| Writer’s Direct Contact | ||
| 212.468.8163 | ||
| JTanenbaum@mofo.com |
November 24, 2010
Mr. Jeffery Riedler
Assistant Director
Division of Corporation Finance
U.S. Securities and Exchange Commission
100 F. Street, N.E.
Washington, D.C. 20549
Assistant Director
Division of Corporation Finance
U.S. Securities and Exchange Commission
100 F. Street, N.E.
Washington, D.C. 20549
| RE: | Protalix BioTherapeutics, Inc. Form 10-K for the Fiscal Year ended December 31, 2009 Filed February 26, 2010 File No. 001-33357 |
Ladies and Gentlemen:
On behalf of our client, Protalix BioTherapeutics, Inc., a Florida corporation (the “Company”),
transmitted herewith are responses to the Staff’s comments to the Company’s Annual Report on Form
10-K for the fiscal year ended December 31, 2009 (the “2009 Form 10-K”), which comments were set
forth in the Staff’s letter dated November 16, 2010 (the “Comment Letter”) to David Aviezer, Ph.D.,
the Company’s Chief Executive Officer. References to the Company in this response letter include
the Company and its wholly-owned subsidiary, Protalix Ltd., unless stated otherwise. The Staff
presented its original comments to the Company in a letter to Dr. Aviezer dated September 22, 2010
(“Original Letter”), and the Company responded to the Original Letter with a response letter from
this firm dated October 12, 2010 (the “Original Response”). For ease of reference, we have noted
the Staff’s comments in bold faced type and the responses in regular type.
Item 1. Business
| 1. | We note that your responses to comments 1, 3 and 6 state that the annual maintenance fees were granted confidential treatment. It appears that these requests were granted without the benefit of staff review. Please disclose the amounts of these payments or tell us why you believe the amount of these payments is not material information. |
Response: In response to this comment, the Company intends to disclose the amount of the
annual license maintenance fees under its license agreements with both the Yissum Research and
Development Company and the Yeda Research and Development Company Limited in its next Annual Report
on Form 10-K and all other applicable filings under the Securities Act of 1933,
and the Securities
Exchange Act of 1934. The Company respectfully notes that there are no annual maintenance fees
under its license agreement with Icon Genetics AG. In Exhibit A and Exhibit B to
this letter, we have provided, on the Company’s behalf, revised examples of the disclosure that the
Company intends to make in its next annual report in response to this comment. These exhibits will
replace Exhibit A and Exhibit B to the Original Response. In each of Exhibit A and
Exhibit B, the Company has added a sentence regarding the annual fees payable under the
applicable license agreement. The Company has also provided a revised Exhibit D to clarify certain
disclosure regarding the Company’s obligation to pay royalties under the applicable license
agreement.
Item 11. Executive Compensation
Compensation Discussion and Analysis, page 65
| 2. | We note your response to our prior comment 9. Your response is unclear as you state that the Compensation Committee has established a bonus plan for “certain milestones” and that the Compensation Committee determines awards on a “discretionary basis.” If the Compensation Committee identified and communicated goals to be used to determine whether a bonus is paid and the amount of the bonus, please disclose all goals set by the Committee, identify which goals were achieved and explain how the level of achievement was used to determine the amount of each officer’s bonus. If there were no predetermined goals and the awards were based solely on the discretion of the Committee and the Committee based its discretion on the achievements identified, please clarify that there were no predetermined goals. |
Response: In February 2010, the Company’s Board of Directors, acting upon a resolution of
a majority of the independent directors, awarded bonuses payable to the Company’s named executive
officers in two tranches. The first tranche was awarded and payable at the discretion of the Board
of Directors and without the consideration of any predetermined goals. The second tranche of bonus
payments are payable upon the Company’s achievement of certain milestones relating to the progress
towards the anticipated commercialization of taliglucerase alfa, but are not based upon any
predetermined, individual goals communicated to any executive officer. The Company has revised the
language in Exhibit F to clarify the proposed disclosure. Exhibit F will replace
Exhibit F to the Original Response.
The Company notes that in September, 2010, the Company made its first shipment of taliglucerase
alfa, the first milestone in the second tranche of the milestone-based bonus payments. Promptly
after the achievement of that milestone, the Company paid the entire allocated amount to each named
executive officer, respectively. The Company intends to include disclosure regarding the final
bonus payments made in 2010 in its Annual Report on Form 10-K for the year ending December 31,
2010.
