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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 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.
 (Exact name of registrant as specified in its charter)
 
 Florida
    
    65-0643773(State or other jurisdiction 
of incorporation or organization)
    
    (I.R.S. Employer
Identification No.)2 Snunit StreetScience ParkPOB 455Carmiel, 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
 þ 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




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##### 



FORM 10-Q
TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONCautionary Statement Regarding Forward-Looking StatementsItem 1. Financial StatementsCondensed Consolidated Balance Sheets 
As of September 30, 2009 (Unaudited) and December 31, 2008
    
    
    3Condensed Consolidated Statements of Operations (Unaudited) 
For the Nine Months and the Three Months Ended September 30, 2009 and 2008; and for
the Period from December 27, 1993 through September 30, 2009
    
    
    4Condensed Consolidated Statement of Changes in Shareholders Equity 
As of September 30, 2009 (Unaudited) and December 31, 2008
    
    
    5Condensed Consolidated Statements of Cash Flows (Unaudited) 
For the Nine Months Ended September 30, 2009 and 2008; and for the Period from
December 27, 1993 through September 30, 2009
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    18PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    20Item 1A. Risk Factors
    
    
    20Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    20Item 3. Defaults Upon Senior Securities
    
    
    20Item 4. Submission of Matters to a Vote of Security Holders
    
    
    20Item 5. Other Information
    
    
    20Item 6. Exhibits
    
    
    21Signatures
    
    
    22EX-31.1EX-31.2EX-32.1EX-32.2
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##### Table of Contents



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 relationships with collaborators,
distributors and partners;
    
    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 Quarterly Report.
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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 PROTALIX BIOTHERAPEUTICS, INC.
  
 CONDENSED CONSOLIDATED BALANCE SHEETS
  September 30, 2009
    
    
    December 31, 2008(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    22,610
    
    
    $
    42,596Accounts receivable
    
    
    2,684
    
    
    
    793Total current assets
    
    
    25,294
    
    
    
    43,389FUNDS IN RESPECT OF EMPLOYEE
RIGHTS UPON RETIREMENT
    
    
    714
    
    
    
    581PROPERTY AND EQUIPMENT, NET
    
    
    12,112
    
    
    
    6,841Total assets
    
    $
    38,120
    
    
    $
    50,811LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable and accruals:Trade
    
    $
    1,891
    
    
    $
    2,235Other
    
    
    5,009
    
    
    
    3,292Total current liabilities
    
    
    6,900
    
    
    
    5,527LIABILITY FOR EMPLOYEE RIGHTS
UPON RETIREMENT
    
    
    1,143
    
    
    
    937Total liabilities
    
    
    8,043
    
    
    
    6,464SHAREHOLDERS EQUITY
    
    
    30,077
    
    
    
    44,347Total liabilities and shareholders equity
    
    $
    38,120
    
    
    $
    50,811
 The accompanying notes are an integral part of the condensed consolidated financial statements.
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PROTALIX BIOTHERAPEUTICS, INC.
  
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
   Period fromDecember 27, 1993*Nine months ended
    
    
    Three months Ended
    
    
    throughSeptember 30, 2009
    
    
    September 30, 2008
    
    
    September 30, 2009
    
    
    September 30, 2008
    
    
    September 30, 2009REVENUES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    830COST OF REVENUES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    206GROSS PROFIT
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    624RESEARCH AND DEVELOPMENT EXPENSES (1)
    
    $
    17,330
    
    
    $
    15,817
    
    
    $
    6,034
    
    
    $
    6,133
    
    
    
    71,747less  grants
    
    
    (4,223
    )
    
    
    (3,244
    )
    
    
    (1,423
    )
    
    
    (729
    )
    
    
    (15,124
    )13,107
    
    
    
    12,573
    
    
    
    4,611
    
    
    
    5,404
    
    
    
    56,623GENERAL AND ADMINISTRATIVE EXPENSES (2)
    
    
    3,847
    
    
    
    5,306
    
    
    
    1,435
    
    
    
    1,314
    
    
    
    40,207OPERATING LOSS
    
    
    16,954
    
    
    
