NEXGEL, Inc. (NXGL)

Executive Summary / Key Takeaways

• Transformative Growth Trajectory: NEXGEL (NASDAQ: NXGL) is executing a strategic pivot from a traditional contract manufacturer to a diversified healthcare and beauty company, leveraging its proprietary hydrogel technology to drive triple-digit revenue growth and target positive EBITDA in 2025.
• Differentiated Hydrogel Technology: The company's electron beam cross-linked, high water content aqueous polymer hydrogels offer superior performance in biocompatibility, adherence, and controlled release, providing a significant competitive moat in medical, diagnostic, and cosmetic applications.
• Strategic Market Expansion: Recent acquisitions (Silly George, Kenkoderm) and partnerships (STADA, Cintas (CTAS), iRhythm (IRTC), Innovative Optics) are rapidly expanding NXGL's footprint in high-growth consumer health and medical device markets, with new product launches expected to fuel continued revenue acceleration.
• Improving Financials & Liquidity Management: NXGL reported 100% year-over-year revenue growth in Q2 2025 to $2.88 million and a significant narrowing of adjusted EBITDA loss to -$420,000. Recent non-dilutive funding from STADA ($1 million) and a $1.05 million registered direct offering bolster liquidity to support aggressive growth initiatives.
• Outlook and Risks: Management maintains its 2025 revenue guidance of $13 million and expects to achieve positive EBITDA, driven by new customer onboarding and consumer product expansion. Key risks include delays in major partnerships like AbbVie (ABBV), ongoing litigation, and potential tariff impacts, though mitigation strategies are in place.

The Hydrogel Advantage: NEXGEL's Strategic Pivot

NEXGEL, Inc. is carving out a unique position in the healthcare and beauty sectors, transforming from a specialized contract manufacturer into a dynamic, diversified enterprise. At its core, NEXGEL's business revolves around its proprietary electron beam cross-linked, high water content aqueous polymer hydrogels. This advanced technology allows for the production of gels that meet stringent tolerance specifications across various physical characteristics, including thickness, water content, adherence, absorption, moisture vapor transmission rate (MVTR), and active ingredient release rate, all while maintaining product integrity.

The tangible benefits of this technology are significant. For medical applications, the hydrogels are skin-friendly and dermatologically safe, making them ideal for wound care, medical diagnostics, and transdermal drug delivery where biocompatibility is paramount. For instance, in diagnostics, the technology enables precise conductivity and alkaline content, crucial for devices like iRhythm's Zio® ECG heart monitor. In cosmetics, the hydrogels, often 90% water with active ingredients like hyaluronic acid and vitamin C, offer superior, long-lasting moisture delivery without the mess of traditional masks. This differentiation allows NEXGEL to command premium pricing and secure recurring revenue streams in specialized segments.

NEXGEL's R&D efforts are strategically focused on expanding these applications. The company is exploring hydrogels for laser hair removal to absorb carcinogenic plume, a critical safety concern for practitioners, with initial studies showing promise for pain reduction and enhanced efficacy. While the ambitious NEXDrape surgical drape project has pivoted, the company is now pursuing simpler, high-impact applications like supplying adhesives for cataract surgical drapes and developing NEXDerm, a gentle, potentially silver-impregnated adhesive for IVs to prevent hospital-acquired infections. These initiatives aim to leverage existing technology for high-ROI opportunities, contributing to a robust competitive moat.

The company's journey began in 2009 as AquaMed Technologies, Inc., primarily serving as a contract manufacturer. A pivotal strategic shift in 2020 saw NEXGEL launch its own branded consumer products and expand into custom and white label opportunities, aiming to capture more value from its proprietary technology. This strategic evolution was further solidified by the formation of the CGN JV in March 2023, which brought converting and packaging capabilities in-house, addressing past challenges with high minimum order quantities and streamlining the manufacturing process. This move has been instrumental in ensuring complete control over production and mitigating future inventory write-offs.

Competitive Landscape and Strategic Positioning

NEXGEL operates in a competitive environment, facing both large, diversified healthcare conglomerates and niche specialized players. Direct competitors include industry giants like 3M Company (MMM), Johnson & Johnson (JNJ), Smith & Nephew (SNN), and Integra LifeSciences Holdings (IART). These established players benefit from extensive global distribution networks, strong brand recognition, and diversified revenue streams. For instance, 3M, with a TTM gross profit margin of 41% and an operating profit margin of 20%, significantly outperforms NEXGEL's TTM gross profit margin of 38.26% and operating profit margin of -26.06%, reflecting 3M's scale and efficiency. Similarly, J&J boasts a TTM gross profit margin of 69% and an operating profit margin of 25%, highlighting the substantial financial strength of larger rivals.

NEXGEL's competitive advantage lies in its specialized focus and proprietary electron beam cross-linking technology. While larger competitors often rely on broader material science or integrated medical ecosystems, NEXGEL's hydrogels offer superior performance in specific applications, such as enhanced biocompatibility for medical devices or unique moisture delivery for cosmetics. This specialization allows NEXGEL to be more agile in innovation and product development for high-water-content needs, potentially leading to faster market entry in niche segments. For example, its hydrogels for laser hair removal plume control are positioned to offer a superior solution compared to general evacuation systems.

However, NEXGEL's smaller scale presents vulnerabilities. Its TTM current ratio of 1.74 and quick ratio of 0.98, while showing some improvement, indicate tighter liquidity compared to larger, more financially robust competitors. This smaller scale can lead to higher operating costs and limits its global reach and marketing spend compared to rivals. The company strategically mitigates this by focusing on partnerships that leverage its technological strengths while utilizing partners' distribution and market access, as seen with STADA and Cintas. The increasing interest in U.S.-made gels due to tariffs also presents a beneficial trend, as NEXGEL's hydrogels are no longer materially more expensive than foreign alternatives while being technologically superior, enhancing its competitive standing against cheaper, less biocompatible Chinese-sourced gels.

