Nexgel Inc (NXGL) 2025 Q4 法說會逐字稿

Good afternoon. I will be your conference operator today. At this time, I would like to welcome everyone to NexGel's shareholder update conference call. I will now turn the call over to Valter Pinto, Managing Director of KCSA Strategic Communications, for introductions. Please go ahead.

Thank you, operator. Good afternoon, and welcome, everyone, to NexGel's shareholder update conference call. I'm joined today by Adam Levy, Chief Executive Officer.

Before we begin, I'd like to remind everyone that statements made during today's conference call may be deemed forward-looking statements within the meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995. And actual results may differ materially due to a variety of risks, uncertainties, and other factors.

For a detailed discussion of some of the ongoing risks and uncertainties in the company's business, I refer you to our filings with the SEC filed periodically. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, unless otherwise required by law.

With that, it's my pleasure to turn the call over to Mr. Adam Levy. Adam, please go ahead.

Thank you, Valter, and thank you, everyone, for joining. On today's call, I will discuss our announcement this morning regarding the closing of our transaction to acquire Celularity's degenerative wounds segment. This is a transformational step forward for our company, marking our evolution into a more scalable, diversified medical technology business, tripling our revenue run rate and immediately contributing to profitability.

To close on the transaction, we successfully secured capital on more favorable terms led by Sequence LifeScience, a strategic partner with deep expertise in regenerative medicine manufacturing, development, and commercialization.

Their lead investment of $5.5 million not only strengthened the financing structure of the transaction but also aligns us with a partner that enhances our capabilities across all of the aforementioned verticals. The financing was done through convertible notes at a $0.60 conversion price and 50% warrant coverage with a strike price of $0.80.

We are excited to announce the formation of a new division, BioNX Surgical, a dedicated division focused on advanced biomaterials for tendon repair, soft tissue reconstruction, bone regeneration, and of course, wound care. The acquired portfolio includes six established regenerative biomaterial products spanning these key areas, positioning us squarely within one of the fastest-growing segments of healthcare.

These are not early-stage assets. They are commercial-stage products with more than a decade of clinical use, demonstrated real-world utility, and existing reimbursement pathways. These products are already approved in approximately 500 hospitals and represent a large opportunity for BioNX in non-orthopedic surgical specialties.

In addition to these commercialized products, there are currently three existing 510(k) devices in our pipeline. These three products have $4.6 million in paid-in-capital and are scheduled for 2026, 2027, and 2028.

Beyond the products themselves, we are also gaining an experienced commercial and scientific team. This is an important aspect of the transaction, as it meaningfully expands our internal capabilities and strengthens our ability to develop and market NexGel's own medical devices as well.

This transaction will be transformative, not only from a strategic standpoint, but also financially. On a pro forma basis, we expect it to approximately triple our annual revenue to roughly $35 million and be immediately accretive to profitability upon closing.

The strategic partnership with Sequence LifeScience is incredibly important to NexGel. In addition to providing the crucial capital for us to close on this transaction, Sequence brings an enormous wealth of expertise and skills.

Sequence will act as backup manufacturer for the existing products, help us develop new products, and aid with distribution channels of their own to further expand our reach. I cannot think of a better partner for the journey we are about to take.

Taken together, the acquisition and our strategic partnership with Sequence represent a step change in NexGel's trajectory. We are combining a proven hydrogel platform with a portfolio of commercial regenerative products, supported by a strategic manufacturing partner, occurring on favorable financing terms.

This positions us to accelerate product development, broaden our commercial footprint, and pursue new opportunities within the regenerative medicine landscape. Our focus is now on execution and successfully integrating these assets and driving commercial growth. We will continue to build a platform that can generate sustained long-term growth and profitability.

With that, I'd like to open the call for questions. Operator?

(Operator Instructions) Naz Rahman, Maxim Group.

