All right, that's our cue. Welcome, everybody. I'm Matt Sykes, a life science tools and diagnostics analyst at Goldman Sachs. I have the pleasure of welcoming Aasim Javed, the CFO of Cue Health. Thank you, Aasim, for being here. I really appreciate it.
Thanks for having me here, Matt.
maybe, if you could kind of help set the stage first. I think, one, kind of explain to folks in the audience, what Cue Health is and what you guys are looking to achieve, and then sort of reflect on Q1 and sort of expectations for the second half of this year.
Yeah, absolutely. for people who are new to the Cue Health story, we're a healthcare technology company with, you know, essentially, we have diagnostic enabled care that allows people or empowers people to live their healthiest lives. What do I mean by that? We have lab-based, lab-quality diagnostic tests that you can do in the home or point-of-care settings. along with that, we offer telehealth consulting, on top of that, we also have treatments and prescriptions for a wide variety of health and wellness conditions. As we think about our diagnostic tests, our current product offering, we had a COVID EUA approval. We were the first company to get an EUA approval for at-home without prescription.
Just last week, we got a De Novo clearance for COVID, which was really a landmark for us. Again, first company to get a De Novo clearance for COVID at home. As we talk about COVID, over the last two fiscal years, we did over $1 billion of COVID-related lab revenue. Earlier this year, we got an mpox test approved by the FDA as well. You know, three tests approved, molecular tests approved. We have several tests with the FDA right now, so we've submitted an RSV test. We've submitted a flu-COVID multiplex test, as well as a flu De Novo test. As we look forward, in the second half of the year, we expect to submit strep as well as chlamydia, gonorrhea.
That's kind of, you know, our homegrown kind of test menu that we've either submitted or are expected to submit in the near future. As we think about, you know, what are our real goals here in this fiscal year, it's really menu expansion that's key to, you know, our success in driving our revenue. Along with that is our launch of Cue Lab and Cue Pharmacy. Cue Lab is at-home diagnostic test kits, which the third-party tests, we have 13 of those tests on our in our shop right now, so it really broadens the scope of what of our offering on our shop. We also launched Cue Pharmacy, which is, you know, treatment options for things like ED, hair loss, birth control, et cetera.
That's already launched. We recently launched that. The third real priority for us is to really maintain financial discipline, in this macroeconomic environment.
Got it. Thank you. That, very helpful overview. Maybe expanding on your commentary around the menu expansion, I know it's a big priority, and you kind of outlined the RSV, flu-COVID combo, strep, chlamydia, gonorrhea. How should we think about, I know a lot of this is out of your control in terms of the approval, but how should investors think about sort of the cadence of the non-COVID tests starting to come in, and sort of being on the platform over sort of the next 12 months?
Yeah. As I think about the next 12 months and really, you know, what are the catalysts for Cue, right? You know, respiratory season in and of itself, we expect that to be a catalyst. As I think about menu expansion, flu-COVID, RSV flu are in front of the FDA. From a time and cadence standpoint, we expect to have flu-COVID approval for this respiratory season and then RSV and flu to follow shortly after that. You know, going forward, we expect more non-COVID revenue in the second half of the year. As we sit here today, you know, what we've said before also is we're in this in-between phase, in between the success we had from COVID.
In the last two years, as I said, we did over $1 billion of revenue to where we are right now, where predominantly our revenue is COVID-generated, and, you know, COVID testing volumes are down. However, we believe we've still competed really well in the COVID testing market because of the stickiness of our product. As we look forward in the second half of the year, we expect revenue generation from COVID flu, our Cue Lab and Cue Pharmacy that we just recently launched. We expect that to also contribute from a revenue generation standpoint. We expect to kind of get back to growth in the second half of the year, and we would expect that momentum to continue into 2024.
I think the final thing I'll say is, as we look past 12 months, we do expect to be EBITDA positive in early 2025.
Got it. A current focus for you has been penetrating the point-of-care market. You know, while this is a competitive market, it's also a very large market. Could you just talk a little bit about how Cue is differentiated versus the current competition in the point-of-care market?
