NEXGEL, Inc. (NXGL) Earnings Call Transcript & Summary

Hello, and thank you for joining us for the iAccess Alpha Virtual Best Ideas Spring Investment Conference 2025. iAccess Alpha hosts virtual investor conferences featuring companies sourced from investors with a track record of generating Alpha. Today, you will hear presentations from 11 selected companies. iAccess Alpha holds four virtual investor conferences annually, one per quarter. The next event will be the iAccess Alpha Virtual Best Ideas Summer Investment Conference 2025, scheduled for June 24 to 25, 2025. Now let's begin with our first presenting company, NEXGEL Inc. [Operator Instructions] I'd now like to turn the floor over to today's host, Adam Levy, CEO of NEXGEL Inc. Sir, the floor is yours.

Thank you, Jenny, and thank you, everyone, for joining the presentation. At NEXGEL, our core technology is creating custom hydrogel solutions for large medical device companies. That was the company's main business when I arrived here at the very end of 2019. We use an electron beam accelerator to make essentially sheets of super high water content material. There's many, many uses for these. And part of my expansion plan when I got here was to begin to explore those. As a result, we now have agreements with huge multibillion-dollar companies such as STADA, Cintas, AbbVie, Medtronic, Owens & Minor and several others. The growth strategy when I got here was surrounded three key points that I was hoping to use to grow the business. One, as we made components to other people's medical devices, we wanted to begin to develop our own medical devices and thereby move up the food chain. Secondly, and we thought this was the largest opportunity was to create custom and white label. What I mean by that is, imagine a company with a successful lotion cream or gel that does not have a patch. We could now design a patch because our hydrogels do not contain chemicals or skin irritants that would now work in large markets such as beauty and cosmetics, dermatology, drug delivery, where the cheaper Chinese chemical hydrogels simply are not appropriate. The final branch was branded products. Honestly, that was not considered a high opportunity when I first got here because brands are very difficult to build. Consumers are fickle. We thought we would get to that much later. However, the pandemic fortunately for us, push that forward. A little bit about our facilities. The Langhorne facility is 16,500 square feet. It is located in Langhorne in Pennsylvania. It is a GMP FDA ISO facility. That is where the electron beam accelerator is housed. We are still at very, very low utilization when I first got here, it was about 4%. We're now up to somewhere between 16% and 20%, but there's lots of room for growth in this facility. Our other facility is now down in Granbury, Texas. We built this facility to enhance our ability to convert and package. So we have lots of capacity in terms of manufacturing the gel, but where we had a bottleneck was we only had a small white room to do converting and packaging. And as larger and larger customers began to be onboarded, we could not handle those sorts of orders in our current facility. So we entered into an agreement, a joint venture with an existing customer who is expert in the space, and now we can control our production from start to finish. So some of the advantages we talked about, about our gels. We do not deteriorate skin integrity. We can make very gentle adhesives that literally cause no pain and won't pull a hair on removal. We do not have skin allergy, skin irritation, discomfort. Basically, anywhere a medical device is going to interface with the skin is where we shine. So let's look at the three verticals for growth. First, what we call our aspirational programs, this is the medical device pipeline. We call them aspirational because we believe there could be great value here, but we do not spend a lot of money on these projects. We are simply trying to collect data to make deals with larger companies. We're not so delusional to think we're going to go out, for example, in the surgical drape space and compete with Avery Dennison and 3M. Rather, we show them early what we're doing and then look to create data so that we can make a deal with them. There is no revenue projected for this in any of our projections. These are what we call our aspirational programs. So we've done a few very interesting things. We have a drug delivery program that we've done our first ten patients. We're getting ready to do twelve more up in Canada on the delivery of apremilast. This is for people who have -- suffer from psoriatic arthritis and/or psoriasis. The thought process here is that if you have psoriasis, the current treatments work very well. Skyrizi, apremilast itself, you get 80% to 90% clear-up of lesions. But what about the remaining 10% or 20%? We like this because it's an adjunct therapy that if we can deliver directly into the lesion and see efficacy, it opens up a new market for the companies that make these drugs. We also completed a proof-of-concept study using diclofenac. We are not currently developing a diclofenac patch, but we wanted to pick a compound to show how effectively we deliver. We reached full dosage, 2.5x faster than Voltaren Gel. And in fact, there's a lot of convenience in using a patch. You don't have to measure it. You don't have to reapply it, there's no mess. So we think that this is kind of an interesting group of concept. Again, these projects are going to be partnered. These are not things we are going to commercialize ourselves. So moving now to our Consumer Products section. We are an M&A roll up, but we also started with our own brands. When the pandemic hit we kind of sat around and we had some very, very great feedback on our technology for custom and white label, but those companies shut down. At the end of 2022, we put our first product on Amazon thinking, let's just see how it goes, and it has grown very rapidly since then. So our first core product that is our highlight is SilverSeal. It's one of the Medagel products. The three brands are Medagel, Kenkoderm and Silly George that we currently have. Medagel is the health care remedy portion. SilverSeal is an FDA-cleared 510(k) wound and burn care product indicated for those indications. It is 94% water with 1.5% I&I silver. We have data that it kills staph, MRSA and strep. And we've also