Industry: Biotechnology Company Update November 14, 2012 Buy

PROLOR BIOTECH, INC. (PBTH)

Prolor Announces Allowance of RPeg Patent. hGH-CTP on Track to Begin Phase III Trial by 1Q 2013; Reiterate BUY Rating and $8 Price Target.
Investment Rating Prior Rating Price Target Prior Target Buy $8.00

Highlights
PBTH announces USPTO allowance of patent covering its long-acting reversible-pegylation technology (RPeg). Prolor is utilizing the RPeg technology to develop long-acting therapeutic peptides and small molecules which target the brain (can cross the BBB). Specifically, Prolors lead program utilizing the RPeg technology is their oxyntomodulin, MOD-6030 (GLP-1/Glucagon dual receptor agonist) in development for obesity and type 2 diabetes. This program is on track for an IND filing and to initiate clinical development in 2013. PBTHs hGH-CTP adult Phase III study remains on track to start by 1Q 2013. The Phase III hGH-CTP program in adults is on track to begin by 1Q 2013 with data available in late 2014 and the pediatric Phase II hGH-CTP program is also underway with data expected in 3Q 2013. PBTH is in the process of manufacturing the drug product necessary for the Phase III program and they currently have enough for the pediatric Phase II study and the Phase III trial in adults. 3Q 2012 results announced, essentially a non-event. Prolor announced 3Q 2012 results with a loss of ($0.09) or ($5.5) million which was higher than our expectations for a loss of ($0.06) or ($3.8) million. This difference relates to higher than expected expenses, with R&D of $4.7 million (which was $1.5 million higher than our estimate) and SG&A expenses of $0.87 million (essentially in-line with our estimate of $0.8 million). The higher R&D expense was based on the manufacturing expenses associated with preparation necessary for the initiation of the hGH-CTP Phase III program. Based on 3Q 2012 results we have decreased our 2012 EPS estimate to ($0.31) from ($0.27). As of September 30, 2012, PBTH had $39.3 million in cash. We believe the Companys cash position of $39.3 million provides funding to mid-2014 and allows them to execute on the hGH-CTP Phase III program and advance their earlier stage pipeline (oxyntomodulin for type II diabetes and obesity and Factors VIIa and IX) into clinical development. We believe both hGH-CTP studies with approximately 150 patients each could cost roughly $25-30 million combined. Solid hGH-CTP Phase I and Phase II data already reported. Long acting hGHCTPs Phase I results demonstrated a superior half-life and bioactivity compared to hGH. Specifically, Phase I/II and Phase II results demonstrated an attractive PK profile (10x half-life) and PD profile with an impressive impact on IGF-1 levels (bioactivity) similar to daily hGH. The profile demonstrated in Phase II provides for weekly injection and PBTH believes there is a potential for 4 injections/month vs. current regimen of 1x/daily with no change to characteristics of administration (delivered using the same needle/pen injector as daily hGH). PBTH also conducted a pilot study looking at dosing once every two-weeks with some encouraging data. Given the data seen to date, we believe once weekly hGH-CTP has the potential to be efficacious and demonstrate bioequivalence (to currently approved somatropin products) in this patient population and believe managements ability to manage the execution of the clinical trial process will drive outcome and final timelines. Reiterate BUY rating and $8 price target.

Price (November 13, 2012) $4.52 52 Week Range $3.11 $6.69 Shares Outstanding 63.4 MM Market Capitalization $287 MM Cash (September 30, 2012) $39.3 MM Fiscal Year End Net Income (MMs): GAAP Current 2012E 2011A 2010A EPS: 2012E 2011A 2010A ($18.7) ($15.1) ($7.6) Current ($0.31) ($0.29) ($0.19) Prior ($15.7) December

Prior ($0.27)

Quarterly EPS: GAAP Current 2012E Mar (A) Jun (A) Sep (A) Dec 2011A Mar Jun Sep Dec ($0.09) ($0.05) ($0.09) ($0.08) ($0.08) ($0.07) ($0.06) ($0.09) Prior

($0.06) ($0.06)

Matthew L. Kaplan 212.891.5247 mkaplan@ladenburg.com

Disclosures and Analyst Certifications can be found in Appendix A.

