##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2010
 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 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)
 N/A
 (Former name, former address and former fiscal year, if changed since last report)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



FORM 10-Q
TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONCautionary Statement Regarding Forward-Looking Statements
    
    iiItem 1. Financial StatementsCondensed Consolidated Balance Sheets 
As of June 30, 2010 (Unaudited) and December 31, 2009
    
    
    1Condensed Consolidated Statements of Operations (Unaudited) 
For the Six Months and the Three Months Ended June 30, 2010 and 2009
    
    
    2Condensed Consolidated Statement of Changes in Shareholders Equity (Capital
Deficiency) (Unaudited) 
For the Six Months Ended June 30, 2010 and 2009
    
    
    3Condensed Consolidated Statements of Cash Flows (Unaudited) 
For the Six Months Ended June 30, 2010 and 2009
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    14Item 4. Controls and Procedures
    
    
    15PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    16Item 1A. Risk Factors
    
    
    16Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    16Item 3. Defaults Upon Senior Securities
    
    
    16Item 4. (Removed and Reserved)
    
    
    16Item 5. Other Information
    
    
    16Item 6. Exhibits
    
    
    17Signatures
    
    
    18EX-31.1EX-31.2EX-32.1EX-32.2
  i




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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,
including the New Drug Application (NDA) we have filed with the FDA for taliglucerase
alfa;
    
    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; and
    
    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.
  ii




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 PROTALIX BIOTHERAPEUTICS, INC.


CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30, 2010
    
    
    December 31, 2009(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    54,961
    
    
    $
    81,266Accounts receivable
    
    
    3,768
    
    
    
    2,144Total current assets
    
    
    58,729
    
    
    
    83,410FUNDS IN RESPECT OF EMPLOYEE
RIGHTS UPON RETIREMENT
    
    
    767
    
    
    
    724PROPERTY AND EQUIPMENT, NET
    
    
    14,734
    
    
    
    14,537Total assets
    
    $
    74,230
    
    
    $
    98,671LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable and accrualsTrade
    
    $
    4,431
    
    
    $
    3,406Other
    
    
    6,752
    
    
    
    13,561Deferred revenues
    
    
    4,563
    
    
    
    4,563Total current liabilities
    
    
    15,746
    
    
    
    21,530LONG-TERM LIABILITIES:Deferred revenues
    
    
    57,767
    
    
    
    60,049Other liabilities
    
    
    822
    
    
    
    Liability for employee rights upon retirement
    
    
    1,449
    
    
    
    1,209Total long term liabilities
    
    
    60,038
    
    
    
    61,258COMMITMENTSTotal liabilities
    
    
    75,784
    
    
    
    82,788SHAREHOLDERS EQUITY (CAPITAL DEFICIENCY)
    
    
    (1,554
    )
    
    
    15,883Total liabilities and shareholders equity
    
    $
    74,230
    
    
    $
    98,671
 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
 Six Months Ended
    
    
    Three Months EndedJune 30, 2010
    
    
    June 30, 2009
    
    
    June 30, 2010
    
    
    June 30, 2009REVENUES
    
    $
    2,282
    
    
    
    
    
    
    $
    1,141RESEARCH AND DEVELOPMENT EXPENSES (1)
    
    
    19,414
    
    
    $
    11,296
    
    
    
    10,506
    
    
    $
    6,210less  grants
    
    
    (1,746
    )
    
    
    (2,800
    )
    
    
    (480
    )
    
    
    (1,508
    )17,668
    
    
    
    8,496
    
    
    
    10,026
    
    
    
    4,702GENERAL AND ADMINISTRATIVE EXPENSES (2)
    
    
    2,884
    
    
    
    2,412
    
    
    
    1,265
    
    
    
    1,171OPERATING LOSS
    
    
    18,270
    
    
    
    10,908
    
    
    
    10,150
    
    
    
    5,873FINANCIAL INCOME  NET
    
    
    (274
    )
    
    
    (298
    )
    
    
    (109
    )
    
    
    (446
    )NET LOSS FOR THE PERIOD
    
    $
    17,996
    
    
    $
    10,610
    
    
    $
    10,041
    
    
    $
    5,427NET LOSS PER SHARE OF COMMON STOCK 
BASIC AND DILUTED:
    
    $
    0.22
    
    
    $
    0.14
    
    
    $
    0.12
    
    
    $
    0.07WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK USED IN COMPUTING LOSS PER
SHARE:Basic and diluted
    
    
    80,861,857
    
    
    
    76,067,492
    
    
    
    80,872,940
    
    
    
    76,186,887(1) Includes share-based compensation
    
    
    218
    
    
    
    663
    
    
    
    97
    
    
    
    385(2) Includes share-based compensation
    
    
    314
    
    
    
