Protalix BioTherapeutics, Inc. - Quarter Report: 2023 June (Form 10-Q)

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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 June 30, 2023

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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 August 1, 2023, approximately 71,580,762 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 June 30, 2023 and 2022 – 144,000,000 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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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”). The Company’s current focus is to facilitate the commercialization efforts of Chiesi Farmaceutici S.p.A. (“Chiesi”), the Company’s development and commercialization partner for pegunigalsidase alfa, or Elfabrio^® (which the Company referred to as PRX-102 during its development stage), for the treatment of Fabry disease, a rare, genetic lysosomal disorder. To date, the Company has successfully developed taliglucerase alfa (marketed under the name Elelyso^® except in Brazil where it is marketed as BioManguinhos alfataliglicerase) for the treatment of Gaucher disease that has been approved for marketing in the United States, Brazil, Israel and other markets. The Company’s strategy is to develop proprietary recombinant proteins designed to address high, unmet needs in the rare disease space that are therapeutically superior to existing recombinant proteins currently marketed for the same indications. Consistent with this strategy, the Company has a number of product candidates in varying stages of the clinical development process.

On May 5, 2023, the European Commission (“EC”) announced that it had approved the Marketing Authorization Application (“MAA”) for Elfabrio and on May 9, 2023, the U.S. Food and Drug Administration (“FDA”) announced that it had approved the Biologics License Application (“BLA”) for Elfabrio, each for adult patients with Fabry disease. Both approvals cover the 1 mg/kg every two weeks dosage. The European Medicines Agency (“EMA”) approval followed the February 2023 adoption of a positive opinion and recommendation of marketing authorization for Elfabrio by the EMA’s Committee for Medicinal Products for Human Use the (“CHMP”). Elfabrio was approved by the FDA with a boxed warning for hypersensitivity reactions/anaphylaxis, consistent with Enzyme Replacement Therapy (ERT) class labeling, and Warnings/Precautions providing guidance on the signs and symptoms of hypersensitivity and infusion-associated reactions seen in the clinical studies as well as treatments to manage such events should they occur. The Warnings/Precautions for membranoproliferative glomerulonephritis (MPGN) alert prescribers to the possibility of MPGN and provide guidance for appropriate patient management. Overall, the FDA review team concluded that in the context of Fabry disease as a rare, serious disease with limited therapeutic options that may not be suitable to all individual patients, the benefit-risk of Elfabrio is favorable for the treatment of adults with confirmed Fabry disease.

The Company has entered into two exclusive global licensing and supply agreements for Elfabrio with its development and commercialization partner for PRX-102, Chiesi Farmaceutici S.p.A. (“Chiesi”). On October 19, 2017, Protalix Ltd., the Company’s wholly-owned subsidiary, entered into an Exclusive License and Supply Agreement with Chiesi (the “Chiesi Ex-US Agreement”), pursuant to which Chiesi was granted an exclusive license for all markets outside of the United States to commercialize Elfabrio. On July 23, 2018, Protalix Ltd. entered into an Exclusive License and Supply Agreement with Chiesi (the Chiesi US Agreement, with respect to the commercialization of Elfabrio in the United States.

Elfabrio, an enzyme replacement therapy, or ERT, was the subject of a phase III clinical program studying the drug as a treatment of patients with Fabry disease, a rare, genetic lysosomal disorder. The phase III clinical program included three separate studies, which are referred to as the BALANCE study, the BRIDGE study and the BRIGHT study. The phase III clinical program analyzed two potential dosing regimens: 1 mg/kg every two weeks and 2 mg/kg every four weeks. In addition, the phase III clinical program included two extension studies in which subjects that participated in our phase I/II clinical trials and phase III clinical trials had the opportunity to enroll and continue to be treated with PRX-102. As of March 1, 2023, sponsorship of the two open-label extension studies was transferred to Chiesi, which is now administering the extension studies. Currently, in the aggregate, 126 patients are enrolled, and 116 patients are actively participating, in such studies.

The BLA for Elfabrio for the treatment of adult patients with Fabry disease was resubmitted to the FDA on November 9, 2022. An initial BLA for Elfabrio was submitted to the FDA on May 27, 2020 under the FDA’s Accelerated Approval pathway, but resulted in a Complete Response Letter (“CRL”).

