Goldman Sachs 44th Annual Global Healthcare Conference

Jun 14, 2023

All right. That's our Q. Welcome, everybody. I'm Matt Sykes, the Life Science Tools and Diagnostics Analyst at Goldman Sachs. And I have the pleasure of welcoming, Asim Javed, the CFO of Q Health. Thank you, Asim, 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 Q 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? Yes, absolutely. For people who are new to the Q Health story, we're a healthcare technology company with essentially we have diagnostic enabled care that allows people or empowers people to live their healthiest lives. And 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. And then on top of that, we also have treatments and prescriptions for a wide variety of health and wellness conditions. So as we think about our diagnostic tests, our current product offering, we had a COVID EUA approval. We were the 1st 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, 1st company to get a de novo clearance for COVID at home. And as we talk about COVID over the last two fiscal years, we did over $1,000,000,000 of COVID related revenue. Earlier this year, we got an MPOX test approved by the FDA as well. So, 3 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. So and as we look forward in the second half of the year, we expect to submit strep as well as chlamydia, gonorrhea. So that's kind of our homegrown kind of test menu that we've either submitted or expected to submit in the near future. As we think about what our real goals here in this fiscal year, it's really menu expansion. That's key to our success in driving our revenue. Along with that is our launch of Q Lab and Q Pharmacy. So Q Lab is at home diagnostic test kits, which the 3rd party tests, we have 13 of those tests So on our shop right now. So it really broadens the scope of what of our offering on our shop. And then we also launched Q Pharmacy, which is treatment options for things like ED, hair loss, birth control, etcetera. That's already launched and we recently launched that. And then the 3rd real priority for us is to really maintain financial discipline in this macroeconomic environment. Got it. Thank you. 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, flu COVID combo, strep, chlamydia, gonorrhea. How should we think about and 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 test 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, what are the catalysts for Q, right? Respiratory season and if 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. So going forward, we expect more non COVID revenue in the second half of the year. So as we sit here today, where we've what we've said before also is we're in this in between phase, in between the best we had from COVID in the last 2 years, as I said, we did over $1,000,000,000 of revenue to where we are right now, where predominantly, our revenue is COVID generated and 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. But as we look forward in the second half the year we expect revenue generation from COVID flu, our Q Lab and Q Pharmacy that we just recently launched, we expect that to also contribute from a revenue generation standpoint. So 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. While this is a competitive market, it's also a very large market. Could you talk a little bit about how CU is differentiated versus the current competition in the point of care market? Yes, absolutely. I mean, You're right. The point of care market is a really large market. We believe it's $20,000,000,000 market. And then in the tests that we will have in the near term, so COVID, flu, RSV, strep, tomato gonorrhea, we believe that market is around a $7,000,000,000 market. So all told, a really large market. And we think we have a good opportunity to win in the market. And why do we think we have a good opportunity to win is because of the unique value proposition that we have. And what I mean by that is our Q health monitoring system, it's small from a footprint standpoint. It's 3 inches by 3 inches and 1 inches height, right. So it's smaller than a cell phone. So the footprint is really small. You get fast and accurate results in a very timely manner. Though the ease of use and technology and the workflow is really easy. You can do a Q health test with in 5 steps, while some of our competitors, it's about 30 steps to do a test there. The other thing is our QHUG monitoring system from a cost standpoint, the list price is $200 we look at some of our competitors, pricing is in 1,000 of dollars, if not tens of 1,000 of dollars. So I think there And we do integrate with EMRs. So I think from there are lots of kind of benefits from a pricing workflow footprint standpoint to cube versus our competition, the only thing that we believe right now that some of our competition is ahead of us is menu. And that I just addressed that from a menu standpoint, we're making really good strides, 3 approvals, 3 in front of the FDA, 2 that we'll submit in the second half of the year. So 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. 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. But there's also a greenfield opportunity within point of care and pharmacies come to mind for 1, and you've already got sort of a relationship with Albertsons. But maybe help us maybe quantify what you think the greenfield opportunity is? Like, I believe there will be some level of displacement opportunity, but it frankly, it's probably harder then going into greenfield. So maybe help us kind of think about how you're thinking about that greenfield opportunity and point of care. Yes. I mean, from 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 reasonably less challenging to win in. We've had success in the retail pharmacy space. So I think from given our unique value proposition, given relationships we have, especially with the distributors, the large greenfield opportunity that does exist and we haven't quantified it before it's something that we think we can win in that market and be successful. And 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. Yes. From a revenue split standpoint, we've historically talked about Private sector, public sector, our private sector revenue encompasses enterprise, direct to consumer, as well as the point of care setting. So overall from a private sector standpoint, 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, that's a space where we think we can get a lot of growth in that space. And again, it comes back to 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. And then there's reimbursement plugged in and our pricing competes really well in that kind of reimbursement structure. So 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. And then 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 incredibly useful for the corporates at that time. But when we get beyond COVID, what do you think the applicability is in that corporate enterprise market? Yes. We from a kind of customer standpoint, if you take out our direct to consumer customer base, we have over 300 Right. And a lot of that are in the enterprise setting. And these the enterprises that kind of signed on with us for COVID, they all they understood