pluristem initiation buy - $8 target

Maxim Group LLC 405 Lexington Avenue New York, NY 10174 – www.maximgrp.com

SEE PAGES 24 - 26 FOR IMPORTANT DISCLOSURES AND DISCLAIMERS

EQUITY RESEARCH

INITIATION

Biotechnology

Closing Price 7/24/2012 $3.18

12-Month Target Price: $8.00

52-Week Range: $1.98-$3.85

Market Cap (M): $139

Shares O/S (M): 43,713

Float (M): 39,342

Avg. Vol. (000) 223

Cash & Cash Equivilents (M) Q1-2012 38,629

Debt (M) $0

Dividend/Yield: $0.00/0.00%

Risk Profile: Speculative

Revenues 2017 2018

CLI $181 $347

FYE: December GAAP EPS P/E

2011A (0.35)$ nm

2012E (0.31)$ nm

2013E (0.42)$ nm

2014E (0.43)$ nm

2015E (0.31)$ nm

2016E 0.04$ 71.4

2017E 1.66$ 1.9

2018E 3.30$ 1.0

Source: Edgar as of 07/24/2012

Jason Kolbert (212) 895-3516

[email protected]

July 24, 2012Initiation Buy

Pluristem Therapeutics Inc.

(PSTI – NASDAQ – $3.18)

Pluristem: A Unique Allogeneic Product

We are initiating coverage of Pluristem Therapeutics Inc. with a Buy rating and $8.00 price target. We believe that PSTI is a well-positioned company with a unique product and a strong SWOT (strengths, weaknesses, opportunities, and threats) product analysis that we expect to progress solidly over the next year as a global phase II trial begins in intermittent claudication (IC).

United Therapeutics has opted in. In June 2011, Pluristem signed a license with United Therapeutics (UTHR, $49.87, Not Rated) for the development of PLX cells in pulmonary disorders. The license agreement initiated at $7M and includes an additional $37.5M in regulatory milestones, as well as other attractive elements. We believe this could be one of many therapeutically focused deals to come.

Clinical programs are getting ready to begin. In July, Pluristem announced (in anticipation of the start of the phase II study in IC) that the company has selected CPC Clinical Research for trial support services related to enrolling and sustaining clinical sites. The IC study population will be comprised of ~150 patients (Fontaine class IIb/Rutherford category 2-3) in a dose-escalation, placebo-controlled, double-blinded study.

Great manufacturing system. Pluristem utilizes Placental eXpanded (PLX cells) in the treatment of a variety of inflammatory and ischemic conditions. The company has developed a manufacturing system which utilizes a bioreactor that allows the growth of cells in a 3D culturing methodology and the process is designed to simulate a range of ischemic conditions which allows the product to be tailored for specific indications (such as PAD, CLI, ARS, PAH, and even orthopedics). The system itself is designed to be very efficient translating into high manufacturing margins.

Model assumptions. We assume Pluristem enters the critical limb ischemia (CLI) market in 2016. We are not assuming any other revenues as part of our model; however, we believe that it is extremely likely that Pluristem will advance multiple programs into the clinic later this year and next.

Compelling valuation. We provide three valuation metrics – FCF, discounted EPS, and sum of the parts – and are modeling PSTI out to 2018. We only assume success in CLI and have not included milestones or deal revenues related to United Therapeutics or other new partners. This derives a 2018 EPS number of $3.30, which we discount at 30% and equallyweight the three metrics to derive an $8.00 price target.

Pluristem Therapeutics (PSTI)

Maxim Group LLC 2

CORPORATE PROFILE

Pluristem Therapeutics (PSTI) MATAM Advanced Technology Park #20

Haifa 31905 Israel

Phone: (972) 74-710+7171

Web site: www.pluristem.com

Senior Management:

Zami Aberman, President and CEO. Mr. Aberman,

“Zami,” joined Pluristem in September 2005 and

changed the company’s strategy towards cellular

therapeutics. Mr. Aberman’s vision to use the maternal

section of the placenta (decidua) as a source for cell

therapy, combined with Pluristem’s 3D culturing

technology, led to the development of company-unique

products. Mr. Aberman brings to Pluristem a keen sense

of business and entrepreneurship.

Yaky Yanay, Chief Financial Officer, Prior to joining

Pluristem, Mr. Yanay was the Chief Financial Officer of

Elbit Vision Systems Ltd., before which he served as

manager of audit groups of the technology sector at Ernst

& Young Israel. He holds a bachelor's degree with

honors in business administration and accounting and is a

Certified Public Accountant in Israel.

Company Background. Pluristem Therapeutics Inc.

(PSTI) is a leading developer of placenta-based cell

therapies. The company's patented PLX (PLacental

eXpanded) cells drug delivery platform releases a

cocktail of therapeutic proteins in response to a variety of

local and systemic inflammatory diseases. PLX cells are

grown using the company’s proprietary 3D micro-

environmental technology and are an off-the-shelf

product that require no tissue matching or immune-

suppression treatment prior to administration. The PLX-

PAD comprehensive clinical development plan has been

recognized by both the EMA and FDA, targeting a sub-

population of 20-million patients of the peripheral artery

disease (PAD) market.

Data from two Phase I clinical trials indicate that

Pluristem’s first PLX product, PLX-PAD, is safe and

potentially effective for the treatment of end-stage PAD.

Pluristem’s pre-clinical animal models have

demonstrated that PLX cells are also potentially effective

in nerve pain and muscle damage when administered

locally and in inflammatory bowel disease, MS, and

stroke when administered systemically. Pluristem has a

strong patent portfolio, company-owned GMP certified

manufacturing and research facilities, strategic

relationships with major research institutions, and a

seasoned management team.

Investment Risks:

Clinical trial risk Manufacturing and product quality SWOT Risk. (strengths,

weaknesses, opportunities, and threats) as Pluristem is likely to be the second cell-based product in the CLI marketplace.

The potential need to raise additional capital

(PLEASE SEE PAGES 19, 23-25 FOR A

MORE DETAILED OUTLINE OF OUR

“INVESTMENT RISKS”)

Institutional Ownership: 20%

Inside Ownership: 14%

Shares Short: 0.5M

Balance Sheet Summary: $MM

(As of Mar 31, 2012)

Cash & Restricted Cash: $40

Long-Term Debt: (M) $0.0

Quarterly Burn Rate ($3-4)

Analysts Following the Co.: 4

(Excluding Maxim Group)

Pluristem Therapeutics, Inc. (PSTI)

Maxim Group LLC 3

COMPANY OVERVIEW

Pluristem Therapeutics is a biotherapeutics company formed in 2003 and focused on the

development of allogeneic, non-embryonic, adult stem cell-based cellular therapies that are

derived from the human placenta for the treatment of degenerative, ischemic, and autoimmune

disorders. These PLX products (Placental eXpanded) are off-the-shelf, ready-to-use products that

do not require histocompatibility matching or immunosuppression. The company is initially

focused on advancing its lead clinical candidate, PLX-PAD, for treatment of critical limb

ischemia and IC. In addition, the company is evaluating programs to address unmet needs in

orthopedics, bone marrow transplantation neuropathic and inflammatory pain, inflammatory

bowel disease, muscle trauma stroke, and multiple sclerosis. Pluristem’s headquarters, research

and development laboratory, and manufacturing facility (cGMP approved), are located in Haifa,

Israel.

Exhibit 1. Upcoming Catalysts for Pluristem Product Event Timing Significance

PLX-Critical Limb Ischemia Phase I data released 2011 completed

PLX-Critical Limb Ischemia Phase II/III Program Begins 2013 +

PLX-Claudication Begin PII study Q4-2012 +

PLX - Buerger's Disease Begin PII study, "orphan - fast pathw ay" to marketplace (Jump to PIII?) 2H-2013 +

Muscle Injury - Hip Replacement Phase I/II -submitted to the PEI for approval 2H-2012 +

PLX-Orthopedic Begin PII study 2H-2012 +

Ischemic Heart Disaese, Diastolic HF Begin PII study tbd

PLX-Stroke Begin PII study tbd

PLX-Bone Marrow Transplantation/GvHD/ARS Begin PII study tbd

PLX-Multiple Sclerosis Begin PII study tbd

PLX-Pulmponary Hypertension Begin PI (w ith United Therapeutics) study 2H-2012

IV Administration Formulation and Biodistribution Development 2012 +

Rheumatoid Arthritis Phase II Study 2014 +

IBD Phase II Study 2014 +

Stock Signif icance Scale: + of moderate importance; ++ higher level; +++ highly

Source: Maxim estimates

Exhibit 2. Pluristem’s Development Pipeline

Source: Pluristem


Maxim Group LLC 4

Financials. In February 2011, Pluristem raised approximately $40 million from a public offering.

