    the uncertainty of obtaining patents covering our products and processes and in
successfully enforcing our intellectual property rights against third parties;
    
    the possible disruption of our operations due to terrorist activities and armed
conflict, including as a result of the disruption of the operations of regulatory
authorities, our subsidiaries, our manufacturing facilities and our customers,
suppliers, distributors, collaborative partners, licensees and clinical trial sites;
and
    
    other risks and uncertainties detailed in Section 1A of this Annual Report on Form
10-K.




---



##### Table of Contents



Item 1. Business
 TM
  TM
   2




---



##### Table of Contents



3




---



##### Table of Contents



Industry Overview
   ® ® ® ® ® ®
 4




---



##### Table of Contents



ProCellEx: Our Proprietary Protein Expression System
   5




---



##### Table of Contents



Competitive Advantages of Our ProCellEx Protein Expression System
  Ability to Penetrate Certain Patent-Protected Markets.
 Significantly Lower Capital and Production Costs.
 Elimination of the Risk of Viral Transmission or Infection by Mammalian Components.
 More Effective and Potent End Product Relative to Mammalian Based Systems.
 6




---



##### Table of Contents



Broad Range of Expression Capabilities.
 Our Strategy
  Facilitate the successful development and commercialization of taliglucerase alfa by Pfizer.
 Obtain Regulatory Approval for Taliglucerase Alfa for the Treatment of Gaucher Disease.
 Develop a Pipeline of Innovative or Biosimilar Versions of Recombinant Therapeutic Proteins.
 7




---



##### Table of Contents



Collaborate with Third Party Pharmaceutical Suppliers and build a Targeted Sales and Marketing
Infrastructure.
 Establish Development and Commercialization Alliances with Corporate Partners.
 Acquire or In-License New Technologies, Products or Companies.
 Leverage Strength and Experience of Our Management Team and Board of Directors.
 Our Pipeline Drug Candidates
 Our Lead Product Candidate, Taliglucerase Alfa
  8




---



##### Table of Contents



Increased Glycan Efficacy and Consistency.
 Longer Half-Life .
 Cost-Effective.
   Gaucher Disease Background
  9




---



##### Table of Contents



Current Treatments for Gaucher Disease
   Taliglucerase Alfa Development Program
  Laboratory Testing and Preclinical Studies of Taliglucerase Alfa
   10




---



##### Table of Contents




    
    an equivalent to superior level of enzymatic activity (see Figure 1);
    
    enhanced uptake based on observed GlcCer substrate degradation (see Figure 2); and
    
    a prolonged half-life (see Figure 3).
  Figure 1: Taliglucerase Alfa and Cerezyme Enzymatic Activity
 
  11




---



##### Table of Contents



Figure 2: Taliglucerase Alfa and Cerezyme Cellular Uptake
 
  Figure 3: Taliglucerase Alfa and Cerezyme Half-Life Data
 Taliglucerase Alfa
    
    CerezymePrimates
    
    ~13.0-20.0 minutes
    
    ~ 6.8-8.0 minutes (1)Humans
    
    ~10.5-14.5 minutes
    
    ~3.6-10.4 minutes (2)
 
 (1)
    
    Source: Cerezyme NDA  PharmTox review(2)
    
    Source: Cerezyme labeling approved by FDA for package insert  Phase I Clinical Trial
   12




---



##### Table of Contents



Figure 4: Adverse Events presented by: Dose Group, Severity and Relation to Study
Treatment (Incidents; Subjects (% of Subjects))
 Relation between Event to Drug
    
    15 U/kg
    
    30 U/kg
    
    60 U/kg
    
    Placebo
    
    Events Severity
    
    TotalUnrelated to drug (1)
    
    0; 0 (0%)
    
    0; 0 (0%)
    
    2; 1 (17%)
    
    0; 0 (0%)
    
    Moderate
    
    
    2Remotely related to drug (2)
    
    4; 2 (33%)
    
    1; 1 (17%)
    
    2; 1 (17%)
    
    1; 1 (17%)
    
    Mild
    
    
    8Possibly related to drug (3)
    
    0; 0 (0%)
    
    0; 0 (0%)
    
    0; 0 (0%)
    
    0; 0 (0%)
    
    
    
    
    0Probably related to drug (4)
    
    0; 0 (0%)
    
    0; 0 (0%)
    
    0; 0 (0%)
    
    0; 0 (0%)
    
    
    
    
    0Related to drug (5)
    
    0; 0 (0%)
    
    0; 0 (0%)
    
    0; 0 (0%)
    
    0; 0 (0%)
    
    
    
    
    0
 
 (1)
    
    The event is clearly related to other factors, such as a subjects clinical state,
therapeutic interventions or concomitant medications.(2)
    
    The event was most likely produced by other factors, such as a subjects clinical
state, therapeutic interventions or concomitant medications, and does not follow a known
response pattern to the study drug.(3)
    
    The event has a reasonable temporal relationship to the study drug administration and
follows a known response pattern to the study drug. However, a potential alternate etiology
may be responsible for the event. The effect of drug withdrawal is unclear. Rechallenge
information is unclear or lacking.(4)
    
    The event follows a reasonable temporal sequence from the time of drug administration,
and follows a known response pattern to the study drug and cannot be reasonably explained by
other factors. There is a reasonable response to withdrawal of the drug. Rechallenge
information is not available or advisable.(5)
    
    The event follows a temporal sequence from the time of drug administration and follows
a known response pattern to the study drug. The event either occurs immediately following
the study drug administration, improves on stopping the drug or reappears on repeated
exposure.    Phase III Clinical Trial
  13




---



##### Table of Contents



Phase III Clinical Trial Results
      Other Drug Candidates in Our Pipeline
  PRX-102
  14




---



##### Table of Contents



Acetylcholinesterase
     pr-antiTNF
  15




---



##### Table of Contents



Commercialization Agreement
    Strategic Collaborations
 Teva Pharmaceutical Industries
  16




---



##### Table of Contents



Weizmann Institute of Science
  Intellectual Property
     17




---



##### Table of Contents



Manufacturing
    Raw Materials and Suppliers
   Competition
  18




---



##### Table of Contents



Scientific Advisory Board
  19




---



##### Table of Contents



Name
    
    AffiliationProfessor Aaron Ciechanover, M.D., D.Sc.
    
    Laureate of the Nobel Prize in
Chemistry
Distinguished research Professor at the
Cancer and Vascular Biology Research Center
of the Rappaport Research Institute and
Faculty of Medicine at the TechnionAmerican Academy of Arts and Sciences, MemberProfessor Gad Galili, Ph.D.
    
    Chairman of the Department of Plant
Sciences, The Weizmann Institute of Science,
Rehovot, IsraelProfessor Ari Zimran, M.D.
    
    Director of the Gaucher Clinic, Shaare Zedek
Medical Center, Jerusalem, IsraelAssociate Professor of Medicine, Hebrew
University-Hadassah Medical School,
Jerusalem, Israel
 Government Regulation
      20




---



##### Table of Contents



21




---



##### Table of Contents



International Regulation
    Israeli Government Programs
  General Corporate Tax Structure in Israel
  Law for the Encouragement of Capital Investments, 1959
  22




---



##### Table of Contents



Percent of Foreign
    
    Rate of ReducedOwnership
    
    Tax0-49%
    
    25%49-74%
    
    20%74-90%
    
    15%90-100%
    
    10%
   23




---



##### Table of Contents




    
    the Approved Enterprises revenues from any single country or a separate customs
territory may not exceed 75% of the Approved Enterprises total revenues; or
    
    at least 25% of the Approved Enterprises revenues during the benefits period must be
derived from sales into a single country or a separate customs territory with a population
of at least 12 million.
   Encouragement of Industrial Research and Development Law, 1984
   24




---



##### Table of Contents




    
    in the event of a sale of the know-how itself to a non affiliated third party, provided
that upon such sale the owner of the know-how pays to the OCS an amount, in cash, as set
forth in the Research Law. In addition, the amendment provides that if the purchaser of
the know-how gives the selling Israeli company the right to exploit the know-how by way of
an exclusive, irrevocable and unlimited license, the research committee may approve such
transfer in special cases without requiring a cash payment.
    
    in the event of a sale of the company which is the owner of know-how, pursuant to which
the company ceases to be an Israeli company, provided that upon such sale, the owner of the
know-how makes a cash payment to the OCS as set forth in the Research Law.
    
    in the event of an exchange of know-how such that in exchange for the transfer of
know-how outside of Israel, the recipient of the know-how transfers other know-how to the
company in Israel in a manner in which the OCS is convinced that the Israeli economy
realizes a greater, overall benefit from the exchange of know-how.
   Special Provisions Relating to Taxation under Inflationary Conditions
  
    
    Where a companys equity, as calculated under the Inflationary Adjustments Law, exceeds
the depreciated cost of its fixed assets (as defined in the Inflationary Adjustments Law),
a deduction from taxable income is permitted equal to this excess multiplied by the
applicable annual rate of inflation. The maximum deduction permitted under this provision
in any single tax year is 70% of taxable income. The unused portion linked to the Israeli
consumer price index, may be carried forward.
 
    
    Where a companys depreciated cost of fixed assets exceeds its equity, the excess
multiplied by the applicable annual rate of inflation is added to taxable income.
 
    
    Subject to specified limitations, depreciation deductions carryforwards on fixed assets
and losses are adjusted for inflation based on the change in the consumer price index.
 25




---



##### Table of Contents



Law for the Encouragement of Industry (Taxes), 1969
   
    
    amortization of the cost of purchased know-how and patents over an eight-year period for
tax purposes;
 
    
    accelerated depreciation rates on equipment and buildings;
 
    
    under specified conditions, an election to file consolidated tax returns with other
related Israeli Industrial Companies; and
 
    
    expenses related to a public offering are deductible in equal amounts over three years.
  Tax Benefits for Research and Development
  Employees
  Company Background
  26




---



##### Table of Contents



TM
 Available Information
   
 27




---



##### Table of Contents



Item 1A. Risk Factors
 You should carefully consider the risks described below together with the other information
included in this Annual Report on Form 10-K. Our business, financial condition or results of
operations could be adversely affected by any of these risks. If any of these risks occur, the
value of our common stock could decline.
 Risks Related to Our Business
 We currently have no significant product revenues and will need to raise additional capital to
operate our business, which may not be available on favorable terms, or at all, and which will have
a dilutive effect on our shareholders.
  We are not currently profitable and may never become profitable which would have a material adverse
effect on our business and results of operations and could negatively impact the value of our
common stock.
  
    
    continue to undertake preclinical development and clinical trials for our current and
new drug candidates;
    
    seek regulatory approvals for our drug candidates;
    
    implement additional internal systems and infrastructure;
    
    seek to license-in additional technologies to develop; and
    
    hire additional personnel.
  28




---



##### Table of Contents



We have a limited operating history which may limit the ability of investors to make an informed
investment decision.
  
    
    continuing to undertake preclinical development and clinical trials;
    
    participating in regulatory approval processes;
    
    formulating and manufacturing products; and
    
    conducting sales and marketing activities.
  Our ProCellEx protein expression system is based on our proprietary plant cell-based expression
technology which has a limited history and any material problems with the system, which may be
unforeseen, may have a material adverse effect on our business and results of operations.
  We currently depend heavily on the success of taliglucerase alfa, our lead product candidate. Any
failure to commercialize taliglucerase alfa, or the experience of significant delays in doing so,
will have a material adverse effect on our business, results of operations and financial condition.
  
    
    successful completion of our ongoing studies of taliglucerase alfa;
    
    obtaining marketing approvals from the FDA and other foreign regulatory authorities;
    
    maintaining the cGMP compliance of our manufacturing facility or establishing
manufacturing arrangements with third parties;
    
    the successful audit of our facilities by the FDA and other foreign regulatory
authorities;
 29




---



##### Table of Contents




    
    Pfizers efforts under the license and supply agreement we entered into in November
2009;
    
    our development of a successful sales and marketing organization for taliglucerase in
Israel;
    
    the availability of reimbursement to patients from healthcare payors for our drug
products, if approved;
    
    a continued acceptable safety and efficacy profile of our product candidates
following approval; and
    
    other risks described in these Risk Factors.
  Our strategy, in many cases, is to enter into collaboration agreements with third parties to
leverage our ProCellEx system to develop product candidates. If we fail to enter into these
agreements or if we or the third parties do not perform under such agreements or terminate or elect
to discontinue the collaboration, it could have a material adverse affect on our revenues.
  All of our product candidates other than taliglucerase alfa are in pre clinical or research stages.
If we are unable to develop and commercialize our other product candidates, our business will be
adversely affected.
  
    
    the research methodology used may not be successful in identifying potential product
candidates;
    
    competitors may develop alternatives that render our product candidates obsolete;
    
    a product candidate may on further study be shown to have harmful side effects or
other characteristics that indicate it is unlikely to be effective or otherwise does not
meet applicable regulatory approval;
    
    a product candidate is not capable of being produced in commercial quantities at an
acceptable cost, or at all; or
    
    a product candidate may not be accepted by patients, the medical community or
third-party payors.
  30




---



##### Table of Contents



We may not obtain the necessary U.S. or worldwide regulatory approvals to commercialize our drug
candidates in a timely manner, if at all, which would have a material adverse effect on our
business and results of operations.
   
    
    delay commercialization of, and our ability to derive product revenues from, such
drug candidate;
    
    delay the regulatory-related milestone payments we anticipate receiving from Pfizer;
    
    require us to perform costly procedures with respect to such drug candidate; or
    
    otherwise diminish any competitive advantages that we may have with respect to such
drug candidate.
  The fast track designation for the development program of taliglucerase alfa for the treatment of
Gaucher disease may not lead to a faster development or regulatory review or approval process.
  Clinical trials are very expensive, time-consuming and difficult to design and implement and may
result in unforeseen costs which may have a material adverse effect on our business and results of
operations.
  31




---



##### Table of Contents




    
    unforeseen safety issues;
    
    determination of dosing issues;
    
    lack of effectiveness during clinical trials;
    
    slower than expected rates of patient recruitment;
    
    inability to monitor patients adequately during or after treatment;
    
    inability or unwillingness of medical investigators and institutional review boards to
follow our clinical protocols; and
    
    lack of sufficient funding to finance the clinical trials.
  If the results of our clinical trials do not support our claims relating to any drug candidate or
if serious side effects are identified, the completion of development of such drug candidate may be
significantly delayed or we may be forced to abandon development altogether, which will
significantly impair our ability to generate product revenues.
  We may find it difficult to enroll patients in our clinical trials, which could cause significant
delays in the completion of such trials or may cause us to abandon one or more clinical trials.
  32




---



##### Table of Contents



If physicians, patients, third party payors and others in the medical community do not accept and
use our drugs, our ability to generate revenue from sales of our products under development will be
materially impaired.
  
    
    perceptions by physicians, patients, third party payors and others in the medical
community, about the safety and effectiveness of our drug candidates;
    
    the willingness of the target patient population to try new therapies and of
physicians to prescribe these therapies;
    
    the prevalence and severity of any side effects, including any limitations or
warnings contained in our products approved labeling;
    
    pharmacological benefit of our products relative to competing products and products
under development;
    
    the efficacy and potential advantages relative to competing products and products
under development;
    
    relative convenience and ease of administration;
    
    effectiveness of education, marketing and distribution efforts by us and our
licensees and distributors, if any;
    
    publicity concerning our products or competing products and treatments;
    
    reimbursement of our products by third party payors; and
    
    the price for our products and competing products.
  Because our clinical trials depend upon third-party researchers, the results of our clinical trials
and such research activities are subject to delays and other risks which are, to a certain extent,
beyond our control, which could impair our clinical development programs and our competitive
position.
  The manufacture of our products is an exacting and complex process, and if we or one of our
materials suppliers encounter problems manufacturing our products, it will have a material adverse
effect on our business and results of operations.
  33




---



##### Table of Contents



We rely on third parties for final processing of taliglucerase alfa, which exposes us to a number
of risks that may delay development, regulatory approval and commercialization of our product
candidates or result in higher product costs.
  We have no experience selling, marketing or distributing products and no internal capability to do
so.
  
