UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30,
2014
OR
| ¨ | 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)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “large accelerated filer”
and “accelerated filer” in Rule 12b-2 of the Exchange Act. (check one):
Large accelerated filer |
¨ |
Accelerated filer |
x |
Non-accelerated filer |
¨ (Do not check if a smaller
reporting company) |
Smaller reporting company |
¨ |
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨
No x
On November 1, 2014, approximately 93,672,564 shares of the
Registrant’s common stock, $0.001 par value, were outstanding.
FORM 10-Q
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 statements set forth under the captions “Business”
and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and other statements
included elsewhere in this Quarterly Report on Form 10-Q, which are not historical, constitute “forward-looking statements”
within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended, or the Exchange Act, including statements regarding expectations, beliefs, intentions or strategies for the
future. When used in this report, the terms “anticipate,” “believe,” “estimate,” “expect,”
“can,” “continue,” “could,” “intend,” “may,” “plan,” “potential,”
“predict,” “project,” “should,” “will,” “would” and words or phrases
of similar import, as they relate to our company or our subsidiaries or our management, are intended to identify forward-looking
statements. We intend that all forward-looking statements be subject to the safe-harbor provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements are only predictions and reflect our views as of the date they are made with
respect to future events and financial performance, and we undertake no obligation to update or revise, nor do we have a policy
of updating or revising, any forward-looking statement to reflect events or circumstances after the date on which the statement
is made or to reflect the occurrence of unanticipated events, except as may be required under applicable law. Forward-looking
statements are subject to many risks and uncertainties that could cause our actual results to differ materially from any future
results expressed or implied by the forward-looking statements.
Examples of the risks and uncertainties include, but are not
limited to, the following:
| · | risks related to
the commercialization efforts for taliglucerase alfa in the United States, Israel, Brazil,
Canada, Australia and other countries; |
| · | risks related to
the supply of drug product pursuant to our supply arrangement with Fundação
Oswaldo Cruz, or Fiocruz, an arm of the Brazilian Ministry of Health, or the Brazilian
MOH; |
| · | risks relating to
the compliance by Fiocruz with its purchase obligations under our supply and technology
transfer agreement which may result in the termination of such agreement which may have
a material adverse effect on our company; |
| · | the risk of significant
delays in the commercial introduction of taliglucerase alfa in the United States, Brazil,
Israel, Canada, Australia and other markets as planned; |
| · | risks related to
the acceptance and use of taliglucerase alfa or any of our product candidates, if approved,
by physicians, patients and third-party payors; |
| · | the risk that we
will not be able to develop a successful sales and marketing organization for taliglucerase
alfa in Israel or for any other product candidate in a timely manner, if at all; |
| · | failure or delay
in the commencement or completion of our preclinical studies and clinical trials which
may be caused by several factors, including: unforeseen safety issues; determination
of dosing issues; lack of effectiveness during clinical trials; slower than expected
rates of patient recruitment; inability to monitor patients adequately during or after
treatment; inability or unwillingness of medical investigators and institutional review
boards to follow our clinical protocols; or lack of sufficient funding to finance our
clinical trials; |
| · | the risk that the
results of our clinical trials will not support the applicable claims of safety or efficacy,
that our product candidates will not have the desired effects or include undesirable
side effects or other unexpected characteristics; |
| · | our dependence on
performance by third party providers of services and supplies, including without limitation,
clinical trial services; |
| · | delays in the approval
or the potential rejection of any application filed with or submitted to the regulatory
authorities reviewing taliglucerase alfa outside of the United States, Israel, Brazil,
Canada, Australia and other countries in which taliglucerase alfa is already approved; |
| · | our ability to establish
and maintain strategic license, collaboration and distribution arrangements, and to manage
our relationships with Pfizer Inc., Fiocruz and any other collaborator, distributor or
partner; |
| · | risks relating to
our ability to make scheduled payments of the principal of, to pay interest on or to
refinance our 2018 convertible notes, or any other indebtedness; |
| · | risks relating to
our ability to finance our research programs, the expansion of our manufacturing capabilities
and the ongoing costs in the case of delays in regulatory approvals for taliglucerase
alfa outside of the United States, Israel, Brazil, Canada, Australia and other countries
in which taliglucerase alfa is already approved; |
| · | delays in our preparation
and filing of applications for regulatory approval of our other product candidates in
the United States, the European Union and elsewhere; |
| · | our expectations
with respect to the potential commercial value of our product and product candidates; |
| · | the risk that products
that are competitive to our product candidates may be granted orphan drug status in certain
territories and, therefore, will be subject to potential marketing and commercialization
restrictions; |
| · | the impact of development
of competing therapies and/or technologies by other companies; |
| · | any lack of progress
of our research and development activities and our clinical activities with respect to
any product candidate; |
| · | the inherent risks
and uncertainties in developing the types of drug platforms and products we are developing; |
| · | potential product
liability risks, and risks of securing adequate levels of product liability and clinical
trial insurance coverage; |
| · | 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; |
| · | risks relating to
biosimilar legislation and/or healthcare reform in the United States or elsewhere; 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. |
Companies in the pharmaceutical and biotechnology industries
have suffered significant setbacks in advanced or late-stage clinical trials, even after obtaining promising earlier trial results
or preliminary findings for such clinical trials. Even if favorable testing data is generated from clinical trials of a drug product,
the U.S. Food and Drug Administration, or the FDA, or foreign regulatory authorities may not accept or approve a marketing application
filed by a pharmaceutical or biotechnology company for the drug product.
These forward-looking statements reflect our current views
with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties,
you should not place undue reliance on these forward-looking statements. These and other risks and uncertainties are detailed
under the heading "Risk Factors"
in our Annual Report on Form 10-K for the year ended December 31, 2013, and are described from time to time in
the reports we file with the U.S. Securities and Exchange Commission, or the Commission.
PART I – FINANCIAL INFORMATION
Item 1. Financial
Statements
PROTALIX
BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands)
(Unaudited)
| |
September 30, 2014 | | |
December 31, 2013 | |
| |
| | |
| |
ASSETS | |
| | | |
| | |
| |
| | | |
| | |
CURRENT ASSETS: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 60,317 | | |
$ | 86,398 | |
Accounts receivable - Trade | |
| 1,992 | | |
| 2,091 | |
Other assets | |
| 2,069 | | |
| 1,457 | |
Inventories | |
| 6,830 | | |
| 7,957 | |
Total current assets | |
| 71,208 | | |
| 97,903 | |
| |
| | | |
| | |
FUNDS IN RESPECT OF EMPLOYEE RIGHTS UPON RETIREMENT | |
| 1,621 | | |
| 1,578 | |
PROPERTY AND EQUIPMENT, NET | |
| 11,846 | | |
| 13,711 | |
DEFERRED CHARGES | |
| 120 | | |
| 141 | |
Total assets | |
$ | 84,795 | | |
$ | 113,333 | |
| |
| | | |
| | |
LIABILITIES NET OF CAPITAL DEFICIENCY | |
| | | |
| | |
| |
| | | |
| | |
CURRENT LIABILITIES: | |
| | | |
| | |
Accounts payable and accruals: | |
| | | |
| | |
Trade | |
$ | 3,578 | | |
$ | 5,254 | |
Other | |
| 14,186 | | |
| 12,073 | |
Deferred revenues | |
| 6,620 | | |
| 9,369 | |
Total current liabilities | |
| 24,384 | | |
| 26,696 | |
| |
| | | |
| | |
LONG TERM LIABILITIES: | |
| | | |
| | |
Convertible notes | |
| 67,359 | | |
| 67,048 | |
Deferred revenues | |
| 38,373 | | |
| 41,796 | |
Liability in connection with collaboration operation | |
| — | | |
| 2,371 | |
Liability for employee rights upon retirement | |
| 2,373 | | |
| 2,368 | |
Total long term liabilities | |
| 108,105 | | |
| 113,583 | |
Total liabilities | |
| 132,489 | | |
| 140,279 | |
| |
| | | |
| | |
COMMITMENTS | |
| | | |
| | |
| |
| | | |
| | |
CAPITAL DEFICIENCY | |
| (47,694 | ) | |
| (26,946 | ) |
Total liabilities net of capital deficiency | |
$ | 84,795 | | |
$ | 113,333 | |
The accompanying notes are an integral
part of the condensed consolidated financial statements.
