Boris Peaker, Ph.D., CFA212 667-8564Boris.Peaker@opco.com

Oppenheimer & Co. Inc. does and seeks to do business with companies covered in its research reports. Asa result, investors should be aware that the firm may have a conflict of interest that could affect theobjectivity of this report. Investors should consider this report as only a single factor in making theirinvestment decision. See "Important Disclosures and Certifications" section at the end of this report forimportant disclosures, including potential conflicts of interest. See "Price Target Calculation" and "Key Risksto Price Target" sections at the end of this report, where applicable.

Stock Price Performance

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2011

1 Year Price History for PSTI

Created by BlueMatrix

Company Description

Pluristem Therapeutics Inc. is a leadingdeveloper of placenta-based cell therapies. Thecompany's patented PLX (PLacentaleXpanded) cells drug delivery platform releasesa cocktail of therapeutic proteins in response toa variety of local and systemic inflammatorydiseases. PLX-PAD comprehensive clinicaldevelopment plan has been recognized by boththe EMA and FDA, targeting a sub-populationof 20-million patients of Peripheral ArteryDisease (PAD) market.

May 16, 2011 HEALTHCARE/BIOTECHNOLOGY

Stock Rating:

OUTPERFORM12-18 mo. Price Target $5.00

PSTI - NASDAQ $2.63

3-5 Yr. EPS Gr. Rate NA

52-Wk Range $4.38-$0.94

Shares Outstanding 41.8M

Float NA

Market Capitalization $109.9M

Avg. Daily Trading Volume 327,750

Dividend/Div Yield NA/NM

Fiscal Year Ends Jun

Book Value $1.10

2011E ROE NA

LT Debt $0.0M

Preferred $0.0M

Common Equity $6M

Convertible Available No

EPS Diluted Q1 Q2 Q3 Q4 Year Mult.

2009A -- -- -- -- (0.63) NM

2010A (0.11) (0.10) (0.13) (0.10) (0.44) NM

2011E (0.08)A (0.11)A (0.07)A (0.05) (0.03) NM

2012E (0.06) (0.06) (0.06) (0.06) (0.24) NM

Pluristem Therapeutics Inc.Turning Medical Waste Into Medical Treasure ForPatients And Shareholders

SUMMARY

Pluristem Therapeutics is developing placental stem cells (PLX) for the treatment of

peripheral arterial disease. The company's proprietary 3-D bioreactor technology

appears to produce therapeutic stem cells that release multiple angiogenic factors

in response to local disease. Research by an independent group at SUNY Stony

Brook confirmed the potential benefit of 3-D culturing versus traditional 2-D

technologies. Pluristem reported encouraging results from an open-label study and

is finalizing the details of pivotal studies with the FDA and EMEA, which are

anticipated to commence by year-end. We are initiating coverage with an

Outperform rating and a $5/share price target.

KEY POINTS

■ PLX cells are an allogeneic therapy, and can be administered to the patient

immediately by the treating physician versus autologous therapy that requires

cell harvesting, processing, and reinfusion. We see this convenience as a

substantial commercial advantage versus competing stem cell technologies

currently in development for the same indication.

■ Unlike embryonic stem cells, PLX cells are derived from the placenta, which is

medical waste, and is not considered ethically controversial.

■ CLI is a well-established indication with a clear regulatory path for approval. In

our view this reduces regulatory risk compared to other stem cell technologies in

development where the regulatory path is not as certain.

■ We arrive at our price target via conservative NPV analysis. We see significant

potential upside to our estimates in critical limb ischemia and other indications

pursued by Pluristem.

EQUITY RESEARCH

INITIATION OF COVERAGE

Oppenheimer & Co Inc. 300 Madison Avenue New York, NY 10017 Tel: 800-221-5588 Fax: 212-667-8229

2

Table Of Contents

Investment Thesis pg. 3

Key Milestones pg. 4

Valuation pg. 4

Risks to Our Thesis and Price Target pg. 8

PLX Technology Background pg. 9

Stem Cells – A New Biologic Drug pg. 10

Peripheral Arterial Disease Background pg. 12

Clinical Data and Development Plan pg. 16

Financial Overview and Projections pg. 18

Management Biography pg. 22

Appendix: Stem Cells Primer pg. 26

Appendix: Angiogenesis Background pg. 28

Appendix: Select Clinical Studies of Cell Therapy in CLI pg. 30

Pluristem Therapeutics Inc.

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Investment Thesis

Pluristem Therapeutics Inc. is a clinical stage biotechnology company developing

placental stem cells (PLX) for multiple indications. Unlike research that aims to

direct stem cell differentiation to form new tissue, Pluristem utilizes stem cells for

their ability to secrete complex and potent signaling molecules and to adjust their

molecular signaling to the local microenvironment. As such, Pluristem’s technology

is more analogous to a drug, and should not be confused with stem cell-based

organ/tissue regeneration. We believe that stem cells offer a dynamic drug delivery

approach that cannot be emulated via traditional pharmaceutical techniques, but

may be necessary in many regenerative applications. We highlight the following

key strengths of Pluristem’s technology:

a) Proprietary 3-D Bioreactor. Pluristem uses its proprietary 3-D bioreactor

technology (PluriX) to grow the cells in a more natural environment than current

standard 2-D techniques. We are encouraged by a confirmation from an

independent laboratory that stem cells grown in a 3-D environment produce

significantly more growth factors than their 2-D counterparts.

b) Convenient Storage and Administration. Pluristem’s technology is allogeneic

(not derived from patient cells) and does not require tissue samples from the

patient or histocompatibility matching. What this means in practice is that the PLX

cells are stored in a refrigerator and can be injected into a new patient at any time,

which is very different from requiring a sample from the patient and waiting several

weeks until those cells are cultured and returned to physician. We believe that this

administration convenience is a key commercial advantage versus competing

autologous (taken from the patient) stem cell therapies, simplifying logistics and

potentially reducing costs for the patient and the physician.

c) Clear Regulatory Path in US and EU. Pluristem received an approval for its

pivotal Phase II/III study in critical limb ischemia (CLI) from both the EMEA and the

FDA. This suggests that if the study is successful, and the safety database is

further confirmed in the IC study, then the same dataset may be used to gain

approval in UE and EU.

We arrive at our target price of $5/share for Pluristem based on an NPV analysis of

PLX in CLI. We estimate a launch in 2016, conservative pricing of $12,000/patient,

and US peak sales of $1.3B by 2025. Given the unique nature of the therapy, we

do not believe that generic competition is likely in the near future, but to be

conservative we only include cash flow through 2025, and exclude potential upside

from additional indications, premium pricing, and ex-US sales at this time.

Please see our initiation reports on IMMU, KERX, ONCY, and CLDX, also

published today.

Pluristem Therapeutics Inc.

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Key Milestones

Event Date

Results for BONMOT-CLI (academic CLI study in Germany) May/June '11

Start Phase II study in IC 3Q11

Publication of Phase I/II PLX-PAD study data in journal 4Q11

Update on 12-month safety from Phase I/II PLX-PAD study 4Q11

Start Phase II/III Trial in CLI end of 2011

Phase II/III DSMB Update end of 2012

Completion of enrollment in Phase II/III CLI study end of 2013

Start physician IND muscle injury study 2011

Start Buerger's Phase II/III study 2011/2012

Start diabetic ulcers study 2012

Start neuropathy study 2012

Valuation

Initiating With An Outperform Rating And A $5/Share Price Target

Peripheral Arterial Disease – A Large Market And Unmet Medical Need

Peripheral arterial disease (PAD) is an obstruction of arteries which generally

results in reduced circulation to the extremities, usually in the legs. Sedentary

lifestyle, high fat/high cholesterol diet, diabetes, inflammatory disease, and

smoking are the leading causes of PAD. According to the American Heart

Association, PAD affects ~8M Americans, and is more common at older age. CLI

(critical limb ischemia) is a severe form of PAD, with an estimated prevalence of

~1.1M in US, and is anticipated to grow to approximately 1.4M by 20151. Further

estimates suggest that approximately 25-30% of CLI patients are not candidates

for interventional or surgical revascularization2,3

. PAD is also believed to be

responsible for ~160,000 – 200,000 amputations performed in the US annually.

NPV Analysis Suggests Price Target Of $5/Share

Development-stage biotechnology companies often present a challenge in

applying traditional multiple-based valuation techniques. We believe that valuation

based on an EPS multiple is not suitable for Pluristem because ongoing success in

additional indications following a potential approval in CLI would lead to increased

R&D costs and lower EPS in the initial years of commercialization, versus a less

valuable but a higher EPS scenario where these additional indications are

terminated in early development. As such, we based our valuation on an NPV

1 Prather W.R., et. al., The role of placental-derived adherent stromal cell (PLX-PAD) in the treatment

of critical limb ischemia. Cytotherapy (2009) 00; 1-8. 2 Pignon B. Histological changes after implantation of autologous bone marrow mononuclear cells for chronic critical limb ischemia.

Bone Marrow Transplant (2007) 39:647-648. 3 Lawall H, et. al., Treatment of peripheral arterial disease using stem and progenitor cell therapy. Journal of vascular Surgery (2011)

53(2): 445-453.

Pluristem Therapeutics Inc.