NEW YORK, NY MELVILLE, NY BOSTON, MA PRINCETON, NJ MIAMI, FL BOCA RATON, FL HOUSTON, TX

520 Madison Avenue New York, New York 10022 Telephone: 212-409-2000

800-LAD-THAL

Member: NYSE, NYSE MKT, FINRA, all other principal exchanges and SIPC

Matt Kaplan

212.891.5247

Prolor Biotech, Inc. (PBTH)

Solid hGH-CTP Phase II results in the adult population already reported. Top-line Phase II hGH-CTP study showed 3 cohorts of 13 patients each receiving a weekly dose of hGH-CTP for four weeks achieved average daily insulin-like growth factor 1 (IGF-1) levels within normal range on 100% of all assessment days. IGF-1 levels were used as a biomarker of hGH-CTPs efficacy in the body (recall hGH triggers the production of IGF-1). Importantly, supranatural levels of IGF-1 (i.e., IGF-1 levels >2 SDs above normal range) were not observed. All patients in the study were on daily hGH treatment prior to the study and were transitioned to hGH CTPs single weekly or biweekly (2x/month) injection. Each cohort (30%, 45%, 100%) represents the percentage of the individual patients aggregate weekly hGH dose (e.g. the 30% cohort received 30% of their aggregated weekly hGH dose prior to trial) and each patient served as their own baseline for normal. This study was designed to determine dosage of hGH-CTP and primarily evaluated IGF-1 dose response levels, collected information to guide Phase III dosing of hGH-CTP and assessed important safety measures (EKG, vitals, laboratory tests, immunogenicity and local reaction). Importantly, based on our talks with clinical trial investigators, it appears neutralizing antibodies to CTP and hGH were not detected. Efficacy in the Phase II trial was defined by maintenance of IGF-1 levels and results confirmed the PK profile seen in earlier animal models. Table 1 Phase II Trial Top-Line Data
Cohort % Days Within Normal Range (+/- 2 SD) Avg. Cmax (preferred below +2 SD) Variance Measure: % Days Within Narrow Normal Range (+/-1.5 SD)

30% 45% 100%

100% 100% 100%

-0.9 SD 0.1 SD 0.4 SD

57% 100% 86%

Source: PBTH documents

We note the Phase II trial was not designed to measure truncal fat which is the primary endpoint for the Phase III trials and as such, the Phase II trial design does not allow for robust data extrapolation for this measure (patients in the Phase II study were not hGH-nave and the study was only for 30 days) to be made. However, it is important to note IGF-1 levels are correlated with impact on truncal fat. We believe the data shows a robust impact on IGF-1 levels with patients consistently achieving IGF-1 levels within 2 standard deviations (SD) of the normal range. Additionally, the Phase II PK/PD data showed hGH-CTP did not induce excessive levels of IGF-1. In other words, we believe hGH-CTP did not result in an excessive spike (+2SD) in IGF-1 levels. Further, the safety data showed favorable tolerability in patients with no issues associated with injection site pain. We are impressed with the top-line Phase II data presented earlier this year at the International Congress of Endocrinology and European Congress of Endocrinology (ICE/ECE 2012) in May and at the ENDO 2012 in June 2012 demonstrating a favorable profile supporting less frequent dosing (1x per week) and a lower (aggregate weekly) dose of hGH than currently administered in this patient population. Phase I and preclinical data for hGH-CTP. Top-line results from the Phase I study for hGH-CTP enrolled 24 healthy adults randomized to 4mg, 7mg, 21mg hGH-CTP or placebo. Safety and tolerability endpoints were met. Preclinical studies conducted in primates did not lead to antibodies to CTP despite high hGH exposure (500x AUC) and there was the same level of frequency of antibodies observed for hGH-CTP (vs. hGH). Again, no antiCTP antibodies were detected in these studies and results demonstrated a relatively flat curve in IGF-1 levels and no excessive peaks (defined as 2 SD above normal) or spikes were observed. Pivotal program for hGH-CTP in adults. PBTH anticipates the adult hGH treatment-nave Phase III pivotal safety and efficacy trial will be approximately a 150 patient study which is on track to begin by 1Q 2013. This trial is expected to be a six-month study followed by a 6-12 month long term extension (safety) study. Approximately 150 hGH nave patients will be randomized into two arms, one receiving hGH-CTP once weekly starting at 2mg/week of hGH-CTP and the second arm receiving once weekly placebo. Patients will be dose-titrated to achieve the desired levels of IGF-1. Patients in both arms will continue in the long term study (if they choose) and all patients will receive hGH-CTP once weekly. The Phase III studys primary endpoint will be improvement in truncal fat with IGF1 levels (2 standard deviations of mean IGF1 levels) of a person of that age as a safety endpoint. PBTH believes this study will cost approximately $12-15 million. We expect the study will take approximately 2 years to complete and we expect the completion of the study in 1Q 2015 an NDA filing by 1H 2015.

