NEXGEL, Inc. Q2 FY2025 earnings call

• Contract manufacturing: Played a pivotal role in growth, with increased demand from existing customers and new global corporations. Revenue up 103% YOY. Partnership with Cintas remains strong with SilverSeal in their wound care kits, with reorders solid for Q3. Clinical trial with Vanalay U.S. Inc. on hydrogels for laser hair removal complete, waiting on final data. Agreement with iRhythm to supply hydrogels for Zio® ECG heart monitor.
• Consumer branded products: Revenue up 95% YOY. New Silly George product launches, expanded beauty line with new lip gloss, lip mask, under-eye patches. Kenkoderm to double product portfolio with new eczema solutions. MEDAGEL expanded with new offerings like SilverSeal wound and burn kit, approved in Canada. Expanded partnership with STADA, amended agreement to broaden collaboration, with $1 million non-dilutive funding and planned product launches in Q4 2025 and 2026.

For the second quarter of 2025, revenue was approximately $2.9 million. The contract manufacturing segment saw revenue increase to $863,000 from $425,000 in Q2 2024, a 103% year-over-year increase. The consumer branded products segment had revenue up 95% year-over-year. Contract manufacturing revenue contribution isn't explicitly stated as a percentage of total revenue, but consumer branded products also contributed significantly to the overall revenue growth.

• Management remains confident in previously issued guidance for 2025 of $13 million in revenue and achieving positive EBITDA during the year.

• Tariffs: Mild negative impact on margins in some products, but also more interest in gels from domestic companies with onboarding process. - Global recession: Considered, with consumer products being fairly high margin which helps mitigate some risks, but always a factor to think about.

Q: Congrats on the progress. Just a few. I wanted to just start on the STADA partnership and the additional capital you got. Could you talk a little bit about what you think the market opportunities are for the upcoming launches? And I guess, how does that compare to Histasolv?

A: Yes, so Histasolv is a digestive enzyme targeting histamine sensitivity. The upcoming enzymes, gluten, for example, dairy, fructose, we also have an extra strength, vegan version of Histasolv coming out. Those are much larger markets. So we're excited for them. It also gives us the leverage of a brand, very difficult to begin to contemplate retail when you only have one product and one enzyme. But as we can build out a suite of solutions, that's sort of our go-to-market strategy to get into retail as well.

Q: I was just going to ask about the AbbVie partnership, but you sort of covered that as kind of waiting for their product to come out because you guys have been talking about that for a while and didn't know where the status was on that.

A: We have. They had some delays in their process with a different -- had nothing to do with us with a different vendor that was working on their console. They've told me that they got rid of that vendor some time ago. They brought it all in-house. I do check in with them, obviously, it's very important to us. I mean that was something we were counting on to be in full swing by now, and we haven't even started. But I'll call up and blow in a call going. Nothing disastrous has happened, right? And there's no new updates and they assure me that they're back on schedule, on the new schedule and that things are progressing. So fingers crossed.

Q: You mentioned a new product from Silly George that started selling this quarter. Can you tell us more about it?

A: Sure. So Silly George has a line of -- we actually released in Q2 at the very end, a couple of variations on our lashes, a 75 Lash, which is really a Pop-On Lash, but it almost covers the entire eye and then you accent it with the smaller lashes. We also made Focus Packs. So what we're finding from our customer feedback is that they were saying, "Oh, we love your 60 Pack, but I use mostly these sizes. I wish I could buy a box of just these, and then I could use the 60 Pack as fill in, I end up wasting some products." So we created a small Focus Pack of 24 lashes that are all the same size, and those have been very popular. They worked really well for us as well because we have higher margin on the smaller packages so there is a little bit of cannibalism there, although we haven't seen very much. The 60 Pack sales are only down about 4%, and we added about 17% or 18% new sales from these packs, plus they have better margins. So that's been very successful. We are then going to be releasing at the end of this month, beginning first week of September, 5 shades of lip gloss, a lip and eye mask, under-eye are coming in Q4 made from our hydrogel. There's a new mascara coming out. So there's a whole series of products that will be coming out in the second half of this year that we're pretty excited about.

Q: This is Kirtan. My question is, I know earlier you kind of touch up on the capacity for the manufacturing. So my question is, what is the company currently operating at in terms of both the contract manufacturing as well the branded products?