done a 40-patient double-blinded study published in scar journal showing that we reduced the incidence of scarring, which we think is a big opportunity for us with that product. It remains the biggest seller for us, and we have some interesting opportunities for SilverSeal that we will get into in later slides. Kenkoderm is a product company of gentle to the skin products, a cream, shampoo, conditioner and two soaps for people who suffer from psoriasis, it is to relieve the symptoms of psoriasis. So these are very gentle no fragrance, no sulfate products that psoriasis sufferers can use. It has a tremendous reputation on Amazon. If you type in psoriasis, it will be one of the first products that comes up. It has been growing steadily. We're about to expand it into the European marketplace. And Kenkoderm is going to have a very interesting expansion in Q3. We're going to release a line similar, another five products, soap, shampoo, et cetera, for eczema, which is an even larger indication, leveraging the really good brand name and reputation that Kenkoderm has into more products, thereby expanding the line. In May of this -- of last year, we purchased a beauty brand called Silly George. At the time we announced that it was on a $2 million run rate. We integrated Silly George into our marketing team and so immediate success due in part to that and in part to the new product of Pop-On Lashes, which had a great reception. As a result, that company is now at over $5 million run rate and continues to grow. Much like Kenkoderm, Silly George will have a series of new products coming out starting in Q3 with five different shades of lip loss, a lip balm, and we're also going to make under-eyes utilizing our hydrogel technology, which is deeply hydrating you can deliver additives. So we're moving Silly George away from simply being known as the last company into a true beauty brand, and we believe that we have great communication with our customers and that this will be a large opportunity for the company moving forward. One of the things we talked about with Medagel was SilverSeal. And SilverSeal, we did a deal with Cintas to distribute SilverSeal into all of their wound and burn kits that are in businesses. So Cintas will be distributing SilverSeal. We began shipping that in the fourth quarter. We continue to receive orders in Q1. We will be shipping more of the product in Q1 and Q2, and we think that this is a very large opportunity, not only because of the revenue, which is, of course, terrific, but also because it adds to the brand recognition. So someone is at work, they burn themselves, hurt themselves in some way use the product. It's branded as SilverSeal and now the next time that they're shopping on Amazon or walking through a drug aisle, they recognize the product. So we think it's really going to be an exciting thing for us, and we can't wait to see how that develops during 2025 and beyond. We also had a deal with STADA. STADA is the fourth largest consumer products company in Europe. They do about $4 billion a year in sales. And they are trying to launch products into the U.S. They gave us the first product, which is an enzyme to help with histamine sensitivity from food. We launched that product from zero in August. It is doing very, very well. And beating all the projections, revenue has grown month-over-month on Amazon in that product. And we recently, a couple of weeks ago, signed an amendment with STADA to expand our relationship, so that they will be giving us another product in Q4 of this year, and we have five more products on the schedule for early 2026 and second quarter of 2026. We're very excited about this. They're obviously a great partner with great products, and they have a huge pipeline. So this is another of our partnerships that we're very excited to see what develops with it in 2025 and beyond. We also have done a deal with AbbVie to supply them with gel pads for their Resonic machine to be launched later this year. The Resonic is a cellulite treatment. AbbVie paid $550 million in the acquisition of Soliton. This is a cellulite reduction treatment that is pain-free, lasts for more than a year, and they are very, very excited about, obviously, given the price that they paid for it. Each procedure requires two 8x8 gel pads, and we will be applying those gel pads to AbbVie. They've already given a nonrefundable deposit of $176,000. They've now given us estimates for their first quarter orders, and we will begin shipping them in Q2. Another opportunity is the reduction of harmful carcinogenic cooling from laser hair removal. Currently, it's an IRB study in accordance with FDA guidelines to measure the efficacy of our hydrogel during laser hair removal by eliminating the harmful particles or plum during treatment. So whenever that -- this is obviously not a huge risk to the patient who goes in there for only a few times, but to the practitioners, it is a very serious problem. This will be a 30-patient study at the Youth Florida Clinical Research Center. It has actually already been completed, and we should be -- we should be publishing the data shortly. Well over a dozen states have enacted legislation mandating the use of plume evacuation, and this would give us a really great value proposition. The secondary endpoints, plume evaluation, being the primary are also the reduction of pain to the patient and additionally, greater efficacy because a greater -- a higher dose of beam can be used. So this would be a very cost-efficient way for these practitioners to deal with their plume issues, as well as provide additional benefits to their patients. So this slide just talks about our growth. We're very proud that we've grown over 100% revenues the last 3 years in a row. Full year revenue for 2024 was $8.6 million. That's up from just over $4 million the previous year. Fourth quarter was a record at $3.04 million. We continue to see growth in the company. We've given revenue guidance of over $13 million for 2025, and we expect to be EBITDA positive during this year. As of the end of the year, we still had $1.8 million in cash, and we had about 7.6 million shares outstanding. So with the low shareholder base, we think there's also great room for shareholder appreciation and value. So with that, I am done with the presentation, and I've left time for questions. So if anyone has any questions, I will -- ready to switch over to that.

