NEXGEL, the little-known healthcare company specializing in hydrogel technology, recently announced its Q1 2024 earnings. On the surface, the results painted a picture of steady, incremental growth, with revenue exceeding guidance and a positive trend in gross profit margins. However, a deeper dive into the transcript reveals a hidden signal, a strategic shift that could catapult NEXGEL into a period of explosive growth.

The signal lies in a seemingly innocuous statement from CEO Adam Levy during the Q&A session [1]. Responding to an analyst's question about cash flow concerns related to potential large orders from partners like AbbVie and STADA, Levy stated: 'Actually, the opposite is true... Our experience has been with these big multinational so far... is that they want to pay you in one day because they all have financing arms... It is the opposite when we go to retail.'

This seemingly off-hand remark points to a fundamental strategic shift that has flown under the radar. NEXGEL is pivoting away from the volatile and often cash-draining world of retail towards a business model centered around large, reliable partnerships with multinational corporations.

Why is this significant?

The retail landscape is notoriously fickle. Large retailers often dictate unfavorable payment terms, demand substantial marketing spend, and impose a constant threat of product returns. These dynamics can cripple a small company's cash flow and stifle growth.

Multinational corporations, on the other hand, offer stability and predictability. Their established financing arms enable rapid payment, reducing reliance on working capital. Their brand recognition minimizes marketing costs, and their established distribution networks offer streamlined access to broader markets.

NEXGEL's strategic pivot towards these partnerships is already bearing fruit. The company's supply agreement with AbbVie, to be the exclusive supplier of gel pads for their Resonic cellulite reduction device, is a prime example. AbbVie, a pharmaceutical giant with a market cap of over $250 billion, is not only a testament to the quality of NEXGEL's hydrogel technology, but also a guarantee of substantial, recurring revenue once the Resonic device launches.

Furthermore, NEXGEL's partnership with STADA, a European leader in consumer health, further solidifies this strategic shift. STADA's distribution network and brand recognition in the North American market provide a springboard for NEXGEL to expand its consumer product offerings without the risks and financial burdens associated with a direct-to-retail approach.

The numbers tell the same story. While NEXGEL's branded product revenue has grown steadily, contract manufacturing revenue, driven by these partnerships, has surged by an astounding 166% in 2023. This trend is expected to accelerate in 2024 and beyond as the AbbVie and STADA partnerships reach full maturity.

The Hypothesis:

NEXGEL's strategic pivot away from retail, coupled with the impending launch of the AbbVie Resonic device and the expansion of its partnership with STADA, will drive a surge in contract manufacturing revenue and propel the company towards profitability in the next 12-18 months.

Projected Revenue Growth

Beyond the Numbers:

This strategic shift positions NEXGEL as a key player in the burgeoning field of hydrogel technology. With applications spanning wound care, medical diagnostics, transdermal drug delivery, and cosmetics, NEXGEL's proprietary technology has attracted the attention of industry giants. As these partnerships flourish and NEXGEL's manufacturing capacity expands, the company's potential for long-term growth appears truly remarkable.

"Fun Fact: Did you know that NEXGEL's hydrogel technology is so versatile it's even being used in the development of a cataract surgical drape [2]? This highlights the breadth of potential applications for the company's technology and further underscores its appeal to large corporations seeking innovative solutions across various healthcare sectors."

While other analysts may focus on the incremental progress evident in NEXGEL's Q1 2024 earnings, this strategic shift towards large-scale partnerships signals a more profound transformation. It's a transformation that could reshape the company's trajectory, unlock exponential growth, and position NEXGEL as a dominant force in the rapidly evolving landscape of hydrogel technology.