PROTALIX
BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. dollars in thousands, except share data)
(Unaudited)
| |
Nine Months Ended | | |
Three Months Ended | |
| |
September 30, 2014 | | |
September 30, 2013 | | |
September 30, 2014 | | |
September 30, 2013 | |
REVENUES | |
$ | 11,517 | | |
$ | 8,116 | | |
$ | 2,396 | | |
$ | 2,284 | |
COMPANY’S SHARE IN COLLABORATION
AGREEMENT | |
| 2,259 | | |
| 2,275 | | |
| 1,311 | | |
| 1,075 | |
COST OF REVENUES | |
| (7,476 | ) | |
| (3,876 | ) | |
| (1,798 | ) | |
| (1,587 | ) |
GROSS PROFIT | |
| 6,300 | | |
| 6,515 | | |
| 1,909 | | |
| 1,772 | |
RESEARCH AND DEVELOPMENT EXPENSES
(1) | |
| (23,280 | ) | |
| (23,467 | ) | |
| (8,052 | ) | |
| (7,723 | ) |
Less – grants and reimbursements | |
| 6,146 | | |
| 6,049 | | |
| 1,947 | | |
| 2,086 | |
RESEARCH AND
DEVELOPMENT EXPENSES, NET | |
| (17,134 | ) | |
| (17,418 | ) | |
| (6,105 | ) | |
| (5,637 | ) |
SELLING, GENERAL
AND ADMINISTRATIVE EXPENSES (2) | |
| (7,289 | ) | |
| (6,065 | ) | |
| (2,012 | ) | |
| (1,780 | ) |
OPERATING LOSS | |
| (18,123 | ) | |
| (16,968 | ) | |
| (6,208 | ) | |
| (5,645 | ) |
FINANCIAL EXPENSES | |
| (3,490 | ) | |
| (153 | ) | |
| (1,851 | ) | |
| (131 | ) |
FINANCIAL INCOME | |
| 139 | | |
| 216 | | |
| 49 | | |
| 29 | |
FINANCIAL INCOME
(EXPENSES) – NET | |
| (3,351 | ) | |
| 63 | | |
| (1,802 | ) | |
| (102 | ) |
NET LOSS
FOR THE PERIOD | |
$ | (21,474 | ) | |
$ | (16,905 | ) | |
$ | (8,010 | ) | |
$ | (5,747 | ) |
NET LOSS
PER SHARE OF COMMON STOCK - BASIC AND DILUTED: | |
$ | (0.23 | ) | |
$ | (0.18 | ) | |
$ | (0.09 | ) | |
$ | (0.06 | ) |
WEIGHTED
AVERAGE NUMBER OF SHARES OF COMMON STOCK USED IN COMPUTING LOSS PER SHARE – BASIC AND DILUTED: | |
| 92,828,851 | | |
| 92,307,170 | | |
| 92,971,572 | | |
| 92,433,502 | |
(1) Includes share-based compensation | |
| 764 | | |
| 2,198 | | |
| 173 | | |
| 609 | |
(2) Includes share-based compensation | |
| (81 | ) | |
| 1,255 | | |
| (67 | ) | |
| 345 | |
The accompanying
notes are an integral part of the condensed consolidated financial statements.
PROTALIX BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENT OF
CHANGES IN CAPITAL DEFICIENCY
(U.S. dollars in thousands, except share
data)
(Unaudited)
| |
| | |
| | |
Additional | | |
| | |
| |
| |
Common | | |
Common | | |
paid–in | | |
Accumulated | | |
| |
| |
Stock (1) | | |
Stock | | |
capital | | |
deficit | | |
Total | |
| |
Number of
shares |
|
Amount | |
| |
| | |
| | |
| | |
| | |
| |
Balance at December 31, 2012 | |
| 93,489,809 | | |
$ | 93 | | |
$ | 180,145 | | |
$ | (183,595 | ) | |
$ | (3,357 | ) |
Changes during the nine-month period ended September 30, 2013: | |
| | | |
| | | |
| | | |
| | | |
| | |
Share-based compensation related to stock options | |
| | | |
| | | |
| 895 | | |
| | | |
| 895 | |
Share-based compensation related to restricted stock
award, net of forfeitures of 1,667 shares | |
| (1,667 | ) | |
| | | |
| 2,558 | | |
| | | |
| 2,558 | |
Exercise of options granted to
employees | |
| 64,768 | | |
| 1 | | |
| 102 | | |
| | | |
| 103 | |
Net loss for the period | |
| | | |
| | | |
| | | |
| (16,905 | ) | |
| (16,905 | ) |
Balance at September 30, 2013 | |
| 93,552,910 | | |
$ | 94 | | |
$ | 183,700 | | |
$ | (200,500 | ) | |
$ | (16,706 | ) |
Balance at December 31, 2013 | |
| 93,551,098 | | |
$ | 94 | | |
$ | 184,345 | | |
$ | (211,385 | ) | |
$ | (26,946 | ) |
Changes during the nine-month period ended September 30, 2014: | |
| | | |
| | | |
| | | |
| | | |
| | |
Share-based compensation related to stock options | |
| | | |
| | | |
| 161 | | |
| | | |
| 161 | |
Share-based compensation related to restricted stock
award, net of forfeitures of 1,834 shares | |
| (1,834 | ) | |
| | | |
| 522 | | |
| | | |
| 522 | |
Exercise of options granted to
employees (includes net exercise) | |
| 113,800 | | |
| * | | |
| 43 | | |
| | | |
| 43 | |
Net loss for the period | |
| | | |
| | | |
| | | |
| (21,474 | ) | |
| (21,474 | ) |
Balance at September 30, 2014 | |
| 93,663,064 | | |
$ | 94 | | |
$ | 185,071 | | |
$ | (232,859 | ) | |
$ | (47,694 | ) |
* Represents
amount less than $1
(1) Common
Stock, $0.001 par value; Authorized – as of September 30, 2014 and 2013 - 150,000,000 shares.
The accompanying notes are an integral part of the condensed
consolidated financial statements.
