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

Here's a prediction: we're going to see some substantial volatility in Arch Therapeutics Inc (OTCMKTS:ARTH) at some point over the eight weeks.The company is one we've looked at on quite a few occasions in the past and it's one that, in line with this coverage, we've highlighted as a stock to watch based on the potential for a near-term catalyst hitting press. ARTH Daily ChartOver the last month or so, markets have been watching the stock closely in anticipation of a development (which we'll get to in a bit more detail shortly) but – as yet – the development hasn’t materialized. Recent price action suggests that this failure to materialize is translating to some weak sentiment but we think that the market's interpretation of the development (or lack, thereof) is an opportunity to take advantage of a cheap entry.In other words, we don’t think wider markets have gotten it right with the stock.Here's why.For those new to this one and before we get into the specifics of our thesis, Arch Therapeutics is a development stage biotechnology company that has developed a product called AC5. It's a gel formulation type product that's designed to help wounds to heal when applied and the company currently has two iterations in play – one is a topical formulation that's designed to be administered externally and used in a field type setting (think, battlefield wounds, other external type injuries) and the other is an internal target formulation of the same stuff, designed to help control bleeding and to help wounds close during surgery.The latter of these two targets is by far and away the larger market (we're talking billions of dollars in potential revenues for the internal use device as compares to double or low treble digit millions for the external formulation) but the smaller market involves a far simpler pathway to commercialization.As such, Arch is going after the secondary target first. We’ve said before that we think this is a pretty smart move as it allows the company to validate its product and to start generating an (albeit small) stream of revenues, which can be used to offset some of the cost of advancing the internal use product towards commercialization in the US and – by proxy – to mitigate some of the future dilution risk associated with an exposure to the company at current prices.So, let's get to what we are looking at today. This company submitted an application to the FDA earlier in the year, targeting approval by way of the 510(k) pathway. When these submissions are made, the FDA has 100 days within which to decide whether it needs any fresh information submitting by the company, in this instance Arch.Any request fresh info would delay the program and – in turn – would be a setback for the company.This 100-day period expired at the start of this week.If the FDA had made a request for information, Arch would have to let shareholders know about it (pretty much) as soon as it knew this was the case, as per listing guidelines. So, with us now heading into the second half of this week, the assumption is that any such update would have had to have it press already.As mentioned above, some market participants are looking at this as indicative of the company having received a request and not having told markets about it.For us, this is an unrealistic interpretation. The company is staying quiet and – as far as we are concerned – no news is good news. It suggests that the application is on track and that the agency doesn’t need any more data/information submitting before it makes its decision.Which brings us to why we think this one is going to be volatile. Once the 100 days' initial review is over, we generally see a decision within 60 days. That means we should get an approval notice (assuming the response is positive) before the end of the year.We may see a capital raise between now and then so keep this in mind but, if we do, the dip it brings about will likely offer up a nice opportunity to buy into the dip.Check out our previous coverage of this one 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 Patrick Mize via FlickrDisclosure: We have no position in ARTH and have not been compensated for this article.