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Matt Kaplan

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Prolor Biotech, Inc. (PBTH)

hGH-CTP in pediatric population. The Phase II study for hGH-CTP in the pediatric population began in 1Q 2012 and data is expected in 3Q 2013. The Phase II study is a 12 month study designed to examine 3 doses (0.31mg/kg/week hGH-CTP which is equivalent to 0.18mg hGH/kg/week; 0.60mg/kg/week hGH-CTP which is equivalent to 0.35mg hGH/kg/week; and 0.81mg/kg/week hGH-CTP which is equivalent to 0.034mg hGH/kg/day) of hGH-CTP . The endpoint for this study will be growth velocity. The Phase III study is expected to enroll approximately 150 patients in a 2 year study with 100 patients on hGH-CTP weekly injection and 50 patients on once daily hGH. The primary endpoint for the pediatric pivotal study will also be growth velocity. PBTH approximates the cost of the Phase III study to be $15 million. PBTH expects to be in position to start the pediatric Phase III study in 1H 2014 and to complete the trial in 2H 2016 with an NDA submitted by 2017. hGH-CTP market opportunity. The Human Growth Foundation estimates over 50,000 adults in the US are growth hormone deficient with 6,000 new cases each year. The incidence of pediatric growth hormone deficiency is between 1 in 4,000 and 1 in 10,000 according to the foundation. We estimate adults represent approximately 25% of the market with pediatrics at 75% of the market. As such, we believe there is ample opportunity for this market to grow. We model the worldwide hGH market as a $3+billion market with hGH-CTP garnering 28% market share at peak. We believe less frequent dosing (1x/week vs. 1x/day) provides meaningful differentiation for patients. We note market share could be larger depending upon the specific partner and marketing strategy (e.g., Genotropin by Pfizer (PFE, not rated, $24.16) currently has a 31% share of the hGH market in the US and current sales force capabilities (understanding of hGH space and relationships with endocrinologists) of the partner could garner greater market share. We expect approval by late 2015 and launch in 2016 for the adult GHD indication and expect a 2017 NDA filing for the pediatric indication for a launch by 2018. The hGH-CTP program also has orphan drug designation in the US for both the adult and pediatric population. CTP technology clinically validated. CTP technology extends the half-life of therapeutic protein drugs leading to potentially less frequent injections for patients and less drug administered per patient. PBTHs CTP technology is licensed from Washington University. This technology is also licensed to Merck (MRK, not rated, $43.94) for four fertility-focused proteins, with Elonva (long-acting FSH using CTP technology) having received European marketing approval in January 2010 and potential FDA approval in 2013. PBTH holds the licenses for all other human therapeutics of natural or non-natural sequences (outside of Mercks therapeutic licensed proteins). We believe Flonvas EU approval (and potential FDA approval) in part validates the CTP technology and we look forward to seeing whether PBTH can be successful proving CTPs applicability in other therapeutic areas (including hGH, Factor VIIa and Factor IX). To date, hGH-CTP has demonstrated a clean safety profile with preclinical data showing a lower propensity for immunogenic response. Manufacturing. PBTH has indicated a manufacturer, Rentschler Biotechnologie, is in place for hGH-CTP production and we believe the first batch is being completed at commercial scale. We believe CMC and manufacturing could be the rate limiting step to the start of the Phase III trial (the manufacturing process and validation of the manufacturer could take some time) and three batches are required by the FDA for CMC evaluation purposes. Intellectual property. We believe PBTHs IP position is strong, with the hGH-CTP composition of matter patent issued in 2009 and patent life going through 2027 (before considering any potential patent extensions). The hGHCTP method of manufacturing patent was issued in 2011 and a third patent issuance is expected in 2012. Table 2
Product Peak Revenues (Million) $972 Royalty Revs (Million) $262 Multiple Probability Probability Adjusted (Million) $592 Value/Share Probability Adjusted $7.40

