Israeli medical device company Check-Cap (Nasdaq: CHEK) announced Friday that it had raised $17.5 million in a secondary offering. The financing round was held at a 38% discount on the Nasdaq share price on the day of the announcement. The company's share price then plummeted 48% on Friday, pushing its market cap down to $7 million, before money. Check-Cap's share price is now 19% below the price in the offering.
The steep fall in the share price is probably related to the options included in the offering at the rate of one option for each share. The options were issued at a strike price equal to the price at which the shares were issued, and were therefore in the money on the date of the offering, but are already out of the money, following the subsequent decline the company's share price.
The offering was led by HC Wainright & Co. The underwriters have a green shoe option to buy shares and options for $2.6 million on the same terms as the investors in the offering.
Check-Cap has developed a pill that acts as radar for detecting polyps in the intestine for early detection of cancer. The pill is designed to replace a colonoscopy test in some patients who do not want to undergo the test, or who are incapable of doing so. Check-Cap held an IPO at a relatively early stage in comparison with other medical equipment companies listed on Nasdaq - even before it had a ready product approved for marketing in the US, and also before it had tested the final version of the product it wanted to market on people.
The money raised is likely to enable the company to complete an important clinical trial of its leading product. At the end of 2017, Check-Cap had $6.7 million in cash, and saved $10 million for its regular activity, so the amount raised is likely to last until the end of 2019. Good results in the clinical trial are likely to improve the company's market cap, which is liable to make it difficult for it to raise more money it might need in order to fund continued development of its product before reaching the sales stage.
Current leading shareholders in the company are Pontifax Venture Capital (14%), Fosun Pharma (14%), Quant Global Capital Advisors (12%), Sabby Management (5.2%) and Armistice Capital. Check-Cap's CEO is Israeli Alex Ovadia, who managed the company's activity in Israel and was appointed CEO in February in place of American Willian Densel.
Published by Globes [online], Israel business news - www.globes-online.com - on May 6, 2018
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