In June 2011, the company entered into an exclusive license agreement with United Therapeutics

for the use of our PLX cells to develop and commercialize a cell-based product for the treatment

of PAH. We estimate that the company has approximately $40 million in cash and cash assets

and will spend approximately $15 million in 2012.

The license agreement allows United exclusive worldwide licensing rights for the development

and commercialization of PLX cell-based product to treat PAH. Under the terms of the

agreement, Pluristem was paid $7 million upfront (in August 2011), and there may be up to $37.5

million in regulatory milestones along with reimbursement of up to $10 million for certain

expenses related to the possible establishment of a manufacturing facility in North America. In

addition, United will cover all development costs. Following commercialization of the product,

United will pay a royalty and agree to purchase commercial supplies of the developed product

from Pluristem at a specified margin over cost.

Intellectual property (IP). In 2007, Pluristem purchased patents covering the PluriX Bioreactor

System from the “Technion-Israel Institute of Technology” and the “Weizmann Institute of

Science,” replacing an earlier license – U.S. Patent 6,911,201, issued 6/28/05 – “Method of

producing undifferentiated hematopoietic stem cells using a stationary phase plug-flow

bioreactor.” The company currently has a total of 20 granted patents with 76 applications

pending for production, process, and therapeutic uses. The expiration dates of these patents, based

on filing dates, range from 2019 to 2030. We note that Pluristem can protect its product based on

both IP and several levels of trade secrets and know-how.

Pluristem’s Patent Portfolio:

A propriety expansion method for 3D Stromal Cells

Composition of matter claims on the cells

The therapeutic use of PLX cells for the treatment of a large variety of medical

conditions

Selection criteria for determination of cells suitable for administration.

Bull case. Bulls argue that Pluristem is a fast follower to a company like Aastrom Biosciences

(ASTM-$2.00-Buy Rated), which is now pursuing a pivotal program in critical limb ischemia.

The differences between the companies are significant in that Pluristem utilizes an allogeneic

approach with autologous-like properties. Immuno-privileged cells are derived from the unique

environment of the placenta. Cell vitality becomes a strategic advantage and translates in terms of

potency. In fact, there is a wealth of antidotal information that suggests young cells (placental)

are more potent and vibrant than autologous cells from older patients with co-morbidities. Given

the positive results that others in the space have seen (Aastrom), we believe that PLX cells should

do just as well – if not better. The company also has excellent pre-clinical and Phase I clinical

data that suggest PLX cells down-regulate local inflammation while creating neovascularization

of local tissue. We do not believe that cellular based integration of the host graft is required to

impact the disease (CLI), and that it is these localized paracrine mechanisms that are responsible

for the efficacy seen. Value creation tends to occur in small capitalized biotechnology companies

once proof of concept is established. Early proof of concept (POC) from the current Phase I

safety studies suggests the PLX cells are active. The next step is a larger Phase II/III study, which

could begin in 2H13 with POC data in early 2015. Given the unmet medical need in CLI and the

value of an off-the-shelf, allogeneic therapy, we believe Pluristem could see a significant rise in

valuation on positive Phase II interim data. The Phase II study for IC should start in 3Q12, with

POC data in early 2014.


Maxim Group LLC 5

Bear case. Bears will point out that Pluristem is an early-stage stem cell company with nothing

but Phase I safety data. It is unknown if the PLX cells will show efficacy in any indication, much

less critical limb ischemia, due to its high hurdles. Proof of concept data is still two years away.

Bears likely also have concerns about the company’s small size and its ability to run Global (EU

and U.S.) programs. Given the prior failures [such as Sanofi-Aventis’ (SNA, $66.90, NR)

AMARIS trial in CLI] and the ambiguous results from Aastrom’s Phase II study, CLI hurdles

remain high. Phase II trials are not typically powered high enough to draw statistically valid

conclusions that can predict results in the larger and highly variable CLI population.

Our take. We believe that Pluristem is on the right track. We see the SWOT (strengths,

weaknesses, opportunities, and threats) as quite favorable for the company. We believe the 3D

bio-reactor is an exciting technology, as well as the cell source (maternal, placental derived).

Clinically, the stock needs time, but we believe that fundamental valuation is low given the

potential across multiple indications. We also believe that Pluristem will benefit as other

companies’ trials advance, creating a surrogate proof of concept for PSTI.

INVESTMENT SUMMARY AND CONCLUSION

We are initiating coverage of Pluristem

Therapeutics (PSTI) with a Buy Rating and

a 12-month target price of $8.00

PLURISTEM’S MANUFACTURING PROCESS

Exhibit 3.Schematic drawing of placenta as source of adherent stromal cells (ASC)

Source: www.edward.org/.../ graphics/images/es/17010.jpg

Pluristem: The SWOT Looks Good


Maxim Group LLC 6

Pluristem develops adherent stromal cells (ASC). The cells are (1) extracted from human

placentas received from schedule caesarean sections following childbirth. ASCs are stromal cells

that have surface markers resembling mesenchymal stem cells. The stem cells are obtained from

the maternal side of the placenta, rather than the fetal side, as the company believes the cells on

the maternal side have greater immunomodulatory capability. Placentas are (2) processed,

ensuring lack of contamination and removal of any immune cells, and expanded in two-

dimensional technology. The cells are then (3) cultured on a polystyrene fibrous matrix in a three-

dimensional reactor called the PluriX Bioreactor System, which replicates the natural

environment. This proprietary expansion method permits highly controlled expansion of large

quantities of cells. The expanded cells, referred to as Placental eXpanded cells or PLX, are

recovered from the culture, packaged, and (4) cryopreserved ready-to-use in liquid nitrogen for

later use. The entire process takes about eight weeks, yielding sufficient cells from one placenta

to treat about 10,000 patients (each dose is ~300 million cells). Among the differentiating factors

for Pluristem’s technology are the unique source of cells and the method of manufacturing.

Exhibit 4. PLX Cells’ Manufacturing Process The cells are extracted from the maternal side of the placenta and ultimately grown in a 3D

bioreactor, designed to create a three-dimensional environment.

2D

1

3D

2

34

Like Athersys (ATHX-$1.50-Buy Rated), Osiris (OSIR, $9.33, NR), and Mesoblast (MBLTY-,

$29.95, Buy), Pluristem uses allogeneic cells that can be expanded in culture and used off-the-

shelf without tissue matching or immunosuppression. We believe Pluristem’s three-dimensional

bioreactor manufacturing technology is one of the company’s key differentiators, allowing it to

expand cells more efficiently under a fully controlled, more natural environment (3D versus 2D),

designed to be like the body itself. No external growth factors are used, resulting in a natural cell

growth cycle. The process is designed to keep the number of cell doublings below 25, keeping the

cells young. The process is protected by a U.S. patent (6,911,201). The company currently has a

total of 20 granted patents and about 80 applications pending for production, process, and

therapeutic uses. The system capacity is significant [a 75-liter bioreactor is equivalent to 20,000

tissue (2D) culture flasks]. The 3D bioreactor technology enables the change of the cells’

secretion to include different products from the placenta and control the secretion of anti-

inflammatory and pro-angiogenic cytokines dedicated to different indications. The company

employs a variety of QC measures that ensure consistency between batches across placentas.


Maxim Group LLC 7

Exhibit 5. Adherent Stromal Cells

Left: Microscopic visualization (x40) of placenta-derived ASCs at the 2D growth phase; Center:

Placenta-derived ASCs homing on a carrier in the 3D growth phase (electronic microscope); and

Right: The carrier

Source: Pluristem

Is the PLX Product Cost Effective? Pluristem has stated that, upon scale up, its cost of goods

(manufacturing only) will allow pharmaceutical margins to the product. Average dosing is

expected to be close to 300 million cells. Given the high efficiency of the 3D bioreactor, it’s

likely that one placenta could result in enough products for 10,000 patients.

Why PLX Cells? PLX cells are non-immunogenic; hence, they can be used for transplant

without donor matching. In addition, they appear to possess immunosuppressive properties and

can down-regulate production of pro-inflammatory cytokines and prevent proliferation of pro-

inflammatory cells (refer to Exhibit 9). In a mixed lymphocyte reaction (MLR) test of Pluristem’s

placental stem cells with blood from any donor, the stem cells neither attack nor get attacked by

donor cells. This implies that transplanted PLX cells are unlikely to cause graft vs. host disease or

be rejected. In fact, experimental data has demonstrated that, following administration, cells

responded to the local environment by secreting anti-inflammatory and pro-angiogenic cytokines

that down-regulate inflammatory markers, resulting in the formation of new capillaries. The PLX

cells have a life expectancy of just a few weeks and are then cleared from the body.

