Protalix BioTherapeutics, Inc. - Quarter Report: 2021 September (Form 10-Q)

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fFFAS

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-Q

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(Mark One)

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☒   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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For the quarterly period ended September 30, 2021

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OR

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☐   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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For the transition period from                          to                        

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001-33357

(Commission file number)

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PROTALIX BIOTHERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

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(201)-696-9345

(Registrant’s telephone number, including area code)

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N/A

(Former name, former address and former fiscal year, if changed since last report)

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Securities registered pursuant to Section 12(b) of the Act:

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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  ⌧  No  ◻

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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧  No  ◻

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐   No   ☒

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On November 1, 2021, approximately 45,556,647 shares of the Registrant’s common stock, $0.001 par value, were outstanding.

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FORM 10-Q

TABLE OF CONTENTS

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Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

PROTALIX BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands)

(Unaudited)

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The accompanying notes are an integral part of the condensed consolidated financial statements.

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PROTALIX BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(U.S. dollars in thousands, except share and per share data)

(Unaudited)

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The accompanying notes are an integral part of the condensed consolidated financial statements.

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PROTALIX BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

STOCKHOLDERS’ EQUITY (CAPITAL DEFICIENCY)

(U.S. dollars in thousands, except share data)

(Unaudited)

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*Represents an amount equal to less than $1.

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(1) Common stock, $0.001 par value; Authorized – as of September 30, 2021 and 2020 - 120,000,000 shares.

The accompanying notes are an integral part of the condensed consolidated financial statements.

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PROTALIX BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in thousands)

(Unaudited)

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The accompanying notes are an integral part of the condensed consolidated financial statements.

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PROTALIX BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in thousands)

(Unaudited)

(Continued) – 2

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As to extinguishment of convertible notes see Note 5.

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The accompanying notes are an integral part of the condensed consolidated financial statements.

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PROTALIX BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

Protalix BioTherapeutics, Inc. (collectively with its subsidiaries, the “Company”) and its wholly-owned subsidiaries, Protalix Ltd. and Protalix B.V. (collectively, the “Subsidiaries”), are biopharmaceutical companies focused on the development and commercialization of recombinant therapeutic proteins based on the Company’s proprietary ProCellEx^® protein expression system (“ProCellEx”). To date, the Company has successfully developed taliglucerase alfa (marketed under the name BioManguinhos alfataliglicerase in Brazil and certain other Latin American countries and Elelyso^® in the rest of the territories) for the treatment of Gaucher disease that has been approved for marketing in the United States, Brazil, Israel and other markets. The Company has a number of product candidates in varying stages of the clinical development process. The Company’s strategy is to develop proprietary recombinant proteins that are therapeutically superior to existing recombinant proteins currently marketed for the same indications.

On August 25, 2021, the Company completed exchanges (the “Exchanges”) of the Company’s outstanding 7.50% Senior Secured Convertible Notes due 2021 (the “2021 Notes”) with institutional note holders of a substantial majority of the 2021 Notes. The Exchanges involved the exchange of an aggregate of $54.65 million principal amount of the Company’s outstanding 2021 Notes for an aggregate of $28.75 million principal amount of newly issued 7.50% Senior Secured Convertible Notes due 2024 (the “2024 Notes”), $25.90 million in cash, and approximately $1.1 million in cash representing accrued and unpaid interest through the closing date. The initial conversion rate for the 2024 Notes is 563.2216 shares of Common Stock for each $1,000 principal amount of 2024 Notes (equivalent to an initial conversion price of approximately $1.7755 per share of the Common Stock), subject to adjustment in certain circumstances. This initial conversion price represents a premium of approximately 32.5% relative to the closing price of the Common Stock on the NYSE American on August 13, 2021.

The most advanced investigational drug in the Company’s product pipeline is pegunigalsidase alfa, or PRX-102, a therapeutic protein candidate for the treatment of Fabry disease, a rare, genetic lysosomal disorder, which is the subject of a phase III clinical program. The PRX-102 phase III clinical program includes three separate studies which are referred to as the BALANCE study, the BRIDGE study and the BRIGHT study. The studies are designed to evaluate the potential superiority of PRX-102 over current therapies in a head-to-head study and a switch-over study, evaluate the potential for improved efficacy and better quality of life for patients with Fabry disease and evaluate the safety of our drug/therapy. The BRIDGE and BRIGHT studies have been completed, and, in October 2021, the final dosing of the last patient in the BALANCE study was completed. See Part 1, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Pegunigalsidase Alfa (PRX-102) for the Treatment of Fabry Disease for details regarding the current status of these studies and of available clinical trial results.

On April 28, 2021, the Company, together with its development and commercialization partner for PRX-102, Chiesi Farmaceutici S.p.A. (“Chiesi”), announced that they received a Complete Response Letter (CRL) from the U.S. Food and Drug Administration (the “FDA”) regarding the biologics license application (“BLA”) for PRX-102 for the treatment of adult patients with Fabry disease. The PRX-102 was submitted to the FDA on May 27, 2020 under the FDA’s Accelerated Approval pathway, and was subsequently accepted by the FDA and granted Priority Review designation. The CRL did not report any concerns relating to the potential safety or efficacy of PRX-102 in the submitted data package. In the CRL, the FDA noted that an inspection of the Company’s manufacturing facility in Carmiel, Israel, including the FDA’s subsequent assessment of any related FDA findings, is required before the FDA can approve a resubmitted BLA. Due to travel restrictions, the FDA was unable to conduct the required inspection during the review cycle. The FDA explained in the letter that it will continue to monitor the public health situation as well as travel restrictions, and is actively working to define an approach for scheduling outstanding inspections. With respect to the third-party facility in Europe at which fill and finish processes are performed for PRX-102, due to the novel coronavirus disease (“COVID-19”), the FDA reviewed records under Section 704(a)(4) of the Federal Food, Drug, and Cosmetic Act (the “FFDCA”) in lieu of a pre-licensing inspection. In the CRL, the FDA stated that it will communicate remaining issues to the facility in order to seek prompt resolution of any pending items. In addition to the foregoing, in the CRL, the FDA noted that agalsidase beta (Fabrazyme^®), a therapy used to treat Fabry patients, was recently converted to full approval and is now an “available therapy,” which must be addressed in the context of any potential resubmission of a BLA for PRX-102.

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PROTALIX BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company and Chiesi participated in a Type A (End of Review) meeting with the FDA on September 9, 2021. As part of the meeting minutes provided by the FDA, which included the preliminary comments and meeting discussion, the FDA, in principle, agreed that the data package proposed to the FDA for a BLA resubmission has the potential to support a traditional approval of PRX-102 for the treatment of Fabry disease. The planned data package for the BLA resubmission, given the changed regulatory landscape in the United States, will include the final two-year analyses of the BALANCE study. The Company intends to continue to work collaboratively with the FDA to resolve the issues noted in the CRL and provide a new, alternative drug to Fabry patients.

Protalix and Chiesi also announced that a meeting was held with the Rapporteur and Co-Rapporteur of the European Medicines Agency (“EMA”) on October 8, 2021 regarding PRX-102. At the meeting, Chiesi and Protalix discussed the scope of the anticipated Marketing Authorization Application (“MAA”) submission for the European Union, and the Rapporteur and Co-Rapporteur were generally supportive of a planned MAA submission for PRX-102. This is an important step in the necessary pre-submission activities leading up to a MAA submission. Based on the interim analysis of the 12-month data generated from the BALANCE study that the Company announced in June 2021, and in combination with previously reported positive data from the BRIGHT and BRIDGE studies, the Company and Chiesi expect to submit an MAA to the EMA for PRX-102 during the first quarter of 2022.

In addition to PRX-102, the Company’s product pipeline currently includes, among other candidates:

Obtaining marketing approval with respect to any product candidate in any country is 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.

On July 2, 2021, the Company entered into an At The Market Offering Agreement (the “Sales Agreement”) with H.C. Wainwright & Co., LLC, as the Company’s sales agent (the “Agent”). Pursuant to the terms of the Sales Agreement, the Company may sell from time to time through the Agent shares of its common stock, par value $0.001 per share (the “Common Stock”), having an aggregate offering price of up to $20.0 million (the “ATM Shares”). Upon execution of the Sales Agreement, the Company terminated the ATM Equity Offering^SM Sales Agreement it had entered into on October 1, 2020 with BofA Securities, Inc. (“BofA Securities”). During the term of the sales agreement with BofA Securities, the Company sold a total of 3,296,123 shares of common stock for total gross proceeds of approximately $13.8 million.