    
    our inability to recruit and retain adequate numbers of effective sales and
marketing personnel;
    
    the inability of sales personnel to obtain access to or persuade adequate numbers of
physicians to prescribe our products;
    
    the lack of complementary products to be offered by sales personnel, which may put us
at a competitive disadvantage relative to companies with more extensive product
lines; and
    
    unforeseen costs and expenses associated with creating and sustaining an independent
sales and marketing organization.
  If the market opportunities for our current product candidates are smaller than we believe they
are, our revenues may be adversely affected and our business may suffer.
  34




---



##### Table of Contents



We may enter into distribution arrangements and marketing alliances for certain products and any
failure to successfully identify and implement these arrangements on favorable terms, if at all,
may impair our ability to commercialize our product candidates.
  
    
    we may be required to relinquish important rights to our products or product
candidates;
    
    we may not be able to control the amount and timing of resources that our
distributors or collaborators may devote to the commercialization of our product
candidates;
    
    our distributors or collaborators may experience financial difficulties;
    
    our distributors or collaborators may not devote sufficient time to the marketing and
sales of our products; and
    
    business combinations or significant changes in a collaborators business strategy
may adversely affect a collaborators willingness or ability to complete its obligations
under any arrangement.
  Developments by competitors may render our products or technologies obsolete or non-competitive
which would have a material adverse effect on our business and results of operations.
    35




---



##### Table of Contents




    
    developing drugs;
    
    undertaking preclinical testing and human clinical trials;
    
    obtaining FDA and other regulatory approvals of drugs;
    
    formulating and manufacturing drugs; and
    
    launching, marketing and selling drugs.
  If we fail to adequately protect or enforce our intellectual property rights or secure rights to
third party patents, the value of our intellectual property rights would diminish and our business,
competitive position and results of operations would suffer.
   
    
    the degree and range of protection any patents will afford us against competitors and
those who infringe upon our patents, including whether third parties will find ways to
invalidate or otherwise circumvent our licensed patents;
    
    if and when patents will issue;
    
    whether or not others will obtain patents claiming aspects similar to those covered
by our licensed patents and patent applications; or
    
    whether we will need to initiate litigation or administrative proceedings, which may
be costly, and whether we win or lose.
  36




---



##### Table of Contents



We rely on confidentiality agreements that could be breached and may be difficult to enforce which
could have a material adverse effect on our business and competitive position.
  
    
    these agreements may be breached;
    
    these agreements may not provide adequate remedies for the applicable type of breach;
or
    
    our trade secrets or proprietary know-how will otherwise become known.
  If we infringe the rights of third parties we could be prevented from selling products, forced to
pay damages and required to defend against litigation which could result in substantial costs and
may have a material adverse effect on our business and results of operations.
  
    
    obtain licenses, which may not be available on commercially reasonable terms, if at
all;
    
    redesign our products or processes to avoid infringement;
    
    stop using the subject matter claimed in the patents held by others, which could
cause us to lose the use of one or more of our drug candidates;
    
    defend litigation or administrative proceedings that may be costly whether we win or
lose, and which could result in a substantial diversion of management resources; or
    
    pay damages.
  37




---



##### Table of Contents



If we cannot meet requirements under our license agreements, we could lose the rights to our
products, which could have a material adverse effect on our business.
   If we in-license drug candidates, we may delay or otherwise adversely affect the development of our
existing drug candidates, which may negatively impact our business, results of operations and
financial condition.
  If we are unable to successfully manage our growth, there could be a material adverse impact on our
business, results of operations and financial condition.
  If we acquire companies, products or technologies, we may face integration risks and costs
associated with those acquisitions that could negatively impact our business, results from
operations and financial condition.
  38




---



##### Table of Contents



We depend upon key employees and consultants in a competitive market for skilled personnel. If we
are unable to attract and retain key personnel, it could adversely affect our ability to develop
and market our products.
   Our collaborations with outside scientists and consultants may be subject to restriction and
change.
  Under current U.S. and Israeli law, we may not be able to enforce employees covenants not to
compete and therefore may be unable to prevent our competitors from benefiting from the expertise
of some of our former employees.
  If product liability claims are brought against us, it may result in reduced demand for our
products or damages that exceed our insurance coverage.
  39




---



##### Table of Contents



Reimbursement may not be available for our product candidates, which could diminish our sales or
affect our ability to sell our products profitably.
  Reforms in the healthcare industry and the uncertainty associated with pharmaceutical pricing,
reimbursement and related matters could adversely affect the marketing, pricing and demand for our
products, if approved.
  Governments outside the United States tend to impose strict price controls and reimbursement
approval policies, which may adversely affect our prospects for generating revenue.
  40




---



##### Table of Contents



Risks Relating to Our Operations in Israel
 Potential political, economic and military instability in the State of Israel, where the majority
of our senior management and our research and development facilities are located, may adversely
affect our results of operations.
   Our operations may be disrupted by the obligations of our personnel to perform military service
which could have a material adverse effect on our business.
  Because a certain portion of our expenses is incurred in New Israeli Shekels, or NIS, our results
of operations may be seriously harmed by currency fluctuations and inflation.
  41




---



##### Table of Contents



The tax benefits available to us require that we meet several conditions and may be terminated or
reduced in the future, which would increase our taxes and would have a material adverse effect on
our business and results of operations.
  The Israeli government grants we have received for certain research and development expenditures
restrict our ability to manufacture products and transfer technologies outside of Israel and
require us to satisfy specified conditions. If we fail to satisfy these conditions, we may be
required to refund grants previously received together with interest and penalties which could have
a material adverse effect on our business and results of operations.
   
    
    we may be required to pay the OCS a portion of the consideration we receive upon any
sale of such technology to an entity that is not Israeli. The scope of the support
received, the royalties that were paid by us, the amount of time that elapses between
the date on which the know-how is transferred and the date on which the grants were
received, as well as the sale price, will be taken into account in order to calculate
the amount of the payment; and
    
    the transfer of manufacturing rights could be conditioned upon an increase in the
royalty rate and payment of increased aggregate royalties (up to 300% of the amount of
the grant plus interest, depending on the percentage of the manufacturing that is
foreign).
  Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil
liability provisions of the U.S. federal securities laws against us, our executive officers and
most of our directors or asserting U.S. securities laws claims in Israel.
  42




---



##### Table of Contents




    
    the judgment was rendered by a court which was, according to the laws of the state of
the court, competent to render the judgment;
    
    the judgment may no longer be appealed;
    
    the obligation imposed by the judgment is enforceable according to the rules relating
to the enforceability of judgments in Israel and the substance of the judgment is not
contrary to public policy; and
    
    the judgment is executory in the state in which it was given.
  
    
    the judgment was obtained by fraud;
    
    there is a finding of lack of due process;
    
    the judgment was rendered by a court not competent to render it according to the laws
of private international law in Israel;
    
    the judgment is at variance with another judgment that was given in the same matter
between the same parties and that is still valid; or
    
    at the time the action was brought in the foreign court, a suit in the same matter
and between the same parties was pending before a court or tribunal in Israel.
 Risks Related to Investing in Our Common Stock
 The market price of our common stock may fluctuate significantly.
  
    
    the announcement of new products or product enhancements by us or our competitors;
    
    developments concerning intellectual property rights and regulatory approvals;
    
    variations in our and our competitors results of operations;
    
    results of our ongoing studies regarding our lead product candidate taliglucerase
alfa, or communications from the FDA or other regulatory authorities regarding our NDA
for taliglucerase alfa or similar filings;
    
    changes in earnings estimates or recommendations by securities analysts, if our
common stock is covered by analysts;
    
    developments in the biotechnology industry; and
    
    general market conditions and other factors, including factors unrelated to our
operating performance.
  43




---



##### Table of Contents



All liabilities of our company have survived the merger and there may be undisclosed liabilities
that could harm our revenues, business, prospects, financial condition and results of operations.
  Future sales of our common stock could reduce our stock price.
  Directors, executive officers, principal shareholders and affiliated entities own a significant
percentage of our capital stock, and they may make decisions that an investor may not consider to
be in the best interests of our shareholders.
  Failure to maintain effective internal controls in accordance with Section 404 of the
Sarbanes-Oxley Act could have a material adverse effect on our business and operating results. In
addition, current and potential shareholders could lose confidence in our financial reporting,
which could have a material adverse effect on the price of our common stock.
    44




---



##### Table of Contents



Compliance with changing regulation of corporate governance and public disclosure may result in
additional expenses, divert managements attention from operating our business which could have a
material adverse effect on our business.
  We are a holding company with no operations of our own.
  The issuance of preferred stock or additional shares of common stock could adversely affect the
rights of the holders of shares of our common stock.
   
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
  45




---



##### Table of Contents



Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
   For
    
    WithheldEli Hurvitz
    
    
    46,816,221
    
    
    
    260,960David Aviezer, Ph.D., MBA
    
    
    47,064,250
    
    
    
    12,931Yoseph Shaaltiel, Ph.D.
    
    
    46,858,832
    
    
    
    218,349Alfred Akirov
    
    
    46,941,083
    
    
    
    136,098Amos Bar Shalev
    
    
    46,565,514
    
    
    
    511,667Zeev Bronfeld
    
    
    45,584,634
    
    
    
    1,492,547Yodfat Harel Gross
    
    
    46,662,025
    
    
    
    415,156Roger D. Kornberg, Ph.D.
    
    
    46,859,840
    
    
    
    217,341Eyal Sheratzky
    
    
    47,061,035
    
    
    
    16,146
  For
    
    Against
    
    Abstain46,945,171
    
    129,176
    
    2,834
 46




---



##### Table of Contents



PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
  2009
    
    2008Quarter Ended
    
    High
    
    Low
    
    High
    
    LowMarch 31
    
    $
    2.99
    
    
    $
    1.74
    
    
    $
    3.59
    
    
    $
    2.60June 30
    
    $
    5.29
    
    
    $
    2.00
    
    
    $
    3.70
    
    
    $
    2.56September 30
    
    $
    8.49
    
    
    $
    4.49
    
    
    $
    3.06
    
    
    $
    2.08December 31
    
    $
    12.50
    
    
    $
    6.37
    
    
    $
    2.17
    
    
    $
    0.96
   STOCK PERFORMANCE GRAPH
  The stock price performance shown on the graph below represents historical price performance and is
not necessarily indicative of any future stock price performance. Specifically, during the period
from December 31, 2004 through December 31, 2006, our company did not have any operations and our
common stock was quoted on the OTC ® Bulletin Board. The historical performance of our
common stock prior to January 2, 2007, represents the performance of our company prior to the
merger on December 31, 2006, and, therefore, is not indicative of the performance of our common
stock after the merger or the performance of our common stock after it was listed for trade on the
NYSE AMEX on March 12, 2007.
 47




---



##### Table of Contents



COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
 
 Notwithstanding anything to the contrary set forth in any of our previous filings under the
Securities Act of 1933, as amended, or the Exchange Act, which might incorporate future filings
made by us under those statutes, this Stock Performance Graph will not be incorporated by reference
into any of those prior filings, nor will such report or graph be incorporated by reference into
any future filings made by us under those Acts.
 Use of Proceeds
    48




---



##### Table of Contents



Item 6. Selected Financial Data
  Year Ended December 31,2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009(in thousands, except share and per share amounts)Consolidated Statement of Operations Data:Revenues
    
    $
    150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    388Cost of revenues
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,625Gross profit (loss)
    
    
    115
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,237
    )Research and development expenses, net
    
    
    3,773
    
    
    $
    5,246
    
    
    $
    13,570
    
    
    $
    17,401
    
    
    $
    23,588General and administrative expenses
    
    
    2,131
    
    
    
    4,525
    
    
    
    20,594
    
    
    
    6,770
    
    
    
    7,144Finance expense (income)
    
    
    (43
    )
    
    
    (344
    )
    
    
    (2,080
    )
    
    
    (1,757
    )
    
    
    (529
    )Net loss before change in accounting principle
    
    $
    5,746
    
    
    $
    9,427
    
    
    $
    32,084
    
    
    $
    22,414
    
    
    $
    31,440Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    (37
    )
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    5,746
    
    
    $
    9,390
    
    
    $
    32,084
    
    
    $
    22,414
    
    
    $
    31,440Net loss per share of common stock, basic and
diluted (1)
    
    $
    0.31
    
    
    $
    0.32
    
    
    $
    0.48
    
    
    $
    0.30
    
    
    $
    0.41Weighted average number of shares of common
stock used in computing net loss per share of
common stock (2)
    
    
    18,801,527
    
    
    
    29,300,987
    
    
    
    67,187,329
    
    
    
    75,890,633,344
    
    
    
    76,942,840Consolidated Balance Sheet Data:Cash and cash equivalents
    
    $
    4,741
    
    
    $
    15,378
    
    
    $
    61,813
    
    
    $
    42,596
    
    
    $
    81,266Other assets
    
    
    2,484
    
    
    
    11,610
    
    
    
    6,324
    
    
    
    8,215
    
    
    
    17,405Total assets
    
    
    7,225
    
    
    
    26,988
    
    
    
    68,137
    
    
    
    50,811
    
    
    
    98,671Current liabilities
    
    
    845
    
    
    
    2,268
    
    
    
    3,762
    
    
    
    5,527
    
    
    
    21,530,Liabilities
    
    
    1,130
    
    
    
    2,704
    
    
    
    4,452
    
    
    
    6,464
    
    
    
    82,788Shareholders equity
    
    
    6,095
    
    
    
    24,284
    
    
    
    63,685
    
    
    
    44,347
    
    
    
    15,838
 
 *
    
    Represents less than $1.(1)
    
    Reflects the retroactive effects of the impact of our merger with Protalix Ltd. and the
resulting exchange of shares of common stock for the ordinary shares of Protalix Ltd. at an
exchange ratio of approximately 61.08 shares of our common stock per ordinary share of
Protalix Ltd. for all periods presented.(2)
    
    In connection with the merger, we completed a one-for-ten reverse stock split, therefore all
share numbers presented in this Annual Report on Form 10-K give retroactive effect to the
reverse stock split, as applicable. 49




---



##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 You should read the following discussion and analysis of our financial condition and results of
operations together with our consolidated financial statements and the related notes included
elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion
and analysis, particularly with respect to our plans and strategy for our business and related
financing, includes forward-looking statements that involve risks and uncertainties. You should
read Risk Factors in Item 1A of this Annual Report for a discussion of important factors that
could cause actual results to differ materially from the results described in or implied by the
forward-looking statements contained in the following discussion and analysis.
 Overview
 TM
  TM
  50




---



##### Table of Contents



Critical Accounting Policies
   Functional Currency
  Revenues
   Research and Development Expense
  
    
    internal costs associated with research and development activities;
    
    payments made to third party contract research organizations, investigative sites and
consultants;
    
    manufacturing development costs;
 51




---



##### Table of Contents




    
    personnel-related expenses, including salaries, benefits, travel, and related costs for
the personnel involved in research and development;
    
    activities relating to the advancement of product candidates through preclinical studies
and clinical trials; and
    
    facilities and other allocated expenses, which include direct and allocated expenses for
rent and maintenance of facilities, as well as laboratory and other supplies.
  Project
    
    Status
    
    Expected Near Term Milestonetaliglucerase alfa for the
treatment of Gaucher disease
    
    NDA Filed
    
    PDUFA datePRX 102  alpha Galactosidase enzyme
    
    Pre Clinical
    
    Pre IND meeting with FDAAcetylcholinesterase
    
    Pre Clinical
    
    IND approval and initiation of
phase I clinical trialpr-antiTNF
    
    Research
    
    Additional animal studies
     52




---



##### Table of Contents



General and Administrative Expense
  Financial Expense and Income
  
    
    interest earned on our cash and cash equivalents;
    
    interest expense on short term bank credit and loan; and
    
    expense or income resulting from fluctuations of the New Israeli Shekel (NIS), in which
a portion of our assets and liabilities are denominated, against the United States Dollar
and other foreign currencies.
 Share-Based Compensation
        53




---



##### Table of Contents



Results of Operations
 Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008
 Revenues
  Research and Development Expenses
   General and Administrative Expenses
  Financial Expenses and Income
  Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007
 Revenues
  Research and Development Expenses
   54




---



##### Table of Contents



General and Administrative Expenses
  Financial Expenses and Income
  Liquidity and Capital Resources
 Sources of Liquidity
   Security
    