PROTALIX BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(U.S. dollars in thousands)
(Unaudited)
| |
Nine
Months Ended | |
| |
September
30, 2014 | | |
September
30, 2013 | |
| |
| | |
| |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | | |
| | |
Net loss | |
$ | (21,474 | ) | |
$ | (16,905 | ) |
Adjustments required
to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Share based compensation | |
| 683 | | |
| 3,453 | |
Depreciation and write down of fixed assets | |
| 2,418 | | |
| 2,689 | |
Financial expenses (income), net (mainly
exchange differences) | |
| 869 | | |
| (140 | ) |
Changes in accrued liability for employee rights
upon retirement | |
| 149 | | |
| 145 | |
Gain on amounts funded in respect of employee
rights upon retirement | |
| (25 | ) | |
| (26 | ) |
Amortization of debt issuance costs and debt
discount | |
| 332 | | |
| 15 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Decrease in deferred revenues (including
non-current portion) | |
| (6,172 | ) | |
| (5,393 | ) |
Increase in accounts receivable and other
assets | |
| (578 | ) | |
| (798 | ) |
Decrease (increase) in inventories | |
| 1,127 | | |
| (3,538 | ) |
Decrease in accounts payable
and accruals (including long term ) | |
| (1,736 | ) | |
| (5,413 | ) |
Net cash used in operating
activities | |
$ | (24,407 | ) | |
$ | (25,911 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Purchase of property and equipment | |
$ | (617 | ) | |
$ | (1,668 | ) |
Investment in restricted deposit | |
| (93 | ) | |
| (42 | ) |
Amounts funded in respect
of employee rights upon retirement, net | |
| (122 | ) | |
| (121 | ) |
Net cash used in investing
activities | |
$ | (832 | ) | |
$ | (1,831 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
Net proceeds from issuance of convertible notes | |
| — | | |
$ | 66,930 | |
Exercise of options | |
$ | 43 | | |
$ | 30 | |
Net cash provided by financing
activities | |
$ | 43 | | |
$ | 66,960 | |
EFFECT
OF EXCHANGE RATE CHANGES ON CASH | |
$ | (885 | ) | |
$ | 144 | |
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS | |
| (26,081 | ) | |
| 39,362 | |
BALANCE
OF CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | |
| 86,398 | | |
| 52,035 | |
BALANCE
OF CASH AND CASH EQUIVALENTS AT END OF PERIOD | |
$ | 60,317 | | |
$ | 91,397 | |
The accompanying notes are an integral
part of the condensed consolidated financial statements.
PROTALIX BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(U.S. dollars in thousands)
(Unaudited)
(Continued) - 2
| |
Nine Months Ended | |
| |
September 30, 2014 | | |
September 30, 2013 | |
SUPPLEMENTARY INFORMATION ON INVESTING AND FINANCING ACTIVITIES NOT INVOLVING CASH FLOWS: | |
| | |
| |
Purchase of property and equipment | |
$ | 122 | | |
$ | 187 | |
Issuance cost related to convertible note offering not
yet paid | |
| | | |
$ | 150 | |
Exercise of options granted to employees | |
| | | |
$ | 73 | |
The accompanying notes are an integral
part of the condensed consolidated financial statements.
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Protalix BioTherapeutics, Inc. (collectively with its
subsidiaries, the “Company”), and its wholly-owned subsidiary, Protalix Ltd., are biopharmaceutical companies focused
on the development and commercialization of recombinant therapeutic proteins based on the Company’s proprietary ProCellEx®
protein expression system (“ProCellEx”). In September 2009, Protalix Ltd. formed another wholly-owned subsidiary
under the laws of the Netherlands, Protalix B.V., in connection with the European Medicines Agency (“EMA”) application
process in the European Union. The Company’s two subsidiaries are referred to collectively herein as the “Subsidiaries.”
On May 1, 2012, the U.S. Food and Drug Administration
(“FDA”) approved taliglucerase alfa for injection, the Company’s first approved drug product, as an enzyme replacement
therapy (ERT) for the long-term treatment of adult patients with a confirmed diagnosis of type 1 Gaucher disease. Taliglucerase
alfa is a proprietary, recombinant form of glucocerebrosidase (GCD) that the Company developed using ProCellEx. Taliglucerase
alfa was also approved by the Israeli Ministry of Health (the “Israeli MOH”) in September 2012, by the Brazilian Ministry
of Health (the “Brazilian MOH”) in March 2013 and by the applicable regulatory authorities of certain other countries,
including Chile, Canada and Australia. Taliglucerase alfa is the first plant cell-based recombinant therapeutic protein approved
by the FDA or any other major regulatory authority.
In August 2014, the FDA approved taliglucerase alfa
for injection for pediatric patients. Prior to this approval, taliglucerase alfa was approved for pediatric indications in Australia
and Canada but in no other jurisdiction.
Taliglucerase alfa is being marketed in the United
States under the brand name ELELYSO™ by Pfizer Inc. (“Pfizer”), the Company’s commercialization partner,
as provided in the exclusive license and supply agreement by and between Protalix Ltd. and Pfizer (the “Pfizer Agreement”).
The Company, through Protalix Ltd., markets ELELYSO in Israel, and in Brazil under the brand name UPLYSO™.
Protalix Ltd. granted Pfizer an exclusive, worldwide
license to develop and commercialize taliglucerase alfa under the Pfizer Agreement, but retained those rights in Israel and, since
2014, in Brazil (see below). The Company has agreed to a specific allocation between Protalix Ltd. and Pfizer regarding the responsibilities
for the continued development efforts for taliglucerase alfa. To date, the Company has received an upfront payment of $60.0 million
in connection with the execution of the Pfizer Agreement and shortly thereafter an additional $5.0 million clinical development-related
milestone payment. The Company received during 2012 an additional $25.0 million milestone payment in connection with the FDA’s
approval of taliglucerase alfa in the United States. The agreement provides that the Company share with Pfizer the net profits
or loss related to the development and commercialization of taliglucerase alfa on a 40% and 60% basis, respectively, except with
respect to the profits or losses related to commercialization efforts in Israel and Brazil, where the Company retained exclusive
marketing rights. In calculating the net profits or losses under the agreement, there are certain agreed upon limits on the amounts
that may be deducted from gross sales for certain expenses and costs of goods sold.
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
On June 18, 2013, Protalix Ltd. entered into a Supply
and Technology Transfer Agreement (the “Brazil Agreement”) with Fundação Oswaldo Cruz (“Fiocruz”),
an arm of the Brazilian MOH, for taliglucerase alfa. The brand name for taliglucerase alfa in Brazil is UPLYSO. The first term
of the technology transfer is seven years and the agreement may be extended for an additional five-year term, as needed, to complete
the technology transfer. The technology transfer is designed to be effected in four stages and is intended to transfer to Fiocruz
the capacity and skills required for the Brazilian government to construct its own manufacturing facility, at its sole expense,
and to produce a sustainable, high quality, and cost effective supply of taliglucerase alfa. Under the agreement, Fiocruz has
committed to purchase at least approximately $40 million worth of taliglucerase alfa during the first two years of the agreement.
In subsequent years, Fiocruz is required to purchase at least approximately $40 million worth of taliglucerase alfa per year.
Additionally, Protalix Ltd. is not required to complete the final stage of the technology transfer until Fiocruz purchases at
least approximately $280 million worth of taliglucerase alfa. The Brazil Agreement became effective during the first quarter of
2014.
During the nine months ended September 30, 2014, the
Company recorded revenues of approximately $3.5 million from the sale of products to Fiocruz.
In September 2014, CONITEC, the National Commission
for Incorporation of Technologies in Brazil’s Unified Healthcare System, announced that it had decided to give a positive
funding recommendation for taliglucerase alfa in the treatment of adult patients with types 1 and 3 Gaucher disease, and established
that taliglucerase alfa will be the first choice for treatment for new adult Gaucher patients in Brazil. The Company anticipates that CONITEC’s resolution will be implemented around the end of 2014.