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PROTALIX BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The MAA was submitted to the EMA on February 7, 2022, after the October 8, 2021 meeting we held, together with Chiesi, with the Rapporteur and Co-Rapporteur of the EMA regarding PRX-102.

The FDA publicly released the internal review documents for Elfabrio (pegunigalsidase alfa-iwxj) injection BLA 761161. These documents provide previously unavailable additional information regarding the basis for the FDA’s May 2023 approval decision. In particular, the FDA determined that substantial evidence of effectiveness for Elfabrio in Fabry patients was established with one adequate and well-controlled study (Study PB-102-F01/02) with confirmatory evidence provided by the BALANCE study (also referred to as Study PB-102-F20). The FDA review team also concluded that the BALANCE study met its primary efficacy endpoint, which assessed the annualized rate of change in eGFR (estimated glomerular filtration rate) over 104 weeks. However, the FDA also determined that the results from the BALANCE study did not support a non-inferiority claim to the comparator product due to the lack of data to support a non-inferiority margin. 

In addition to Elfabrio, the Company successfully developed taliglucerase alfa, an enzyme replacement therapy for the long-term treatment of adult patients with a confirmed diagnosis of type 1 Gaucher disease, that has been approved for marketing in the United States, Brazil, Israel and other markets.

The Company has licensed the rights to commercialize taliglucerase alfa worldwide (other than Brazil) to Pfizer Inc. (“Pfizer”), and in Brazil to Fundação Oswaldo Cruz (“Fiocruz”), an arm of the Brazilian Ministry of Health (the “Brazilian MoH”). Otherwise, except with respect to taliglucerase alfa and Elfabrio, the Company holds the worldwide commercialization rights to its other proprietary development candidates. In addition, the Company continuously evaluates potential strategic marketing partnerships as well as collaboration programs with biotechnology and pharmaceutical companies and academic research institutions.

The Company’s product pipeline currently includes, among other candidates:

On March 21, 2023, the first patient was dosed in the Company’s phase I First in Human (“FIH”) clinical trial of PRX-115. As of the date hereof, 13 patients have been dosed in this trial.

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, and demonstrate the safety and efficacy of its product candidates. 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 “2021 Sales Agreement”) with H.C. Wainwright & Co., LLC, as the Company’s sales agent (the “Agent”) which was amended on May 2, 2022. Pursuant to the terms of the 2021 Sales Agreement, the Company was able to 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 2021 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.

During the term of the 2021 Sales Agreement which ended during the quarter ended March 31, 2023, the Company sold a total of 13,980,060 ATM Shares for total gross proceeds of approximately $20.0 million under the 2021 Sales Agreement, thereby completing the ATM program under said agreement.

On February 27, 2023, the Company entered into an At The Market Offering Agreement (the “2023 Sales Agreement”) with the Agent. Pursuant to the terms of the 2023 Sales Agreement, the Company may sell, from time to time through

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PROTALIX BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

the Agent, ATM Shares having an aggregate offering price of up to $20.0 million. As of June 30, 2023, shares of Common Stock for total gross proceeds of approximately $6.4 million remain available to be sold under the 2023 Sales Agreement.

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 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 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 complete amount of development costs to which it is entitled under the Chiesi Agreements. In addition, following the approval of Elfabrio by the FDA, the Company received a milestone payment equal to $20.0 million.

Under the terms of both of the Chiesi Agreements, Protalix Ltd. is required to manufacture all of the Elfabrio drug substance needed under the agreements, subject to certain exceptions, and Chiesi will purchase Elfabrio drug substance 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 August 29, 2022, the Company entered into a Fill/Finish Agreement (the “F/F Agreement”) and a Letter Agreement (the “Letter Agreement”), in each case with Chiesi. The Company agreed to supply Chiesi with drug substance for PRX-102 and, following relevant technology and technical information transfer activities, Chiesi has agreed, among other things, to provide the Company with commercial fill/finish services for PRX-102, including to support the anticipated global launch of PRX-102. The F/F Agreement shall continue in force until December 31, 2025, unless terminated earlier in accordance with the terms of the F/F Agreement and the term may be extended by mutual agreement for an additional period of seven years upon mutual written agreement prior to expiration of the initial term.