Hi, everyone. Congrats on the transaction, and thanks for taking my questions. I actually have a few. First, I want to clarify the structure of the deal. So, you received $5.5 million from your strategic partner, but it looks like you have to pay $8.3 million in total.

So, was the entire $8.3 million on converting, that includes the $5.5 million? Or is it $5.5 million directly in cash, and then the remaining being a convert? I just wanted to clarify the transaction. Also, like you also gave a $5 million note to Celularity, right? Could you clarify all the terms of transaction? I just want to be clear on this.

Sure. So good to hear from you, Naz. There was no note. So basically -- and it's a little confusing, but we paid $5.3 million at closing to Celularity. And we assumed and they're going to pay out the $2.9 million that is owed to the sales reps in back commissions.

Those sales reps are then reinvesting some of that back into NexGel. Of the $5 million convertible note, we also gave Celularity $5 million of this convertible note. They then gave $2.5 million or half of that note to Sequence to settle a pre-existing debt that they had with Sequence.

Sequence then wrote a check for $3 million in cash into this deal, thereby bringing their total investment between the existing debt, the compensation they took for their debt, as well as the cash they wrote directly into NexGel to $ 5.5 million. So, it's a little bit -- it's kind of like one of those four-way baseball trades. But I hope that explains it for you.

Got it, okay. So, the note -- what are the terms of the note? When is it due? And what is the maturity on that note -- I mean, interest rate, I'm sorry.

So yeah, so the note is an 18-month note, and it's a convertible note obviously. And it matures in 18 months, pays a 10% coupon.

Got it. Okay. So now that you have the transaction closed, how long do you think it will take you to, I guess, integrate the assets into NexGel? And you're saying it'll be immediately created. But I guess like how -- are you expecting like any initial restructuring costs or anything along those lines?

No, what's nice about this transaction is that this was always a separate segment with its own people within Celularity. In fact, they reported as a separate segment. So we took the key people that we wanted from that segment. We sublet some space in the actual same building that Celularity is in. So most of the operations kind of move over seamlessly.

What there also is to integrate, however, is some of the synergies. So, I've been asked by -- including yourself many times, like, well, why don't you ever sell SilverSeal or these other medical devices? Why aren't you developing them? Because they require really a medical sales force, which we never had.

So we're looking forward to -- because we will now have reach through all the independent sales reps that we're planning on putting on and the ones that are returning to us, to be able to not only fully commercialize these existing products, but the new products in the pipeline, as well as some of the NexGel products where appropriate within hospitals.

Got it. And just on that point, with the integration of these new products, what do you think happens to the company's gross margins for 2026? And what do you think EBITDA could potentially be in 2026?

So, in the case of this company doing the same business that they did last year or models if we did $22 million to $23 million shows about $4 million to $4.5 million of EBITDA, assuming that's the number we hit, we were hoping to do better than that, the gross margins are -- and I know you and I have had many conversations about NexGel's gross margins being complicated because you have both the medical device and the consumer products and how they skew each other.

There's a little bit of that within Celularity. So, they really have three buckets of margins. There's the lower margin with higher cost of goods distributor model, where there's no commissions paid. Then there's the wound care area, which is only about 15% to 20% of the business, where the commissions are modest, but there's a little more margin, but still less.

And then there's surgical, where the margins are exceptionally good, but the sales commissions can go as high as 30% to 35% to almost 40% sometimes. So, when you talk about the blend, we expect to get a contribution margin of roughly 52%. But it's made up of three different components.

Got it. That was helpful. Okay, so, Adam, we're also basically past 1Q. Could you potentially provide some color on how do you think 1Q is going to develop or look like for NexGel? Like 4Q obviously came in relatively light below your guidance. Just curious if you could provide some context on what 1Q is going to look like?

Yeah, Q4 was surprisingly light for us. Some of the new products didn't really do what we thought they were going do. Silly George had sort of a step-back quarter, but we're seeing a nice recovery in Q1. We're not going to see a drop-off, especially in consumer, in Q1.