To facilitate the arrangement with Fiocruz, Pfizer
amended its exclusive license and supply agreement with Protalix Ltd. The amendment provides for the transfer of the commercialization
and other rights to taliglucerase alfa in Brazil back to Protalix Ltd. As consideration for the transfer of the commercialization
and supply rights, Protalix Ltd. agreed to pay Pfizer a maximum amount of approximately $12.5 million from its net profits (as
defined in the license and supply agreement) per year. Pfizer has also agreed to perform certain transitional services in Brazil
on Protalix Ltd.’s behalf in connection with the supply of taliglucerase alfa to Fiocruz.
Protalix Ltd. is required to pay a fee equal to 5%
of the net proceeds generated in Brazil to its agent for services provided in assisting Protalix Ltd. complete the Brazil Agreement
pursuant to an agency agreement between Protalix Ltd. and the agent. The agency agreement will remain in effect with respect to
the Brazil Agreement until the termination thereof.
In addition to the approvals from the FDA, the Israeli
MOH and the Brazilian MOH, marketing approval has been granted to ELELYSO in Canada, Australia, Mexico, Chile, Uruguay and Albania.
In addition, the Company is cooperating with Pfizer in its efforts to obtain marketing approval for taliglucerase alfa in additional
countries and jurisdictions. Currently, marketing authorization applications have been filed in a number of countries.
Currently, patients are being treated with taliglucerase
alfa on a commercial basis in the United States, Brazil, Chile and Israel. In addition, taliglucerase alfa is currently being provided to Gaucher patients under special access agreements
or named patient provisions in other countries.
In addition to taliglucerase alfa, the Company is working on the development of certain other products
using ProCellEx.
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
In addition to the approval of taliglucerase alfa for
marketing in the United States, Israel, Brazil and other countries, successful completion of the Company’s development programs
and its transition to normal operations is dependent upon obtaining the foreign regulatory approvals required to sell its products
internationally. A substantial amount of time may pass before the Company achieves a level of revenues adequate to support its
operations, if at all, and the Company expects to incur substantial expenditures in connection with the regulatory approval process
for each of its product candidates during their respective developmental periods.
Obtaining marketing approval with respect to any product
candidate in any country is directly dependent on the Company’s ability to implement the necessary regulatory steps required
to obtain such approvals. The Company cannot reasonably predict the outcome of these activities.
The accompanying unaudited condensed consolidated
financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United
States (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes
required by GAAP for annual financial statements. In the opinion of management, all adjustments (of a normal recurring nature)
considered necessary for a fair statement of the results for the interim periods presented have been included. Operating results
for the interim period are not necessarily indicative of the results that may be expected for the full year.
These unaudited condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial statements in the Annual Report on Form 10-K
for the year ended December 31, 2013, filed by the Company with the Securities and Exchange Commission. The comparative balance
sheet at December 31, 2013 has been derived from the audited financial statements at that date.
Basic and diluted loss per share (“LPS”)
are computed by dividing net loss by the weighted average number of shares of the Company’s Common Stock, par value $0.001
per share (the “Common Stock”) outstanding for each period.
Diluted LPS does not include 7,879,601 and 18,781,572
shares of Common Stock underlying outstanding options and restricted shares of Common Stock and shares issuable upon conversion
of the convertible notes (issued in September 2013) for the nine months ended September 30, 2013 and 2014, respectively, and 8,817,090
and 18,661,182 shares of Common Stock for the three months ended September 30, 2013 and 2014, respectively, because the effect
would be anti-dilutive.
NOTE 2 - INVENTORIES
Inventory at September 30, 2014 and December 31,
2013 consisted of the following:
| |
September 30, | | |
December 31, | |
| |
2014 | | |
2013 | |
| |
(U.S. dollars in thousands) | |
Raw materials | |
$ | 1,660 | | |
$ | 2,342 | |
Work in progress | |
| 0 | | |
| 92 | |
Finished goods | |
| 5,170 | | |
| 5,523 | |
Total inventory | |
$ | 6,830 | | |
$ | 7,957 | |
PROTALIX BIOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - INVENTORIES (continued):
During the nine months ended September 30, 2014,
the Company recorded approximately $1.6 million for write-down of inventory under cost of revenues.
NOTE 3 – FAIR VALUE MEASUREMENT
The Company measures fair value and discloses fair
value measurements for financial assets and liabilities. Fair value is based on the price that would be received from the sale
of an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.
The accounting standard establishes a fair value
hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described
below:
Level 1: Quoted prices (unadjusted) in active markets
that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to
Level 1 inputs.
Level 2: Observable prices that are based on inputs
not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used when little
or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, the Company utilizes
valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible
and considers counterparty credit risk in its assessment of fair value.
The fair value of the financial instruments included
in the working capital of the Company is usually identical or close to their carrying value.
The fair value of the convertible notes as of September
30, 2014 is approximately $59.4 million based on a level 2 measurement.
NOTE 4 – STOCK TRANSACTIONS
| a. | During the nine months ended September 30, 2014, the
Company issued a total of 113,800 shares of Common Stock in connection with the exercise of a total of 116,801 options by certain
employees of the Company. The aggregate proceeds in connection with such exercises totaled approximately $43,000. |
| b. | On July 24, 2014, the Company’s
Board of Directors approved, subject to certain terms and conditions, the grant of a 10-year option to purchase 150,000
shares of Common Stock to its newly elected chairman of the Board of Directors with an exercise price of $3.37 per share.
The options vest over a three-year period;
the first 50,000 shares vest on the first anniversary of the grant date and the
remaining shares vest in eight equal quarterly increments over the subsequent two year period. Vesting of the options will
be accelerated in full upon a Corporate
Transaction or a Change in Control, as those terms are defined in the
Company’s 2006 Stock Incentive Plan. The Company estimated the fair value of the option on the date of board approval
using the Black-Scholes option-pricing model
to be approximately $293,000. |
| c. | On September 28, 2014, the Company’s Board of Directors approved, subject to certain
terms and conditions, the grant of a 10-year option to purchase 900,000 shares of Common Stock to its newly appointed
President and Chief Executive Officer with
an exercise price of $2.37 per share. The options vest over a four-year period in 16 equal
quarterly increments. Vesting of the options will be accelerated in full upon a Corporate Transaction or a Change in
Control, as those terms are defined in the
Company’s 2006 Stock Incentive Plan. The Company estimated the fair value of the
option on the date of board approval
using the Black-Scholes option-pricing model to be approximately $1,236,490. |
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 in our Annual Report on Form 10-K for the
year ended December 31, 2013. 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, 2013 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
We are a biopharmaceutical company focused on the development
and commercialization of recombinant therapeutic proteins based on our proprietary ProCellEx® protein expression
system, or ProCellEx. Using our ProCellEx system, we are developing a pipeline of proprietary, biobetter and biosimilar versions
of recombinant therapeutic proteins, based on our plant cell-based expression technology, that primarily target large, established
pharmaceutical markets and that rely upon known biological mechanisms of action. Our initial commercial focus has been on complex
therapeutic proteins, including proteins for the treatment of genetic disorders, such as Gaucher disease and Fabry disease. We
believe ProCellEx will enable us to develop proprietary recombinant proteins that are therapeutically equivalent or superior to
existing recombinant proteins currently marketed for the same indications. Because we are primarily targeting biologically equivalent
versions of highly active, well-tolerated and commercially successful therapeutic proteins, we believe our development process
is associated with relatively less risk compared to other biopharmaceutical development processes for completely novel therapeutic
proteins. We are now also applying the unique properties of our ProCellEx system for the oral delivery of therapeutic proteins,
with the first two product candidates being glucocerebrosidase and antiTNF fusion protein, and we are performing research focused
on the expression, and subsequently the oral delivery, of antibodies in plant cells.