On February 17, 2021, the Company issued and sold 8,749,999 shares of its Common Stock in an underwritten public offering raising gross proceeds of approximately $40.2 million at a price equal to $4.60 per share, before deducting the underwriting discount and estimated expenses of the offering. BofA Securities acted as book-running manager for the offering with Oppenheimer & Co. acting as co-manager.

On October 19, 2017, Protalix Ltd. and Chiesi entered into an Exclusive License and Supply Agreement (the “Chiesi Ex-US Agreement”) pursuant to which Protalix Ltd. granted to Chiesi an exclusive license for all markets outside of the United States to commercialize pegunigalsidase alfa. On July 23, 2018, Protalix Ltd. entered into an Exclusive License

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PROTALIX BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

and Supply Agreement with Chiesi (the “Chiesi US Agreement”) with respect to the commercialization of pegunigalsidase alfa in the United States.

Under each of the Chiesi Ex-US Agreement and the Chiesi US Agreement (collectively, the “Chiesi Agreements”), Chiesi made an upfront payment to Protalix Ltd. of $25.0 million in connection with the execution of each agreement. In addition, under the Chiesi Ex-US Agreement, Protalix Ltd. is entitled to additional payments of up to $25.0 million in pegunigalsidase alfa development costs, capped at $10.0 million per year, and to receive additional payments of up to $320.0 million, in the aggregate, in regulatory and commercial milestone payments. Under the Chiesi US Agreement, Protalix Ltd. is entitled to payments of up to a maximum of $20.0 million to cover development costs for pegunigalsidase alfa, subject to a maximum of $7.5 million per year, and to receive additional payments of up to a maximum of $760.0 million, in the aggregate, in regulatory and commercial milestone payments. To date, Protalix Ltd. has received the full amount of development costs to which it is entitled under the Chiesi Agreements.

Under the terms of both of the Chiesi Agreements, Protalix Ltd. will manufacture all of the pegunigalsidase alfa needed under the agreements, subject to certain exceptions, and Chiesi will purchase pegunigalsidase alfa from Protalix, subject to certain terms and conditions. Under the Chiesi Ex-US Agreement, Chiesi is required to make tiered payments of 15% to 35% of its net sales, depending on the amount of annual sales outside of the United States, as consideration for product supply. Under the Chiesi US Agreement, Chiesi is required to make tiered payments of 15% to 40% of its net sales, depending on the amount of annual sales in the United States, as consideration for product supply.

On May 13, 2021, the Company signed a binding term sheet with Chiesi pursuant to which the Company and Chiesi amended the Chiesi Agreements in order to provide the Company with near-term capital. Chiesi agreed to make a $10.0 million payment to the Company before the end of the second quarter in exchange for a $25.0 million reduction in a longer term regulatory milestone payment in the Chiesi EX-US Agreement. All other regulatory and commercial milestone payments remain unchanged. The Company received the payment in June 2021. The Company also agreed to negotiate certain manufacturing related matters.

Since its approval by the FDA, taliglucerase alfa has been marketed by Pfizer in accordance with the Pfizer Agreement. In October 2015, Protalix Ltd. and Pfizer entered into an amended exclusive license and supply agreement (the “Amended Pfizer Agreement”) pursuant to which the Company sold to Pfizer its share in the collaboration created under the Pfizer Agreement for the commercialization of Elelyso. As part of the sale, the Company agreed to transfer its rights to Elelyso in Israel to Pfizer while gaining full rights to it in Brazil. Under the Amended Pfizer Agreement, Pfizer is entitled to all of the revenues, and is responsible for 100% of expenses globally for Elelyso, excluding Brazil where the Company is responsible for all expenses and retains all revenues.

On June 18, 2013, the Company entered into a Supply and Technology Transfer Agreement (the “Brazil Agreement”) with Fundação Oswaldo Cruz (“Fiocruz”), an arm of the Brazilian Ministry of Health (the “Brazilian MoH”), for taliglucerase alfa. Fiocruz’s purchases of BioManguinhos alfataliglicerase to date have been significantly below certain agreed-upon purchase milestones and, accordingly, the Company has the right to terminate the Brazil Agreement. Notwithstanding the termination right, the Company is, at this time, continuing to supply BioManguinhos alfataliglicerase to Fiocruz under the Brazil Agreement, and patients continue to be treated with BioManguinhos alfataliglicerase in Brazil.

COVID-19, which was declared by the World Health Organization to be a global pandemic on March 11, 2020, has had numerous adverse effects on the global economy. To date, the Company’s clinical trials have not been adversely affected by COVID-19, although certain practices the Company has adopted in its offices and facilities in an effort to promote social distancing have resulted in minor delays in the performance of administrative activities outside of the clinical programs. We continue to face uncertainty as to the degree and duration of that impact going forward. The Company does not know the length of time that the pandemic and related disruptions will continue, the impact of governmental regulations or easement of regulations in response to the strengthening or weakening of the pandemic, or the degree of overall potentially permanent changes in consumer behavior that may be caused by the pandemic.

The Company believes that its cash and cash equivalents and bank deposits as of September 30, 2021 are sufficient to satisfy the Company’s capital needs for at least 12 months from the date that these financial statements are issued.

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PROTALIX BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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, 2020, filed by the Company with the U.S. Securities and Exchange Commission (the “Commission”). The comparative balance sheet at December 31, 2020 has been derived from the audited financial statements at that date. There have been no material changes in our significant accounting policies as described in our consolidated financial statements for the year ended December 31, 2020.

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 attributable to common stockholders outstanding for each period. The calculation of diluted LPS does not include 26,905,842 and 21,405,733 shares of Common Stock underlying outstanding options and shares of Common Stock issuable upon conversion of outstanding 2021 Notes and outstanding warrants for the three and nine months ended September 30, 2020, respectively, and 27,962,842 and 26,847,081 shares of Common Stock underlying outstanding options and shares of Common Stock issuable upon conversion of outstanding 2021 Notes, 2024 Notes and outstanding warrants for the three and nine months ended September 30, 2021, respectively, because their effect would be anti-dilutive.

The Company accounts for revenue pursuant to Accounting Standards Codification, Topic 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, a contract with a customer exists only when: the parties to the contract have approved it and are committed to perform their respective obligations, the Company can identify each party’s rights regarding the distinct goods or services to be transferred (“performance obligations”), the Company can determine the transaction price for the goods or services to be transferred, the contract has commercial substance and it is probable that the Company will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.

Revenues are recorded in the amount of consideration to which the Company expects to be entitled in exchange for performance obligations upon transfer of control to the customer.

The Company recognizes revenues from selling goods at a point in time when control over the product is transferred to customers (upon delivery).

The Company has identified two performance obligations in Chiesi agreements as follows: (1) the license and research and development services and (2) the contingent performance obligation regarding future manufacturing.

The Company determined that the license together with the research and development services should be combined into single performance obligation since Chiesi cannot benefit from the license without the research and development services. The research and development services are highly specialized and are dependent on the supply of the drug.

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PROTALIX BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The future manufacturing is contingent on regulatory approvals of the drug and the Company deems these services to be separately identifiable from other performance obligations in the contract. Manufacturing services post-regulatory approval are not interdependent or interrelated with the license and research and development services.

The transaction price was comprised of fixed consideration and variable consideration (capped research and development reimbursements). Under ASC 606, the consideration to which the Company would be entitled upon the achievement of contractual milestones, which are contingent upon the occurrence of future events, are a form of variable consideration. The Company estimates variable consideration using the most likely method. Amounts included in the transaction price are recognized only when it is probable that a significant reversal of cumulative revenues will not occur. Prior to recognizing revenue from variable consideration, the Company uses significant judgment to determine the probability of significant reversal of such revenue.

Since the customer benefits from the research and development services as the entity performs the service, revenue from granting the license and the research and development services is recognized over time using the cost-to-cost method. The Company used significant judgment when it determined the costs expected to be incurred upon satisfying the identified performance obligation.

Revenue from additional research and development services ordered by Chiesi is recognized over time using the cost-to-cost method.

Revenue from the research and development services is recognized over time using the cost-to-cost method since the customer benefits from the research and development services as the entity performs the service.

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NOTE 2 - INVENTORIES

Inventories at September 30, 2021 and December 31, 2020 consisted of the following:

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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.

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PROTALIX BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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.

As of September 30, 2021, the carrying amounts of short-term deposits approximate their fair values due to the stated interest rates, which approximate market rates.

Based on a Level 3 measurement, as of September 30, 2021, the fair value of the $3.27 million aggregate principal amount of the Company’s outstanding 2021 Notes is approximately $3.4 million and the fair value of the $28.75 million aggregate principal amount of the Company’s outstanding 2024 Notes is approximately $39.8 million.