* * *
2
Please call the undersigned at the telephone number set forth above or Joseph Magnas at
212-336-4170 with any question or comment you may have regarding the responses set forth herein.
In addition, please send all written correspondence directly to the undersigned and Joseph Magnas
of Morrison & Foerster LLP, 1290 Avenue of the Americas, New York, New York 10104, telecopy
212-468-7900, with copies to David Aviezer, Ph.D., the Company’s President and Chief Executive
Officer, at 2 Snunit Street, Science Park, P.O.B. 455, Carmiel 20100, Israel, telecopy
+972-4-988-9489.
Sincerely,
/s/ James R. Tanenbaum
| cc: | David Aviezer, Ph.D. Yossi Maimon |
3
Exhibit A
In August 2007, Protalix Ltd. licensed the rights to certain technology under a research and
license agreement with Yissum Research and Development Company, or Yissum, and the Boyce Thompson
Institute, Inc., or Boyce Thompson. Pursuant to the agreement, we are developing a proprietary
plant cell-based acetylcholinesterase (AChE) and its molecular variants for the use in several
therapeutic and prophylactic indications, as well as in a biodefense program and an
organophosphate-based pesticide treatment program. Under the terms of the agreement, Yissum and
Boyce Thompson granted us an exclusive, worldwide right and license to certain technology,
including patents and certain patent applications relating to AChE for the therapeutic and
prophylactic indications as well as an exclusive license not limited to such indications with
respect to certain of those patents and patent applications. As consideration for the license, we
are obligated to pay Yissum and Boyce Thompson, collectively, an annual, non-refundable initial
maintenance fee of $20,000, commencing on the fourth anniversary of the execution of the agreement,
which is subject to a 12% annual increase. In addition, we are obligated to make royalty payments
equal to varying low, single-digit percentages of net sales of products under the agreement. These
royalty rates are evaluated on a country-by-country basis, and are subject to reduction if a third
party commercializes a competing product or commercializes an authorized generic version of the
applicable product, subject to certain conditions. We also have the right to grant sublicenses
relating to the licensed technology under the agreement, subject to the payment of sublicensing
fees. The fees payable in connection with any sublicense are equal to varying percentages, in the
low-teens through the low-twenties, of the consideration we receive in connection with the
sublicense, depending on the level of clinical development of the product at the time we enter into
the sublicense. Last, we are obligated to pay Yissum and Boyce Thompson, collectively, milestone
payments equal to $700,000, in the aggregate, upon the achievement of certain milestones under the
license agreement.
The license agreement remains in effect until the expiration of all obligations to Yissum and
Boyce Thompson under the agreement, determined on a country-by-country basis. We have the right to
terminate the agreement for any reason upon 60 days’ prior written notice to Yissum and Boyce
Thompson. Subject to certain conditions, Yissum and Boyce Thompson may terminate the agreement
immediately upon written notice to us in connection with certain events relating to bankruptcy,
lapses in our insurance coverage, failures to defend against third party claims or claims we may
make regarding the validity or enforceability of any licensed patent. We or Yissum and Boyce
Thompson may terminate the agreement within 60 days after receiving written notice if the
non-terminating party passes a resolution for a voluntary wind up, if a receiver or liquidator is
appointed for the non-terminating party, or the non-terminating party enters into an insolvency or
bankruptcy proceeding. In addition, either party may terminate the agreement due to a material
breach by the other party if the breaching party is unable to cure the breach within 60 days after
receiving written notice of the breach from the non-breaching party. Any termination of the
agreement will result in a loss of our rights to the licensed technology, which will revert back to
Yissum and Boyce Thompson.