Financial Performance and Operational Momentum

NEXGEL's recent financial performance underscores its rapid growth trajectory. For the second quarter of 2025, the company reported revenue of $2.88 million, a robust 100.3% increase year-over-year from $1.44 million in Q2 2024. This growth was primarily fueled by strong consumer demand for branded products and new agreements in contract manufacturing. Gross profit for Q2 2025 more than doubled to $1.26 million, up from $0.29 million in Q2 2024, with gross margins expanding significantly to 43.6% from 20.3% in the prior year period. This margin expansion reflects the increasing contribution from higher-margin consumer branded products and improved utilization in contract manufacturing.

For the first six months of 2025, total revenue reached $5.69 million, an impressive 110.3% increase over the $2.71 million reported in the first half of 2024. This period also saw a substantial improvement in profitability metrics, with the net loss attributable to NEXGEL stockholders narrowing to $1.38 million for the six months ended June 30, 2025, compared to $1.74 million in the prior year period. Adjusted EBITDA loss continued to narrow, reaching -$420,000 in Q2 2025, a significant improvement from -$790,000 in Q2 2024, indicating progress towards profitability.

Segment-wise, Contract Manufacturing revenue surged to $863,000 in Q2 2025, a 103.1% increase year-over-year. This was driven by increased demand from existing customers like Cintas, for whom SilverSeal reorders began in late Q2 2025, and new partnerships such as iRhythm, which will integrate NEXGEL's hydrogels into its Zio® ECG heart monitor. Management notes that the Langhorne gel manufacturing plant is still operating at low utilization (high teens), implying substantial capacity to absorb new orders with high incremental profitability. Consumer Branded Products revenue also saw strong growth, increasing 94.6% year-over-year to $1.88 million in Q2 2025, driven by the strong performance of the Silly George, Kenkoderm, and Medagel brands.

Liquidity and Strategic Capital Allocation

Despite the impressive growth, NEXGEL's liquidity remains a critical focus. As of June 30, 2025, the company held a cash balance of $0.73 million, with working capital at $1.77 million. The 10-Q filing notes that these conditions raise substantial doubt about the company's ability to continue as a going concern, a common disclosure for rapidly growing companies in the pre-profitability phase. However, management is actively addressing this through strategic initiatives and recent capital raises.

Subsequent to the second quarter, NEXGEL significantly bolstered its financial position. The company secured $1 million in non-dilutive capital from STADA, structured as an advance against future profits with no recourse for repayment, specifically to support upcoming product launches and marketing efforts. Additionally, NEXGEL completed a $1.05 million registered direct offering and concurrent private placement in August 2025, selling 413,043 shares at $2.30 per share, along with warrants. An additional private placement raised $105,000. These funds are earmarked for working capital, increased marketing spend for its brands, and supporting the growth of receivables from large customers. Management's stated philosophy is to avoid debt until the company achieves positive EBITDA, after which more traditional financing options like revolvers would become available.

Outlook, Guidance, and Key Risks

NEXGEL's management remains confident in its 2025 guidance, projecting at least $13 million in revenue and achieving positive EBITDA during the year. This outlook is predicated on continued strong performance from its diversified segments. Silly George is expected to contribute $6 million to $6.5 million of the total 2025 revenue, driven by new product launches like lip glosses, hydrating lip masks, and proprietary hydrogel under-eye patches. Kenkoderm is set to double its product portfolio with eczema solutions, tapping into a larger market. The expanded partnership with STADA will see new digestive enzyme formulas and skincare solutions launching as early as Q4 2025, supported by the $1 million non-dilutive funding. The laser hair removal application, following the completion of its IRB study, is expected to begin generating revenue in the first half of 2026.

However, several risks warrant investor attention. The most notable is the repeated delay in the launch of AbbVie's RESONIC machine, for which NEXGEL is the exclusive gel pad supplier. Originally anticipated to launch in July 2024, it has been pushed to Q1 2026 due to AbbVie's internal manufacturing issues. While management did not bake significant AbbVie revenue into its 2025 guidance, this remains a substantial long-term opportunity, estimated at "millions and millions of dollars," and further delays could impact future growth.

Another risk is the ongoing litigation with Kiss Nail Products, Inc. over alleged patent infringement for Silly George eyelash extension products. NEXGEL believes the patent is invalid, but an unfavorable outcome could lead to the removal of products from Amazon.com, materially affecting the beauty brand's financial results. Tariffs on Chinese-sourced Silly George products also pose a mild negative impact on margins. While current rates are manageable, a significant escalation could necessitate a shift to domestic assembly in NEXGEL's Texas clean room, a contingency plan that would entail additional labor costs. The "going concern" note in the 10-Q highlights the need for continued operational execution and capital management to reach sustained profitability.

Conclusion

NEXGEL is at a pivotal juncture, transforming its business model and leveraging its proprietary hydrogel technology to capture significant market share in high-growth areas. The company's strategic pivot into branded consumer products and expanded contract manufacturing, supported by key acquisitions and partnerships, is yielding impressive revenue growth and a clear path towards profitability. While challenges such as the AbbVie delays and ongoing litigation exist, management's proactive capital management, coupled with the inherent advantages of its differentiated technology, positions NEXGEL for continued expansion. The ability to convert its substantial manufacturing capacity into profitable revenue streams, particularly from new and expanding contracts and the burgeoning consumer brands, will be critical in solidifying its competitive standing and delivering long-term shareholder value.