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Soliton, Inc.

SOLY / NasdaqCM / $12.88

March 8, 2021

 

Business Overview

 

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Soliton, Inc. (the Company) is developing and commercializing a device based on a proprietary Rapid Acoustic Pulse (RAP) technology. The initial target markets are (i) acceleration of tattoo removals and (ii) short-term improvements in the appearance of cellulite.

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The RAP technology uses an acoustic shockwave device to induce mechanical disruption to targeted cell structures and vacuoles without collateral issue damage. The initial product consists of a console (sold or leased), a handpiece, and consumable cartridges custom designed for each therapy and replaced after each patient visit. Sanmina Corporation is the contract manufacturer.

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The Company holds a worldwide exclusive license to its RAP technology from the University of Texas on behalf of MD Anderson Cancer Center. The running royalty percentage of net sales is in the mid-single digits.

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As of year-end 2020, the Company owned or had licensed two U.S. patents granted and 11 more pending, 29 granted and 69 pending foreign counterpart patent applications, and one pending PCT patent application.

 

 

Tattoo Removal Assist

 

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The Company is on the cusp of initial marketing of an FDA-cleared product (RESONIC) designed to assist in the removal of tattoos. Management estimates that some 44 million Americans want some form of tattoo removal, and the global market potential could be $4 billion by 2023. Tattoo removal is most commonly performed using lasers that break down the ink particles and, depending upon the size and complexity of the tattoo, can require up to 10 or more office visits over 1-2 years to achieve 75%+ fading. The American Society for Aesthetic Plastic Surgery estimates that the average cost per doctor session is $463. Results from a 2017 clinical trial showed that the RAP used in conjunction with existing laser treatments delivered 76-100% fading after only 3 office visits.

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Management estimates that the potential global market size could be $4 billion by 2023. Initial marketing is expected to commence in Q2 2021.

 

 

Cellulite Appearance Improvement

 

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On February 1, 2021, the FDA cleared the Soliton 510(k) application for using its RAP technology for the temporary improvement in the appearance of cellulite, and marketing is planned in begin in Q2 2021. A single, 40-60 minute, non-invasive treatment breaks the fibrotic septa bands that bind cellulite. The pivotal clinical trial (62 patients) resulted in no serious adverse events and received a strong patient satisfaction rating (91.9%).

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A 2017 estimate published Medical News Today was that the potential global market for cellulite improvement therapies could be $4 billion by 2025. Management estimates that in the U.S. alone there are 50 million prospects for treatment. There are a number of competing therapies, but data presented by the Company indicates that RAP treatment could be quite competitive in terms of both cost and patient satisfaction.

 

 

Other Potential Indications

 

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In early 2021, the Company entered into a collaboration with the US Navy to conduct a 12-week proof-of-concept U.S. study for fibrotic scars. The earlier proof-of-concept keloid and hypertrophic scar trial showed that the RAP device reduced both the volume and height of the scars after a single treatment. Management estimates that the market for fibrotic scar improvement could reach $10 billion by 2025.

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In a pre-clinical animal study, the Company showed positive results for the potential treatment of liver fibrosis. One market analysis showed the potential worldwide market for a liver fibrosis treatment to be $28.1 billion by 2026.

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Other potential indications include skin rejuvenation (abdomen, upper arms, knees/elbows), post-surgical scars (radiation or burn induced), and breast implant capsular contracture prevention or reduction.

 

 

Marketing Plans

 

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In January 2021, the Company hired Sean J. Shapiro as VP/Sales. Mr. Shapiro has successfully launched several aesthetic devices in the industry for his previous employers.

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Management plans to sell its first 25 devices, both tattoo and cellulite enabled, in 2021. First sales should occur in the second quarter. Target customers will be highly respected dermatologists and surgeons.

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A nationwide rollout is planned for 2022 using an in-house sales team.