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analysis of PLX in CLI in the US. We conservatively limit our valuation to CLI in US

because the timing and probability of approval in other indications and geographies

is less certain at this time. In addition to the planned Phase II study in IC

(intermittent claudication), we anticipate that a Phase III study would be required

prior to label expansion in IC, and we will consider the upside in IC once additional

data is available and label expansion studies are ongoing. We exclude current

cash balance and European opportunities from our valuation because we believe

that the company is likely to invest the current cash balance into research and/or

partner ex-US geographies to finance the development of PLX for the US market.

We believe that PLX may gain approval based on successful results of the PLX-

CLI trial and positive safety findings in the PLX-IC study. We estimate the PLX-CLI

study to commence enrollment at the end of this year, and for both studies to

complete enrollment at the end of 2013. Adding one year for the observation

period and another year for filing and FDA review, we estimate approval late in

2015 and US market launch in early 2016. Based on the disease epidemiology

described above, we estimate the prevalence of CLI patients at 1.4M in 2015,

growing at a CAGR of 3%. We further estimate that 25% of these patients will not

be candidates for surgical revascularization, and are the target market for PLX. Our

market share assumption starts at 3% in 2016, as physicians slowly begin to

accept a novel therapy, growing to 20% in 2020. We would note that we are

utilizing a simple prevalence-based model where we do not exclude treated

patients from the future patient pool. We believe that is justifiable because PLX

therapy does not address the underlying cause of PAD, such as diabetes,

cardiovascular disease, etc., and the newly formed blood vessels are likely to

succumb to these underlying ailments just like the prior healthy blood vessels did.

Therefore, we believe that PLX is more likely to be a chronic therapy than a one-

time treatment.

We extend our model through 2025 without assigning a terminal value. Although a

terminal value may be warranted, our analysis suggests that even without a

terminal value, Pluristem is currently undervalued. We also do not see a generic

challenge as an issue for PLX given the complex nature of the therapy, but by

2025 competing technologies may present significant commercial pressure. Based

on a conservative launch price of $12,000/patient year, we arrive at peak sales of

$1.3B in 2025. To complete our valuation, we estimate COGS of $500/patient at

launch, decreasing progressively at larger scale, as well as sales and marketing

costs reaching 30% of revenue. In our taxation analysis we modeled the tax

incentive granted by the Israeli government to companies in the high tech industry.

Our model includes a full recapture of NOL ($82M at launch), followed by a 6-year

tax holiday, and 10% tax rate for the subsequent 4 years. To capture the

development risk associated with PLX, we applied an overall probability of

approval of 40%, and an additional 5% risk of market withdrawal post approval.

Applying a 15% discount rate and an estimated fully diluted share count of 70M in

mid-2012, we arrive at our target price of $5/share.

Pluristem Therapeutics Inc.

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Exhibit 1: NPV Valuation Of PLX-CLI In US

Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

US CLI Prevalence (000s) 1,400 1,442 1,485 1,530 1,576 1,623 1,672 1,722 1,773 1,827 1,881

% no option patients 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% 25%

US CLI no option patients (000s) 350 361 371 382 394 406 418 430 443 457 470

US Market penetration 3% 6% 10% 15% 20% 20% 20% 20% 20% 20%

US Treated Patients (000s) 11 22 38 59 81 84 86 89 91 94

Price per patient treated ($000s) $12 $12 $12 $13 $13 $13 $14 $14 $14 $14

Total US Revenue ($MM) $130 $273 $477 $752 $1,054 $1,107 $1,163 $1,222 $1,284 $1,349

Expenses

COGS (per patient, $) $500 $400 $350 $350 $350 $350 $350 $350 $350 $350

COGS total ($MM) $5 $9 $13 $21 $28 $29 $30 $31 $32 $33

R&D Internal $4 $4 $4 $4 $4 $4

R&D External $3 $5 $6 $4 $3 $3 $3 $3 $3 $3 $3 $3 $3 $3

G&A $4 $4 $4 $4 $5 $12 $18 $25 $40 $75 $80 $80 $80 $80 $80

Sales & Marketing $1 $2 $4 $25 $90 $109 $143 $226 $316 $332 $349 $367 $385 $405

Total expenses $8 $12 $15 $18 $38 $114 $139 $185 $289 $423 $444 $462 $481 $500 $521

Pre-tax cashflow ($MM) -$8 -$12 -$15 -$18 -$38 $15 $134 $293 $463 $631 $663 $701 $742 $784 $828

Taxes

NOL ($MM) $56 $60 $63 $66 $86 $33 $0 $0 $0 $0 $0 $0 $0 $0 $0

Effective tax rate 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 10% 10% 10%

Taxes ($MM) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $74 $78 $83

After tax cashflow -$8 -$12 -$15 -$18 -$38 $15 $134 $293 $463 $631 $663 $701 $667 $706 $746

Probability of cashflow 100% 100% 100% 100% 50% 40% 40% 40% 35% 35% 35% 35% 35% 35% 35%

Risk-adjusted cashflow -$8 -$12 -$15 -$18 -$19 $6 $53 $117 $162 $221 $232 $245 $234 $247 $261

Discount rate 15%

NPV ($MM) $372

NPV/share $5.30

Source: Oppenheimer & Co.

Pluristem Therapeutics Inc.

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Pluristem Therapeutics Inc.

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Significant Potential Upside To Our Valuation

We believe that our valuation is based on very conservative assumptions. We see multiple potential sources of upsides to our valuation:

a) Larger Target Patient Market

We only included CLI patients that are not eligible for surgical reperfusion in our

model. However, we believe that even if the intermittent claudication (IC) study is

not successful, physicians may be more liberal in utilizing PLX therapy in patients

that may still be considered candidates for surgery given the risks, pain, and

inconvenience associated with the surgery itself.

b) Greater Market Share

Our market share assumption starts at 3% of eligible patients growing to 20%.

However, end-stage CLI patients have no alternative and are generally anticipating

an amputation in the near future. We believe that this may lead patients and

physicians to seek PLX therapy more aggressively, enabling Pluristem to capture a

substantial market share in a short period of time.

c) Premium Pricing

We modeled a price of $12,000/patient per year. This is a discount compared to

chronic biologic therapies such as TNF-alpha’s in rheumatoid arthritis, which cost

~$14-24,000/year. Alternatively, one could use cancer drug prices as a

comparator, which would imply prices in the $40-60,000 range. Last, one can use

the cost of amputation as a basis to price PLX therapy, which is on par with cancer

therapy costs. It is difficult to estimate the price of cell therapies at this time, and

the actual pricing is likely to be dependent on the clinical benefit delivered by these

treatments, but we believe that $12,000 is a very conservative estimate with room

to grow.

d) Higher Injection Frequency

Pluristem is investigating two injections of PLX four months apart, followed by an 8-

month waiting period for a total study length of 12 months in the Phase II/III study.

However, if approved, PLX may be used as a chronic therapy dosed on a more

regular basis, and a dosing frequency of once every four months seems

reasonable to us. Such chronic utilization may substantially increase the number of

injections per patient.

e) Additional Indications

Pluristem is investigating or plans to investigate PLX therapy in several indications

outside of CLI, including IC, Buerger’s Syndrome, diabetic ulcers, muscle injury,

and neuropathy. Success in any of these indications could significantly expand the

market for PLX.

f) Ex-US Opportunities

Pluristem received approval from the European Medicines Agency (EMEA) to

commence its Phase II/III CLI PLX-CLI study, and we believe that if the study is

successful, the company may gain approval in the EU in addition to US based on

the same study. We are not including ex-US opportunities in our valuation because

we believe that they are more difficult to assess at this time and Pluristem may

consider partnering certain geographies in order to further finance PLX

Pluristem Therapeutics Inc.

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development and remain focused on the US market. A favorable ex-US partnership

may help add non-dilutive financing as well as significant upside to shareholders.

Risks To Our Thesis And Target Price

There are multiple risks and uncertainties associated with investment in

development-stage biotechnology companies. We recommend investors review

Pluristem’s regulatory filings for the detailed summary of investment risks, and

below we highlight the top three risks that relate to our thesis and price target.

Clinical Trial Risk

Pluristem must gain FDA approval (EMEA in Europe) to be able to market its

product. Our estimates for commercial launch in 2016 are predicated on success in

the Phase II/III CLI study and positive safety confirmation in the IC study. If either

of these trials do not meet their endpoints, Pluristem may have to conduct

additional clinical studies prior to commercial approval. We view the clinical trial

outcome as the highest risk associated with the company at this time. We would

like to highlight that in our view positive efficacy is not required in the IC study for

Pluristem to gain approval in the CLI indication.

Competitive Risk

There are several companies developing stem cell therapies for CLI, and if

successful, they are likely to compete for the same patients that Pluristem may

target. We see commercial competition as a moderate risk. Our view is based on

the observation that to the best of our knowledge, no head-to-head trials of

competing cell therapies are conducted or planned at this time. As such, even if

multiple stem cell therapies are approved for CLI, we believe that without head-to-

head comparison, perceived safety and convenience are likely to drive physician

prescribing decision. On that front, we believe that PLX’s convenience (simply take

a sample out of the refrigerator and inject) may make it one of the more

commercially attractive stem therapy options for patients and physicians.