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 of 2021 in exchange for a $25.0 million reduction in a longer term regulatory milestone payment provided 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 exclusive license and supply agreement entered into between Protalix Ltd. and Pfizer, which is referred to herein as the Pfizer Agreement. In October 2015, Protalix Ltd. and Pfizer entered into an amended exclusive license and supply agreement, which is referred to herein as 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 with Fiocruz (the “Brazil Agreement”) 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 and patients continue to be treated with BioManguinhos alfataliglicerase in Brazil.

The Company expects to continue to incur significant expenditures in the near future due to research and developments efforts with respect to the product candidates. Under the terms of the Company’s outstanding 7.50% Senior Secured

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PROTALIX BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Convertible Notes due 2024 (the “2024 Notes”), the Company is required to comply with certain financial covenants, including the maintenance of a minimum cash balance of at least $7.5 million. As of June 30, 2023, the Company is in compliance with all such covenants. The Company believes that its cash and cash equivalents as of June 30, 2023, are sufficient to satisfy the Company’s capital needs for at least 12 months from the date that these financial statements are issued.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information. 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, 2022, filed by the Company with the U.S. Securities and Exchange Commission (the “Commission”). The comparative balance sheet at December 31, 2022 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, 2022.

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.

1.    Revenues from selling products

The Company recognizes revenues from selling goods at a point in time when control over the product is transferred to customers (upon delivery), at the net selling price, which reflects reserves for variable consideration, potential discounts and allowances.

The transaction price is the consideration to which the Company expects to be entitled from the customer. The consideration promised in a contract with the Company’s customers may include fixed amounts and variable amounts. The Company estimates the variable consideration and includes it in the transaction price using the most likely outcome method, and only to the extent it is highly probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Prior to recognizing revenue from variable consideration, the Company uses significant judgment to determine the probability of significant reversal of such revenue.

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

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PROTALIX BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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.

The manufacturing was 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, research and development services. Following the regulatory approvals for Elfabrio received in May 2023, the Company started recognizing revenue from manufacturing, see also revenue from selling products above.

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. Following the approval of Elfabrio by the FDA, the Company received a milestone payment equal to $20.0 million (see also note 4).

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 was recognized over time using the cost-to-cost method.

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

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NOTE 2 - INVENTORIES

Inventories at June 30, 2023 and December 31, 2022 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.

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PROTALIX BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers counterparty credit risk in its assessment of fair value.

The fair value of the financial instruments included in the working capital of the Company is usually identical or close to their carrying value.

Based on a Level 3 measurement, as of June 30, 2023, the fair value of the $20.4 million aggregate principal amount of the Company’s outstanding 2024 Notes is approximately $28.1 million. 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

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

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NOTE 5 – STOCK TRANSACTIONS

On June 28, 2023, the Company held its 2023 Annual Meeting of Stockholders, which was adjourned and reconvened on July 13, 2023 (the “Annual Meeting”). At the Annual Meeting, the Company’s stockholders, among other matters, approved an amendment to the Company’s Certificate of Incorporation, as amended, to increase the number of shares of Common Stock authorized for issuance from 144,000,000 to 185,000,000 (the “Charter Amendment”). The Charter Amendment was filed with the Secretary of State of the State of Delaware on July 25, 2023.

(b)At-the-Market (ATM) Offering

During the six months ended June 30, 2023, the Company sold, in the aggregate, 12,560,150 shares of Common Stock under the 2023 Sales Agreement. The Company generated aggregate gross proceeds equal to approximately $24.9 million in connection with such sales.

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PROTALIX BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(c)Exercise of Warrants

On May 8, 2023, the Company issued 301,810 shares of Common Stock in connection with the cash exercise of a warrant issued on March 18, 2020, as part of the Company’s private placement of Common Stock and warrants. The Company generated net proceeds equal to $0.7 million from the exercise of the warrant.

