Arch Therapeutics Inc (OTCMKTS:ARTH): Stay Away Until This Issue Is Sorted Out

Arch Therapeutics Inc (OTCMKTS:ARTH) sentiments on Wall Street have turned sour, seen by a sell-off wave that has pushed the stock to all-time lows. Waning investor confidence on the stock does not come as a surprise, given the setbacks the company has endured over the past few months on its bid to gain regulatory approval for medical device AC5 Topical Gel.Price Analysis The stock is currently languishing at the $0.38 handle, after shedding more than 90% of market value over the past one month. The sell-off underscores investor’s concerns about the company’s failure to bring to market a vital asset on which most of its valuation has been based on, to date.Given the weakening sentiments, it goes without saying that the stock could continue to drop until Arch Therapeutics finds its way with AC5 Topical Gel. Any movements on the upside would be restricted to the $0.5 handle, which is significant resistance, above which the stock would be able to reverse the steady downtrend. ARTH Daily ChartHowever, as it stands, the company faces an uphill task to give investors a reason to bet on the stock if it is to bounce back from the current levels.Before we look at the factors that continue to dent investor sentiments on the stock, let us look at what Arch Therapeutics does in its pursuit of shareholder value.Arch Therapeutics Business overview Arch Therapeutics is a development-stage biotechnology company. The company specializes in the development of products for stopping bleeding and controlling leaking during surgery or trauma care. The firm is developing products based on an innovative self-assembling barrier technology with the aim of making care faster and safer.Its lead products are collectively known as AC5 Devices, assembled using peptide technology to achieve hemostasis in skin wounds. Studies have shown that such products could be far superior sealants than what is currently in use.This explains why Arch Therapeutics share price rallied on the company announcing it was in the process of meeting with regulators to discuss the regulatory pathway.FDA HurdleFast forward, the company appears to have hit a significant roadblock on its push to bring its AC5 products to market. The developer of solid hemostatic and wound care devices was forced to withdraw its 510(k) notification for AC5 Topical Gel from the Food and Drugs Administration late last year. This was after the company failed to provide adequate responses to questions posed by the agency.The 510(k) submission is the first hurdle that the company needs to pass if its flagship product is to have any chance of going to market. If the application is cleared, the company will be able to sell AC5 Topical Gel for treating external wounds.Investors reacted to the news sending the stock lower in the markets as it became clear it might take quite some time before Arch Therapeutics got its way with the regulator. The biotechnology company has however tried to quash the concerns reiterating that it is committed to working with the agency to better understand the issues raised.

“We have been involved in productive and positive interactions with the FDA, and the agency has been very engaging. Unfortunately, the FDA requested certain additional information that was not feasible to provide within the congressionally mandated MDUFA deadlines, and so we withdrew our application to provide additional opportunities to resolve the issues raised by the FDA,” said CEO Terrence Norchi.

Despite the setback, Arch therapeutics remains optimistic about obtaining marketing clearance this year with commercialization expected to be delayed by two quarters until the first half of next year.Surging Net Loss Arch Therapeutics sentiments among investors have also taken a hit on concerns about the company’s financial position. For the year ending September 30, 2018, the company saw its net loss surge to (-$7.3) million compared to a net loss of (-$6) million reported the previous year.It is still unclear whether the company has the much-needed finances needed to see through, the ongoing regulatory process. Early last year the company carried out a $6.1 million direct registered offering on selling 10.2 million units. 825,000 of the amount was used to settle the company’s outstanding indebtedness with the Massachusetts Life Sciences CenterBottom LineIt’s not looking good for Arch Therapeutics as investors remain on the fence on whether the company will be able to provide the much-needed answers to queries posed by the FDA on the 510(k) application. Until the company can do so, its stock will continue to be under pressure given the high valuation it enjoyed mid last year, as investors remained upbeat about AC5 gel regulatory pathway.That said, it might be wise to take a step back until the company can get its house in order with regards to AC5 Topical Gel 510(k) application.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.