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SIGNIFICANT ACCOUNTING POLICIES | 3 Months Ended
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Mar. 31, 2024
SIGNIFICANT ACCOUNTING POLICIES |
SIGNIFICANT ACCOUNTING POLICIES | NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
| a. | General
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 two enzyme replacement therapies (ERTs); Elfabrio® (pegunigalsidase alfa) for the treatment of adult patients with a confirmed diagnosis of Fabry disease and Elelyso® (taliglucerase alfa) for the treatment of adult patients with Gaucher disease. Elfabrio, which the Company referred to as PRX-102 during its development stage, has been approved for marketing in the United States, the European Union, Great Britain, Switzerland and Israel. The Company has partnered with Chiesi Farmaceutici S.p.A. (“Chiesi”) for the development and commercialization of Elfabrio. The Company has licensed the rights to commercialize Elelyso 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”). Elelyso is marketed as BioManguinhos alfataliglicerase in Brazil. The Company is committed to leveraging its track record of success as the Company progresses with the development of treatments for rare and orphan diseases. Accordingly, the Company is turning its focus to new, early-stage product candidates that treat indications for which there are high unmet needs in terms of efficacy and safety, including renal diseases. Treatments of interest will address both genetic and non-genetic diseases. The Company intends to use its ProCellEx platform and PEGylization capabilities, as well as other modalities such as small molecules and antibodies, to take advantage of highly innovative opportunities. The Company is also exploring novel platform technologies. 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 a confirmed diagnosis of 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 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 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 the Company’s 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. From time to time, and as Elfabrio is approved for marketing in different jurisdictions, participants withdraw from the open label extension studies. Some of the withdrawals transfer to a commercial setting, others withdraw for other reasons. 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”). The MAA was submitted to the EMA on February 7, 2022, after the October 8, 2021 meeting the Company 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. The Company continuously evaluates potential strategic marketing partnerships as well as collaboration programs with biotechnology and pharmaceutical companies and academic research institutions. Except with respect to Elfabrio and Elelyso, the Company holds the worldwide commercialization rights to its other proprietary development drug candidates. The Company’s product pipeline currently includes, among other candidates: (1)PRX-115, the Company’s plant cell-expressed recombinant PEGylated uricase (urate oxidase) – a chemically modified enzyme to treat uncontrolled gout; and (2)PRX-119, the Company’s plant cell-expressed PEGylated recombinant human DNase I product candidate being designed to elongate half-life in the circulation for NETs-related diseases. 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 March 21, 2023, the first patient was dosed in the Company’s phase I First-in-Human clinical trial of PRX-115. This study was designed to be conducted in approximately 56 adult male and female subjects in the dose escalation phase with seven sequential dosing cohorts, each composed of eight subjects (six active and two placebo). As of March 31, 2024, 56 patients have been dosed in this study. The Company has decided to expand the study by adding an eighth cohort with eight new subjects and to commence preparations for a phase II clinical trial of PRX-115. 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”). 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 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 the Agent, ATM Shares having an aggregate offering price of up to $20.0 million. As of March 31, 2024, 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. 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. 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 product from Protalix, subject to certain terms and conditions. The consideration for Protalix Ltd. is based on the drug product supplied to Chiesi and the average selling price of the drug product in the relevant territory multiplied by tiered payments as described in the relevant agreement. Under the Chiesi Ex-US Agreement, the price payable to the Company for drug product supplied is based on a range of 15% to 35% of the average selling price of the drug product in the applicable territory, and under the Chiesi US Agreement, such price is based on a range of 15% to 40% of the average selling price of the drug product in the United States. 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 pegunigalsidase alfa in connection with the commercial fill/finish services. Under the F/F Agreement, and, following relevant technology and technical information transfer activities, Chiesi agreed, among other things, to provide the Company with commercial fill/finish services for pegunigalsidase alfa, including to support the anticipated global launch of pegunigalsidase alfa. 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. 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 (the “Brazil Agreement”) with Fiocruz for BioManguinhos alfataliglicerase. 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. Because the Company’s operations are conducted in the State of Israel, the business and operations may be directly affected by economic, political, geopolitical and military conditions in Israel. In October 2023, Hamas terrorists infiltrated Israel’s southern border from the Gaza Strip and conducted a series of attacks on civilian and military targets. Hamas also launched extensive rocket attacks on Israeli population and industrial centers located along Israel’s border with the Gaza Strip and in other areas within the State of Israel attacking a number of civilian and military targets. At the same time, clashes between Israel and Hezbollah in Lebanon have increased. In response, Israel’s security cabinet declared war against the Hamas and a military campaign against these terrorist organizations commenced in parallel to their continued rocket and terror attacks. Moreover, the attacks by Hamas and Hezbollah, and Israel’s defensive measures, may result in a greater regional conflict. Since the outbreak of the war, other regional actors, including Iran, have taken military action against Israel. It is currently not possible to predict the duration or severity of the ongoing conflict or its effects on the Company’s business, operations and financial conditions. The ongoing conflict is rapidly evolving and developing, and could disrupt certain of the Company’s business and operations, among others. The Company has elected to store manufactured drug substance in multiple locations, both within and outside of Israel, to mitigate the risk of loss due to the military operations. As of the issuance of these financial statements, the impact of the war has not had an adverse effect on the Company’s operations. 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 Convertible Notes due September 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 March 31, 2024, the Company is in compliance with all such covenants. The Company believes that its cash, cash equivalents and short-term bank deposits as of March 31, 2024 are sufficient to satisfy the Company’s capital needs for at least 12 months from the date that these financial statements are issued.