Headline Risk

Valuation of development-stage biotechnology companies may sway significantly

due to headlines associated with competing technologies and/or macro trends in

healthcare. Due to the novelty of stem cell therapies, potential limited

understanding of the associated technologies by retail investors, and political

uncertainties associated with healthcare and stem cells, Pluristem’s stock may be

volatile for reasons not directly related to the company’s internal performance.

Liquidity and Small Capitalization

Pluristem is a small capitalization (<$500M) unprofitable biotechnology company.

The company may require additional capital to reach profitability, and an inability to

raise capital on favorable terms or at all may significantly impact the company’s

valuation. Pluristem’s stock may also exhibit volatility due to events not directly

related to its operations, including macroeconomic concerns, healthcare policy,

and political developments. Additionally, the stock’s liquidity may limit some

investors’ ability to acquire and sell shares in a timely fashion.

Pluristem Therapeutics Inc.

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PLX Technology Background

PLX Technology Addresses Many Cell Stem Challenges

Pluristem’s stem cell therapy is based on Placental eXpanded (PLX) platform.

Cells are harvested from the placenta following a cesarean section (C-section).

The placenta is considered to be medical waste and is not a controversial source

of stem cells. Placentas are collected at the maternity ward, transported to

Pluristem’s facility, with cell processing commencing ≤4 hours following the C-

section. The mother is screened for viral infections prior to delivery, and the

placenta is then placed in quarantine for three weeks and screened once again

during the manufacturing phase. Following cell harvesting, stem cells are seeded

on a polystyrene discs and stacked into a 3-D bioreactor, called PluriX. The cells

are then grown in this bioreactor without the use of external growth factors. The

entire process takes approximately eight weeks from birth to final product ready for

shipping (Exhibit XX).

Exhibit 2: PLX Preparation Process

Source: Prather W.R., et. al., The role of placental-derived adherent stromal cell (PLX-PAD) in the treatment of critical limb ischemia. Cytotherapy (2009) 00; 1-8.

Unique Advantages Of 3-D Culturing Approach

Pluristem’s 3-D approach is very different from the traditional stem cell growing

techniques. Notably, the standard practice is to grow stem cells in plastic flasks,

which are filled with growth media and stacked on top of each other. The stem cells

grow at the bottom of flask surrounded by plastic on one end and growth media on

the other. This technique is often referred to as 2-D because the growing cells form

a flat layer in the flask. Scientific evidence suggests that cell-to-cell signaling (also

known as paracrine signaling) may be required for optimal stem cell growth and

development. Such signaling is believed to be absent, or highly attenuated, in 2-D

cultures due to limited cell-to-cell contact, requiring supplementation of growth

factors and other exogenous additive to maintain active stem cell proliferation.

Additionally, the lack of uniformity in cell-to-cell contact may lead to batch-to-batch

variability of the 2-D grown cells, which may be problematic for commercial medical

purposes4.

An independent academic laboratory (not associated with Pluristem) observed that

culturing human stem cells in a 3-D cellular aggregate may lead to enrichment of

pro-angiogenic factors and may promote cellular survival compared to traditional

monolayer (2-D) culturing techniques5. The investigators found that many of the

genes upregulated in cells grown in a 3-D environment were associated with

4 Klim J.R., A defined glycosaminoglycan-binding substratum for human pluripotent stem cells. Nature (2010) 7: 989-994.

5 Potanova I.A. et. al., Mesenchymal Stem Cells Support Migration, Extracellular Matrix Invasion, Proliferation, and

Survival of Endothelial Cells In Vitro. Tissue-Specific Stem Cells (2007) 25: 1761-1768.

Pluristem Therapeutics Inc.

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hypoxia (oxygen starvation) and hypoxia-dependent angiogenic pathways,

including VEGF, stanniocalcin-1, placental growth factor, angiopoietin 2,

transforming growth factor, macrophage migration inhibitory factor, insulin-like

growth factor binding proteins 1 and 5, IL-8, IL-1alpha, IL-1beta, acetyl-coenzyme

A thiolase, transferrin, aldose reductase, heme oxygenase-1, and cyclooxygenase-

2 (see Appendix for overview of peripheral arterial diseases and angiogenesis). In

our view this is very encouraging data that further supports the potential benefits of

3-D cellular growth and the rationale of using PLX cells as angiogenesis therapy.

In addition to the angiogenic growth factor secretion discussion above, placental

stem cells also have low immunogenic properties. This suggests that PLX cells

may be administered to a patient without pre-requisite blood tests for HLA-

matching6, which is commonly required for bone-marrow derived cells (hence the

need to find a matching bone marrow donor). Additionally, stem cells have been

shown to express immunosuppressive factors which suppress T-cell proliferation,

minimizing potential immune reaction7. Placental stem cells are believed to have

an even stronger immunosuppressive effect relative to bone-marrow derived stem

cells8. Placental stem cells have also produced encouraging pre-clinical data in

models of CLI (Critical Limb Ischemia), acute myocardial infarction, stroke, and

auto-immune disorders, as well as human studies of osteogenesis imperfecta, graft

vs. host disease, and CLI9.

Stem Cells – A New Biologic Drug

A lot of emphasis in popular media and science literature is focused on utilizing

stem cells to grow new organs in the laboratory and permanently transplant them

into patients. While organ regeneration is certainly exciting, we believe that other

stem cell-based technologies are often overlooked. Stem cells have been shown to

participate in complex cell signaling pathways by releasing potent cell signaling

agents. Based on this research, Pluristem is utilizing stem cells as complex

biologic drugs delivered directly to the site of injury to secrete a range of

therapeutic molecules and not to replace damaged or diseased tissue directly.

Instead of injecting a single molecule (or a combination of molecules) that is typical

in traditional drug therapy, PLX cells injected into the diseased tissue are believed

to secret a complex mixture of potent drugs over a prolonged period of time. The

active agents produced by these stems cells may further be adjusted to the local

environment based on the interaction between the stem cells and local tissue,

something that is generally not possible with traditional pharmaceuticals.

Pluristem is initially applying its stem cell therapy to stimulate blood vessel growth

(angiogenesis). The cells are optimized to produce a range of cell-signaling

molecules10

(cytokines), including growth factors, which are produced by the body

naturally to stimulate the growth and development of blood vessels. Additionally,

the stem cells may also produce anti-inflammatory agents, which may be helpful in

the treatment of autoimmune and other inflammatory diseases. Many of these

6 Le Blank K., Immunomodulatory effects of fetal and adult mesenchymal stem cells. Cytotherapy (2003) 5: 485-489.

7 Jones B.J., Immunosuppression by placental indoleamine 2,3-dioxygenase: a role for mesenchymal stem cells. Placenta

(2007) 28: 1174-1181. 8 Chang C.J., Placenta-derived multipotent cells exhibit immunosuppressive properties that are enhanced in the presence of

interferon-gamma. Stem Cells (2006) 24: 2466–2477. 9 Horwitz M.E. et. al., Cytokines as the Major Mechanism of MSC Clinical Activity: Expanding the Spectrum of Cell Therapy.

Israel Medical Association Journal (2009) 11: 132-134. 10

Horwitz E.M., et. al., Cytokines as the Major Mechanism of MSC Clinical Activity: Expanding the Spectrum of Cell Therapy. Israel Medical Association Journal (2009) 11: 132-134.

Pluristem Therapeutics Inc.

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compounds are difficult to produce in the laboratory, and it may not be possible to

deliver them by traditional drug delivery techniques.

We would like to acknowledge that it is possible that a small fraction of the

delivered stem cells may differentiate into endothelial progenitor cells (EPC). EPC

are circulating cells that are believed to further differentiate into endothelial cells

(cells that line blood vessels), and may play essential role in the maintenance of

existing blood vessels and growth of new vessels11

. Research data indicates that

age12

, diabetes13

, high cholesterol14

, hypertension15

, smoking16

, and coronary

artery disease may reduce the availability of EPCs, which may further lead to

reduce integrity of exiting blood vessels and/or decrease in the rate of new vessel

formation. Multiple animal and human studies have shown that administration of

EPC derived from bone marrow may lead to both short-term and long-term

improvement in cardiovascular function17

. One caveat that we would like to add to

the EPC discussion above is that we are not aware of data that that shows the

conversion of PLX cells to EPCs, and we do not believe that such conversion is

necessary for PLX therapy to achieve its intended goal. We are simply highlighting

a potential alternative mechanism.