    Year
    
    Number of Shares
    
    Amount(1)Ordinary Shares
    
    
    1996-2000
    
    
    
    18,801,527
    (2)
    
    $
    1,100,000Series A Convertible Preferred Shares
    
    
    2001
    
    
    
    11,635,090
    
    
    $
    2,000,000Series B Convertible Preferred Shares(3)
    
    
    2004-2005
    
    
    
    7,225,357
    
    
    $
    4,500,000Series C Convertible Preferred Shares(4)
    
    
    2005
    
    
    
    5,513,422
    
    
    $
    7,700,000Ordinary Shares(5)
    
    
    2006
    
    
    
    10,637,686
    
    
    $
    16,000,000Common Stock
    
    
    2007
    
    
    
    10,000,000
    
    
    $
    50,000,000
 
 (1)
    
    Gross proceeds; does not include proceeds from warrant exercises.(2)
    
    Includes the issuance of ordinary shares to founders.(3)
    
    During 2005, 1,035,569 Series B Preferred Shares were converted on a 1:1 basis into Series C
Preferred Shares for no additional consideration. Also, in connection with such funding,
warrants to purchase 181,228 Series B Preferred Shares were issued for no additional
consideration with an aggregate exercise price of $100,000. As of the closing date of the
merger, 168,034 of such warrants were exercised for net proceeds equal to approximately
$96,000 and 13,194 of such warrants were forfeited.(4)
    
    In connection with such funding, warrants to purchase an additional 8,862,803 Series C
Preferred Shares were granted to the investors for no additional consideration with a total
exercise price equal to $9.0 million. As of the closing date of the merger, 5,296,279 of such
warrants were exercised for net proceeds equal to $8.7 million, 3,384,502 were assumed by our
company and 182,022 expired.(5)
    
    In connection with such funding, warrants to purchase 3,875,416 ordinary shares were issued
for no additional consideration with an aggregate exercise price equal to $5.3 million. These
warrants were exercised in full on January 31, 2007. 55




---



##### Table of Contents



Cash Flows
   Future Funding Requirements
     Effects of Inflation and Currency Fluctuations
  56




---



##### Table of Contents



Off-Balance Sheet Arrangements
  Recently Issued Accounting Pronouncements
  TM
 Contractual Obligations
  Total
    
    
    Less than 1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    More than 5 yearsOperating lease obligations
    
    $
    4,695
    
    
    $
    1,136
    
    
    $
    2,038
    
    
    $
    1,521
    
    
    
    Purchase obligations (1)
    
    $
    5,419
    
    
    $
    5,419
    
    
    
    
    
    
    
    
    
    
    
    Certain Clinical contract obligations
    
    $
    3,693
    
    
    $
    2,954
    
    
    $
    739
    
    
    
    
    
    
    
    Other long
term liabilities reflected on the balance sheet under GAAP
    
    $
    1,209
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,209Total
    
    $
    15,016
    
    
    $
    9,510
    
    
    $
    2,777
    
    
    $
    1,521
    
    
    $
    1,209
 
 (1)
    
    Represents open purchase orders issued to certain suppliers and other vendors mainly in
connection with certain improvements to our manufacturing facility, that were outstanding as of
December 31, 2009. 57




---



##### Table of Contents



Selected Quarterly Financial Data (unaudited)
 Three Months Ended2008
    
    
    2009(U.
S.
dollars in thousands)March 31
    
    
    June 30
    
    
    Sept. 30
    
    
    Dec. 31
    
    
    March 31
    
    
    June 30
    
    
    Sept. 30
    
    
    Dec. 31Revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    388Net loss
    
    $
    5,113
    
    
    $
    4,229
    
    
    $
    6,496
    
    
    $
    6,576
    
    
    $
    5,183
    
    
    $
    5,427
    
    
    $
    5,894
    
    
    $
    14,936Net loss per share
of common stock,
basic and diluted
    
    $
    0.07
    
    
    $
    0.06
    
    
    $
    0.09
    
    
    $
    0.09
    
    
    $
    0.07
    
    
    $
    0.07
    
    
    $
    0.08
    
    
    $
    0.19
 58




---



##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk
 Currency Exchange Risk
   Year Ended December 31,2007
    
    2008
    
    2009Average rate for period
    
    
    4.1081
    
    
    
    3.5878
    
    
    
    3.933Rate at year-end
    
    
    3.8460
    
    
    
    3.8020
    
    
    
    3.775
  Interest Rate Risk
  
 Item 8. Financial Statements and Supplementary Data
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  59




---



##### Table of Contents



Management Report on Internal Control over Financial Reporting
     Inherent Limitations on Effectiveness of Controls
  60




---



##### Table of Contents



Changes in internal controls
  
 Item 9B. Other Information
  61




---



##### Table of Contents



PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
  Name
    
    Age
    
    PositionDirectorsEli Hurvitz
    
    
    77
    
    
    Chairman of the BoardDavid Aviezer, Ph.D., MBA
    
    
    45
    
    
    Director, President and Chief Executive OfficerYoseph Shaaltiel, Ph.D.
    
    
    56
    
    
    Director and Executive VP, Research and DevelopmentAlfred Akirov (1)(2)(3)
    
    
    69
    
    
    DirectorAmos Bar Shalev (1)(2)(3)
    
    
    57
    
    
    DirectorZeev Bronfeld
    
    
    58
    
    
    DirectorYodfat Harel Gross (1)(2)(3)
    
    
    37
    
    
    DirectorRoger D. Kornberg, Ph.D.
    
    
    62
    
    
    DirectorEyal Sheratzky
    
    
    41
    
    
    DirectorExecutive OfficersEinat Brill Almon, Ph.D.
    
    
    50
    
    
    Vice President, Product DevelopmentYossi Maimon, CPA
    
    
    39
    
    
    Vice President, Chief Financial Officer, Treasurer and SecretarySandra L Lauterbach
    
    
    41
    
    
    Vice President, Sales and Commercial Affairs
 
 (1)
    
    Member of Nominating Committee(2)
    
    Member of Audit Committee(3)
    
    Member of Compensation Committee Eli Hurvitz .
 David Aviezer, Ph.D., MBA.
 Yoseph Shaaltiel, Ph.D.
 62




---



##### Table of Contents



Alfred Akirov.
 Amos Bar Shalev.
 Zeev Bronfeld.
 Yodfat Harel Gross.
 Roger D. Kornberg, Ph.D.
 63




---



##### Table of Contents



Eyal Sheratzky.
 Einat Brill Almon, Ph.D.
 Yossi Maimon, CPA.
 Sandra L. Lauterbach.
 Section 16(a) Beneficial Ownership Reporting Compliance
  Audit Committee
     64




---



##### Table of Contents



Code of Business Conduct and Ethics
   
 Item 11. Executive Compensation
 Compensation Discussion and Analysis
  Elements of Compensation
  Base Salary.
  Annual Bonus.
 65




---



##### Table of Contents



Options.
  Severance and Change in Control Benefits.
 Other Compensation.
 Executive Compensation.
 66




---



##### Table of Contents



Compensation Committee Report
 The above report of the Compensation Committee does not constitute soliciting material and shall
not be deemed filed or incorporated by reference into any other filing by us under the Securities
Act of 1933 or the Securities Exchange Act of 1934.
  .
  Yodfat Harel Gross
Alfred Akirov
Amos Bar Shalev
 Summary Compensation Table
  Non-Equity
    
    Nonqualified
    
    All OtherStock
    
    Option
    
    Incentive Plan
    
    Deferred
    
    Compen-Name and
    
    
    
    
    
    Salary
    
    Bonus
    
    Award(s)
    
    Award(s)
    
    Compensation
    
    Compensation
    
    sation
    
    TotalPrincipal Position
    
    Year
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    Earnings ($)
    
    ($)(1)
    
    ($)David Aviezer, Ph.D., MBA
    
    
    2009
    
    
    
    427,970
    
    
    
    500,000
    
    
    
    
    
    
    
    529,951
    
    
    
    
    
    
    
    
    
    
    
    62,167
    
    
    
    1,520,088President and
    
    
    2008
    
    
    
    486,305
    
    
    
    
    
    
    
    
    
    
    
    565,394
    
    
    
    
    
    
    
    
    
    
    
    93,224
    
    
    
    1,144,923Chief Executive Officer
    
    
    2007
    
    
    
    341,074
    
    
    
    239,210
    
    
    
    
    
    
    
    351,343
    
    
    
    
    
    
    
    
    
    
    
    67,990
    
    
    
    999,617Yoseph Shaaltiel, Ph.D.
    
    
    2009
    
    
    
    196,271
    
    
    
    160,000
    
    
    
    
    
    
    
    225,336
    
    
    
    
    
    
    
    
    
    
    
    37,981
    
    
    
    619,588Executive Vice President,
    
    
    2008
    
    
    
    226,652
    
    
    
    
    
    
    
    
    
    
    
    163,328
    
    
    
    
    
    
    
    
    
    
    
    54,704
    
    
    
    444,684Research and Development
    
    
    2007
    
    
    
    117,297
    
    
    
    50,000
    
    
    
    
    
    
    
    2,420
    
    
    
    
    
    
    
    
    
    
    
    47,339
    
    
    
    277,056Einat Brill Almon, Ph.D.
    
    
    2009
    
    
    
    172,210
    
    
    
    160,000
    
    
    
    
    
    
    
    203,388
    
    
    
    
    
    
    
    
    
    
    
    36,927
    
    
    
    652,525Vice President,
    
    
    2008
    
    
    
    195,559
    
    
    
    28,932
    
    
    
    
    
    
    
    253,862
    
    
    
    
    
    
    
    
    
    
    
    51,223
    
    
    
    529,576Product Development
    
    
    2007
    
    
    
    153,254
    
    
    
    65,171
    
    
    
    
    
    
    
    94,482
    
    
    
    
    
    
    
    
    
    
    
    42,282
    
    
    
    355,189Yossi Maimon, CPA
    
    
    2009
    
    
    
    186,478
    
    
    
    160,000
    
    
    
    
    
    
    
    253,030
    
    
    
    
    
    
    
    
    
    
    
    41,051
    
    
    
    640,599Vice President,
    
    
    2008
    
    
    
    203,097
    
    
    
    30,659
    
    
    
    
    
    
    
    238,194
    
    
    
    
    
    
    
    
    
    
    
    83,808
    
    
    
    555,758Chief Financial Officer
    
    
    2007
    
    
    
    156,444
    
    
    
    77,223
    
    
    
    
    
    
    
    247,815
    
    
    
    
    
    
    
    
    
    
    
    41,975
    
    
    
    523,457
 
 (1)
    
    Includes employer contributions to pension and/or insurance plans and other miscellaneous
payments. 67




---



##### Table of Contents



GRANTS OF PLAN-BASED AWARDSGrant
    
    Estimated Future Payouts Under
    
    Estimated Future Payouts Under EquityName
    
    Date
    
    Non-Equity Incentive Plan Awards
    
    Incentive Plan AwardsAllOtherStock Awards:
    
    All other
    
    
    
    
    
    GrantNumber
    
    Option Awards:
    
    Exercise
    
    Date fairof
    
    Number of
    
    or Base
    
    Value ofShares
    
    Securities
    
    Price of
    
    Stock andof Stock
    
    Underlying
    
    Option
    
    OptionThreshold
    
    Target
    
    Maximum
    
    Threshold
    
    Target
    
    Maximum
    
    or Units
    
    Options (#)
    
    Awards
    
    Awards($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    (#)
    
    (1)
    
    ($/Sh) (2)
    
    ($)(3)(a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)
    
    (f)
    
    (g)
    
    (h)
    
    (i)
    
    (j)
    
    (k)
    
    (l)David AviezerYoseph Shaaltiel
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Einat Brill AlmonYossi Maimon
 
 (1)
    
    Represents outstanding options at December 31, 2009.(2)
    
    Represents the range of the exercise price of the stock options.(3)
    
    Represents the fair value as recorded on the grant date of the stock options. Outstanding Equity Awards at Fiscal Year-End
  Option Awards
    
    Stock AwardsEquityEquity
    
    IncentiveIncentive
    
    PlanPlan
    
    Awards:Awards:
    
    MarketEquity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Number
    
    or PayoutIncentive
    
    
    
    
    
    
    
    
    
    
    
    
    
    Market
    
    of
    
    ValuePlan
    
    
    
    
    
    
    
    
    
    
    
    
    
    Value of
    
    Unearned
    
    ofAwards:
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shares
    
    Shares,
    
    UnearnedNumber
    
    Number
    
    Number
    
    
    
    
    
    
    
    
    
    Number
    
    or Units
    
    Units or
    
    Shares,of Securities
    
    of Securities
    
    of Securities
    
    
    
    
    
    
    
    
    
    of Shares
    
    of Stock
    
    Other
    
    Units orUnderlying
    
    Underlying
    
    Underlying
    
    
    
    
    
    
    
    
    
    or Units
    
    That
    
    Rights
    
    OtherUnexercised
    
    Unexercised
    
    Unexercised
    
    Option
    
    
    
    of Stock
    
    Have
    
    That
    
    RightsOptions
    
    Options
    
    Unearned
    
    Exercise
    
    Option
    
    That
    
    Not
    
    Have Not
    
    ThatExercisable
    
    Unexercisable
    
    Options
    
    Price
    
    Expiration
    
    Have Not
    
    Vested
    
    Vested
    
    Have NotName
    
    (#)
    
    (#)
    
    (#)
    
    ($)
    
    Date
    
    Vested (#)
    
    ($)
    
    (#)
    
    Vested ($)David Aviezer
    
    
    326,267
    
    
    
    
    
    
    
    
    
    
    
    0.120
    
    
    
    8/1/2013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    855,135
    
    
    
    122,162
    
    
    
    
    
    
    
    0.972
    
    
    
    9/10/2016
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,001
    
    
    
    399,999
    
    
    
    
    
    
    
    5.00
    
    
    
    2/7/2018
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    2.65
    
    
    
    2/25/2019
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Yoseph Shaaltiel
    
    
    244,324
    
    
    
    
    
    
    
    
    
    
    
    0.001
    
    
    
    6/30/2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87,910
    
    
    
    175,818
    
    
    
    
    
    
    
    5.00
    
    
    
    2/7/2018
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    2.65
    
    
    
    2/25/2019
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Einat Brill Almon
    
    
    4,740
    
    
    
    
    
    
    
    
    
    
    
    0.399
    
    
    
    5/23/2016
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    158,811
    
    
    
    73,297
    
    
    
    
    
    
    
    0.972
    
    
    
    8/13/2016
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    103,756
    
    
    
    207,516
    
    
    
    
    
    
    
    5.00
    
    
    
    2/7/2018
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    2.65
    
    
    
    2/25/2019
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Yossi Maimon
    
    
    107,488
    
    
    
    116,245
    
    
    
    
    
    
    
    0.972
    
    
    
    9/19/2016
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,333
    
    
    
    116,667
    
    
    
    
    
    
    
    5.00
    
    
    
    2/7/2018
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    2.65
    
    
    
    2/25/2019
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 68




---



##### Table of Contents

================================================================================

OPTION EXERCISES AND STOCK VESTED
 Option Awards
    
    Stock AwardsNumber of Shares Acquired
    
    Value Received on
    
    Number of Shares Acquired
    
    Value Received onName
    
    on Exercise (#)
    
    Exercise($)
    
    on Vesting (#)
    
    Vesting($)(a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)David Aviezer(1)
    
    
    469,238-
    
    
    
    
    
    
    
    
    
    
    
    Yossi Maimon(1)
    
    
    251,890
    
    
    
    
    
    
    
    
    
    
    
    Yoseph Shaaltiel
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Einat Brill Almon(1)
    
    
    185,000
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Options were exercised through net exercise with no value received by our company in
connection with the exercise. Potential Payments upon Termination or Change-in-Control
  Employment Arrangements
 David Aviezer, Ph.D., MBA.
 Yoseph Shaaltiel, Ph.D.
 69




---



##### Table of Contents



Einat Brill Almon, Ph.D.
 Yossi Maimon, CPA.
 Sandra L. Lauterbach.
 2006 Stock Incentive Plan
  70




---



##### Table of Contents




 
 71




---



##### Table of Contents




 
 
  
 
  Impact of Israeli Tax Law
      72




---



##### Table of Contents



Compensation of Directors
  FeesEarned or
    
    
    
    
    
    
    
    
    
    Non-Equity
    
    Nonqualified
    
    All OtherPaid in
    
    Stock
    
    
    
    
    
    Incentive
    
    Deferred Compen-
    
    Compen-
    
    TotalName
    
    Cash ($)
    
    Award ($)
    
    OptionAwards ($)
    
    Plan Compensation ($)
    
    sation Earnings ($)
    
    sation ($)
    
    ($)Current DirectorsEli Hurvitz(1)
    
    
    33,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,000Alfred Akirov
    
    
    33,000Amos Bar Shalev
    
    
    33,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,000Zeev Bronfeld
    
    
    33,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,000Yodfat Harel Gross
    
    
    33,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,000Roger D. Kornberg
    
    
    33,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,000Eyal Sheratzky
    
    
    33,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,000Sharon
Toussia-Cohen(2)
    
    
    11,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,000
 
 (1)
    
    Represents amounts paid to Pontifax Management Company, Ltd. pursuant to a management
consulting agreement.(2)
    
    Mr. Toussia-Cohen resigned from our Board of Directors on May 10, 2009.  Compensation Committee Interlocks and Insider Participation
  73




---



##### Table of Contents



Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
 Security Ownership of Certain Beneficial Owners and Management
  
    
    each person who is known by us to own beneficially more than 5% of our common stock;
    
    each director;
    
    each of our executive officers; and
    
    all of our directors and executive officers collectively.
   Amount and Nature of
    
    PercentageName and Address of Beneficial Owner
    
    Beneficial Ownership
    
    of ClassBoard of Directors and Executive OfficersEli Hurvitz
    
    
    455,240
    
    
    
    *
    %David Aviezer, Ph.D., MBA
    
    
    1,609,155
    (1)
    
    
    2.0Yoseph Shaaltiel, Ph.D.
    