    17,879
    
    
    
    6,046
    
    
    
    6,718
    
    
    
    96,206FINANCIAL INCOME  NET
    
    
    (450
    )
    
    
    (2,041
    )
    
    
    (152
    )
    
    
    (222
    )
    
    
    (4,655
    )NET LOSS BEFORE CHANGE IN
ACCOUNTING PRINCIPLE
    
    
    16, 504
    
    
    
    15,838
    
    
    
    5,894
    
    
    
    6,496
    
    
    
    91,551CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37
    )NET LOSS FOR THE PERIOD
    
    $
    16,504
    
    
    $
    15,838
    
    
    $
    5,894
    
    
    $
    6,496
    
    
    $
    91,514NET LOSS PER SHARE OF COMMON STOCK 
BASIC AND DILUTED:
    
    $
    0.22
    
    
    $
    0.21
    
    
    $
    0.08
    
    
    $
    0.09WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK USED IN COMPUTING LOSS PER
SHARE:Basic and diluted
    
    
    76,236,399
    
    
    
    75,879,778
    
    
    
    76,564,441
    
    
    
    75,924,657(1) Includes share-based compensation
    
    
    1,026
    
    
    
    965
    
    
    
    363
    
    
    
    293
    
    
    
    7,636(2) Includes share-based compensation
    
    
    976
    
    
    
    1,680
    
    
    
    475
    
    
    
    185
    
    
    
    23,821
 
 *
    
    Incorporation date. See Note 1a. The accompanying notes are an integral part of the condensed consolidated financial statements.
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PROTALIX BIOTHERAPEUTICS, INC.
  
 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
  DeficitaccumulatedConvertible
    
    
    
    
    
    
    Convertible
    
    
    
    
    
    
    Additional
    
    
    duringCommon
    
    
    Preferred
    
    
    Common
    
    
    Preferred
    
    
    
    
    
    
    paid-in
    
    
    developmentStock (2)
    
    
    Shares
    
    
    Stock
    
    
    Shares
    
    
    Warrants
    
    
    capital
    
    
    stage
    
    
    TotalNumber of shares
    
    
    AmountBalance at December 27, 1993(1)Changes during the period from
December 27, 1993* through December
31, 2008:Common Stock and
convertible preferred A, B and C
shares and warrants issued for cash
(net of issuance costs of $5,078)
    
    
    38,856,127
    
    
    
    398,227
    
    
    $
    39
    
    
    $
    1
    
    
    $
    1,382
    
    
    $
    73,836
    
    
    
    
    
    
    $
    75,258Exercise of options granted
to employees and
non-employees (includes Net
Exercise)
    
    
    2,948,420
    
    
    
    847
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    413
    
    
    
    
    
    
    
    416Conversion of
convertible preferred
shares into common stock
    
    
    24,375,870
    
    
    
    (399,074
    )
    
    
    24
    
    
    
    (1
    )
    
    
    
    
    
    
    (23
    )Change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37
    )
    
    $
    37Expiration of warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34
    )
    
    
    34Merger with a wholly
owned subsidiary of the
Company (net of issuance cost
of $642)
    
    
    583,280
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    240
    
    
    
    
    
    
    
    241Exercise of warrants
    
    
    9,171,695
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    (1,348
    )
    
    
    15,342
    
    
    
    
    
    
    
    14,003Restricted common stock
issued for future services
    
    
    2,667
    
    
    
    
    
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    8Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,468
    
    
    
    
    
    
    
    29,468Net loss for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (75,047
    )
    
    
    (75,047
    )Balance at December 31, 2008
    
    
    75,938,059
    
    
    
    
    
    
    
    76
    
    
    
    
    
    
    
    
    
    
    
    119,281
    
    
    
    (75,010
    )
    
    
    44,347Changes during the nine month
period ended September 30, 2009
(Unaudited):Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,002
    
    
    
    
    
    
    
    2,002Exercise of options granted
to employees (includes Net
Exercise)
    
    
    745,004
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    231
    
    
    
    
    
    
    
    232Net loss for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,504
    )
    