| b. | Basis of presentation
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, 2023, filed by the Company with the U.S. Securities and Exchange Commission (the “Commission”). The comparative balance sheet at December 31, 2023 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, 2023.
| c. | Loss per share
The Company calculates loss per share by dividing the net loss by the weighted average number of shares of Common Stock outstanding during each period. Diluted earnings per share is calculated by dividing the net loss 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. Diluted loss per share does not include 36,292,208 shares of Common Stock underlying outstanding stock options, warrants and the 2024 Notes for the three months ended March 31, 2023 because the effect would be anti-dilutive. Diluted loss per share does not include 31,839,345 shares of Common Stock underlying outstanding stock options, warrants and the 2024 Notes for the three months ended March 31, 2024 because the effect would be anti-dilutive.
| d. | Convertible notes
Prior to January 1, 2024, the Company accounted for its outstanding convertible notes using the guidance set forth in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815 which required that the Company determine whether the embedded conversion option must be separated from the other features of the applicable note instrument 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’s outstanding 2024 Notes were accounted for 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. In August 2020, the FASB issued ASU 2020-06 “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40)” (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for convertible instruments by removing certain separation models in ASC 470-20, Debt—Debt with Conversion and Other Options, for convertible instruments. ASU 2020-06 updates the guidance on certain embedded conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, such that those features are no longer required to be separated from the host contract. The convertible debt instruments will be accounted for as a single liability measured at amortized cost. This will also result in the interest expense recognized for convertible debt instruments to be typically closer to the coupon interest rate when applying the guidance in Topic 835. On January 1, 2024, the Company adopted ASU 2020-06 using the modified retrospective method of adoption. Under this method, the Company applied the guidance to the 2024 Notes at the adoption date and was required to make an adjustment to January 1, 2024, opening accumulated deficit balance and additional paid in capital. The prior period consolidated financial statements have not been retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods. Under ASU 2020-06, the 2024 Notes (debt and conversion option) are accounted for as a liability. The impact to the Company's consolidated balance sheet as of December 31, 2023 resulting from its adoption of ASU 2020-06 is as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(U.S. dollars in thousands) | ​ | As Reported December 31, 2023 | ​ | Updated January 1, 2024 | ​ | Effect of Change
Convertible notes | ​ | $ | 20,251 | ​ | $ | 20,420 | ​ | $ | 169
Additional paid in capital | ​ |  | 415,045 | ​ | ​ | 414,652 | ​ | ​ | (393)
Accumulated deficit | ​ |  | 381,549 | ​ | ​ | 381,325 | ​ | ​ | 224
​ The impact of adoption of ASU 2020-06 on the condensed consolidated balance sheet as of March 31, 2024 and on the Company’s condensed consolidated statement of operations for the three months ended March 31, 2024 was as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(U.S. dollars in thousands) | ​ | As Reported March 31, 2024 | ​ | Balances without Adoption of ASU 2020-06 | ​ | Effect of Change
Financial expense | ​ | $ | 382 | ​ | $ | 444 | ​ | ​ | (62)
Convertible notes | ​ | ​ | 20,420 | ​ | ​ | 20,313 | ​ | ​ | (107)
Additional paid in capital | ​ | ​ | 415,633 | ​ | ​ | 416,026 | ​ | ​ | 393
Accumulated deficit | ​ |  | 385,920 | ​ | ​ | 386,206 | ​ | ​ | (286)
​
| e. | New accounting pronouncements
Recently adopted accounting pronouncements ASU 2020-06, which was issued by the FASB in August 2020 and adopted by the Company in January 2024, simplifies the accounting for certain financial instruments with characteristics of both liability and equity, including convertible instruments and contracts on an entity’s own equity. The amendments to this guidance are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. See Note 1(d). Recently issued accounting pronouncements, not yet adopted In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This guidance is intended to enhance the transparency and decision-usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to disclosure regarding rate reconciliation and income taxes paid both in the United States and in foreign jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 on a prospective basis. Early adoption is permitted, with the option to apply the standard retrospectively. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements disclosures. In November 2023, the FASB issued ASU 2023-07 “Segment Reporting: Improvements to Reportable Segment Disclosures.” This guidance expands public entities’ segment disclosures primarily by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. Public entities with a single reportable segment are required to provide the new disclosures and all of the disclosures required under ASC 280. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments are required to be applied retrospectively to all prior periods presented in an entity’s financial statements. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements and related disclosures.

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