Mesenchymal Cells (MSC) General Characteristics: Phenotype. Positive markers: CD105,

CD73, CD90, and CD29 are highly expressed by PLX cells. Negative markers include

hematopoietic markers (CD45, CD34, CD19, CD14, and HLA-DR), and the endothelial marker

CD31. MHC class I: Intermediate levels of HLA major histocompatiility complex molecules.

HLA class II antigens: Do not express HLA class II antigens on the cell surface. Do not express

co-stimulatory molecules, which are typically expressed by antigen presenting cells (APCs) such

as CD80, CD86, and CD40.


Maxim Group LLC 8

Exhibit 6. Mechanism of Action

Inflammatory Environment

IL-6IDO

TGFb

Decrease T cell proliferationDecrease inflammatory signalsTNFa

INF-gIL-10

PLX

Endothelial cell proliferation

Ische

mic

Env

ironm

ent

VEGF

HGF

bFGF Ang-1

Ang-1

PlGF

VEGF

HGF bFGF

IL-17A

IL-1b

Source: Pluristem

Exhibit 7. PLX Storage PLX cells are stored in ready-to-use vials or cryogenic bags. The cells have at least one-year

stability. We also are aware that other allogeneic makers have had quality control problems in

the thawing of cells. We see Pluristem as reducing variations by supplying users with a dedicated

device (or equivalent methods). Cells are then kept at room temperature prior to administration

(up to 2 hours). Administration is with a standard needle.

Source: Pluristem


Maxim Group LLC 9

PLX-PAD/CLI

Critical limb ischemia (CLI) is a devastating end-stage form of peripheral arterial disease (PAD)

– a vascular disease caused by obstruction of large arteries in the lower extremities, resulting in

progressive reduction of blood flow to the extremities (feet, legs, and hands). The patient suffers

skin ulcers and sores, as well as severe pain caused by ischemia, tissue loss, or ischemic

neuropathy. The Sage Group (a research think tank) estimates that there are more than 2.8

million CLI patients and as many as 18 million suffering from PAD in the United States, with an

incidence that is growing with an aging population. The condition remains a highly unmet

medical need; up to 40% of the CLI population are characterized as “no-option” patients. This

group is ineligible for further revascularization and may require amputation within the first year.

Major amputation can increase the wound size, cause difficulty in wound healing (due to age),

lead to the development of gangrene, increase mortality/morbidity, and much more, making it a

very unattractive alternative.

Exhibit 8. Dosing and Administration

Pluristem has demonstrated that local dosing for CLI offers significant advantages. The cells are

believed to exert their effect and get cleared in a few weeks post-dosing.

Source: Pluristem

Exhibit 9. PLX Cell Migration and Fate

Below is an example of biodistribution of PLX-PAD cells in Balb/C mice following intra-

muscular (IM) and intra-venous (IV). 24 hrs post injection 3-4 days post injection 6 days post injection

IM IMIM IVIVIV

Source: Pluristem

PLX cells in this study were stably infected with a lentiviral construct expressing the luciferase

gene under the CMV promoter. Two weeks post infection, 2x106 cells were injected into Balb/C

mice. Injected cells were monitored using the IVIS Lumina Imaging System. Results show that

PLX cells injected IM are retained only at the site of injection and persist for less than a week in

Balb/C mice. Cells injected intravenously traveled to the lungs and returned to the site of injury.


Maxim Group LLC 10

Phase I safety and efficacy clinical trial results. Pluristem has conducted two Phase I studies,

which began enrolling patients in the summer of 2009. The studies were designed to evaluate the

safety of PLX cells and included accessing the patient’s immunological profile before and after

the local administration of the PLX cells. Efficacy parameters were assessed at five different

doses. These studies were performed in parallel in Europe and the United States.

Three-month follow-up data was reported for 21 patients across the two studies. The first group

in Germany consisted of 15 patients (10 males and 5 females, ages 40-80) undergoing three

therapeutic courses. The second group in the United States consisted of 6 all male patients (ages

51-70) undergoing a single dose.

The patients were all qualified as afflicted with CLI in two open-label, dose-escalation, Phase I

studies conducted at Duke University Medical Center, Stanford University Medical Center, the

Center for Therapeutic Angiogenesis in Birmingham, Alabama, and St. Franziskus Hospital,

supported by the Charité - University Medicine Berlin.

The results: safety endpoints

No significant unfavorable effects due to the administration of PLX cells were reported.

One major amputation was reported in the PLX (PAD) high-dose group and was

determined to be unrelated to the administration of PLX cells. This case represented 4.7%

of all patients treated in this study and compares to historical data that indicates a 35-40%

major amputation rate in CLI patients per year (but statistics in such a small study have

little meaning). The study showed 85% Amputation Free Survival (AFS) after 12 month.

None of the patients developed an anti-HLA antibody response and no specific anti-PLX

HLA class-I or class-II antibodies were detected in the patients tested. This indicates

PLX-PAD cells are immune competent and can be given to the patient “off-the-shelf”

without a need for matching.

Immunological profiles demonstrated a rise in anti-inflammatory and angiogenic protein

secretion post-dosing, suggesting PLX-PAD cells function to deliver appropriate

therapeutic proteins in response to the ischemic, inflammatory process of CLI.

The results: efficacy parameters

Across all doses, 13 patients (62%) demonstrated an improvement in the ankle-brachial

index (ABI), a measure of blood flow. Eleven patients receiving the intermediate dose

demonstrated a statistically significant improvement from baseline (P=0.033).

Across all doses, 13 patients (62%) demonstrated an improvement in the Transcutaneous

Oxygen Pressure (TcPO2), a measure of tissue oxygenation. This improvement was

statistically significant in the European study where the distribution of injections was

higher (P=0.05).

Across all doses, 17 patients (81%) demonstrated an improvement in ABI, TBI, or

TcPO2.

Across all doses, 17 patients (81%) demonstrated a statistically significant improvement

from baseline in the King’s College Score for Quality of Life (QoL) assessment (P<

0.001). Eleven patients receiving the intermediate doses demonstrated the best

improvement from baseline in the QoL score (P< 0.001).

Across all doses, 15 patients (71%) demonstrated an improvement from baseline in the

reduction of pain as measured by using the VAS. This improvement was statistically

significant in the European study where the distribution of injections was higher

(P=0.013).


Maxim Group LLC 11

Exhibit 10. Individual Results – Proof of Concept?

Individual patient examples suggest cells impact the progression of disease.

Source: Pluristem

Exhibit 11. Allo-Immunogenicity in Vitro None of the patients showed T-cell presentation to PLX cells at treatment. None of the patients

developed T-cell sensitization to PLX after therapy (1-4 weeks). Specific cellular sensitization to

PLX cells was not detected.

In vitro: PLX-PAD cells do not trigger cell-mediated Th1-like cells by allogeneic

non-HLA matched T cells in normal donors

Read out:cytokine release(ELISPOT)

IFN-g ELISPOT with addition of PLX-PAD cells

responder responder responder responder responder+ + + + +

medium allo- APC allo-PLX-1M allo-PLX-1M allo-PLX-1M(negative (positive (1:5) (1:10) (1:50)control) control)

no alloresponseto allo-PLX-PAD

donor1-7

(resp.)

Source: Pluristem


Maxim Group LLC 12

Exhibit 12. Immunodepression PLX injection causes a transient-dose dependent immunodepression. There was no

immunosuppression in injected patients (immunoparalysis).

Source: Pluristem

Immunological conclusions. The trials demonstrated that there were no PLX-PAD related

serious adverse events. No patients developed an anti-HLA antibody response and no specific

anti-PLX-HLA class-I or class-II antibodies were detected in the tested patients. There was no

alloreactive T cell response to PLX cells. Evidence for systemic immunomodulation was

demonstrated with transient reduction in the expression of HLA-DR/CD14+. There was no severe

immunosuppression in injected patients (immunoparalysis). In vivo data confirmed the in vitro

data.

Exhibit 13. Angiogenic Growth Factors

VEGF

bFGF

PlGF

HGF

IL-6

Source: medicineworld.org/.../ angiogenesis-9421.jpg


Maxim Group LLC 13

Exhibit 14. Secretion of Angiogenic Factors

Secretion of VEGF by PLX under normoxia (green) and hypoxia: Different placenta-derived

adherent cells were cultured for 24 hours under normal or hypoxic conditions.

Source: Pluristem

Exhibit 15. HUVEC Proliferation and PlGF Secretion

HUVEC

HUVEC+ PLX

PlGF

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

PLX HUVEC HUVEC+ PLX HUVEC HUVEC + PLX

HUVEC 10, 000 HUVEC 50, 000

0

100

200

300

400

500

Noof Cells

PlG

F (

pg/m

l)

Source: Pluristem

What do the results mean? The results suggest that PLX cells are safe and show an efficacy

signal. The trials pave the way for a larger Phase II proof-of-concept study. The company now

intends to pursue a larger study with both the U.S. Food and Drug Administration (FDA) and

European Medicines Agency (EMA). We know that active discussions are ongoing to determine

the optimal study design. We also see the potential for the company to design a Phase II study

that can be expanded to a registrational study. As such, Pluristem can try to close the gap on the

competitive field with Aastrom (now in a pivotal trial in CLI).