And I don't want to get too detailed because we obviously haven't reported it yet. But we're seeing a return to normality in Q1. Q4 seemed to be, on the consumer product side, a little bit of anomaly for us.

Got it. Thanks for taking my questions.

Sure. Thank you.

(Operator Instructions) [Mike Andrews].

Sorry, guys. Adam, good afternoon. You mentioned in the press release the ongoing development of products as this partnership matures. Where does NexGelRx play in the dynamics of this deal?

It doesn't. NexGelRx is specifically the drug delivery program that was spun out to be developed separately, which includes our apremilast program. So that is a separate spin-out that NexGel owns 20% of, but it has really very little to do with this transaction. It's not affected at all by this transaction.

Got it. Thank you.

Pleasure.

[Bret Derrickson].

Hi, guys. Congratulations on your purchase. Just a quick question, if you could talk to what the dilutive outstanding shares is going to look like now, and then also when the warrants and the other items come into the strike price. Could you talk a little bit about that? Thank you.

Sure. So, if you take basically the conversion price of $0.60 and you also take 50% warrant coverage and assume that all the warrants are going to be exercised, you come up with a formula that, for about every million dollars, there's 2.4 million shares.

The deal will probably, between the purchase price and a little bit of working capital, be somewhere in the $12 million to $14 million range total raised. So if you do the math, you're somewhere in the $30 million share area.

Okay. Thank you. I appreciate it.

We'll get more details as the rounds close. Our filings will certainly -- our 8Ks and everything will certainly lay that out in great detail as soon as we know what the exact numbers are.

Sounds great. Thank you very much. Congratulations.

Sure. Thank you.

(Operator Instructions) [David Blocker].

Yeah. Got a quick question. If you've modeled -- like, what do you expect the revenue to be like two, three years out?

So this was a business that had scaled all the way up to $50 million as recently as 2024. Celularity ran into some financial challenges and in 2025, did not pay their sales reps. And that's why you see in the deal that one of the things that had to come out of proceeds immediately was getting the sales reps back and re-engaged.

As I said in my opening, these products are approved in over 500 hospitals, and there was nobody walking into them. So it's our job to sort of reinvigorate that, get the sales force working again. We've identified and we'll soon be hiring a new national sales manager.

And we hope to get back to that level and beyond, especially some of the new products, the product that we currently call Project SPARK, which is a tendon wrap. It will be the first FDA 510(k) constructed out of human tissue. It's made of placental material.

The reason placental material has not been used previously extensively for wraps like this is because of the tensile strength. This has about the highest tensile strength on the market. It's thin as a piece of paper. And of course, because it's made of placental material, has tremendous anti-inflammatory properties.

So we think that could be a game changer. We think that product could potentially be a $40 million to $70 million product on its own. That's potential. But we're very excited about the new products, and we think we can get back to close to what they were doing in 2024, hopefully in that two-year span that you're talking about.

Okay, thank you.

(Operator Instructions) And it does appear that we have no further questions in queue. This does conclude today's question-and-answer -- actually, we do have a question.

[Ves Mahallov].

Thank you very much. Hi, Adam, this is Ves. Hey, I wanted to ask you about the intellectual property being acquired in this transaction. Is NexGel going to be paying any royalties to anybody on these products going forward?

So the only royalty -- it's a great question. The only royalties are because the new products that we're getting in the pipeline that have the $4.6 million of paid-in-capital, we have a 5% royalty to Celularity on the SPARK project. We have a 3% royalty on the ORCHID project and a 1% royalty on the FUSE project. And that's just sort of a -- hey, you guys have a lot of money tied up in this.

They obviously have the most money tied up in the one that's coming out this year. So that's got a little bit higher royalty. But when you look at the sale price of these products and the margins on these products, being surgical products, that's a very easy to handle single-digit, low single-digit royalty. And that's it. Other than that, there's no other royalties.