 

 

Executive Officers, Scientific Advisory Board, & Board of Directors

 

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Walter V. Klemp, Co-Founder; Executive Chairman since 2018, and previously CEO. Mr. Klemp is Chairman and CEO f Moleculin Biotech, Inc., which is developing oncology drug candidates.

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Christopher Capelli, M.D., Co-Founder; CEO, President, Chief Scientific Officer, & a Director. Dr. Capelli was the lead inventor of the Company´┐Żs RAP technology.

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Lori Bisson, CFO, since 2015. She previously worked as a financial and business development consultant as a shareholder in Condon & Company, PC, where she advised various life science companies.

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Joe Tanner, COO, since 2014. He also serves at co-owner and part-time co-manager of a chain of convenience stores.

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A Scientific Advisory Board supports these executives. SAB members include key opinion leaders, many of whom are dermatologists experienced in the markets targeted by the Company.

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The Company has three Directors in addition to the two mentioned above. All have backgrounds relevant to the Soliton business plans.

 

 

Financials

 

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Income Statement (12 months through 12/31/20 vs. 12/31/19)

 

Research & development: 4,631,000 vs. 4,679,000

Sales & marketing: 1,023,000 vs. 189,000

G&A expense: 8,457,000 vs. 7,858,000

Operating income (loss): (14,694,000) vs. (12,943,000)

Non-operating income (expense): 153,000 vs. (809,000)

Net income (loss) attributed to common shareholders: (14,541,000) vs. (13,912000)

Earnings (loss) per basic common share: (0.77) vs. (1.00)

Weighted average common shares: 18,955,861 vs. 13,841,884

 

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Balance Sheet (12/31/20)

 

Cash & equivalents: 31,557,000

Total current assets: 32,251,000

Total assets: 33,801,111

Current liabilities: 2,820,000

Stockholders equity: 30,981,000

Number of common shares outstanding (02/12/21): 21,199,943

Stock options outstanding (12/31/20): 3,919,550 at a weighted average exercise price of $4.47

Warrants outstanding (12/31/20): 1,324,608 at a weighted average exercise price of $11.32

 

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As of March 23, 2020, officers & directors as a group beneficially owned 11.3% of the common shares outstanding, and Remeditex Ventures LLC was the beneficial owner of 56.2%. The majority owner of Remeditix Ventures LLC is Malachite Trust.

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In June 2020, the Company completed a public offering of 4,216,868 common shares at $8.30 apiece. Net proceeds after underwriting discounts and expenses were $32.0 million.

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In October 2019, the Company completed a private placement of 485,250 units at $12.88 per unit. Each unit consisted of one common share and a warrant to purchase 1.1 shares at $12.88 apiece through October 10, 2024. Net proceeds were $5.7 million.

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In June 2019, the Company completed a private placement of 675,000 units at $14.00 apiece. Each unit consisted of one common share and a warrant to purchase 0.7 shares at $16.00 apiece through August 23, 2024. Net proceeds were $8.6 million.

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In its February 2019 IPO, the Company sold 2,172,591 common shares at $5.00 apiece, generating net proceeds of $9.7 million. Concurrent with the IPO, convertible notes, accrued dividends, and preferred stock were converted into common shares. Total common shares outstanding at the closing of the IPO were 14,613,000.

 

 

Valuation Considerations

 

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The potential markets are large and growing, and the on-going R&D effort could open up additional markets.

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The Company has not yet generated any revenue but appears to be on the cusp of initial sales. A full marketing rollout is planned for next year.

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In March 2021, management said that working capital was likely to be sufficient to fund operations into third-quarter 2022.

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The ongoing impact from COVID-19 remains an uncertainty. While the competitive landscape appears to be promising, technological advances by others cannot be ruled out. In addition, the Company website and SEC filings detail various other risks and matters, and these are hereby incorporated by reference.

 

 

Contact

 

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Executive offices: 5304 Ashbrook Drive, Houston, TX 77081. Phone: 844.705.4866.

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Investor contact: James Salierno at The Ruth Group. 646.536 7028 or jsalierno@theruthgroup.com

 

 

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