EQUITY RESEARCH

COMPANY UPDATE
Pluristem Therapeutics, Inc.
(PSTI – NASDAQ – $3.24)
Pluristem :An Erroneous Story Misrepresents the Facts
 We spoke with Pluristem last week as a Bloomberg story was breaking that suggested the company failed to report a patient death and in-fact was guilty of hyping and miss-representing the company’s clinical experience. The story immediately made no sense to us, as the patient in question, a young pediatric patient, died, six months after treatment; many months after the allogeneic cells were long gone. The story in question was an article published in Bloomberg on November 7, 2012. Pluristem has submitted a direct request to Bloomberg to publish a correction because the article it published is factually inaccurate and in our opinion, totally misleading. We expect better from Bloomberg.  The article reviewed a pediatric patient who was critically ill, in imminent danger of death and who had exhausted all other treatments. The patient was treated on a compassionate use basis in Israel, and was not part of any Pluristem clinical trial. The patient was able to leave the hospital and survived six months, the last four of them in her home country of Romania. The patient left Israel over the objections of her Israeli treatment team, and we believe if she had remained in country, she may be alive today.  Pluristem was not monitoring the patient and learned of her death at the discretion of her family and physician. In addition, the formal report relating to the death clearly stated that there was no connection between the PLX cell treatment and the death of the patient.  PLX cells for this patient were used after all other options were exhausted. The patients was days (maybe hours) away from death as a result of two failed marrow transplants. For the patient to have survived six months, and died of sepsis in her home country, is for us, a sad but unrelated event. PLX cells for us worked, and at least initially allowed the graft to take hold.  We reiterating Buy rating and $8 price target. We provide three valuation metrics – FCF, discounted EPS, and sum of the parts – and are modeling PSTI out to 2018. This derives a 2018 EPS number of $2.79, which we discount at 30% and equally weight the three metrics to derive an $8.00 price target.

Biotechnology
November 12, 2012 Closing Price 11/9/2012 $3.24 12-Month Target Price: $8.00 52-Week Range: $2.02-$5.00 Market Cap (M): $168 Shares O/S (M): 51,713 Float (M): 46,542 Avg. Vol. (000) 1,053 Cash & Cash Equivilents (M) Q1-2012 70,127 Debt (M) $0 Dividend/Yield: $0.00/0.00% Risk Profile: Speculative Revenues 2017 2018 CLI $181 $347

Buy

FYE: December 2011A 2012E 2013E 2014E 2015E 2016E 2017E 2018E

GAAP EPS $ (0.35) $ (0.29) $ (0.36) $ (0.37) $ (0.26) $ 0.04 $ 1.41 $ 2.79

P/E nm nm nm nm nm 86.0 2.3 1.2

Pluristem (PSTI)

Source: Big Charts.com 11/12/2012

Jason Kolbert jkolbert@maximgrp.com

(212) 895-3516

Maxim Group LLC 405 Lexington Avenue New York, NY 10174 – www.maximgrp.com
SEE PAGES 4-6 FOR IMPORTANT DISCLOSURES AND DISCLAIMERS

Pluristem Therapeutics, Inc. (PSTI)
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 $2.79, which we discount at 30% and equally weight the three metrics to derive an $8.00 price target. Exhibit 1. FCF Model: Assume a 30% Discount Factor and Include Future CLI Revenues
DCF Valuation Using FCFF (mln): units (millions - $) EBIT Tax Rate EBIT(1-t) - Cap Expenditures + Depreciation - Change in NWC Free Cash Flow to Firm (FCFF) PV of FCFF Discount Rate Long Term Growth Rate Terminal Cash Flow Terminal Value YE2010 NPV NPV-Debt Shares out (thousands) 1Q-12E NPV Per Share
Source: Maxim estimates

2012E (14,088) 0% (14,088) (996) 393 (12,699) (46,431) 30% 1% 526,459 406,218 440,111 51,765 8.5

2013E (18,496) 0% (18,496) 432 (18,064) (50,960)

2014E (19,238) 0% (19,238) 476 (18,762) (40,841)

2015E (15,348) 10% (13,745) 523 (13,222) (22,207)

2016E 2,714 16% 2,275 575 2,851 3,695

2017E 97,235 23% 74,977 633 75,610 75,610

2018E 200,574 26% 148,380 696 149,076 115,028

June 2012

Source: Maxim Group

Exhibit 2. EPS Model
Current Year Year of EPS Earnings Multiple Discount Factor Selected Year EPS NPV
Source: Maxim estimates

$ $

2012 2018 15 30% 2.79 8.8 Earnings Multiple

PlusNet Cash Per Share Share Price

$

8.82

8.8 10 15 20 25 30 35 40 45

20% $9.33 $14.00 $18.67 $23.34 $28.00 $32.67 $37.34 $42.01

Discount Rate and Earnings Multiple Varies, Year is Constant 2018 EPS 25% 30% 35% 40% $7.31 $5.77 $4.60 $3.70 $10.96 $8.66 $6.91 $5.55 $14.61 $11.55 $9.21 $7.40 $18.27 $14.44 $11.51 $9.25 $21.92 $17.32 $13.81 $11.11 $25.57 $20.21 $16.12 $12.96 $29.23 $23.10 $18.42 $14.81 $32.88 $25.99 $20.72 $16.66

