| 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. (the “Subsidiaries”), are biopharmaceutical companies focused on the development and commercialization of recombinant therapeutic proteins based on the Company’s proprietary ProCellEx ® ® The Company’s product pipeline currently includes, among other candidates: (1) pegunigalsidase alfa, or PRX-102, a therapeutic protein candidate for the treatment of Fabry disease, a rare, genetic lysosomal disorder; (2) alidornase alfa, or PRX-110, a proprietary plant cell recombinant human Deoxyribonuclease 1, or DNase, under development for the treatment of Cystic Fibrosis, to be administered by inhalation; and (3) OPRX-106, the Company’s oral antiTNF product candidate which is being developed as an orally-delivered anti-inflammatory treatment using plant cells as a natural capsule for the expressed protein. Obtaining marketing approval with respect to any product candidate in any country is directly dependent on the Company’s ability to implement the necessary regulatory steps required to obtain such approvals. The Company cannot reasonably predict the outcome of these activities. Since its approval by the FDA, taliglucerase alfa has been marketed by Pfizer Inc. (“Pfizer”), as provided in the exclusive license and supply agreement by and between Protalix Ltd. and Pfizer, which is referred to herein as the Pfizer Agreement. In October 2015, the Company entered into an Amended and Restated Exclusive License and Supply Agreement (the “Amended Pfizer Agreement”) which amends and restates the Pfizer Agreement in its entirety. Pursuant to the Amended Pfizer Agreement, the Company sold to Pfizer its share in the collaboration created under the Pfizer Agreement for the commercialization of Elelyso in exchange for a cash payment equal to $36.0 million. 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 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 Company is, at this time, continuing to supply alfataliglicerase to Fiocruz under the Brazil Agreement, and patients continue to be treated with alfataliglicerase in Brazil. Approximately 10% of adult Gaucher patients in Brazil are currently treated with alfataliglicerase. The Company is discussing with Fiocruz potential actions that Fiocruz may take to comply with its purchase obligations and, based on such discussions, the Company will determine what it believes to be the course of action that is in the best interest of the Company. In 2017, the Company received a purchase order from the Brazilian MoH for the purchase of alfataliglicerase for the treatment of Gaucher patients in Brazil for consideration of approximately $24.3 million. Shipments started in June 2017. The Company recorded revenues of $7.1 million for sales of alfataliglicerase to Fiocruz in 2017, and $2.6 million during the six months ended June 30, 2018. On October 19, 2017, Protalix Ltd. and Chiesi Farmaceutici S.p.A. (“Chiesi”) entered into an Ex-US license (the “Chiesi Agreement”) pursuant to which Chiesi was granted an exclusive license for all markets outside of the United States to commercialize pegunigalsidase alfa. Under the terms and conditions of the Chiesi Agreement, Protalix Ltd. retained the right to commercialize pegunigalsidase in the United States. Under the Chiesi Agreement, Chiesi made an upfront payment to Protalix Ltd. of $25.0 million in connection with the execution of the agreement and Protalix Ltd. is entitled to additional payments of up to $25.0 million in development costs, capped at $10.0 million per year. Protalix Ltd. is also eligible to receive additional payments of up to $320.0 million, in the aggregate, in regulatory and commercial milestone payments. Under the terms of the Chiesi Agreement, Protalix Ltd. will manufacture all of the PRX-102 needed for all purposes under the agreement, subject to certain exceptions, and Chiesi will purchase pegunigalsidase alfa from Protalix, subject to certain terms and conditions. Chiesi will make tiered payments of 15% to 35% of its net sales, depending on the amount of annual sales, as consideration for the supply of pegunigalsidase alfa. Based on its current cash resources and commitments, the Company believes it will be able to maintain its current planned development activities and the corresponding level of expenditures for at least 12 months from the date of approval of the June 30, 2018 financial statements, although no assurance can be given that it will not need additional funds prior to such time. If there are unexpected increases in general and administrative expenses or research and development expenses, the Company may need to seek additional financing. b. Basis of presentation 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, 2017, filed by the Company with the Commission. The comparative balance sheet at December 31, 2017 has been derived from the audited financial statements at that date. c. Net loss per share Basic (loss) earnings per share (“LPS”) are computed by dividing net loss (income) by the weighted average number of shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), outstanding for each period. Diluted loss 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. Potentially dilutive shares include additional shares of Common Stock issuable upon the assumed conversion of the convertible notes (issued in September 2013 and December 2016). The loss and weighted average number of shares outstanding used to calculate (loss) earnings per share were as follows: Six Months Ended Three Months Ended June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017 Net loss (income) for the period $ (20,694 ) $ (58,698 ) $ (11,294 ) $ 450 Financial income, net of convertible notes - - - $ (11,847 ) Loss used for the computation of diluted loss per share $ (20,694 ) $ (58,698 ) $ (11,294 ) $ (11,397 ) Weighted average shares of common stock outstanding for basic calculation 145,985,445 126,000,782 146,644,450 127,523,706 Weighted average dilutive effect of shares issuable upon conversion of convertible notes - - - 65,066,683 Weighted average dilutive effect of stock options - - - 8,000 Weighted average shares of common stock outstanding for diluted calculation 145,985,445 126,000,782 146,644,450 192,598,389 Diluted operations. The calculation of diluted LPS does not include 74,087,411 and 73,306,448 shares of Common Stock underlying outstanding options and restricted shares of Common Stock and shares issuable upon conversion of the convertible notes (issued in September 2013 and December 2016) for the six months ended June 30, 2017 and 2018, respectively, and 72,836,697 shares of Common Stock for the three months ended June 30, 2018 because the effect would be anti-dilutive. The calculation of diluted LPS does not include 5,059,186 shares of Common Stock underlying outstanding options for the three months ended June 30, 2017, because the effect would be anti-dilutive. d. Revenue recognition 1. Revenues from supply agreements The Company recognizes revenues from supply agreements and from selling products when control is transferred to the customer and collectability is probable. 2. Revenues from Chiesi Agreement As Chiesi is obligated to acquire pegunigalsidase alfa from the Company and the development services are not considered distinct, development and manufacturing of a product to be commercialized by Chiesi is viewed as a single performance obligation. Since there is only one performance obligation, all payments received by Chiesi prior to the satisfaction of the Company’s obligation will be deferred. Therefore, the $25.0 million upfront payment and future research and development reimbursement payments (up to $25.0 million) and any potential additional development milestone payments are contract liabilities and will be deferred until the commencement of commercial manufacturing. e. Recently adopted standards In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance on revenues from contracts with customers that will supersede most current revenue recognition guidance, including industry-specific guidance. The underlying principle is to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions require capitalization of certain contracts costs, consideration of the time value of money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount timing and uncertainty of revenues and cash flows arising from an entity’s contracts with customers. The guidance is effective for the interim and annual periods beginning on or after December 15, 2017. On January 1, 2018, the Company adopted the new accounting standard, ASC 606, Revenue from Contracts with Customers, and all the related amendments, using the modified retrospective method. The implementation of this Accounting Standards Update (ASU) did not have a material impact on the Company’s consolidated financial statements. In January 2016, the FASB issued ASU, No. 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The guidance affects the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. The guidance is effective for annual reporting periods beginning after December 15, 2017. The implementation of this ASU did not have a material impact on the Company’s consolidated financial statements. |
