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A Market Overreaction On Arch Therapeutics Inc (OTCBB:ARTH)

A Market Overreaction On Arch Therapeutics Inc (OTCBB:ARTH)
Written by
Alex Carlson
Published on
July 15, 2016
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The market has overreacted by quite a bit on Arch Therapeutics Inc (OTCBB:ARTH) after the latest SEC filing. Shares dropped more than 25% on the filing of the prospectus related to the securities purchased on May 26, 2016. These shares include the 9,418,334 shares of issued and outstanding Common Stock currently and 7,063,748 shares of Common Stock currently underlying Series E Warrants for a combined total of 16,482,082 shares. The purpose of this article is to clear up the misconceptions that Mr Market may have.For one, the filing was routine. The company was obligated to file with the Securities and Exchange Commission within 45 days after the closing of the 2016 Private Placement Financing one or more registration statements to register the shares of Common Stock issued in the Closings and the Series E Warrant Shares. If Arch Therapeutics failed to do so, the company would have faced monetary penalties to the investors that purchased these securities.Second, the financing was done with 18 accredited investors. Of these, 12 have participated in previous financings. These are long-term shareholders. Just because the shares were registered doesn't mean they will be immediately sold into the market. As we said in June after the financing was completed and before shares went on their bull run:

For the first part of this year, ARTH traded primarily between $.175 and $.20 per share. An equity raise at $.36 per share is a big deal in our opinion and is a real vote of confidence in the company and CEO Dr Terrence Norchi.

Third, the 16.4 million shares were already calculated and do not represent new dilution. The 16.4 million shares were known to the market back in May. The selloff was just headline investors overreacting to a routine prospectus filing. Once the offering was complete, 140,444,013 common shares were outstanding, of which Dr. Terrence W. Norchi, President, Chief Executive Officer and a director, Dr. Avtar Dhillon, the Chairman of the Board of Directors, and Board Member James R. Sulat own a combined 18.3%.We believe this selloff is a buying opportunity for investors. We could have clinical data results any day now. Last month Arch Therapeutics completed patient enrollment in its first clinical study to assess the safety and performance of AC5 in humans. The study is being carried out in collaboration with CÚRAM, Science Foundation Ireland Centre for Research in Medical Devices and the Clinical Research Facility based at National University of Ireland Galway.The current study design is intended to assess safety and performance of AC5 during the course of a dermatological procedure performed on 46 patients, of whom 10 were taking an antiplatelet medication, such as aspirin, during the study period, and was designed so that neither the patients nor the clinical personnel performing the 30-day follow-up assessments would be aware of whether a particular lesion had been treated with AC5 or a control. Patients participating in the study had at least two dermatological lesions removed surgically, of which one was randomly assigned to be treated with AC5 and the other lesion assigned to be treated with a control treatment.The AC5 addresses a market that could reach $6.5 billion by 2017. What's currently available has severe limitations including slow onset of action, general unreliability, user-unfriendliness, and risk for adverse effects, such as healing problems, adhesion formation, infection and other safety concerns. We believe that if approved, the AC5 will be the leading medical device in the hemostatic market because it overcomes the deficiencies of its competitors.Currently trading with a market cap of $82 million, ARTH is one of the most exciting companies we've seen on the OTC Markets in quite some time. The current study design was well planned and we anticipate positive results. If we get the results we’re looking for, look for the stock to shot above $1. Investors need to keep in mind that ARTH is seeking approval for a medical device and not a drug. Approvals for medical devices are much quicker and less costly than a drug. This is why we expect things to heat up pretty quickly for ARTH once we get the news we're hoping for. Once that happens, shares are off and running again and we could easily see a buyout for the company come from J&J or another big pharma player.We will be updating Insider Financial as soon as we know more. For continuing coverage on ARTH, sign up for our free newsletter today and get our next hot stock pick as well as our free eBook as an added bonus!Disclosure: We have no position in ARTH and have not been compensated for this article.

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