    
    1,573,828
    (2)
    
    
    1.9Alfred Akirov
    
    
    6,186,046
    (3)
    
    
    7.7Amos Bar Shalev
    
    
    
    
    
    
    Zeev Bronfeld
    
    
    14,466,319
    (4)
    
    
    17.9Yodfat Harel Gross
    
    
    
    
    
    
    Roger D. Kornberg. Ph.D.
    
    
    21,875
    (5)
    
    
    *Eyal Sheratzky
    
    
    
    
    
    
    Einat Brill Almon, Ph.D.
    
    
    278,590
    (6)
    
    
    *Yossi Maimon
    
    
    312,761
    (7)
    
    
    *Sandra L. Lauterbach
    
    
    
    (8)
    
    
    All executive officers and directors as a group
(12 persons)
    
    
    24,903,814
    (9)
    
    
    29.75% HoldersBiocell Ltd.
    
    
    14,466,319
    (10)
    
    
    17.9Techno-Rov Holdings (1993) Ltd.
    
    
    6,186,046
    (11)
    
    
    7.7FMR LLC
    
    
    4,193,555
    (12)
    
    
    5.4Frost Gamma Investment Trust
    
    
    7,188,132
    (13)
    
    
    8.9
 
 *
    
    less than 1%.(1)
    
    Consists of 1,609,155 shares of our common stock issuable upon exercise of outstanding
options within 60 days of February 15, 2010. Does not include 394,049 shares of common stock
issuable upon exercise of outstanding options that are not exercisable within 60 days of
February 15, 2010.(2)
    
    Consists of 1,363,754 shares of our common stock held by Dr. Shaaltiel and 210,074 shares of
our common stock issuable upon exercise of outstanding options within 60 days of February 15,
2010. Does not include 225,816 shares of common stock issuable upon exercise of outstanding
options that are not exercisable within 60 days of February 15, 2010. 74




---



##### Table of Contents



(3)
    
    Consists of 6,186,046 shares of our common stock held by Techno-Rov Holdings (1993) Ltd. Mr.
Akirov is the Chief Executive Officer of Techno-Rov Holdings and has the power to control its
investment decisions.(4)
    
    Consists of 14,466,319 shares of our common stock held by Biocell Ltd. Mr. Bronfeld is a
director and Chief Executive Officer of Biocell. Mr. Bronfeld disclaims beneficial ownership
of these shares.(5)
    
    Consists of 21,875 shares of our common stock issuable upon exercise of outstanding options
within 60 days of February 15, 2010. Does not include 28,125 shares of common stock issuable
upon exercise of outstanding options that are not exercisable within 60 days of February 15,
2010.(6)
    
    Consists of 278,590 shares of our common stock issuable upon exercise of outstanding options
within 60 days of February 15, 2010. Does not include 319,530 shares of common stock issuable
upon exercise of outstanding options that are not exercisable within 60 days of February 15,
2010.(7)
    
    Consists of 312,761 shares of our common stock issuable upon exercise of outstanding options
within 60 days of February 15, 2010. Does not include 135,972 shares of common stock issuable
upon exercise of outstanding options that are not exercisable within 60 days of February 15,
2010.(8)
    
    Does not include 160,000 shares of common stock issuable upon exercise of outstanding options
that are not exercisable within 60 days of February 15, 2010.(9)
    
    Consists of 22,471,359 shares of our common stock and 2,432,455 shares of our common stock
issuable upon exercise of options within 60 days of February 15, 2010. Does not include
1,103,852 shares of common stock issuable upon exercise of outstanding options that are not
exercisable within 60 days of February 15, 2010.(10)
    
    The address is Moshe Aviv Tower, 7 Jabotinsky Street, Ramat Gan, Israel. Biocell Ltd.s
investment and voting decisions are made collectively by its board of directors.(11)
    
    The address is Alrov Tower, 46 Rothschild Blvd., Tel Aviv, Israel. Mr. Akirov is the Chief
Executive Officer of Techno-Rov Holdings (1993) Ltd. and has the power to control its
investment decisions.(12)
    
    Based solely on a Schedule 13G filed by FMR LLC on February 12, 2010, reporting the above
stock ownership as of December 31, 2009. FMR LLC reports that it has the sole power to
dispose or to direct the disposition of 4,193,555 shares of common stock. The address is 82
Devonshire Street, Boston, MA 02109.(13)
    
    The address is 4400 Biscayne Blvd., Miami, Florida 33137. Frost Gamma, L.P. is the sole and
exclusive beneficiary of Frost Gamma Investments Trust. Dr. Phillip Frost is the sole limited
partner of Frost Gamma, L.P. The general partner of Frost Gamma, L.P. is Frost Gamma, Inc.
and the sole shareholder of Frost Gamma, Inc. is Frost-Nevada Corporation. Dr. Frost is also
the sole shareholder of Frost-Nevada Corporation. Equity Compensation Plan Information
  A
    
    
    B
    
    
    CNumber of Securities RemainingNumber of Securities
    
    
    
    
    
    Available for Future Issuanceto be Issued
    
    
    Weighted Average
    
    
    Under Equity Compensation PlansUpon Exercise of
    
    
    Exercise Price of
    
    
    (Excluding Securities Reflected inPlan Category
    
    Outstanding Options
    
    
    Outstanding Options
    
    
    Column A)Equity
Compensation Plans
Approved by
Shareholders
    
    
    6,173,555
    
    
    $
    2.13
    
    
    
    1,433,623Equity Compensation
Plans Not Approved
by Shareholders
    
    
    631,866
    
    
    $
    10.24
    
    
    
    Total
    
    
    6,805,421
    
    
    $
    2.89
    
    
    
    1,433,623
 
 Item 13. Certain Relationships and Related Transactions, and Director Independence
  75




---



##### Table of Contents



Corporate Governance and Independent Directors
  Independent Directors
  
    
    Whether the member of the Board of Directors has any material relationship with us,
either directly, or as a partner, shareholder or officer of an organization that has a
relationship with us;
    
    Whether the member of the Board of Directors is a current employee of our company or
any of our subsidiaries, or was an employee of our company or any of our subsidiaries
within three years preceding the date of determination;
    
    Whether the member of the Board of Directors is, or in the three years preceding the
date of determination has been, affiliated with or employed by (i) a present internal
or external auditor of our company or any affiliate of
such auditor or (ii) any former internal or external auditor of our company or any
affiliate of such auditor, which performed services for us within three years preceding
the date of determination;
 76




---



##### Table of Contents




    
    Whether the member of the Board of Directors is, or in the three years preceding the
date of determination has been, part of an interlocking directorate, in which any of
our executive officers serve on the Compensation Committee of another company that
concurrently employs the member as an executive officer;
    
    Whether the member of the Board of Directors receives any compensation from us,
other than fees or compensation for service as a member of the Board of Directors and
any committee of the Board of Directors and reimbursement for reasonable expenses
incurred in connection with such service and for reasonable educational expenses
associated with Board of Directors or committee membership matters;
    
    Whether an immediate family member of the member of the Board of Directors is a
current executive officer of our company or was an executive officer of our company
within three years preceding the date of determination;
    
    Whether an immediate family member of the member of the Board of Directors is, or in
the three years preceding the date of determination has been, affiliated with or
employed in a professional capacity by (i) a present internal or external auditor of
ours or any of our affiliates or (ii) any former internal or external auditor of our
company or any affiliate of ours which performed services for us within three years
preceding the date of determination; and
    
    Whether an immediate family member of the member of the Board of Directors is, or in
the three years preceding the date of determination has been, part of an interlocking
directorate, in which any of our executive officers serve on the Compensation Committee
of another company that concurrently employs the immediate family member of the member
of the Board of Directors as an executive officer.
    77




---



##### Table of Contents



Item 14. Principal Accountant Fees and Services
  Year ended December 31,2009
    
    2008Audit Fees
    
    $
    259,000
    
    
    $
    249,000Audit Related Fees
    
    $
    78,039
    
    
    $
    49,000Tax Fees
    
    $
    197,282
    
    
    $
    76,000All Other Fees
    
    $
    
    
    
    $
    
 Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent
Auditors
  78




---



##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
  Financial Statements
 PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of December 31, 2008, and 2009
    
    
    F-3Consolidated Statements of Operations for the years ended
December 31, 2007, 2008, and 2009
    
    
    F-4Consolidated Statements of Changes in Shareholders Equity for the
years ended December 31, 2007, 2008, and 2009
    
    
    F-5Consolidated Statements of Cash Flows for the years ended December
31, 2007, 2008, and 2009
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-8
 Financial Statement Schedule.
 3.
    
    Exhibits.
 ExhibitNumber
    
    Exhibit Description
    
    Method of Filing3.1
    
    Amended and Restated Articles of
Incorporation of the Company
    
    Incorporated by
reference to our
Registration
Statement on Form
S-4 filed on March
26, 19983.2
    
    Article of Amendment to Articles of
Incorporation dated June 9, 2006
    
    Incorporated by
reference to our
Registration
Statement on Form
8-A filed on March
9, 20073.3
    
    Article of Amendment to Articles of
Incorporation dated December 13, 2006
    
    Incorporated by
reference to our
Registration
Statement on Form
8-A filed on March
9, 20073.4
    
    Article of Amendment to Articles of
Incorporation dated December 26, 2006
    
    Incorporated by
reference to our
Registration
Statement on Form
8-A filed on March
9, 20073.5
    
    Article of Amendment to Articles of
Incorporation dated February 26, 2007
    
    Incorporated by
reference to our
Registration
Statement on Form
8-A filed on March
9, 20073.6
    
    Amended and Restated Bylaws of the Company
    
    Incorporated by
reference to our
Quarterly Report on
Form 10-Q for the
quarter ended June
30, 2008, filed on
August 8, 200810.1
    
    2006 Stock Incentive Plan
    
    Incorporated by
reference to our
Amended Annual
Report on Form
10-K/A for the year
ended December 31,
2006, filed on
July 13, 2007
 79




---



##### Table of Contents



ExhibitNumber
    
    Exhibit Description
    
    Method of Filing10.2
    
    Employment Agreement between Protalix
Ltd. and Yoseph Shaaltiel, dated as of
September 1, 2004
    
    Incorporated by
reference to our
Current Report on
Form 8-K filed on
January 8, 200710.3
    
    Employment Agreement between Protalix
Ltd. and Einat Almon, dated as of
December 19, 2004
    
    Incorporated by
reference to our
Current Report on
Form 8-K filed on
January 8, 200710.4
    
    Employment Agreement between Protalix
Ltd. and David Aviezer, dated as of
September 11, 2006
    
    Incorporated by
reference to our
Current Report on
Form 8-K filed on
January 8, 200710.5
    
    Employment Agreement between Protalix
Ltd. and Yossi Maimon, dated as of
October 15, 2006
    
    Incorporated by
reference to our
Current Report on
Form 8-K filed on
January 8, 200710.6
    
    License Agreement entered into as of
April 12, 2005, by and between Icon
Genetics AG and Protalix Ltd.
    
    Incorporated by
reference to our
Amended Current
Report on Form
8-K/A filed on
September 20, 200710.7
    
    Research and License Agreement between
Yeda Research and Development Company
Limited and Protalix Ltd. dated as of
March 15, 2006
    
    Incorporated by
reference to our
Amended Current
Report on Form
8-K/A filed on
September 20, 200710.8
    
    Agreement between Teva Pharmaceutical
Industries Ltd. and Protalix Ltd., dated
September 14, 2006
    
    Incorporated by
reference to our
Amended Current
Report on Form
8-K/A filed on
September 20, 200710.9
    
    Lease Agreement between Protalix Ltd. and
Angel Science Park (99) Ltd., dated as of
October 28, 2003 as amended on April 18,
2005
    
    Incorporated by
reference to our
Current Report on
Form 8-K filed on
January 8, 200710.10
    
    Merger Agreement and Plan of
Reorganization made and entered into as
of August 21, 2006, by and among the
Company, Protalix Acquisition Co., Ltd.
and Protalix Ltd.
    
    Incorporated by
reference to our
Current Report on
Form 8-K filed on
January 8, 200710.11
    
    Stock Option Award Agreement grant by and
between the Company and Steven Rubin,
dated as of December 31, 2006
    
    Incorporated by
reference to our
Annual Report on
Form 10-K for the
year ended December
31, 2007, filed on
March 30, 200710.12
    
    First Amendment to the December 31, 2006
Stock Option Award Agreement by and
between the Company and Steven Rubin,
effective as of February 28, 2007
    
    Incorporated by
reference to our
Annual Report on
Form 10-K for the
year ended December
31, 2008 filed on
March 30, 200710.13
    
    Scientific Advisory Board Agreement dated
August 5, 2007 by and between the Company
and Aaron Ciechanover, M.D.
    
    Incorporated by
reference to our
Current Report on
Form 8-K filed on
August 6, 200710.14
    
    Research and License Agreement made on
August 8, 2007, by and between Yissum
Research Development Company of
Jerusalem, the Boyce Thompson Institute
and Protalix Ltd.
    
    Incorporated by
reference to our
Quarterly Report on
Form 10-Q for the
quarter ended
September 30, 2007,
filed on November
14, 200710.15
    
    Unprotected Lease Agreement
    
    Incorporated by
reference to our
Annual Report on
Form 10-K for the
year ended December
31, 2007, filed on
March 17, 2008.10.16
    
    Exclusive License and Supply Agreement
dated as of November 30, 2009 between
Protalix Ltd. and Pfizer Inc.
    
    Filed herewith10.17
    
    Employment Agreement by and between the
Company and Sandra Lauterbach dated as of
December 17, 2009
    
    Incorporated by
reference to our
Current Report on
Form 8-K filed on
December 22, 200921.1
    
    Subsidiaries
    
    Filed herewith
 80




---



##### Table of Contents



ExhibitNumber
    
    Exhibit Description
    
    Method of Filing23.1
    
    Consent of Kesselman & Kesselman,
Certified Public Accountant (Isr.), A
member of PricewaterhouseCoopers
International Limited, independent
registered public accounting firm for the
Registrant
    
    Filed herewith31.1
    
    Certification of Chief Executive Officer
pursuant to Rule 13a-14(a) as adopted
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    Filed herewith31.2
    
    Certification of Chief Financial Officer
pursuant to Rule 13a-14(a) as adopted
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    Filed herewith32.1
    
    18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, Certification
of Chief Executive Officer
    
    Filed herewith32.2
    
    18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, Certification
of Chief Financial Officer
    
    Filed herewith
 
 
    
    Portions of this exhibit were omitted and have been filed separately with the Secretary of the
Securities and Exchange Commission pursuant to the Registrants application requesting confidential
treatment under Rule 24b-2 of the Exchange Act. 81




---



##### Table of Contents



SIGNATURES
  PROTALIX BIOTHERAPEUTICS, INC.By:
    /s/ David AviezerDavid Aviezer, Ph.D. POWER OF ATTORNEY
   Signature
    
    Title
    
    Date/s/ David Aviezer
    
    President, Chief Executive
    
    February 25, 2010David Aviezer, Ph.D.
    