Exhibit B
In March 2006, Protalix Ltd. entered into a research and license agreement with the Yeda
Research and Development Company Limited, or Yeda, the technology transfer arm of the Weizmann
Institute of Science. Under the terms of the agreement, Yeda agreed to use its technology to
design a next generation of glucoceribrosidase (GCD) for the treatment of Gaucher disease that can
be expressed using our ProCellEx protein expression system and that may have certain benefits over
the first generation treatments used today. The technology licensed from Yeda provides a
methodology for the rational design of an improved drug for the treatment of Gaucher disease by
enzyme replacement therapy, based on the three-dimensional crystal structure of glucoceribrosidase
(GCD) that was solved by scientists from the Weizmann Institute of Science. Yeda has granted us an
exclusive worldwide license to use their technology and discoveries for the development, production
and sale of enzymatically active mutations of glucoceribrosidase (GCD) and derivatives thereof for
the treatment of Gaucher disease. Under the terms of the agreement, we are required to take all
necessary steps to develop and commercialize the products subject to the agreement.
As consideration for the license, we agreed to pay Yeda a fixed research budget amount,
subject to certain conditions. We have since completed the research phase of the arrangement with
Yeda. Accordingly, we are no longer making any research-related payments to Yeda under the
agreement. In addition, we are obligated to make an annual non-refundable license fee of $10,000
during the term of the agreement, commencing on the fifth anniversary of the execution of the
agreement until, and including, the 19th anniversary thereof. We are also obligated to
make royalty payments equal to varying low, single-digit percentages of net sales of products under
the agreement. Sublicenses relating to the licensed technology may be granted under the agreement,
subject to the payment of sublicensing fees. The fee for any sublicense is equal to a percentage,
ranging from the low-teens through the low-twenties, of the consideration we receive in connection
with the sublicense, depending on the level of clinical and regulatory development of the products
under the agreement at the time we enter into the sublicense.
The license agreement remains in effect until the earlier of the expiration of the last patent
licensed under the agreement or if there are no commercial sales of any products for a continuous
period of 20 years. Yeda may modify the exclusivity component of the agreement by written notice
to us and without our consent. Yeda may terminate the agreement by written notice to us if we fail
to satisfy any one or more specified milestones, and we fail to cure any such failure within a
certain time period after we receive the notice. Yeda is not entitled to exercise this termination
right if we demonstrate that we are making all necessary efforts to achieve such milestones, that
our inability to satisfy the milestones is due to factors beyond our control, and that the total
delay with respect to any one milestone does not exceed 12 months and the total cumulative delay in
respect of all milestones has not exceeded 30 months. Yeda may also terminate the agreement if we
contest the validity of any of the patents included in the agreement. We or Yeda may terminate the
agreement due to a material breach by the other party if the breach is unable to be cured or, if
curable, the breach is not cured within 21 days after the breaching party’s receipt of written
notice of the breach from the non-breaching party. In addition, either party may terminate the
agreement in connection with certain events relating to a wind up or bankruptcy.
Exhibit D
In April 2005, Protalix Ltd. entered into a license agreement with Icon Genetics AG, or
Icon, pursuant to which we received an exclusive worldwide license to develop, test, use and
commercialize Icon’s technology to express certain proteins in our ProCellEx protein expression
system. Under the terms of the agreement, we are also entitled to a non-exclusive worldwide
license to make and have made other proteins expressed by using Icon’s technology in our
technology. As consideration for the license, we are obligated to make royalty payments equal to
varying low, single-digit percentages of net sales of products by us, our affiliates, or any
sublicensees under the agreement. In addition, we are obligated to make milestone payments
equal to $350,000, in aggregate, upon the achievement of certain milestones.
The license agreement remains in effect until the earlier of the expiration of the last patent
under the agreement or, if all of the patents under the agreement expire, 20 years after the first
commercial sale of any product under the agreement. Icon may terminate the agreement upon written
notice to us that we are in material breach of our obligations under the agreement and we are
unable to remedy such within 30 days after we receive such notice. Further, Icon may terminate the
agreement in connection with certain events relating to a wind up or bankruptcy, if we make a
general assignment for the benefit of our creditors, or if we cease to conduct operations for a
certain period. Icon may also terminate the exclusivity granted to us by written notice if we fail
to reach certain milestones within a designated period of time. Notwithstanding the termination
date of the agreement, our obligation to pay royalties under the agreement to Icon may expire prior
to the termination of this agreement, subject to certain conditions.