[Operator Instructions]

So the first question that I have is, are you exploring collaborations or licensing agreements to integrate self-healing properties into your product pipeline? Researchers University of Bayreuth have developed a groundbreaking hydrogel that mimics human skins ability to self-heal when cut the hydrogel can heal itself. So I am aware of that program. It seems very exciting. I don't know enough about it to know how it would pertain a self-healing hydrogel that heals itself. I'd have to see how it goes into wound care. But we're always looking at the cutting edge of what hydrogels can do. Now we are not a facility that can handle, for example, injectable hydrogels that would require a biotech level facility. We're a med device facility. But there may be some very interesting applications of this, and we will look into it and definitely not pass on an opportunity that might be there in front of us. Next question, will NEXGEL need to raise additional money to bridge the way to profitability? If so, how? So we have, from time to time, raise money. We raised money a few times in 2024. Mostly because we acquired something. So we did a raise shortly after the acquisition of Kenkoderm. We did a raise shortly after the acquisition of Silly George, and we did another raise as we saw those companies sort of explode on us, and we need working capital. As of right now, we believe we're going to get to profitability well before we need cash, but that doesn't mean that should an opportunity present itself an accretive acquisition that adds to the bottom line. We're not going to preclude ourselves from going into the market if it's good for the growth of the company. The next question is, can you address the STADA partnership? How big of an opportunity can this be? What are the margins, implications? And is there a chance for STADA to take products internationally? So that's a great question. We think it's a very big opportunity because of the size of STADA. STADA is also a roll-up strategy similar to what we are, which is probably one of the reasons we were attractive to them. We're going to be putting out more products with them. They are going to be looking at putting our products out in Europe. And so we're going to continue to have discussions with them, how we can continue to develop this relationship. So far, they're very pleased with the job we've done on the first product that we've gotten, and we think that there's real opportunity there for us to really expand that relationship. It is structured as a joint venture. So basically, the margins stay the same as any of our other consumer products in general, within the guidelines of what makes sense for consumer products. But we do split the profits and/or the losses 50-50 with STADA as part of that deal. That actually brings me to a question that I'm going to throw out there, which is I have -- that is the next question. Please walk through the reclassification of Amazon sales commissions from selling cost to COGS. And how it impacted margins? And was there any mix issues that impacted -- mix issues that impacted GMs in the quarter you released yesterday? So yes, the gross margin that we reported yesterday at 36% looks like a drop from Q3, but was due almost entirely to this reclassification. And the reason we did the reclassification is because those of you who have been following the company for some time know that I get gross margin question, especially when it jumps up dramatically from investors. And I always have to caution investors like, whoa, that's not necessarily real. So the reason for that is when you acquire something like Silly George or the Silly George sales grow exponentially, consumer products tend to artificially inflate your gross margins because your cost of goods is only somewhere between 12% and 17% or 18% and everything else is below the line. The real cost of marketing a Silly George product is in sales and marketing, and it's below the line. We had always had Amazon sales commissions also below the line. But we thought this was an opportunity to sort of provide more transparency to our -- or a more stable number to our investors to move Amazon sales commissions since if you don't sell any product, they are zero, so it can be considered a direct cost of sales above the line. This will simply just add stability, so we won't see these wild swings in our gross margins. Is it perfect? No, because there's still huge sales and marketing costs that are below the line. But we think it will provide greater transparency, and we think it is an appropriate reclassification. Obviously, it does not affect any of the actual numbers in terms of P&L, et cetera, balance sheet. It's just to sort of help stabilize our gross margins. So I think that's all the questions I have right at the moment, unless there's some more that want to come through. To summarize, while I have a couple of minutes, this has been a very interesting journey for us at NEXGEL. When you first start a company like this and you see all of the applications you think, wow, what a great idea, but you're never really positively sure until customers begin writing your checks and giving you contracts. What's really exciting to me waking up every day is that we pass that threshold. We -- I now know that there is commercial viability to everything that we're doing, or at least some of the things that we're doing, and it makes it really, really fun to go to work right now. So I thank you guys all for your support as investors, and thank you for making my job really enjoyable. Jenny, I'll turn it back over to you because I don't think I have any more questions.

Perfect, Adam. Thank you so much. That does conclude NEXGEL's presentation. You may now disconnect. Please consult the conference agenda for the next presenting company.