On May 10, 2023, the Company issued 237,012 shares of Common Stock in connection with the cashless exercise of a warrant to purchase 845,000 shares of Common Stock issued on March 18, 2020, as part of the Company’s private placement of Common Stock and warrants. The Company did not generate any proceeds from the cashless exercise.

(d)Conversion of 2024 Notes

During the six months ended June 30, 2023, the Company issued, in the aggregate, 4,691,623 shares of Common Stock in connection with the conversions of 2024 Notes. In connection with such conversions, during the six months ended June 30, 2023, the Company paid to the converting holders $0.9 million representing cash payments due to accrued but unpaid interest, make-whole interest payments and payments in lieu of fractional shares. As a result of the conversions, the total principal amount of the 2024 Notes decreased by approximately $8.3 million.

NOTE 6 – EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is calculated by dividing the net income (loss) by the weighted average number of shares of the Company’s Common Stock outstanding during each period.

Diluted earnings per share is calculated by dividing the net income by the weighted-average number of shares of Common Stock outstanding during each period increased to include the number of additional shares of Common Stock that would have been outstanding if the potentially dilutive shares had been issued.

In computing diluted earnings per share, basic earnings per share are adjusted to take into account the potential dilution that could occur upon: (i) the exercise of options granted under employee stock compensation plans using the treasury stock method; (ii) the exercise of warrants using the treasury stock method; and (iii) the conversion of the convertible notes using the “if-converted” method.

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Basic and diluted net earnings (loss) per share attributable to common stockholders were calculated as follows:

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* Financial expenses on 2024 Notes consists of add back of financial expense incurred during the period and inclusion of make-whole interest payments that will be incurred upon conversion.

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PROTALIX BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Diluted earnings (loss) per share do not include 16,158,086 shares of Common Stock underlying outstanding stock options and warrants of the Company for the six months ended June 30, 2023 because the effect would be anti-dilutive.

Diluted earnings (loss) per share do not include 1,896,733 shares of Common Stock underlying outstanding stock options of the Company for the three months ended June 30, 2023 because the effect would be anti-dilutive.

Diluted earnings (loss) per share do not include 32,960,732 and 32,982,043 shares of Common Stock underlying outstanding stock options, warrants and the 2024 Notes for the three and six months ended June 30, 2022, respectively, because the effect would be anti-dilutive.

NOTE 7 – TAXES ON INCOME

The following table summarizes the Company’s taxes on income:

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The Company had an effective tax rate of 3% for the six months ended June 30, 2023, compared to an effective tax rate of 0% for the six months ended June 30, 2022. For the six months ended June 30, 2023, the difference between the Company’s effective tax rate and the U.S. federal statutory rate of 21% was the result of the provision for current taxes on income mainly derived from U.S. taxable GILTI income mainly in respect of milestone payments and Section 174 of the U.S. Tax Cuts and Jobs Act, which was enacted in December 2017 (the “TCJA”), partially offset by the release of the valuation allowance on net operating losses (NOLs) in the United States.

In the second quarter ended June 30, 2023, following the regulatory approvals for Elfabrio in May 2023, the receipt of the $20.0 million milestone payment and the launch of Elfabrio in the United States, the Company released valuation allowance previously recorded on deferred tax assets in respect of its NOLs in the United States resulting in a net tax benefit of $3.1 million. The Company concluded that, based upon the preponderance of positive evidence over negative evidence and the anticipated ability to use the deferred tax assets, it was more likely than not that these deferred tax assets would be realizable due to forecasted profits. The Company considered the following: (i) cumulative profits for tax over the previous 12 quarters in its U.S. operations; (ii) the impact of Section 174 of the TCJA which requires the Company to capitalize and amortize its research and development expenses over 15 years; and (iii) its forecasted profits in the United States following the regulatory approvals of Elfabrio.

NOTE 8 – SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION

Balance sheets:

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PROTALIX BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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NOTE 9 – SUBSEQUENT EVENTS

On July 14, 2023, the Company collected approximately $1.1 million, in the aggregate, from sales to Pfizer. On July 7, 2023, the Company collected approximately $1.0 million from Chiesi.

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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, 2022. 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.