Exhibit F
Annual Bonus. The Compensation Committee has the authority to award discretionary annual
bonuses to our executive officers. For 2010, the Compensation Committee has established a formal
bonus plan for certain milestones, as described below. The discretionary annual bonus awards are
intended to compensate officers for achieving financial, clinical, regulatory and operational goals
and for achieving individual annual performance objectives. For any given year, the compensation
objectives vary, but relate generally to strategic factors such as developments in our clinical
path, the execution of a license agreement for the commercialization of product candidates, the
establishment of key strategic collaborations, the build-up of our pipeline and financial factors
such as raising capital. Bonuses are awarded generally based on corporate performance, with
adjustments made within a range for individual performance, at the discretion of our Compensation
Committee. Our Compensation Committee determines, on a discretionary basis, the size of the entire
bonus pool and the amount of the actual award to each named executive officer.
Our Compensation Committee will select, in its discretion, the executive officers of our
company or our subsidiary who are eligible to receive bonuses for any given year. Any bonus
granted by the Compensation Committee will generally be paid in the first quarter of the year,
unless such bonus was, by its terms, made payable upon the achievement of a specific milestone.
The Compensation Committee has not fixed a minimum or maximum award for any executive officer’s
annual discretionary bonus, unless specified in the officer’s employment agreement.
Each of our executive officers is eligible for a discretionary annual bonus under his or her
employment agreement. The Compensation Committee determined the discretionary annual bonus to be
paid to our executive officers for performance in 2009 and in 2008. The Compensation Committee has
not fixed a minimum or a maximum amount for any officer’s annual discretionary bonus, nor is any
executive officer entitled to a minimum or maximum bonus amount under his or her employment
agreement.
On February 25, 2010, our Board of Directors, acting upon the resolution of a majority of our
independent directors, decided to pay bonuses to our executive officers and other employees in two
tranches. The aggregate amount of all of the bonuses awarded or reserved for award by the Board of
Directors pursuant to the resolution was approximately $2.6 million. The first tranche of bonus
payments awarded in February 2010 to our named executive officers and other employees was for
approximately $1.1 million in the aggregate. These bonuses were made on a discretionary basis to
acknowledge and compensate our executive officers for their contributions towards the completion of
our phase III clinical trial of our lead product candidate, taliglucerase alfa, the upgrade of our
manufacturing facility during the years 2008 and 2009, and specifically with the execution of the
license and supply agreement with Pfizer relating to taliglucerase alfa. The decision to grant the
awards constituting the first tranche of bonuses in 2010 was not based on any predetermined goal
set for any named executive officer. However, in making this compensation decision, the
Compensation Committee took into account the Board of Directors’ decision to refrain from awarding
bonuses to our executive officers and others in 2009 due to the general market conditions and our
cash balance at that time. Of the approximately $1.1 million made available for the first tranche
of the bonuses, our Board of Directors awarded Dr. Aviezer $500,000; Dr. Shaaltiel $160,000; Dr.
Brill Almon $160,000; and Mr. Maimon $160,000. These bonus payments were made in March 2010.
The remaining $1.5 million approved by our Board of Directors in February 2010 was reserved
for future payment to our named executive officers and other employees. The second tranche of
bonus payments will generally become payable upon the achievement of the milestones described in
the following tables, if at all:
First shipment of taliglucerase alfa
| Named Executive Officer | Anticipated Bonus Amount | |||
David Aviezer, Ph.D., MBA |
— | |||
Yoseph Shaaltiel, Ph.D. |
$ | 100,000 | ||
Einat Brill Almon, Ph.D. |
$ | 20,000 | ||
Yossi Maimon |
$ | 20,000 | ||
Total |
$ | 140,000 | ||
Approval of taliglucerase alfa by the FDA
| Named Executive Officer | Anticipated Bonus Amount | |||
David Aviezer, Ph.D., MBA |
$ | 400,000 | ||
Yoseph Shaaltiel, Ph.D. |
$ | 140,000 | ||
Einat Brill Almon, Ph.D. |
$ | 140,000 | ||
Yossi Maimon |
$ | 140,000 | ||
Total |
$ | 820,000 | ||
Other than the achievement of the corporate milestones set forth above, the anticipated
amounts allocated to each executive officer were not based upon any predetermined goals with
respect to any individual named executive officer. Further, no individual goals have been
communicated to any individual named executive officer with respect to the eventual payment of the
bonuses. The remaining approximately $500,000 was allocated to other employees, subject to the
same criteria.
F-2