PLX’S Convenience Is A Key Commercial Advantage

One of the key challenges in utilizing stem cells in clinical application is the ability

of producing them in a quick and cost-effective manner. Autologous therapies

present a unique challenge whereby cells must be first harvested from the patient,

delivered to a manufacturing facility, grown and modified as necessary, formulated

for infusion, delivered to the treating physician, and infused into the patient. The

logistical process has multiple potential bottlenecks and requires at least two

physician visits (initial cell harvest and final administration). Similar logistical

challenges have been successfully addressed in autologous cancer vaccine

manufacturing, such as Dendreon’s Provenge. However, we believe that the

complexities of autologous stem cell therapy may remain a key limitation for

companies like Aastrom Biosciences and an advantage to Pluristem. Assuming a

scenario where both therapies are approved and available, we believe that the

physician is likely to choose PLX as the first treatment because the medical

diagnosis, decision, and therapy administration can all be done as part of a single

visit, instead of multiple visits. In our view Aastrom would have to show superiority

to PLX in order to convince a physician to use its therapy as first line, and we do

not anticipate head-to-head studies between the two technologies in the near

future to make a claim of superiority. As an anecdotal data point highlighting the

importance of administration convenience, we observed that Pluristem chose to

decrease the number of injections for PLX administration from 50 per visit in

European studies to 30 per visit in the US to address the US physicians’ concern

that 50 injections is too time consuming. If the 20 additional injections were viewed

as a significant inconvenience by participating physicians, despite the fact that

11

Rafii S., et. al., Therapeutic stem and progenitor cell transplantation for organ vascularization and regeneration. Nature Medicine (2003) 9: 702-712. 12

Rauscher F.M., et. al., Aging, progenitor cell exhaustion and atherosclerosis. Circulation (2003) 108:457-463. 13

Waltenberger J. Impaired Collateral vessel development in diabetes: potential cellular mechanisms and therapeutic implications. Cardiovascular Research (2001) 49:554-560. 14

Hill J.M., et. al., Circulating endothelial progenitor cells, vascular function, and cardiovascular risk. New England Journal of Medicine (2003) 348: 593-600. 15

Vasa M. et. al., Number and migratory activity of circulating endothelial progenitor cells inversely correlate with risk factors for coronary artery disease. Circulatory Research (2001):89-E1-E7. 16

Kondo T. et. al., Smoking cessation rapidly increases circulating progenitor cells in peripheral blood in chronic smokers. Arteriosclerosis, Thrombosis, and Vascular Biology (2004) 24: 1442 – 1447. 17

Shnatsila E., et. al., Endothelial Progenitor Cells in Cardiovascular Disorders. Journal of the American College of Cardiology (2007) 49:741-752.

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most of these injections were performed by nurses and not physicians, we believe

that logistical hurdles are an even greater inconvenience then additional injections

for competing autologous stem cell technologies.

Peripheral Arterial Disease Background

PAD remains a relatively unknown disease, with approximately 75% of the

population unaware of its symptoms and long-term consequences18

. The

prevalence of PAD also increases with age (Exhibit XX), and is anticipated to grow

significantly over the next decade due to the aging of the population. Interestingly,

prior to 65 years of age, PAD predominantly affects men, but women quickly catch

up after 65 years of age.

Exhibit 3: PAD Prevalence By Age

Source: Rush University Medical Center

PAD is a progressive disease. The initial symptoms start with claudication, which is

defined as painful and tired feeling in the legs following a brisk walk that is relieved

by rest. To put this definition in perspective, approximately one third of patients

with intermittent claudication can not walk one city block without experiencing pain,

while another third feel leg pain during routine housework19

. Intermittent

claudication incidence is estimated at 5% of men and 2.5% of women over the age

of 6020

. As stenosis increases, claudication becomes more severe, with ischemic

leg pain at rest (pain due to oxygen starvation), which is exacerbated by raising the

limb. The next stages of disease involve ulcers and gangrene, which lead to minor

(below the ankle) and major (above the ankle) amputations. The severe subset of

PAD is also known as Critical Limb Ischemia (CLI). There are two scales that are

used to classify PAD in the clinic, Fontaine and Rutherford. In exhibit XX we

provide a side-by-side comparison of both scales.

18

Hirsch A. T., et. al., Gaps in public knowledge of peripheral arterial disease. Circulation (2007) 116: 2086-2094. 19

Annex B.H. Cardiology rounds at Brigham and Women’s Hospital (2002) 6(1). 20

Shammas N.W. Epidemiology, classification, and modifiable risk factors of peripheral arterial disease. Vascular Health and Risk Management (2007) 3:2; 229-234.

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Exhibit 4: PAD Rating Scales

Stage Symptom Grade Category Symptoms

I Asymptomatic 0 0 Asymptomatic

II a Mild Claudication I 1 Mild Claudication

I 2 Moderate Claudication

I 3 Severe Claudication

II 4 Pain at Rest

III 5 Minor Tissue Loss

IV Ulcers/Gangrege III 6 Major Tissue Loss

Rutherford Scale

III Pain at Rest

Fontaine Scale

II bModerate - Severe

Claudication

Source: American Heart Association

Many individuals with early stage PAD may not be aware of their condition until

they experience the initial symptoms, such as pain and tiredness in the leg and hip

muscles while walking due to lack of oxygen. While some patients initially dismiss

these early signs as simply aging-associated pain, PAD can be readily diagnosed

by a physician using one of several approaches:

Ankle-Brachial Index (ABI) is a ratio of blood pressure between the legs and the

arms using standard sphyngomanometer (blood pressure meter). A lower blood

pressure in the legs vs. the arms indicates blocked arteries. This technique is

painless, does not require specialized equipment, and can be performed during

routine physical examination. ABI results of 0.9 – 1.3 are considered

normal/acceptable, 0.8 – 0.9 suggests mild blockage, 0.5 – 0.8 moderate PAD, and

anything <0.5 is considered severe PAD. ABI readings of greater than 1.3 suggest

calcification of the artery, and for these subjects ABI is not a suitable metric.

Non-invasive imaging, which includes Doppler/ultrasound, CT scans, MRI, and

angiograms (X-ray with the use of an injected contrast agent). The exact technique

utilized often depends on the available facility and equipment.

Buerger’s test (leg elevation). The patients’ legs are elevated at 45% for a short

period of time and the change in color at the feet and toes is observed between

elevated and sitting state.

ABI Measurement Important For Assessing Clinical Trials

The introduction of imaging technologies for the assessment and monitoring of

PAD resulted in a more quantitative assessment of PAD disease and progression.

However, we would like to highlight the significance of ABI measurements. While

ABI is viewed by some physicians as a rather crude measurement, due to lack of a

unifying protocols, potential for measurement error, and the difficulty presented by

calcification, it remains a common metric for assessing PAD progression.

Research has shown that ABI correlates well with clinical outcomes such as

amputation and mortality. Specifically, chronic ischemia patients with ABI <0.5

experienced limb loss of 28% and 34% at 6 months and 12 months, respectively,

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and an overall limb loss of 23% after one year. Overall amputation rate is

estimated at 10-40% after one year, with a mortality rate of 20% after one year, 40-

70% after 5 years, and 80-95% after 10 years21

.

Multiple studies have shown that PAD is correlated with cardiovascular disease

and overall mortality. The data indicates that patients with more severe PAD have

a greater risk of death (Exhibit XX), although the median survival varies from ~4-6

years for patients diagnosed with severe forms of the disease, to several decades

for those in early stages. The results are confounded by the difficulties of

comparing across clinical trials and the co-morbidities of the subjects. Our main

takeaways from these mortality statistics are that patients in late stage of disease

may seek PAD treatment for 5+ years, and those in earlier stages may require

chronic therapy for 10+ years (depending on the safety and efficacy of therapy).

21

Shammas N.W. Epidemiology, classification, and modifiable risk factors of peripheral arterial disease. Vascular Health and Risk Management (2007) 3:2; 229-234.

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Exhibit 5: PAD Survival Based On Disease Severity At Diagnosis From Two Independent Studies

Source: Crique M.H. et. al., New England Journal of Medicine (1992) 326:381-386

Source: McKenna et. al., Atherosclerosis (1991): 87

Therapeutic Approaches For PAD Management

There are multiple therapeutic approaches to treat PAD. The objective of the

therapy is to alleviate pain, increase function, prevent/control the underlying cause

of PAD (diabetes, high cholesterol, etc.) and reduce the probability of limb

amputation, morbidity, and mortality. The recommendation for patients in the early

stages of PAD are a better diet, exercise, improved blood sugar control for

diabetics, and weight loss as necessary. Patients with intermittent claudication

(typically cramping and pain in the calf and other leg muscles) are also given a

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similar list of recommendations, but may have a difficult time commencing an

active exercise program since movement may trigger painful episodes, limiting

their ability to exercise. There are many drugs prescribed to provide temporary

symptomatic relief, including aspirin, ACE inhibitors, beta blockers, and cilostazol.

However, these agents may take several months to deliver their effect (Exhibit XX),

some have been found ineffective, and they fundamentally do not address the

underlying blockage of the blood vessels. Additionally, some patients may be

contra-indicated for these drugs if they have other underlying conditions such as

congestive heart failure, clotting disorders, or simply cannot tolerate the associated

side effects. When drugs are not adequate to control PAD symptoms, angioplasty

(mechanically opening blood vessels using a wire or balloon catheter) or stenting

(inserting metal mesh to keep the blood vessel open) may be employed. It is

estimated that 10-15% of PAD patients are treated with an interventional

procedure. The last option is surgery, where the surgeon may attempt to remove a

large piece of plaque by hand or simply cut out the obstructed artery and replace it

with a graft from another part of the body. In all cases surgery is considered the

last resort, and is performed in ~5% of PAD patients. Despite the range of

available therapies, the underlying occlusions generally worsen with time,

ultimately leading the patient to seek more aggressive treatment. Some patients

are not eligible for interventional procedures or vascular surgery due to old age, co-

morbidities, and vascular anatomy. To help address the need of these end-stage

PAD patients, a number of therapies are in development aimed at stimulating the

growth of new blood vessels, including PLX cells by Pluristem.