hGH-CTP WW Revenues PBTH Pipeline

8x

55%

Hemophila (FVIIa-CTP & FIX-CTP) Type II Diabetes & Obesity Shares Outstanding ('000) 70,000 Fully Diluted Shares Outstanding ('000) 75,000 Source: Ladenburg Thalmann Estimates We assume a 10% discount rate, 27% royalty and peak sales in 2019

$25 $25 Valuation Per Fully Diluted Share

$0.31 $0.31 $8.03

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Matt Kaplan

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Prolor Biotech, Inc. (PBTH)

We utilize a sum of the parts model in our valuation of PBTH as we believe the company will seek to outlicense/partner its current pipeline candidates. We believe a sum-of-the-parts model better captures the varying terms of each distinct product. While we attribute minimal value to other pipeline products until clinical data is available and more clarity relating to program development details and timelines are confirmed, we believe these programs could provide significant upside to investors. Our valuation also does not include the technology value for the CTP platform. We incorporate a partnership in our model with PBTH receiving approximately a 27% royalty rate. Based on worldwide revenues at peak of $980 million and fully diluted shares of 75 million, we arrive at our price target of $8. Table 3 Milestone Start Adult hGH CTP Phase III Study Start GLP1/Glucagon Phase I Study in T2D and Obesity Start Factor VIIa Phase I/IIa Study Start Factor IX Phase I/IIa Study Start Pediatric Phase III hGH CTP Study Complete Adult hGH CTP Phase III Study File Adult hGH CTP NDA Approval of hGH CTP in Adults hGH CTP launch Complete Pediatric hGH CTP Phase III Study File Pediatric hGH CTP NDA
Source: Company Reports and Ladenburg Thalmann & Co. Estimates

Timing 1Q 2013 1H 2013 mid-2013 1H 2014 1H 2014 1Q 2015 1H 2015 late 2015 late 1Q 2016 2H 2016 1Q 2017

Table 4
Prolor Biotech, Inc . Key Sales a nd Financial Data ($ in Thousands) December Fiscal Year

Total Revenues Cost Of Goods Sold SG&A R&D Deprecia tion & Amortization Other Operating Expens es Operating Income Interest Expense Other Net Interest Inc ome (Expense) Non-Operating Incom e/(Expense) Taxes Income Tax Paid/(Benefit) Net Income Earnings/(Loss ) Per Share Shares Outstanding

2010A -

1 Q1 1A 709 3,035 3,744 (3,744) 277 277 -

2Q11A 878 2,377 3,255 (3,255) 165 165 -

3Q11A 808 2,126 2,935 (2,935) (550) (550) -

4Q11A 1,030 3,883 4,913 (4,913) (108) (108) -

2011A 3,425 11,422 14,847 (14,847) (216) (216) -

1Q12A 790 4,304 5,094 (5,094) 94 94 -

2Q12A 859 2,126 2,985 (2,985) (84) (84) -

3 Q1 2A 867 4,729 5,596 (5,596) 95 95 -

4Q12E 800 4,500 5,300 (5,300) 200 200 -

2012E 3,315 15,660 18,975 (18,975) 305 305 -

2013E 3,750 19,000 22,750 (22,750) 500 500 -

2,457 5,219 0 0 7,676 (7,676) (318) 435 117 -

(7,559) (0.19) 40,030

(3,467) (0.08) 43,360

(3,090) (0.07) 43,409

(3,484) (0.06) 54,342

(5,022) (0.09) 5 4,500

(15,063) (0.29) 51,961

(4,999) (0.09) 54,730

(3,069) (0.05) 59,311

(5,501) (0.09) 63,404

(5,100) (0.08) 63,604

(18,670) (0.31) 60,262

(23,250) (0.36) 64,604

Source: Co mpany Reports, Ladenburg Thalmann Estimates

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Matt Kaplan

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Prolor Biotech, Inc. (PBTH)

