Check-Cap(CHEK) - 2022 Q3 - Quarterly Report

Corporate Overview and Recent Developments Check-Cap Ltd. details its C-Scan product, recent operational highlights, clinical study progress, corporate actions, and CEO's strategic remarks Company Profile and Product Check-Cap Ltd. is a clinical-stage medical diagnostics company focused on developing C-Scan®, a patient-friendly, preparation-free screening test designed to detect polyps before they may transform into colorectal cancer (CRC) - Check-Cap is a clinical stage medical diagnostics company[2] - The company is advancing the development of C-Scan®, the first and only patient-friendly, preparation-free screening test to detect polyps before they may transform into colorectal cancer (CRC)[2] Third Quarter and Recent Operational Highlights The company focused on expanding U.S. pivotal study sites and significantly increased patient enrollment in Israel. Challenges in U.S. site activation and patient recruitment led to extensive outreach efforts. A 1-for-20 reverse share split was effected in November 2022 - Continued effort to expand the number of U.S. sites for the C-Scan pivotal study[3] - Significantly increased the enrollment pace of average risk patients in Israeli sites for the calibration portion of the study[3] - U.S. site activation and patient recruitment rates are lower than expected, prompting extensive patient outreach efforts[3] - On November 23, 2022, the Company effected a reverse share split of its ordinary shares at a ratio of 1-for-20[4] Clinical Study Updates Check-Cap is actively expanding U.S. sites for its C-Scan pivotal study and has accelerated patient enrollment in Israel for the calibration phase. Despite U.S. recruitment challenges, the company expects the second part of the U.S. pivotal study to start in mid-2023 - The calibration portion of the study is designed to provide further optimization of C-Scan functionality and patient experience[3] - The required lead time to activate new U.S. sites is longer than expected, and patient recruitment rate in activated U.S. sites is lower than expected[3] - The Company initiated an extensive patient outreach effort, expected to expedite enrollment, and continues to expect the second part of the U.S. pivotal study to start in mid-2023[3] Corporate and Financial Actions A 1-for-20 reverse share split was implemented on November 23, 2022, consolidating ordinary shares and adjusting outstanding shares from approximately 116 million to 5.8 million - Reverse share split ratio: 1-for-20, effective November 23, 2022[4] - Following the reverse split, issued and outstanding shares are approximately 5.8 million ordinary shares, down from approximately 116 million previously[4] - A proportionate adjustment was made to the per share exercise price and the number of shares issuable upon the exercise of all outstanding options and warrants[4] CEO's Remarks CEO Alex Ovadia highlighted accelerated patient enrollment in Israel due to outreach campaigns and plans to implement similar strategies in the U.S. The company also scaled up manufacturing and supplier engagement to secure the C-Scan production and supply chain - Significantly accelerated the pace of patient enrollment in Israel following an extensive patient outreach campaign[5] - Clinical team is working to implement similar patient outreach strategies in the U.S. to accelerate patient enrollment, pending IRB approvals[5] - Scaled-up manufacturing and engagement with key suppliers to secure and sustain the entire production process and robust supply chain of C-Scan devices during the trial[5] Financial Performance Analysis This section analyzes Check-Cap Ltd.'s financial performance for the third quarter and nine months ended September 30, 2022, focusing on operating expenses, profitability, liquidity, and cash flow Third Quarter 2022 Financial Results Check-Cap reported an increased operating loss of $5.0 million and a net loss of $4.7 million for Q3 2022, primarily driven by higher R&D and G&A expenses. The company maintains a strong cash position of $46.0 million, sufficient to fund operations into Q2 2024 Third Quarter 2022 Key Financials (vs. Q3 2021) | Metric | Q3 2022 (in $ thousands) | Q3 2021 (in $ thousands) | Change (YoY) | | :-------------------------------- | :----------------------- | :----------------------- | :----------- | | Research and development expenses | 3,641 | 3,036 | +$605 (+19.9%) | | General and administrative expenses | 1,404 | 1,227 | +$177 (+14.4%) | | Operating loss | 5,045 | 4,263 | +$782 (+18.3%) | | Net finance income | 291 | 22 | +$269 (+1222.7%) | | Net loss | 4,754 | 4,241 | +$513 (+12.1%) | | Net loss per ordinary share (basic and diluted) | $0.04 | $0.04 | 0% | | Weighted average number of ordinary shares outstanding | 116,454,150 | 95,853,149 | +21.5% | - Cash and cash equivalents, restricted cash and short-term bank deposits as of September 30, 2022, were $46.0 million[9] - The Company believes it has sufficient capital to fund its ongoing operations and plans into the second quarter of 2024[9] Operating Expenses (QoQ) Research and development expenses increased by 19.9% to $3.6 million in Q3 2022, mainly due to increased headcount and clinical/regulatory consultant expenses. General and administrative expenses rose by 14.4% to $1.4 million, driven by higher directors' and officers' liability insurance and share-based compensation - Research and development expenses increased by approximately $0.6 million (19.9%) YoY, primarily due to a $0.3 million increase in salary and related expenses (increased employee headcount) and a $0.3 million increase in clinical related expenses and regulatory consultants[6] - General and administrative expenses increased by approximately $0.2 million (14.4%) YoY, primarily due to a $0.1 million increase in other general expenses (mainly associated with directors' and officers' liability insurance) and a $0.1 million increase in share-based compensation[7] - The Company expects that clinical expenses will increase in the upcoming quarters as it progresses in its ongoing U.S. pivotal study[6] Profitability (QoQ) The operating loss for Q3 2022 widened to $5.0 million from $4.3 million in Q3 2021, and net loss increased to $4.7 million from $4.2 million, reflecting the higher operating expenses - Operating loss was $5.0 million for Q3 2022, compared to $4.3 million for the same period in 2021, an increase of $0.7 million (18.3%)[7] - Net loss was $4.7 million for Q3 2022, compared to $4.2 million for the same period in 2021, an increase of $0.5 million (12.1%)[8] - Net finance income significantly increased to $0.3 million for Q3 2022, compared to $22,000 for the same period in 2021[8] Liquidity and Capital Position Cash and cash equivalents, restricted cash, and short-term bank deposits decreased to $46.0 million as of September 30, 2022, from $50.2 million at June 30, 2022, and $51.9 million at December 31, 2021. The company raised $8.9 million net from a registered direct offering in March 2022 and projects sufficient capital until Q2 2024 Cash and Cash Equivalents Trend | Date | Amount (in $ millions) | | :---------------- | :--------------------- | | Sep 30, 2022 | 46.0 | | Jun 30, 2022 | 50.2 | | Dec 31, 2021 | 51.9 | - A registered direct offering on March 3, 2022, resulted in gross proceeds of $10.0 million, or approximately $8.9 million net of offering expenses[9] - The Company believes it has sufficient capital to fund its ongoing operations and plans into the second quarter of 2024[9] Nine Months Ended September 30, 2022 Financial Results For the nine months ended September 30, 2022, Check-Cap's operating loss increased to $15.8 million and net loss to $15.4 million, primarily due to higher R&D and G&A expenses. Net cash used in operating activities also increased to $14.6 million Nine Months Ended September 30, 2022 Key Financials (vs. 9M 2021) | Metric | 9M 2022 (in $ thousands) | 9M 2021 (in $ thousands) | Change (YoY) | | :-------------------------------- | :----------------------- | :----------------------- | :----------- | | Research and development expenses | 11,315 | 8,223 | +$3,092 (+37.6%) | | General and administrative expenses | 4,504 | 3,520 | +$984 (+27.9%) | | Operating loss | 15,819 | 11,743 | +$4,076 (+34.7%) | | Net finance income | 424 | 18 | +$406 (+2255.6%) | | Net loss | 15,395 | 11,725 | +$3,670 (+31.3%) | | Net loss per ordinary share (basic and diluted) | $0.14 | $0.15 | -$0.01 (-6.7%) | | Weighted average number of ordinary shares outstanding | 111,884,046 | 78,238,314 | +43.0% | - Net cash used in operating activities was $14.6 million for the nine months ended September 30, 2022[13] Operating Expenses (YoY) R&D expenses for the nine months increased by 37.6% to $11.3 million, driven by a $1.5 million increase in salary and related expenses, a $1.0 million increase in other R&D expenses (clinical/regulatory), and a $0.2 million increase in share-based compensation. G&A expenses rose by 27.9% to $4.5 million, mainly due to higher professional services, directors' and officers' liability insurance, and share-based compensation - Research and development expenses increased by approximately $3.1 million (37.6%) YoY, primarily due to a $1.5 million increase in salary and related expenses (increased