What kind of size and power is needed for the Phase II program? We know that the phase II

trial in IC will be in 132 patients. For CLI, we expect a larger trial that can be expanded to a

pivotal one. If the CLI study generates positive results, we would look for the expansion to a

registrational design (n=600) pivotal trial.


Maxim Group LLC 14

Exhibit 16. CLI Phase I/II Approved by the FDA and EMA Prior data suggests that PLX-PAD is safe, improves quality of life, and is a potentially effective

treatment for limb ischemia. Phase I/II results demonstrated an 85% AFS (amputation-free

survival rate). The planned next-generation trial (n=132) is approved by the FDA, and the

company is planning to pursue a SPA (special protocol assessment) for the pivotal trial in CLI

and Buerger’s disease.

Source: Pluristem

Financial modeling assumptions – IC & CLI. According to the company, the phase II IC trial

(n=132) should begin soon (2H12), and we expect the start of the PII/III trial in 1H13, depending

on how quickly the new manufacturing facility is operational and validated. If this is the case, we

could see a product approval and launch by 2016. Based on the cost of other biologics and an

understanding of the cost saving of preventing some of the downstream complications related to

CLI, we would assume pricing in the $30,000 range.

Exhibit 17. CLI Market Model U.S. PAD, CLI, Target Market 2012 2013 2014 2015 2016 2017 2018

14 MLN "PAD " at baseline '000: 14,235 14,455 14,669 14,878 15,082 15,280 15,473

Market Size Growth (Annual) 1.5% 1.5% 1.4% 1.4% 1.3% 1.3%

% Progress to CLI 7000% 7% 7% 7% 7% 7% 7%

1 MLN CLI at baseline 996,417 1,011,821 1,026,843 1,041,485 1,055,747 1,048,371 1,083,143

% with No Options 50% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0%

CLI Patients with No Medical Options 498,208 505,910 513,422 520,742 527,874 524,185 541,572

% with Tissue Loss 50% 50% 50% 50% 50% 50% 50%

CLI Patients with Tissue Loss (subset of No Options) 249,104 252,955 256,711 260,371 263,937 262,093 270,786

% viable for Therapy (insurance, co-morbidities) et al 50% 50% 50% 50% 50% 50% 50%

CLI Target Patient Population 124,552 126,478 128,355 130,186 131,968 131,046 135,393

Market Share Penetration (PLX) 0% 0.0% 0% 0% 1% 2% 10%

Number of Procedures 0 0 0 0 994 13,392 25,053

Units Per Procedure 1.0 1.0 1.0 1.0 1.0 1.0 1.0

Price per Procedure 30,036$ 30,041 30,053 30,065 30,077$ 30,089 30,101$

Price Growth 0% 0% 0% 0% 0% 0%

U.S. Annual Sales ('000) -$ -$ -$ -$ 29,888$ 402,961$ 754,114$

% Growth 1248% 87% Source: Maxim


Maxim Group LLC 15

Exhibit 18.Other Possible Indications: The Field Could Be Unlimited

Source: Pluristem

Exhibit 19. PLX’s Therapeutic Effect

PLX’s therapeutic effect relates to the cell’s capability to respond to environmental signals within

the patient’s body by secretion of different proteins. PLX cell do not engraft and gradually

disappear from the patient’s body within a few weeks

Source: Maxim

On June 19, 2011, Pluristem entered into an exclusive license agreement with United

Therapeutics for the use of its PLX cells to develop and commercialize a cell-based product for

the treatment of pulmonary hypertension (PAH). The license agreement provides that United

Therapeutics will receive exclusive worldwide license rights for the development and

commercialization of Pluristem’s PLX cell-based product to treat PAH.


Maxim Group LLC 16

The license agreement provides for the following consideration payable to Pluristem: (1) an

upfront payment of $7M (paid in August 2011, which includes a $5M non-refundable upfront

payment and $2M refundable advance payment on the development); (2) up to $37.5M upon

reaching certain regulatory milestones with respect to the development of a product to treat PAH;

(3) reimbursement of up to $10M of certain company expenses if the company establishes a

manufacturing facility in North America upon meeting certain milestones; (4) reimbursement of

all costs in connection with the development of the product; and (5) following commercialization

of the product, royalties and the purchase of commercial supplies of the developed product from

the company at a specified margin over the company’s cost.

Exhibit 20. PSTI-UTHR Economic Collaboration

Source: Pluristem

Exhibit 21. Case Study: Pluristem announced earlier this year that its PLX cells had saved the

life of a seven year-old girl suffering from aplastic bone marrow and who had undergone two

failed bone marrow transplants. With her condition rapidly deteriorating her doctors injected

Pluristem's PLX cells intramuscularly, following which the girl experienced a reversal of her

condition with a significant increase in her red blood cells, white blood cells and platelets.

Source: Pluristem


Maxim Group LLC 17

As a result of this experience, Pluristem announced that it is now preparing to apply to the U.S.

Food and Drug Administration for approval of its PLacentaleXpanded (PLX) cells for the

treatment of aplastic bone marrow as an Orphan Drug. Gaining Orphan Drug status approval is

part of Pluristem's strategy for penetrating the bone marrow recovery market, starting with

treatment of aplastic anemia, a disease in which bone marrow greatly decreases or stops

production of blood cells and strikes five to ten people in every million. Orphan Drug Status in

the U.S. helps the company to accelerate the path to full FDA approval. Pluristem is also planning

to file for a similar designation in Europe and global territories.

A note on Orphan status: Gaining Orphan Drug Status carries multiple potential benefits,

including the possibility of an expedited regulatory process, availability of grant money, certain

tax credits and seven years of market exclusivity. In August 2011, Pluristem successfully applied

for, and received, Orphan Drug Status from the FDA for its PLX cell therapy in the treatment of

Buerger's disease.

Exhibit 22. Product Differentiation Message: It’s important for us to understand that Pluristem

sees its PLX allogeneic cells as being able to be modified (based on various manufacturing

criteria) and, as such, translate into multiple products in multiple indications. The company

presents this in the graphic below.

Source: Pluristem


Maxim Group LLC 18

VALUATION

We provide three valuation metrics – FCF, discounted EPS, and sum of the parts – and model PSTI out to 2018. We only assume success in CLI and have not included milestone or deal revenues related to United Therapeutics or other new partners. This derives a 2018 EPS number of $3.30, which we discount at 30% (large) and equally weight the three metrics to derive an $8.00 price target.

Exhibit 23. FCF Model: Assume a 30% Discount Factor and Include Future CLI Revenues

Average 7.8$

Price Target 9.9$

Year 2017

DCF Valuation Using FCFF (mln):

units (millions - $) 2012E 2013E 2014E 2015E 2016E 2017E 2018E

EBIT (14,088) (18,496) (19,238) (15,348) 2,714 97,235 200,574

Tax Rate 0% 0% 0% 10% 16% 23% 26%

EBIT(1-t) (14,088) (18,496) (19,238) (13,745) 2,275 74,977 148,380

- Cap Expenditures (996) - - - - - -

+ Depreciation 393 432 476 523 575 633 696

- Change in NWC

Free Cash Flow to Firm (FCFF) (12,699) (18,064) (18,762) (13,222) 2,851 75,610 149,076

PV of FCFF (47,152) (51,592) (41,221) (22,345) 3,706 75,610 114,674

Discount Rate 30%

Long Term Growth Rate 1%

Terminal Cash Flow 519,197

Terminal Value YE2010 399,382

NPV 431,063

NPV-Debt -

Shares out (thousands) 1Q-12E 43,713 March 2012

NPV Per Share 9.9

Source: Maxim estimates Source: Maxim Group

Exhibit 24. Discounted EPS Model: Based on 2018 EPS of $3.30, a PE of 15x, and a 30%