APPENDIX A: IMPORTANT RESEARCH DISCLOSURES

ANALYST CERTIFICATION I, Matt Kaplan, 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 firms total revenues, a portion of which is generated by investment banking activities. For details on Prolor Biotech, please contact Matt Kaplan. COMPANY BACKGROUND PBTH is a development stage biopharmaceutical company utilizing patented CTP technology to develop long-acting biobetter versions of therapeutic proteins that require frequent injections. The companys license covers all proteins/peptides of either natural or non-natural sequence except for four fertility hormones (FSH, Luteinizing Hormone (LH),) Testosterone Stimulating Hormone (TSH) and Human Chorionic Gonadotropin (hCG). VALUATION METHODOLOGY We base our valuation upon a risk-adjusted sum of the parts methodology with hGH CPT contributing $7.40 and pipeline products contributing $0.62 to our valuation RISKS On top of normal economic and market risk factors that impact most all equities, PBTH is uniquely subject to risks typical for small- to mid- cap biotech companies: The products the Company is developing may not work, may prove to be unsafe, may never win approval and may never generate meaningful revenues. Changing medical practices, a changing reimbursement environment and/or products introduced by others could shrink the market for the Companys products. The Company may not be able to enforce its own patents or may find itself infringing on patents held by others. Additionally, the Company may not be able to access the capital markets to raise the necessary funds to continue the development of its products and if they do the terms may be highly dilutive. In addition to typical economic and market risk factors that impact most equities, the primary risks to an investment in PBTH include but are not limited to the following: Financing - PBTH is a development stage company with a limited operating history and has never generated any revenue. The Company may need to raise additional capital in the future to meet its business objectives and obligations; raising capital may be costly and/or difficult and could dilute current stockholders ownership interests. Litigation - Since PBTHs strategy is to develop long-acting versions of approved protein therapeutics, the company could face infringement lawsuits from manufacturers of the protein therapeutics that are currently on the market. The company could also face other patent infringement or product liability lawsuits. Regulation - The companys product candidates must go through the regulatory approval process in the US and abroad. PBTHs product candidate(s) may fail to gain regulatory approval and/or the approval process may take longer than management anticipates. Either event could negatively impact PBTH shares. Manufacturing - PBTH relies on and plans to continue to rely on third party contract manufacturers to produce sufficient supply of its product candidates for pre-clinical, clinical and potentially commercialization purposes. Inadequate or delayed manufacturing processes could negatively impact these efforts. Competition We believe that PBTH may face competition from other companies, some of which may be larger and have more available resources to commercialize their products. There are other hGH products currently on the market and it may be difficult for PBTH to gain market share. Reimbursement - Demand for PBTHs products is likely to be affected by both public and private insurance company reimbursement policies. These policies may inhibit the ability of patients to receive favorable reimbursement for the use of the companys products. Delays in the commencement, enrollment, and completion of clinical testing could result in increased costs and delay or limit the ability to obtain regulatory approval for product candidates. Failure to establish strategic partnerships will require the Company to undertake its own development and commercialization efforts which would be costly and delay the Companys ability to commercialize any future products. On the other hand, if the Company enters into strategic partnerships, it may be required to relinquish important rights to and control over the development of product candidates or otherwise be subject to terms unfavorable to the Company. PBTH has a history of net losses and expects to continue to incur substantial and increasing net losses for the foreseeable future, and it may never achieve or maintain profitability. As the results of earlier clinical trials are not necessarily predictive of future results, PBTHs hGH-CTP or other product candidates may not have favorable results in later clinical trials or receive regulatory approval. Each of the Companys product candidates are in an early stage of development. The Companys products use novel alternative technologies and therapeutic approaches, which have not been widely studied and its drug-development program depends upon third-party researchers who are outside PBTHs control. PBTH relies exclusively on third parties to formulate and manufacture product candidates. For a full review of PBTH specific risk factors investors should refer to the Companys most recent forms 10K and 10Q on file with the SEC.