    Officer (Principal Executive Officer) and
Director/s/ Yossi Maimon
    
    Chief Financial Officer,
    
    February 25, 2010Yossi Maimon
    
    Treasurer and Secretary (Principal
Financial and Accounting
Officer)/s/ Yoseph Shaaltiel
    
    Executive VP, Research and
    
    February 25, 2010Yoseph Shaaltiel, Ph.D.
    
    Development and Director/s/ Alfred Akirov
    
    Director
    
    February 25, 2010Alfred Akirov/s/ Amos Bar Shalev
    
    Director
    
    February 25, 2010Amos Bar Shalev/s/ Zeev Bronfeld
    
    Director
    
    February 25, 2010Zeev Bronfeld/s/ Yodfat Harel Gross
    
    Director
    
    February 25, 2010Yodfat Harel Gross
 82




---



##### Table of Contents



Signature
    
    Title
    
    Date/s/ Eyal Sheratzky
    
    Director
    
    February 25, 2010Eyal Sheratzky/s/ Roger D. Kornberg
    
    Director
    
    February 25, 2010Roger D. Kornberg, Ph.D.
 83




---



##### 



PROTALIX BIOTHERAPEUTICS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
  
  PageREPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
    
    
    F-2CONSOLIDATED FINANCIAL STATEMENTSConsolidated Balance Sheets as of December 31, 2008, and 2009
    
    
    F-3Consolidated Statements of Operations for the years ended December 31, 2007, 2008, and 2009
    
    
    F-4Consolidated Statements of Changes in Shareholders Equity for the years ended December
31, 2007, 2008, and 2009
    
    
    F-5Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2008, and 2009
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-8
   F-1




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  PROTALIX BIOTHERAPEUTICS, INC.
    Tel-Aviv, Israel
    
    /s/ Kesselman & KesselmanFebruary 25, 2010
    
    Kesselman & KesselmanCertified Public Accountant (Isr.)A member of PricewaterhouseCoopersInternational Limited
 F-2




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.
 
 CONSOLIDATED BALANCE SHEETS
 December 31,2008
    
    
    2009ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    42,596
    
    
    $
    81,266Accounts receivable
    
    
    793
    
    
    
    2,144Total current
assets
    
    
    43,389
    
    
    
    83,410FUNDS IN RESPECT OF EMPLOYEE
RIGHTS UPON RETIREMENT
    
    
    581
    
    
    
    724PROPERTY AND EQUIPMENT, NET
    
    
    6,841
    
    
    
    14,537Total assets
    
    $
    50,811
    
    
    $
    98,671LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable and accruals:Trade
    
    $
    2,235
    
    
    $
    3,406Other
    
    
    3,292
    
    
    
    13,561Deferred revenues
    
    
    
    
    
    
    4,563Total current
liabilities
    
    
    5,527
    
    
    
    21,530LONG TERM LIABILITIES:Deferred revenues
    
    
    
    
    
    
    60,049Liability for employee rights upon retirement
    
    
    937
    
    
    
    1,209Total long term
liabilities
    
    
    937
    
    
    
    61,258COMMITMENTSTotal liabilities
    
    
    6,464
    
    
    
    82,788SHAREHOLDERS EQUITY:Common Stock, $0.001 par value:Authorized  as of December 31, 2008 and 2009,
150,000,000 shares; issued and outstanding 
as of December 31, 2008 and 2009, 75,938,059
and 80,841,237 shares, respectively
    
    
    76
    
    
    
    81Additional paid-in capital
    
    
    119,281
    
    
    
    122,252Accumulated deficit
    
    
    (75,010
    )
    
    
    (106,450
    )Total shareholders equity
    
    
    44,347
    
    
    
    15,883Total liabilities and shareholders equity
    
    $
    50,811
    
    
    $
    98,671
 The accompanying notes are an integral part of the consolidated financial statements.
 F-3




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Year ended December 31,2007
    
    
    2008
    
    
    2009REVENUES
    
    $
    
    
    
    $
    
    
    
    $

    388ROYALTIES EXPENSES
    
    
    
    
    
    
    
    
    
    
    3,575
    
    
    
    
    
    
    
    3,187RESEARCH AND DEVELOPMENT EXPENSES
    
    
    14,641
    
    
    
    22,115
    
    
    $
    27,390Less  grants
    
    
    (1,071
    )
    
    
    (4,714
    )
    
    
    (5,752
    )13,570
    
    
    
    17,401
    
    
    
    21,638GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    20,594
    
    
    
    6,770
    
    
    
    7,144OPERATING LOSS
    
    
    34,164
    
    
    
    24,171
    
    
    
    31,969FINANCIAL INCOME  NET
    
    
    (2,080
    )
    
    
    (1,757
    )
    
    
    (529
    )NET LOSS FOR THE YEAR
    
    $
    32,084
    
    
    $
    22,414
    
    
    $
    31,440Net loss per share of common stock  basic and diluted:
    
    $
    0.48
    
    
    $
    0.30
    
    
    $
    0.41Weighted average number of shares of common stock used
in computing loss per share of common stock, basic and
diluted:
    
    
    67,187,329
    
    
    
    75,890,633
    
    
    
    76,942,840
 The accompanying notes are an integral part of the consolidated financial statements.
 F-4




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.
 
 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
 AdditionalCommon
    
    
    Common
    
    
    
    
    
    
    paid-in
    
    
    AccumulatedStock
    
    
    Stock
    
    
    Warrants
    
    
    Capital
    
    
    deficit
    
    
    TotalNumber ofshares
    
    
    AmountBalance at January 1, 2007
    
    
    61,781,959
    
    
    
    62
    
    
    
    355
    
    
    
    44,379
    
    
    
    (20,512
    )
    
    
    24,284Changes during 2007:Common Stock issued for cash (net of issuance costs
of $4,310) (see Note 5c)
    
    
    10,000,000
    
    
    
    10
    
    
    
    
    
    
    
    45,680
    
    
    
    
    
    
    
    45,690Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,437
    
    
    
    
    
    
    
    20,437Exercise of options granted to employees
    
    
    110,064
    
    
    
    *
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    14Exercise of warrants
    
    
    3,875,416
    
    
    
    4
    
    
    
    (355
    )
    
    
    5,684
    
    
    
    
    
    
    
    5,333Restricted Common Stock issued for future services (1)
    
    
    8,000
    
    
    
    *
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    11Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,084
    )
    
    
    (32,084
    )Balance at December 31, 2007
    
    
    75,775,439
    
    
    
    76
    
    
    
    
    
    
    
    116,205
    
    
    
    (52,596
    )
    
    
    63,685Changes during 2008:Restricted Common Stock issued for future services (1)
    
    
    (5,333
    )
    
    
    *
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,074
    
    
    
    
    
    
    
    3,074Exercise of options granted to employees (includes
net exercise)
    
    
    167,953
    
    
    
    *
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    5Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,414
    )
    
    
    (22,414
    )Balance at December 31, 2008
    
    
    75,938,059
    
    
    
    76
    
    
    
    
    
    
    
    119,281
    
    
    
    (75,010
    )
    
    
    44,347Changes during 2009:Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,683
    
    
    
    
    
    
    
    2,683Exercise of options granted to employees and
non-employees (includes net exercise)
    
    
    4,903,178
    
    
    
    5
    
    
    
    
    
    
    
    288
    
    
    
    
    
    
    
    293Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,440
    )
    
    
    (31,440
    )Balance at December 31, 2009
    
    
    80,841,237
    
    
    
    81
    
    
    
    
    
    
    
    122,252
    
    
    
    (106,450
    )
    
    
    15,883
 
 *
    
    Represents an amount less than $1.(1)
    
    The Company issued a total of 8,000 shares of restricted Common Stock in consideration for
services provided by, and to be provided by, a member of the Companys Scientific Advisory
Board. Such services were terminated in October 2008 while the forfeiture provisions of the
restricted stock were still in effect. Accordingly, 5,333 shares of the restricted Common
Stock were forfeited. See Note 5d(2)(a)(1). The accompanying notes are an integral part of the consolidated financial statements.
 F-5




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year      ended December 31,2007
    
    
    2008
    
    
    2009CASH FLOWS FROM OPERATING
ACTIVITIES:Net Loss
    
    $
    (32,084
    )
    
    $
    (22,414
    )
    
    $
    (31,440
    )Adjustments required to reconcile net loss to net cash
provided by (used in) operating activities:Share based compensation
    
    
    20,448
    
    
    
    3,071
    
    
    
    2,683Depreciation and impairment of fixed assets
    
    
    759
    
    
    
    1,301
    
    
    
    1,990Financial income net (mainly exchange differences)
    
    
    (806
    )
    
    
    (270
    )
    
    
    (166
    )Changes in accrued liability for employee rights
upon retirement
    
    
    254
    
    
    
    247
    
    
    
    265Loss (Gain) on amounts funded in respect of employee
rights upon retirement
    
    
    (57
    )
    
    
    39
    
    
    
    (81
    )Loss (Gain) on sale of fixed assets
    
    
    (6
    )
    
    
    
    
    
    
    29Changes in operating assets and liabilities:Increase in deferred revenues (including non-current portion)
    
    
    
    
    
    
    
    
    
    
    64,612Decrease (increase) in accounts receivable
    
    
    140
    
    
    
    636
    
    
    
    (1,224
    )Increase in accounts payable and accruals
    
    
    903
    
    
    
    1,375
    
    
    
    7,784Net cash provided by (used in) operating activities
    
    $
    (10,449
    )
    
    $
    (16,015
    )
    
    $
    44,452CASH FLOWS FROM INVESTING
ACTIVITIES:Purchase of property and equipment
    
    $
    (2,335
    )
    
    $
    (3,371
    )
    
    $
    (6,195
    )Investment in restricted deposit
    
    
    
    
    
    
    (175
    )Proceeds from sale of property and equipment
    
    
    11
    
    
    
    1
    
    
    
    73Amounts funded in respect of employee rights
upon retirement, net
    
    
    (114
    )
    
    
    (156
    )
    
    
    (52
    )Net cash used in investing activities
    
    $
    (2,438
    )
    
    $
    (3,701
    )
    
    $
    (6,174
    )CASH FLOWS FROM FINANCING
ACTIVITIES:Issuance of shares and warrants, net of issuance cost
    
    $
    45,746
    
    
    $
    (56
    )Exercise of options and warrants
    
    
    12,924
    
    
    
    5
    
    
    $
    293Merger with a wholly-owned subsidiary of the Company, net of
issuance cost
    
    
    (104
    )Net cash provided by (used in) financing activities
    
    $
    58,566
    
    
    $
    (51
    )
    
    $
    293EFFECT OF EXCHANGE RATE CHANGES ON
CASH
    
    
    756
    
    
    
    550
    
    
    
    99NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
    
    
    46,435
    
    
    
    (19,217
    )
    
    
    38,670BALANCE OF CASH AND CASH
EQUIVALENTS AT BEGINNING OF YEAR
    
    
    15,378
    
    
    
    61,813
    
    
    
    42,596BALANCE OF CASH AND CASH
EQUIVALENTS AT END OF YEAR
    
    $
    61,813
    
    
    $
    42,596
    
    
    $
    81,266
 The accompanying notes are an integral part of the consolidated financial statements.
 F-6




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
  Year ended December 31,2007
    
    
    2008
    
    
    2009SUPPLEMENTARY INFORMATION ON
INVESTING AND FINANCING ACTIVITIES
NOT INVOLVING CASH FLOWS:Purchase of property and equipment
    
    $
    666
    
    
    $
    932
    
    
    $
    4,525Issuance cost not yet paid and accruals  other
    
    $
    61
    
    
    $
    5
    
    
    $
    5
 The accompanying notes are an integral part of the consolidated financial statements.
 F-7




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SIGNIFICANT ACCOUNTING POLICIES
 a.
    
    General
 1.
    
    OperationProtalix BioTherapeutics, Inc. and its wholly-owned subsidiary, Protalix Ltd. (the
Israeli Subsidiary or Protalix Ltd., and collectively with Protalix
BioTherapeutics, Inc., the Company), are biopharmaceutical companies focused on
the development and commercialization of recombinant therapeutic proteins based on
the Companys proprietary ProCellExtm protein expression system
(ProCellEx). In September 2009, the Company formed another wholly-owned
subsidiary under the laws of the Netherlands in connection with the EMEA application
process in Europe. The Companys lead product development candidate is
taliglucerase alfa for the treatment of Gaucher disease (the brand name for which is
UPLYSO), which the Company is developing using its ProCellEx protein expression
system.In September 2009, the Company successfully completed its phase III pivotal trial of
taliglucerase alfa. In December 2009, the Company filed a New Drug Application
(NDA) submission with the U.S. Food and Drug Administration (FDA) for
taliglucerase alfa for the treatment of Gaucher disease.In addition to its phase III clinical trial, the Company initiated a clinical study
in December 2008 to evaluate the safety and efficacy of switching Gaucher patients
currently treated under the current standard of care to treatment with taliglucerase
alfa. This switchover-study is not a prerequisite for the marketing approval of
taliglucerase alfa. In August 2009, the Company received Fast Track Designation for
taliglucerase alfa, and in September 2009, the FDAs Office of Orphan Product
Development granted taliglucerase alfa Orphan Drug Status.The Company has been in the development stage since its inception until November
2009 (see 2 below).On November 30, 2009, Protalix Ltd. and Pfizer Inc. (Pfizer) entered into an
Exclusive License and Supply Agreement (the Pfizer Agreement) pursuant to which
Protalix Ltd. granted Pfizer an exclusive, worldwide license to develop and
commercialize taliglucerase alfa, except in Israel. Under the terms and conditions
of the Pfizer Agreement, Protalix Ltd. retained the right to commercialize
taliglucerase alfa in Israel. See Note 9.Successful completion of the Companys development program and its transition to
normal operations is dependent upon obtaining necessary regulatory approvals from
the FDA prior to selling its products within the United States, and foreign
regulatory approvals must be obtained to sell its products internationally. There
can be no assurance that the Company will receive regulatory approval of any of its
product candidates, and a substantial amount of time may pass before the Company
achieves a level of sales adequate to support the Companys operations, if at all.
The Company will also incur substantial expenditures in connection with the
regulatory approval process for each of its product candidates during the
developmental period. Obtaining marketing approval will be directly dependent on
the Companys ability to implement the necessary regulatory steps required to obtain
marketing approval in the United States and in other countries. The Company cannot
predict the outcome of these activities.
 F-8




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SIGNIFICANT ACCOUNTING POLICIES (continued):
 2.
    
    The MergerOn December 31, 2006, Protalix BioTherapeutics, Inc. (formerly Orthodontix, Inc.)
consummated the acquisition of Protalix Ltd., a privately-held Israeli biotechnology
company incorporated on December 27, 1993, by the merger (the Merger) of its
wholly-owned subsidiary, Protalix Acquisition Co., Ltd., with Protalix Ltd. At and
as of the Merger, the former shareholders of Protalix Ltd. received a number of
shares of Common Stock equal to more than 99% of the outstanding shares of Common
Stock. As a result, Protalix Ltd. is now the Companys wholly-owned subsidiary. As
of that date, for accounting purposes, the Merger was accounted for as a
recapitalization of Protalix Ltd. Accordingly, the historical financial statements
of the Company reflect the historical operations and financial statements of the
Subsidiary before the Merger.3.
    
    Subsequent EventsThe Company has evaluated events through February 25, 2010, the date of issuance of
the
financial statements. See Note 10.
 b.
    