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

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Given these uncertainties, you should not place undue reliance on these forward-looking statements. Companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced or late-stage clinical trials, even after obtaining promising earlier trial results or preliminary findings for such clinical trials. Even if favorable testing data is generated from clinical trials of a drug product, the FDA or foreign regulatory authorities may not accept or approve a marketing application filed by a pharmaceutical or biotechnology company for the drug product.

Recent Company Developments

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ProCellEx: Our Proprietary Protein Expression System

ProCellEx is our proprietary platform used to produce and manufacture recombinant proteins through plant cell-based expressions in suspension. ProCellEx consists of a comprehensive set of proprietary technologies and capabilities, including the use of advanced genetic engineering and plant cell culture technology, enabling us to produce complex, proprietary, and biologically equivalent proteins for a variety of human diseases. Our protein expression system facilitates the creation and selection of high-expressing, genetically-stable cell lines capable of expressing recombinant proteins.

Our ProCellEx technology allows for many unique advantages, including: biologic optimization; an ability to handle complex protein expressions; flexible manufacturing with improvements through efficiencies, enhancements and/or rapid horizontal scale-ups; a simplified production process; elimination of the risk of viral contaminations from mammalian components; and intellectual property advantages.

We are the first and only company to gain FDA approval of a protein produced through plant cell-based expression, and with the recent approval of Elfabrio, we now have two FDA approved proteins produced through our platform. Our ProCellEx platform uses flexible polyethylene disposable bioreactors and is optimized for plant cell cultures. As opposed to the large stainless-steel bioreactors commonly used for recombinant protein production, our ProCellEx bioreactors are easy to use and maintain and allow for the major advantage of rapid horizontal scale-up.

Plant Cell Production Advantages

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ProCellEx^®: Protalix’s Differentiated Plant Cell Protein Expression Platform

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Products and Product Pipeline

Elfabrio (PRX-102) for the Treatment of Fabry Disease

On May 5, 2023, the EC announced that it had approved the MAA for Elfabrio and on May 9, 2023, the FDA announced that it had approved the BLA for Elfabrio, each for adult patients with Fabry disease. Both approvals cover the 1 mg/kg every two weeks dosage. The EMA approval followed the February 2023 adoption of a positive opinion and recommendation of marketing authorization for Elfabrio by the CHMP. Elfabrio was approved by the FDA with a boxed warning for hypersensitivity reactions/anaphylaxis, consistent with ERT class labeling, and Warnings/Precautions providing guidance on the signs and symptoms of hypersensitivity and infusion-associated reactions seen in the clinical studies as well as treatments to manage such events should they occur. The Warnings/Precautions for MPGN alert prescribers to the possibility of MPGN and provide guidance for appropriate patient management. Overall, the FDA review team concluded that in the context of Fabry disease as a rare, serious disease with limited therapeutic options that may not be suitable to all individual patients, the benefit-risk of Elfabrio is favorable for the treatment of adults with confirmed Fabry disease.

Elfabrio, an ERT, is our proprietary, plant cell culture expressed enzyme, and a chemically modified stabilized version of, the recombinant α-Galactosidase-A protein, a lysosomal enzyme. Fabry disease is a serious life-threatening rare genetic disorder. Fabry patients lack or have low levels of α-galactosidase-A resulting in the progressive accumulation of abnormal deposits of a fatty

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substance called globotriaosylceramide, or Gb₃, in blood vessel walls throughout their body. 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, that includes Sanofi’s Fabrazyme^®, Shire’s (acquired by Takeda Pharmaceutical Company Limited) Replagal^®, and Amicus Therapeutics’ Galafold^®, among others, was approximately $2.0 billion in 2022, is forecasted to be approximately $2.0 billion in 2023 and is forecasted to grow at a CAGR of approximately 13% from 2022-2028.