Discount Factor

Current Year 2012

Year of EPS 2018 2018 EPS

Earnings Multiple 15 10.2 20% 25% 30% 35% 40% 45%

Discount Factor 30% 10 $11.04 $8.64 $6.83 $5.45 $4.38 3.55$

Selected Year EPS 3.30$ 15 $16.56 $12.97 $10.25 $8.17 $6.57 5.32$

NPV 10.2$ 20 $22.09 $17.29 $13.66 $10.89 $8.76 7.10$

Source: Maxim estimates 25 $27.61 $21.61 $17.08 $13.62 $10.95 8.87$

PlusNet Cash Per Share 30 $33.13 $25.93 $20.49 $16.34 $13.14 10.64$

Share Price 10.25$ 35 $38.65 $30.25 $23.91 $19.07 $15.33 12.42$

40 $44.17 $34.58 $27.33 $21.79 $17.52 14.19$

45 $49.69 $38.90 $30.74 $24.51 $19.71 15.97$

Discount Rate and Earnings Multiple Varies, Year is Constant

Earnings

Multiple

Source: Maxim Group


Maxim Group LLC 19

Exhibit 25. Sum of the Parts Pluristem Sum of the Parts LT Gr Discount Rate Yrs. to Mkt % Success Peak Sales MM's Term Val

PLX-CLI / IC / Buerger's Disease 1% 30% 5 65% $500 $1,724

NPV $2.07

PLX-Orthopedic 1% 30% 7 0% $100 $345

NPV $0.00

PLX-RA 1% 30% 7 0% $100 $345

NPV $0.00

PLX-Inflammatory Bowel Disease 1% 30% 7 0% $100 $345

NPV $0.00

PLX-Stroke 1% 30% 7 0% $100 $345

NPV $0.00

PLX-BMT / GvHS /ARS 1% 30% 7 50% $100 $345

NPV $0.19

PLX-Multiple Sclerosis 1% 30% 9 0% $100 $345

NPV $0.00

Grants 2% 30% 0 100% $2 $7

NPV $0.05

Net Margin 30%

MM Shrs OS 44

Total $2

Net Cash/Shr $0.88

Grand Total $3.19

Source: Maxim estimates

Exhibit 26. Comparable Companies vs. PSTI

Company Name Ticker Share Price Market Cap

($MM)

Cash ($MM)

Q1-2012

Enterprise

Value ($MM)

R&D ($MM)

Q2-2010

Athersys ATHX $1.57 $46 $10 $36

Aastrom ASTM $1.97 $76 $27 $49

Advanced Cell Technology ACTC $0.08 $166 $10 $156

Bioheart BHRT $0.03 $4 $0 $4

CytoMedix CMXI $1.35 $98 $8 $90

Cytori Therapeutics CYTX $2.64 $144 $35 $109

Geron GERN $1.65 $220 $10 $210

Mesoblast MBLTY-5 $30.64 $1,743 $240 $1,503

Neostem NBS $0.66 $91 $5 $91

Neuralstem CUR $0.94 $49 $5 $44

Opexa OPXA $0.75 $16 $5 $11

Osiris Therapeutics OSIR $9.49 $320 $42 $278

Pluristem Therapeutics, Inc. PSTI $3.20 $157 $38 $119

Stem Cells STEM $1.40 $39 $11 $28

Average (s) $4.03 $226 $32 $195

Pluristem Therapeutics, Inc. PSTI $3.20 $157 $38 $119

Share price as of 7.19.2012 Source: Maxim and Thomson Reuters

The competitive landscape. For the most part, the regenerative medicine side of the stem cell

space is a micro-capitalized group of companies with early-stage products. Overall, the space is

undercapitalized, with a few noted exceptions: This includes Australian stem cell company

Mesoblast, with $240 million on the balance sheet and multiple late-stage programs. Most of the

companies on this list have Phase I programs or are just beginning Phase II. The noted exceptions

include Aastrom (now in Phase III), Osiris (failed prior Phase III trials in GvHD and currently in

a Phase III trial in Crohn’s disease), Mesoblast (about to begin Phase III trials in cardiac

indications), and Baxter (BAX, $54.96, NR), also in a Phase III cell therapy trial for angina, or

heart pain.


Maxim Group LLC 20

Mesoblast is highly valued versus the pack, likely a result of the Cephalon partnership deal. Note

that Cephalon has since been acquired by Teva Pharmaceuticals (TEVA, $40.49, NR). In 2010,

Cephalon executed a partnership with Mesoblast, in which the company received $130 million

from Cephalon for certain therapy rights. In addition, Cephalon agreed to pay for all the clinical

trials while Mesoblast retains the rights to manufacturing commercial supplies of the stem-cell

products to be marketed by Cephalon.

Osiris has a partnership with Genzyme, which has been acquired by Sanofi-Aventis. Under the

terms of the original agreement, Genzyme made a $130 million up-front payment (two in

sequence). Osiris also had the potential to receive a total of up to $1.25 billion in milestone

payments from Genzyme. The status of the partnership is currently in dispute.

We believe the stem cell space holds great potential and is highly undervalued, and that we could

see valuations rise as some of the companies commercialize products over the next few years. We

believe Pluristem could be one of the leaders.

FUNDAMENTAL RISKS

Data risk. The outcome of current clinical trials in critical limb ischemia and other indications

could fail to demonstrate efficacy or could show a safety (toxicity) risk, halting clinical

development.

Developmental risk. Successfully managing multiple clinical trials is a risk. Trials can take

longer than expected to enroll. Trial costs often exceed budgets. Standards of care can change,

rendering a great trial design obsolete.

Regulatory risk. Pluristem must be able to obtain the approval of the FDA and other external

bodies (EMA) before commercial sales of the product candidates commence in the United States.

Solid trial results are critical, but so is proper filing and interaction with the regulatory agencies

such as the FDA, EMA, or Koseisho (Japan).

Commercial risk. Pluristem has no commercial infrastructure and will need to develop one or

partner prior to commercialization.

Competitive landscape. Pluristem is not alone its current indications in critical limb ischemia or

PAD.

IP risk. Pluristem has a strong patent portfolio but still faces many challenges from a wide range

of competitors.

Financing risk. Pluristem is not yet a profitable company. As such, it will need to raise

additional capital or partner to complete clinical trials and commercialize its product portfolio.


Maxim Group LLC 21

Pluristem Therapeutics

Income Statements (In thousands, except per share data)

Pluristem Income Statement ($ '000) June 2009 June 2010 June 2011 Sept 2011 Dec 2011 March 2012 June 2012 June 2012 Sept 2013 Dec 2013 March 2014 June 2014 June 2014 June 2015 June 2016 Sept 2016 Dec 2016 March 2017 June 2017 June 2017 Sept 2017 Dec 2017 March 2018 June 2018 June 2018 Sept 2018 Dec 2018 March 2019 June 2019 June 2019

PSTI: YEAR June 30 2009A 2010A 2011A 1Q12A 2Q12A 3Q12E 4Q12E 2012E 1Q13E 2Q13E 3Q13E 4Q13E 2013E 2014E 2015E 1Q16E 2Q16E 3Q16E 4Q16E 2016E 1Q17E 2Q17E 3Q17E 4Q17E 2017E 1Q18E 2Q18E 3Q18E 4Q18E 2018E

Product Revenue ($ Thousands)

PLX-CLI / IC / Buerger's Disease - - - 9,940 19,948 29,888 30,023 40,164 50,371 60,643 181,200 70,979 81,380 91,843 102,370 346,572

% Chg

PLX-Orthopedic

% Chg

PLX-RA

% Chg

PLX-Inflammatory Bowel Disease

% Chg

PLX-Stroke

% Chg

PLX-BMT / GvHS /ARS

% Chg

PLX-Multiple Sclerosis

% Chg

Total Revenues (Product Sales, Grants & Milestones) 154 231 385 - - - - 9,940 19,948 29,888 30,023 40,164 50,371 60,643 181,200 70,979 81,380 91,843 102,370 346,572

% Chg

Expenses

PLX-PAD COGS - - - 1,988 3,990 5,978 6,005 8,033 10,074 12,129 36,240 14,196 16,276 18,369 20,474 69,314

COGS % Product Sales 0 20% 20% 20% 20% 0 20% 20% 20% 20% 0 20% 20% 20% 20% 20%

COGS (net) - - - - - - - - - - - - - - - - - 1,988 3,990 5,978 6,005 8,033 10,074 12,129 36,240 14,196 16,276 18,369 20,474 69,314

PLX-PAD R&D

R&D % Rev's

PLX-Orthopedic R&D

R&D % Rev's

PLX-Neuropathic & Inflammatory pain R&D

R&D % Rev's

PLX-Inflammatory Bowel Disease R&D

R&D % Rev's

PLX-Stroke R&D

R&D % Rev's

PLX-Bone Marrow Transplantation R&D

R&D % Rev's

PLX-Multiple Sclerosis R&D

R&D % Rev's

Total Research & Development Expenses 4,792 6,123

Less participation by Office of the Chief Scientist (1,651) (1,822)

R&D (net) 3,141 4,301 6,629 2,849 1,074 2,486 2,486 9,944 3,480 3,480 3,480 3,480 13,921 14,617 15,348 4,029 4,029 4,029 4,029 16,115 4,230 4,230 4,230 4,230 16,921 4,442 4,442 4,442 4,442 17,767

