NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

Protalix BioTherapeutics, Inc. (collectively with its subsidiaries, the “Company”), and its wholly-owned subsidiary, Protalix Ltd. (the “Israeli Subsidiary” or “Protalix Ltd.”), are biopharmaceutical companies focused on the development and commercialization of recombinant therapeutic proteins based on the Company’s proprietary ProCellEx^® protein expression system (“ProCellEx”). In September 2009, Protalix Ltd. formed another wholly-owned subsidiary under the laws of the Netherlands, Protalix B.V, in connection with the European Medicines Agency ("EMA") application process in Europe. The Company’s two subsidiaries are referred to collectively herein as the “Subsidiaries.”

On May 1, 2012, the FDA approved taliglucerase alfa, the Company’s first approved drug product, 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. Taliglucerase alfa will be marketed under the brand name ELELYSO™. Taliglucerase alfa is a proprietary, recombinant form of glucocerebrosidase (GCD) that the Company developed using ProCellEx. Taliglucerase alfa is the first FDA-approved plant cell-based recombinant therapeutic protein.

Taliglucerase alfa will be marketed in the United States by Pfizer Inc. ("Pfizer"), the Company's commercialization partner, as provided in the exclusive license and supply agreement by and between Protalix Ltd., the Company's wholly-owned subsidiary, and Pfizer (the "Pfizer Agreement"). Protalix Ltd. granted to Pfizer an exclusive, worldwide license to develop and commercialize taliglucerase alfa under the Pfizer Agreement but retained those rights in Israel. The Company has agreed to a specific allocation between Protalix Ltd. and Pfizer regarding the responsibilities for the continued development efforts for taliglucerase alfa. To date, the Company has received an upfront payment of $60.0 million, in connection with the execution of the Pfizer agreement and shortly thereafter an additional $5.0 million upon the Company’s filing of a proposed pediatric investigation plan to the Pediatric Committee of the EMA. Upon the FDA's approval of taliglucerase alfa in the United States, an additional $25.0 million milestone payment became payable and, in addition, the Company is eligible to receive potential milestone payments equal to$25.0 million for matters relating to the successful achievement of regulatory approval of taliglucerase alfa in the EU. The agreement provides that the Company share with Pfizer the future revenues and expenses for the development and commercialization of taliglucerase alfa on a 40% and 60% basis, respectively.

The Company is cooperating with Pfizer to obtain marketing approval for taligulcerase alfa in additional countries and jurisdictions. In the fourth quarter of 2010, Pfizer filed a Marketing Authorization Application, or MAA, for taliglucerase alfa with the European Medicines Agency, or EMA. As part of its ongoing review of the MAA, the EMA delivered a list of outstanding points to be addressed by the applicant. Among the topics currently in discussion, is the orphan drug designation and exclusivity granted by the EMA/European Commission to VPRIV, Shire plc's, or Shire's, Gaucher disease treatment, which could prevent the marketing authorization of taliglucerase alfa in the European Union for a 10-year market exclusivity period commencing as of the August 2010 marketing authorization of VPRIV in the European Union. As part of the MAA procedure, Pfizer, with The Company's cooperation, is challenging VPRIV's orphan market protection with respect to taliglucerase alfa pursuant to the EU orphan drug regulation. The EU orphan drug regulation provides for the possibility of such a challenge, and for an exception to this exclusivity to be granted, based on a number of factors, including contribution to patient care, clinical, supply, capacity and others.

In addition to taliglucerase alfa, the Company is developing certain other products using ProCellEx.

Following the submission of the taliglucerase alfa MAA to the EMA, a good manufacturing practices ("GMP") audit of the Company's manufacturing facility was performed and it was found compliant with EMA GMP in December 2011. In addition, marketing applications have been submitted for taliglucerase alfa with each of the Israeli Ministry of Health, or the Israeli MOH, the National Sanitary Vigilance Agency, or ANVISA, an agency of the Ministry of Health of Brazil, and the Australian Therapeutic Goods Administration, or the Australian TGA.

In January 2010, the EMA's Committee for Orphan Medicinal Products, after reviewing all relevant clinical data, recommended that the European Commission grant orphan drug designation to taliglucerase alfa for the treatment of Gaucher disease and in March 2010, the European Commission granted orphan designation to taliglucerase alfa. In September 2009, the FDA’s Office of Orphan Product Development granted taliglucerase alfa Orphan Drug Status.