$ $ $ $ $ $ $ $

45% 3.00 4.50 6.00 7.50 9.00 10.50 12.00 13.50

Exhibit 3. Sum of the Parts Model
Pluristem Sum of the Parts PLX-CLI / IC / Buerger's Disease NPV PLX-Orthopedic NPV IPF NPV PLX-Inflammatory Bowel Disease NPV PLX-Stroke NPV PLX-BMT / GvHS /ARS NPV PLX-Multiple Sclerosis NPV Grants NPV Net Margin MM Shrs OS Total Net Cash/Shr Grand Total
Source: Maxim estimates

LT Gr 1% 1% 1% 1% 1% 1% 1% 2%

Discount Rate 30% 30% 30% 30% 30% 30% 30% 30%

Yrs. to Mkt 5 7 6 7 7 5 9 0

% Success 65% 25% 20% 25% 25% 65% 25% 100%

Peak Sales MM's $500 $100 $1,000 $100 $100 $200 $100 $2

Term Val $1,724 $1.75 $345 $0.08 $3,448 $0.83 $345 $0.08 $345 $0.08 $690 $0.70 $345 $0.05 $7 $0.04 30% 52 $4 $1.34 $4.94

Maxim Group LLC

2

Pluristem Therapeutics, Inc. (PSTI)
Exhibit 4. Pluristem Income Statement
Pluristem Income Statement ($ '000) PSTI: YEAR June 30 Product Revenue ($ Thousands) PLX-CLI / IC / Buerger's Disease % 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) % Chg Expenses PLX-PAD COGS COGS % Product Sales COGS (net) 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 Less participation by Office of the Chief Scientist R&D (net) PLX-PAD SG&A SG&A % Rev's 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) Stk Optn's Non-GAAP, Adj. Total costs & expenses Operating Income (Loss) EBIT Oper Margin Other Income expenses - Financial Expenses (net) Pre-tax income Taxes Tax Rate Net Income (loss) Net Margin Basic EPS Basic Wght Average Shares Outstanding (thousands) Fully Diluted Wgtd Avg Shrs outstanding (Thousands) Fully Diluted EPS
Source: Company Reports and Maxim 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 June 2017 June 2018 June 2019

2009A

2010A

2011A

1Q12A

2Q12A

3Q12E

4Q12E

2012E

1Q13E

2Q13E

3Q13E

4Q13E

2013E

2014E

2015E -

2016E 29,888

2017E 181,200

2018E 346,572

PLX-CLI: Phase 2/3
PLX-Orthopedic: Phase 1/2

Phase 3
PLX-RA P 1/2 Phase 2 Phase 2 Phase 2 Phase 2

154

231

385

-

-

29,888

181,200

346,572

0 -

5,978 0 5,978

36,240 0 36,240

69,314 20% 69,314

4,792 (1,651) 3,141

6,123 (1,822) 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 0 16,115 5,081 17% 16,921 30,804 17% 17,767 58,917 17%

3,417 2,239 2,239 6,558 (6,558) 78 (6,636)

3,138 1,832 1,832 7,439 (7,439) 14 (7,453)

4,485 1,992 1,992 11,114 (11,114) (266) (10,848)

1,637 508 508 4,486 (4,332) (161) (4,493)

1,275 508 508 2,349 (2,118) 126 (1,992)

1,132 508 508 3,618 (3,618) (26) (3,593)

1,132 508 508 3,618 (3,618) (31) (3,588)

4,530 2,032 2,032 14,473 (14,088) (31) (14,058)

1,144 518 518 4,624 (4,624) (34) (4,590)

1,144 518 518 4,624 (4,624) (38) (4,586)

1,144 518 518 4,624 (4,624) (42) (4,582)

1,144 518 518 4,624 (4,624) (45) (4,579)

4,575 2,072 2,072 18,496 (18,496) (45) (18,451)

4,621 2,114 2,114 19,238 (19,238) (60) (19,178)

2,156 2,156 15,348 (15,348) 3 (15,351) (1,603) 10% (13,748) (0.26) 52,311 52,311

5,081 2,199 2,199 27,174 2,714 117 2,597 420 16% 2,178 0.04 52,521 52,521

30,804 2,243 2,243 83,965 97,235 272 96,963 22,196 23% 74,767 1.41 52,731 52,731

58,917 2,288 2,288 145,999 200,574 272 200,302 52,123 26% 148,179 2.79 52,942 52,942

(6,636) (0.63) 10,603 10,603

(7,453) (0.44) 17,005 17,005

(10,848) (0.35) 31,199 31,199

(4,493) (0.11) 42,779 42,779

(1,992) (0.05) 43,669 43,669

(3,593) (0.07) 51,713 51,713

(3,588) (0.07) 51,765 51,765

(14,058) (0.29) 47,482 47,482

(4,590) (0.09) 51,817 51,817

(4,586) (0.09) 51,868 51,868

(4,582) (0.09) 51,920 51,920

(4,579) (0.09) 51,972 51,972

(18,451) (0.36) 51,894 51,894

(19,178) (0.37) 52,102 52,102

Source Maxim

Maxim Group LLC

3

Pluristem Therapeutics, Inc. (PSTI) DISCLOSURES

Source: Investars.com

Maxim Group makes a market in Pluristem Therapeutics, Inc. Maxim Group expects to receive or intends to seek compensation for investment banking services from Pluristem Therapeutics, Inc. 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 $2.79, which we discount at 30% 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

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Pluristem Therapeutics, Inc. (PSTI)

RISK RATINGS
Risk ratings take into account both fundamental criteria and price volatility. Speculative – 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 expected to be significantly above the industry. Price Volatility: Because of the inherent fundamental criteria of the companies falling within this risk category, the price volatility is expected to be significant with the possibility that the investment could eventually be worthless. 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

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Pluristem Therapeutics, Inc. (PSTI) DISCLAIMERS
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