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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 September 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
    
    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 Statements
    
    iiItem 1. Financial StatementsCondensed Consolidated Balance Sheets 
As of September 30, 2010 (Unaudited) and December 31, 2009
    
    
    1Condensed Consolidated Statements of Operations (Unaudited) 
For the Nine Months and the Three Months Ended September 30, 2010
and 2009
    
    
    2Condensed Consolidated Statement of Changes in Shareholders Equity
(Capital Deficiency) (Unaudited) 
For the Nine months ended September 30, 2010 and 2009
    
    
    3Condensed Consolidated Statements of Cash Flows (Unaudited) 
For the Nine months ended September 30, 2010 and 2009
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    6Item 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. (Removed and Reserved)
    
    
    20Item 5. Other Information
    
    
    20Item 6. Exhibits
    
    
    20Signatures
    
    
    22EX-10.2EX-31.1EX-31.2EX-32.1EX-32.2
  i




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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.
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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 PROTALIX BIOTHERAPEUTICS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
  September 30, 2010
    
    
    December 31, 2009(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    44,401
    
    
    $
    81,266Accounts receivable
    
    
    8,943
    
    
    
    2,144Inventories
    
    
    5,097Total current assets
    
    
    58,441
    
    
    
    83,410FUNDS IN RESPECT OF EMPLOYEE
RIGHTS UPON RETIREMENT
    
    
    866
    
    
    
    724PROPERTY AND EQUIPMENT, NET
    
    
    15,841
    
    
    
    14,537Total assets
    
    $
    75,148
    
    
    $
    98,671LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable and accrualsTrade
    
    $
    5,667
    
    
    $
    3,406Other
    
    
    10,257
    
    
    
    13,561Deferred revenues
    
    
    4,563
    
    
    
    4,563Total current liabilities
    
    
    20,487
    
    
    
    21,530LONG-TERM LIABILITIES:Deferred revenues
    
    
    56,627
    
    
    
    60,049Liability for employee rights upon retirement
    
    
    1,575
    
    
    
    1,209Total long term liabilities
    
    
    58,202
    
    
    
    61,258COMMITMENTSTotal liabilities
    
    
    78,689
    
    
    
    82,788SHAREHOLDERS EQUITY (CAPITAL DEFICIENCY)
    
    
    (3,541
    )
    
    
    15,883Total liabilities and shareholders equity
    
    $
    75,148
    
    
    $
    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
   Nine months ended
    
    
    Three Months EndedSeptember 30, 2010
    
    
    September 30, 2009
    
    
    September 30, 2010
    
    
    September 30, 2009REVENUES
    
    $
    5,466
    
    
    
    
    
    
    $
    3,184
    
    
    
    COMPANYS SHARE IN COLLABORATION AGREEMENT
    
    
    (1,887
    )
    
    
    
    
    
    
    (1,065
    )
    
    
    RESEARCH AND DEVELOPMENT EXPENSES (1)
    
    
    (23,032
    )
    
    $
    (17,330
    )
    
    
    (4,440
    )
    
    $
    (6,034
    )less  grants
    
    
    2,640
    
    
    
    4,223
    
    
    
    894
    
    
    
    1,423(20,392
    )
    
    
    (13,107
    )
    
    
    (3,546
    )
    
    
    (4,611
    )GENERAL AND ADMINISTRATIVE EXPENSES (2)
    
    
    (4,305
    )
    
    
    (3,847
    )
    
    
    (1,421
    )
    
    
    (1,435
    )OPERATING LOSS
    
    
    (21,118
    )
    
    
    (16,954
    )
    
    
    (2,848
    )
    
    
    (6,046
    )FINANCIAL INCOME  NET
    
    
    648
    
    
    
    450
    
    
    
    374
    
    
    
    152NET LOSS FOR THE PERIOD
    
    $
    (20,470
    )
    
    $
    (16,504
    )
    
    $
    (2,474
    )
    
    $
    (5,894
    )NET LOSS PER SHARE OF COMMON STOCK  BASIC AND DILUTED:
    
    $
    0.25
    
    
    $
    0.22
    
    
    $
    0.03
    
    
    $
    0.08WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK USED IN COMPUTING LOSS PER SHARE:Basic and diluted
    
    
    80,879,843
    
    
    
    76,236,399
    
    
    
    80,914,930
    
    
    
    76,564,441(1) Includes share-based compensation
    
    
    431
    
    
    
    1,026
    
    
    
    213
    
    
    
    363(2) Includes share-based compensation
    
    
    456
    
    
    
    976
    
    
    