Yeah, absolutely. I mean, you're right. The point-of-care market is a really large market. We believe it's a $20 billion market. Then in the tests that we will have in the near term, so, you know, COVID, flu, RSV, strep, chlamydia, gonorrhea, we believe that market is around a $7 billion market. All told, you know, a really large market, and we think we have a good opportunity to win in the market. Why do we think we have a good opportunity to win? Is because of the unique value proposition that we have. What I mean by that is, you know, our Cue Health Monitoring System, you know, it's small from a footprint standpoint. It's 3 in x 3 in and a 1 in height, right? It's smaller than a cell phone.
The footprint is really small. You get fast and accurate results, in a very timely manner, though, you know, the ease of use and technology, and the workflow is really easy. You know, you can do a Cue Health test in five steps, while some of our competitors, it's about 30 steps to do a test there. The other thing is, our Cue Health Monitoring System from a cost standpoint, the list price is $200. You know, we look at some of our competitors', pricing is in the thousands of dollars, if not tens of thousands of dollars. I think there, you know, and we do integrate with EMRs. I think from. You know, there are lots of kind of benefits from a pricing, workflow, footprint standpoint to Cue versus our competition.
The only thing that we believe right now that some of our competition has, is ahead of us is menu, and that I just addressed, that, you know, from a menu standpoint, we're making really good strides. You know, three approvals, three in front of the FDA, two that we'll submit in the second half of the year. We're making really good progress on menu, and as those menu items come online, I think we have a really good opportunity to win in the point-of-care market.
Got it. You know, one thing that you and I have talked a little bit about in the past is, when you look at the point-of-care market, COVID was a significant benefit for those companies that were facing that market in terms of their installed base growth that they saw. There's also a greenfield opportunity within point of care, and pharmacies come to mind, for one, and you've already got sort of a relationship with Albertsons. Maybe help us maybe quantify what you think the greenfield opportunity is like. I believe there will be some level of displacement opportunity, but frankly, it's probably harder than going into greenfield. Maybe help us kind of think about how you're thinking about that greenfield opportunity in point of care.
I mean, you know, you're right. I mean, I think there is kind of displacement opportunity for us. There is greenfield opportunity, and by definition, the greenfield opportunity, would be, you know, reasonably less challenging to win in. You know, we've had success in the retail pharmacy space, so I think from our unique value proposition, given, you know, relationships we have, especially with the distributors, the large greenfield opportunity that does exist, and we haven't quantified it before, is something that we think we can win in that, in that market and be successful.
What are you seeing in terms of sort of mix shift within the point-of-care setting to the extent that you've been facing that market? How much of your revenues are coming from sort of retail pharmacy versus urgent care versus outpatient clinic settings? Any kind of color around that would be helpful.
Yeah, from a, you know, revenue split standpoint, we've historically talked about, you know, private sector, public sector. You know, our private sector revenue encompasses enterprise, direct-to-consumer, as well as the point-of-care setting. Overall, from a private sector standpoint, you know, we grew our private sector revenue 60% in 2022 versus 2021. Substantial amount of our current revenue, kind of more than 95% of our current revenue, is in the private sector. When we speak about specifically point of care, you know, that's a space where we think we can get a lot of growth in that space, and again, it comes back to the, you know, the relationships we have. We already have great relationships with several hospital systems.
We have great relationships with a lot of the kind of key distributors. Then there's reimbursement plugged in, and our pricing competes really well in that kind of reimbursement structure. Again, I think from... We talk about more public sector, private sector, but very reasonable for us to assume that within private sector, point of care is the one where we expect to have the, kind of, largest growth.
Just within the private sector, looking at the enterprise of the corporate market, what appetite are you seeing for those customers to move beyond COVID into the broader menu as you roll that out? I mean, the level of monitoring connectivity was, I think, incredibly useful for the corporates at that time. When we get beyond COVID, what do you think the applicability is in the, in that corporate enterprise market?
