x min read

Arch Therapeutics Inc (OTCMKTS:ARTH) Is Gearing Up For The NASDAQ

Arch Therapeutics Inc (OTCMKTS:ARTH) Is Gearing Up For The NASDAQ
Written by
Chris Sandburg
Published on
October 17, 2016
Copy URL
Share on LinkedIn
Share on Reddit
Share on Twitter/X
Share on Facebook

Arch Therapeutics Inc (OTCMKTS:ARTH) has hit the presentation circuit pretty hard over the last few months, and the company has benefited as a result. It is up close to 15% off September lows, and it doesn't look as though it is going to slow down. With Rodman and Renshaw under its belt, and the 2016 Bio Investor Forum in San Francisco just around the corner, we think there's plenty of potential for extended gains as part of a momentum play heading into the close of this month. The company has a solid development stage product, with a wide potential application base, and we think that this presentation circuit run is part of a wider effort to dress the company up for the transition to a major exchange.Additionally, a reverse split is probably going to be needed before undertaking any such listing, which might offer a discount entry on the pullback the announcing of said RS creates. Yes, it's a bit risky to buy in pre RS, but the company looks solid, and we think a NASDAQ listing would attract more than enough smart money investment to drive value above and beyond that which is lost through a split and any subsequent dilutive raise.Here's what's behind our bias.It is a medical device product called the AC5 Surgical Hemostatic Device, and it is targeting any situation in which a patient might bleed – surgery, trauma, that sort of thing. The current alternatives are pretty weak. They are slow onset or inefficient, and in patients undergoing surgery, up to 50% of the time spent under anesthesia can be spent controlling blood flow. There's an obvious unmet need, and Arch's AC5 looks to offer a pretty elegant solution to the problem. We won't go too much into the detail of exactly how it works, but it is an injectable solution that – once it comes in contact with blood – forms a transparent sealant around the wound or puncture in question. This means surgeons can operate through it and see through it, and it can potentially be used to quickly seal wounds in a military setting rather than have to rely on the current standard of care option, which is essentially an absorbent material inserted into the puncture, or slow onset coagulant.So what sort of progress has the company made in getting this to market?Arch kicked off the regulatory process in the US during the first quarter of this year, and has a medical device pathway already established. Chances are we will see this active in Europe before it hits the US market, based on the fact that it is already met primary and secondary endpoints as part of an EU clinical human trial.This trial demonstrated comparable safety between the AC5 method and a control method, and more importantly, demonstrated a more than 40% improvement in time to hemostasis (which is essentially controlling the flow of blood) compared to the same control arm. Similar data came out of animal models, which wouldn't normally be anywhere near as powerful as human models, but in this sort of treatment, they carry a little bit more water. Why? Because the concept of stopping bleeding from rats is not that dissimilar to that of humans. Not, at least, to the extent that a cancer agent might be between species.What we're trying to say here is that it looks as though it works, works well, and it's just a case of Arch jumping through the regulatory hoops to get this to market.And there is a big market for AC5. Arch is targeting three primary industry areas initially, chronic cutaneous ulcers, punctures, and burns, and the company estimates these areas to have market potential of $2 billion, $2 billion and $1 billion respectively.What are we looking for as upside catalysts going forward?Arch intends to submit a CE mark filing in Europe during the fourth quarter of this year, so that is our next major event. There is also top line from the above discussed trials, again scheduled for this quarter. Beyond that, trial initiation in both the US and Europe (expansion rooted in Europe and initial studies in the US) scheduled for throughout next year.The bottom line here is that Arch has a great product and has proven it effective and safe, and it is only a matter of time before the company can pick up authorization and start to penetrate a multi-billion dollar market.What about the downside? Our primary concern is the cost of all this, and Arch is no doubt going to need to raise capital on a couple of occasions throughout the next 12 months to fund trials either side of the Atlantic, but there is value in both of these pathways, and we expect whatever is lost in dilution should come back by a factor of multiples further down the road.We're going to keep an eye on the Bio Investor Forum presentation for any further clarification into the catalysts, and what to expect near term. Subscribe below and we will update you with our interpretation as we hear more.Disclosure: We have no position in ARTH and have not been compensated for this article.

Discover Hidden Gems

Don't miss the next big opportunity. Subscribe for timely alerts on potential market movers.