A: So a lot of our branded products are made by us, so that would be part of our capacity. The capacity down in Texas, they have lots of room to expand because we are waiting for AbbVie. So we obviously are overbuilt down there. And we're probably still below -- well below 20% up in Langhorne to manufacture gel. So capacity is not the issue right now. We just need to keep filling the pipeline and having the business grow as it's been growing.

Q: My next question is regarding the cash position. So I've been noticing that the company is running very close to the operating expenses and been raising cash very diligently through dilution. And I admire that you're not doing any significant dilutions over the years. But my question is, let's say, in case of like a global recession or something like that, given that current events surrounding tariffs and long-term high interest rates, do you -- have you been taking into consideration in case of something like that were to happen? How would the company would be able to survive through that?

A: Yes, you're always thinking about that. I mean, in some ways, I always think a recession is the best time to build the business because you don't -- you're not living in a fantasy world of everything being great. You'd have to cut back your cost, you'd have to reexamine your margins. There's a lot that you have to do if we start to see that slow down, fortunately, we're not seeing that yet. But yes, that is something that we do think about all the time. Fortunately, our consumer products are fairly high margin. So when you have a fairly high-margin business, things like the tariffs, and we've had this discussion when the tariffs first came into play, obviously, 145% tariff with China would be a problem. But when you start talking about 25%, 30% and your cost of goods is about 17%. So you're really kind of raising that 17% up to 21%. You might have to pass a little bit of that on, but it isn't super destructive to the business that has 85% or 83% gross margins. The real cost is in advertising.

Q: I have a question in your prior investor presentations, you had stuff about surgical drapes. I know that's been taken off. And I've seen some research reports that are forecasting the launch of NEXDrape and NEXDerm over the next couple of years. I just wanted to see if that was accurate or something that...

A: Yes. So if you noticed we added a gentleman by the name of Kip Crecca to our Scientific Advisory Board, specifically to work on our Drape Program. We sort of thought about it and said, you know what, going after at this stage, something that we have to sell to another company and developing that surgical [ in size ] drape, maybe we put that on the back burner for a second because we had some issues as well with trying to extrude a drape that thin. It would have required significant investments in new pumps and dyes, which we have so many things going on. I didn't think was the best use of our cash. But what we have identified is that there's an opportunity in, for example, cataract surgical drapes, which are very simple. And the idea of what Kip is going to try and go out and market is, can we sell our adhesives to a company that makes that drape to have a gentle to the skin for an elderly audience. So we now become just a material supplier again. That means we're not doing any 510(k) stuff. That means we're giving it to somebody who already has a market built in. We kind of think that's lower-hanging fruit, so we've sort of pivoted to that. But we still think there's a big opportunity, particularly for NEXDerm, a gentle adhesive that could hold an IV in place that could maybe be impregnated with Silver that would help prevent MRSA and staff infections in a hospital. We think is a great idea, it's just that we can only do so many things at the same time and some opportunities have presented themselves to us that is where we're putting our resources right now.

Q: If you were to rank maybe a top 3 or top 5 of your partnerships, could you give that to us? Is it something that's already been only things that have been announced? Or are there some things that you're working on that would make your top 3 or 5?

A: Well, there's definitely a couple of things working on, one in particular that would definitely make the top 3. So we always have big fish in the pipeline, whether they come through or not is something that we work on and we hope for, but we definitely have some potential opportunities there. A couple of them that would be in the top 7 and certainly one that would be in the top 3 or 4. So yes, those are there. As of the ones we have right now, I mean, they're different. Cintas is a wonderful partnership, very steady, replenishment, a terrific partner. You may have noticed that we just got -- I think we announced that we just got cleared in Canada with SilverSeal. So we'll be having discussions about expanding that relationship, there's a lot to be done there. AbbVie obviously still has huge potential, been disappointing with the delays, but that doesn't mean it's not one of the biggest opportunities, if not the biggest opportunity that's out there. And then there's a lot of steady customers like the Owens & Minor and the iRhythm, and those are all great companies. And we're very excited about STADA. STADA has a wealth of products that if we do well with these first 9 that are coming out or so, then the entire catalog is open to us, and that's pretty exciting, too. So there's a lot of good stuff on the horizon.

Q: Quick question, of the $13 million you project for revenue this year, what percentage of that revenue will be Silly George?

A: Probably $6, $6.5 million.

Q: $6.5 million of the $13 million. So almost half will be Silly George?

A: Yes. Yes. Silly George is doing quite well.