Although commercial sales of taliglucerase alfa in the United States have not yet been commenced, and taliglucerase alfa has not yet been approved for commercial sale outside of the United States, patients are being treated with taliglucerase alfa, both in the framework of the Company's clinical trials and related studies and in compassionate use programs, special access agreements, named patient provisions and other programs designed to ensure that treatments are available to Gaucher patients in light of recent shortages of approved treatments. In July 2009, following a request by the FDA, the Company submitted a treatment protocol to the FDA in order to address an expected shortage of the current enzyme replacement therapy approved for Gaucher disease. The treatment protocol was approved by the FDA in August 2009, and the Company is continuing to treat patients in the United States under this protocol. On July 13, 2010, the Company announced that the French regulatory authority had granted an Autorisation Temporaire d'Utilisation (ATU), or Temporary Authorization for Use, for taliglucerase alfa for the treatment of Gaucher disease. An ATU is the regulatory mechanism used by the French Health Products and Safety Agency to make non-approved drugs available to patients in France when a genuine public health need exists. This ATU allows Gaucher patients in France to receive treatment with taliglucerase alfa before marketing authorization for the product is granted in the European Union. Payment for taliglucerase alfa has been secured through government allocations to hospitals. In addition to the United States and France, taliglucerase alfa is currently being provided to Gaucher patients under special access agreements or Named Patient provisions in Brazil and in other countries.

On August 10, 2010, Pfizer entered into a short-term supply agreement with the Ministry of Health of Brazil pursuant to which the Company and Pfizer have provided taliglucerase alfa to the Ministry of Health of Brazil for the treatment of Gaucher patients. During the remainder of 2010 and the first quarter of 2011, the Company and Pfizer completed the supply of products deliverable under the short-term supply agreement. During 2011, Pfizer recorded an allowance for sales returns in connection with the supply agreement because the Brazilian Ministry of Health requested that Pfizer consider the replacement of certain vials that might expire during 2012. Revenue, net of allowance for sales returns, generated from the Brazilian Ministry of Health was recorded by Pfizer, and the Company recorded its share of such revenues in accordance with the terms and conditions of the Pfizer Agreement.

Liquidity and Financial Resources

In addition to the FDA approval, successful completion of the Company’s development programs and its transition to normal operations is dependent upon obtaining necessary foreign regulatory approvals must be obtained to sell its products internationally. Pursuant to the Pfizer agreement, upon the FDA's approval of taliglucerase alfa in the United States, a $25.0 million milestone payment became payable. In addition, the Company is eligible to receive potential milestone payments equal to $25.0 million, in the aggregate, for matters relating to the successful achievement of regulatory approval of taliglucerase alfa in the EU. Notwithstanding the FDA's approval of taliglucerase alfa, there can be no assurance that the Company will receive regulatory approval of taliglucerase alfa in the EU or any other jurisdiction, nor is there any assurance that the Company will receive regulatory approval of any of its other product candidates, and a substantial amount of time may pass before the Company achieves a level of revenues adequate to support its operations, if at all. The Company also expects to incur substantial expenditures in connection with the regulatory approval process for each of its product candidates during their respective developmental periods. Obtaining marketing approval will be directly dependent on the Company’s ability to implement the necessary regulatory steps required to obtain marketing approval in the United States and in other countries. The Company cannot predict the outcome of these activities.

Based on its current cash resources and commitments, and cash proceeds payable by Pfizer upon the milestones under the Company's agreement with Pfizer, the Company believes it will be able to maintain its current planned development activities and the corresponding level of expenditures for at least the next 12 months, 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 during the next 12 months.

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, 2011, filed by the Company with the Securities and Exchange Commission. The comparative balance sheet at December 31, 2011 has been derived from the audited financial statements at that date.

Net loss per share

Basic and diluted loss per share (“LPS”) are computed by dividing net loss by the weighted average number of shares of the Company’s common stock, par value $.001 per share (the “Common Stock”), outstanding for each period.

Diluted LPS does not include options to purchase 7,373,768 and 7,643,024 shares of Common Stock for the three months ended March 31, 2012 and 2011, respectively, because the effect would be anti-dilutive.