Yeah, you know, From a kind of customer standpoint, you know, if you take out our direct-to-consumer customer base, you know, we have over 300 customers, right? A lot of that are in the enterprise setting. These, the enterprises that kind of signed on with us for COVID, they understood the value of the platform, not just for COVID, but beyond COVID as well. Just like we're having this conversation on menu and what's to come and timing, you know, our sales force is having the same conversations with our customers. The customers, the enterprise customers, are very well aware what our test menu looks like, what's to come. We continue to hear from our customer base that, you know, they're really excited about our upcoming test menu.
Kind of the short answer to your question is, you know, we definitely think there's appetite there for a broader test menu within our enterprise, because a lot of these enterprises have really bought in to the whole platform and the whole kind of value proposition. The other thing I would say is, what's also attractive for the enterprises is a Cue Lab, where, you know, we have 13 tests that we've launched. We've kind of become a one-stop shop for, you know, employees in those companies who really want to, you know, address several different types of health conditions.
Got it. Then just shifting to the DTC market, we've long seen Cue technology as resonating with this customer, just given the simplicity, speed, connectivity. How do you see this market evolving, and how are you managing, specifically, sales and marketing spend to maximize the opportunity? You know, going after the DTC market is a more expensive proposition from a marketing standpoint, but given how your technology has resonated with consumers, how are you thinking about the DTC market today?
I mean, if we think about it, if we kind of zoom out, you know, in 2021, a lot of our revenue was driven by the public sector, we started, you know, building out our enterprise customer base. At that time, we launched DTC. We launched DTC in Q4 2021, since then, we've been very successful in the DTC market. In 2022, we did about $40 million of revenue in the DTC market, what we've also said prior, that about 12% of our installed base is in the DTC market. How big is our installed base? It's over 250,000 readers is our installed base. A large amount of readers is we've sold through our DTC channels.
These are customers who have cash paid, have used our COVID test, and, you know, they really like the workflow, they continue to reorder, et cetera. You know, we do believe that this installed base that we have in DTC will continue to pull through as we get more tests online. In terms of sales and marketing, you know, our current customer base, again, with the large installed base, I think that will continue to pull through. It's about attracting new customers. You know, we'll be very thoughtful about our sales and marketing.
In this environment, you know, we want to ensure we're thoughtful, we're kind of looking out for things like customer acquisition costs and things like that, and monitoring that, and, you know, we'll be very, as I said, measured and thoughtful in how we do that spend.
Got it. Just talk a little bit about the pricing strategy for the DTC market. Given that a lot of your tests initially, as they come through, will be on the respiratory side, the subscription model with the respiratory season kind of seasonality to it, how are you thinking about sort of, how you might flex that pricing strategy in order to kind of capture more, more customers in DTC, given the respiratory seasonality?
Absolutely. I mean, from a pricing standpoint, you know, our COVID test price is at about $50 in the DTC market. You know, what we do have right now is less of a subscription for DTC. It's more of a membership model, where, you know, you can buy a membership, and you get a discount on things on our website, which includes Cue Lab, Cue Pharmacy, et cetera. You know, we believe that membership model is kind of. It's, you know, we've seen success in that, and we believe that's a good model in the DTC channel.
Got it. you know, one thing that we've admired about Cue is the manufacturing capabilities and the modular production, a lot of that you were able to scale up during COVID, particularly on the public sector side. Could you talk a little bit about the manufacturing process, the modular production, and what kind of advantages do you think that gives you in terms of either scale or flexibility?
Yeah, no, I'm glad you asked about it. Our, you know, manufacturing facility, you know, we have, you know, 17 manufacturing lines, or we call them pods. They're highly modular. You know, these lines are in 300,000 sq ft of space in San Diego. We made this investment a couple of years ago, and what this investment does for us, it's, you know, A, the lines are highly automated, so we have a ton of capacity in terms of production. You know, our capacity with these 17 lines is about 20 million tests annually. From a capacity standpoint, that's not an issue. From a spend standpoint, the CapEx for all of these lines are done. These lines are relatively new, so there really isn't much in terms of maintenance CapEx.
