Arch Therapeutics Inc (OTCMKTS:ARTH): Here's How We See It

Arch Therapeutics Inc (OTCMKTS:ARTH) is down nearly 20% this week, on the back of management communication through a presentation and a just submitted 10K. As far as opportunities to buy in to a stock on an oversell, as driven by an overreaction to news, this one is as close to a sure thing as we are going to see. The company is on track to maintain its growth strategy throughout 2017, and while there may be some delay (we'll come back to the shortly) it is not a substantial delay, and is relatively insignificant from a medium to long-term perspective.Here is what's important.Arch is a development stage biotechnology company that has created, and is attempting to pick up regulatory approval for, a medical device (for want of a better phrase) to address bleeding in various scenarios. The device is called AC5. When surgeons operate on patients, they have to stem the bleeding that comes about as a result of the perforations caused by the operation. There are numerous methods available right now that go some way towards doing this. Cauterization, collagen, certain polymers, that sort of thing. Each of these, however, has its drawbacks, and there is an unmet need that needs filling – specifically, a quick-sealing alternative to the current options that addresses their respective drawbacks.AC5 is Arch's answer to this unmet need. It is a synthetic peptide, designed for administration as a clear liquid (gel or spray) that serves as a physical mechanical barrier to stop bleeding quickly. It is blood thinner agnostic (the interaction of blood thinners with current alternatives is a real problem) and is bioabsorbable (in other words, it doesn't need to be removed once the surgery is finished).So, as mentioned, the company is trying to get approval in the US and Europe. European approval requires a CE Mark, and US approval requires the submission of 510 K and what is called a pre-market notification (PMN). A PMN is similar in concept to a pre marketing authorization (PMA) but doesn’t require the wealth of clinical trial data that a PMA needs as supportive of the application, and as a result, is generally quicker and cheaper to submit. Think of it as a sort of equivalent to a generic drug submission, in the sense that the company is only trying to offer an alternative to current standard of care, as opposed to a superior asset.So what is the problem?As per the recent communication, management has outlined that it expects to submit a CE application and a 510 K during 2017. Markets have taken this as insinuating a delay of around six months on the initially planned time frames, which hasn’t really been clarified, but – for us – isn’t important anyway. If it takes Arch six months to make sure all its ducks are in a row before submitting regulatory applications, that is more important than rushing the applications through and either not picking up the requisite approvals, or doing so, but not being ready to roll out an effective commercialization strategy once approvals are in hand.So many times, we have seen biotechnology companies do exactly that – rush things through in order to keep shareholders happy – and then fail spectacularly when it comes to attempting to collect revenues on an approved product.Sure, there are some capital concerns. The company reported $5 million cash on hand as of September 30, and is burning around $1.5 million a quarter, meaning it's probably got a little over $3 million on hand right now. As such, dilution is probably not far off. When the CE approval hits, however, and we expect this will be the first of the two applications to get a regulatory green light, any value lost through dilution should quickly be swallowed up by an increase in market capitalization.We will be updating our subscribers as soon as we know more. For the latest updates on ARTH, sign up below!Disclosure: We have no position in ARTH and have not been compensated for this article.