    Basis of presentationThe Companys financial statements have been prepared in accordance with generally
accepted accounting principles in the United States (U.S. GAAP). Prior to December
2009, the Company was a development stage company as defined under the guidance for
Development Stage Enterprises. Commencing November 2009, the Company ceased to
consider itself a development stage company.In June 2009, the Financial Accounting Standards Board (FASB) issued the FASB
Accounting Standards Codification (Codification or ASC). The Codification became
the single authoritative source for U.S. GAAP and changed the way in which the
accounting literature is organized. The Codification does not change U.S. GAAP and
accordingly its adoption did not have a material impact on the Companys consolidated
financial statements.c.
    
    Use of estimates in the preparation of financial statementsThe preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.d.
    
    Functional currencyThe dollar is the currency of the primary economic environment in which the operations
of the Company and its Subsidiaries are conducted. The Companys revenues are derived
in dollars. Most of the Companys expenses and capital expenditures are incurred in
dollars, and the major source of the Companys financing to date has been provided in
dollars.Transactions and balances originally denominated in dollars are presented at their
original amounts. Balances in non-dollar currencies are translated into dollars using
historical and current exchange rates for non-monetary and monetary balances,
respectively. For non-dollar transactions and other items (stated below) reflected in
the statements of operations, the following exchange rates are used: (i) for
transactions  exchange rates at the transaction dates or average rates; and (ii) for
other items (derived from non-monetary balance sheet items such as depreciation and
amortization, etc.)  historical exchange rates. Currency transaction gains or losses
are carried to financial income or expenses, as appropriate.
 F-9




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SIGNIFICANT ACCOUNTING POLICIES (continued):
 e.
    
    Cash equivalentsThe Company considers all short-term, highly liquid investments, which include
short-term bank deposits with original maturities of three months or less from the date
of purchase, that are not restricted as to withdrawal or use and are readily
convertible to known amounts of cash, to be cash equivalents.f.
    
    Property and equipment
 1.
    
    Property and equipment are stated at cost, net of accumulated
depreciation and amortization.2.
    
    The Companys assets are depreciated by the straight-line method on
the basis of their estimated useful lives as follows:
 yearsLaboratory equipment
    
    
    5Furniture
    
    
    10-15Computer equipment
    
    
    3
  g.
    
    Impairment in value of long-lived assets:The Company tests long-lived assets for impairment if an indication of impairment
exists. If the sum of expected future cash flows of definite life of long lived assets
(undiscounted and without interest charges) is less than the carrying amount of such
assets, the Company recognizes an impairment loss, and writes down the assets to their
estimated fair values, calculated based on expected future discounted cash flows. See
Note 2c.h.
    
    Income taxes
 1.
    
    Deferred income taxesDeferred taxes are determined utilizing the assets and liabilities method based on
the estimated future tax effects of the differences between the financial accounting
and tax bases of assets and liabilities under the applicable tax laws. Deferred tax
balances are computed using the tax rates expected to be in effect when those
differences reverse. A valuation allowance in respect of deferred tax assets is
provided if, based upon the weight of available evidence, it is more likely than not
that some or all of the deferred tax assets will not be realized. The Company has
provided a full valuation allowance with respect to its deferred tax assets.The guidance prohibits the recognition of deferred tax liabilities or assets that
arise from differences between the financial reporting and tax bases of assets and
liabilities that are measured from the local currency into dollars using historical
exchange rates, and that result from changes in exchange rates or indexing for tax
purposes. Consequently, the above mentioned differences with respect to Protalix
Ltd. were not reflected in the computation of deferred tax assets and liabilities.2.
    
    Uncertainty in income taxesAs of January 1, 2007, the Company adopted accounting guidance with respect to
accounting for uncertainty in income taxes.Tax benefits recognized in the financial statements are at least more likely than
not of being sustained, based on technical merits. The amount of benefits recorded
for these tax benefits is measured as the largest benefit more likely than not to be
sustained.
 F-10




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SIGNIFICANT ACCOUNTING POLICIES (continued):
 i.
    
    Revenue RecognitionThe Company earns revenue under collaboration agreements with third parties to develop
and produce drug candidates. The Company recognizes revenue and milestone payments in
accordance with guidance regarding revenue recognition and accounting for revenue
arrangements with multiple deliverables. Pursuant to this guidance, the Company
determines whether an arrangement involves multiple revenue-generating deliverables
that should be accounted for as a combined unit of accounting or separate units of
accounting for revenue recognition purposes. If it is determined that there are
multiple units of accounting, the consideration from the arrangement is allocated among
the separate units based on a relative fair value allocation. If the arrangement
represents a single unit of accounting, the revenue is recognized over the performance
obligation period. Non-refundable up-front license payments, where continuing
involvement is required of the Company, are deferred and recognized over the related
performance period. The Company estimates its performance period based on the specific
terms of each collaboration agreement and adjusts the performance periods, if
appropriate, based on the applicable facts and circumstances.j.
    
    Research and development costsResearch and development costs are expensed as incurred and consist primarily of
personnel, subcontractors and consultants, facilities, equipment and supplies for
research and development activities. Grants received by the Israeli Subsidiary from
the Office of the Chief Scientist of Israels Ministry of Industry, Trade and Labor
(the OCS) and other research foundations are recognized when the grant becomes
receivable, provided there is reasonable assurance that the Company or the Subsidiary
will comply with the conditions attached to the grant and there is reasonable assurance
the grant will be received. The grant is deducted from the related research and
development expenses as the applicable costs are incurred. See Note 4(a).In connection with purchases of assets, amounts assigned to intangible assets to be
used in a particular research and development project that have no alternative future
use are charged to research and development costs at the purchase date.Nonrefundable advance payments for goods or services that will be used or rendered for
future research and development activities are deferred and amortized over the period
that the goods are delivered or the related services are performed, subject to an
assessment of recoverability.k.
    
    Comprehensive lossThe Company has no other comprehensive loss components other than net loss for the
reported periods.l.
    
    Concentration of credit risksFinancial instruments that potentially subject the Company to concentration of credit
risk consist principally of bank deposits. The Company deposits these instruments with
highly rated financial institutions, mainly in Israeli banks, and, as a matter of
policy, limits the amounts of credit exposure to any one financial institution. The
Company has not experienced any credit losses in these accounts and does not believe it
is exposed to any significant credit risk on these instruments.
 F-11




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SIGNIFICANT ACCOUNTING POLICIES (continued):
 m.
    
    Share-based compensationThe Company accounts for employees share-based payment awards classified as equity
awards using the grant-date fair value method. The fair value of share-based payment
transactions is recognized as an expense over the requisite service period, net of
estimated forfeitures. The Company estimated forfeitures based on historical
experience and anticipated future conditions.The Company elected to recognize compensation cost for an award with only service
conditions that has a graded vesting schedule using the accelerated method based on the
multiple-option award approach.When stock options are granted as consideration for services provided by consultants
and other non-employees, the transaction is accounted for based on the fair value of
the consideration received or the fair value of the stock options issued, whichever is
more reliably measurable. The fair value of the options granted is measured on a final
basis at the end of the related service period and is recognized over the related
service period using the straight-line method.n.
    
    Net Loss per shareBasic and diluted loss per share (LPS) are computed by dividing net loss by the
weighted average number of shares of Common Stock outstanding for each period.Shares of restricted Common Stock and the shares of Common Stock underlying outstanding
options of the Company were not included in the computation of diluted LPS because of
the anti-dilutive effect of doing so.Diluted LPS does not include options and restricted shares of Common Stock and warrants
of the Company in the amount of 11,959,795, 11,037,356 and 10,660,447 shares of Common
Stock for the years 2007, 2008 and 2009, respectively.o.
    
    Fair Value MeasurementFair value is defined as the price that would be received to sell an asset or paid to
transfer a liability (i.e., the exit price) in an orderly transaction between market
participants at the measurement date.p.
    
    Newly Issued and Recently Adopted Accounting Pronouncements
 1.
    
    In May 2009, the FASB issued ASC Topic 855 Subsequent Events
(formerly SFAS No. 165, Subsequent Events). ASC 855 sets forth the period after
the balance sheet date during which management of a reporting entity should
evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements, the circumstances under which an entity
should recognize events or transactions occurring after the balance sheet date in
its financial statements, and the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. ASC 855 is
effective for interim or annual periods ending after June 15, 2009. The Company
adopted the provisions of ASC 855 for the quarter ended June 30, 2009. The
adoption of ASC 855 did not have a material impact on the Companys condensed
financial statements.
 F-12




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SIGNIFICANT ACCOUNTING POLICIES (continued):
 2.
    
    In June 2009, the FASB issued Accounting Standards Update (ASU) No.
2009-1, Topic 105  Generally Accepted Accounting Principles which amended ASC
105 The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles (formerly SFAS No. 168 The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles  A Replacement of FASB Statement No. 162). ASU 2009-1 establishes
the FASB Accounting Standards CodificationTM(Codification) as the
single source of authoritative U.S. GAAP recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the U.S. Securities
and Exchange Commission (the SEC) under authority of federal securities laws are
also sources of authoritative U.S. GAAP for SEC registrants. ASU 2009-1 and the
Codification are effective for financial statements issued for interim and annual
periods ending after September 15, 2009. The Codification supersedes all existing
non-SEC accounting and reporting standards. All other nongrandfathered non-SEC
accounting literature not included in the Codification will become
nonauthoritative. The FASB will no longer issue new standards in the form of
Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts.
Instead, the FASB will issue Accounting Standards Updates, which will serve only
to: (a) update the Codification; (b) provide background information about the
guidance; and (c) provide the bases for conclusions on the change(s) in the
Codification. The adoption of ASU 2009-1 did not have a material impact on the
Companys financial statements.3.
    
    Multiple Deliverable Revenue ArrangementsIn October 2009, the FASB issued an Accounting Standards Update to ASC 605, ASU No.
2009-13, Multiple Deliverable Revenue Arrangements (ASU 2009-13). ASU 2009-13
provides guidance on whether multiple deliverables in a revenue arrangement exist,
how the arrangement should be separated, and how the consideration should be
allocated. Pursuant to ASU 2009-13, when vendor specific objective evidence or
third party evidence for deliverables in an arrangement cannot be determined, a best
estimate of the selling price is required to separate deliverables and allocate
arrangement consideration, using the relative selling price method. In addition,
the residual method of allocating arrangement consideration is no longer permitted
under ASU 2009-13.ASU 2009-13 is effective for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010. The Company is
currently evaluating the potential impact of ASU 2009-13 on its consolidated
financial position, results of operations and cash flows.
 NOTE 2  PROPERTY AND EQUIPMENT
 a.
    
    Composition of property and equipment grouped by major classifications, and
changes, is as follows:
 December 31,2008
    
    
    2009Laboratory equipment
    
    $
    5,898
    
    
    $
    10,008Furniture and computer equipment
    
    
    699
    
    
    
    944Leasehold improvements
    
    
    3,058
    
    
    
    5,665Equipment under construction
    
    
    97
    
    
    
    2,615$
    9,752
    
    
    $
    19,232Less  accumulated depreciation
and amortization
    
    
    (2,911
    )
    
    
    (4,695
    )$
    6,841
    
    
    $
    14,537
 F-13




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2  PROPERTY AND EQUIPMENT (continued):
 b.
    
    Depreciation and amortization in respect of property and equipment totaled
$692, $1,301 and $1,990 for the years ended December 31, 2007, 2008 and 2009,
respectively.c.
    
    The Company tested the carrying value of certain long lived assets. As a
result, during the year ended December 31, 2007, the Company recorded a total
impairment of $67. See Notes 7c and 7d. The impaired long lived assets were mainly
laboratory equipment and leasehold improvements.
 NOTE 3  LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT
        F-14




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 4  COMMITMENTS
 a.
    
    Royalty commitments
 1.
    
    The Company is obligated to pay royalties to the OCS on proceeds from
the sale of products developed from research and development activities that were
funded, partially, by grants from the OCS. At the time the grants were received,
successful development of the related projects was not assured.In the case of failure of a project that was partly financed as described above, the
Company is not obligated to pay any such royalties or repay funding received from the
OCS.Under the terms of the funding arrangements with the OCS, royalties of 3% to 6% are
payable on the sale of products developed from projects funded by the OCS, which
payments shall not exceed, in the aggregate, 100% of the amount of the grant received
(dollar linked), plus, commencing upon January 1, 2001, interest at annual rate based
on LIBOR. In addition, if the Company receives approval to manufacture the products
developed with government grants outside the State of Israel, it will be required to
pay an increased total amount of royalties (possibly up to 300% of the grant amounts
plus interest), depending on the manufacturing volume that is performed outside the
State of Israel, and, possibly, an increased royalty rate.The Company is obligated to pay the OCS royalties in respect of the amounts received
from Pfizer under the Pfizer Agreement. Royalty expenses are included in the
statement of operations as a component of royalties expenses and were approximately
$1,950 in the aggregate during the year ended December 31, 2009.At December 31, 2009, the maximum royalty amount payable by the Company under these
funding arrangements is approximately $13,941 (without interest, assuming 100% of the
funds are payable).2.
    
    The Company is a party to certain research and license agreements.
Under the agreements, the Company is obligated to pay royalties at varying rates
from its future revenues. As of December 31, 2009, royalty payments in the amount
of $1,625 have become payable under the agreements due to the execution of the
Pfizer Agreement and are included in the statement of operations as a component of
royalties expenses.Under each agreement, the Company is also obligated to pay milestone, licensing and
other payments to the counterparties of the agreement. The payments under the
agreements are for varying amounts and are subject to varying conditions. If all of
the contingencies with respect to milestone payments under the research and license
agreements are met, the aggregate milestone payments payable would be approximately
$1,050 and would be payable, if at all, as the Companys projects progress over the
course of a number of years. A total of $70 of milestone payments have become
payable under the Companys agreements for the year ended December 31, 2009 in
connection with the filing of the NDA for taliglucerase alfa with the FDA.None of the agreements has a fixed termination date. Subject to earlier termination
for other reasons, each agreement terminates after a certain number of years
following the first commercial sale of any licensed product under the agreement or
after a certain number of years without the initiation of commercial sales of any
product under the agreement.
 b.
    
    Subcontracting AgreementsThe Company has entered into sub-contracting agreements with several clinical providers
in Israel, the United States and certain other countries in connection with its primary
product development process. As of December 31, 2009, total commitments under said
agreements were approximately $3,693.
 F-15




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 4  COMMITMENTS (continued):
 c.
    
    Lease AgreementsThe Company is a party to a number of lease agreements for its facilities, the latest of
which expires in 2017. The Company has the option to extend certain of such agreements
on three occasions for additional five-year periods, for a total of 15 additional years.
Under the leases, the aggregate monthly rental payments are approximately $63. As of
December 31, 2008, the Company provided bank guarantees of approximately $226, in the
aggregate, to secure the fulfillment of its obligations under the lease agreements. The
future minimum lease payments required in each of the next five years under the
operating leases for such premises are approximately as follows: 2010  $791, 2011 -
$798, 2012  $798, 2013  $798 and 2014  $798. Lease expenses totaled $197, $220 and
$780 for the years ended December 31, 2007, 2008 and 2009, respectively.d.
    
    Vehicle Lease and Maintenance AgreementsIn July 2004, the Company entered into several three-year lease and maintenance
agreements for vehicles which are regularly amended as new vehicles are leased. The
current monthly lease fees aggregate approximately $31. The expected lease payments for
the years ending December 31, 2010, 2011 and 2012 are $346, $270 and $173, respectively.e.
    
    Teva AgreementOn September 14, 2006, the Company entered into agreement (the Teva Agreement) with
Teva Pharmaceutical Industries Ltd. (Teva) under which the Company agreed to
collaborate on the research and development of two proteins to be identified by Teva and
the Company, using ProCellEx. The Teva Agreement also identifies additional matters for
collaboration between Teva and the Company. The Company granted to Teva an exclusive
license to commercialize any products developed under the collaboration in return for
royalty and milestone payments payable upon the achievement of certain pre-defined
goals. The Company will retain certain exclusive manufacturing rights with respect to
the active pharmaceutical ingredient of the proteins following the first commercial sale
of a licensed product under the agreement and other rights thereafter. Subsequently,
two proteins were identified to be researched and developed under the agreement but in
2009, both of the projects were terminated for commercial reasons. Eli Hurvitz, the Chairman of the Companys
Board of Directors, is the Chairman of Tevas Board of Directors, and Phillip Frost
M.D., a former director and a large, indirect shareholder of the Company, is the Vice
Chairman of Tevas Board of Directors.f.
    