The Company prepared a valuation of the fair value of the Company’s outstanding 2021 Notes and 2024 Notes (a Level 3 valuation) as of September 30, 2021. The value of these notes was estimated by implementing the binomial model. The liability component was valued based on the Income Approach. The following parameters were used:

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NOTE 4 – REVENUES

The following table summarizes the Company’s disaggregation of revenues:

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During the nine months ended September 30, 2021 and 2020, the Company recognized revenues of approximately $16.5 million and $31.4 million, respectively, from license and R&D services mainly in respect of the Chiesi Agreements, after taking into consideration change in estimate as detailed below. During the three months ended September 30, 2021 and 2020, the Company recognized revenues of approximately $6.5 million and $7.5 million, respectively, from license and R&D services mainly in respect of the Chiesi Agreements.

During the nine months ended September 30, 2021, and following the CRL received from the FDA, the Company changed its estimate for total costs expected to be incurred until satisfying the performance obligation under the Chiesi Agreements. This resulted in a reduction to accumulated revenues recognized in respect of this performance obligation in the amount of $4.1 million.

During the three months ended September 30, 2021, the Company completed its obligations under a feasibility study it entered into with Kirin Holdings Company, Limited (“Kirin”) on March 16, 2020, and the agreement expired, including the

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PROTALIX BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

option to provide additional services. Following the expiration of the option, the Company recognized as revenue during the three-month period ended September 30, 2021 the $1.0 million payment received in March 2020.

NOTE 5 – CONVERTIBLE NOTES

On August 25, 2021, the Company completed the Exchanges of a substantial majority of the Company’s outstanding 2021 Notes with certain institutional note holders. The Exchanges involved the exchange of an aggregate of $54.65 million principal amount of the Company’s outstanding 2021 Notes for an aggregate of $28.75 million principal amount of newly issued 2024 Notes, $25.90 million in cash, and approximately $1.1 million in cash representing accrued and unpaid interest through the issue date. The initial conversion rate for the 2024 Notes is 563.2216 shares of Common Stock for each $1,000 principal amount of 2024 Notes (equivalent to an initial conversion price of approximately $1.7755 per share of the Common Stock), subject to adjustment in certain circumstances, which is based on a 32.5% premium to the closing price of the Common Stock on the NYSE American at the close of trading on August 13, 2021, the exchange date.

The 2024 Notes were issued pursuant to an indenture entered into between the Company, the guarantors party thereto, The Bank of New York Mellon Trust Company, N.A., as trustee and Wilmington Savings Fund Society, FSB, as collateral agent. Interest on the Notes will be paid semi-annually at a rate of 7.50% per annum. The Notes will mature three years after the issuance thereof, unless earlier purchased, converted, exchanged or redeemed and are guaranteed by the Company’s subsidiaries. The 2024 Notes are secured by perfected liens on all of the assets of the Company and its subsidiaries.

Under the terms of the indentures governing each of the 2021 Notes and 2024 Notes, The Company is required to maintain a minimum cash balance of at least $7.5 million. In addition, under the exchange agreements the Company entered into with each of the institutional note holders that participated in the Exchanges (the “Exchange Agreements”), the Company agreed to maintain unrestricted cash of not less than $3.27 million, which is the amount necessary to redeem or repay at maturity all of the 2021 Notes that remain outstanding following the closing of the Exchanges.

For accounting purposes, as the terms of the 2021 Notes and the 2024 Notes are substantially different, the Exchanges are considered an extinguishment of debt. The Company allocated the fair value of the consideration transferred to the participating note holders between the 2021 Notes and their equity component based on the fair value of the liability component before the extinguishment, and the remainder was allocated to the equity component. As a result, the Company recognized a loss from extinguishment in the statement of operations equal to $0.8 million due to derecognition of the liability component of $54.8 million and the repurchase of the original equity component for $12.0 million.

All of the Company’s outstanding convertible notes are accounted for using the guidance set forth in the Financial Accounting Standards Board Accounting Standards Codification (ASC) 815 requiring that the Company determine whether the embedded conversion option must be separated and accounted for separately. ASC 470-20 regarding debt with conversion and other options requires the issuer of a convertible debt instrument that may be settled in cash upon conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s nonconvertible debt borrowing rate.

The Company accounted for the 2024 Notes as a liability (debt) and equity component (conversion option) as the convertible notes may be settled wholly or partly in cash, at the option of the Company, when converted. The equity component with respect to the cash conversion feature of approximately $12.0 million was recognized in the Company’s additional paid in capital.

Transaction costs in the amount of approximately $869,000 were allocated to the liability and equity component. The debt discount and debt issuance costs regarding the issuance of the 2024 Notes are deferred and amortized over the convertible notes period using the effective interest rate.

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PROTALIX BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company prepared a valuation of the fair value of the 2024 Notes and 2021 Notes (a Level 3 valuation) as of August 25, 2021. The value was estimated by implementing the binomial model. The liability component was valued based on the Income Approach. The following parameters were used:

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NOTE 6 – STOCK TRANSACTIONS

On July 25, 2021, the Company granted to a new employee, with the approval of the Company’s compensation committee, 10-year options to purchase 50,000 shares of Common Stock under the Company’s Amended and Restated 2006 Employee Stock Incentive Plan, as amended. The options have an exercise price equal to $1.57 per share and vest over a four-year period in 16 equal quarterly increments. The Company estimated the fair value of the options on the date of grant using the Black-Scholes option-pricing model to be approximately $55,000 based on the following weighted average assumptions: share price equal to $1.57; dividend yield of 0% for all years; expected volatility of 84.3%; risk-free interest rate of 0.88%; and expected life of six years.

NOTE 7 – SUBSEQUENT EVENTS

On October 13, 2021, the Company collected approximately $1.2 million from expense reimbursements in connection with its collaboration with Chiesi. On October 14, 2021, the Company collected approximately $1.1 million from sales to Pfizer and on October 15, 2021, the Company collected approximately $3.2 million from sales of alfataliglicerase to Fiocruz.

On November 9, 2021, the Company delivered the necessary funds under the indenture governing the 2021 Notes to effectively discharge the remaining outstanding 2021 Notes.

In accordance with ASC 855 “Subsequent Events” the Company evaluated subsequent events through the date the condensed consolidated financial statements were issued. The Company concluded that no other subsequent events have occurred that would require recognition or disclosure in the condensed consolidated financial statements.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
AND RISK FACTORS SUMMARY

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, 2020. 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 within the meanings of Section 27A of the Securities Act 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 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 as a result of several factors including those set forth under “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021.

Examples of the risks and uncertainties include, but are not limited to, the following:

●risks related to the timing and progress of the preparation of an updated BLA addressing the CRL for PRX-102;

●risks relating to our ability to manage our relationship with our collaborators, distributors or partners;

●risks relating to changes to interim, topline or preliminary data from clinical trials that we announce or publish;

●risks related to any transactions we may effect in the public or private equity markets to raise capital to finance future research and development activities, general and administrative expenses and working capital;

●risk of significant lawsuits, including stockholder litigation, which is common in the life sciences sector;

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●our dependence on performance by third-party providers of services and supplies;

●the impact of development of competing therapies and/or technologies by other companies;

●risks related to our supply of drug product to Pfizer;

●risks related to our expectations with respect to the potential commercial value of our product and product candidates;

●risks relating to the compliance by Fiocruz, an arm of the Brazilian MoH, with its purchase obligations under our supply and technology transfer agreement, which may have a material adverse effect on us and may also result in the termination of such agreement;

●potential product liability risks, and risks of securing adequate levels of related insurance coverage;

●the possibility of infringing a third-party’s patents or other intellectual property rights and the uncertainty of obtaining patents covering our products and processes and successfully enforcing our intellectual property rights against third-parties;

●risks relating to changes in healthcare laws, rules and regulations 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.

Recent Company Developments

We continue to actively advance all our clinical programs. We are in close contact with our principal investigators and clinical sites and our clinical research organizations, which are primarily located in the United States and Europe, and to date, our clinical trials have not been materially adversely affected by COVID-19. In light of recent developments relating to the COVID-19 pandemic, the focus of healthcare providers and hospitals on fighting the virus, and consistent with the FDA’s updated industry guidance for conducting clinical trials issued on March 18, 2020, we and our contract research organizations have made certain adjustments to the operation of our clinical trials in an effort to ensure the monitoring and safety of patients and minimize risk to trial integrity during the pandemic and generally, and we may need to make further adjustments in the future.

In response to the local spread of COVID-19 at the end of March 2020, and with local directives issued in response thereof, we restructured the work day within our facilities to consist of two shifts thereby reducing the number of employees present in the facilities at any time and facilitating their ability to practice social distancing. Employees that were able to work from home were instructed to do so. Such efforts resulted in minor delays in the performance of administrative activities outside of the clinical programs.

