##### Table of Contents



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 June 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.
  
 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)
 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




---



##### 



FORM 10-Q
TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONCautionary Statement Regarding Forward-Looking Statements
    
    
    1Item 1. Financial StatementsCondensed Consolidated Balance Sheets -
As of June 30, 2009 (Unaudited) and December 31, 2008
    
    
    2Condensed Consolidated Statements of Operations (Unaudited) -
For the Six Months and the Three Months Ended June 30, 2009 and 2008; and for the
Period from December 27, 1993 through June 30, 2009
    
    
    3Condensed Consolidated Statement of Changes in Shareholders Equity -
As of June 30, 2009 (Unaudited) and December 31, 2008
    
    
    4Condensed Consolidated Statements of Cash Flows (Unaudited) 
For the Six Months Ended June 30, 2009 and 2008; and for the Period from December
27, 1993 through June 30, 2009
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    16Item 4. Controls and Procedures
    
    
    17PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    18Item 1A. Risk Factors
    
    
    18Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    18Item 3. Defaults Upon Senior Securities
    
    
    18Item 4. Submission of Matters to a Vote of Security Holders
    
    
    18Item 5. Other Information
    
    
    18Item 6. Exhibits
    
    
    19Signatures
    
    
    20EX-31.1EX-31.2EX-32.1EX-32.2




---



##### 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 potential rejection of any applications we file with the
United States 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
drug products, 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 subsidiary, 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.
  1




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 PROTALIX BIOTHERAPEUTICS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30, 2009
    
    
    December 31, 2008(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    29,132
    
    
    $
    42,596Accounts receivable
    
    
    1,945
    
    
    
    793Total current assets
    
    
    31,077
    
    
    
    43,389FUNDS IN RESPECT OF EMPLOYEE
RIGHTS UPON RETIREMENT
    
    
    650
    
    
    
    581PROPERTY AND EQUIPMENT, NET
    
    
    10,458
    
    
    
    6,841Total assets
    
    $
    42,185
    
    
    $
    50,811LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable and accruals:Trade
    
    $
    1,982
    
    
    $
    2,235Other
    
    
    4,232
    
    
    
    3,292Total current liabilities
    
    
    6,214
    
    
    
    5,527LIABILITY FOR EMPLOYEE RIGHTS
UPON RETIREMENT
    
    
    1,056
    
    
    
    937Total liabilities
    
    
    7,270
    
    
    
    6,464SHAREHOLDERS EQUITY
    
    
    34,915
    
    
    
    44,347Total liabilities and shareholders equity
    
    $
    42,185
    
    
    $
    50,811
 The accompanying notes are an integral part of the condensed consolidated financial statements.
 2




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Period fromDecember 27, 1993*Six Months Ended
    
    
    Three Months Ended
    
    
    throughJune 30, 2009
    
    
    June 30, 2008
    
    
    June 30, 2009
    
    
    June 30, 2008
    
    
    June 30, 2009REVENUES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
     $
    830COST OF REVENUES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    206GROSS PROFIT
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    624RESEARCH AND DEVELOPMENT EXPENSES (1)
    
    $
    11,296
    
    
    $
    9,684
    
    
    $
    6,210
    
    
    $
    4,031
    
    
    
    65,713less  grants
    
    
    (2,800
    )
    
    
    (2,515
    )
    
    
    (1,508
    )
    
    
    (1,149
    )
    
    
    (13,701
    )8,496
    
    
    
    7,169
    
    
    
    4,702
    
    
    
    2,882
    
    
    
    52,012GENERAL AND ADMINISTRATIVE EXPENSES (2)
    
    
    2,412
    
    
    
    3,992
    
    
    
    1,171
    
    
    
    2,016
    
    
    
    38,772OPERATING LOSS
    
    
    10,908
    
    
    
    11,161
    
    
    
    5,873
    
    
    
    4,898
    
    
    
    90,160FINANCIAL INCOME  NET
    
    
    (298
    )
    
    
    (1,819
    )
    
    
    (446
    )
    
    
    (669
    )
    
    
    (4,503
    )NET LOSS BEFORE CHANGE IN
ACCOUNTING PRINCIPLE
    
    
    10,610
    
    
    
    9,342
    
    
    
    5,427
    
    
    
    4,229
    
    
    
    85,657CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37
    )NET LOSS FOR THE PERIOD
    
    $
    10,610
    
    
    $
    9,342
    
    
    $
    5,427
    
    
    $
    4,229
    
    
    $
    85,620NET LOSS PER SHARE OF COMMON STOCK 
BASIC AND DILUTED:
    
    $
    0.14
    
    
    $
    0.12
    
    
    $
    0.07
    
    
    $
    0.06WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK USED IN COMPUTING LOSS PER
SHARE:Basic and diluted
    