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Prolor Biotech, Inc. (PBTH)

STOCK RATING DEFINITIONS Buy: The stocks return is expected to exceed 12.5% over the next twelve months. Neutral: The stocks return is expected to be plus or minus 12.5% over the next twelve months. Sell: The stocks return is expected to be negative 12.5% or more over the next twelve months. Investment Ratings are determined by the ranges described above at the time of initiation of coverage, a change in risk, or a change in target price. At other times, the expected returns may fall outside of these ranges because of price movement and/or volatility. Such interim deviations from specified ranges will be permitted but will become subject to review. RATINGS DISPERSION AND BANKING RELATIONSHIPS (AS OF 10/31/12) Buy: 75% (32% are banking clients) Neutral: 24% ( 5% are banking clients) Sell: 1% ( 0% are banking clients) BIOTECHNOLOGY & HEALTHCARE SECTOR STOCKS UNDER AUTHOR ANALYST COVERAGE (The Universe) Antares Pharma (ATRS), Aradigm (ARDM), Biodel, Inc. (BIOD), BioDelivery Sciences International (BDSI), Cornerstone Therapeutics (CRTX), Flamel Technologies S.A. (FLML), Furiex Pharmaceuticals, Inc. (FURX), IsoRay (ISR), Keryx Biopharmaceuticals (KERX), MAP Pharmaceuticals (MAPP), MediciNova (MNOV), Nile Therapeutics (NLTX), Osteologix (OLGX), Prolor Biotech (PBTH), Repros Therapeutics (RPRX) and United Therapeutics (UTHR), XOMA Ltd (XOMA). COMPANY SPECIFIC DISCLOSURES Ladenburg Thalmann & Co. Inc. makes a market in all of the stocks listed in The Universe with the exception of IsoRay (ISR), United Therapeutics (UTHR) and Prolor Biotech, Inc. (PBTH). Among the companies in The Universe, Ladenburg Thalmann & Co. Inc. during the last 12 months had an investment banking relationship with Keryx Biopharmaceuticals (KERX), Aradigm (ARDM), Repros Therapeutics (RPRX), XOMA Ltd. (XOMA), Prolor Biotech (PBTH), Isoray Inc. (ISR) and Antares Pharma (ATRS) ; Ladenburg Thalmann received compensation for investment banking services from Aradigm (ARDM), Repros Therapeutics (RPRX), Keryx Biopharmaceuticals (KERX), XOMA Ltd. (XOMA), Prolor Biotech (PBTH), Isoray Inc. (ISR) and Antares Pharma (ATRS) in the last 12 months; Ladenburg Thalmann & Co. Inc. co-managed public offerings of securities for KERX, PBTH and ATRS in the past 12 months, acted as lead placement agent (Registered Direct Offering) and Lead Manager in secondary offerings for Repros Therapeutics (RPRX), acted as sole placement agent for a secondary offering in Aradigm (ARDM), acted in an advisory capacity for Keryx Biopharmaceuticals (KERX), Aradigm (ARDM) and Xoma Ltd. (XOMA), and acted as a placement agent for a registered direct offering in Isoray Inc. (ISR) in the past 12 months; Ladenburg Thalmann & Co. Inc. expects to receive or intends to seek compensation for investment banking services during the next 3 months for all companies listed in The Universe. Among the companies listed in The Universe, the Analyst, or members of the Analysts household, own (long position) securities issued by ARDM. Antares Pharma (ATRS) and Teva Pharmaceuticals Industries (TEVA-Not Rated) have joint development interests in several Injection devices. Dr. Philip Frost serves as the Chairman of Teva and as Chairman of Ladenburg Thalmann Financial Services, the parent company of Ladenburg Thalmann & Co. Inc. Dr. Phillip Frost, Chairman of the Board of PBTH, beneficially owns 1% or more of common equity securities of PBTH. Members of the Board of Directors of the subject company have a non-investment banking securities-related services client relationship with Ladenburg Thalmann & Co. Inc. INVESTMENT RATING AND PRICE TARGET HISTORY

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Prolor Biotech, Inc. (PBTH)

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