In June 2020, after local directives allowed more flexibility with respect to social interactions, we returned to a regular work day. Since then, as the pandemic’s effect locally continued to change, and local Israeli directives continued to evolve to address the changing effects, we returned temporarily to the two-shift work day schedule and to again encourage employees that are able to work from home to do so for parts of September 2020. Our facility currently operates on a regular schedule with adherence to local guidelines.

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We will continue to evaluate the impact of the COVID-19 pandemic and its variants on our business as we learn more and the impact of COVID-19 on our industry becomes more clear. We intend to continuously assess the impact of COVID-19 on our trials, expected timelines and costs.

ProCellEx: Our Proprietary Protein Expression System

Plant Cell Production Advantages

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Plant Cell in Suspension Expression System for Therapeutic Proteins Development and Industrial Production: Executive Summary

Product Pipeline

Pegunigalsidase Alfa (PRX-102) for the Treatment of Fabry Disease

PRX-102 is our lead product candidate and we expect it to be the primary subject of our development efforts in the short-term. It is our proprietary, investigational, plant cell culture expressed enzyme, and a chemically modified stabilized version of, the recombinant α-Galactosidase-A protein, a lysosomal enzyme, under development for the treatment of Fabry disease. Fabry disease is a serious life-threatening rare genetic disorder. Fabry patients lack α-galactosidase-A resulting in the progressive accumulation of abnormal deposits of a fatty substance called globotriaosylceramide, or Gb₃, in blood vessel walls throughout their body. The abnormal storage of Gb₃ increases with time and, as a result, Gb₃ accumulates, primarily in the blood and in the blood vessel walls. The accumulation leads to a narrowing of the blood vessels, which in turn leads to decreased blood flow and tissue nourishment. The ultimate consequences of Gb₃ deposition range from episodes of pain and impaired peripheral sensation to end-organ failure, particularly of the kidneys, but also of the heart and the cerebrovascular system. Fabry disease occurs in one person per 40,000 to 60,000 males. The global market for Fabry disease is forecasted to be approximately $1.9 billion in 2021 (Global Data) and to continue to grow at a CAGR of approximately 9.5% (Global Data).

A BLA for PRX-102 for the treatment of adult patients with Fabry disease was submitted to the FDA on May 27, 2020 under the FDA’s Accelerated Approval pathway, which was subsequently accepted by the FDA and granted Priority Review designation. The initial BLA submission included a comprehensive set of preclinical, clinical and manufacturing data compiled from our completed phase I/II clinical trial of PRX-102, including the related extension study succeeding our phase I/II clinical trial, interim clinical data

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from our phase III BRIDGE switch-over study and safety data from our on-going clinical studies of PRX-102 in patients receiving 1 mg/kg every other week.

On April 28, 2021, we, together with Chiesi, announced the receipt of a CRL from the FDA regarding the BLA. The CRL did not report any concerns relating to the potential safety or efficacy of PRX-102 in the submitted data package. In the CRL, the FDA noted that an inspection of Protalix’s manufacturing facility in Carmiel, Israel, including a subsequent assessment of any related FDA findings, is required before the FDA can approve a resubmitted BLA. Due to travel restrictions, the FDA was unable to conduct the required inspection during the review cycle. The FDA explained in the letter that it will continue to monitor the public health situation as well as travel restrictions, and is actively working to define an approach for scheduling outstanding inspections. With respect to the third-party facility in Europe at which fill and finish processes are performed for PRX-102, due to COVID-19, the FDA reviewed records under Section 704(a)(4) of the FFDCA in lieu of a pre-licensing inspection. In the CRL, the FDA stated that it will communicate remaining issues to the facility in order to seek prompt resolution of any pending items. In addition to the foregoing, in the CRL, the FDA noted that Fabrazyme, a therapy used to treat Fabry patients, was recently converted to full approval and is now an “available therapy,” which must be addressed in the context of any potential resubmission of a BLA for PRX-102.

We and Chiesi participated in a Type A (End of Review) meeting with the FDA on September 9, 2021 to discuss the FDA’s requirements for a BLA resubmission. As part of the meeting minutes provided by the FDA, which included the preliminary comments and meeting discussion, the FDA, in principle, agreed that the clinical data package proposed to the FDA for a BLA resubmission has the potential to support a traditional approval of PRX-102 for the treatment of Fabry disease. The planned data package for the BLA resubmission, given the changed regulatory landscape in the United States, will include the final two-year analyses of the BALANCE study. We intend to continue to work collaboratively with the FDA resolve the issues noted in the CRL and provide a new, alternative drug to Fabry patients.

In addition, we and Chiesi also held a meeting with the Rapporteur and Co-Rapporteur of the EMA on October 8, 2021 regarding the submission plans for an MAA with the EMA. At the meeting, we and Chiesi discussed the scope of the anticipated MAA for the European Union, and the Rapporteur and Co-Rapporteur were generally supportive of a planned MAA submission for PRX-102. This is an important step in the necessary pre-submission activities leading up to a planned MAA submission. Based on the interim analysis of the 12-month data generated from the BALANCE study that we announced in June 2021, and in combination with previously reported positive data from the BRIGHT and BRIDGE studies, we and Chiesi expect to submit an MAA to the EMA for PRX-102 during the first quarter of 2022.

In December 2017, the European Commission granted Orphan Drug Designation for PRX-102 for the treatment of Fabry disease. Orphan Drug Designation for PRX-102 qualifies Chiesi for access to a centralized marketing authorization procedure, including applications for inspections and for protocol assistance. If the orphan drug designation is maintained at the time PRX-102 is approved for marketing in the European Union, if at all, we expect that PRX-102 will benefit from 10 years of market exclusivity within the European Union. The market exclusivity will not have any effect on Fabry disease treatments already approved at that time.

In January 2018, the FDA granted Fast Track designation to PRX-102. Fast Track designation is a process designed to facilitate the development and expedite the review of drugs and vaccines for serious conditions that fill an unmet medical need.

Key Trials and Design

Our phase III clinical program of PRX-102 for the treatment of Fabry disease includes three individual studies; the BALANCE study, the BRIDGE study and the BRIGHT study. Enrollment has been completed in all three studies, and the final dosing of the last patient in the BALANCE study took place in October 2021. In 2015, we completed a phase I/II clinical trial of PRX-102. In the phase III clinical program, we are studying two alternative doses and regimens for PRX-102; 1 mg/kg every two weeks, with the potential for improved efficacy and safety offering a potential alternative to existing enzyme replacement therapies, and 2 mg/kg every four weeks, which has the potential to lower treatment burden versus existing treatments and potentially provide a better quality of life for a subset of Fabry patients. Final results from the BRIDGE study were released in December 2020 and topline results from the BRIGHT study were released in February 2021. Interim one-year data from the BALANCE study was released in June 2021.

Patients that completed the phase I/II clinical trial were offered, and patients that complete the BALANCE, BRIDGE and BRIGHT studies are offered, the opportunity to continue PRX-102 treatment as part of a long-term open-label extension study. Currently, 106 subjects that participated in the our PRX-102 clinical program have opted, with the advice of the treating physician, to continue PRX-102 treatment in one of our long-term extension studies; 10 subjects that completed an extension study from the phase I/II clinical trial, 18 subjects that completed the BRIDGE study; 69 subjects that completed the BALANCE study; and 29 subjects that

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completed the BRIGHT study. Of the 29 subjects that completed the BRIGHT study that are enrolled in a long-term extension study, 27 of them are being treated with 2 mg/kg of PRX-102 every 4 weeks and two are being treated with 1 mg/kg every two weeks.

In February 2020, we, together with Chiesi, announced an agreement with the FDA for the Initial Pediatric Study Plan (iPSP) for PRX-102. The joint announcement was made after completion of discussions with the FDA and receipt of confirmation from the FDA in an official “Agreement Letter” which outlines an agreed-upon approach to evaluate the safety and efficacy of PRX-102 in pediatric Fabry patients in a clinical trial to be performed by Chiesi with our collaborative efforts.

Phase III BALANCE Study

The BALANCE study is a 24-month, randomized, double blind, active control study of PRX-102 in Fabry patients with impaired renal function. We have completed enrollment of 78 patients in the trial, which is designed to evaluate the safety and efficacy of PRX-102 compared to agalsidase beta (Fabrazyme) on renal function in Fabry patients with progressing kidney disease previously treated with Fabrazyme infused once every two weeks. On October 15, 2021, we announced the last dosing of the last patient in the BALANCE study. Patients previously treated with Fabrazyme for approximately one year and on a stable dose for at least six months were screened and then randomized on a 2:1 ratio to 1 mg/kg of PRX-102 or 1 mg/kg of Fabrazyme. Randomization is being stratified by urinary protein to creatinine ratio (UPCR) of < or ≥ 1 g/g by spot urine sample. The study was designed such that no more than 50% of the patients enrolled in the study would be female. Approximately 40% of the enrolled patients were female.