    142
    
    
    
    475
 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 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
    )
    
    $
    30,077Balance at December 31, 2009
    
    
    80,841,237
    
    
    $
    81
    
    
    $
    122,252
    
    
    $
    (106,450
    )
    
    $
    15,883Changes during the nine month period ended September 30, 2010
(Unaudited):Share-based compensation
    
    
    
    
    
    
    
    
    
    $
    887
    
    
    
    
    
    
    $
    887Exercise of options granted to employees (includes Net Exercise)
    
    
    172,300
    
    
    
    *
    
    
    
    159
    
    
    
    
    
    
    
    159Net loss for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,470
    )
    
    
    (20,470
    )Balance at September 30, 2010
(Unaudited)
    
    
    81,013,537
    
    
    $
    81
    
    
    $
    123,298
    
    
    $
    (126,920
    )
    
    $
    (3,541
    )
 
 (1)
    
    Common Stock, $0.001 par value; Authorized  as of September 30, 2010 and September 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.
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PROTALIX BIOTHERAPEUTICS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
   Nine months endedSeptember 30, 2010
    
    
    September 30, 2009CASH FLOWS FROM OPERATING
ACTIVITIES:Net loss
    
    $
    (20,470
    )
    
    $
    (16,504
    )Adjustments required to reconcile net loss to net cash provided by
(used in) operating activitiesShare based compensation
    
    
    887
    
    
    
    2,002Depreciation of fixed assets
    
    
    2,244
    
    
    
    1,407Financial expenses net (mainly exchange differences)
    
    
    (331
    )
    
    
    (164
    )Changes in accrued liability for employee rights upon retirement
    
    
    330
    
    
    
    195Loss on amounts funded in respect of employee rights upon retirement
    
    
    (16
    )
    
    
    (59
    )Loss on sale of fixed assets
    
    
    11
    
    
    
    10Changes in operating assets and liabilities:Decrease in deferred revenues (including non-current portion)
    
    
    (3,422
    )Increase in accounts receivable
    
    
    (6,702
    )
    
    
    (1,724
    )Increase in Inventories
    
    
    (5,097
    )Increase in accounts payable, accruals other long-term liabilities
    
    
    2,133
    
    
    
    171Net cash used in operating activities
    
    $
    (30,433
    )
    
    $
    (14,666
    )CASH FLOWS FROM INVESTING
ACTIVITIES:Purchase of property and equipment
    
    $
    (6,816
    )
    
    $
    (5,648
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    75Amounts funded in respect of employee rights upon retirement, net
    
    
    (101
    )
    
    
    (60
    )Net cash used in investing activities
    
    $
    (6,917
    )
    
    $
    (5,633
    )CASH FLOWS FROM FINANCING ACTIVITIES:Exercise of options
    
    $
    159
    
    
    $
    200Net cash provided by financing activities
    
    $
    159
    
    
    $
    200EFFECT OF EXCHANGE RATE CHANGES
ON CASH
    
    $
    326
    
    
    $
    113NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (36,865
    )
    
    
    (19,986
    )BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    81,266
    
    
    
    42,596BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    44,401
    
    
    $
    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
    Nine months endedSeptember 30, 2010
    
    
    September 30, 2009SUPPLEMENTARY INFORMATION ON INVESTING AND FINANCING
ACTIVITIES NOT INVOLVING CASH FLOWS:Purchase of property and equipment
    
    $
    1,268
    
    
    $
    2,047Issuance cost not yet paid and accruals  other
    
    $
    5
    
    
    $
    5Exercise of options granted to employees
    
    
    
    
    
