Arch Therapeutics Inc. (OTCBB:ARTH) Makes Awesome Announcement

Arch Therapeutics Inc. (OTCBB:ARTH) added 40.80% to its market value yesterday, after its new press release hit the web and drove investors into a fit of frenzied buying.

And who can really blame investors for jumping at ARTH stock? Yesterday’s PR was encouraging to both opportunistic traders and long-term investors alike.

The former group wanted – and for the most part, managed to – capitalize on the cascade of hype this important announcement triggered. The latter saw this as their cue to commit, because the news was actually both good and significant.

Indeed, it is spectacular news that with the AC5 Surgical Hemostatic Device™ “wounds heal normally and with minimal inflammation” and that ARTH will be moving on to clinical trials in humans by the end of 2015.

However, long-term investors would do well to remember that while this turn of events increases the chances of the company actually turning profitable in the distant future, it is currently a development stage entity.

As such, its market cap of $24 million might be a bit over the top.

Another detail that investors should definitely take note of is the fact that while ARTH‘s financials certainly aren’t the worst that one could find in this sector, just $3.3 million in cash are unlikely to last it through the long and complicated process of human testing. Such procedures may take years to finish, and tend to cost, an arm and a leg. This state of developments is hardly reassuring, even if you choose to ignore the fact that the company currently owes three times that much money to various other entities.

This means that ARTH will most likely need some more funds to continue its operations – and soon. Now, there’s no way to be sure that this particular company will necessarily fall into the pit trap that most other pharmaceutical penny stocks end up in – drowning investor value in toxic debt just to fund their operations.

Still, investors might want to be on the look out for any and all signs of dilutive funding in ARTH, because we all know how treacherous that could end up being.