Arch Therapeutics Inc (OTCBB:ARTH) Corrects

At the end of last week the stock of Arch Therapeutics Inc (OTCBB:ARTH) suffered a minor correction of a little over 2%, on a volume of 3.47 million traded shares. This week isn’t starting any better with the company dropping once more during yesterday’s trading. The stock opened at $0.44 and immediately spiked to an intraday high of $0.45 but that was as far as it would go. For the rest of the session ARTH traded in the red closing the day at $0.41 for a loss of 4.5%.

The current sentiment displayed by investors was more than likely sparked by the May 27 PR that was issued by ARTH. In it the company announced its plans to raise $3.4 million in a private placement. For a medical pennystock company that is not generating any revenues and has just started a clinical trial (on March 14 ARTH announced the start of patient enrollment and treatment in its first clinical trial in Western Europe) having sufficient cash reserves is of vital importance. The problem is that the 9.5 million shares that are going to be sold during the placement will be priced below the current market price of the stock, at $0.36 per share.

In the past two months quite a lot of underpriced shares already had to be issued by ARTH. The subsequent events section of the quarterly report covering the first three months of the year revealed that as an exercise of Series A and Series C warrants 2.6 million shares were issued at $0.20 while as an exercise of series D warrants 2.4 million shares were issued at $0.25. ARTH also had to issue 540 thousand shares again at $0.20 per share as a conversion of $100 thousand in debt.

At least ARTH should now have enough resources to complete the clinical and regulatory milestones required to obtain approval in Europe. Back in March the company stated that it plans to file a CE mark application this summer. As for getting an U.S. approval, according to the quarterly report, somewhere between $7 million and $9 million in additional capital will be required.

Trading pennystocks is inherently extremely risky and ARTH is not an exception. The company still needs to successfully complete the arduous and capital-intensive process of getting a product approved for commercialization. That is why it is paramount to do your own due diligence before committing to anything.