    
    76,067,492
    
    
    
    75,855,594
    
    
    
    76,186,887
    
    
    
    75,898,295(1) Includes share-based compensation
    
    
    663
    
    
    
    672
    
    
    
    385
    
    
    
    (655
    )
    
    
    7,273(2) Includes share-based compensation
    
    
    501
    
    
    
    1,495
    
    
    
    317
    
    
    
    648
    
    
    
    23,346
 
 *
    
    Incorporation date. See Note 1a. The accompanying notes are an integral part of the condensed consolidated financial statements.
 3




---



##### Table of Contents



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 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
    )
    
    $
    34,915
 
 *
    
    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 June 30, 2009 -
150,000,000 shares. The accompanying notes are an integral part of the condensed consolidated financial statements.
 4




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Period fromDecember 27, 1993*Six Months Ended June 30,
    
    
    through2009
    
    
    2008
    
    
    June 30, 2009CASH FLOWS FROM OPERATING ACTIVITIES:Net loss for the period
    
    $
    (10,610
    )
    
    $
    (9,342
    )
    
    $
    (85,620
    )Adjustments required to reconcile net loss to net
cash used in operating activities:
    
    
    
    
    
    
    
    
    
    
    Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (37
    )Share based compensation
    
    
    1,164
    
    
    
    2,167
    
    
    
    30,619Financial income, net (mainly exchange differences)
    
    
    (77
    )
    
    
    (916
    )
    
    
    (1,153
    )Depreciation and impairment of fixed assets
    
    
    929
    
    
    
    582
    
    
    
    4,169Changes in accrued liability for employee rights
upon retirement
    
    
    147
    
    
    
    277
    
    
    
    1,084Gain on amounts funded in respect of employee rights
upon retirement
    
    
    (44
    )
    
    
    (81
    )
    
    
    (109
    )Loss (Gain) on sale of fixed assets
    
    
    2
    
    
    
    
    
    
    
    (4
    )Changes in operating assets and liabilities:Increase in accounts receivable
    
    
    (1,062
    )
    
    
    (388
    )
    
    
    (1,571
    )Increase in accounts payable and accruals
    
    
    296
    
    
    
    254
    
    
    
    4,678Net cash used in operating activities
    
    $
    (9,255
    )
    
    $
    (7,447
    )
    
    $
    (47,944
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment
    
    $
    (4,226
    )
    
    $
    (1,904
    )
    
    $
    (13,419
    )Investment grant received in respect of fixed assets
    
    
    
    
    
    
    
    
    
    
    38Investment in restricted cash deposit
    
    
    
    
    
    
    
    
    
    
    (222
    )Proceeds from sale of property and equipment
    
    
    73
    
    
    
    
    
    
    
    85Amounts funded in respect of employee rights upon
retirement
    
    
    (39
    )
    
    
    (81
    )
    
    
    (555
    )Net cash used in investing activities
    
    $
    (4,192
    )
    
    $
    (1,985
    )
    
    $
    (14,073
    )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
    
    $
    8
    
    
    $
    3
    
    
    
    14,427Merger with a wholly owned subsidiary of the
Company, net of issuance cost
    
    
    
    
    
    
    
    
    
    
    237Net cash provided by (used in) financing activities
    
    $
    8
    
    
    $
    (53
    )
    
    $
    89,868EFFECT OF EXCHANGE RATE CHANGES
ON CASH
    
    $
    (25
    )
    
    $
    1,032
    
    
    $
    1,281NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (13,464
    )
    
    
    (8,453
    )
    
    
    29,132BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD
    
    
    42,596
    
    
    
    61,813
    
    
    
    BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    29,132
    
    
    $
    53,360
    
    
    $
    29,132
 The accompanying notes are an integral part of the condensed consolidated financial statements.
 5




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
  Period fromDecember 27,1993*Six Months Ended June 30,
    
    
    through2009
    
    
    2008
    
    
    June 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
    
    $
    1,327
    
    
    $
    752
    
    
    $
    1,327Issuance 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
    
    $
    6
    
    
    
    
    
    
    $
    6
 
 *
    
    Incorporation date. See Note 1a. The accompanying notes are an integral part of the condensed consolidated financial statements.
 6




---



##### Table of Contents



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). The
Companys lead product development candidate is prGCD 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. The Company is currently treating patients
in a phase III clinical trial of prGCD. In connection with the phase III clinical
trial, the Company is also engaged in a follow-on study which is evaluating the
safety and efficiency of prGCD in treatment-naïve patients of Gaucher disease. In
December 2008, we also initiated a clinical study evaluating the safety and efficacy
of switching Gaucher patients currently treated under the current standard of care
to treatment with prGCD. The switchover-study is not a prerequisite for approval of
prGCD.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 United States 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 18 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 18 months.
 b.
    