Exhibit 6: Walking Improvements With Oral Drugs in PAD

TherapyDuration of

Therapy

Increase in Peak

Walking Time

Increase in Pain-Free

Walking Time

Increase in Walking

Distance

Exercise 12 weeks 123% 165%

Cilostazol 24 weeks 54%

Statins 6 months 24% 24%

Statins 12 months 42% 42%

Aspirin or

clopidogrelMultiple Little to no observed effect on walking

Source: Shammas N.W. Epidemiology, classification, and modifiable risk factors of peripheral arterial disease. Vascular Health and Risk Management (2007) 3:2; 229-234.

Clinical Data And Development

Pluristem Reports Encouraging Data, Plans To Commence Phase II/III Study

This Year

Pluristem is currently conducting a Phase I/IIa study of PLX-PAD in 27 patients

with Peripheral Arterial Disease (PAD) who are not eligible for surgical reperfusion.

The open-label, multi-center, dose-ranging study is conducted at leading medical

centers in the US and Germany. The study is aimed at evaluating the safety of

PLX-PAD as well as preliminary efficacy at 3 months. Three doses are tested with

50 injections/limb in Germany and 30 injections/limb in the US (Exhibit XX).

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Exhibit 7: Phase I / IIa Dosing

German

GroupUS Group

(n = 15) (n = 12)

Low Dose 175×106 Single dose;

50 injectionsNA

Intermediate Dose 315×106 Single dose;

50 injections

Single dose;

30 injections

High Dose 595×106 Single dose;

50 injections

2 doses 2 weeks apart;

30-injections each dose

# of PLX Cells

Injected/DoseDosage Group

Source: Company presentation

In September 2010 the company reported encouraging interim safety update from

all 27 patients and efficacy results were reported in April 2011. In order to assess

immunogenic safety, a total 7 placentas were utilized in the study. Out of the 27

treated patients, six received repeated doses with five of the repeats from the

same placenta. The safety findings were unremarkable, with no significant adverse

events and no immune response to date. The company plans to follow the US

patients (n = 12) for 12 months and European patients (n = 15) for 21 months to

assess long term safety. From the efficacy perspective, only 1 amputation was

reported, which was two weeks after PLX-injection. This suggests an amputation

rate of 3.7%, which is below the 3-months amputation-free survival (AFS) rate of

10-25% observed in other trials. We view these data as encouraging, with a caveat

that this was an open-label study with 3-month follow-up, while FDA wants to see

AFS results at 12 months from a placebo-controlled study.

Pivotal Study In CLI To Start This Year, Other Studies Conducted In Parallel

Pluristem met with the FDA and EMEA to discuss its regulatory strategy and

received approval for its protocol to commence Phase II/III studies of PLX in CLI

patient. This multi-national, multi-center, double-blind, randomized study is

scheduled to enroll 450 patients with a 1:1 randomization to PLX and placebo.

These patients will have CLI with a grading of III-IV on the Fontaine scale and

category 4-5 on the Rutherford scale, and are not candidates for surgical

reperfusion. Pluristem plans to advance the intermediate dose (300×106

cells/treatment) into this study, which will be administered twice, at study

commencement and after four months. The company plans to only include centers

of excellence with prior stem cell therapy experience in this study to minimize

variations in the standard of care.

The primary endpoint in this trial is major amputation of the lower extremity

(MALE), defined as non-traumatic amputation above the ankle (trans-tibial). This

includes amputations above and below the knee, but excludes amputations of the

foot. The study will report the amputation free survival (AFS) and all-cause

mortality at 12 months. Secondary endpoints will include ABI, tissue CO2,

cutaneous O2, and quality of life metrics. Based on FDA’s comments, we believe

that the 12-months AFS endpoint could warrant approval if the trial shows a 50%

decrease in amputation rate. The study is 80% powered to show a p-value of 0.05

based on an assumed amputation rate of 22% in the control arm. Historical data

suggests 35-40% amputation rate within one year for these patients. However,

we’ve observed variability in this rate, and the RESTORE-CLI study (Aastrom’s

Phase II) reported an amputation rate of 25% on placebo at 12 months.

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Enrollment is anticipated to commence close to the end of 2011 once the company

completes the upgrades to its manufacturing infrastructure. The study will also be

monitored by a Drug Safety Monitoring Board (DSMB), which will unblind the study

once a predetermined number of amputations has occurred. This unblinding event

target has not been announced, and will likely be made public once the trial design

is finalized. We estimate approximately two years to enroll this trial, suggesting

availability of topline data in late 2014 or early 2015. However, we anticipate the

DSMB to look at the data approximately 12 months after commencement of

enrollment, and the company may communicate the DSMB’s findings to investors.

The DSMB is authorized stop the study for safety or efficacy reasons at any time.

Intermittent Claudication Trial To Start In 2011

Pluristem received an approval from the FDA and German regulatory authorities to

commence a Phase II study of PLX in patients with Intermittent Claudication (IC).

The protocol includes a total of 135 patients split evenly across 3 groups: placebo,

two low doses (150×106 cells), and two intermediate doses (300×10

6 cells). The

two doses of PLX cells will be administered 4-months apart, and results will be

evaluated at 12 months. The primary endpoint is number of patients with a 50%

increase in walking distance. We believe that this is a meaningful endpoint not just

from the regulatory perspective, but also commercially.

Clear Regulatory Path Forward, Estimating Launch In 2016

Pluristem’s regulatory strategy is based on the Phase II/III study in CLI and Phase

II trial in IC. According to the company, the safety dataset from both of these trials

may be sufficient for the FDA and EMEA approval of PLX if it is consistent with

prior safety observed for this therapy. Based on comments from the company

regarding its communications with the FDA, we believe that a positive result in the

CLI study may be adequate to support US approval of PLX in CLI. Our launch

estimate date of 2016 for PLX in CLI is based on this regulatory scenario.

However, if the CLI study shows good safety but does not show a 50% reduction in

MALE (primary endpoint) with a p≤0.05, we believe that additional studies may be

necessary irrespective of the outcome from the IC study.

Pluristem also plans to conduct studies in other indications where angiogenesis

therapy is warranted, including Buerger’s disease, diabetic foot ulcer, neuropathic

pain, and muscle injury. In March 2011 Pluristem announced encouraging results

from a preclinical study of muscle injury and a collaboration with NYU Medical

Center to commence a preclinical program in diabetic foot ulcers. In our view these

are all potentially large commercial opportunities for PLX technology. We anticipate

clinical studies to commence in these indications in 2011 and/or 2012, which may

provide additional news flow while the CLI and IC studies are ongoing.

Financial Overview and Projections

Pluristem reported a cash and short-term investments balance of $45M as of

March 31st, 2011. We estimate the company to end June 2011 with $44M in cash

and equivalents on the balance sheet, and project a 12-month burn rate (July 2011

– June 2012) of $10M. We anticipate most of the cash to be utilized for ongoing

clinical trials as well as other corporate expenses. We believe that the current

capital should be adequate to support clinical trials and operating expenses over

the next several years, and may be sufficient to complete the Phase II/III study in

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CLI. However, the actual cash burn may depend on success in other indications

and ongoing studies. Pluristem may be able to generate non-dilutive capital from

geographic partnerships for its PLX technology.

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Financial Statements

Exhibit 8: Historical And Projected Income Statement

Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12

1QA 2QA 3QA 4QE 1QE 2QE 3QE 4QE

Revenue 0 0 0 0 0 0 0 0 0 0 0 0 0

Expenses

Research and development 4,792 6,123 1,501 2,186 2,145 2,000 7,832 2,600 2,800 2,900 3,000 11,300 12,995

less participation by the Office of the Chief Scientist (1,651) (1,822) (503) (608) (598) (1,000) (2,709) (900) (900) (900) (900) (3,600) (4,000)

Research and development, net 3,141 4,301 998 1,578 1,547 1,000 5,123 1,700 1,900 2,000 2,100 7,700 8,995

General and administrative 3,417 3,138 756 1,246 1,152 900 4,054 900 1,000 1,000 1,000 3,900 4,290

Sales and Marketing 0 0 0 0 0 0 0 0 150 200 250 600 2,000

Operating expenses 6,558 7,439 1,754 2,824 2,699 1,900 9,177 2,600 3,050 3,200 3,350 12,200 15,285

Financing expenses (income), net 78 14 (65) (3) (86) 20 (134) 20 20 20 20 80 0

Net loss (6,636) (7,453) (1,689) (2,821) (2,613) (1,920) (9,043) (2,620) (3,070) (3,220) (3,370) (12,280) (15,285)

Basic and diluted loss per share (0.63) (0.44) (0.08) (0.11) (0.07) (0.05) (0.29) (0.06) (0.06) (0.06) (0.06) (0.24) (0.26)

Weighted average shares 10603 17005 21,012 24,897 36,677 42,233 31205 45,708 51,408 54,858 56,058 52008 58858

FY Ending June 30th FY09A FY10A FY11E FY12E FY13E

Source: Company reports, Oppenheimer estimates.