PLX-PAD SG&A - - - 1,690 3,391 5,081 5,104 6,828 8,563 10,309 30,804 12,066 13,835 15,613 17,403 58,917

SG&A % Rev's 0 17% 17% 17% 17% 17% 17% 17% 17% 17% 17% 17% 17% 17% 17% 17%

PLX-Orthopedic SG&A

SG&A % Rev's

PLX-Neuropathic & Inflammatory pain SG&A

SG&A % Rev's

PLX-Inflammatory Bowel Disease SG&A

SG&A % Rev's

PLX-Stroke SG&A

SG&A % Rev's

PLX-Bone Marrow Transplantation SG&A

SG&A % Rev's

PLX-Multiple Sclerosis SG&A

SG&A % Rev's

SG&A (net) 3,417 3,138 4,485 1,637 1,275 1,132 1,132 4,530 1,144 1,144 1,144 1,144 4,575 4,621 - - - 1,690 3,391 5,081 5,104 6,828 8,563 10,309 30,804 12,066 13,835 15,613 17,403 58,917

Stk Optn's 2,239 1,832 1,992 508 508 508 508 2,032 518 518 518 518 2,072 2,114 2,156 550 550 550 550 2,199 561 561 561 561 2,243 572 572 572 572 2,288

Non-GAAP, Adj. 2,239 1,832 1,992 508 508 508 508 2,032 518 518 518 518 2,072 2,114 2,156 550 550 550 550 2,199 561 561 561 561 2,243 572 572 572 572 2,288

Total costs & expenses 6,558 7,439 11,114 4,486 2,349 3,618 3,618 14,473 4,624 4,624 4,624 4,624 18,496 19,238 15,348 4,029 4,029 7,707 11,409 27,174 15,339 19,091 22,867 26,668 83,965 30,704 34,552 38,424 42,319 145,999

Operating Income (Loss) EBIT (6,558) (7,439) (11,114) (4,332) (2,118) (3,618) (3,618) (14,088) (4,624) (4,624) (4,624) (4,624) (18,496) (19,238) (15,348) (4,029) (4,029) 2,233 8,538 2,714 14,684 21,073 27,503 33,975 97,235 40,275 46,828 53,420 60,051 200,574

Oper Margin

Other Income expenses - Financial Expenses (net) 78 14 (266) (161) 126 (26) (31) (31) (34) (38) (42) (45) (45) (60) 3 32 60 88 117 117 156 195 234 272 272 156 195 234 272 272

Pre-tax income (6,636) (7,453) (10,848) (4,493) (1,992) (3,593) (3,588) (14,058) (4,590) (4,586) (4,582) (4,579) (18,451) (19,178) (15,351) (4,060) (4,089) 2,145 8,422 2,597 14,527 20,878 27,269 33,703 96,963 40,119 46,632 53,185 59,780 200,302

Taxes (1,603) (528) (532) 300 1,179 420 2,905 4,593 6,272 8,426 22,196 10,030 12,124 13,828 16,140 52,123

Tax Rate 10% 13% 13% 14% 14% 16% 20% 22% 23% 25% 23% 25% 26% 26% 27% 26%

Net Income (loss) (6,636) (7,453) (10,848) (4,493) (1,992) (3,593) (3,588) (14,058) (4,590) (4,586) (4,582) (4,579) (18,451) (19,178) (13,748) (3,533) (3,557) 1,845 7,243 2,178 11,622 16,284 20,997 25,277 74,767 30,089 34,508 39,357 43,639 148,179

Net Margin

Basic EPS (0.63) (0.44) (0.35) (0.11) (0.05) (0.08) (0.08) (0.31) (0.10) (0.10) (0.10) (0.10) (0.42) (0.43) (0.31) (0.08) (0.08) 0.04 0.16 0.04 0.26 0.37 0.47 0.57 1.66 0.67 0.77 0.88 0.97 3.30

Basic Wght Average Shares Outstanding (thousands) 10,603 17,005 31,199 42,779 43,669 43,713 43,757 43,480 43,801 43,844 43,888 43,932 43,866 44,042 44,219 44,329 44,373 44,418 44,462 44,396 44,507 44,551 44,596 44,640 44,574 44,685 44,730 44,774 44,819 44,752

Fully Diluted Wgtd Avg Shrs outstanding (Thousands) 10,603 17,005 31,199 42,779 43,669 43,713 43,757 43,480 43,801 43,844 43,888 43,932 43,866 44,042 44,219 44,329 44,373 44,418 44,462 44,396 44,507 44,551 44,596 44,640 44,574 44,685 44,730 44,774 44,819 44,752

Fully Diluted EPS

Source: Company Reports and Maxim

PLX-CLI: Phase 2/3

PLX-Orthopedic: Phase 1/2 Phase 3

Phase 2

Phase 2

PLX-RA P 1/2

Phase 2

Phase 2

Source: Company reports and Maxim Group LLC estimates.

Jason Kolbert [email protected]

mailto:[email protected]


Maxim Group LLC 22


Statements of Cash Flow (In thousands, except per share data)

June 2009 June 2010 Sept 2010 Dec 2010 March 2011 June 2011 June 2011 Sept 2011 Dec 2011 March 2012 June 2012 June 2012 Sept 2013 Dec 2013 March 2014 June 2014 June 2014 Sept 2014 Dec 2014 March 2015 June 2015 June 2015 Sept 2015 Dec 2015 March 2016 June 2016 June 2016 Sept 2016 Dec 2016 March 2017 June 2017 June 2017 Sept 2017 Dec 2017 March 2018 June 2018 June 2018 Sept 2018 Dec 2018 March 2019 June 2019 June 2018

Pluristem (PSTI) Cash Flow Statement ('000) 2009A 2010A 1Q11A 2Q11A 3Q11A 4Q11A 2011A 1Q12A 2Q12A 3Q12E 4Q12E 2012E 1Q13E 2Q13E 3Q13E 4Q13E 2013E 1Q14E 2Q14E 3Q14E 4Q14E 2014E 1Q15E 2Q15E 3Q15E 4Q15E 2015E 1Q16E 2Q16E 3Q16E 4Q16E 2016E 1Q17E 2Q17E 3Q17E 4Q17E 2017E 1Q18E 2Q18E 3Q18E 4Q18E 2018E

Cash flows from operating activities:

Net income (loss) (6,636) (7,453) (1,689) (4,510) (7,123) (10,848) (10,848) (4,493) (6,485) (10,078) (13,665) (13,665) (4,590) (9,176) (13,758) (18,337) (18,337) (4,761) (9,517) (14,271) (19,020) (19,020) (3,414) (6,841) (10,283) (13,663) (13,663) (3,533) (7,090) (5,245) 1,997 1,997 11,622 27,906 48,904 74,181 74,181 30,089 64,597 103,954 147,593 147,593

Adjustments to reconcile net loss to net cash (operating activities):

Depreciation 173 207 70 144 224 312 312 97 199 296 393 393 108 216 324 432 432 119 238 357 476 476 131 262 392 523 523 144 288 432 575 575 158 316 475 633 633 174 348 522 696 696

Capital Loss 8 8 8 8 8 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Impairment of property & equipment 5 2 11 11

Amortization of deferred issuance costs -

Stock-based compensation: employees & directors 1,957 1,568 374 - - - -

Stock-based compensation: non-employees consultants 149 201 88 219 381 3,325 3,325

Stock-based compensation: service providers & IR consultants 133 63 36 78 155 155 155

Stock-based compensation, net 2,239 1,832 498 1,245 1,955 - 1,041 1,904 2,412 2,920 2,920 518 1,036 1,554 2,072 2,072 528 1,057 1,585 2,114 2,114 539 1,078 1,617 2,156 2,156 550 1,100 1,649 2,199 2,199 561 1,122 1,682 2,243 2,243 572 1,144 1,716 2,288 2,288

Decrease (increase) in other Accounts Receivable (247) (307) 425 317 265 - -1,960 -1,960 (1,960) (1,960)

Decrease (increase) in prepaid expenses 250 59 (39) (15) (172) (273) (273) (20) 97 97 97 97

Increase (decrease) in trades payables (54) 132 1 516 455 455 (87) (1) (1) (1) (1)

Increase (decrease) in other accounts receivables 656 656 (76) 112 112 112 112

Increase (decrease) in other accounts payable & accrued expenses (96) 120 33 254 156 375 375 205 - - -

Increase (decrease) in interest receivable on short-term deposit (15) (4) 34 15 15 15

Increase (decrease) in defurrred Revenues 4,846 4,615 4,615 4,615 4,615

Increase (decrease) in advanced payment 2,000 1,926 1,926 1,926 1,926

Increase (decrease) in acrrued interest due related parties 15 - - (74) (240) (240) (240) (240)

