Here's Why We're Still Watching Arch Therapeutics Inc (OTCMKTS:ARTH) Closely

Back on July 26, we highlighted Arch Therapeutics Inc (OTCMKTS:ARTH) as being a company to keep an eye on as part of this piece. At the time, the company had just reported a pipeline update detailing its efforts to pick up a commercial application approval for its lead development asset. We noted that the approval the company was seeking wasn't the endgame approval, in the sense that revenues from a regulatory greenlight based on the application in question were likely to be far smaller than those available to Arch on the back of an alternative type of application.However, we also suggested that the move was a smart one because it afforded the company an opportunity to start generating revenues, and cheaply, which could then be used to fund the lead application and take the edge off the risk side of the equation from a shareholder dilution perspective.At that date, Arch was trading for around $0.60 a share. We suggested that markets were yet to respond to the above-outlined concept and that – as realization took hold – the company would likely appreciate on the back of markets loading up on Arch shares as a reaction to the reduced forward risk.Turns out we were right.This week, the company reached $0.80 a share and will open the session on Friday at $0.79 a piece. That's a more than 33% appreciation in less than four weeks.So what's next?The appreciation we are seeing right now is speculative loading ahead of a catalyst confirming the validity of the commercial potential of the lead product discussed above. For those new to this company, it's a product designed to stop bleeding in various scenarios, primarily to close wounds in an external setting and to help seal surgical incisions in an internal setting. The former of these two is the smaller market and it's the one for which the application is currently with the FDA. The latter is much bigger, but the registration process is much more expensive, so we are looking to the external setting as the company's next major catalyst.Specifically, we are looking at any feedback from the FDA as to its take on the registration application as being a real value driver near term. As far as time frames go, it's tough to set a specific target for feedback as, unlike with an NDA where the FDA sets a PDUFA, these sorts of 501 applications aren't as rigid in return specifications.However, the agency in the US will generally turn these sorts of applications around within a three-month period, or at the outside, a four to six-month period If there are any unforeseen issues.With the application submitted last month, this means that we should get some degree of insight as to whether this asset is going to be approved or during the final quarter of this year or early first quarter next at the latest.Bottom line here is that this is a company that is making fresh highs on speculative advance with a near-term catalyst that, if it falls favorably for Arch, will serve to both validate a lead development product as a long-term commercial prospect and to dramatically reduce the risk associated with an exposure at current prices and in anticipation of an expanded target market within, say, 12 months.Cash at last count was $6.1 million (June 30, 2017) which should easily see the company through to the FDA decision catalyst and removes any immediate dilution risk on an allocation.Of course, there is a risk that the product might not pick up approval and, at best, this would be a considerable setback. With that said, given the evidence with which the company has supported its current application in the external setting market, this risk looks minimal.Check out our previous coverage of this stock here. We will be updating our subscribers as soon as we know more. For the latest updates on ARTH, sign up below!Image courtesy of MilitaryHealth via FlickrDisclosure: We have no position in ARTH and have not been compensated for this article.