Business context and reporting period
This is Check-Cap Ltd.’s annual Form 20-F for the fiscal year ended December 31, 2017, filed April 4, 2018—not a quarterly report. The request identifies Mbody AI Ltd., but the filing is for Check-Cap Ltd.; the entity should be confirmed. Check-Cap is an Israeli clinical-stage diagnostics company developing C-Scan, an ingestible, ultra-low-dose X-ray system for colorectal screening designed to work without bowel preparation or fasting. The company had not generated revenue.
Financial results and liquidity
| Metric (US$ millions, except per-share data) | 2017 | 2016 | Change |
|---|---|---|---|
| Revenue | None since inception | None | — |
| Research and development, net | 6.84 | 5.49 | +24.6% |
| General and administrative | 3.16 | 3.57 | −11.4% |
| Operating loss | 10.00 | 9.06 | Loss increased 10.4% |
| Net loss | 9.77 | 8.83 | Loss increased 10.7% |
| Net loss per share, basic and diluted | $6.72 | $7.31 | Loss per share narrowed |
| Net cash used in operating activities | 9.15 | 7.92 | Use increased |
At year-end, cash and cash equivalents were $7.00 million, down from $11.64 million; working capital was $5.84 million, down from $10.51 million. Total assets were $7.91 million and shareholders’ equity was $5.91 million. The balance sheet reported $1.56 million of current liabilities and $0.44 million of non-current royalty-related liabilities; no outstanding bank borrowing was reported. No revenue means operating margins are not meaningful. Cash runway estimates are not a substitute for audited cash-flow data.
Material changes and unusual items
- R&D spending rose mainly because IIA grant participation fell by $0.92 million, alongside higher clinical, regulatory, subcontractor and consulting costs. G&A fell largely because share-based compensation and public-relations costs declined.
- Net loss widened despite lower G&A, as higher R&D drove the operating loss higher. Share-based compensation expense was $0.73 million in 2017 versus $1.21 million in 2016.
- Financing activities provided $4.58 million in 2017, principally from registered direct offerings; operating activities consumed $9.15 million. The company also reported a $52.7 million accumulated deficit.
- IIA grant repayments are contingent on relevant sales. The filing reports an approximately $5.6 million contingent IIA royalty obligation and a separate $0.125 million BIRD obligation. It gives differing cumulative IIA funding figures in different sections ($5.3 million and $5.4 million); verify the correct amount.
- There were no material off-balance-sheet arrangements or material pending litigation disclosed. The auditor issued an unmodified opinion on the financial statements but included a going-concern explanatory paragraph.
Outlook, commentary and principal risks
Management said year-end cash was expected to fund operations into June 2018 and planned additional fundraising. The filing warns that without timely financing, the company could cut costs, delay trials, license or sell assets, seek an acquisition, cease operations or pursue bankruptcy protection. The statements raise substantial doubt about the company’s ability to continue as a going concern.
- Check-Cap received EU CE Mark approval on January 9, 2018, after the reporting period. It anticipated a conditional European commercial launch in 2019, subject to clinical results, regulatory requirements, capital and strategic partners. An EU post-approval study began in Q1 2018.
- In the U.S., the company planned a pilot study in 2018 and a pivotal study in 2019, subject to approvals and funding, with a direct de novo submission targeted by 2020. FDA may instead require the more costly and uncertain PMA pathway. No U.S. clearance or approval had been obtained.
- The 2017 multi-center study reported 44% overall sensitivity and 89% specificity among 45 analyzed participants. Sensitivity was higher when more of the colon was scanned. Early Version 3 results from 21 evaluable patients showed 64% average imaging coverage; these limited results require further validation.
- Key risks include clinical performance and safety, regulatory delays, lack of reimbursement or market adoption, financing needs and dilution, limited manufacturing capacity, reliance on single-source suppliers, and Israeli grant-related restrictions on transferring technology or manufacturing. The battery supplier was expected to stop manufacturing by mid-2019, requiring an alternative source.
- NASDAQ had notified the company in January 2018 of a minimum-bid-price deficiency. A 1-for-12 reverse split became effective April 4, 2018; continued listing compliance was not yet finally confirmed in the filing.
Most important facts for investors to verify
- Confirm the issuer identity and that this annual 2017 filing—not a 2017 Q4 report—is the intended document.
- Check subsequent financing, actual cash runway, operating cash burn and whether the going-concern uncertainty was resolved.
- Review audited financial statements and reconcile the conflicting IIA grant totals and contingent repayment disclosures.
- Verify full clinical datasets, study populations, sensitivity and specificity, and whether Version 3 performance is replicated in larger studies.
- Confirm current regulatory status and progress of EU, U.S. and other-market studies, approvals and commercialization plans.
- Assess supplier replacement, manufacturing scale-up, reimbursement prospects, dilution from outstanding warrants and options, and NASDAQ listing status after the reverse split.