Again, as we think about spend and things like that, CapEx is kind of behind us. What's really good about our kind of manufacturing processes is the way it was designed is that each of our lines can make each of our tests in our menu set that we are developing. All we requires is some change in biochemistry. 17 lines can make all of the different products that we have, and I think as we go forward and as we get to our inflection point on revenue and we grow revenue, the ability to have manufacturing lines do different tests, I think will be a really competitive advantage for us.
One thing I want to address is, kind of related to DTC market, but I think it's applicable to point of care as well, is that, particularly in DTC side, when you're dealing with sort of just regular patients and customers, oftentimes on the respiratory side, you're presenting very similar symptoms. So, you know, our view is that that probably ultimately goes to a multiplex type of test. You clearly have the capabilities with the flu-COVID combo that you're working on. How are you thinking about incorporating multiplex into your menu over time, particularly on the respiratory side?
Look, I mean, I think, I, you know, as you said, with cold flu symptoms, it's COVID symptoms, flu symptoms are similar. We are really excited about our COVID flu product. You know, it's only natural if you have cold-like symptoms or flu-like symptoms, instead of doing two separate tests, you do one test. Not just, I think, on the DTC side, just broader market, I think multiplex will, you know, there's a lot of potential there, in, on the multiplex side of things. You know, we will be submitting chlamydia, gonorrhea, which is also a multiplex.
You know, we haven't kind of publicly spoken about, you know, how many different types of tests we can do on our cartridges, but over time, we'll discuss that in more detail. Again, I think there's a lot of excitement internally, we know for sure, on our flu-COVID multiplex because, yeah, I think the value proposition for that is really high.
Just on COVID, how are you viewing sort of the endemic level of COVID volumes? I'm assuming that sort of the flu-COVID combo, when it comes to market, sort of ends up replacing a lot of the COVID-only volumes. How are you thinking about endemic level of COVID? I mean, look, it's been an incredibly, almost impossible thing to forecast on our side. I'm sure it's the same for you. I know this is a really difficult question, but just as sort of like, as CFO and sort of budgeting and spend, like, how are you thinking about endemic level of COVID testing?
Yeah, absolutely. I mean, look, it is difficult to forecast. There's a reason why we give forecasts, kind of, we give guidance, one quarter out and, you know, that will change over time as we have more products and more, you know, predictable revenue that's less seasonal, et cetera. Where we see things, you know, we think, you know, as we sit here today, COVID is settling or has settled into kind of an endemic phase, you know, similar to flu. Every typical flu season, we'd expect those volumes to increase.
You know, as I look at Cue's revenue, budgeting, things like that, you know, I think the second half of the year, when we have flu-COVID, when we have Cue Lab and Cue Pharmacy, really kind of humming at that point, we expect, you know, we expect to get a revenue growth, that, from that, along with some level of kind of baseline COVID and that momentum, we expect that to continue into 2024.
Got it. Maybe just shift to Cue Lab, which was obviously a new development. You talked a little bit about it. It's very early days, so from a revenue contribution, I think you've sort of talked more about the back half of this year in terms of contribution. There are a few competitors in that market. I've actually used one of the competitors, and I found the experience underwhelming in terms of from a customer service standpoint. Talk about how you feel like Cue can kind of win in that business, and what do you think this could represent for Cue? I understand it's gonna be a nice revenue bridge to have-
Mm-hmm.
As that menu gets expanded over time, maybe talk about what your expectations are for Cue Lab and maybe any early feedback that you've gotten.
Absolutely. Let me, you know, first zoom out and just talk about how Cue Lab works, right. We have 13 kind of. These are third-party, like, at-home tests that, you know, you can go to our, the Cue shop online, you can order it, and what happens is. Let's take food sensitivity, for example. You order the test, it comes in a prepackaged envelope to your doorstep. You do the test, send it back to a Clearwave lab, get the results on the phone, on your phone, and then you can speak to a doctor then, and then if there's anything, they need to send any prescription, et cetera, they would do that. You know, you can kind of close that loop.