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Exhibit 9: Historical Balance Sheet

Sep-10 Dec-10 Mar-11ASSETS 1QA 2QA 3QA

Current Assets

Cash and equivalent 2,339 1,583 1,127 4,739 44,866

Short term bank deposit 0 913 517 0

Prepaid expenses 100 41 80 56 213

Accounts receivable from the Office of the Chief Scientist383 706 318 361 324

Other accounts receivables 113 362 71 375 214

Total current assets 2,935 3,605 2,113 5,531 45,617

Long-term assets

Long-term deposits and restricted deposits 171 168 169 176 183

Severance pay fund 154 294 327 359 410

Property and equipment 1,203 1,555 1,756 1,816 1,943

Total long-term assets 1,528 2,017 2,252 2,351 2,536

Total Assets 4,463 5,622 4,365 7,882 48,153

LIABILITIES AND STOCKHOLDER'S EQUITY

Current Liabilities

Trade payables 487 791 673 926 1,283

Accrued expenses 81 118 157 85 107

Other accounts payable 272 372 400 468 515

Total current liabilities 840 1,281 1,230 1,479 1,905

Long-term liabilities

Long-term obligations 23

Accrued severance pay 206 360 403 420 503

STOCKHOLDER'S EQUITY

Common stock par value 0 0 0 0 0

Additional paid-in capital 36,046 44,086 44,526 50,598 92,973

Accumulated deficit during development stage (32,652) (40,105) (41,794) (44,615) (47,228)

Total stockholder's equity 3,394 3,981 2,732 5,983 45,745

FY09A FY10A

Source: Company reports.

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Management Biography

Zami Aberman

Chairman and Chief Executive Office

Mr. Aberman joined Pluristem in September 2005 as Chairman and CEO 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 has 20 years of experience in marketing and management in the high

technology industry. He has held positions of Chief Executive Officer and

Chairman in Israel, the USA, Europe, Japan and Korea. He has operated within

high-tech global companies in the fields of automatic optical inspection, network

security, video over IP, software, chip design and robotics. Mr. Aberman serves as

the Chairman of Rose Hitech Ltd., a private investment company. He has served in

the past as the Chairman of VLScom Ltd., a private company specializing in video

compression for HDTV and video over IP and as a Director of Ori Software Ltd., a

company involved in data management. Prior to that, he served as the President

and CEO of Elbit Vision Systems (EVSNF.OB), which supplies inspection systems

for the microelectronic industry.

Mr. Aberman has served as President and CEO of Netect Ltd., specializing in the

field of internet security software and was the Co-Founder, President and CEO of

Associative Computing Ltd., which developed an associative parallel processor for

real-time video processing. He has also served as Chairman of Display Inspection

Systems Inc., specializing in laser based inspection machines and as President

and CEO of Robomatix Technologies Ltd. (RBMXF.OB).

In 1992, Mr. Aberman was awarded the Rothschild Prize for excellence in his field

from the President of the State of Israel. Mr. Aberman holds a B.Sc. in Mechanical

Engineering from Ben Gurion University in Israel.

Yaky Yanay

Vice President of Finance and Chief Financial Officer

Prior to joining Pluristem, Mr. Yanay was the Chief Financial Officer of Elbit Vision

System Ltd. (EVSNF.OB), a company engaged in automatic optical inspection. He

has extensive experience in the financing and management of technology

companies. He played a major role in planning and executing a turn-around plan

for Elbit Vision System, including the completion of three acquisitions and the

raising of more than $20 million, resulting in a tripling of the company’s revenues

and attaining profitability.

Mr. Yanay began his financial career at Ernst & Young Israel in 1999, where he

served as a manager of audit groups for the technology sector. He joined Ernst

&Young’s financial team after serving in the Israeli Ministry of Foreign Affairs since

Pluristem Therapeutics Inc.

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1993. Mr. Yanay holds a bachelor’s degree with honor in business administration

and accounting from the College of Management Studies in Rishon Le Zion, Israel

and is a Certified Public Accountant in Israel.

William R. Prather RPh, MD,

Senior VP Corporate Development

William R. Prather RPh, MD, is a Registered Pharmacist as well as a Board

Certified Internist and Geriatrician. Dr. Prather received his BS in Pharmacy (1970)

and medical degree (1973) from the University of Missouri. He practiced internal

medicine in the Kansas City, MO and Vail, CO areas until leaving Internal Medicine

in 1987 to pursue a Fellowship in Geriatric Medicine at Harvard University. He

completed this Fellowship in 1989.

In 1992 Dr. Prather left the practice of medicine to pursue a career in the financial

industry where he has held Senior Healthcare research positions for a variety of

investment banks. Dr. Prather co-founded Panacos, Inc. (NASDAQ:PANC), a

public pharmaceutical company. Additionally, he has been on the Boards of

several public and private companies, including Boston Biomedica Inc. (a public

medical diagnostics company), PriMed (a private medical device company), MdBio

(a Maryland healthcare venture firm), and sat on the Advisory Board of MDS

Capital Management (a Canadian venture firm).

Frida Grynspan, PhD,

Vice President of Research & Development

Prior to joining Pluristem, Dr. Grynspan served as Vice President of R&D of a

pioneering cell therapy company in Israel, where she was instrumental in bringing

its first cell therapy product to a multinational, multi-center Phase III clinical trial

and participated in the development of its pipeline. Before that, Dr. Grynspan

served as Senior Scientist at Intelligene Ltd., a developer of molecular biology

diagnostic and therapeutic tools, and as an instructor and biochemist at Harvard

Medical School. Dr. Grynspan has extensive experience in the fields of

biochemistry, cell biology and molecular biology and has authored numerous

scientific papers in the fields of autoimmune and degenerative diseases.

Dr. Grynspan earned her Ph.D. in Chemistry/Biochemistry from the University of

Illinois, Chicago and her post-doctoral degree from Harvard Medical

School/McLean Hospital, where she worked in the areas of Multiple Sclerosis and

Alzheimer's Disease.

Chaya Mazouz

Vice President of Clinical and Regulatory Affairs

Prior to joining Pluristem, Chaya Mazouz held the position of Clinical Operations

Director for Medgenics, a clinical-stage biopharmaceutical company involving gene

therapy, where she engineered Phase I/II clinical studies. Previously, Ms. Mazouz

served as Clinical Manager for TransPharma Medical, a drug delivery company,

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where she was responsible for managing all of the company's clinical activities. In

previous positions, Ms. Mazouz led a multi-center Phase II study for Pharmos, a

pharmaceutical company, and was CRA and Project Manager at IDgene, a startup

company engaged in gene discovery.

Ms. Chaya Mazouz received her BSc in Nursing and MA in Philosophy of Science

from the Hebrew University in Jerusalem and is a registered Nurse. Ms. Mazouz

joined Pluristem in August 2008 to lead the Company’s clinical trials.

Amit Avrahami

Vice President of Operations and Production

Mr. Avrahami brings has 20 years of experience in Operations and Production

management in various industries such as: Pharmaceutical, Hi-Tech, Medical

Devices and Bio-Tech. Prior to joining Pluristem, Mr. Avrahami was "Site Manager

& Director of Operations" at Colbar Life Science, a Johnson & Johnson subsidiary,

which develops and produces Purified Collagen products. In his position Mr.

Avrahami upgraded the Operations system, dramatically improving product quality

and reducing the product costs. Previously, Mr. Avrahami was part of the team that

established the Operations division at Verint, a Hi-Tech subsidiary of Comverse.

He scaled-up the operations & production capability from $50 Million to $130

million.

Mr. Avrahami holds a Bachelor's Degree in Industrial Management from Shenkar

College, Israel and a Master's in Business Administration from Heriot-Watt

University, England.

Efrat Livne Hadass

Vice President of Human Resources

Ms. Livne-Hadass joined Pluristem in 2007 and is responsible for all aspects of

Human Resources management, including recruitment, professional training, and

well being. Prior to joining Pluristem and during the years 2001-2005, Efrat held the

position of Human Resources Manager at Elbit Vision Systems, a company

engaged in automatic optical inspection, located in Yokneam, Israel. While holding

that position, she was involved in some major challenges and change processes

which the company was going through, including managing HR in a small yet

global and public company.

Ms. Livne-Hadass holds an Executive M.A for Human Resources managers from

the department of Labor Studies, Tel-Aviv University and a B.Sw. degree from the

Haifa University, majoring in public healthcare services.

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Daya Lettvin

Director of Investor & Media Relations

Daya Lettvin is the Investor and Media Relations Director of Pluristem

Therapeutics. In this position, Mrs. Lettvin is involved in investor relations, media

outreach, marketing communication, business development and reimbursement for

cellular therapies. When Mrs. Lettvin first arrived at Pluristem Therapeutics in

2005, she created the Quality Assurance and Quality Control Department, bringing

her extensive experience in the biotechnology and pharmaceutical industry. Prior

to working at Pluristem, she spent seven years in various scientific positions at

Merck & Co. Inc, focusing on the quality of biological pharmaceutical products.

Mrs. Lettvin received her honorary bachelor’s degree in Biological Sciences from

Rutgers University.