the value of the platform, not just for COVID, but beyond COVID as well. So just like we're having this conversation on menu and what's to come and timing. Our sales force is having the same conversations with our customers. So the customers, the enterprise customers are very well aware of what our test menu looks like, what's to come. And we continue to hear from our customer base that they're really excited about our upcoming test menu. So kind of the short answer to your question is, we definitely think there's appetite there for our broader test menu within our enterprise, because a lot of these enterprises have really bought into 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 Qlab where we have 13 tests that we've launched. So it can kind of become a one stop shop for employees in those companies who really wanted to address several different types of health conditions. Got it. And then just shifting to the DTC market, we've long seen CUE Technologies resonating with this customer just given simplicity, speed, connectivity. How do you see this market evolving and how are you managing specifically sales and marketing spend to maximize the opportunity? Going after the TTC 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 TTC market today? Yes. I mean, if we think about it, if we kind of zoom out, In 2021, we a lot of our revenue was driven by the public sector. And we started building out our enterprise customer base at that time, we launched DTC. So we launched DTC in Q4 2021. And since then we've been very successful in the DTC market. We've done in 2022, we did about $40,000,000 of revenue In the DTC market and what we've also said prior that about 12% of our installed base is in the DTC market. What's how big is our installed base? It's over 250,000 readers is our installed base. So a large amount of readers is we've sold through our D2C channel. So these are customers who have cash paid, have used our COVID test, and they really like the workflow, they continue to reorder, etcetera. So 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, our current customer base, again, with the large installed base, I think that will continue to pull through. It's about attracting new customers. We'll be very thoughtful About our sales and marketing in this environment, 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 we'll be very, as I said, measured and thoughtful in how we do that spend. Got it. And then 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 story side. The subscription model with the story 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 customers than TTC given the respiratory seasonality? Absolutely. So I mean, from a pricing standpoint, our COVID test prices at about $50 in the DTC market. What we do have right now is less of a subscription for DTC. It's more of a membership model where you can buy a membership and you get a discount on things on our website, which includes Qlab, Q Pharmacy, etcetera. So we believe that membership model is kind of we've seen success in that and we believe that's a good model in the DTC channel. Got it. One thing that we've admired about Kew is the manufacturing capabilities and the modular production. And a lot of that you're 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? Yes. No, I'm glad you asked about it. Our manufacturing Facility, we have 17 manufacturing lines or we call them pods that are highly modular. We have these lines are in 300,000 square foot of space in San Diego. And we made this investment a couple of years ago. And what this investment does for us, it's, A, the lines are highly automated. So we have a ton of capacity in terms of production. Our capacity with these 17 lines is about 20,000,000 tests annually. So 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. So 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 at each of our lines can make each of our tests in our menu set that we are developing. All it requires is some change in biochemistry. So 17 lines can make all of the different products that we have. And I think as we go forward and as our as we get to our inflection point in revenue and we grow revenue, the ability to have manufacturing lines do different tests, I think will be a really competitive advantage for us. And one thing I want to address is it's kind of related to DTC market, but I think it's applicable to point of care as well is that, particularly on 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. And so our view is that that probably ultimately goes to a multiplex type of test. You clearly have the capabilities with the Flucova combo that you're working on. How are you thinking about incorporating multiplex into your menu over time, particularly on the respiratory side? Yes. Look, I mean, I think, as you said, with sorry, sorry. Yes. Look, I mean, I think, as you said, with cold flu symptoms, COVID symptoms, flu symptoms are similar. So we are really excited about our COVID flu product. It's only natural if you have cold like symptoms or like symptoms, instead of doing 2 separate tests, you do one test. So not just, I think, on the DTC side, just broader market. I think multiplex will there's a lot of potential there on the multiplex side of things. We will be submitting chlamydia gonorrhea, which is also a multiplex. So we haven't kind of publicly spoken about how many different types of tests we can do on our cartridges. But over time, we'll discuss that in more detail. But again, I think there's a lot of excitement internally. We know for sure on our flu COVID multiplex because I think the value proposition for that is really high. And just on COVID, how are you viewing sort of the endemic level of COVID volumes? And 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. But how are you thinking about endemic level of COVID? I mean, look, it's been an incredibly it's almost impossible thing to forecast on our side. I'm sure it's been for you. So 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? Yes, absolutely. I mean, look, it is difficult to forecast. There's a reason why we give forecasts we give guidance 1 quarter out and that will change over time as we have more products and more predictable revenue that's less seasonal, etcetera. Where we see things, we think as we sit here today, COVID is settling or has settled into kind of an endemic phase. So similar to flu, so every typical flu season, we'd expect those volumes to increase. So as I look at CUES revenue, budgeting, things like that, I think the second half of the year when we have flu COVID, when we have Qlab and Q Pharmacy, really kind of humming at that point. We expect to get 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. And maybe just shift to QLab, which was obviously a new development. You talked a little bit about it. It's very early days. So from 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 that, one of the competitors and I found the experience underwhelming in terms of, from a customer service standpoint. So talk about how you feel like Q can kind of win in that business and what do you think this could represent for Q? I understand it's going to be a nice revenue bridge to have as that menu gets expanded over