The primary endpoint of the BALANCE study is the comparison in the annualized rate of decline of eGFR slope between Fabrazyme and PRX-102. eGFR is considered a reliable and accepted test to measure the level of kidney function and stage of kidney disease. Additional parameters being evaluated include: cardiac assessment, Lyso-Gb₃ (a biomarker for monitoring Fabry patients during therapy), pain, quality of life, immunogenicity, Fabry clinical events and pharmacokinetic and other parameters.

In June 2021, we, together with Chiesi, announced topline results from an interim analysis of the BALANCE study. The primary endpoint of the interim analysis is the comparison of mean annualized changes (slope) of the eGFR_(CKD-EPI) after completion of at least 12 months of treatment between the two treatment arms (Fabrazyme and PRX-102). The interim efficacy analysis was conducted on two pre-defined analysis sets: Intention to Treat (ITT), consisting of all randomized patients who received at least one dose (77 patients), considered as the primary analysis for this interim review; and the Per Protocol (PP), consisting of all patients who completed at least 12 months of treatment with no major protocol violations (74 patients). The patient population (ITT analysis set) of the study is comprised of 47 males (61%) and 30 females (39%) with a mean age of 44.3 years.

The initial top-line results show that the lower boundary of the confidence interval for the mean difference between the two treatments was below the non-inferiority margin pre-specified for this interim analysis in the ITT analysis set and above such limit in the PP analysis set. At the time of this analysis, two patients discontinued participation due to treatment emergent adverse events (TEAEs). Of these two patients, one discontinued participation due to a related adverse event. No deaths were registered. Overall, safety data appears favorable and consistent with what was observed in previous clinical studies with PRX-102. Unblinded final data is anticipated to be released in the second quarter of 2022 after all remaining patients have completed the 24-month treatment period.

The planned data package for the BLA resubmission, given the changed regulatory landscape in the United States, will include the final two-year analyses of the BALANCE study.

Phase III BRIDGE Study

The BRIDGE study was a 12-month open-label, single arm switch-over study evaluating the safety and efficacy of pegunigalsidase alfa, 1 mg/kg infused every two weeks, in up to 22 Fabry patients. The trial, which is was completed in December 2019, enrolled patients then being treated with agalsidase alfa, marketed by Takeda Pharmaceutical Company Limited (acquired Shire Plc) as Replagal^®, for at least two years and on a stable dose for at least six months. Patients were screened and evaluated over three months while continuing Replagal treatment. Following the screening period, each patient was enrolled and switched from Replagal treatment to receive intravenous (IV) infusions of PRX-102 1 mg/kg every two weeks for 12 months.

Final results of the data generated in the BRIDGE study showed substantial improvement in renal function as measured by mean annualized estimated Glomerular Filtration Rate, or eGFR, slope in both male and female patients who were switched from agalsidase alfa to PRX-102. Twenty of 22 patients completed the 12-month treatment duration. Eighteen of the patients who completed the study opted to roll over to a long-term extension study and continue to be treated with PRX-102. In the study, the mean annualized eGFR slope of the study participants improved from -5.90 mL/min/1.73m²/year while on agalsidase alfa to -1.19 mL/min/1.73m²/year on PRX-102 in all patients. Male patients improved from -6.36 mL/min/1.73m²/year to -1.73 mL/min/1.73m²/year and female patients improved from -5.03 mL/min/1.73m²/year to -0.21 mL/min/1.73m²/year. Following

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the switch to PRX-102, there was a decrease in patients with progressing or fast progressing kidney disease, and most patients achieved a stable status post-switch.

PRX-102 was well-tolerated in the BRIDGE study, with all adverse events being transient in nature without sequelae. Of the 22 patients enrolled in the BRIDGE study, the majority of treatment emergent adverse events were mild or moderate in severity, with two patients (9.1%) withdrawing from the therapy due to hypersensitivity reaction that was resolved. The most common moderate treatment emergent adverse events were nasopharyngitis, headache and dyspnea.

An immunogenicity assessment indicated that four out of 20 patients (20%) developed persistent antidrug antibodies over the course of the study, of which two had neutralizing activity.

Baseline characteristics of the 20 patients that completed the study, ranging from ages 28 to 60 years, were as follows: mean eGFR 75.87 mL/min/1.73m² in males, and 86.14 mL/min/1.73m² in females and plasma lyso-Gb₃ were 51.81 nM and 13.81 nM in males and females, respectively. While lyso-Gb₃ levels remain slightly high, particularly within the male cohort, continuous reduction in lyso-Gb₃ levels was observed of 19.55 nM (32.35%) in males and 4.57 nM (29.81%) in females.

Data from the interim analysis of the BRIDGE study, which were first announced in February 2020, were used to support the PRX-102 BLA filing with the FDA, and we anticipate that the final analysis will be used to support the planned MAA submission to the EMA and the BLA resubmission.

Phase III BRIGHT Study

The BRIGHT study was a 12-month, open-label, switch-over study designed to evaluate the safety, efficacy and pharmacokinetics of PRX-102 via IV infusions of 2 mg/kg administered every 4 weeks. The trial, which was completed in June 2020, enrolled up to 30 patients with Fabry disease previously treated with a commercially available ERT (Fabrazyme or Replagal), for at least three years and on a stable dose administered every two weeks. To determine eligibility for participation in the study, candidates were screened to identify and select Fabry patients with stable kidney disease. Patients who matched the criteria were enrolled in the study and switched from their current treatment of IV infusions every 2 weeks to 2 mg/kg of PRX-102 every 4 weeks for 12 months. Patients participating in the study were evaluated, among other disease parameters, to determine if their kidney disease had not further deteriorated while being treated with the 4-week dosing regimen as measured by eGFR and Lyso-Gb₃, as well as other parameters. In addition, participating patients were evaluated to assess the safety and tolerability of PRX-102.

We announced topline results from the BRIGHT study in February 2021. The topline results indicate that 2 mg/kg of PRX-102 administered by intravenous infusion every four weeks was found to be well tolerated among treated patients, and stable clinical presentation was maintained in adult Fabry patients. No new patients developed treatment-induced anti-drug antibodies, or ADA, following the switch to PRX-102 treatment.

The BRIGHT study enrolled 24 adult males and 6 adult females. The most common Fabry disease symptoms were acroparesthesia, heat intolerance, angiokeratomas and hypohydrosis. All 30 patients received at least one dose of PRX-102, and 29 patients (mean [SD] age was 40.5 [11.3] years, ranging from 19 to 58 years) completed the 12-month study. Of these 29 patients, 28 received the intended regimen of 2 mg/kg every four weeks throughout the study, while one patient was switched to PRX-102 1 mg/kg every two weeks per protocol. One patient withdrew from the study after the first infusion due to a traffic accident.

Following screening, patients were enrolled and switched from their then current ERT to IV infusions of 2 mg/kg of PRX-102 every four weeks for 52 weeks (a total of 14 infusions). First infusions of PRX-102 were administered under controlled conditions at the investigation site. Based on the protocol-specified criteria, patients were able to receive their PRX-102 infusions at a home care setup once the Investigator and Sponsor Medical Monitor agreed that it was safe to do so. Safety and efficacy exploratory endpoints were assessed throughout the 52-week study.

Study outcome measures showed plasma lyso-Gb₃ concentrations remained stable during the study with a mean change of 3.01 nM from baseline (19.36 nM) to Week 52 (22.23 nM). Mean absolute change of eGFR values were stable during the 52-week treatment period, with a mean change from baseline of -1.27 mL/min/1.73m².

Following a survey of participants using the Quality of Life EQ-5D-5L questionnaire, responses indicate that patient perception of their own health remained high and stable throughout the 52-week study duration, with overall health mean (SE) scores of 78.3 (3.1) and 82.1 (2.9) at baseline and Week 52, respectively, in a 0 to 100 scale. Using the short-form Brief Pain Inventory, or BPI, questionnaire, approximately 75% of study participants had an improvement or no change in average pain severity at Week 52 (compared to baseline). The short-form BPI interference items also remained stable during the study. Pain-related results indicate that there was no increase and/or relapse in pain. No Fabry clinical events were reported during the study.

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COVID-19 Impact on PRX-102 Clinical Trials

To date, the COVID-19 pandemic has had a minimal effect on the performance of the phase III clinical trials of PRX-102 as many of the patients were already treated in home care settings. In a minimal amount of cases, patients that completed a trial were not able to be transferred into an extension study due to the pandemic restrictions, and, accordingly, the main trial was prolonged for the patients to permit the continuation of treatment.