    Yissum AgreementOn August 8, 2007, the Company signed an agreement with the Yissum Research and
Development Company, the technology transfer arm of the Hebrew University of Jerusalem,
Israel, and the Boyce Thompson Institute for Plant Research, at Cornell University,
Ithaca, New York, to develop a proprietary plant cell-based acetylcholinesterase (AChE)
and its molecular variants for the use in several therapeutic and prophylactic
indications, including a biodefense program and organophosphate-based pesticide
treatment. Pursuant to the agreement, the Company has received an exclusive worldwide
right and license to certain technology, including patents and additional patent
applications relating to AChE (the Licensed Technology), for all therapeutic and
prophylactic indications. In consideration for the license, the Company is required to
make certain milestone payments upon its achievement of clinical milestones and
royalties from sales derived from any drugs developed by it with the Licensed
Technology. The agreement does not terminate until either party to the agreement elect
to terminate the agreement, subject to certain terms and conditions set forth therein.
 F-16




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 5  SHARE CAPITAL
 a.
    
    Rights of the Companys Stock
 1.
    
    Common StockEach share of Common Stock is entitled to one vote. The holders of Common Stock are
also entitled to receive dividends whenever funds are legally available, when and if
declared by the Board of Directors. Since its inception, the Company has not
declared any dividends.2.
    
    Preferred SharesThe preferred shares were authorized in the Companys Restated Articles of
Incorporation on April 16, 1998. The rights and privileges of the preferred stock
may be established by the Companys Board of Directors. The directors have not
designated any class of preferred stock and no shares of preferred stock have ever
been issued.
 b.
    
    On January 31, 2007, warrants that were issued in connection with a share
purchase agreement dated August 2006, were exercised for 3,875,416 shares of Common
Stock for an aggregate exercise price of $5,333.c.
    
    In October 2007, the Company issued and sold 10,000,000 shares of Common Stock
in an underwritten public offering at a price equal to $5.00 per share. The net
proceeds to the Company were $45,690 (net of underwriting commissions and issuance
costs of $4,310).d.
    
    Stock based compensationOn December 14, 2006, the Board of Directors adopted the Protalix BioTherapeutics, Inc.
2006 Stock Incentive Plan (the Plan). The grant of options to Israeli employees
under the Plan is subject to the terms stipulated by Sections 102 and 102A of the
Israeli Income Tax Ordinance. Each option grant is subject to the track chosen by the
Company, either Section 102 or Section 102A of the Israeli Income Tax Ordinance, and
pursuant to the terms thereof, the Company is not allowed to claim, as an expense for
tax purposes, the amounts credited to employees as a benefit, including amounts
recorded as salary benefits in the Companys accounts, in respect of options granted to
employees under the Plan, with the exception of the work-income benefit component, if
any, determined on the grant date. For Israeli non-employees, the share option plan is
subject to Section 3(i) of the Israeli Income Tax Ordinance.Immediately prior to the closing of the Merger, options to purchase 88,001 ordinary
shares of Protalix Ltd. were outstanding under the Plan. Pursuant to the terms of the
Merger Agreement, the Company assumed all of the outstanding obligations under such
plan and, accordingly, the Company issued options to purchase 5,375,174 shares of
Common Stock, in the aggregate, in lieu of ordinary shares of Protalix Ltd., and has
reserved an additional 4,366,481 shares of Common Stock under the Plan for future
allocation under the Plan. As of December 31, 2009, 1,433,623 shares of Common Stock
remain available for grant under the Plan.For purposes of determining the fair value of the options and shares of restricted
Common Stock granted to employees and non-employees, the Companys management uses the
fair value of the Common Stock.
 F-17




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 5  SHARE CAPITAL (continued):
 During the years ended December 31, 2001 through 2009, the Company granted options
and shares of restricted Common Stock to certain employees and non-employees as
follows:1.
    
    Options granted to employees:
  Year of
    
    No. of options
    
    Exercise
    
    
    
    
    
    Fair value
    
    ExerciseGrant
    
    granted
    
    price range
    
    Vesting period
    
    at grant
    
    Period2001
    
    
    244,324
    
    
    
    0.001
    
    
    immediate
    
    $
    42
    
    
    10 years2003
    
    
    1,243,977
    
    
    
    0.12
    
    
    Approximately 610,017 immediate
and the remainder in 4 years
    
    $
    389
    
    
    10 years2005
    
    
    1,182,591
    
    
    
    0.12-0.40
    
    
    4 years
    
    $
    939
    
    
    10 years2006*
    
    
    2,201,972
    
    
    
    0.97
    
    
    4 years
    
    $
    1,963
    
    
    10 years2007
    
    
    204,351
    
    
    
    4.33
    
    
    4 years
    
    $
    5,790
    
    
    10 years2008
    
    
    2,060,000
    
    
    
    2.35-5.00
    
    
    4 -5 years
    
    $
    2,914
    
    
    10 years2009**
    
    
    504,000
    
    
    
    2.65
    
    
    Upon achievement of certain milestones
    
    $
    1,068
    
    
    10 years2009
    
    
    120,400
    
    
    
    2.65
    
    
    4 years
    
    $
    212
    
    
    10 years7,761,615
 
 *
    
    Includes options granted outside of an option plan.**
    
    The milestone was achieved as of December 31,
2009 rendering the options fully vested.  1.
    
    In May 2007, the Companys Board of Directors approved
the grant of options to purchase 204,351 shares of Common Stock to a
newly-hired officer of the Company, at an exercise price equal to $4.33 per
share. The options vest over a four-year period and are exercisable for a
10-year period commencing on the date of grant. In May 2008, the officers
employment by the Company was terminated. As a result, 127,719 of the
options granted to the officer were forfeited.2.
    
    In February 2008, the Companys Board of Directors
approved the grant of options to purchase 1,900,000 shares of Common Stock
to certain officers and employees of the Company with an exercise price
equal to $5.00 per share. The options vest variably over a period of up to
five years. The options are exercisable over a 10-year period commencing on
the date of grant.3.
    
    In October 2008, the Companys Board of Directors
approved the grant of options to purchase 160,000 shares of Common Stock to
a new newly-hired officer of the Company of the Company with an exercise
price equal to $2.35 per share. The options vest over a of four-year period.
The options are exercisable over a 10-year period commencing on the date of
grant.4.
    
    In February 2008, the Company amended the stock option
agreements of certain executive officers. As amended, such stock option
agreements provide for the full acceleration of the vesting period of
unvested options held by such officers immediately upon a change of
control. The Company concluded that there was no incremental increase in the
value of the awards and therefore no accounting charges need to be recorded
in connection with such modification.
 F-18




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 5  SHARE CAPITAL (continued):
 5.
    
    In February, 2009, the Companys Board of Directors
approved the grant of options to purchase 624,400 shares of Common Stock to
certain officers and employees of the Company with an exercise price equal
to $2.65 per share. The options vest as follows:
    2007
    
    2008
    
    2009Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    53
    %
    
    
    63
    %
    
    
    75
    %Risk-free interest rate
    
    
    4.62
    %
    
    
    2.99
    %
    
    
    2.74
    %Expected life  in years
    
    
    6.0
    
    
    
    6.0
    
    
    
    9.2
 The expected volatility is based on the historical volatility of the Common
Stock and those of comparable companies. The risk-free interest rate
assumption is based on observed interest rates appropriate for the expected
term of the stock options granted in dollar terms. The Companys management
uses the contractual term or its expectations, as  applicable (through 2008  using the simplified method), of each
option as its expected life. The pre-vesting forfeiture rate of
approximately 7% is estimated based on pre-vesting forfeiture experience.The total unrecognized compensation cost of employee stock options at
December 31, 2009 is $782 (net of forfeiture rate), and it is expected to be
recognized over a weighted average period of 0.9 years.The total cash received from employees as a result of employee stock option
exercises for the years ended December 31, 2007, 2008 and 2009 was $14, $5
and $293, respectively. The Company did not realize any tax benefit in
connection with these exercises.
 F-19




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 5  SHARE CAPITAL (continued):
 During 2009, the Company issued 1,049,737 shares of Common Stock in
connection with the exercise of 1,146,912 options by certain officers and
employees of the Company. The Company received cash proceeds equal to $293
in connection with such exercises as 642,050 of such options were exercised
on a net-exercise basis.
 2.
    
    Options and shares of restricted Common Stock granted to consultants,
directors, and other service providers:
  Fair valueYear of
    
    No. of options
    
    Exercise price
    
    Vesting
    
    at grant
    
    ExerciseGrant
    
    granted
    
    range
    
    period
    
    ($)
    
    Period1999*
    
    
    384,811
    
    
    $
    0.1
    
    
    3 years
    
    
    27
    
    
    10 years2000*
    
    
    349,017
    
    
    $
    0.001
    
    
    immediate
    
    
    35
    
    
    5.5 years2001
    
    
    837,727
    
    
    $
    0.17
    
    
    mainly 2 years
    
    
    51
    
    
    7 years2003
    
    
    1,601,912
    
    
    $
    0.12
    
    
    4 years
    
    
    498
    
    
    10 years2005*
    
    
    2,315,890
    
    
    $
    0.001-$0.57
    
    
    2-4 years
    
    
    2,466
    
    
    10 years2006*
    
    
    4,629,516
    
    
    $
    0.001-$16.7
    
    
    2.5 years
    
    
    2,237
    
    
    10 years2007
    
    
    16,000
    
    
    $
    0.001
    
    
    4 years
    
    
    246
    
    
    10 years2008
    
    
    50,000
    
    
    $
    3.02
    
    
    4 years
    
    
    109
    
    
    10 years10,184,873
 
 *
    
    Includes options granted outside of an option plan.  1.
    
    In May 2007, the Companys Board of Directors approved
the grant of 8,000 shares of restricted Common Stock to a new member of its
Scientific Advisory Board. The shares vest as follows: 25% vest 12 months
after the grant date and the remaining 75% of the shares vest over three
years in 36 equal monthly installments. In October 2008, such services were
terminated and 5,333 the 8,000 shares of restricted Common Stock were
forfeited.2.
    
    In February 2008, the Companys Board of Directors
approved the grant of options to purchase 50,000 shares of Common Stock to a
new director of the Company with an exercise price equal to $3.02 per share.
The options vest over a four-year period and are exercisable over a 10-year
period commencing on the date of grant.
  2008Dividend yield
    
    
    0
    %Expected volatility
    
    
    63
    %Risk-free interest rate
    
    
    2.99
    %Expected life  in years
    
    
    10
 F-20




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 5  SHARE CAPITAL (continued):
 The expected volatility is based on the historical volatility of the Companys stock
and those of comparable companies. The risk-free interest rate assumption is based
on observed interest rates appropriate for the expected term of the stock options
granted in dollar terms. The Companys management used the contractual terms as the
expected life in 2009.The total unrecognized compensation cost as of December 31, 2009, is $39, and it is
expected to be recognized over a weighted average period of 0.9 years.No cash was received from consultants as a result of consultant stock option
exercises for the years ended December 31, 2007, 2008 and 2009. The Company did not
realize any tax benefits in connection with these exercises.During the year ended December 31, 2009, the Company issued 3,853,441 shares of
Common Stock in connection with the exercise of 3,866,093 options by certain
consultants, directors, and other service providers of the Company. The Company did
not receive cash proceeds in connection with such exercises as all of such options
were exercised on a net-exercise basis.
 e.
    
    A summary of share option plans, and related information, under all of the
Companys equity incentive plans for the years ended December 31, 2007, 2008 and 2009
are as follows:
 1.
    
    Options granted to employees:
 Year ended December 31,2007
    
    
    2008
    
    
    2009Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedNumber
    
    
    average
    
    
    Number
    
    
    average
    
    
    Number
    
    
    averageof
    
    
    exercise
    
    
    of
    
    
    exercise
    
    
    of
    
    
    exerciseoptions
    
    
    price
    
    
    options
    
    
    price
    
    
    options
    
    
    priceOutstanding at beginning
of year
    
    
    4,144,817
    
    
    $
    0.635
    
    
    
    4,212,686
    
    
    $
    0.830
    
    
    
    5,890,641
    
    
    $
    2.118Changes during the year:Granted
    
    
    204,351
    
    
    
    4.330
    
    
    
    2,060,000
    
    
    
    4.794
    
    
    
    624,400
    
    
    
    2.650Forfeited
    
    
    25,197
    
    
    
    0.120
    
    
    
    177,237
    
    
    
    4.405
    
    
    
    1,400
    
    
    
    2.650Expired
    
    
    1,221
    
    
    
    0.970
    
    
    
    
    
    
    
    Exercised (*)
    
    
    110,064
    
    
    
    0.131
    
    
    
    204,808
    
    
    
    0.565
    
    
    
    1,146,912
    
    
    
    0.733Outstanding at end of year
    
    
    4,212,686
    
    
    $
    0.830
    
    
    
    5,890,641
    
    
    $
    2.118
    
    
    
    5,366,729
    
    
    $
    2.476Exercisable at end of year
    
    
    2,503,399
    
    
    $
    0.365
    
    
    
    3,267,607
    
    
    $
    0.995
    
    
    
    3,680,382
    
    
    $
    1.785
 
 (*)
    
    The total intrinsic value of options exercised during the years ended
December 31, 2007, 2008 and 2009, was $907, $450 and $7,258, respectively. F-21




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 5  SHARE CAPITAL (continued):
 2.
    
    Options granted to consultants, directors, and other service
providers:
 Year ended December 31,2007
    
    
    2008
    
    
    2009Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedNumber
    
    
    average
    
    
    Number
    
    
    average
    
    
    Number
    
    
    averageof
    
    
    exercise
    
    
    of
    
    
    exercise
    
    
    of
    
    
    exerciseoptions
    
    
    price
    
    
    options
    
    
    price
    
    
    options
    
    
    priceOutstanding at beginning of
year
    
    
    7,572,035
    
    
    $
    5.996
    
    
    
    5,254,785
    
    
    $
    1.250
    
    
    
    5,304,785
    
    
    $
    1.285Changes during the year:Granted
    
    
    8,000
    
    
    
    0.001
    
    
    
    50,000
    
    
    
    3.020Forfeited
    
    
    2,325,250
    
    
    
    16.700Exercised (*)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,866,093
    
    
    
    0.016Outstanding at end of year
    
    
    5,254,785
    
    
    $
    1.250
    
    
    
    5,304,785
    
    
    $
    1.285
    
    
    
    1,438,692
    
    
    $
    4.697Exercisable at end of year
    
    
    4,341,917
    
    
    $
    0.023
    
    
    
    5,133,189
    
    
    $
    0.902
    
    
    
    1,407,234
    
    
    $
    4.674
 
 (*)
    
    The total intrinsic value of options exercised during the years ended December 31,
2007, 2008 and 2009, was $0, $0 and $41,281, respectively. f.
    
    The following tables summarize information concerning outstanding and exercisable
options as of December 31, 2009:
 December 31, 2009Options outstanding
    
    Options exercisableNumber of
    
    Weighted
    
    Number of
    
    Weightedoptions
    
    average
    
    options
    
    averageoutstanding
    
    remaining
    
    exercisable
    
    remainingExercise
    
    at end of
    
    contractual
    
    at end of
    
    contractualprices
    
    year
    
    life
    
    year
    
    life$0.001
    
    
    919,207
    
    
    
    4.09
    
    
    
    915,875
    
    
    
    4.08$0.120
    
    
    1,107,926
    
    
    
    4.32
    
    
    
    1,107,926
    
    
    
    4.32$0.399
    
    
    47,569
    
    
    
    5.35
    
    
    
    47,569
    
    
    
    5.35$0.972
    
    
    1,666,365
    
    
    
    6.51
    
    
    
    1,312,287
    
    
    
    6.49$2.350
    
    
    160,000
    
    
    
    8.82
    
    
    
    40,000
    
    
    
    8.82$2.650
    
    
    623,000
    
    
    
    9.15
    
    
    
    504,000
    
    
    
    9.15$3.020
    
    
    50,000
    
    
    
    8.10
    
    
    
    21,875
    
    
    
    8.10$5.000
    
    
    1,843,812
    
    
    
    8.10
    
    
    
    750,542
    
    
    
    8.10$16.700
    
    
    387,542
    
    
    
    7.00
    
    
    
    387,542
    
    
    
    7.006,805,421
    
    
    
    
    
    
    
    5,087,616
  g.
    