    
    (16,504
    )Balance at September 30, 2009
(Unaudited)
    
    
    76,683,063
    
    
    
    
    
    
    $
    77
    
    
    
    
    
    
    
    
    
    
    $
    121,514
    
    
    $
    (91,514
    )
    
    $
    30,077
 
 *
    
    Represents an amount less than $1.(1)
    
    Incorporation date. See Note 1a.(2)
    
    Common Stock, $0.001 par value; Authorized  as of December 31, 2008 and September 30, 2009 -
150,000,000 shares. The accompanying notes are an integral part of the condensed consolidated financial statements.
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PROTALIX BIOTHERAPEUTICS, INC.
  
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
   Period fromDecember 27, 1993*Nine months ended
    
    
    throughSeptember 30, 2009
    
    
    September 30, 2008
    
    
    September 30, 2009CASH FLOWS FROM OPERATING ACTIVITIES:Net loss for the period
    
    $
    (16,504
    )
    
    $
    (15,838
    )
    
    $
    (91,514
    )Adjustments required to reconcile net loss to net
cash used in operating activities:Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (37
    )Share based compensation
    
    
    2,002
    
    
    
    2,645
    
    
    
    31,457Financial income, net (mainly exchange differences)
    
    
    (164
    )
    
    
    (823
    )
    
    
    (1,240
    )Depreciation and impairment of fixed assets
    
    
    1,407
    
    
    
    927
    
    
    
    4,647Changes in accrued liability for employee rights
upon retirement
    
    
    195
    
    
    
    304
    
    
    
    1,132Gain on amounts funded in respect of employee rights
upon retirement
    
    
    (59
    )
    
    
    (70
    )
    
    
    (124
    )Loss (Gain) on sale of fixed assets
    
    
    10
    
    
    
    
    
    
    
    4Changes in operating assets and liabilities:Increase in accounts receivable
    
    
    (1,724
    )
    
    
    (1,243
    )
    
    
    (2,233
    )Increase in accounts payable and accruals
    
    
    171
    
    
    
    322
    
    
    
    4,553Net cash used in operating activities
    
    $
    (14,666
    )
    
    $
    (13,776
    )
    
    $
    (53,355
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment
    
    $
    (5,648
    )
    
    $
    (2,643
    )
    
    $
    (14,841
    )Investment grant received in respect of fixed assets
    
    
    
    
    
    
    
    
    
    
    38Investment in restricted cash deposit
    
    
    
    
    
    
    (175
    )
    
    
    (222
    )Proceeds from sale of property and equipment
    
    
    75
    
    
    
    
    
    
    
    87Amounts funded in respect of employee rights upon
retirement
    
    
    (60
    )
    
    
    (123
    )
    
    
    (576
    )Net cash used in investing activities
    
    $
    (5,633
    )
    
    $
    (2,941
    )
    
    $
    (15,514
    )CASH FLOWS FROM FINANCING ACTIVITIES:Loan and convertible bridge loan received
    
    
    
    
    
    
    
    
    
    $
    2,145Repayment of loan
    
    
    
    
    
    
    
    
    
    
    (1,000
    )Issuance of shares and warrants, net of issuance cost
    
    
    
    
    
    
    (56
    )
    
    
    74,059Exercise of options and warrants
    
    $
    200
    
    
    $
    3
    
    
    
    14,619Merger with a wholly owned subsidiary of the
Company, net of issuance cost
    
    
    
    
    
    
    
    
    
    
    237Net cash provided by (used in) financing activities
    
    $
    200
    
    
    $
    (53
    )
    
    $
    90,060EFFECT OF EXCHANGE RATE CHANGES
ON CASH
    
    $
    113
    
    
    $
    1,002
    
    
    $
    1,419NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (19,986
    )
    
    
    (15,768
    )
    
    
    22,610BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD
    
    
    42,596
    
    
    
    61,813
    
    
    
    BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    22,610
    
    
    $
    46,045
    
    
    $
    22,610
 The accompanying notes are an integral part of the condensed consolidated financial statements.
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PROTALIX BIOTHERAPEUTICS, INC.   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
  Period fromDecember 27, 1993*Nine months ended
    
    
    throughSeptember 30, 2009
    
    
    September 30, 2008
    
    
    September 30, 2009SUPPLEMENTARY DISCLOSURE OF
CASH FLOW INFORMATION:Cash paid during the period for interest
    
    
    
    
    
    
    
    
    
    $
    80SUPPLEMENTARY INFORMATION
ON INVESTING AND FINANCING
ACTIVITIES NOT INVOLVING CASH FLOWS:Conversion of convertible bridge loan into shares
    
    
    
    
    
    
    
    
    
    $
    1,145Purchase of property and equipment
    
    $
    2,047
    
    
    $
    956
    
    
    $
    2,047Issuance cost not yet paid and accruals  other
    
    $
    5
    
    
    $
    5
    
    
    $
    5Issuance cost paid by a grant of options
    
    
    
    
    
    
    
    
    
    $
    21Consultants and director credit balance converted into shares
    
    
    
    
    
    
    
    
    
    $
    80Exercise of options granted to employees
    
    $
    32
    
    
    $
    386
    
    
    $
    32
 
 *
    
    Incorporation date. See Note 1a. The accompanying notes are an integral part of the condensed consolidated financial statements.
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PROTALIX BIOTHERAPEUTICS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   NOTE 1  SIGNIFICANT ACCOUNTING POLICIES
 a.
    
    General
 1.
    
    OperationProtalix BioTherapeutics, Inc. (the Company), and Protalix Ltd. (Protalix Ltd.),
the Companys wholly-owned subsidiary which was incorporated in Israel on December
27, 1993, 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 a subsidiary in connection with the EMEA
application process in Europe. The new subsidiary, which is organized under the
laws of the Netherlands, is a wholly-owned subsidiary of Protalix Ltd. The
Companys lead product development candidate is prGCD (the proposed brand name for
prGCD is UPLYSO) for the treatment of Gaucher disease, which the Company is
developing using its ProCellEx protein expression system. Gaucher disease is a rare
and serious lysosomal storage disorder in humans with severe and debilitating
symptoms. In September 2009, the Company successfully completed its phase III
pivotal study for UPLYSO. In December 2008, the Company initiated a clinical study
evaluating the safety and efficacy of switching Gaucher patients currently treated
under the current standard of care to treatment with UPLYSO. The switchover-study
is not a prerequisite for approval of UPLYSO.In addition, in August 2009, the Company received Fast Track Designation for UPLYSO
and in September 2009, the FDAs Office of Orphan Product Development granted UPLYSO
Orphan Drug Status.The Company has been in the development stage since its inception. Successful
completion of development program and its transition to normal operations is
dependent upon necessary regulatory approvals from the U.S. Food and Drug
Administration (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 and may need to raise additional
capital 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, and on the success of the Companys clinical trials. The Company cannot
predict the outcome of these activities.2.
    
    Liquidity and Financial ResourcesThe Company currently does not have sufficient resources to complete the
commercialization of any of its proposed products. Based on its current cash
resources and commitments, the Company believes it will be able to maintain its
current planned development activities and the
corresponding level of expenditures for approximately the next 15 months, although
no assurance can be given that it will not need additional cash prior to such time.
If there are unexpected increases in general and administrative expenses and
research and development expenses, the Company may need to seek additional financing
during the next 15 months.
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PROTALIX BIOTHERAPEUTICS, INC.   NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SIGNIFICANT ACCOUNTING POLICIES (Continued):
 b.
    
    General Basis of Presentation
 The accompanying unaudited condensed consolidated financial statements of the
Company have been prepared in accordance with generally accepted accounting
principles in the United States (GAAP) for interim financial information,
Statement of Financial Accounting Standards (SFAS) No. 7, Accounting and
Reporting by Development Stage Enterprises, and Article 10 of Regulation S-X under
the Securities Exchange Act of 1934. Accordingly, they do not include all of the
information and notes required by GAAP for complete financial statements.In the opinion of management, all adjustments (of a normal recurring nature)
considered necessary for a fair statement of the results for the interim periods
presented have been included. Operating results for the interim period are not
necessarily indicative of the results that may be expected for the full year.These unaudited condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements in the Companys
Annual Report on Form 10-K for the year ended December 31, 2008, filed with the
Securities and Exchange Commission (the SEC). The comparative balance sheet at
December 31, 2008 has been derived from the audited financial statements at that
date, but does not include all of the information and notes required under GAAP for
complete financial statements.
 c.
    