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Appendix

Stem Cells Primer

All living organisms are composed of cells. While the size, shape, and functionalities of the cells found in complex, multi-cellular organisms may differ substantially, all these cells trace their origin to a zygote (Exhibit XX). A zygote is the initial cell formed from the genetic combination of gamete cells from the two parents. In mammals the zygote begins to divide into multiple cells shortly after fertilization, with each of the nascent cells carrying the entire genetic content of the original zygote. After three days the ball of cells is called a morula. The cells in the morula begin to secrete a fluid, which spreads the cells into a sac called blastocycst. As the cells grow and divide, each division produces a copy of the parent cell which can either produce more copies of itself or specialize into a specific cell type. Cells that are unspecialized and can produce identical copies of themselves are called stem cells.

Exhibit 10: Progression Of Stem Cell Development

Source: www.wikipedia.org.

Stem cells have two defining characteristics: a) they can undergo division and

create identical copies of themselves, often after a long period of inactivity, and b)

they can differentiate into more specialized cells. Stem cells are often defined by

their potency, which is the range of cells they could potentially become.

Totipotent cell is the most undifferentiated stem cell. A totipotent cell can produce

all other stem cells and can develop into a viable organism. The splitting of

topipotent cells shortly after fertilization can result in multiple identical births, such

as twin and triplets.

Pluripotent stem cells descend from totipotent cells and can develop into all the

tissues of the organism. Their ability to differentiate into any somatic organ cell

type makes them a focus of a lot of regenerative medicine research with the aim of

Pluristem Therapeutics Inc.

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fixing failing organs or creating artificial ones. However, they generally can not

develop into a viable organism because they can not produce extra-embryonic

tissues that make up the placenta and the amnionic sac.

Multipotent cells are the product of further differentiation by pluripotent cells.

These cells give rise to cell lineages, which are generally limited to differentiating

within a specific organ system.

Oligopotent stem cells are further differentiated and can only produce a limited set

of closely related cells.

Unipotent stem cells are the most differentiated form of stem cells. They are

generally considered stem cells because of their ability to reproduce in perpetuity,

however, they generally only yield a single cell type.

Stem cells can further be divided into two general categories: embryonic and adult.

Embryonic stem cells are pluripotent and have the potential to form all the tissues

in the human body. They are generally derived from unused blastocycsts resulting

from in-vitro fertilization, which results in the destruction of a human embryo. The

process of obtaining embryonic stem cells has led to ethical controversies and

federal bans on research funding for these cells. On the other hand, adult stem

cells are multipotent and can only give rise to limited cell types. Adult stem cells

are necessary for the normal replacement of cells in the body, which includes

blood cells, immune cells, intestinal lining, teeth, mammary glands, and sperm.

Adult stem cells are not ethically controversial compared to embryonic cells

because they do not require the destruction of an embryo and can often be

harvested from the bone marrow, adipose tissue, and the olfactory mucosa without

permanent damage to the host. Additionally, adult stem cells can be harvested

from discarded human tissue such as the placenta or cord blood.

Stem Cells Celebrate 50th

Anniversary

Stem cells are generally viewed as the cutting edge of science, both in research

and financial circles. Although they have been hailed as one of the most promising

medical technology over the last two decades, some investors may be surprised to

learn that stem cells have been utilized therapeutically for over half a century.

Specifically, the most common medical use of stem cells is in bone marrow

transplantation, which was performed for the first time in 1959. The bone marrow

houses a population of stem cells that constantly produce new blood and immune

cells. When the stem cells in the bone marrow fail or develop a mutation, the result

is either depletion of blood cells or cancer. One therapeutic approach to treating

blood cancers is to replace them with a functioning stem cell from the patient

themselves (autologous) or from a donor (allogeneic). Bone marrow stem cell

transplants are commonly utilized to treat diseases like leukemia, lymphoma, and

myeloma, myelodysplastic syndrome, aplastic anemia, neuroblastoma, and many

others. Despite the advances in our understanding of stem cells and bone marrow

transplantation over the last half century, replacing solid organs with stem cells

have proven to be quite difficult. The key challenges include controlling the local

microenvironment during stem cell growth to direct desired differentiation,

harvesting the graft, delivering the graft to the patient, avoiding immune system

incompatibility and graft rejection, and preventing uncontrolled cell growth which

may lead to cancer.

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Angiogenesis Background

Angiogenesis (the growth of new blood vessels) is a natural process that is both

necessary for the development and tissue repair in humans. Angiogenesis is the

process of blood vessel formation in a growing embryo and child, but is also active

in adults for restoring blood flow to injured tissue, rebuilding uterine lining in

menstruating women, and during pregnancy to vascularize the placenta.

Angiogenesis is a dynamic process, and there are natural modulators that

stimulate blood vessel growth and some that inhibit it. As with many biologic

systems, an imbalance between angiogenesis growth factors and angiogenesis

inhibitors could lead to disease. Angiogenesis is a well-understood biologic

process. It is required for tumor growth (to feed the tumor with blood) and is also

the underlying cause of vision loss in wet age-related macular degeneration, and

has been studied extensively as a therapeutic target. Some approved anti-

angiogenic drugs include Avastin, Tykerb, Sutent, Nexavar, and Thalomid.

The detailed explanation of the angiogenic pathway is beyond the intended scope

of this report, but we want to highlight that many biological signaling factors are

involved, which are summarized in Exhibit XX. Much of what is known about

angiogenesis comes from cancer research, which shows that the disruption of the

delicate balance between pro- and anti-angiogenic factors in favor of pro-

angiogenesis triggers the growth of blood vessels22

. Investigators found that an

increasing range of growth factors are required as the vascular network increases

in size (Exhibit XX), however, VEGF (Vascular Endothelial Growth Factor) is the

only pro-angiogenic factors that appears essential throughout the entire growth

cycle and is the predominant regulator of angiogenesis23

.

22

Ferrara N. Endocr. Rev (2004) 25: 581-611. 23

Hicklin D.J. et. al., Journal of Clinical Oncology (2005) 23: 1011-1027.

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Exhibit 11: Pro-Angiogenic Factors Required For Blood Vessel Growth

Note: Genentech lists the angiogenic growth factors found in tumors of increasing size, suggesting the importance of these factors in larger vascular networks.

Source: Genentech Oncology Presentation On Angiogenesis In Cancer

We would also like to highlight that VEGF is not single molecule, but a family of at

least five different proteins. VEGF-A (one of the variants) is believed to be primarily

responsible for angiogenesis in adults. VEGF production is triggered by the

presence of hypoxia-inducible factor (HIF), which is a molecule that is constantly

produced in healthy tissue but is degraded by the presence of oxygen. Therefore, if

local oxygen concentration drops, HIF concentration increases, which produces

more VEGF and blood vessels, until the system reaches an oxygen balance once

again. Similar to VEGF, other factors like basic Fibroblast Growth Factor (bFGF)

are members of a family of proteins, which makes it difficult to replicate angiogenic

factors in a form of a drug.

Drugs Can Grow Blood Vessels In The Lab, But Present Challenges In The

Clinic

Angiogenesis has been a therapeutic target for over a decade. There have been

multiple clinical trials that investigated the direct injection of bFGF and VEGF to

promote the growth of blood vessels in the heart, wounds, and peripheral

extremities. The preclinical findings have generally been encouraging, but

challenging to translate to positive outcomes in human studies. The FDA has been

clear that the agency wants to see functional improvement in placebo-controlled

studies for the approval of angiogenic therapies. That means treadmill exercise

performance for cardiovascular angiogenesis and reduction in amputations by at

least 50% at one year for PAD studies. Furthermore, while many angiogenic

studies have shown a positive trend in secondary endpoints such as quality of life,

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our interpretation of FDA’s comments is that clinically meaningful and statistically

significant outcomes are required for approval of angiogenesis therapy even in the

most severe patient population. Below we highlight the results of recent

angiogenesis clinical trials.

Select Clinical Studies Of Cell Therapy In CLI

TALISMAN (Sanofi-Aventis and Vical, Phase III)

This was a Phase II study conducted by Sanofi-Aventis in partnership with Vical

investigating FGF1 growth factor delivered via gene therapy. The basic underlying

principle of this therapy is to deliver the DNA coding for FGF1 to the local cells, and

have them produce this growth factor. Gene vectors were injected directly into the

patients’ legs as shown in the picture on the left. The study enrolled a total of 107

patients with CLI that was unsuitable for surgical revascularization (same patients

as Pluristem is enrolling in its CLI study), 51 subjects in the active group (NV1FGF)

and 56 on placebo. The study’s primary endpoint was complete healing of at least

one ulcer after 25 weeks, and secondary endpoints included amputations and

mortality. The results missed on the primary endpoint (p = 0.514), although there

was a trend observed in favor of the treatment arm (19.6% healing rate vs. 14.3%

for placebo). However, the secondary endpoint findings were encouraging, with a

statistically significant reduction in all and major amputations as well as mortality.

We summarize the findings of this trial below.