employee headcount), a $1.0 million increase in other R&D expenses (including clinical related expenses and regulatory consultants), and a $0.2 million increase in share-based compensation[10] - General and administrative expenses increased by approximately $1.0 million (27.9%) YoY, primarily due to a $0.4 million increase in professional services, a $0.3 million increase in other general expenses (mainly associated with directors' and officers' liability insurance), and a $0.3 million increase in share-based compensation[11] - The increase in net R&D expenses between 2022 and 2021 is also due to a $0.3 million grant from the Israel Innovation Authority, which was recorded as a deduction from R&D expenses in 9M 2021[10] Profitability (YoY) The operating loss for the nine months ended September 30, 2022, increased by 34.7% to $15.8 million, and the net loss increased by 31.3% to $15.4 million, reflecting the significant rise in operating expenses - Operating loss was $15.8 million for the nine months ended September 30, 2022, compared to $11.7 million for the same period in 2021, an increase of $4.1 million (34.7%)[12] - Net loss was $15.4 million for the nine months ended September 30, 2022, compared to $11.7 million for the same period in 2021, an increase of $3.7 million (31.3%)[12] - Net finance income significantly increased to $0.4 million for the nine months ended September 30, 2022, compared to $18,000 for the same period in 2021[12] Cash Flow from Operating Activities (YoY) Net cash used in operating activities for the nine months ended September 30, 2022, increased to $14.6 million, up from $11.9 million in the prior year, reflecting the higher net loss - Net cash used in operating activities was $14.6 million for the nine months ended September 30, 2022, compared to $11.9 million for the same period in 2021, an increase of $2.7 million (22.7%)[13] Consolidated Financial Statements This section presents Check-Cap Ltd.'s consolidated unaudited balance sheets, statements of comprehensive loss, statements of changes in shareholders' equity, and statements of cash flows Consolidated Unaudited Balance Sheets As of September 30, 2022, total assets decreased to $49.5 million from $55.7 million at December 31, 2021, primarily due to a reduction in cash and cash equivalents. Total liabilities also decreased slightly, while total shareholders' equity declined to $44.9 million from $50.7 million Consolidated Unaudited Balance Sheet Highlights (in $ thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | Change | | :-------------------------------- | :----------- | :----------- | :------- | | Cash and cash equivalents | 9,348 | 26,457 | (17,109) | | Short-term bank deposit | 36,249 | 25,104 | 11,145 | | Total current assets | 46,542 | 52,750 | (6,208) | | Total assets | 49,547 | 55,659 | (6,112) | | Total current liabilities | 3,834 | 4,041 | (207) | | Total non-current liabilities | 788 | 927 | (139) | | Total liabilities and shareholders' equity | 49,547 | 55,659 | (6,112) | | Total shareholders' equity | 44,925 | 50,691 | (5,766) | - The financial information for the three and nine months ended September 30, 2022, does not reflect the impact of the reverse split which became effective on November 25, 2022[14] Consolidated Unaudited Statements of Comprehensive Loss The statements show a net loss of $4.75 million for Q3 2022 and $15.40 million for the nine months ended September 30, 2022, both higher than the respective prior-year periods, driven by increased R&D and G&A expenses Consolidated Unaudited Statements of Comprehensive Loss (in $ thousands) | Metric | 9M Sep 2022 | 9M Sep 2021 | Q3 Sep 2022 | Q3 Sep 2021 | | :-------------------------------- | :---------- | :---------- | :---------- | :---------- | | Research and development expenses, net | 11,315 | 8,223 | 3,641 | 3,036 | | General and administrative expenses | 4,504 | 3,520 | 1,404 | 1,227 | | Operating loss | 15,819 | 11,743 | 5,045 | 4,263 | | Finance income, net | 424 | 18 | 291 | 22 | | Net loss for the period | 15,395 | 11,725 | 4,754 | 4,241 | | Net loss per ordinary share basic and diluted | $0.14 | $0.15 | $0.04 | $0.04 | Consolidated Unaudited Statements of Changes in Shareholders' Equity Total shareholders' equity decreased to $44.9 million as of September 30, 2022, from $50.7 million at December 31, 2021, primarily due to the net loss for the period, partially offset by proceeds from the issuance of ordinary shares Changes in Shareholders' Equity (9M 2022 vs 9M 2021) (in $ thousands) | Metric | Balance as of Jan 1, 2022 | Issuance of ordinary shares (net) | Share-based compensation | Net loss | Balance as of