    Net loss per share
 Basic and diluted loss per share (LPS) are computed by dividing net loss by the
weighted average number of shares of the Companys common stock, par value $.001 per
share (the 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 calculation of diluted
LPS because the effect would be anti-dilutive.Diluted LPS does not include options and restricted shares of Common Stock in the
amount of 10,968,132 and 11,364,973 shares of Common Stock for the nine months ended
September 30, 2008 and 2009, respectively, and 11,101,670 and 11,127,112 shares of
Common Stock for the three months ended September 30, 2008 and 2009, respectively.
 d.
    
    Newly issued and recently adopted Accounting Pronouncements
 1.
    
    In April 2009, the Financial Accounting Standards Board (FASB) issued
ASC Topic 825 Financial Instruments (formerly FSP No. FAS 107-1 and APB 28-1,
Interim Disclosures about Fair Value of Financial Instruments. ASC 825 requires
companies to disclose in interim financial statements the fair value of financial
instruments within the scope of ASC Topic 820 Fair Value
Measurements and Disclosures (formerly FASB Statement No. 107, Disclosures about
Fair Value of Financial Instruments). However, companies are not required to
provide in interim periods the disclosures about the concentration of credit risk of
all financial instruments that are currently required in annual financial
statements. The fair-value information disclosed in the footnotes must be presented
together with the related carrying amount, making it clear whether the fair value
and carrying amount represent assets or liabilities and how the carrying amount
relates to what is reported in the balance sheet.
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PROTALIX BIOTHERAPEUTICS, INC.   NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SIGNIFICANT ACCOUNTING POLICIES (Continued):
 ASC 825 also requires that companies disclose the method or methods and significant
assumptions used to estimate the fair value of financial instruments and a
discussion of changes, if any, in the method or methods and significant assumptions
during the period. The ASC shall be applied prospectively and is effective for
interim and annual periods ending after June 15, 2009. To the extent relevant, the
Company adopted the disclosure requirements of this pronouncement for the quarter
ended June 30, 2009, in conjunction with the adoption of ASC Topic 820 (formerly FSP
FAS 157-4), ASC Topic 320 (formerly FSP FAS 115-2) and ASC Topic 958 (formerly
FAS 124-2). The adoption of the new disclosure requirements did not have a material
impact on the Companys financial statements.2.
    
    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 will be
effective for interim or annual periods ending after June 15, 2009 and will be
applied prospectively. 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 condition, results of operations or
cash flows.3.
    
    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. generally accepted accounting principles (U.S. GAAP)
recognized by the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of 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. Following ASU 2009-1, the FASB will not 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.
 NOTE 2  STOCK TRANSACTIONS
 a.
    
    During the nine months ended September 30, 2009, the Company issued 745,004
shares of Common Stock in connection with the exercise of a total of 828,615 options by
certain officers and employees of the Company. The Company received aggregate cash
proceeds equal to approximately $232 in connection with the exercise of 304,600 options
and 524,015 of such options were exercised on a net-exercise basis.
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PROTALIX BIOTHERAPEUTICS, INC.   NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2  STOCK TRANSACTIONS (Continued):
 b.
    
