“The Company’s cash, cash equivalents and restricted cash on hand is sufficient to fund the Company’s operations into December 2020 but not beyond.”
This quote from the May 14 earnings report from Soliton (SOLY) is tattooed in my mind as I consider the implications of the company’s recent good news on cellulite treatment.
On June 12th, Soliton announced encouraging results from treating cellulite with a single, 20 to 30 minute application of its Rapid Acoustic Pulse (RAP) device. The company already has approval to use this technology for tattoo removal. Some of Soliton’s accomplishments in its clinical trial on cellulite treatment with 62 subjects were:
- Average 32.5% reduction in Cellulite Severity Score: 85% of subjects had scores from 6.7% to 85.7%.
- 91.9% of subjects agreed or strongly agreed that their cellulite appeared improved (a subjective measure)
- Average pain score of 2.4 (10-point scale) (a subjective measure)
The procedure requires no anesthesia and subjects in the trial experienced “no unexpected or serious adverse events.” Apparently, the majority of existing cellulite treatments require 4 to 6 treatments although the company is not clear whether those treatment levels achieve equivalent results to the single Soliton RAP application. Soliton provides more details of the trial results including a descriptive video at Cellulite Trial Results.
The company is counting on the success of this application to cellulite treatment ever since the COVID-19 pandemic forced the company to change its market strategy. On April 1st, Soliton announced that it will combine tattoo removal and cellulite indications in an integrated device with a single market launch plan. The delay pushed out a mid-2020 “limited launch” of the tattoo removal application to a “launch timeline with early indicators of the recovery of the financial and aesthetic markets, with the objective of identifying an appropriate window of opportunity for a successful product debut.” Time is ticking with cash running out by December, 2020.
Next up, Soliton will soon submit a 510(k) to the FDA for clearance of its RAP technology for cellulite treatments. The company believes “…there is a reasonable expectation that the FDA will allow [the company] to utilize this clearance pathway in order to market the product.” If Soliton does not get this clearance, the company would have to file a De Novo request which will cost an additional 6 to 9 months of filing and reviews. Given Soliton’s cash situation, the company cannot afford such a delay.
So with no revenues for the foreseeable future, an unsustainable cash burn rate, and regulatory risks, Soliton will likely need to file for a secondary offering of stock. The company burned through $3.3M in the first quarter, a large jump from the $2.4M it spend in Q1 2019. The company has $7.7M in cash left, so it has to significantly reduce its cash burn just to make it through December.
Fortunately for Soliton, the stock has experienced a sizable recovery since the March collapse in the stock market. A secondary should bring in significantly more cash now.
Up until today’s 8.2% pullback, SOLY nearly doubled off its March lows.
Source: TradingView.com
Just as time is running out on cash, the clock is likely ticking even faster for a secondary stock offering to provide funds for the company to operate past December. The $15 level has provided resistance for 11 months and did so again in the wake of the news on the cellulite trial. Traders sold the news and forward-looking traders are likely exiting the stock ahead of a secondary offering. In other words, Soliton will likely issue a secondary stock offering sooner than later with the growing risks of a sizable cooling from the previous rally.
I first took an interest in SOLY in May of last year in a piece titled “How to Invest in Tattoo Removal: Soliton.” In that piece I basically laid out a “buy low, sell high” strategy given the speculative nature of the stock. I failed to buy low for this last cycle as I waited for the stock to trade closer to $5, and then I failed to chase the stock after it double bottomed around $7. I will continue to watch what unfolds from the sidelines and determine my next entry point depending on how well the market absorbs a secondary offering. I particularly like buying the stock between $10 and $11 where support awaits at 50 and 200-day moving averages (DMAs).
Be careful out there!
Full disclosure: no position