    $
    32
 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. and its wholly-owned subsidiary, Protalix Ltd.
(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 European Medicines Agency, or EMEA,
application process in Europe. The Companys lead product development candidate is
taliglucerase alfa for the treatment of Gaucher disease, 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 July 2010, the U.S. Food and Drug Administration (FDA)
notified the Company that it had accepted the Companys new drug application (NDA)
for taliglucerase alfa for the treatment of Gaucher disease and that it granted to
taliglucerase alfa a Prescription Drug User Fee Act (PDUFA) action date of February
25, 2011. 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.The Company was in the development stage from its inception until November 2009 (see
b 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.On July 13, 2010 the French regulatory authority granted an Autorisation Temporaire
dUtilisation (ATU), or Temporary Authorization for Use, for taliglucerase alfa
for the treatment of Gaucher disease. An ATU is the regulatory mechanism used by
the French Health Products and Safety Agency to make non-approved drugs available to
patients in France when a genuine public health need exists. This ATU allows
patients with Gaucher disease in France to receive treatment with taliglucerase alfa
before marketing authorization for the product is granted in the European Union.
Payment for taliglucerase alfa has been secured through government allocations to
hospitals.On August 10, 2010, Pfizer entered into a $30 million short-term supply agreement
with the Ministry of Health of  Brazil pursuant to which the
Company and Pfizer will provide taliglucerase alfa to Gaucher disease patients in
such country.
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PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SIGNIFICANT ACCOUNTING POLICIES (Continued):
 In addition to taliglucerase alfa, the Company is developing an innovative product
pipeline using the Companys ProCellEx protein expression system. The Companys
product pipeline currently includes, among other candidates, therapeutic protein
candidates for the treatment of Fabry disease, a rare, genetic lysosomal disorder in
humans, an acetylcholinesterase enzyme-based therapy for biodefense and pesticide
toxicity treatments, antiTNF, a plant cell expressed recombinant fusion protein made
from the soluble form of the human TNF receptor (TNFR) which is being developed as a
treatment of certain immune diseases such as rheumatoid arthritis, juvenile
idiopathic arthritis and others, and additional undisclosed therapeutic proteins,
all of which are currently being evaluated in animal studies. In March 2010, the
Company initiated a phase I clinical trial of PRX-105, the Companys plant cell
expressed pegylated recombinant acetylcholinesterase product candidate for
biodefense indications. In June 2010, the Company completed the phase I clinical
trial of PRX-105.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.
 2.
    
    Subsequent EventsThe Company has evaluated events through the date of issuance of the financial
statements. See Note 4.
 b.
    
    General Basis of PresentationThe 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 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. Prior to December 2009, the
Company was a development stage company as defined under the guidance for Development
Stage Enterprises. The Company has determined that, as of November 30, 2009, it is no
longer a development stage company.These unaudited condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements in the Annual Report on
Form 10-K for the year ended December 31, 2009, filed by the Company with the Securities
and Exchange Commission. The comparative balance sheet at December 31, 2009 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.
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PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SIGNIFICANT ACCOUNTING POLICIES (Continued):
 c.
    
    InventoriesInventories are valued at the lower of cost or market. Cost of raw and packaging
materials and purchased products is determined using the moving average basis. Cost
of finished products and products in process is determined as follows: the value of the
raw and packaging materials component is determined primarily on a using the moving
average basis; the value of the labor and overhead component is determined on an
average basis over the production period.d.
    
    Revenue RecognitionThe Company recognizes revenue when the earnings process is complete, which is when
revenue is realized or realizable and earned, there is persuasive evidence a revenue
arrangement exists, delivery of goods or services has occurred, the sales price is fixed
or determinable and collectability is reasonably assured.
 1.
    
    Revenues from the license and supply agreement with PfizerThe 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.2.
    
    Companys share in the collaboration agreementUnder the terms and conditions of the Pfizer Agreement, the Company is entitled to
40% of the profits or loss from sales of taliglucerase alfa, and related expenses
incurred, under the Pfizer Agreement. The Company recognizes its share of net
profit or loss from the Pfizer Agreement based on reports it receives from Pfizer
summarizing the results of the collaborative activities under the agreement for the
applicable period. Under the terms of the Pfizer Agreement, for its subsidiaries
operating outside the United States, financial information is included based on the
fiscal year ending November 30, while financial information for the U.S. entity is
included based on the fiscal year ending December 31.3.
    
    Revenues from selling products to PfizerThe Company recognizes revenues received from products sold to Pfizer at the time
the Company delivers the product to Pfizer. The revenues represent the Companys
cost with respect to the products.
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PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SIGNIFICANT ACCOUNTING POLICIES (Continued):
 e.
    
    Research and Development CostsReimbursements received from Pfizer and other research foundations are recognized when
the reimbursements become receivable provided there is reasonable assurance that the
Company will comply with the conditions attached to the reimbursements and there is
reasonable assurance the reimbursements will be received. The reimbursements are
deducted from the related research and development expenses as the applicable costs are
incurred.f.
    
    Net loss per shareBasic 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 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 in the amount of 11,364,973 and 7,729,307shares of
Common Stock for the nine months ended September 30, 2009 and 2010, respectively, and
11,127,112 and 7,954,811 shares of Common Stock for the three months ended September 30,
2009 and 2010, respectively.g.
    
    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.h.
    