In preclinical studies, PRX-102 showed significantly longer half-life due to higher enzyme stability, enhanced activity in Fabry disease affected organs leading to reduction of the accumulated substrate and reduced immunogenicity, which together can potentially lead to improved efficacy through increased substrate clearance and significantly lower formation of anti-drug antibodies, or ADAs. In 2015, we completed a phase I/II clinical trial of PRX-102, which 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 patients with Fabry disease. Our phase III clinical program, which has now been completed, included the following three separate studies:

The BALANCE study (PB-102-F20), a pivotal 24-month, randomized, double blind, active control study of PRX-102 in adult Fabry patients with deteriorating renal function that was designed to evaluate the safety and efficacy of 1 mg/kg of PRX-102 administered every two weeks compared to agalsidase beta;

The BRIDGE study (PB-102-F30), a 12-month open-label, single arm switch-over study evaluating the safety and efficacy of PRX-102\, 1 mg/kg infused every two weeks, in up to 22 Fabry patients previously treated with agalsidase alfa for at least two years and on a stable dose for at least six months; and

The BRIGHT study (PB-102-F50), a multicenter, multinational open-label, switch-over study designed to evaluate the safety, efficacy and pharmacokinetics of treatment with 2 mg/kg of PRX-102 administered every four weeks for 52 weeks (a total of 14 infusions). The 2 mg/kg every four weeks dosage was not approved by the EMA or the FDA.

Patients who completed the BALANCE, BRIDGE and BRIGHT studies, and the extension of the phase I/II study, were offered the opportunity to continue PRX-102 treatment in one of two long-term open-label extension studies. Overall, 126 subjects who participated in our PRX-102 clinical program have opted, with the advice of the treating physician, to enroll in one of our long-term, open label, extension studies of PRX-102. Such extension studies include 97 patients in the 1 mg/kg every two weeks extension study (PB-102-F60) with a total cumulative exposure of approximately 480 patient years (10 subjects who completed an extension study from the phase I/II study, 18 subjects who completed the BRIDGE study; 69 subjects who completed the BALANCE study), and 29 subjects who completed the BRIGHT study, in the 2 mg/kg every four weeks extension study (PB-102-F51) with a total cumulative exposure of approximately 145 patient years. Two of such subjects are being treated with 1 mg/kg every two weeks. As of March 1, 2023, sponsorship of the two extension studies was transferred to Chiesi, and Chiesi is now administering the open-label extension studies.

A BLA for Elfabrio for the treatment of adult patients with Fabry disease was first submitted to the FDA on May 27, 2020 under the FDA’s Accelerated Approval pathway, but resulted in a CRL. The BLA was resubmitted to the FDA on November 9, 2022.

The MAA was submitted to the EMA on February 7, 2022, after the October 8, 2021 meeting we held, together with Chiesi, with the Rapporteur and Co-Rapporteur of the EMA regarding PRX-102.

The FDA publicly released the internal review documents for Elfabrio (pegunigalsidase alfa-iwxj) injection BLA 761161. These documents provide previously unavailable additional information regarding the basis for the FDA’s May 2023 approval decision. In particular, the FDA determined that substantial evidence of effectiveness for Elfabrio in Fabry patients was established with one adequate and well-controlled study (Study PB-102-F01/02) with confirmatory evidence provided by the BALANCE study (also referred to as Study PB-102-F20). The FDA review team also concluded that the BALANCE study met its primary efficacy endpoint, which assessed the annualized rate of change in eGFR (estimated glomerular filtration rate) over 104 weeks.

However, the FDA also determined that the results from the BALANCE study did not support a non-inferiority claim to the comparator product due to the lack of data to support a non-inferiority margin.

In February 2020, we, together with Chiesi, announced an agreement with the FDA for the Initial Pediatric Study Plan (iPSP) for PRX-102, which is intended to be initiated post-marketing approval. 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

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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.

Chiesi, together with Protalix, participated in an Oral Explanation at a meeting of the EMA’s Committee for Orphan Medicinal Products (COMP) held on March 21, 2023, as part of the Orphan Drug Designation maintenance process. Following the meeting, Chiesi formally withdrew the application for Orphan Drug Designation for PRX-102. The EC first granted Orphan Drug Designation for PRX-102 for the treatment of Fabry disease in December 2017.