Phase I/II Study

Our phase I/II clinical trial of PRX-102, which we completed in 2015, was a worldwide, multi-center, open-label, dose ranging study designed to evaluate the safety, tolerability, pharmacokinetics, immunogenicity and efficacy parameters of PRX-102 in adult Fabry patients. Sixteen adult, naïve Fabry patients (9 male and 7 female) completed the trial, each in one of three dosing groups, 0.2 mg/kg, 1 mg/kg and 2 mg/kg. Each patient received IV infusions of PRX-102 every two weeks for 12 weeks, with efficacy follow-up after six-month and twelve-month periods. A majority of the patients who completed the trial opted to continue receiving PRX-102 in an open-label, 60-month extension study under which all patients were switched to receive 1 mg/kg of the drug, the selected dose for our BALANCE and BRIDGE studies of PRX-102.

The adult symptomatic, ERT-naïve Fabry disease patients enrolled in the phase I/II study were evaluated for Gb₃ levels in kidney biopsies and for plasma Lyso-Gb₃ concentration by the quantitative BLISS methodology. Biopsies were available from 14 patients. The outcome of ≥ 50% reduction in the average number of Gb₃ inclusions per kidney PTC from baseline to Month 6 was demonstrated in 11 of 14 (78.6%) of the patients treated with PRX-102. The overall results demonstrate that PRX-102 reaches the affected tissue and reduces kidney Gb₃ inclusions burden and Lyso-Gb₃ in the circulation. A high correlation was found between the two Fabry disease biomarkers, reduction of kidney Gb₃ inclusions and the reduction of plasma Lyso-Gb₃ over six months of treatment.

Data was recorded at 24 months from 11 patients who completed 12 months of the long-term open-label extension trial that succeeded the phase I/II study. Patients who did not continue in the extension trial included: female patients who became or planned to become pregnant and therefore were unable to continue in accordance with the study protocol; and patients who relocated to a location where treatment was not available under the clinical study.

Results show that Lyso-Gb₃ levels decreased approximately 90% from baseline. Renal function remained stable with mean eGRF levels of 108.02 and 107.20 at baseline and 24 months, respectively, with a modest annual eGFR slope of -2.1. An improvement across all the gastrointestinal symptoms evaluated, including severity and frequency of abdominal pain and frequency of diarrhea, was noted. Cardiac parameters, including LVM, LVMI and EF, remained stable with no cardiac fibrosis development detected. In conclusion, an improvement of over 40% in disease severity was shown as measured by the Mainz Severity Score Index, or MSSI, a score compiling the different elements of the disease severity including neurological, renal and cardiovascular parameters. In addition, an improvement was noted in each of the individual parameters of the MSSI.

The majority of adverse events were mild-to-moderate in severity, and transient in nature. During the first 12 months of treatment, only three of 16 patients (less than 19%) formed anti-drug antibodies (ADA), of which two of these patients (less than 13%) had neutralizing antibodies. Importantly, however, the ADAs turned negative for all three of these patients following 12 months of treatment. The ADA positivity effect had no observed impact on the safety, efficacy or continuous biomarker reduction of PRX-102.

Commercialization Agreements with Chiesi Farmaceutici

We have entered into two exclusive global licensing and supply agreements for PRX-102 for the treatment of Fabry disease with Chiesi. The agreements have significant revenue potential for Protalix. Under the agreements, Protalix Ltd. has received $50.0 million in upfront payments and was entitled to development cost reimbursements of up to $45.0 million, up to more than $1.0 billion in potential milestone payments and tiered royalties of 15% - 35% (ex-US) and 15% - 40% (US). To date, Protalix Ltd. has received the complete amount of development costs to which it is entitled under the two Agreements.

On October 19, 2017, Protalix Ltd. and Chiesi entered into the Chiesi Ex-US Agreement pursuant to which Chiesi was granted an exclusive license for all markets outside of the United States to commercialize PRX-102. Under the Chiesi Ex-US Agreement, Chiesi made an upfront payment to Protalix Ltd. of $25.0 million in connection with the execution of the agreement, and Protalix Ltd. was entitled to additional payments of up to $25.0 million in development costs in the aggregate, capped at $10.0 million per year. Protalix Ltd. is also eligible to receive additional payments of up to a maximum of $320.0 million in regulatory and commercial milestone payments. Protalix Ltd. agreed to manufacture all of the PRX-102 needed for all purposes under the agreement, subject to certain exceptions, and Chiesi will purchase PRX-102 from Protalix Ltd., subject to certain terms and conditions. Chiesi is required to make tiered payments of 15% to 35% of its net sales, depending on the amount of annual sales, as consideration for the supply of PRX-102.

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On July 23, 2018, Protalix Ltd. entered into the Chiesi US Agreement with respect to the development and commercialization of PRX-102 in the United States. Protalix Ltd. received an upfront, non-refundable, non-creditable payment of $25.0 million from Chiesi and was entitled to additional payments of up to a maximum of $20.0 million to cover development costs for PRX-102, subject to a maximum of $7.5 million per year. Protalix Ltd. is also eligible to receive additional payments of up to a maximum of $760.0 million, in the aggregate, in regulatory and commercial milestone payments. Chiesi is also required to make tiered payments of 15% to 40% of its net sales under the Chiesi US Agreement to Protalix Ltd., depending on the amount of annual sales, subject to certain terms and conditions, as consideration for product supply.

On May 13, 2021, we signed a binding term sheet with Chiesi pursuant to which we amended the Chiesi Agreements in order to provide us with near-term capital. Chiesi agreed to make a $10.0 million milestone payment to us before the end of the second quarter in exchange for a $25.0 million reduction in a longer term regulatory milestone payment in the Chiesi EX-US Agreement. All other regulatory and commercial milestone payments remain unchanged. We also agreed to negotiate certain manufacturing related matters.

Elelyso^® for the Treatment of Gaucher Disease

Elelyso (taliglucerase alfa), our first commercial product, was approved by the FDA in 2012 for injection as an enzyme replacement therapy (ERT) for the long-term treatment of adult patients with a confirmed diagnosis of type 1 Gaucher disease. In August 2014, the FDA approved Elelyso for injection for pediatric patients. Elelyso is the first plant cell derived recombinant protein to be approved by the FDA for the treatment of Gaucher disease and is now approved in over 20 markets.

Gaucher disease, also known as glucocerebrosidase, or GCD, deficiency, is a rare genetic autosomal recessive disorder and one of the most common Lysosomal Storage Disorders, or LSDs, in the world. It is one of a group of disorders that affect specific enzymes that normally break down fatty substances for reuse in the cells. If the enzymes are missing or do not work properly, the substances can build up and become toxic. Gaucher disease occurs when a lipid called glucosylceramide accumulates in the cells of the bone marrow, lungs, spleen and liver, and sometimes the brain. Gaucher disease symptoms can include fatigue, anemia, easy bruising and bleeding, severe bone pain and easily broken bones, and distended stomach due to an enlarged spleen and thrombocytopenia. Epidemiology of Gaucher disease varies; recent literature provides that prevalence of Gaucher disease ranges from 0.70 to 1.75 per 100,000 in the general population. In people of Ashkenazi Jewish heritage, estimates of occurrence vary from approximately 1 in 400 to 1 in 850 people.

Gaucher disease is a $1.5 billion global annual therapeutic market that includes Sanofi’s Cerezyme^®, Shire’s (acquired by Takeda Pharmaceutical Company Limited) Vpriv^® and Sanofi’s Cerdelga^®.

Commercialization Agreements for Elelyso

We have licensed to Pfizer the global rights to Elelyso in all markets excluding Brazil. Pfizer retains 100% of revenue and reimburses 100% of direct costs. We manufacture drug substance for Pfizer, subject to certain terms and conditions.

For the first 10-year period after the execution of our Amended Pfizer Agreement, we have agreed to sell drug substance to Pfizer for the production of Elelyso, and Pfizer maintains the right to extend the supply period for up to two additional 30-month periods subject to certain terms and conditions. In a subsequent amendment, we agreed that after the completion of the first 10-year supply period, the supply term would automatically extend for a five-year period.

We maintain distribution rights to Elelyso in Brazil (marketed in Brazil as BioManguinhos alfataliglicerase) through a supply and technology transfer agreement with Fiocruz, an arm of the Brazilian MoH. In 2020, we generated $8.0 million from sales of BioManguinhos alfataliglicerase to the Brazilian MoH.