    On February 25, 2009, the Companys board of directors approved the grant of
options to purchase 624,400 shares of Common Stock to its officers and employees with
an exercise price equal to $2.65 per share. The options vest as follows:(i) 504,000 of the options vest immediately upon the achievement of certain clinical and
operational performance milestones, which milestones must be achieved within one year of
the date of grant or the options will be forfeited. The Company recognized an expense
for a portion of such based on managements assessment that it is probable that the
milestones will be achieved during the 12-month period commencing on the date of grant.
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 $1,068, based on the following
weighted average assumptions: dividend yield of 0% for all years; expected volatility of
75.3%; risk-free interest rates of 2.95%; and expected life of 10 years.(ii) 120,400 of the options vest as follows: 25% within one year from the date of grant,
with the remainder vesting in 12 equal quarterly tranches over 36 months. 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 $212, based on the following weighted average
assumptions: dividend yield of 0% for all years; expected volatility of 75.3%; risk-free
interest rates of 1.84%; and expected life of six years. The Companys management
assumed the simplified method to reflect the expected life regarding these options. The
Company continued to use the simplified method in 2009 as the Company does not have
sufficient historical exercise data to provide a reasonable basis upon which to estimate
expected term due to the limited period of time its equity shares have been publicly
traded.
 NOTE 3  COMMITMENTS
 The Company has entered into sub-contracting agreements with several clinical providers in
Israel, the United States and certain other countries in connection with certain clinical
services. As of September 30, 2009, total commitments under said agreements amounted to
approximately $3,284.
 NOTE 4  FAIR VALUE OF FINANCIAL INSTRUMENTS
 The fair value of the financial instruments included in the Companys working capital is
usually identical or close to their carrying value due to the short-term maturities of these
instruments. The amounts funded in respect of employee rights are stated at surrender value
which is close to their fair value.
 NOTE 5  SUBSEQUENT EVENTS
 The Company has performed an evaluation of subsequent events through November 9, 2009, which
is the date the financial statements were issued.During October and November 2009, the Company issued a total of 664,500 shares of Common Stock in
connection with the exercise of options to purchase 689,404 shares of Common Stock by certain
officers and employees of the Company. The Company received aggregate cash proceeds equal to
approximately $58 in connection with the exercise of 180,282 options and 509,142 of such
options were exercised on a net-exercise basis.
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Item 2. 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 condensed financial statements and the consolidated financial
statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and our
Annual Report on Form 10-K for the year ended December 31, 2008. 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 our Annual Report on Form 10-K for the year ended
December 31, 2008 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
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13




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Critical Accounting Policies
   Results of Operations
 Three months ended September 30, 2009 compared to the three months ended September 30, 2008
 Research and Development Expenses
   General and Administrative Expenses
  Financial Expenses and Income
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Nine months ended September 30, 2009 compared to the nine months ended September 30, 2008
 Research and Development Expenses
   General and Administrative Expenses
  Financial Expenses and Income
  Liquidity and Capital Resources
 Sources of Liquidity
  Cash Flows
  15




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Future Funding Requirements
     Effects of Inflation and Currency Fluctuations
  16




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Off-Balance Sheet Arrangements
  Recently Issued Accounting Pronouncements
   TM
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Currency Exchange Risk
   Nine months ended
    
    Year endedSeptember 30,
    
    December 31,2009
    
    2008
    
    2008Average rate for period (%)
    
    
    3.9885
    
    
    
    3.5130
    
    
    
    3.5878Rate at period end (%)
    
    
    3.7580
    
    
    
    3.4210
    
    
    
    3.8020
  Interest Rate Risk
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  18




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Inherent Limitations on Effectiveness of Controls
  Changes in internal controls
  19




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Use of Proceeds
    
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
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Item 6. Exhibits
 ExhibitNumber
    
    Exhibit Description
    
    Method of Filing3.1
    
    Amended and Restated Articles
of Incorporation of the
Company
    
    Incorporated by
reference to the
Companys 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 the
Companys 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 the
Companys 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 the
Companys 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 the
Companys Registration
Statement on Form 8-A
filed on March 9, 20073.6
    
    Amended and Restated By-Laws
    
    Incorporated by
reference to the
Companys Quarterly
Report on Form 10-Q
filed on August 8,
200831.1
    
    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
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SIGNATURES
  PROTALIX BIOTHERAPEUTICS, INC.
(Registrant)Date: November 9, 2009
    By:
    /s/ David AviezerDavid Aviezer, Ph.D.President and Chief Executive Officer
(Principal Executive Officer)Date: November 9, 2009
    By:
    /s/ Yossi MaimonYossi MaimonChief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer) 22