    501
    
    
    
    151
    
    
    
    317
 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
(CAPITAL DEFICIENCY)
 AdditionalCommon
    
    
    Common
    
    
    paid in
    
    
    AccumulatedStock (1)
    
    
    Stock
    
    
    capital
    
    
    deficit
    
    
    TotalNumber
    
    
    AmountBalance at December 31, 2008
    
    
    75,938,059
    
    
    $
    76
    
    
    $
    119,281
    
    
    $
    (75,010
    )
    
    $
    44,347Changes during the six
month period ended June 30,
2009(Unaudited):Share-based compensation
    
    
    
    
    
    
    
    
    
    
    1,164
    
    
    
    
    
    
    
    1,164Exercise of options
granted to
employees (includes
Net Exercise)
    
    
    439,680
    
    
    
    *
    
    
    
    14
    
    
    
    
    
    
    
    14Net loss for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,610
    )
    
    
    (10,610
    )Balance at June 30, 2009
(Unaudited)
    
    
    76,377,739
    
    
    $
    76
    
    
    $
    120,459
    
    
    $
    (85,620
    )
    
    $
    34,915Balance at December 31, 2009
    
    
    80,841,237
    
    
    $
    81
    
    
    $
    122,252
    
    
    $
    (106,450
    )
    
    $
    15,883Changes during the six
month period ended June 30,
2010(Unaudited):Share-based compensation
    
    
    
    
    
    
    
    
    
    $
    532
    
    
    
    
    
    
    $
    532Exercise of options
granted to
employees (includes
Net Exercise)
    
    
    39,900
    
    
    
    *
    
    
    
    27
    
    
    
    
    
    
    
    27Net loss for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,996
    )
    
    
    (17,996
    )Balance at June 30, 2010
(Unaudited)
    
    
    80,881,137
    
    
    $
    81
    
    
    $
    122,811
    
    
    $
    (124,446
    )
    
    $
    (1,554
    )
 
 (1)
    
    Common Stock, $0.001 par value; Authorized  as of June 30, 2010 and June 30, 2009 -
150,000,000 shares.*
    
    Represents an amount less than $1. The accompanying notes are an integral part of the condensed consolidated financial statements.
 3




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PROTALIX BIOTHERAPEUTICS, INC.



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six Months EndedJune 30, 2010
    
    
    June 30, 2009CASH FLOWS FROM OPERATING
ACTIVITIES:Net loss
    
    $
    (17,996
    )
    
    $
    (10,610
    )Adjustments required to reconcile net loss
to net cash provided by (used in) operating
activitiesShare based compensation
    
    
    532
    
    
    
    1,164Depreciation of fixed assets
    
    
    1,455
    
    
    
    929Financial expenses net (mainly exchange
differences)
    
    
    (27
    )
    
    
    (77
    )Changes in accrued liability for employee
rights upon retirement
    
    
    271
    
    
    
    147Loss on amounts funded in respect of
employee rights upon retirement
    
    
    (4
    )
    
    
    (44
    )Gain on sale of fixed assets
    
    
    8
    
    
    
    2Changes in operating assets and liabilities:Decrease in deferred revenues
(including non- current portion)
    
    
    (2,282
    )Increase in accounts receivable
    
    
    (1,703
    )
    
    
    (1,062
    )Increase (decrease) in accounts
payable, accruals other long-term
liabilities
    
    
    (1,007
    )
    
    
    296Net cash used in operating activities
    
    $
    (20,753
    )
    
    $
    (9,255
    )CASH FLOWS FROM INVESTING
ACTIVITIES:Purchase of property and equipment
    
    $
    (5,473
    )
    
    $
    (4,226
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    73Amounts funded in respect of employee
rights upon retirement, net
    
    
    (60
    )
    
    
    (39
    )Net cash used in investing activities
    
    $
    (5,533
    )
    
    $
    (4,192
    )CASH FLOWS FROM FINANCING ACTIVITIES:Exercise of options
    
    $
    27
    
    
    $
    8Net cash provided by financing activities
    
    $
    27
    
    
    $
    8EFFECT OF EXCHANGE RATE CHANGES
ON CASH
    
    $
    (46
    )
    
    $
    (25
    )NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (26,305
    )
    
    
    (13,464
    )BALANCE OF CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD
    
    
    81,266
    
    
    
    42,596BALANCE OF CASH AND CASH EQUIVALENTS AT END
OF PERIOD
    
    $
    54,961
    
    
    $
    29,132
 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
  Six Months EndedJune 30, 2010
    
    
    June 30, 2009SUPPLEMENTARY INFORMATION ON INVESTING AND
FINANCING ACTIVITIES NOT INVOLVING CASH FLOWS:Purchase of property and equipment
    
    $
    712
    
    
    $
    1,327Issuance cost not yet paid and accruals  other
    
    $
    5
    
    
    $
    5Exercise of options granted to employees
    
    
    
    
    
    $
    6
 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. Operation
 tm
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PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SIGNIFICANT ACCOUNTING POLICIES (Continued):
  2. Subsequent Events
  b. General Basis of Presentation
   c. Net loss per share
    7




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PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SIGNIFICANT ACCOUNTING POLICIES (Continued):
 d.
    
