Check-Cap(CHEK) - 2018 Q4 - Annual Report

Research and Development - Research and development expenses for the years ended December 31, 2018, 2017, and 2016 were approximately $7.6 million, $6.8 million, and $5.5 million, respectively[382]. - As of December 31, 2018, the company had 36 granted patents, 1 allowed patent application, and 23 pending patent applications worldwide[385]. Product Commercialization - The company plans to initiate commercialization of its C-Scan system during the second half of 2019 in selected markets in Europe and Israel, targeting major markets in Europe[397]. - The company expects to launch the C-Scan system in the U.S. market following successful completion of clinical trials and initial FDA clearance[400]. Manufacturing and Supply Chain - Manufacturing operations are conducted at a facility in Isfiya, Israel, with plans to expand manufacturing capacity to meet expected demand[402]. - The company has entered into an agreement with GE Healthcare for high-volume manufacturing of the X-ray source for the C-Scan capsule[404]. - The company is exploring options to assemble components of the C-Scan system outside of Israel while complying with government grant restrictions[406]. - The company currently relies on single source suppliers for key components of its C-Scan system, including motors and customized X-ray detectors, which poses a risk to production continuity[408]. - The supplier of batteries for the C-Scan system is expected to cease manufacturing by mid-2019, necessitating the search for alternative sources[408]. - The company is planning to maintain a strategic inventory of key components, but this may not be sufficient to meet demand in case of supply interruptions[408]. - The company is seeking alternate manufacturers for some components, which requires significant resources and investment[408]. - Any delays in identifying new suppliers could harm the company's ability to manufacture the C-Scan system on time and within budget[408]. Regulatory Compliance - The FDA requires either 510(k) clearance or PMA approval for the commercial distribution of medical devices, which can take 6 to 18 months depending on the pathway[415][424]. - The company aims to submit a direct de novo reclassification petition for its C-Scan system, which could take 9 to 12 months for clearance[419][420]. - Compliance with environmental health and safety laws in Israel is mandatory, and failure to obtain necessary permits could adversely affect business operations[409][410]. - The company has not yet been inspected by the FDA, which could lead to enforcement actions if compliance issues arise[429]. - Regulatory requirements continue to apply after market placement, including quality system regulations and medical device reporting[426][428]. - The C-Scan system must comply with FCC regulations due to its wireless components, and the company expects it will meet the necessary technical requirements for authorization[436]. - The C-Scan system includes a radioactive source, necessitating compliance with NRC regulations, and the company must obtain appropriate licenses for distribution[445]. - The company may petition the NRC for an exemption to allow broader distribution of the C-Scan system, similar to a precedent set by another medical device company[450]. - The C-Scan system is expected to provide comparable radiation exposure to existing diagnostic tools, potentially qualifying it for regulatory exemptions[451]. Market and Competition - The company does not currently generate revenues but expects to do so through sales of the C-Scan system after obtaining regulatory approvals[396]. - The company faces competition from established manufacturers in the CRC screening market, which have greater financial resources and distribution channels[393]. - The company is working on obtaining reimbursement coverage from third-party payors for procedures using the C-Scan system[396]. - Coverage and reimbursement for the C-Scan system will depend on various third-party payors, including Medicare, which currently does not provide separate reimbursement for many devices[437]. - The company must adhere to extensive federal and state regulations, including the Anti-Kickback Statute and the False Claims Act, which could impact its marketing and sales strategies[440]. International Approvals - The company obtained CE mark of conformity for the C-Scan system as of January 9, 2018[454]. - The company received AMAR approval for marketing the C-Scan system in Israel in September 2018, valid until February 28, 2019[455]. - In Japan, the marketing clearance process for medical devices can take from twelve months to a few years depending on the product[457]. - The company must obtain regulatory approvals in various countries to market its products, which can significantly affect revenue generation[458]. Financial Information - As of December 31, 2018, total assets linked to the NIS amounted to $1.2 million, while total liabilities linked to the NIS were $1.5 million[883]. - A 10% depreciation of the dollar in relation to the NIS would result in an exchange rate loss of $29,000[883]. - The exchange rate between the U.S. dollar and the NIS increased by 8.1% during the year ended December 31, 2018[884].