    General Basis of Presentation
  7




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.   NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SIGNIFICANT ACCOUNTING POLICIES (Continued):
   c.
    
    Net loss per share
    d.
    
    Newly issued and recently adopted Accounting Pronouncements
 1.
    
    In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim
Disclosures about Fair Value of Financial Instruments (FSP FAS 107-1 and APB
28-1). FSP FAS 107-1 and APB 28-1 require companies to disclose in interim
financial statements the fair value of financial instruments within the scope of
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. FSP FAS 107-1 and APB 28-1 also require 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 FSP 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 FSP FAS 157-4, FSP FAS 115-2 and FAS 124-2. The adoption of the new
disclosure requirements did not have a material impact on the Companys financial
statements.
 8




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.   NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SIGNIFICANT ACCOUNTING POLICIES (Continued):
 2.
    
    In May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS
165). SFAS 165 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. SFAS 165 will be effective for interim or annual
periods ending after June 15, 2009 and will be applied prospectively. The Company
adopted the provisions of FAS 165 for the quarter ended June 30, 2009. The
adoption of SFAS No. 165 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 SFAS No. 168 The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles  A Replacement of FASB Statement No. 162 (SFAS 168). Statement
168 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. SFAS 168 and the Codification are effective for financial
statements issued for interim and annual periods ending after September 15, 2009.
When effective, the Codification will supersede all existing non-SEC accounting
and reporting standards. All other nongrandfathered non-SEC accounting literature
not included in the Codification will become nonauthoritative. Following SFAS
168, 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
Company does not expect that the adoption of SFAS 168 to have a material impact on
the Companys financial statements.
 NOTE 2  STOCK TRANSACTIONS
 a.
    
    During the six months ended June 30, 2009, the Company issued 439,680 shares of
Common Stock in connection with the exercise of a total of 482,034 options by certain
officers and employees of the Company. The Company received aggregate cash proceeds
equal to approximately $14 in connection with the exercise of 116,078 options and
365,956 of such options were exercised on a net-exercise basis.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.
 9




---



##### Table of Contents



PROTALIX BIOTHERAPEUTICS, INC.   NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2  STOCK TRANSACTIONS (Continued):
 (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
 During the six months ended June 30, 2009, the Company entered into contracts with certain
third parties in connection with certain clinical services. The aggregate fees payable by
the Company during the life of the agreements are equal to approximately $2,733.
 NOTE 4  FAIR VALUE OF FINANCIAL INSTRUMENTS
 The fair value of the financial instruments included in the working capital of the Company
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
   10




---



##### 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 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
 ®
  11




---



##### Table of Contents



Critical Accounting Policies
   Results of Operations
 Three months ended June 30, 2009 compared to the three months ended June 30, 2008
 Research and Development Expenses
  12




---



##### Table of Contents



General and Administrative Expenses
  Financial Expenses and Income
  Six months ended June 30, 2009 compared to the six months ended June 30, 2008
 Research and Development Expenses
   General and Administrative Expenses
  Financial Expenses and Income
  13




---



##### Table of Contents



Liquidity and Capital Resources
 Sources of Liquidity
  Cash Flows
   Future Funding Requirements
    14




---



##### Table of Contents



Effects of Inflation and Currency Fluctuations
   Off-Balance Sheet Arrangements
  Recently Issued Accounting Pronouncements
   15




---



##### Table of Contents



TM
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Currency Exchange Risk
   Six months ended
    
    Year endedJune 30,
    
    December 31,2009
    
    2008
    
    2008Average rate for period
    
    
    4.0678
    
    
    
    3.5218
    
    
    
    3.5878Rate at period end
    
    
    3.9190
    
    
    
    3.3520
    
    
    
    3.8020
  Interest Rate Risk
  16




---



##### Table of Contents



Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Inherent Limitations on Effectiveness of Controls
  Changes in internal controls
  17




---



##### Table of Contents



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
  Use of Proceeds
    
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  18




---



##### Table of Contents



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,
1998, SEC File No.
333-486773.2
    
    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,
2007, SEC File No.
001-333573.3
    
    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,
2007, SEC File No.
001-333573.4
    
    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,
2007, SEC File No.
001-33353.5
    
    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,
2007, SEC File No.
001-333573.6
    
    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
 19




---



##### Table of Contents



SIGNATURES
  PROTALIX BIOTHERAPEUTICS, INC.
                    (Registrant)Date: August 3, 2009
    By:
    /s/ David AviezerDavid Aviezer, Ph.D.President and Chief Executive Officer

(Principal Executive Officer)Date: August 3, 2009
    By:
    /s/ Yossi MaimonYossi MaimonChief Financial Officer, Treasurer and Secretary

(Principal Financial and Accounting Officer) 20