Do they sunset at any point or for the life of the product?

The royalties?

Yes --

Yeah, they sunset, I think, after seven years, I want to say.

Okay. Now, I wanted to ask you about -- when you say that -- I understand that these parts will be accretive to the corporate finances. But in previous conference calls, I think you mentioned that it will make the company profitable, so at the operating lines. I'm asking the following question is under GAAP financing.

Let's go into Q2, the first-quarter fully integrated, fully reporting under the NexGel brand, so quarter ending in September. Under Safe Harbor and everything else, will this be a profitable company on an operating margin basis or at least an EBITDA basis overall, not just this division, but including the existing business of NexGel? When you combine them together, what should we expect for, let's say, the third quarter, the one ending in September?

Right. So our third quarter -- you're talking about the second quarter, which we own these products.

I'm talking about the quarter that starts July 1 and ends on September 30.

Yeah, our third quarter. Yes, the company will be on an EBITDA basis for certain will be profitable. Remember, this is a seasonal -- this came to me by surprise as well. This is a seasonal product line. So Q1 is generally the weakest. It gets a little stronger in Q2. And Q3 and Q4 is sort of where you kind of make hay, and Q4 particularly is the strongest product.

And that's because of these new high-reimbursement insurance plans. A lot of people wait for these procedures until the end of the year when the reimbursement is better. So Q4 -- to give you an example, in many of the historical years, Q4 was as big as the rest of the year put together.

But on a rolling 12-month basis, company should be both EBITDA and operating -- EBITDA profitable?

Yeah.

Okay.

So yeah. And that's a great -- I was going to embellish on that, but good. I was going to say that's really one of the things that made this -- kind of one of the things amongst others that made this an attractive proposition for us is that, look, NexGel has made some acquisitions. And each of those acquisitions -- from CG Labs to Silly George to Kenkoderm, each one is profitable in and of its own.

But the plant is still underutilized, and the public company expenses are still considerable. So, what we really lacked was the ability to scale because this is a very long onboarding process when we talk about NexGel's medical device business. So this is a nice way for us to accelerate and get enough revenue and volume and scale so that we can immediately become profitable. And that was a big motivator in why we did this.

Okay. Next question. And I'm sorry, but there are quite a few, but I think they're enlightening. When you speak about contribution margin, I get a little confused. Because for me, contribution margin from my accounting days were delta in operating margin under GAAP.

And so, when you say 52% contribution margin, could you translate that for us, for me? What is the delta or the contribution margin at the operating line under GAAP or at the EBITDA line? So, 52% is obviously very high for an EBITDA. So obviously, that's not what you mean. But if you translate what you said, it was 52 percentage points --

Sure. And we kind of get that from the -- we do the same thing in the commercial products. So really all we -- what I just called -- and I'll clarify, contribution margin is essentially cost of goods plus commissions and sales commissions and direct sales costs. So, it does not include any of the fixed overhead.

That's what I consider as being contributed to cover the fixed overhead, which gives you a good way to analyze things, right? We know we do -- we have 52% margin, and we know our fixed cost, payroll, rent, all of those things are X. We have to do some multiple of revenue to get to where we cover that and after that, we become profitable. So that's what I mean when I say contribution margin.

So it's COGS, cost of goods sold plus sales commissions. And then what basically goes into corporate overhead and --?

So, all of the other things, rent, salespeople, we have a fixed overhead that's pretty easy to quantify. And so it's going to be probably around the $6 million to $6.5 million range. And in that, we also have budgets for things like demonstrations and travel. And it covers everything else that's below the line in the SG&A line. So the contribution margin really is the gross profit that goes into the SG&A line.

Okay. And last question here. So going forward, will NexGel basically have an R&D department for this division such that it develops the new products? When you say we're developing new products, is NexGel developing them and retaining the intellectual property? Or is somebody else doing the R&D, and then there is some sort of an arrangement? So, who's going to get basically the margin from any future -- all the margins from any future R&D being performed with these product lines?