Linkage differences and interest on long-term restricted lease deposit 1 (1) (3) (3) (4) (4) 19 27 27 27 27

Change in Fair Value in Respect to Warrants

Amoritzation of discount & changes in accr'd interest from marketable securities (3) 4 -33 -33 -33 (33)

Loss from sale of invesments of available-for-sale marketable securities 75

Impairment & realized loss on available-for-sale marketable securities -

Accrued severance pay, net 32 14 10 -5 27 58 58 -1 13 13 13 13

Net Cash Used in Operating Activities (4,262) (5,408) (688) (2,219) (3,596) (5,755) (5,755) 3,461 174 (2,814) (5,796) (5,796) (3,963) (7,923) (11,880) (15,832) (15,832) (4,113) (8,223) (12,328) (16,431) (16,431) (2,744) (5,502) (8,274) (10,983) (10,983) (2,839) (5,703) (3,164) 4,772 4,772 12,341 29,345 51,061 77,057 77,057 30,835 66,089 106,192 150,577 150,577

Cash flows from investing activities:

Purchase of property & equipment (313) (389) (426) (560) (672) (962) (962) (179) (996) (996) (996) (996)

Investment in short-term deposits (2,500) (31,599) (30,273) (30,273) (30,273) (30,273)

Repayment of short-term restricted deposit 1,602 400 898 898 898 898

Proceeds from sale of property & equipment - 28 28 28 29 29

Investment in long-term deposits (8) (12) -12 -12 -14 (14) (690) (1,011) (1,011) (1,011) (1,011)

Repayment of long-term restricted deposit 38 3 2 13 13 13 13 4 2 2 2 2

Purchase of available for sale marketable securities - (516) 50 50 50 50

Proceeds from sale of available for sale marketable securities 1,113 -4,503 -4,503 -4,503 (4,503)

Net cash provided by investing activities 830 (1,296) 4 367 255 (36) (36) (32,980) (36,731) (36,731) (36,731) (36,731) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Cash flows from financing activities:

Issuance of common stock & warrants, net of issance costs 5,462 5,954 252 5,015 43,400 43,400 43,400 323 400 501 607 607 117 241 370 506 506 150 308 474 649 649 193 395 608 831 831 247 506 779 1,065 1,065 316 649 998 1,365 1,365 405 831 1,279 1,749 1,749

Exercise of warrants & options 2 17 3,248 3,661 3,661

Receipts on account of shares -

Receipt of long-term loan -

Repayment of long-term loan (14) (8) (24) (24) (24) (24) (24) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Net cash provided by financing activities 5,448 5,948 228 5,008 46,624 47,037 47,037 323 400 501 607 607 117 241 370 506 506 150 308 474 649 649 193 395 608 831 831 247 506 779 1,065 1,065 316 649 998 1,365 1,365 405 831 1,279 1,749 1,749

Net increase (decrease) in cash and cash equivalents 2,016 (756) (456) 3,156 43,283 41,246 41,246 (29,196) (36,157) (39,043) (41,920) (41,920) (3,846) (7,683) (11,509) (15,326) (15,326) (3,963) (7,914) (11,854) (15,782) (15,782) (2,551) (5,107) (7,666) (10,152) (10,152) (2,592) (5,197) (2,386) 5,837 5,837 12,657 29,993 52,059 78,422 78,422 31,240 66,920 107,471 152,326 152,326

Cash and equivalents, beginning of period 323 2,339 1,583 1,583 1,583 1,583 1,583 42,829 42,829 42,829 42,829 42,829 909 909 909 909 909 (14,417) (14,417) (14,417) (14,417) (14,417) (30,199) (30,199) (30,199) (30,199) (30,199) (40,351) (40,351) (40,351) (40,351) (40,351) (34,514) (34,514) (34,514) (34,514) (34,514) 43,908 43,908 43,908 43,908 43,908

Cash and equivalents, end of period 2,339 1,583 1,127 4,739 44,866 42,829 42,829 13,633 6,672 3,786 909 909 (2,937) (6,774) (10,600) (14,417) (14,417) (18,380) (22,331) (26,271) (30,199) (30,199) (32,750) (35,305) (37,865) (40,351) (40,351) (42,943) (45,547) (42,736) (34,514) (34,514) (21,856) (4,521) 17,545 43,908 43,908 75,149 110,828 151,379 196,235 196,235

Source: Company reports and Maxim Source: Company reports and Maxim Group LLC estimates.


Maxim Group LLC 23


Balance Sheet (In thousands, except per share data)

Pluristem Balance Sheet ($ Thousands) June 2009 June 2010 Sept 2010 Dec 2010 March 2011 June 2011 June 2011 Sept 2011 Dec 2011 March 2012 June 2012 June 2012 Sept 2013 Dec 2013 March 2014 June 2014 June 2014 Sept 2014 Dec 2014 March 2015 June 2015 June 2015 Sept 2015 Dec 2015 March 2016 June 2016 June 2016 Sept 2016 Dec 2016 March 2017 June 2017 June 2017 June 2018 June 2019

Assets: 2009A 2010A 1Q11A 2Q11A 3Q11A 4Q11A 2011A 1Q12A 2Q12A 3Q12E 4Q12E 2012E 1Q13E 2Q13E 3Q13E 4Q13E 2013E 1Q14E 2Q14E 3Q14E 4Q14E 2014E 1Q15E 2Q15E 3Q15E 4Q15E 2015E 1Q16E 2Q16E 3Q16E 4Q16E 2016E 2017E 2018E

Cash and cash equivalents $2,339 $1,583 $1,127 $4,739 $44,866 $42,829 $42,829 $13,633 $6,672 $3,786 $909 $909 ($2,937) ($6,774) ($10,600) ($14,417) ($14,417) ($18,380) ($22,331) ($26,271) ($30,199) ($30,199) ($32,750) ($35,305) ($37,865) ($40,351) ($40,351) ($42,943) ($45,547) ($42,736) ($34,514) ($34,514) $43,908 $196,235

Short-term bank deposits 913 517 0 0 0 0 31,658 30,491 30,491 30,491 30,491 30,491 30,491 30,491 30,491 30,491 30,491 30,491 30,491 30,491 30,491 30,491 30,491 30,491 30,491 30,491 30,491 30,491 30,491 30,491 30,491 30,491 30,491

Marketable Securities 513 4,352 4,352 4,352 4,352 4,352 4,352 4,352 4,352 4,352 4,352 4,352 4,352 4,352 4,352 4,352 4,352 4,352 4,352 4,352 4,352 4,352 4,352 4,352 4,352 4,352 4,352

Prepaid Expenses and other current assets 100 41 80 56 213 314 314 334 217 217 217 217 217 217 217 217 217 217 217 217 217 217 217 217 217 217 217 217 217 217 217 217 217 217

Accounts recievable from the Office of the Chief Scientist 383 706 318 361 324 - - 1,845 1,845 1,845 1,845 1,845 1,845 1,845 1,845 1,845 1,845 1,845 1,845 1,845 1,845 1,845 1,845 1,845 1,845 1,845 1,845 1,845 1,845 1,845 1,845 1,845 1,845

Other Accounts Receivable 113 362 71 375 214 154 154 225 266 266 266 266 266 266 266 266 266 266 266 266 266 266 266 266 266 266 266 266 266 266 266 266 266 266

Total current assets $2,935 $3,605 $2,113 $5,531 $45,617 $43,297 $43,297 $46,363 $43,843 $40,957 $38,080 $38,080 $34,234 $30,397 $26,571 $22,754 $22,754 $18,791 $14,840 $10,900 $6,972 $6,972 $4,421 $1,866 ($694) ($3,180) ($3,180) ($5,772) ($8,376) ($5,565) $2,657 $2,657 $81,079 $233,406

Long-term deposits and restricted deposits 171 168 169 176 183 179 179 866 1,186 1,186 1,186 1,186 1,186 1,186 1,186 1,186 1,186 1,186 1,186 1,186 1,186 1,186 1,186 1,186 1,186 1,186 1,186 1,186 1,186 1,186 1,186 1,186 1,186 1,186

Severance pay fund 154 294 327 359 410 452 452 459 485 485 485 485 485 485 485 485 485 485 485 485 485 485 485 485 485 485 485 485 485 485 485 485 485 485

Property and Equipment, net 1,203 1,555 1,756 1,816 1,943 2,088 2,088 2,156 4,128 4,031 3,934 3,934 3,826 3,718 3,610 3,502 3,502 3,383 3,264 3,145 3,026 3,026 2,895 2,765 2,634 2,503 2,503 2,359 2,215 2,072 1,928 1,928 1,295 599