You know, we think that's a great value proposition for the customer. As we move forward, you know, we do think that this will start contributing to our revenue, not only from a DTC channel, even as I mentioned before, from an enterprise standpoint. You know, it's early days right now, you know, because it's, we just launched, but as that becomes a more sizable part of our revenue base, we'll be happy to talk about it more.
Okay. We'll wait on that then. On Cue Pharmacy, I think there's some really good connectivity you had with the antivirals on the COVID side. Maybe talk about how you feel that business gets built out, and how dependent is that upon the menu expansion? Is there a respiratory or other indications that will be important driver for Cue Pharmacy?
Yeah, I think the way to think about just our treatments platform in general, yes, you know, it's plugged in. You know, if you have COVID, you speak to a doctor through our telehealth, get Paxlovid, then delivered to your doorstep. There's that element to it. What we recently launched, which with Cue Pharmacy. There are other health and wellness conditions, there's ED, hair loss, birth control, et cetera. You know, that's another piece where, you know, we think it's a large underserved market, and I think what's really interesting about Cue Pharmacy is kind of a lot of the work, the, you know, the software development work, et cetera, that's already done, right?
So as, as we move forward over time, you know, adding more products to Cue Pharmacy, the lift for that is, uh, uh, relatively low. So we, we view Cue Pharmacy, Cue Lab, as really kind of a flywheel for, for Cue as a company. So, you know, we think of diagnostics, the Cue Health Monitoring System, kind of the center of the flywheel. People come in, uh, you know, their first, like, interaction with Cue is the Cue Health Monitoring System. They come in, we then, you know, we brought in, we got telehealth, uh, treatments, then we, uh, branched or, or we, uh, launched Cue Care, Cue Pharmacy. So we really think there's this flywheel effect, and as that gains momentum, uh, we think that over time increases the lifetime value of a customer, decreases customer acquisition costs, et cetera.
I think they all kind of go together.
Just going back to Cue Lab for a second, on the pricing side, is sort of the goal to get kind of within co-pays in order to make that more attractive for consumers? Or is there an element of some of these might be some level of reimbursement or FSA or whatever?
Yeah, I mean, you know, for now, you know, it's kind of cash pay. I think over time, there's a level of reimbursement that could come towards it. I think that's kind of TBD on when that happens. I think just overall, as we think about pricing, we look at pricing very carefully and want to be priced competitively.
Got it. Just as you're thinking about in your role as CFO, sort of the cost reduction programs that you've enacted, maybe talk a little bit about what kind of impact we should see and expect from a cost savings perspective, based on the number of cost reduction programs you've already enacted?
Yeah, look, I mean, we, you know, we made some very difficult decisions, early this year, where we, you know, we are reducing our kind of cost structure by about $150 million on an annualized basis. In Q1, we already saw a 23% reduction versus Q4 on our OpEx line. We achieved about $100 million of it in Q1, and we expect to achieve the, you know, the rest, $50 million, over the course of the year. You know, we're comfortable with our cost structure as is right now, with the reductions we've already made.
We're comfortable that with this cost structure, we'll be able to kind of play out our goals, you know, whether it's menu expansion, you know, commercialization of menu, the launch of Cue Lab, Cue Pharmacy, et cetera. You know, we feel confident in our ability to kind of hit all those milestones that we publicly laid out within our current cost structure.
Was there any level of reprioritization of the pipeline as you were thinking about these cost reductions? You've been talking about these specific tests that you outlined for some time now, so it doesn't seem like it, but I'm just wondering how you were thinking through balancing the cost reductions at the same time of making sure that you're innovating and, and filling that pipeline.
Yeah, I mean, the way to think about it is, you know, where our spend is going. You know, we are always focused on our key priorities. There's just a lot more focus on that. You know, as we think about our spend, you know, I spoke about CapEx earlier, that's behind us. Our really initial push on R&D is behind us. As we look forward, you know, from a prioritization standpoint, we're really prioritizing what we believe will be near-term revenue generations. That's, you know, if from a prioritization standpoint, those are the choices we've made. We want to focus on kind of near-term things that will or projects that will drive near-term revenue.