So the short answer is NexGel will, but it's going to be done in a series of different ways. First of all, this is a great opportunity for NexGel to move forward with some programs we put to the side, like our Drape programs and NEXDerm, things that we really said, we can't really make these right now because the only real opportunity for us is to hope we can sell them to somebody else and we have other things to do right now. But now we have a sales force, so we can begin to continue to develop those because there's not a lot of cost needed for those.

Number two is the continued development of the programs that are already in Celularity, and those are done within our offices. The space that we took has its own development lab, so we have a budget built in to continue to do R&D on those types of products and continue to get labels on those products.

And the third one, which is really exciting, is that our new strategic partner, Sequence, also develops products. They have a full development team in their facility in San Antonio. And they're very excited about combining technologies with us, finding uses for the hydrogel, helping us distribute the hydrogel. They have some ideas on how our hydrogels could be used in wound care in the new landscape that's out there. So we'll be getting products from multiple different sources.

Okay. But at least for these product lines, you're requiring an R&D team and space. And so therefore, any intellectual property developed under NexGel's roof remains within NexGel --?

Yes, we own -- for example, on Project FUSE and Project ORCHID, we will own all the patents on those.

And that means, obviously, higher margins go to NexGel's shareholders or stakeholders. Let's put it that way.

Yes. But again, the margins are the same on -- I mean, the other products don't have really patent protection anymore, Biovance, Interfyl. These products have been on the market since 2012, 2013, 2014.

So really, what makes them valuable is the fact that they're approved in 500 hospitals, is the fact that they have great clinical data to support their sale, the fact that they're reimbursed by Blue Cross. That's what really makes those products interesting to us, not patent protection. They're off patent protection.

Okay. But my point was, if it gets developed under NexGel's roof, so to speak -- any future products, I presume, developed by NexGel, there will be no royalties --?

100%. Our plan is to own the patents ourselves.

Okay. And really, last question here. You mentioned on a previous conference call that there may be some contemplation about doing stock buyback, provided the company is on solid financial footing and generating cash flow and obviously, has some cash on the balance sheet down the road. Do you still believe that may be the case or not?

Well, that also depends on where things are. I mean, what's always been critical to us, and we haven't been able to achieve it yet but it's always been very important, is that when you switch a company from -- to being profitable, it then switches on to offense. So at that moment when you're at offense, you don't have to do anything because you're making money.

So if you feel your stock is getting unfairly treated or beaten up, then it's absolutely a time for stock buybacks to protect your shareholders and increase their value. If you feel your stock has gotten ahead of itself, then sometimes it's good to take a little money off the table. But you have the ability to do those things on a decision-making basis as opposed to we need to raise money basis because we can't stay afloat.

So that's the goal. That's one of the reasons why this transaction is so important to us. So I can't particularly say what the circumstances are going to be. But, yes, that would certainly be one of the tools in the toolkit would be a stock buyback should the right circumstances present themselves.

Thank you, Adam. Been very generous with your time and the details that you provided. I appreciate that very much.

No worries. Thanks for your questions.

(Operator Instructions) [Robert Gottlieb].

Thank you, Adam, for taking my call and what a great update. A couple of questions. When will the Celularity products start having sales under the NexGel banner, the ones that came over? Will it be at the end of the quarter, mid-quarter, or earlier?

Yesterday, Robert.

Okay. Excellent.

Yeah, the effective date was Monday. And so as of Monday, all sales -- remember, these are products that are used in hospitals every day. So as of Monday, it will begin to generate revenue.

Okay. And then as you've modeled things out, if you're able to share any, I don't want to put you on the spot of making exact predictions. But how do you model sort of a middle-case versus best-case scenario for the convertible note in terms of -- do you think that the note will be paid back? Do you think the note will be issued as equity? How do you game that out?