On May 1, 2012, the U.S. Food and Drug Administration, or the
FDA, approved for sale our first commercial product, taliglucerase alfa for injection, which is being marketed in the United States
and Israel under the brand name ELELYSO, as an enzyme replacement therapy, or ERT, for the long-term treatment of adult patients
with a confirmed diagnosis of type 1 Gaucher disease. Subsequently, taliglucerase alfa was approved by the Brazilian National
Health Surveillance Agency (Agencia Nacional de Vigilancia Sanitaria, or ANVISA) in March 2013, by the Israeli Ministry of Health,
or the Israeli MOH, in September 2012, by the Australian Therapeutic Goods Administration (TGA) in May 2014, by Health Canada
in May 2014 and by the applicable regulatory authorities in Uruguay, Mexico and Chile. Taliglucerase alfa is being marketed under
the name UPLYSO in Brazil and certain other Latin American countries.
In August 2014, the FDA approved ELELYSO for injection for pediatric patients. Prior to this approval,
ELEYSO was approved for pediatric indications in Australia and Canada but in no other jurisdictions. In September 2014, CONITEC,
the National Commission for Incorporation of Technologies in Brazil’s Unified Healthcare System, announced that it had decided
to give a positive funding recommendation for UPLYSO in the treatment of adult patients with types 1 and 3 Gaucher disease, and
established that UPLYSO will be the first choice for treatment for new adult Gaucher patients in Brazil. We anticipate that CONITEC’s
resolution will be implemented around the end of 2014.
Taliglucerase
alfa is our proprietary, recombinant form of glucocerebrosidase, or GCD, that is produced or expressed through ProCellEx. Taliglucerase
alfa is the first plant cell-based recombinant therapeutic protein to be approved by the FDA or by the regulatory authorities
with jurisdiction over any substantial market. Gaucher disease is a rare and serious lysosomal storage
disorder with severe and debilitating symptoms. Gaucher patients suffer from mutations in or deficiencies of GCD, an enzyme that
is naturally found in human cells.
Since May 2012, taliglucerase alfa has been marketed in the
United States by Pfizer Inc., or Pfizer, our commercialization partner, as provided in the exclusive license and supply agreement
by and between Protalix Ltd., our wholly-owned subsidiary, and Pfizer, which we refer to as the Pfizer Agreement. We granted Pfizer
an exclusive, worldwide license to develop and commercialize taliglucerase alfa under the Pfizer Agreement, but we retained those
rights in Israel and in Brazil. We have agreed to a specific allocation between Protalix Ltd. and Pfizer of the responsibilities
for the continued development efforts for taliglucerase alfa outside of Israel. Protalix Ltd. has been marketing taliglucerase
alfa in Israel since 2013 and in Brazil since January 2014.
On June 18, 2013, we entered into a Supply and Technology Transfer
Agreement, or the Brazil Agreement, with Fiocruz, for taliglucerase alfa. The agreement became effective in January 2014. The
technology transfer is designed to be completed in four stages and is intended to transfer to Fiocruz the capacity and skills
required for the Brazilian government to construct its own manufacturing facility, at its sole expense, and to produce a sustainable,
high-quality, and cost-effective supply of taliglucerase alfa. The initial term of the technology transfer is seven years. Under
the agreement, Fiocruz has committed to purchase at least approximately $40 million worth of taliglucerase alfa during the first
two years of the term. In subsequent years, Fiocruz is required to purchase at least approximately $40 million worth of taliglucerase
alfa per year. Additionally, we are not required to complete the final stage of the technology transfer until Fiocruz purchases
at least approximately $280 million worth of taliglucerase alfa.
The Brazil Agreement may be extended for an additional five-year
term, as needed, to complete the technology transfer. All of the terms of the arrangement, including the minimum annual purchases,
will apply during the additional term. Upon completion of the technology transfer, and subject to Fiocruz receiving approval from
ANVISA to manufacture taliglucerase alfa in its facility in Brazil, the agreement will enter into the final term and will remain
in effect until our last patent in Brazil expires. During such period, Fiocruz will be the sole provider of this important treatment
option for Gaucher patients in Brazil and shall pay us a single-digit royalty on net sales.
To facilitate the arrangement with Fiocruz, we and Pfizer agreed
to an amendment of our exclusive license and supply agreement, which amendment provides for the transfer of the commercialization
and other rights to taliglucerase alfa in Brazil back to us. As consideration for the transfer of the commercialization and supply
rights, we agreed to pay Pfizer a maximum amount of approximately $12.5 million from its net profits (as defined in the license
and supply agreement) per year. Pfizer has also agreed to perform certain transitional services in Brazil on our behalf in connection
with the supply of taliglucerase alfa to Fiocruz.
We will pay a fee equal to 5% of the net proceeds generated
in Brazil to our agent for services provided in assisting us complete the Brazil Agreement pursuant to an agency agreement between
us and the agent. The agency agreement will remain in effect with respect to the Brazil Agreement until the termination thereof.
We are cooperating with Pfizer to obtain marketing approval
for taliglucerase alfa in additional countries and jurisdictions. In addition to those countries in which taliglucerase alfa has
been approved, marketing authorization applications have been filed in other countries.
In
addition to naive and switch studies in adults which were successfully completed, we conducted a 12-month clinical trial of naïve
and switchover pediatric patients, which was successfully completed in 2012. The application for our approved pediatric indication
was based on the data from this study. Patients in the extension
trials are still being treated with taliglucerase alfa.
Currently, patients are being treated with taliglucerase alfa
on a commercial basis in the United States, Brazil, Israel and Chile. In France, Gaucher patients are being treated with taliglucerase
alfa through an Autorisation Temporaire d’Utilisation (ATU), or Temporary Authorization for Use, a 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. In addition taliglucerase alfa is currently being provided to Gaucher patients under special access
agreements or named patient provisions in certain countries. Hundreds of patients, in the aggregate, have been treated with taliglucerase
alfa.
In addition to taliglucerase alfa, we are developing an innovative
product pipeline using our ProCellEx protein expression system. Our product pipeline currently includes, among other candidates:
(1) PRX-102, a therapeutic protein candidate for the treatment
of Fabry disease, a rare, genetic lysosomal disorder in humans, currently in a phase I/II clinical trial. We expect to complete
patient recruitment and report interim results around year end, and to report final results during 2015.
(2) PRX-112, an orally administered glucocerebrosidase enzyme
for the treatment of Gaucher patients utilizing oral delivery of the recombinant GCD enzyme produced and encapsulated within carrot
cells, currently the subject of a phase IIa clinical trial treating 10 Gaucher patients for 28 days. Enrollment of required patients
for this trial has been completed and we expect to report results by the end of 2014.
(3)
PRX-106, our oral antiTNF product candidate which is being developed
as an orally-administered treatment for immune mediated disorders using plant cells as a natural capsule for the expressed
protein. We are currently conducting preclinical studies on oral antiTNF for several attractive indications, and we expect to
initiate a phase I clinical trial of oral anti TNF for the oral treatment of autoimmune diseases around year end.