Phase III BALANCE Study

The Clinical Study Report for the BALANCE study was completed in July 2022. The final analysis confirmed the positive topline results (announced in April 2022) and favorable tolerability profile. A total of 78 patients who were previously treated with agalsidase beta for at least one year with an eGFR slope at screening worse than -2 mL/min/1.73 m²/year were enrolled in the study. Patients were randomized on a 2:1 ratio for switching to PRX-102 or continuing on agalsidase beta. A total of 77 patients were treated; 52 with PRX-102 and 25 with agalsidase beta. 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 the agalsidase beta and PRX-102 treatment arms. eGFR is considered a reliable and accepted test to measure kidney function and stage of kidney disease. Additional parameters evaluated include: cardiac assessment, lyso-Gb₃ (a biomarker for monitoring Fabry patients during therapy), pain, quality of life, immunogenicity, Fabry Clinical Events, pharmacokinetics and other parameters.

Based on the original primary analysis (random intercept random slope (RIRS)), the estimated mean eGFR slopes were -2.4 mL/min/1.73 m² /year and -2.3 mL/min/1.73 m² /year in the PRX-102 and agalsidase beta arms, respectively, and the treatment difference was -0.1 (95% CI: -2.2, 2.1) mL/min/1.73 m² /year. Based on the ANCOVA adjusted for continuous baseline proteinuria, the estimated mean eGFR slopes were -2.0 and -3.1 mL/min/1.73 m² /year in the PRX-102 and agalsidase beta arms, respectively, and the treatment difference was 1.1 (95% CI: -0.8, 3.1) mL/min/1.73 m² /year. Based on quantile regression model, the median of the eGFR slope in the PRX-102 arm was -2.514 mL/min/1.73 m²/year (95% CI:-3.788, -1.240) and -2.155 mL/min/1.73 m²/year (95% CI:-3.805, -0.505) in the agalsidase beta arm, demonstrating a large overlap in the confidence intervals of the two arms. The difference in medians (95% confidence interval) is -0.359 mL/min/1.73 m²/year (-2.444, 1.726). Additional sensitivity and supportive analyses investigated mean eGFR slopes using other statistical models. These models yielded results similar to the primary analysis and confirming the comparability between the treatment arms. These results supported the robustness of the methodology used for comparisons of treatment effects in the BALANCE study. The results of the analyses on eGFR slopes were further supported by the analysis of change from baseline in the average eGFR at the last two visits (100 and 104 weeks). The estimated mean changes were -3.0 and -3.8 mL/min/1.73 m² in the PRX102 and agalsidase beta arms, respectively. The difference in mean change (PRX-102 – agalsidase beta) was 0.8 (95% CI: -3.0, 4.6) mL/min/1.73 m² or annualized change of 0.4 (95% CI: -1.5, 2.3) mL/min/1.73 m²/year.

The study population (ITT analysis set) was composed of 47 males (61.0%) and 30 females (39.0%), with a mean (range) age of 44.3 (18-60) years. The mean duration of prior treatment with agalsidase beta was approximately six years. At baseline, mean (SD) eGFR was 73.69 ml/min/1.73 m² (20.32) and median eGFR was 74.51 ml/min/1.73 m²; mean (SD) eGFR slope was -8.10 mL/min/1.73 m²/year (5.92) and median eGFR slope was -7.25 ml/min/1.73 m²/year.

A comparable efficacy response was also observed across biomarkers and functional systems relevant to Fabry disease, as demonstrated via secondary endpoints, where in some cases the trend was in favor of PRX-102 and in some in favor of agalsidase beta, but the actual difference between the two arms is always clinically small, supporting the comparability of the two treatments.

Key secondary endpoints included Urine protein creatinine ratio (UPCR) as indicator of proteinuria, plasma levels of lyso–Gb₃, imaging marker of cardiac remodeling (Left Ventricular Mass Index, LVMI, by cardiac MRI), disease severity (by Mainz Severity Score Index, MSSI), pain severity (Short Form Brief Pain Inventory, BPI) and quality of life (EQ-5D-5L). Both treatments showed either a stabilization of clinical parameters (e.g., for eGFR, eGFR slope and UPCR) or prevention of further progression of Fabry disease (e.g., LVMI, MSSI).

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For an overview of primary and secondary endpoints collected in the BALANCE study, please refer to the Table 1 below.

Table 1: Summary Table of Comparison of Treatment Benefit Data in the BALANCE Study, (Mean (SE) [median]), Efficacy Population