Alidornase Alfa (PRX-110)

Alidornase alfa is our chemically-modified plant cell expressed recombinant human DNase I, administered via inhalation. Recombinant human DNase I enzymatically cleaves DNA but its activity is inhibited by actin, which is present in the blood and other target organs. PRX-110 is designed to be less susceptible to actin inhibition and have higher affinity to DNA, thus enhancing enzymatic activity. In-vitro studies have shown PRX-110 to have a highly improved catalytic efficiency and affinity to DNA, compared to dornase alfa (Pulmozyme^®, currently the only commercially available DNase therapy), even more so in the presence of actin. In February 2021, we entered into an exclusive worldwide license agreement with SarcoMed with respect to PRX-110 for use in the treatment of any human respiratory disease or condition including, but not limited to, sarcoidosis, pulmonary fibrosis, and other related diseases via inhaled delivery. The license agreement expired during the three months ended September 30, 2021. We are continuing to evaluate potential strategic marketing partnerships and collaboration programs with biotechnology and pharmaceutical companies for this product candidate for various respiratory indications.

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PRX-115

PRX-115 is our plant cell-expressed recombinant PEGylated uricase (urate oxidase) – a chemically modified enzyme under development for the potential treatment of refractory gout. Gout is the most common inflammatory arthritis in the United States, affecting an estimated 9.2 million adults. Gout is caused by factors that elevate serum uric acid, or sUA, levels, which may include diet or genetic predisposition and environmental factors leading to hyperuricemia and tissue deposition of monosodium urate crystals, tophi, in joints and soft tissues, causing acute and chronic inflammation, and is characterized by recurrent flares. Gout flares lead to substantial morbidity by causing severe pain, reduced quality of life, decreased physical function, increased healthcare costs, and lost economic productivity. Furthermore, gout is strongly associated with metabolic syndrome, and may contribute to myocardial infarction, type 2 diabetes mellitus, chronic kidney disease, or CKD, and premature mortality.

Currently available urate-lowering therapies, or ULTs, can be effective in treating gout. Refractory gout patients are those whom, despite treatment with existing ULTs, have high flare frequency, consistent tophi, and the inability to maintain therapeutic goals of urate levels. An estimated approximately 2% of the gout population is considered to have chronic refractory disease and are in need of other therapeutic options. One option may be a therapeutic use of the uricase enzyme which converts uric acid to allantoin, which is easily eliminated through urine. The uricase enzyme does not exist naturally in humans. To date, two variants of recombinant uricases are approved for marketing: (i) Krystexxa^® for treatment of chronic gout refractory to conventional therapy (no longer approved in the European Union) and (ii) Elitek^®, indicated for the treatment of tumor lysis syndrome but not gout. Both have a black box warning for anaphylaxis, induce strong immunogenic reactions and have other major side-effects. We use ProCellEx to express an optimized recombinant uricase enzyme under development for the potential treatment of refractory gout which we are designing to have an improved half-life, reduced immunogenicity and potentially longer term efficacy.

PRX-119

PRX-119 is our plant cell-expressed PEGylated recombinant human DNase I product candidate being designed to elongate half-life in the circulation for NETs-related diseases. NETs, Neutrophil extracellular traps, are web-like structures, released by activated neutrophils that trap and kill a variety of microorganisms. NETs are composed of DNA, histones, antimicrobial and pro-inflammatory proteins. Excessive formation or ineffective clearance of NETs can cause different pathological effects. NETs formation has been observed in various autoimmune, inflammatory and fibrotic conditions, diverse forms of thrombosis, cancer and metastasis. According to scientific literature, animal studies have demonstrated that DNase treatment reduces NETs toxicity. Our proprietary modified DNase I design for long and customized systemically circulating in the bloodstream, may potentially enable effective treatment of acute and chronic conditions.

Intellectual Property

A key element of our overall strategy is to establish a broad portfolio of patents to protect our proprietary technology, proprietary product and product candidates and their methods of use. As of September 30, 2021, we hold a broad portfolio of over 90 patents in Europe, the United States, Israel and additional countries worldwide, as well as over 30 pending patent applications.

Research & Development

We continuously work on the further development of our ProCellEx plant cell expression technology and bioreactor system. In addition, we are working on the development of new products, each in different initial stages of development, for specific products for which there are unmet needs in terms of efficacy and safety. Our development strategy focuses on the utilization of different modification approaches and development improvements, customized for each protein product, in all stages of expression and development.

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 been no material changes to our critical accounting policies since we filed our Annual Report on Form 10-K for the year ended December 31, 2020.

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

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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.

The full extent to which the COVID-19 pandemic will directly or indirectly impact our financial condition, liquidity, or results of operations will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and its variants and the actions taken to contain or treat COVID-19 and its variants, as well as the economic impact on local, regional, national and international customers and markets.

Results of Operations

Three months ended September 30, 2021 compared to the three months ended September 30, 2020

Revenues from Selling Goods

We recorded revenues from selling goods of $4.5 million during the three months ended September 30, 2021, an increase of $1.2 million, or 36%, compared to revenues of $3.3 million for the three months ended September 30, 2020. The increase of $3.2 million in sales to Brazil, resulting from timing differences, was partially offset by a decrease of $2.0 million in sales to Pfizer.

Revenues from License and R&D Services

We recorded revenues from license and R&D services of $7.5 million for the three months ended September 30, 2021 and September 30, 2020. Revenues from license and R&D services are comprised primarily of revenues we recognized in connection with the Chiesi Agreements. A revenue increase of $1.0 million recognized from the Kirin feasibility study was offset by a $1.0 million decrease in revenue generated under the Chiesi Agreements.

Cost of Goods Sold

Cost of goods sold was $3.7 million for the three months ended September 30, 2021, an increase of $0.8 million, or 28%, from cost of goods sold of $2.9 million for the three months ended September 30, 2020. The increase in cost of goods sold was primarily the result of higher sales.

Research and Development Expenses

Research and development expenses were $7.3 million for the three months ended September 30, 2021, a decrease of $0.4 million, or 5%, compared to $7.7 million of research and development expenses for the three months ended September 30, 2020. The decrease is primarily the result of the completion of two out of the three phase III clinical trials of PRX-102 and reduced costs related to the BALANCE study.

We expect research and development expenses to continue to be our primary expense as we enter into a more advanced stage of preclinical and clinical trials for certain of our product candidates.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $3.0 million for the three months ended September 30, 2021, an increase of $0.2 million, or 7%, compared to $2.8 million for the three months ended September 30, 2020. The increase is primarily the result of an increase of $0.4 million in corporate costs mainly related to insurance and a $0.2 million increase in sales and marketing costs, partially offset by a decrease of $0.5 million in share-based compensation.

Financial Expenses, Net

Financial expenses, net were $2.3 million for the three months ended September 30, 2021 and $1.9 million for the three months ended September 30, 2020. The increase resulted primarily from loss on extinguishment related to the Exchanges of our 2021 Notes.

Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020

Revenues from Selling Goods

We recorded revenues from selling goods of $12.3 million during the nine months ended September 30, 2021, an increase of $0.3 million, or 3%, compared to revenues of $12.0 million for the nine months ended September 30, 2020. The increase of

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$2.0 million in sales to Pfizer was partially offset by a decrease of $1.8 million in sales to Brazil, both resulting from timing differences.

Revenues from License and R&D Services

We recorded revenues from license and R&D services of $17.5 million for the nine months ended September 30, 2021, a decrease of $13.9 million, or 44%, compared to revenues of $31.4 million for the nine months ended September 30, 2020. Revenues from license and R&D services are comprised primarily of revenues we recognized in connection with the Chiesi Agreements. The decrease resulted primarily from revenues recognized in connection with the progress of our clinical trials that have been completed during 2020 and includes a $4.1 million reduction to accumulated revenues recognized due to updated costs estimation throughout the trials until completion. The decrease was partially offset by an increase of $1.0 million of revenues recognized in connection with the Kirin feasibility study.

Cost of Goods Sold

Cost of goods sold was $13.2 million for the nine months ended September 30, 2021, an increase of $5.1 million, or 63%, from cost of goods sold of $8.1 million for the nine months ended September 30, 2020. The increase in cost of goods sold was primarily the result of certain one-time manufacturing costs incurred while preparing for the then anticipated FDA approval of the PRX-102 BLA and higher manufacturing costs.

Research and Development Expenses

Research and development expenses were $22.1 million for the nine months ended September 30, 2021, a decrease of $5.1 million, or 19%, compared to $27.2 million of research and development expenses for the nine months ended September 30, 2020. The decrease is primarily the result of the completion of two out of the three phase III clinical trials of PRX-102 and reduced costs related to the BALANCE study.

We expect research and development expenses to continue to be our primary expense as we enter into a more advanced stage of preclinical and clinical trials for certain of our product candidates.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $9.3 million for the nine months ended September 30, 2021, an increase of $1.1 million, or 13%, compared to $8.2 million for the nine months ended September 30, 2020. The increase resulted primarily from an increase in corporate costs of $1.4 million related mainly to insurance and funding which was partially offset by $0.3 million decrease in share-based compensation.

