CHEK Stock: Check-Cap Soars on FDA News

Check-Cap Ltd (NASDAQ: CHEK) is flying in the market this morning, and for good reason. The company announced FDA news surrounding the pivotal study of its C-Scan candidate. Here’s what’s going on:

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Check-Cap Announces FDA News

As mentioned above, Check-Cap is having a great day in the market today after announcing that the United States Food and Drug Administration has approved the company’s Investigational Device Exemption Application . 

According to the press release, this approval gives CHEK the ability to move forward with a pivotal study of C-Scan in the United States. 

C-Scan is Check-Cap’s flagship product. The device is designed for patients who are at average-risk for CRC and who are poor candidates for colonoscopy or decline colonoscopy, or who had an incomplete optical colonoscopy. 

The pivotal study will assess the safety and performance of C-Scan, as well as subject compliance surrounding the product. 

Management Commentary

In a statement, Alex Ovadia, CEO at CHEK, had the following to offer:

The IDE approval is a significant milestone for Check-Cap. Now with IDE in hand, we aim to enter the last phase of demonstrating the clinical potential of C-Scan in the U.S., with the ultimate goal of commercialization in this important market. 

We are in active discussions with a number of clinical sites as part of our preparations to begin the pivotal study in late 2021. In parallel, as previously communicated, we will be continuing to optimize C-Scan’s performance and patient experience through additional clinical data collection at Israeli sites. To this end, we are gearing up to initiate a study in Israel at more than 10 clinical sites to enroll up to 250 average risk patients.

We are also pleased to announce that the FDA has approved the Company’s Breakthrough Device Designation for the intended use of identifying candidates within the average risk population who are at elevated risk for polyps equal to or larger than 1 cm and are poor candidates for colonoscopy. We believe that this highlights the FDA’s recognition of C-Scan as an alternative method to address the significant unmet need for patient-friendly CRC screening, in particular since it enables the detection of colorectal polyps before they may turn into cancer.

Additionally, updated CRC screening guidelines from the American College of Gastroenterology (ACG) published on March 2021, recommend colon capsules as an option for CRC screening in people who are either unwilling or unable to undergo a colonoscopy or Fecal Immunochemical Test (FIT). As screening for precancerous polyps provides an opportunity for early intervention and cancer prevention, C-Scan could be considered as an option for those individuals, if approved.

An Offering May Be Coming

I’ve been following Check-Cap for some time, and there’s a warning that anyone jumping in right now needs to hear. While the news today is exciting, the company has a history of producing overwhelmingly exciting news, sending the stock up, and following that news up with a public offering. 

Based on the company’s history, it may be a good idea to enjoy some of the run today and cash in before the market close. After all, there’s a strong chance that shortly after the closing bell rings, dilution will be announced, leading to significant declines on the tail end of this run. 

Now, I’m not saying the company is bad. Moreover, I’m impressed with the company’s C-Scan product and believe that there’s serious potential for long-run gains. However, it’s important to consider the history of any company you invest in, and with CHEK having a history of launching offerings of common stock after big news, there’s a strong chance that if you buy in at high levels, you’ll be left holding the bag when the company announces a fund raise. 

So, if you want to dive in, by all means, but consider waiting until after the fund raise to protect yourself from the dilution that’s likely ahead. 

Final Thoughts

All told, I believe that Check-Cap stock represents an exciting long-run opportunity. While I’m not a huge fan of the fact that the company is known for launching offerings shortly after positive news, I am impressed with the C-Scan product, and if it’s approved, I believe it has blockbuster potential. 

As such, if you’re looking for a long-run play, CHEK stock is a great one to consider. But, if you’re looking for a short term trade, you may want to wait to see if an offering comes down the line. 

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