(4) PRX-110, a proprietary plant cell recombinant human Deoxyribonuclease
1 under development for the treatment of cystic fibrosis, to be administered by inhalation. We have already held a pre-IND meeting
with the FDA regarding this product candidate, and plan to file an IND with the FDA following the completion of toxicology studies
around year end, 2014.
Except
for the rights to commercialize taliglucerase alfa worldwide (other than Brazil and Israel), which we licensed to Pfizer, we hold
the worldwide commercialization rights to all of our proprietary development candidates.
We have built an internal marketing team designed to serve the Israeli and Brazilian market for taliglucerase alfa and we intend
to establish internal commercialization and marketing teams for our other product candidates in North America, the European Union
and in other significant markets, including Israel, subject to required marketing approvals, as the need arises. In addition,
we continuously evaluate potential strategic marketing partnerships as well as collaboration programs with biotechnology and pharmaceutical
companies and academic research institutes.
Critical Accounting Policies
Our significant accounting policies are more fully described
in Note 1 to our consolidated financial statements appearing in this Quarterly Report. There have not been any changes to
our significant accounting policies since the Annual Report on Form 10-K for the year ended December 31, 2013.
The discussion and analysis of our financial condition and
results of operations is based on our financial statements, which we prepared in accordance with U.S. generally accepted accounting
principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements,
as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate such estimates and
judgments, including those described in greater detail below. We base our estimates on historical experience and on various other
factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
Results of Operations
Three months ended September 30, 2014 compared to the
three months ended September 30, 2013
Revenues
We recorded revenues of $2.4 million during the three
months ended September 30, 2014, an increase of approximately $112,000, or 5%, compared to revenues of $2.3 million for
the three months ended September 30, 2013. Revenues for the three months ended September 30, 2014 included $1.3 million of sales
of ELEYSO in Israel. Revenues
also represent a pro rata amortization of the $65.0 million upfront and milestone payments of $1.1 million in each quarterly
period.
Our share in the Collaboration Agreement
We recorded revenue of $1.3 million as our share of net income
from the collaboration under the Pfizer Agreement during the three months ended September 30, 2014, compared to revenues of $1.1
million for the three months ended September 30, 2013. Our share in the collaboration agreement recorded during the three months
ended September 30, 2014 represents our 40% share of the net income generated during the period, which was primarily the result
of revenues generated by Pfizer in the United States which exceeded the expenses during such period. Under the terms and conditions
of the Pfizer Agreement, we record income or loss equal to 40% of the profit or loss realized from sales of taliglucerase alfa
and related expenses incurred based on reports we receive from Pfizer summarizing the results of the collaborative activities
under the Pfizer Agreement for the applicable period.
Cost of Revenues
Cost of revenues was $1.8 million for the three months ended
September 30, 2014, an increase of approximately $211,000, or 13%, compared to $1.6 million for the three months ended September
30, 2013. Cost of revenues for the three months ended September 30, 2014 and September 30, 2013 consists mainly certain fixed
costs relating to our manufacturing facility, including rent, depreciation, salary and maintenance expenses, and to a much lesser
extent, the direct cost of products we sold in Israel for which revenues were recognized during the period.
Research and Development Expenses, Net
Research and development expenses were $6.1 million for
the three months ended September 30, 2014, an increase of $468,000, or 8%, from $5.6 million for the three months ended September
30, 2013. The increase resulted primarily from an increase of $1.2 million in expenses related to subcontractors and consultants
in connection with preclinical and clinical activities, which was partially offset by a decrease of $399,000 in costs related
to materials and a decrease in $181,000 in salaries expenses.
We expect research and development expenses
for our various development programs to continue to be our primary expense.
Selling, General and Administrative Expenses
Selling, general and administrative expenses
were $2.0 million for the three months ended September 30, 2014, an increase of $232,000, or 13%, from $1.8 million
for the three months ended September 30, 2013. The increase resulted primarily from marketing expenses of approximately $539,000
which was partially offset by a decrease of approximately $385,000 in salaries expense.
Financial Expenses and Income
Financial expenses, net, was
$1.8 million for the three months ended September 30, 2014, compared to financial expense of $102,000 for the three months
ended September 30, 2013. Financial expenses resulted primarily from interest expense of 888,000 for the 4.5% convertible
note and as a result of the devaluation of the New Israeli Shekel against the U.S. dollar during the period in the amount of
$913,000, which was partially offset by financial income which resulted primarily from interest earned on short term deposits.
Nine months ended September 30, 2014 compared to the
nine months ended September 30, 2013
Revenues
We recorded revenues of $11.5 million during the nine
months ended September 30, 2014, an increase of $3.4 million, or 42%, compared to revenues of $8.1 million for the nine months
ended September 30, 2013. Revenues for the nine months ended September 30, 2014 include $3.8 million of products sold in Israel,
$3.5 million in Brazil and $1.4 million in connection with products we delivered at cost to Pfizer under the Pfizer Agreement.
Revenues also represent a pro rata amortization of the $65.0 million upfront and milestone payments of $1.1 million
in each quarterly period.
Our share in the Collaboration Agreement
We recorded revenue of $2.3 million as our share of net income
from the collaboration under the Pfizer Agreement during the nine months ended September 30, 2014 and September 30, 2013. Our
share in the collaboration agreement recorded during the nine months ended September 30, 2014 represents our 40% share of the
net income generated during the period, which was primarily the result of revenues generated by Pfizer in the United States which
exceeded the expenses during such period. Under the terms and conditions of the Pfizer Agreement, we record income or loss equal
to 40% of the profit or loss realized from sales of taliglucerase alfa and related expenses incurred based on reports we receive
from Pfizer summarizing the results of the collaborative activities under the Pfizer Agreement for the applicable period.
Cost of Revenues
Cost of revenues was $7.5 million for the nine months ended
September 30, 2014, an increase of $3.6 million, or 93%, compared to cost of revenues of $3.8 million for the nine months ended
September 30, 2013. Cost of revenues for the nine months ended September 30, 2014 consists of the costs of the $1.0 million of
products we delivered at cost to Pfizer under the Pfizer Agreement, write-down of inventory of $1.6 million, and certain fixed
costs relating to our manufacturing facility, including rent, depreciation, salary and maintenance expenses, and to a much lesser
extent, the direct cost of products we sold in Israel and Brazil for which revenues were recognized during the period.
Research and Development Expenses, Net
Research and development expenses were $17.1 million for
the nine months ended September 30, 2014 and $17.4 million for the nine months ended September 30, 2013.
We expect research and development expenses for our various
development programs to continue to be our primary expense.
Selling, General and Administrative Expenses
Selling, general and administrative expenses
were $7.3 million for the nine months ended September 30, 2014, an increase of $1.2 million, or 20%, from $6.1 million
for the nine months ended September 30, 2013. The increase resulted primarily from sales and marketing expenses of approximately
$1.8 million, primarily in connection with sales in Brazil, which was partially offset by a decrease of $491,000 in salaries expense.
Financial Expenses and Income
Financial expenses were $3.4 million for
the nine months ended September 30, 2014, compared to financial income of $63,000 for the nine months ended September
30, 2013. Financial expenses resulted primarily from interest expense of $2.7 million for the 4.5% convertible note and from
the devaluation of the New Israeli Shekel against the U.S. dollar in the amount of $800,000, which was partially offset by financial
income which resulted primarily from interest earned on short term deposits.