    Newly Issued Accounting PronouncementsIn October 2009, the Financial Accounting Standards Board 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  STOCK TRANSACTIONS
 a.
    
    During the six months ended June 30, 2010, the Company issued a total of 39,900
shares of Common Stock in connection with the exercise of a total of 54,205 options by
certain employees of the Company. The Company received aggregate cash proceeds equal
to approximately $27 in connection with such exercises, and 20,312 of the options were
exercised on a net exercise basis.b.
    
    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 $740,000 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 six
years.c.
    
    In February 2010, the Companys Board of Directors approved the grant of
options to purchase 1,016,000 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
$5.7 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. The Company will start charging these expenses following
the FDAs approval of taliglucerase alfa, if at all.
 NOTE 3  SUBSEQUENT EVENTS
  8




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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 financial statements and the consolidated financial statements and
the related notes included elsewhere in this Form 10-Q and our Annual Report on Form 10-K for the
year ended December 31, 2009. 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, 2009 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 TM
  9




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Critical Accounting Policies
  10




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Results of Operations
 Three months ended June 30, 2010 compared to the three months ended June 30, 2009
 Revenues
  Research and Development Expenses
   General and Administrative Expenses
  Financial Expenses and Income
  Six months ended June 30, 2010 compared to the six months ended June 30, 2009
 Revenues
  11




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Research and Development Expenses
   General and Administrative Expenses
  Financial Expenses and Income
  Liquidity and Capital Resources
 Sources of Liquidity
    Cash Flows
  12




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Future Funding Requirements
     Effects of Inflation and Currency Fluctuations
   13




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Recently Issued Accounting Pronouncements
   Off-Balance Sheet Arrangements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Currency Exchange Risk
   Six months ended
    
    
    Year endedJune 30,
    
    
    December 31,2010
    
    
    2009
    
    
    2009Average rate for period
    
    
    3.7589
    
    
    
    4.0678
    
    
    
    3.933Rate at period end
    
    
    3.8750
    
    
    
    3.9190
    
    
    
    3.775
  Interest Rate Risk
  14




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Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Inherent Limitations on Effectiveness of Controls
  Changes in internal controls
  15




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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
 Unregistered Sales of Equity Securities
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. (Reserved and Removed)
  
 Item 5. Other Information
  
 Item 6. Exhibits
 Incorporated by ReferenceExhibit 
Number
    
    Exhibit Description
    
    Form
    
    File Number
    
    Exhibit
    
    Date
    
    Filed Herewith3.1
    
    Amended and Restated Articles of Incorporation of the Company
    
    S-4
    
    333-48677
    
    3.4
    
    March 26, 19983.2
    
    Article of Amendment to Articles of Incorporation dated June 9, 2006
    
    8-A
    
    001-33357
    
    3.2
    
    March 9, 20073.3
    
    Article of Amendment to Articles of Incorporation dated December 13, 2006
    
    8-A
    
    001-33357
    
    3.3
    
    March 9, 20073.4
    
    Article of Amendment to Articles of Incorporation dated December 26, 2006
    
    8-A
    
    001-33357
    
    3.4
    
    March 9, 20073.5
    
    Article of Amendment to Articles of Incorporation dated February 26, 2007
    
    8-A
    
    001-33357
    
    3.5
    
    March 9, 20073.6
    
    Amended and Restated Bylaws of the Company
    
    10-Q
    
    001-33357
    
    3.6
    
    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
    
    
    
    
    
    
    
    
    
    X
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Incorporated by ReferenceExhibit 
Number
    
    Exhibit Description
    
    Form
    
    File Number
    
    Exhibit
    
    Date
    
    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
    
    
    
    
    
    
    
    
    
    X32.1
    
    18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Certification of Chief Executive Officer
    
    
    
    
    
    
    
    
    
    X32.2
    
    18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Certification of Chief Financial Officer
    
    
    
    
    
    
    
    
    
    X
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SIGNATURES
  PROTALIX BIOTHERAPEUTICS, INC.(Registrant)Date: August 5, 2010
    By:
    /s/ David AviezerDavid Aviezer, Ph.D.President and Chief Executive Officer
(Principal Executive Officer)Date: August 5, 2010
    By:
    /s/ Yossi MaimonYossi MaimonChief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer) 18