Financial Expenses, Net

Financial expenses net were $6.2 million for the nine months ended September 30, 2021, a decrease of $0.6 million, or 9%, compared to financial expenses net of $6.8 million for the nine months ended September 30, 2020. The decrease resulted primarily from a decrease in expenses related to our outstanding convertible notes equal to $1.3 million offset by a $0.8 million loss on extinguishment related to the Exchanges of our 2021 Notes.

Liquidity and Capital Resources

Our sources of liquidity include our cash balances and bank deposits. At September 30, 2021, we had $10.6 million in cash and cash equivalents and $38.0 million in short-term bank deposits. We have primarily financed our operations through equity and debt financings, business collaborations, and grants funding.

During the nine months ended September 30, 2021, we raised gross proceeds equal to approximately $8.8 million from sales of common stock under our ATM program through the sale of 1,867,552 shares of our common stock. In addition, we raised gross proceeds of approximately $40.2 million from a public offering of our common stock before deducting the underwriting discount and estimated expenses of the offering. In connection with the offering, we issued 8,749,999 shares of our common stock at a purchase price per share of $4.60.

On August 25, 2021, we completed the Exchanges of our outstanding 2021 Notes with institutional note holders of a substantial majority of the 2021 Notes. The Exchanges involved the exchange of an aggregate of $54.65 million principal amount of 2021 Notes for an aggregate of $28.75 million principal amount of newly issued 2024 Notes, $25.90 million in cash and approximately

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$1.1 million in cash representing accrued and unpaid interest through the closing date. The initial conversion rate of the 2024 Notes is 563.2216 shares of our common stock per $1,000 principal amount of 2024 Notes, which is equivalent to an initial conversion price of approximately $1.7755 per share of common stock, subject to adjustment in certain circumstances. This initial conversion price represents a premium of approximately 32.5% relative to the closing price of the common stock on the NYSE American on August 13, 2021. After giving effect to the Exchanges, $3.27 million aggregate principal amount of the 2021 Notes are currently outstanding. The maturity date of the 2021 Notes is November 15, 2021, on which date we are required to settle all the then outstanding 2021 Notes and pay all accrued but unpaid interest thereon. On November 9, 2021, we delivered the necessary funds under the indenture governing the 2021 Notes to effectively discharge the remaining outstanding 2021 Notes.

The 2024 Notes were issued pursuant to an indenture entered into between us, the guarantors party thereto, The Bank of New York Mellon Trust Company, N.A., as trustee and Wilmington Savings Fund Society, FSB, as collateral agent. Interest on the Notes are payable semi-annually at a rate of 7.50% per annum. The 2024 Notes will mature three years after the issuance thereof, unless earlier purchased, converted, exchanged or redeemed and will be guaranteed by our subsidiaries. The 2024 Notes are secured by perfected liens on all of our assets, including those of our subsidiaries.

We believe that our cash and cash equivalents and bank deposits as of September 30, 2021 are sufficient to satisfy our capital needs for at least 12 months from the date that these financial statements are issued.

Cash Flows

Net cash used in operations was $5.2 million for the nine months ended September 30, 2021. In response to the COVID-19 pandemic, a higher number of subjects in our ongoing clinical trials opted for home care treatments over in-site treatments which resulted in an immaterial amount of additional expenses. The net loss for the nine months ended September 30, 2021 of $20.9 million was increased by a $4.1 million increase in accounts receivable and other assets and $1.6 million increase in inventories, and was partially offset by a $13.9 million increase in contracts liability, a $2.6 million of amortization of debt issuance costs and debt discount, $2.0 million in share-based compensation and $1.1 million increase in accounts payable and accruals. Net cash used in investing activities for the nine months ended September 30, 2021 was $18.5 million and consisted primarily of a net increase in bank deposits. Net cash provided by financing activities was $16.1 million resulting from the sale of common stock under our former ATM program and from our public offering of common stock, net of the convertible notes and promissory note payments.

Net cash used in operations was $18.6 million for the nine months ended September 30, 2020. In response to the COVID-19 pandemic, a higher number of subjects in our ongoing clinical trials opted for home care treatments over in-site treatments which resulted in an immaterial amount of additional expenses. The net loss for the nine months ended September 30, 2020 of $6.9 million was increased by a $15.1 million decrease in contracts liability and a $5.1 million increase in inventories, partially offset by an increase of $3.3 million in accounts payable and accruals, $2.5 million amortization of debt issuance costs and debt discount and a $2.1 million in share-based compensation. Net cash used in investing activities for the nine months ended September 30, 2020 was $27.5 million and consisted primarily of an increase in bank deposits. Net cash provided by financing activities was $41.8 million resulting from our issuance of common stock and warrants on March 18, 2020.

Future Funding Requirements

As a result of our significant research and development expenditures and the lack of significant revenue from sales of taliglucerase alfa, we have generated operating losses from our continuing operations since our inception. Our outstanding 2021 Notes and 2024 Notes are secured by a perfected lien on all of our assets. Under the terms of the indentures governing the 2021 Notes and 2024 Notes, we are required to maintain a minimum cash balance of at least $7.5 million. In addition, under the Exchange Agreements, we agreed to maintain an amount of unrestricted cash that is not less than the amount necessary to redeem or repay at maturity all of the 2021 Notes that remain outstanding following the closing of the Exchanges. After the closing of the Exchanges, an aggregate principal amount of $3.27 million of the 2021 Notes remained outstanding, which notes are required to be repaid not later than November 15, 2021.

We expect to continue to incur significant expenditures in the near future as we increase our research and developments efforts with respect to our product candidates given the receipt of the CRL from the FDA discussed above, we expect to incur additional expenses in connection with any resubmission. We cannot anticipate the costs or the timing of the occurrence of such costs. In addition, to the extent we need to obtain additional financing in connection with this process or with any additional clinical testing that may be required, it may be more difficult for us to do so given the volatility of the price of our common stock. Our material cash needs for the next 24 months will include, among other expenses, (i) costs of preclinical and clinical trials, (ii) employee salaries, (iii) payments for rent and operation of our manufacturing facilities, (iv) fees to our consultants and legal advisors, patent advisors and fees for service providers in connection with our research and development efforts and (v)  payment of interest on our outstanding 2024 Notes. We believe that the funds currently available to us are sufficient to satisfy our capital needs for at least 12 months.

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As discussed above, we may be required to raise additional capital to develop our product candidates and continue research and development activities. Our ability to raise capital, and the amounts of necessary capital, will depend on many other factors, including:

We expect to finance our future cash needs through corporate collaborations, licensing or similar arrangements, public or private equity offerings and/or debt financings. We currently do not have any commitments for future external funding, except with respect to the development-related payments and milestone payments that may become payable under the Chiesi Agreements. On July 2, 2021, we entered into the Sales Agreement in connection with a new ATM program pursuant to which we may sell from time to time through the Agent ATM Shares having an aggregate offering price of up to $20.0 million. On the same date, we terminated our former ATM program.

Effects of Currency Fluctuations

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 months ended September 30, 2021 and September 30, 2020.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements as of each of September 30, 2021 and September 30, 2020.

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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. Most of our revenues and approximately 52% of our expenses and capital expenditures are incurred in 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.

Approximately 43% 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 loss 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:

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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.

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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.

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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 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 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.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15f and 15d-15f under the Exchange Act) that occurred during the quarter ended September 30, 2021 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are not involved in any material legal proceedings.

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Item 1A. Risk Factors

Except as set forth below, 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, 2020 and in our Quarterly Report for the three-month period ended March 31, 2021.

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If any holder of our 2024 Notes converts such notes prior to our receipt of stockholder approval to issue 20% or more of our total outstanding common stock in connection with our compliance with the terms of such notes, we may be obligated to settle a significant portion or all of such converted notes in cash.

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Under the terms of the indenture for the 2024 Notes, we agreed to solicit stockholder approval prior to issuing 20% or more of our outstanding shares of common stock, calculated as of the date we entered into the exchange agreements in connection with the issuance of the 2024 Notes, in compliance with certain listing standards of the NYSE American. Unless and until we obtain such stockholder approval, we may be required to settle all conversions of the 2024 Notes substantially or entirely in cash. Absent such approval, we are left with limited financial and corporate flexibility with respect to our ability to satisfy obligations under the indenture with shares of our common stock which may have a material adverse effect on our financial condition.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

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Item 3. Defaults Upon Senior Securities

None.

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Item 4. Mine Safety Disclosure

Not applicable.

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Item 5. Other Information

None.

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Item 6. Exhibits

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