time, but maybe talk about what your expectations are for QLab and maybe any early feedback that you've gotten? Absolutely. So let me first zoom out and just talk about how QLab works, right. So we have 13 kind of these are 3rd party like at home tests that you can go to the Q shop online, you can order it. And what happens is, so 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 clear wave 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, etcetera, they would do that. But so you can kind of close that loop. So we think that's a great value proposition for the customer. As we look as we move forward, 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, this is more kind of offering. So it's Early days right now, because 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. I'll wait on that then. On Q Pharmacy, I think there there were 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? And is there a respiratory or other indications that will be important driver for Q Pharmacy? Yes. I think the way to think about just our treatments platform in general, yes, it's Plugged in, 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. But then what we recently launched with Q Pharmacy, the other health and wellness conditions is ED, hair loss, birth control, etcetera. So that's another piece where we think it's a large underserved market. And I think what's really interesting about Q Pharmacy is kind of a lot of the work, the software development work, etcetera, that's already done, right? So As we move forward over time, adding more products to Q Pharmacy, the lift for that is relatively low. So we view Q Pharmacy, Q Lab as really kind of a flywheel for Q as a company. So we think of diagnostics, the Q Health Monitoring System, kind of the center of the flywheel. People come in, their first like interaction with Q is the Q health monitoring system, they come in, we then we brought in, we got telehealth treatments, then we branched or we launched Q Care, Q Pharmacy. So we really think there's this flywheel effect. And as that gains momentum, we think that over time increases the lifetime value of a customer, decreases customer acquisition costs, etcetera. So I think they all kind of go together. And then just going back to HuwLab 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? Yes. I mean, for now, there's it's kind of cash pay. I think over time, there's a level of reimbursement that could come towards it. But 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. And then 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? Yes. Look, I mean, we made some very difficult decisions early this year, where we are reducing our kind of cost structure by about 100 and $1,000,000 on an annualized basis. In Q1, we already saw a 23% reduction versus Q4 on our OpEx line. So we achieved about $100,000,000 of it in Q1 and we expect to achieve the rest $50,000,000 over the course of the year. So we're comfortable with our cost structure as is right now with the reductions we've already made. And we're comfortable that with this cost structure, we'll be able to kind of play out our goals, whether it's menu expansion, commercialization of menu, the launch of HuLab, Hu Pharmacy, etcetera, 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, 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 filling that pipeline. Yes, I mean the way to think about it is where our spend is going, where we are always focused on our key priorities. There's just a lot more focus on that. So as we think about our spend, I spoke about CapEx earlier, that's behind us. Our really initial push on R and D is behind us. So as we look forward, from a prioritization standpoint, we're really prioritizing what we believe will be near term revenue generations. So that's 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. And then 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 it's something you've thought about? Yes. I mean, we've It's kind of the same commercial team that helped us get the level of success we did in COVID during the COVID times, right. So and we had success across the board, enterprise, point of care, direct to consumer and even in the public sector. So we believe that our commercial team is set up to succeed in kind of each of those sub segments within the private sector and And potentially in the public sector as well. And then 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? Or 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? Yes. I mean, we've the connectivity has been a big part of why we've seen the success we have. So 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. And then just going back to the flywheel you talked about, which I think is a really important aspect, particularly as Qlab kind of gets ramped up, how do you see that sort of ideal flywheel in terms of going from Qlab, Q Pharmacy and then the Q 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. And I feel like QLab is a really important part of that piece. So 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? Yes. I think the fundamental advantage here is, What we don't want is someone comes to Q and there are just a few tests and that's it, they come to Q and then they go somewhere else to do something else, right? The idea with Q Lab, Q Pharmacy, telehealth being able to do e prescription getting delivered to your home. The idea is that we become a place where people come for most of their health care needs. And I think you're right, at the time of the IPO, that's something that was a vision. This was less than 2 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. And 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? Yes, absolutely. The good thing is we have a strong balance sheet. So at the end of Q1, we had about $180,000,000 of cash. We do not we don't have any debt on our balance sheet. So 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. So 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. So I think from a balance sheet price standpoint, we feel comfortable in terms of innovation. As I said, our priority is where do we kind of invest to get from a more near term revenue generation standpoint, and that is that means we do continue to innovate, right. So again, all these tests that we have in front of the FDA, all the tests that we expect to submit to the FDA, we're not backing off of those because they think those are kind of really central to the Q story and would be real catalyst to the success for Q. Got it. And then just in time we have left, one final question. In terms of what do you feel, is most misunderstood about Q? What would you like investors to kind of have a better understanding of about the business and your forward? Yes. I mean, I think it comes down to, I think, we've had a lot of success From COVID in the last 2 years, but we're so much more than a COVID company with all the menu that we expect to have with like as I said, 3 tests approved from the FDA, 3 in front of the FDA, 2 that we'll submit in the second half of the year, we've launched QLab and Q Pharmacy, which we believe are really large markets that are underserved. So I think, 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, Amit. Thank you.