    The following table illustrates the effect of share-based compensation on the
statement of operations:
 Year ended December 31,2007
    
    
    2008
    
    
    2009Research and development expenses
    
    $
    3,587
    
    
    $
    1,226
    
    
    $
    1,489General and administrative expenses
    
    
    16,861
    
    
    
    1,845
    
    
    
    1,194$
    20,448
    
    
    $
    3,071
    
    
    $
    2,683
 F-22




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 6  TAXES ON INCOME
 a.
    
    The CompanyProtalix BioTherapeutics, Inc. is taxed according to tax laws of the United States. The
income of Protalix BioTherapeutics, Inc. is taxed in the United States at the rate of up
to 39.4%.b.
    
    Protalix Ltd.The Israeli Subsidiary is taxed according to Israeli tax laws:
 1.
    
    Measurement of results for tax purposes under the Income Tax
(Inflationary Adjustments) Law, 1985 (hereafter  the inflationary adjustments law)Pursuant to the Israel Income Tax Law (Adjustments for Inflation), 1985 (hereinafter
  the Adjustments Law), the results for tax purposes have been measured through 2007
on a real basis, based on changes in the Israel consumer price index. The
Subsidiary is taxed under this law.Under the Israel Income Tax Law (Adjustments for Inflation) (Amendment No. 20), 2008
(the amendment), the provisions of the Adjustments Law will cease to apply to the
Subsidiary in the 2008 tax year, and, therefore, commencing in 2008, the results of
the Israeli Subsidiary have been measured for tax purposes in nominal terms. The
amendment includes a number of transition provisions regarding the end of
application of the Adjustments Law, which applied to the Israeli Subsidiary through
the end of the 2007 tax year.2.
    
    Tax ratesThe income of the Israeli Subsidiary (other than income from Approved Enterprises
see 3 below is taxed in Israel at the regular rate. According to the provisions of
the Law for Amending the Israel Income Tax Ordinance, 2005 (Amendment 147) of
August 2005, corporate tax rates will be gradually lowered, resulting in the
corporate following tax rates for 2007 and thereafter: 2007  29%, 2008  27%,
2009  26% and for 2010 and thereafter  25%.Capital gain for assets purchased since January 1, 2003 are subject to real capital
gain tax at 25% and exempted from inflationary capital gains tax.On July 23, 2009, the Israel Economic Efficiency Law (Legislation Amendments for
Applying the Economic Plan for 2009 and 2010), 2009 (the 2009 Amendment), became
effective, stipulating, among other things, an additional gradual decrease in tax
rates in 2011 and thereafter, as follows: 2011  24%, 2012  23%, 2013  22%,
2014  21%, 2015  20% and 2016 and thereafter  18%.In addition to the above decrease in corporate tax, the real capital gain tax was
reduced to be in line with corporate tax in the year of selling the asset.3.
    
    The Law for the Encouragement of Capital Investments, 1959
(hereinafter, the Law)
 a.
    
    Reduced tax ratesThe Israeli Subsidiary has been granted Approved Enterprise status under the
Law for the Encouragement of Capital Investments, 1959. Income derived from the
Approved Enterprise during a period of 10 years from the year in which the
enterprise first realizes taxable income is tax exempt, provided that the
maximum period to which it is restricted by the law has not elapsed.The Israeli Subsidiary has an Approved Enterprise plan since 2004. The period
of benefits in respect of the main enterprise of the Company, which has not yet
commenced in 2009 expires in 2017.
 F-23




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 6  TAXES ON INCOME (continued):
 If the Israeli Subsidiary subsequently pays a dividend out of income derived
from the Approved Enterprise during the tax exemption period, it will be
subject to tax on the amount distributed, including any company tax on these
amounts, at the rate which would have been applicable had such income not been
exempted.In addition to the corporate taxes in Israel, the Company is subject to a
withholding tax on the U.S. revenue source portion of the payments made to the
Company for its share of Pfizers net profits under the Pfizer Agreement. The
withholding tax rate is currently 15%.
 b.
    
    Accelerated depreciationThe Israeli Subsidiary is entitled to claim accelerated depreciation as provided by
Israeli law, commencing in the first year of operation of each asset, in respect of
buildings, machinery and equipment used by the Approved Enterprise.c.
    
    Conditions for entitlement to the benefitsThe entitlement to the above benefits is conditional upon the Israeli Subsidiary
fulfilling the conditions stipulated by the law, rules and regulations published
thereunder, and the instruments of approval for the specific investment in an
approved enterprise. In the event of any failure of the Israeli Subsidiary to
comply with these conditions, the benefits may be cancelled and the Subsidiary may
be required to refund the amount of the benefits, in whole or in part, with
interest.The Investment Center of Israeli Ministry of Industry, Trade and Labor (the
Investment Center) is currently reviewing the Israeli Subsidiarys final
implementation report and, as a result, the Company has not yet received a final
implementation approval with respect to its Approved Enterprise from the
Investment Center. Additionally, given the Israeli Subsidiarys significant amount
of net operating losses and the limitation mentioned above to the benefit period,
the Israeli Subsidiary cannot predict when it would be able to enjoy the tax
benefits described above, if at all.5.
    
    The Law for the Encouragement of Industry (Taxation), 1969:The Israeli Subsidiary is an industrial company, as defined under the Law for the
Encouragement of Industry (Taxation), 1969. As such, the Israeli Subsidiary is
entitled to claim depreciation at increased rates for equipment used in industrial
activity, as stipulated by regulations published under law, and has done so.Under the provisions of the Income Tax Regulations Accelerated Depreciation in
respect of Equipment acquired during the Defined Period (Temporary Orders),
industrial companies whose operations are mostly eligible operations are entitled
to claim accelerated depreciation at the rate of 50% on machinery and equipment
acquired from June 1, 2008 to May 31, 2009. The accelerated depreciation is to be
claimed over two years. For the year in which the equipment was acquired,
depreciation is recorded at the regular rate. In the second year and thereafter,
depreciation is recorded at a rate that would make the aggregate rate is 100%.Under the regulations, the Company is entitled to accelerated depreciation in 2009
in respect of machines and equipment purchased in 2008 and 2009. The effect of the
change in the rates of accelerated depreciation was included in deferred taxes
described above.
 F-24




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 6  TAXES ON INCOME (continued):
 c.
    
    Tax losses carried forward to future yearsAs of December 31, 2009, the Company had aggregate net operating loss (NOL)
carry-forwards equal to approximately $14,690 that are available to reduce future
taxable income as follows:
 1.
    
    The CompanyThe NOL carry-forward of the Company equal to approximately $5,911 may be restricted
under Section 382 of the Internal Revenue Code (IRC). IRC Section 382 applies
whenever a corporation with NOL experiences an ownership change. As a result of IRC
Section 382, the taxable income for any post change year that may be offset by a
pre-change NOL may not exceed the general IRC Section 382 limitation, which is the
fair market value of the pre-change entity multiplied by the IRC long-term tax
exempt rate.2.
    
    Protalix Ltd.At December 31, 2009, the Israeli Subsidiary had approximately $8,779 of NOL
carry-forwards that are available to reduce future taxable income with no limited
period of use.
 d.
    
    Deferred income taxes:The components of the Companys net deferred tax asset at December 31, 2008 and 2009
were as follows:
 December 31,2008
    
    
    2009In respect of:R&D expenses
    
    $
    2,728Property and equipment
    
    
    7
    
    
    $
    (161
    )Holiday and recreation pay
    
    
    162
    
    
    
    200Severance pay obligation
    
    
    89
    
    
    
    87Deferred revenues
    
    
    
    
    
    
    8,345Net operating loss carry forwards
    
    
    11,624
    
    
    
    2,246Valuation allowance
    
    
    (14,610
    )
    
    
    (10,717
    )
    
    
    
    
 e.
    
    Reconciliation of the theoretical tax expense to actual tax expense
 The main reconciling items between the statutory tax rate of the Company and the
effective rate is the tax exemptions in connections with the Approved Enterprise and
the provision for full valuation allowance in respect of tax benefits from carry
forward tax losses due to the uncertainty of the realization of such tax benefits
(see above).
 f.
    
    Tax assessments
 In accordance with the Income Tax Ordinance, as of December 31, 2009, all of
Protalix Ltd.s tax assessments through tax year 2005 are considered final.
 A summary of open tax years by major jurisdiction is presented below:
 Jurisdiction:
    
    Years:Israel
    
    
    2005-2009United States (*)
    
    
    2002-2009Netherlands
    
    
    2009
 
 (*)
    
    Includes federal, state and local (or similar provincial jurisdictions) tax
positions. F-25




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 7 SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):
 Balance sheets:
 Year EndedDecember 31,2008
    
    
    2009a.  Accounts receivable:Institutions
    
    $
    223
    
    
    $
    740State of Israel (see Note 4a )
    
    
    166
    
    
    
    832Restricted deposit
    
    
    211
    
    
    
    213Prepaid expenses
    
    
    176
    
    
    
    208Sundry
    
    
    17
    
    
    
    151$
    793
    
    
    $
    2,144b. Accounts payable and accruals  other:Payroll and related expenses
    
    $
    766
    
    
    $
    2,731Provision for vacation and recreation pay
    
    
    624
    
    
    
    799Accrued expenses
    
    
    970
    
    
    
    1,931Royalties payable
    
    
    
    
    
    
    3,575Property and equipment supplier
    
    
    932
    
    
    
    4,525$
    3,292
    
    
    $
    13,561
 Statement of operations:
 Year ended December 31,2007
    
    
    2008
    
    
    2009c. Research and development expenses  net:Payroll and related expenses
    
    $
    7,510
    
    
    $
    9,296
    
    
    $
    10,479Subcontractors and consultants
    
    
    3,141
    
    
    
    5,289
    
    
    
    7,469Materials and consumables
    
    
    1,875
    
    
    
    3,799
    
    
    
    3,852Rent, insurance and maintenance
    
    
    905
    
    
    
    1,592
    
    
    
    2,238Patent registration and licensing
    
    
    331
    
    
    
    182
    
    
    
    387Depreciation and impairment
    
    
    689
    
    
    
    1,171
    
    
    
    1,799Other
    
    
    190
    
    
    
    786
    
    
    
    1,16614,641
    
    
    
    22,115
    
    
    
    27,390Less  grants (see Note 4a)
    
    
    1,071
    
    
    
    4,714
    
    
    
    5,752$
    13,570
    
    
    $
    17,401
    
    
    $
    21,638d. General and administrative expense:Payroll and related expenses
    
    $
    1,562
    
    
    $
    2,261
    
    
    $
    2,804Management and consulting fees
    
    
    16,407
    
    
    
    1,335
    
    
    
    681Rent, insurance and maintenance
    
    
    112
    
    
    
    191
    
    
    
    347Professional fees
    
    
    1,702
    
    
    
    1,362
    
    
    
    2,274Travel
    
    
    400
    
    
    
    472
    
    
    
    251Depreciation
    
    
    69
    
    
    
    130
    
    
    
    191Other
    
    
    342
    
    
    
    1,019
    
    
    
    596$
    20,594
    
    
    $
    6,770
    
    
    $
    7,144
 F-26




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 7 SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):
 e.
    
    Financial income:During the years 2007, 2008 and 2009 financial income includes transaction gain (loss)
rate in the amount of $50, ($280) and $67, respectively.
 NOTE 8  RELATED PARTY TRANSACTIONS
 Year ended December 31,2007
    
    
    2008
    
    
    2009a.Management and
consulting fees to the Chairman
of the Board
    
    $
    36
    
    
    $
    33
    
    
    $
    33b.Rent payments to a shareholder
    
    $
    10c.Compensation to the
non-executive directors (except
the Chairman of the Board)
    
    
    
    
    
    $
    210
    
    
    $
    209
 d.
    
    With respect to options granted to the Companys Chief Executive
Officer and to a shareholder, see Notes 5(d)(1) and (2).e.
    
    In March 2005, Protalix Ltd. entered into a management services
agreement with Pontifax Management Company, Ltd. in connection with an
investment in Protalix Ltd. by affiliates of Pontifax. The monthly
management fees under the management services agreement are $3. The
management services agreement shall be in full force as long as Mr.
Hurvitz serves as a member of the Companys Board of Directors. In 2009,
the amount was set to $33.
 NOTE 9 -LICENSE AND SUPPLY AGREEMENT
 On November 30, 2009, Protalix Ltd. and Pfizer Inc entered into the Pfizer Agreement
pursuant to which Pfizer was granted an exclusive, worldwide license to develop and
commercialize taliglucerase alfa, except Israel. Under the terms and conditions of the
Pfizer Agreement, Protalix Ltd. retained the right to commercialize taliglucerase alfa in
Israel. Under the Pfizer Agreement, Pfizer made an upfront payment to Protalix Ltd. of
$60,000 in connection with the execution of the agreement and shortly thereafter paid to
Protalix Ltd. an additional $5,000 upon the Companys filing of a proposed pediatric
investigation plan to the Pediatric Committee of the European Medicines Agency (EMEA).
Protalix Ltd. is also eligible to receive additional potential milestone payments totaling
up to $50,000 for the successful achievement of other regulatory milestones. Protalix Ltd.
is entitled to 40% of the profits earned on Pfizers sales of taliglucerase alfa. Such
profit will be calculated, among other things, while taking into account Protalix Ltd.s
cost of goods sold and Pfizers commercial expenses with certain expenses capped or borne
soley by one party.
 The Company has determined that the initial, non-refundable upfront license fee payment of
$60,000 together with the first $5,000 payment will be recognized on a straight line basis
as revenue over the estimated relationship period. The Company has estimated that its
relationship period will be approximately 14 years based on the Companys last significant
patent to expire.
 The Companys deliverables under this collaboration include an exclusive license to
taliglucerase alfa as an enzyme replacement therapy for the treatment of Gaucher disease,
certain research and development services as required under the Pfizer Agreement for
taliglucerase alfa, manufacturing of taliglucerase alfa and optional participation in a
joint steering committee.In connection with the payments received under the Pfizer Agreement Protalix Ltd is
obligated to pay certain royalties. See Note 4a.
 F-27




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 10  SUBSEQUENT EVENTS
 a.
    
    On February 7, 2010, the Companys Board of Directors approved the grant of
options to purchase 160,000 shares of Common Stock to a new executive officer of the
Company with an exercise price equal to $6.81 per share. The options vest over a
four-year period, with the first 25% to vest on the first anniversary of the date of
the grant and the remaining 75% in equal tranches on a quarterly basis for three years
thereafter. The options are exercisable over a 10-year period commencing on the date of
grant. The Company estimated the fair value of the options on the date of grant using
the Black-Scholes option-pricing model to be approximately $740, based on the following
weighted average assumptions: dividend yield of 0% for all years; expected volatility
of 76.02%; risk-free interest rates of 2.96%; and expected life of 6 years.b.
    
    During January and February 2010, the Company issued a total of 14,000 shares
of Common Stock in connection with the exercise of options to purchase 14,000 shares of
Common Stock by certain employees of the Company. The Company received aggregate cash
proceeds equal to approximately $2.c.
    
    In February 2010, the Companys Board of Directors approved the grant of
options to purchase 1,043,623 shares of Common Stock, in the aggregate, to certain officers and employees of
the Company with an exercise price equal to $6.90 per share. The options vest quarterly over three years, commencing after the FDAs approval of

taliglucerase alfa, if at all.
The options are exercisable over a 10-year period commencing on the date of grant. The
Company estimated the fair value of the options on the date of grant using the
Black-Scholes option-pricing model to be approximately $5.8 million, based on the
following weighted average assumptions: dividend yield of 0% for all years; expected
volatility of 75.74%; risk-free interest rates of 3.69%; and expected
life of 10
years.
 F-28