Friday, July 26, 2013

Arch Therapeutics (ARTH) With Gel for Blood in Surgery

The biggest, glossiest teaser mailer yet to hit my mailbox is courtesy of Ian Cooper's Speed Retirement System, which has something to do with his Market Authority.  He's touting Arch Therpeutics (ARTH), maker of a gel that purports to stop bleeding.  This is one more in an endless lineup of blood clot and bandage products that clamor for doctors' attention.

Arch's chairman used to lead Inovio Pharmaceuticals, another low-priced stock.  I blogged last year about OncoSec Medical and about Stevia First, two other companies whose management teams overlapped with Inovio Pharmaceuticals.  My longtime readers can probably guess where this story is going.  I'm puzzled as to why some of the very accomplished advisers to this company would jump on board with a CEO and founder who left the medical sector for finance.  Normally a founder who has worked steadily in pharmaceuticals or medical devices would run such a startup.

Their market overview shows an effort at Customer Development but they need viable sales channels.  I suspect that at some point they'll be competing directly with gauzes and bandages.  The biggest advantage of those products is their nearly indefinite shelf life.  I do not know the expected shelf life of Arch's AC5 squirted product but it needs to be fairly stable at room temperature for long periods if it's going to compete for storage space in hospital product inventories.  Modern bandages intended for surgical use have been pretreated for quite some time.  Those pretreatments mitigate effects like adhesion and infection.  Other gel products are already on the market, so AC5 will need data showing superior clotting.  The competing product Surgicel is priced at just over $40/item when purchased in bulk, and that's a low-end price.  The trouble with the health care market is that channels are so atomized that pricing even the same product across multiple geographic markets or even single hospital buyers in the same city is difficult.

Arch's predecessor's 10-Q for May 20, 2013 indicates that they were barely surviving.  They held a whopping $52 in cash on March 31 of this year.  Their monthly burn rate varied from $1000-$3000 depending on what they were doing.  Their 10-Q was published when the company was known as Almah, before it executed a reverse merger with Arch Therapeutics.  Almah was intended to distribute spare automobile parts online but it never got off the ground.  Arch took their corporate structure and registration so it can raise capital for its surgical gel.  There's nothing wrong with that provided they can execute their business model.  Next quarter will show Arch's first results under its new business model.

Arch Therapeutics is not right for my own portfolio because it still needs to successfully market its main product.  Touters notwithstanding, Arch needs to raise capital and prove itself.

Full disclosure:  No position in any of the companies mentioned, ever.