Check Cap (NASDAQ:CHEK) dished up its first quarter print last week, unleashed a 1-for-12 reverse stock split of its ordinary shares on April 4th, as well as regained compliance with the Nasdaq minimum bid price requirement. Worthy of note, the medical diagnostics company hit a net loss of $2.1 million in its first quarter, and ($1.27) per share. CHEK closed April with 1.6 million shares outstanding and following the public offering just 10 days ago, the company had 5.0 million shares outstanding.
H.C. Wainwright analyst Ram Selvaraju emerges with a bullish research note on the company, reiterating a Buy rating on CHEK stock while bumping up the price target from $6 per share pre-split up to $14. This implies a whopping 218% upside from current levels. (To watch Selvaraju’s track record, click here)
“Importantly, investors may recall that the company has initiated a post-approval clinical study of the C-Scan system version 3 in the European Union (EU). C-Scan is an ingestible capsule for preparation-free colorectal cancer (CRC) screening and polyp detection, and the current version incorporates the latest algorithms and system optimization and tailors scanning of the colon to the patient’s natural colonic movements to maximize the amount of the colon that is tracked and imaged. According to management, this EU post-approval study could report interim results in 3Q18. We continue to expect that C-Scan could be commercially launched in EU through a partner in 2019,” highlights Selvaraju.
Likewise, CHEK sent an application to register C-Scan for sale and marketing in Israel, where the management team hopes to gain a regulatory nod come the third quarter of this year. In terms of the U.S. market, the analyst predicts a pilot trial of C-Scan could see initiation in the fourth quarter of 2018.
Accordingly, Selvaraju is tweaking his model, cutting his estimated market value of the firm from $167 million to $125 million. By the close of the second quarter of 2019, the analyst anticipated CHEK to hit approximately 9.1 million in shares outstanding, under the assumption of the exercise of all Series C warrants issued with May financing.
Another bullish point for Selvaraju boils down to the CE Mark trial of C-Scan in the British Society of Gastroenterology’s official journal, Gut, which indicated encouraging interim clinical data with better imaging coverage. In fact, the data points to a rise from the 46% in average colon imaging coverage exhibited in the 45-patient CE Mark study has jumped up to 64% in the C-Scan version 3 from 21 patients.
The analyst notes, “Unlike colonoscopy, C-Scan does not require bowel preparation, a major deterrent to CRC screening. Thus, we believe C-Scan has the potential to increase the number of adults screened for CRC and allow for early detection of polyps without the use of colonoscopy.”
Bottom line, the company boasts a “substantially extended cash runway,” closing out the end of March with $4.6 million in cash. Meanwhile, CHEK finalized a public offering this month of 3.7 million shares at $5.50 per share, bringing the medical diagnostics company’s pro forma cash position up to $22.6 million. The company utilized $2.3 million in net cash for operating activities in the first quarter. Glancing ahead, Selvaraju predicts CHEK’s current cash position allows for a runway through the beginning of 2020.