Liquidity and Capital Resources
Sources of Liquidity
As a result of our significant research and
development expenditures which supersedes our product sales revenue, we have not been profitable and have generated operating
losses since our inception with the exception of the quarter ended June 30, 2012 due to the $25.0 million milestone payment we
received from Pfizer in connection with FDA approval of taliglucerase alfa in that period. To date, we have funded our operations
primarily with proceeds equal to $31.3 million from the sale of shares of convertible preferred and ordinary shares of Protalix
Ltd., and an additional $14.1 million in connection with the exercise of warrants issued in connection with the sale of such
shares, through December 31, 2008. In addition, on October 25, 2007, we generated gross proceeds of $50 million in connection
with an underwritten public offering of our common stock and on each of March 23, 2011 and February 22, 2012, we generated gross
proceeds of $22.0 million and $27.2 million, respectively, in connection with underwritten public offerings of our common stock.
In addition to the foregoing, on September 18, 2013, we completed
a private placement of $69.0 million in aggregate principal amount of 4.50% convertible notes due 2018, or the Notes, including
$9.0 million aggregate principal amount of Notes related to the offering’s initial purchaser’s over-allotment option,
which was exercised in full.
In
November 2009, Pfizer paid Protalix Ltd. $60.0 million as an upfront payment in connection with the execution of the Pfizer Agreement
and subsequently paid to Protalix Ltd. an additional $5.0 million upon Protalix Ltd.’s meeting a certain milestone. Protalix
Ltd. also received a milestone payment of $25.0 in connection with the FDA’s approval of taliglucerase alfa in May 2012.
Protalix Ltd. is also entitled to payments equal to 40% of the net profits earned by Pfizer on its global sales of taliglucerase
alfa (except in Israel and Brazil). In calculating net profits there are certain agreed upon limits on the amounts that
may be deducted from gross sales for certain expenses and costs of goods sold. Pfizer has also paid Protalix Ltd. $8.3 million
in connection with the successful achievement of certain milestones under the Clinical Development Agreement between Pfizer and
Protalix Ltd.
We believe that the funds currently available
to us as are sufficient to satisfy our capital needs for the foreseeable future.
Cash Flows
Net cash used in operations was
$24.4 million for the nine months ended September 30, 2014. The net loss for the nine months ended September 30, 2014 of
$21.5 million was further increased by a decrease of $6.2 million in deferred revenues, and a decrease of $1.7 million in
accounts payable and accruals, but was partially offset by depreciation expense of $2.4 million and a decrease of $1.1
million in inventories. Net cash used in investing activities for the nine months ended September 30, 2014 was $832,000 and
consisted primarily of purchases of property and equipment.
Net cash used in operations
was $25.9 million for the nine months ended September 30, 2013. The net loss for the nine months ended September 30,
2013 of $16.9 million was further increased by a decrease of $5.4 million in deferred revenues, a decrease of $5.4 million
in accounts payable and accruals and an increase of $3.5 million in inventories, but was partially offset by share based
compensation of $3.5 million and $2.7 million in depreciation. Net cash used in investing activities for the nine months
ended September 30, 2013 was $1.8 million and consisted primarily of purchases of property and equipment. Net cash provided
by financing activities was $67.0 million, consisting primarily of net proceeds from our offering of 2018 4.5% convertible
notes.
Future Funding Requirements
We expect to continue to incur significant expenditures in
the near future. However, we anticipate that we will generate revenues to offset such losses as Pfizer’s commercialization
efforts for taliglucerase alfa in the United States and as our commercialization efforts for taliglucerase alfa in Brazil and
Israel progress, and as taliglucerase alfa is launched by Pfizer in other countries in which taliglucerase alfa was recently approved.
We also anticipate that we will generate additional revenues after additional anticipated marketing approvals of taliglucerase
alfa are granted in new countries. We expect to continue to incur significant research and development expenses, including expenses
related primarily to the clinical trials of PRX-102 and oral glucocerebrosidase and the advancement of PRX-106 and our other product
candidates into clinical trials.
We believe that our existing cash and cash
equivalents will be sufficient to enable us to fund our operating expenses and capital expenditure requirements for the foreseeable
future. We have based this estimate on assumptions that are subject to change and may prove to be wrong, and we may be required
to use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated
with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital
outlays and operating expenditures associated with our current and anticipated clinical trials.
Our future capital requirements will depend
on many factors, including the progress of Pfizer’s commercialization efforts for taliglucerase alfa in the United States
and other countries, the progress of our commercialization efforts for taliglucerase alfa in Brazil and Israel and, if anticipated
marketing approvals of taliglucerase alfa are granted in other jurisdictions, the progress of Pfizer’s global commercialization
efforts for taliglucerase alfa, the progress and results of our clinical trials, the duration and cost of discovery and preclinical
development and laboratory testing and clinical trials for our product candidates, the timing and outcome of regulatory review
of our product candidates, the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims
and other intellectual property rights, the number and development requirements of other product candidates that we pursue and
the costs of commercialization activities, including product marketing, sales and distribution.
We may need to finance our future cash needs
through public or private equity offerings, debt financings, corporate collaboration, licensing arrangements or through other
means. We currently do not have any commitments for future external funding. We may need to raise additional funds more quickly
if one or more of our assumptions prove to be incorrect or if we choose to expand our product development efforts more rapidly
than we presently anticipate. We may also decide to raise additional funds even before we need them if the conditions for raising
capital are favorable. Any sale of additional equity or debt securities will likely result in dilution to our shareholders. The
incurrence of indebtedness would result in increased fixed obligations and could also result in covenants that would restrict
our operations. Additional equity or debt financing, grants or corporate collaboration and licensing arrangements may not be available
on acceptable terms, if at all. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate
our research and development programs, reduce our planned commercialization efforts or obtain funds through arrangements with
collaborators or others that may require us to relinquish rights to certain product candidates that we might otherwise seek to
develop or commercialize independently.
Effects of Inflation and Currency Fluctuations
Inflation generally affects us by increasing
our cost of labor and clinical trial costs. We do not believe that inflation has had a material effect on our results of operations
during the nine and three months ended September 30, 2014 or the nine and three months ended September 30, 2013.
Currency fluctuations could affect us through
increased or decreased acquisition costs for certain goods and services. We do not believe currency fluctuations have had a material
effect on our results of operations during the nine and three months ended September 30, 2014 or the nine and three months ended
September 30, 2013.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements
as of each of September 30, 2014 and September 30, 2013.
Item 3. Quantitative and Qualitative
Disclosures About Market Risk
Currency Exchange Risk
The currency of the primary economic environment
in which our operations are conducted is the U.S. dollar. We consider the currency of the primary economic environment to be the
currency in which we generate revenues and expend cash. Most of our revenues are denominated in U.S. dollars, approximately 50%
of our expenses and capital expenditures are incurred in U.S. dollars, and a significant source of our financing has been provided
in U.S. dollars. Since the dollar is the functional currency, monetary items maintained in currencies other than the dollar are
remeasured using the rate of exchange in effect at the balance sheet dates and non-monetary items are remeasured at historical
exchange rates. Revenue and expense items are remeasured at the average rate of exchange in effect during the period in which
they occur. Foreign currency translation gains or losses are recognized in the statement of operations.