    ReclassificationsCertain figures in respect of prior quarters have been reclassified to conform to the
current year presentation.
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PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2  INVENTORIES
  September 30, 2010Raw materials
    
    $
    1,720Work in process
    
    
    2,366Finished goods
    
    
    1,011Total inventory
    
    $
    5,097
 NOTE 3  STOCK TRANSACTIONS
 a.
    
    During the nine months ended September 30, 2010, the Company issued a total of
172,300 shares of Common Stock in connection with the exercise of a total of 186,605
options by certain employees of the Company. The Company received aggregate cash
proceeds equal to approximately $159 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 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
$5,700, 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.d.
    
    In September 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 $7.55 per share and options to purchase 40,000
shares of Common Stock to a new employee of the Company with an exercise price equal to
$6.32 per share. The options vest over a four-year period, with the first 25% to vest
on the first anniversary of the applicable 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 applicable 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 $987 based on the following
weighted average assumptions: dividend yield of 0% for all years; expected volatility
of 73%; risk-free interest rates of 1.68%; and expected life of six years.
 10




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PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 3  STOCK TRANSACTIONS (Continued):
 e.
    
    In September 2010, the Companys Board of Directors modified the terms of the
options previously granted to an executive in 2001, by extending the life of the
options until 2021. At the date of modification, all of the options were fully vested. 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 the modifications.
 NOTE 4  SUBSEQUENT EVENTS
 a.
    
    During October 2010, the Company issued a total of 198,181 shares of Common Stock
in connection with the exercise of options to purchase 205,950 shares of Common Stock by
certain officers and employees of the Company. The Company received aggregate cash
proceeds equal to approximately $279 in connection with the exercise of 128,181 options
and 77,769 of such options were exercised on a net-exercise basis.b.
    
    In November 2010, the Companys Board of Directors approved the grant of options
to purchase 68,000 shares of Common Stock to a new executive officer of the Company with
an exercise price equal to $9.66 per share. The options vest over a four-year period,
with the first 25% to vest on the first anniversary of the applicable 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 applicable 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 $421 based on the following
weighted average assumptions: dividend yield of 0% for all years; expected volatility of
72%; risk-free interest rates of 1.54%; and expected life of six years.
 11




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##### Table of Contents



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
  12




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13




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Critical Accounting Policies
   Results of Operations
 Three months ended September 30, 2010 compared to the three months ended September 30, 2009
 Revenues
  Our share in the collaboration agreement
  Research and Development Expenses
  14




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General and Administrative Expenses
  Financial Expenses and Income
  Nine months ended September 30, 2010 compared to the nine months ended September 30, 2009
 Revenues
  Our share in the collaboration agreement
  Research and Development Expenses
   General and Administrative Expenses
  15




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Financial Expenses and Income
  Liquidity and Capital Resources
 Sources of Liquidity
    Cash Flows
   Future Funding Requirements
   16




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Effects of Inflation and Currency Fluctuations
   Recently Issued Accounting Pronouncements
   Off-Balance Sheet Arrangements
  17




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Currency Exchange Risk
   Nine months ended
    
    
    Year endedSeptember 30,
    
    
    December 31,2010
    
    
    2009
    
    
    2009Average rate for period
    
    
    3.7707
    
    
    
    3.9885
    
    
    
    3.933Rate at period end
    
    
    3.6650
    
    
    
    3.7580
    
    
    
    3.775
  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
 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, 200810.1
    
    Employment
Agreement by and
between Protalix
Ltd., and Tzvi
Palash dated as of
August 29, 2010
    
    8-K
    
    001-33357
    
    
    10.1
    
    
    September 7, 2010
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Incorporated by ReferenceExhibit Number
    
    Exhibit Description
    
    Form
    
    File Number
    
    Exhibit
    
    Date
    
    Filed Herewith10.2
    
    License Agreement
between Protalix
Biotherapeutics
Ltd. and Virginia
Tech Intellectual
Properties, Inc.
    
    
    
    
    
    
    
    
    
    
    
    X31.1
    
    Certification of
Chief Executive
Officer pursuant to
Rule 13a-14(a) as
adopted pursuant to
Section 302 of the
Sarbanes-Oxley Act
of 2002
    
    
    
    
    
    
    
    
    
    
    
    X31.2
    
    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
 
 
    
    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. 21




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SIGNATURES
  PROTALIX BIOTHERAPEUTICS, INC.
                          (Registrant)Date: November 8, 2010
    By:
    /s/ David AviezerDavid Aviezer, Ph.D.President and Chief Executive Officer
(Principal Executive Officer)Date: November 8, 2010
    By:
    /s/ Yossi MaimonYossi MaimonChief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer) 22