Got it. In that context, on the commercial side, as you're kind of addressing different end markets, how flexible can you kind of redeploy the commercial teams from maybe one end market to the other based on where you're sort of seeing success? Is that something that you guys can do, and is it something you've thought about?
Yeah, I mean, you know, it's kind of the same commercial team that, you know, that helped us get the levels of success we did in COVID, during the COVID times, right? We had success across the board, enterprise, point of care, direct to consumer, and even in the public sector. You know, we believe that our commercial team is set up to succeed in kind of each of those sub-segments within the private sector and potentially in the public sector as well.
Just on connectivity, one of the things that I think has resonated with customers is the level of connectivity, and ease of use feeds into that as well. As you address different end markets, is there a certain different expectation for what level of monitoring and connectivity you have to have? I guess the better question is, how scalable is that connectivity and software platform that you have to be able to address different end markets and different needs?
Yeah, I mean, you know, we've the connectivity has been, you know, a big part of, you know, why we've seen the success we have. From a scale standpoint on the different kind of end markets, that connectivity will be kind of the backbone of kind of how we approach each of our markets.
Got it. Just going back to the, to the flywheel you talked about, which I think is a really important aspect, particularly as Cue Lab kind of gets ramped up. How do you see that sort of ideal flywheel in terms of going from Cue Lab, Cue Pharmacy, and then the Cue Health platform? You're kind of approaching what you had originally talked about, I remember, during the IPO process of creating this integrated healthcare model. I feel like Cue Lab is a really important part of that piece. Maybe talk about sort of, as you envision, sort of the menu expansion rolling out over the next 12 months, what are sort of the advantages of that flywheel approach that you guys have?
Yeah, I think the fundamental advantage here is, you know, what we don't want is someone, you know, comes to Cue and there are just a few tests, and that's it. They come to Cue, and then they go somewhere else for something else, right? The idea with Cue Lab, Cue Pharmacy, you know, telehealth, being able to do e-prescription, getting delivered to your home, the idea is that we become a, you know, a place where people come for most of their healthcare needs. And I think, you know, you're right, at the time of the IPO, that's something that was a vision. This was, you know, less than two years ago, it was a vision. That's playing out now, and that all of this is kind of a flywheel is built.
Now we're kind of moving towards the execution side of things.
Got it. Maybe, just shifting to the balance sheet and how you're managing that in the current environment. You talked about, breakeven kind of targets that you have in 2025. Maybe talk about sort of, how are you making sure you're still innovating, competing with the financial resources you have today, and how are you thinking about the balance sheet?
Absolutely. You know, the good thing is we have a strong balance sheet. At the end of Q1, we had about $180 million of cash. We don't have any debt on our balance sheet, really strong balance sheet with a lot of our really heavy lift in terms of spend behind us, while we expect revenue catalysts ahead of us. You know, we feel like we're in a really good spot as we sit here right now with all of these revenue catalysts ahead of us. You know, I think from a balance sheet standpoint, we feel comfortable in terms of innovation.
As I said, you know, our priority is, you know, where do we kind of invest to get, you know, from a more near-term revenue, generation standpoint? That is, you know, that means we do continue to innovate, right? Again, all the tests that we have in front of the FDA, all the tests that we expect to submit to the FDA, you know, we're not backing off of those because we think those are kind of really central to the Cue story and, you know, will be real catalyst to success for Cue.
Got it. Just in the time we have left, one final question. In terms of what do you feel is most misunderstood about Cue? What would you like investors to kind of have a better understanding of about the business and your forward?
I mean, I think it comes down to, I think, you know, we've had a lot of success in, from, in COVID in the last two years, but we're so much more than a COVID company. With all the menu that we expect to have with, you know, like, as I said, three tests approved from the FDA, three in front of the FDA, two that we'll submit in the second half of the year. You know, we've launched Cue Lab and Cue Pharmacy, which we believe are really large markets that are underserved. I think, you know, there's just so many, I would say, catalysts ahead of us that I think will really kind of help drive growth and help drive success for the company.
Great. With that, we'll leave it. Thank you very much, Aasim.
Thank you.
Thanks, Aasim.