A portion of our costs, including salaries, expenses and office
expenses, are incurred in NIS. Inflation in Israel may have the effect of increasing the U.S. dollar cost of our operations in
Israel. If the U.S. dollar declines in value in relation to the NIS, it will become more expensive for us to fund our operations
in Israel. A revaluation of 1% of the NIS will affect our income before tax by less than 1%. The exchange rate of the U.S. dollar
to the NIS, based on exchange rates published by the Bank of Israel, was as follows:
| |
Nine months ended September 30, | | |
Year ended December 31, | |
| |
2014 | | |
2013 | | |
2013 | |
Average rate for period | |
| 3.491 | | |
| 3.639 | | |
| 3.611 | |
Rate at period end | |
| 3.695 | | |
| 3.537 | | |
| 3.471 | |
To date, we have not engaged in hedging transactions. In the
future, we may enter into currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange
rate of the U.S. dollar against the NIS. These measures, however, may not adequately protect us from material adverse effects
due to the impact of inflation in Israel.
Interest Rate Risk
Our exposure to market risk is confined to
our cash and cash equivalents. We consider all short term, highly liquid investments, which include short-term deposits with original
maturities of three months or less from the date of purchase, that are not restricted as to withdrawal or use and are readily
convertible to known amounts of cash, to be cash equivalents. The primary objective of our investment activities is to preserve
principal while maximizing the interest income we receive from our investments, without increasing risk. We invest any cash balances
primarily in bank deposits and investment grade interest-bearing instruments. We are exposed to market risks resulting from changes
in interest rates. We do not use derivative financial instruments to limit exposure to interest rate risk. Our interest gains
may decline in the future as a result of changes in the financial markets.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation of the
effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this
Quarterly Report on Form 10-Q. The controls evaluation was conducted under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer. Disclosure controls and procedures are controls and procedures
designed to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act, such as this
Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the Commission’s
rules and forms. Disclosure controls and procedures are also designed to reasonably assure that such information is accumulated
and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.
Based on the controls evaluation,
our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly
Report on Form 10-Q, our disclosure controls and procedures were effective to provide reasonable assurance that information required
to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified
by the Commission, and that material information relating to our company and our consolidated subsidiary is made known to management,
including the Chief Executive Officer and Chief Financial Officer, particularly during the period when our periodic reports are
being prepared.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief
Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control
over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated,
can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control
system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to
their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within
a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty
and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of
some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls
is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness
to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration
in the degree of compliance with policies or procedures.
Changes in internal controls
There were no changes to our internal controls over financial
reporting (as defined in Rules 13a-15f and 15d-15f under the Exchange Act) that occurred during the quarter ended September 30,
2014 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
PART II –
OTHER INFORMATION
Item 1. Legal Proceedings
We are not involved in any material legal
proceedings.
Item 1A. Risk Factors
There have been no material changes to the
risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013.
Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity
Securities
There were
no unregistered sales of equity securities during the three months ended September 30, 2014.
Item 3. Defaults
Upon Senior Securities
None.
Item 4. Mine Safety
Disclosure
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
|
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Incorporated by Reference |
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|
Exhibit
Number |
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Exhibit Description |
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Form |
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File
Number |
|
Exhibit |
|
Date |
|
Filed
Herewith |
3.1 |
|
Amended and Restated Articles of Incorporation of the
Company
|
|
S-4 |
|
333-48677 |
|
3.4 |
|
March 26, 1998 |
|
|
3.2 |
|
Article of Amendment to Articles of Incorporation dated
June 9, 2006
|
|
8-A
|
|
001-33357 |
|
3.2 |
|
March 9, 2007 |
|
|
3.3 |
|
Article of Amendment to Articles of Incorporation dated
December 13, 2006
|
|
8-A
|
|
001-33357 |
|
3.3 |
|
March 9, 2007 |
|
|
3.4 |
|
Article of Amendment to Articles of Incorporation dated
December 26, 2006
|
|
8-A
|
|
001-33357 |
|
3.4 |
|
March 9, 2007 |
|
|
3.5 |
|
Article of Amendment to Articles of Incorporation dated
February 26, 2007
|
|
8-A
|
|
001-33357 |
|
3.5 |
|
March 9, 2007 |
|
|
3.6 |
|
Amended and Restated Bylaws of the Company |
|
10-K |
|
001-33357 |
|
3.6 |
|
February 28, 2013
|
|
|
10.1 |
|
Employment Agreement with Moshe Manor dated September 28, 2014 |
|
8-K |
|
001-33357 |
|
10.1 |
|
September 29, 2014 |
|
|
31.1 |
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 |
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|
X |
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31.2 |
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Certification of Chief Financial Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 |
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|
X |
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32.1 |
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18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Certification of Chief Executive
Officer |
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X |
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32.2 |
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18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Certification of Chief Financial
Officer |
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|
X |
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101.INS |
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XBRL INSTANCE FILE |
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X |
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101.SCH |
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XBRL SHEMA FILE |
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X |
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101.CAL |
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XBRL CALCULATION FILE |
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X |
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101.DEF |
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XBRL DEFINITION FILE |
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X |
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101.LAB |
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XBRL LABEL FILE |
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X |
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101.PRE |
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XBRL PRESENTATION FILE |
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|
X |
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
PROTALIX BIOTHERAPEUTICS, INC. |
|
|
(Registrant)
|
Date: November 10, 2014 |
By: |
/s/ Moshe Manor |
|
|
Moshe Manor
President and Chief Executive Officer
(Principal Executive Officer) |
|
|
|
Date: November 10, 2014 |
By: |
/s/ Yossi Maimon |
|
|
Yossi Maimon
Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer) |
EXHIBIT 31.1
CERTIFICATION
I, Moshe Manor, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Protalix BioTherapeutics, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
Date: November 10, 2014 |
|
/s/ Moshe Manor |
Moshe Manor
President and Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION
I, Yossi Maimon, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Protalix BioTherapeutics, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
Date: November 10, 2014 |
|
/s/ Yossi Maimon |
Yossi Maimon
Chief Financial Officer, Treasurer |
EXHIBIT 32.1
PROTALIX BIOTHERAPEUTICS, INC.
CERTIFICATION
In connection with the quarterly report of Protalix BioTherapeutics,
Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2014 as filed with the Securities and Exchange
Commission (the “Report”), I, Moshe Manor, President and Chief Executive Officer of the Company, hereby certify as
of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best
of my knowledge:
(1) the Report fully complies with the requirements
of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly
presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods
indicated.
This Certification has not
been, and shall not be deemed, “filed” with the Securities and Exchange Commission.
Date: November 10, 2014 |
|
/s/ Moshe Manor |
Moshe Manor
President and Chief Executive Officer |
EXHIBIT 32.2
PROTALIX BIOTHERAPEUTICS, INC.
CERTIFICATION
In connection with the quarterly report of Protalix BioTherapeutics,
Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2014 as filed with the Securities and Exchange
Commission (the “Report”), I, Yossi Maimon, Vice President and Chief Financial Officer of the Company, hereby certify
as of the date hereof, solely for the purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the
best of my knowledge:
(1) the Report fully complies with the requirements
of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly
presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods
indicated.
This Certification has not
been, and shall not be deemed, “filed” with the Securities and Exchange Commission.
Date: November 10, 2014 |
|
/s/ Yossi Maimon |
Yossi Maimon
Vice President and Chief Financial
Officer |
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