Total assets $4,463 $5,622 $4,365 $7,882 $48,153 $46,016 $46,016 $49,844 $49,642 $46,659 $43,685 $43,685 $39,731 $35,786 $31,851 $27,927 $27,927 $23,845 $19,775 $15,716 $11,669 $11,669 $8,987 $6,301 $3,611 $994 $994 ($1,742) ($4,490) ($1,823) $6,256 $6,256 $84,045 $235,675

Liabilities:

Trade payables 487 791 673 926 1,283 1,177 1,177 1,076 1,174 1,174 1,174 1,174 1,174 1,174 1,174 1,174 1,174 1,174 1,174 1,174 1,174 1,174 1,174 1,174 1,174 1,174 1,174 1,174 1,174 1,174 1,174 1,174 1,174 1,174

Accrued Expenses 81 118 157 85 107 208 208 376 231 231 231 231 231 231 231 231 231 231 231 231 231 231 231 231 231 231 231 231 231 231 231 231 231 231

Deffured Rev's, Advanced Payment Other accounts payable 272 372 400 468 515 633 633 3,593 3,571 3,571 3,571 3,571 3,571 3,571 3,571 3,571 3,571 3,571 3,571 3,571 3,571 3,571 3,571 3,571 3,571 3,571 3,571 3,571 3,571 3,571 3,571 3,571 3,571 3,571

Total current liabilities $840 $1,281 $1,230 $1,479 $1,905 $2,018 $2,018 $5,045 $4,976 $4,976 $4,976 $4,976 $4,976 $4,976 $4,976 $4,976 $4,976 $4,976 $4,976 $4,976 $4,976 $4,976 $4,976 $4,976 $4,976 $4,976 $4,976 $4,976 $4,976 $4,976 $4,976 $4,976 $4,976 $4,976

Long-term obligation 23

Deffured Revenues 3,923 3,692 3,692 3,692 3,692 3,692 3,692 3,692 3,692 3,692 3,692 3,692 3,692 3,692 3,692 3,692 3,692 3,692 3,692 3,692 3,692 3,692 3,692 3,692 3,692 3,692 3,692

Accrued severance pay 206 360 403 420 503 576 576 582 622 622 622 622 622 622 622 622 622 622 622 622 622 622 622 622 622 622 622 622 622 622 622 622 622 622

Total liabilities $1,069 $1,641 $1,633 $1,899 $2,408 $2,594 $2,594 $9,550 $9,290 $9,290 $9,290 $9,290 $9,290 $9,290 $9,290 $9,290 $9,290 $9,290 $9,290 $9,290 $9,290 $9,290 $9,290 $9,290 $9,290 $9,290 $9,290 $9,290 $9,290 $9,290 $9,290 $9,290 $9,290 $9,290

Stockholders' equity:

Common Stock $0.00001 Par

Additional Paid In Capital 36,046 44,086 44,526 50,598 92,973 94,375 94,375 95,739 97,924 98,025 98,131 98,131 98,249 98,372 98,501 98,638 98,638 98,788 98,946 99,112 99,286 99,286 99,479 99,681 99,894 100,118 100,118 100,364 100,624 100,896 101,183 101,183 102,548 104,297

Deficit accumulated during the development stage (32,652) (40,105) (41,794) (44,615) (47,228) (50,953) (50,953) (55,446) (57,572) (60,657) (63,736) (63,736) (67,808) (71,876) (75,940) (80,001) (80,001) (84,233) (88,461) (92,686) (96,907) (96,907) (99,781) (102,670) (105,573) (108,413) (108,413) (111,396) (114,404) (112,009) (104,217) (104,217) (27,793) 122,089

Total Equity 3,394 3,981 2,732 5,983 45,745 43,422 43,422 40,293 40,352 37,369 34,395 34,395 30,441 26,496 22,561 18,637 18,637 14,555 10,485 6,426 2,379 2,379 (303) (2,989) (5,679) (8,296) (8,296) (11,032) (13,780) (11,113) (3,034) (3,034) 74,755 226,385

Total Liabilities & Equity $4,463 $5,622 $4,365 $7,882 $48,153 $46,016 $46,016 $49,843 $49,642 $46,659 $43,685 $43,685 $39,731 $35,786 $31,851 $27,927 $27,927 $23,845 $19,775 $15,716 $11,669 $11,669 $8,987 $6,301 $3,611 $994 $994 ($1,742) ($4,490) ($1,823) $6,256 $6,256 $84,045 $235,675

Shares Issued (Thousands) 14,739 21,459 21,012 24,897 36,677 42,443 42,443 42,779 43,669 43,713 43,757 43,757 43,801 43,844 43,888 43,932 43,932 43,976 44,020 44,064 44,108 44,108 44,152 44,196 44,241 44,285 44,285 44,329 44,373 44,418 44,462 44,462 44,640 44,819

Shares Out (Thousands) 13,677 20,889 21,170 24,897 36,677 42,443 42,443 42,779 43,669 43,713 43,757 43,757 43,801 43,844 43,888 43,932 43,932 43,976 44,020 44,064 44,108 44,108 44,152 44,196 44,241 44,285 44,285 44,329 44,373 44,418 44,462 44,462 44,640 44,819

Treasury Stock

Common Authz'd

Source: Company reports and Maxim Source: Company reports and Maxim Group LLC estimates.


Maxim Group LLC 24

DISCLOSURES

Maxim Group LLC Stock Rating System As of: 7/24/2012

% of Coverage % of Ratings

Universe for which Firm provided

Expected Performance* with Rating Banking Services in the last 12 months

Buy Expected total return of 15% or more over next 12 months 70.6% 13.5%

Hold Expected total return of plus or minus 14% over next 12 months 20.6% 3.6%

Sell Expected total negative return of at least 15% over next 12 months 8.1% 0.0%

* Relative to Nasdaq Composite.

An Under Review (UR) rating represents a stock that the Firm has temporarily placed under review due to a material change.

Maxim Group makes a market in Pluristem Therapeutics, Inc. and Aastrom BioSciences,

Maxim Group expects to receive or intends to seek compensation for investment banking services

from the subject company in the next 3 months.

In addition Maxim Group expects to receive or intends to seek compensation for investment banking

services from Athersys Corporation, Aastrom Biosciences and Mesoblast Limited in the next 3

months.

I, Jason Kolbert, attest that the views expressed in this research report accurately reflect my personal views

about the subject security and issuer. Furthermore, no part of my compensation was, is, or will be directly or

indirectly related to the specific recommendation or views expressed in this research report.

The research analyst(s) primarily responsible for the preparation of this research report have received

compensation based upon various factors, including the firm’s total revenues, a portion of which is generated

by investment banking activities.

Valuation Methods: We provide detailed market models and assumptions around Pluristem Therapeutics. We provide three valuation metrics – FCF, discounted EPS, and sum of the parts – and model PSTI out to 2018. We only assume success in CLI and have not included milestone or deal revenues related to United Therapeutics or other new partners. This derives a 2018 EPS number of $3.30, which we discount at 30% (large) and equally weight the three metrics to derive a $8.00 price target.

Price target and investment risks: Aside from general market and other economic risks, risks particular to our price target and rating for Pluristem Therapeutics include: 1) The regulatory and clinical risk associated with pivotal trials in CLI and other indications the company is pursuing; 2) the rate and degree of progress of product development; 3) the rate of regulatory approval to proceed with clinical trial programs; 4) the level of success achieved in clinical trials; 5) the requirements for marketing authorization from regulatory bodies in the United States and other countries; 6) the liquidity and market volatility of Pluristem’s equity securities; 7) regulatory and manufacturing requirements and uncertainties; 8) technological developments by competitors; and 9) the financials (capital structure) of the company.


Maxim Group LLC 25

RISK RATINGS

Risk ratings take into account both fundamental criteria and price volatility.

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Fundamental Criteria: This is a risk rating assigned to early-stage companies with minimal to no revenues,

lack of earnings, balance sheet concerns, and/or a short operating history. Accordingly, fundamental risk is

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Speculative stocks may not be suitable for a significant class of individual investors.

High –

Fundamental Criteria: This is a risk rating assigned to companies having below-average revenue and

earnings visibility, negative cash flow, and low market cap or public float. Accordingly, fundamental risk is

expected to be above the industry.

Price volatility: The price volatility of companies falling within this category is expected to be above the

industry.

High-risk stocks may not be suitable for a significant class of individual investors.

Medium –

Fundamental Criteria: This is a risk rating assigned to companies that may have average revenue and

earnings visibility, positive cash flow, and is fairly liquid.

Accordingly, both price volatility and fundamental risk are expected to approximate the industry average.

Low –

Fundamental Criteria: This is a risk rating assigned to companies that may have above-average revenue and

earnings visibility, positive cash flow, and is fairly liquid.

Accordingly, both price volatility and fundamental risk are expected to be below the industry.


Maxim Group LLC 26

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pluristem initiation buy - $8 target

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