Exhibit 12: Summary of Results for TALISMAN Study

Source: American Heart Association meeting 2011

TAMARIS (Sanofi-Aventis and Vical, Phase III)

Based on the encouraging results observed on the secondary endpoints in the

TALISMAN study, Sanofi-Aventis and partner Vical repeated the same treatment

protocol in larger Phase III study called TAMARIS. The trial enrolled 266 subjects

in the active arm and 259 on placebo, which we believe is the largest gene therapy

study in CLI patients to date. The primary endpoint in this study was amputation-

free survival (the first occurrence of a major amputation) or death from any cause

after one year. Secondary endpoints included ulcer healing, pain relief, and

functional status. Unfortunately the study did not meet its primary endpoint, and

there was a slight trend in favor of placebo (not statistically significant).

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Exhibit 13: Summary of Results for TAMARIS Study

Source: American Heart Association meeting 2011

RESTORE-CLI (Aastrom Phase II study)

This is a Phase II study of Aastrom’s expanded autologous bone marrow stem

cells for the treatment of CLI in patients who are not candidates for surgical

revascularization (same patients as Pluristem is enrolling in its CLI study). The trial

was initially designed to enroll up to 150 patients in a 2:1 randomization. However,

due to concerns of high event rate in the placebo arm, the enrollment was

terminated at 86 patients. The first interim result (n = 14 on control and n = 32 in

active arm) reported by Aastrom showed a statistically significant increase in

amputation-free survival in favor of the active arm (78% vs. 50% on placebo, p =

0.0376). However, in the second interim update reported in November 2010, which

included 48 active and 24 control patients, the results between the two arms

moved much closer, and were no longer statistically different. The amputation-free

survival was 75% in the active arm and 71% in the placebo, p = 0.55.

BONMOT-CLI (Academic)

The BONe Marrow Outcome Trial in Critical Limb Ischemia (BONMOT-CLI) was an

investigator initiated, double-blind, placebo-controlled study conducted at 4 centers

in Germany investigating autologous bone-marrow stem cell therapy for CLI. The

study enrolled 90 subjects (45 active and 45 placebo) with CLI and no option for

revascularization (same patients as Pluristem is enrolling in its CLI study). Each

subject received 40-60 intramuscular injections into the ischemic limb. Primary

endpoints were major amputations, and secondary endpoints were wound healing,

quality of life, walking distance, ABI measurements and angiography.

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PROVASA (Academic)

This Phase II study investigated autologous bone marrow mononuclear cells in

patients with CLI. The double-blind trial enrolled 40 patients (19 active, 21

placebo), which were followed for 3 months, after which placebo patients were

allowed to switch to the active arm. The results during the double-blind portion of

the study did not show an improvement in limb salvage and amputation-free

survival, but did show significant improvement in ulcer healing and resting pain vs.

placebo at 3 months.

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Investment Thesis

Pluristem Therapeutics Inc. is a clinical stage biotechnology company developing placental stem cells (PLX) for multiple indications.

Unlike research that aims to direct stem cell differentiation to form new tissue, Pluristem utilizes stem cells for their ability to secrete

complex and potent signaling molecules and to adjust their molecular signaling to the local microenvironment. As such, Pluristem's

technology is more analogous to a drug, and should not be confused with stem cell-based organ/tissue regeneration. We believe that

stem cells offer a dynamic drug delivery approach that cannot be emulated via traditional pharmaceutical techniques, but may be

necessary in many regenerative applications.

Price Target Calculation

We We arrive at our target price of $5/share for Pluristem based on an NPV analysis of PLX in CLI. We estimate a launch in 2016,

conservative pricing of $12k/patient, and US peak sales of $1.3B by 2025. Given the unique nature of the therapy, we do not believe that

generic competition is likely in the near future, but to be conservative we only include cash flow through 2025, and exclude potential

upside from additional indications, premium pricing, and ex-US sales at this time.

Key Risks to Price Target

Clinical Trial Risk

Pluristem must gain FDA approval (EMEA in Europe) to be able to market its product. Our estimates for commercial launch in 2016 are

predicated on success in the Phase II/III CLI (Critical Limb Ischemia) study and positive safety confirmation in the IC study. If either of

these trials do not meet their endpoints, Pluristem may have to conduct additional clinical studies prior to commercial approval. We view

the clinical trial outcome as the highest risk associated with the company at this time. We would like to highlight that in our view positive

efficacy is not required in the IC study for Pluristem to gain approval in the CLI indication.

Competitive Risk

There are several companies developing stem cell therapies for CLI, and if successful, they are likely to compete for the same patients

that Pluristem may target. We see commercial competition as a moderate risk. Our view is based on the observation that to the best of

our knowledge no head-to-head trials of competing cell therapies are conducted or planned at this time. As such, even if multiple stem

cell therapies are approved for CLI, we believe that without head-to-head comparison, perceived safety and convenience are likely to

drive physician prescribing decision. On that front, we believe that PLX's convenience (simply take a sample out of the refrigerator and

inject) may make it one of the more commercially attractive stem therapy options for patients and physicians.

Headline Risk

Valuation of development-stage biotechnology companies may sway significantly due to headlines associated with competing

technologies and/or macro trends in healthcare. Due to the novelty of stem cell therapies, potential limited understanding of the

associated technologies by retail investors, and political uncertainties associated with healthcare and stem cells, Pluristem's stock may

be volatile for reasons not directly related to the company's internal performance.

Liquidity and Small Capitalization

Pluristem is a small capitalization (<$500M) unprofitable biotechnology company. The company may require additional capital to reach

profitability, and an inability to raise capital on favorable terms or at all may significantly impact the company's valuation. Pluristem's

stock may also exhibit volatility due to events not directly related to its operations, including macroeconomic concerns, healthcare policy,

and political developments.

Pluristem is a stock trading under $5, which we view as speculative and appropriate for risk tolerant investors.

Important Disclosures and CertificationsAnalyst Certification - The author certifies that this research report accurately states his/her personal views about the

Pluristem Therapeutics Inc.

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subject securities, which are reflected in the ratings as well as in the substance of this report.The author certifies that no

part of his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views

contained in this research report.

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interest.

0

1

2

3

4

5

2009 2010 2011

Rating and Price Target History for: Pluristem Therapeutics Inc. (PSTI) as of 05-13-2011

Created by BlueMatrix

All price targets displayed in the chart above are for a 12- to- 18-month period. Prior to March 30, 2004, Oppenheimer &

Co. Inc. used 6-, 12-, 12- to 18-, and 12- to 24-month price targets and ranges. For more information about target price

histories, please write to Oppenheimer & Co. Inc., 300 Madison Avenue, New York, NY 10017, Attention: Equity Research

Department, Business Manager.

Oppenheimer & Co. Inc. Rating System as of January 14th, 2008:

Outperform(O) - Stock expected to outperform the S&P 500 within the next 12-18 months.

Perform (P) - Stock expected to perform in line with the S&P 500 within the next 12-18 months.

Underperform (U) - Stock expected to underperform the S&P 500 within the next 12-18 months.

Not Rated (NR) - Oppenheimer & Co. Inc. does not maintain coverage of the stock or is restricted from doing so due to a potential

Pluristem Therapeutics Inc.

36

conflict of interest.

Oppenheimer & Co. Inc. Rating System prior to January 14th, 2008:

Buy - anticipates appreciation of 10% or more within the next 12 months, and/or a total return of 10% including dividend payments,

and/or the ability of the shares to perform better than the leading stock market averages or stocks within its particular industry sector.

Neutral - anticipates that the shares will trade at or near their current price and generally in line with the leading market averages due to

a perceived absence of strong dynamics that would cause volatility either to the upside or downside, and/or will perform less well than

higher rated companies within its peer group. Our readers should be aware that when a rating change occurs to Neutral from Buy,

aggressive trading accounts might decide to liquidate their positions to employ the funds elsewhere.

Sell - anticipates that the shares will depreciate 10% or more in price within the next 12 months, due to fundamental weakness

perceived in the company or for valuation reasons, or are expected to perform significantly worse than equities within the peer group.

Distribution of Ratings/IB Services Firmwide

IB Serv/Past 12 Mos.

Rating Count Percent Count Percent

OUTPERFORM [O] 303 54.50 133 43.89

PERFORM [P] 244 43.90 78 31.97

UNDERPERFORM [U] 9 1.60 1 11.11

Although the investment recommendations within the three-tiered, relative stock rating system utilized by Oppenheimer & Co. Inc. do not

correlate to buy, hold and sell recommendations, for the purposes of complying with FINRA rules, Oppenheimer & Co. Inc. has assigned

buy ratings to securities rated Outperform, hold ratings to securities rated Perform, and sell ratings to securities rated Underperform.

Company Specific DisclosuresIn the past 12 months Oppenheimer & Co. Inc. has provided investment banking services for PSTI and KERX.

Oppenheimer & Co. Inc. expects to receive or intends to seek compensation for investment banking services in the next 3

months from PSTI, IMMU, KERX, and ASTM.

In the past 12 months Oppenheimer & Co. Inc. has managed or co-managed a public offering of securities for PSTI and

KERX.

In the past 12 months Oppenheimer & Co. Inc. has received compensation for investment banking services from PSTI and

KERX.

Oppenheimer & Co. Inc. makes a market in the securities of PSTI, IMMU, KERX, ONCY, and ASTM.

Additional Information Available

Pluristem Therapeutics Inc.

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Pluristem Therapeutics Inc.