{"id":48298,"date":"2019-05-19T19:28:27","date_gmt":"2019-05-20T02:28:27","guid":{"rendered":"https:\/\/drduru.com\/onetwentytwo\/?p=48298"},"modified":"2019-05-19T19:55:47","modified_gmt":"2019-05-20T02:55:47","slug":"how-to-invest-in-tattoo-removal-soliton","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2019\/05\/19\/how-to-invest-in-tattoo-removal-soliton\/","title":{"rendered":"How to Invest In Tattoo Removal: Soliton"},"content":{"rendered":"\n

Soliton<\/a> (SOLY) is a research and development (R&D) company, also known as a “pre-revenue stage company”, specializing in a medical device using Rapid Acoustic Pulse (RAP) technology.\u00a0The company licensed the technology from MD Anderson as a method for removing tattoos. Apparently the company also fortuitously discovered the potential for using its RAP device for fat and cellulite reduction.<\/p>\n\n\n\n

The technology sounds promising, but investing in this promise comes with a high level of risk. The company’s latest financial results<\/a> (quarter-ending March 31, 2019) show zero revenues as expected for such a company. The IPO brought much needed cash to the company and inflated its balance sheet<\/a> from just $133,435\u00a0in cash and equivalents at the end of 2018 to $4.9M\u00a0at the end of March this year. Yet, with massive operating losses like the $2.4M lost last quarter (versus $1.2M lost in the year-ago quarter), the company needs to get to market soon and earn cash. Otherwise, the company will need to continue selling shares to fund its operations.<\/p>\n\n\n\n

The company is still an FDA approval away from getting product out to market. The company filed for this approval on March 4, 2019. Here is how the company describes its prospective revenue model<\/a>:<\/p>\n\n\n\n

“Our business model anticipates generating revenue from the sale of our RAP console to dermatologists, plastic surgeons, and other physician offices, as well as medi-spas under the supervision of a doctor. Our model contemplates recurring revenues will be generated by the sale of disposable cartridges that are utilized with each patient visit and treatment. We believe additional revenues will result from maintenance services to our customers. Our system comprises a control unit with a hand piece and our consumable treatment cartridges, which are designed to allow a physician to perform a single office visit involving multiple laser passes on an average-sized tattoo or a single stand-alone treatment for cellulite reduction. In simple terms, we expect this to translate into approximately one treatment cartridge per patient, per visit. “<\/p><\/blockquote>\n\n\n\n

In other words, the company came to the public markets in desperate need of funding to leap the final hurdle of getting a viable product to market. The upside is tremendous. The potential downside goes all the way to zero. In the financial industry this is called a binary option: either you win big or you lose it all – there is little to nothing in between. It is in this precarious state of affairs that influential voices can make or break a company’s ability to achieve success. Such a moment may have come with the publication of a piece in Seeking Alpha questioning Soliton’s viability while slapping a $6, 2-week price target on shares<\/a>. The report helped drive the stock down 31.5% in one day. The stock closed the week at $7.23\/share.<\/p>\n\n\n\n

\"Soliton
Soliton (SOLY) collapsed through its nascent 50-day moving average (DMA) and closed the week at a near 2-month low.
Source: FreeStockCharts<\/strong><\/figcaption><\/figure><\/div>\n\n\n\n

I have been following the trading drama in Soliton (SOLY) since its IPO. Post-IPO trading rules suggest buying into a breakout from a solid base. SOLY generated a decent 16-day trading base before its breakout. Still, I failed to pull the trigger. From there, I just watched and watched, more and more astounded. One month later, the stock finally topped out with a 151% gain from the breakout. I even missed a buyable dip in late March. So after the stock dropped back to those late March levels, I jumped to consider the opportunity. I am also intrigued that the short-seller’s $6 target coincides exactly with the breakout point I should have bought back in March.<\/p>\n\n\n\n

Also interesting is the low short interest in SOLY. Yahoo Finance reports<\/a> that only 5.4% of the float was sold short as of April 20th. If other short sellers pile on based on the piece on Seeking Alpha, SOLY could go a lot lower from current levels before hitting some kind of climactic low. Before this drama, I would have assumed the low level of short interest represented the market’s general vote of confidence in the company.<\/p>\n\n\n\n

The price drop was sharp and devastating enough to compel Soliton to respond to the short-seller’s accusations<\/a>. The company mounted a vigorous, point-by-point defense of the business and the technology. Given the drama, I decided to press a good friend of mine who is an expert in tattoo removal for more information on the industry to help me assess the overall risks of getting involved in this story. She uses the traditional light laser solution. <\/p>\n\n\n\n

Here are some highlights of what she explained to me:<\/p>\n\n\n\n