Sep 30, 2022 | | :-------------------------------- | :------------------------ | :-------------------------------- | :----------------------- | :------- | :------------------------- | | Total shareholders' equity | 50,691 | 8,850 | 779 | (15,395) | 44,925 | Changes in Shareholders' Equity (Q3 2022) (in $ thousands) | Metric | Balance as of Jun 30, 2022 | RSU's vesting | Share-based compensation | Net loss | Balance as of Sep 30, 2022 | | :-------------------------------- | :------------------------- | :------------ | :----------------------- | :------- | :------------------------- | | Total shareholders' equity | 49,424 | - | 255 | (4,754) | 44,925 | Consolidated Unaudited Statements of Cash Flows For the nine months ended September 30, 2022, net cash used in operating activities increased to $14.6 million, and net cash used in investing activities was $11.4 million. Net cash provided by financing activities was $8.9 million, primarily from a registered direct offering. Overall, cash, cash equivalents, and restricted cash decreased by $17.1 million Consolidated Unaudited Statements of Cash Flows (in $ thousands) | Metric | 9M Sep 2022 | 9M Sep 2021 | | :-------------------------------- | :---------- | :---------- | | Net cash used in operating activities | (14,560) | (11,880) | | Net cash used in investing activities | (11,395) | (7,443) | | Net cash provided by financing activities | 8,850 | 51,227 | | Net (decrease) increase in cash, cash equivalents and restricted cash | (17,105) | 31,904 | | Cash, cash equivalents and restricted cash at end of period | 9,702 | 39,957 | - Net cash provided by financing activities in 9M 2022 was primarily from the issuance of ordinary shares in registered direct offerings, net of issuance expenses ($8.85 million)[29] - Supplemental disclosure for 2022 includes $89 thousand in purchase of property and equipment included in accounts payable and $307 thousand in assets acquired under operating lease[31] Supplementary Information This section provides the basis of financial presentation, detailed information about Check-Cap and its C-Scan product, and essential legal disclosures including forward-looking statements and contact information Basis of Financial Presentation The financial information presented in the press release for the three and nine months ended September 30, 2022, does not reflect the impact of the reverse share split that became effective on November 25, 2022 - The financial information for the three and nine months ended September 30, 2022, included in this press release doesn't reflect the impact of the reverse split which became effective on November 25, 2022[14] About Check-Cap (Detailed) Check-Cap is a clinical-stage medical diagnostics company focused on redefining colorectal cancer (CRC) screening with C-Scan®, a non-invasive, preparation-free, ultra-low dose X-ray capsule technology. C-Scan generates a 3D map of the colon and is intended for early polyp detection, not as a replacement for colonoscopy, and is currently an investigational device not available for sale in the U.S - C-Scan® is the first and only patient-friendly preparation-free screening test to detect polyps before they may transform into colorectal cancer and enable early intervention and cancer prevention[15] - C-Scan uses an ultra-low dose X-ray capsule, an integrated positioning, control and recording system, as well as proprietary software to generate a 3D map of the inner lining of the colon[15] - C-Scan is non-invasive, requires no sedation or bowel preparation, is not intended to replace colonoscopy (a positive result should be followed by colonoscopy), and is an investigational device not available for sale in the United States[15] Legal Disclosures and Contacts This section includes a legal notice regarding forward-looking statements, advising readers that such statements are subject to risks and uncertainties detailed in the company's SEC filings. It also provides contact information for investor and media relations - This press release contains 'forward-looking statements' about the Company's expectations, beliefs or intentions regarding its product development efforts, business, financial condition, results of operations, strategies or prospects[16] - Forward-looking statements are subject to risks and uncertainties that could cause actual performance or results to differ materially, as discussed in the 'Forward-looking Statements' and 'Risk Factors' in the Company's Annual Report on Form 20-F and other SEC filings[16] - Provides contact information for Investor Contacts (Irina Koffler, Meirav Gomeh-Bauer) and Media Contact (Mónica Rouco Molina)[16]