Well, obviously, if we do well and we're successful and we stay above the conversion price of note, it would certainly convert and therefore, we would not have to pay the money back. If we do poorly and nobody can convert, well, then we better find a way to get the money back to the folks.

And that's why it is so critical that we turn profitable, as one of the previous callers said, in Q3 and Q4 and Q1 and maintain that profitability. Because if we have that kind of strength, then all those things, they're very easy to do.

If you can't do that, if something goes horribly wrong -- it's convertible notes. I'm not going to sugarcoat it; it can turn ugly. But we have a very high confidence level here. We know sort of the space, the area. It's interesting, because when we announced this deal, the Street clearly didn't like it. And there were times that we thought about abandoning it. And I kept talking to more and more people and going, so what am I missing here, like why does the Street hate this deal?

And a lot of really smart people said, we think the Street's wrong. We like this deal. We like what it does for NexGel. And then eventually, I asked Sequence, and they confirmed not only do we think the Street's wrong and do we like this deal, but we'd like to get involved in a meaningful way.

So sometimes, you have to kind of do what you believe is the right call and take an opportunity that's there. And we're pretty confident it's going to turn out very well.

Thanks. And if it is profitable, let's say it does convert rather than require payment, what other debt is on the books that is of relevance?

None.

Okay. Thanks.

This is senior secured debt. There's nothing else on the books. NexGel never had debt before this.

And then it basically seems like an acquisition of a commercial line that really places you as a different company than a hydrogel company. It's more of a regenerative medicine. How do you see the branding working in that regard?

Well, we're branding it as BioNX. The brands are really already established in terms of Biovance and Interfyl. Those brand names are what the doctors recognize. It's what the hospitals recognize. So that part is done. We have a great deal of familiarity with these products. The original iteration of Biovance, and I think it was 2012, was released by Alliqua Biomedical in a partnership with Celgene.

Well, Alliqua Biomedical was our parent. I've talked about this before. The person that runs and is the President of Celularity's degenerative wound segment is Dr. Steve Brigido, who is coming over with us and is already on my Scientific Advisory Board, has been for four years, did all the SilverSeal studies.

So this is kind of what NexGel was always sort of thinking about being. We were always going to be a medical device company. The whole branded thing sort of happened and commercial products happened because of the pandemic. And so we ended up with something that is now profitable. It's lucrative. And so we're going to continue it. But this is really our roots. This is really our core.

Thanks. And then thinking back to your -- in terms of synergies that you mentioned about other wound care products, I know you mentioned SilverSeal, at the inception of going public, there was talk shortly thereafter of the NEXDrape program.

If you have sales folks selling BioNX, I guess that's the term, products that were acquired from Celularity, do you see an opportunity that would -- instead of developing something like NEXDrape for external sale to an external distributor, do you see ever the possibility of distributing it using that same sales force?

Yeah, we do. And that's really important. Now, whether they prefer the sales force, we have to start talking to them and talk to the independent reps and see what products they think are most viable. I think there so far has been more interest in the NEXDerm just because that's an easier sell in hospital.

But what's the old saying? You kind of want to always be in the bag of whoever's carrying metal in the hospital, who's carrying the devices because they have access to the entire hospital. Those are the sales reps that we want to be the biologic in their bag. And if we can do that, it opens up putting other things in their bag.

And so, yeah, we're going to identify those. And the important thing is no longer we're only making this product that we can't possibly hope to commercialize and maybe we could sell it to somebody. Now we could say, you know what, we think it's a good product. We think it's a viable product. Let's try and sell it ourselves. And if we sell it ourselves really well, then maybe we can sell it then or maybe we'll just keep it. But it opens up a lot more opportunities for us.

Thanks, Adam. I wish you the best of luck on the coming quarters.

Thanks, Robert.

And it appears that we have no further questions at this time. This does conclude our question-and-answer session as well as our conference call for today. We appreciate your time and participation. You may now disconnect.