Thank you everybody for coming. My name is Tim Daley. I'm the life science tools, diagnostics, and pharma services analyst here at Wells Fargo. This is the Wells Fargo 2023 Healthcare Conference in Boston, and we are pleased to have here with us Cue Health. We've got Aasim Javed, CFO, and Lorna Williams, IR, and representing Cue. A lot of exciting stuff going on with the company. You know, some new money from the government, a lot of stuff in the pipeline. You know, wanted to hand it over just to, you know, give us a little rundown of updates, and then we'll dive into questions.
Yeah, perfect. Thanks, Tim, first off, for inviting us. We're super excited to be here, you know, to talk to you and to talk about Cue in general. So for those who don't know us, right, Cue, Cue Health is a healthcare technology company with a mission to empower people to live their healthiest lives. We all know most health journeys start with diagnostics, and our belief is that the diagnostic system doesn't work very well currently. In other words, it's broken. And why do we believe that? We think it's centralized, it's not efficient, and it's expensive, and in that, you know, from the time that people feel their first symptoms to the time they get test results or treatments, it could be several days or even more than a week in the current system.
But what we have, we're able to kind of change that, in that, you know, you can test from home, get your results in a very quick, easy, accurate fashion, whether you're at the doctor's office or at home, and you get the results right away. So, you know, we're really excited about the technology, and I've actually brought a reader here and a cartridge. So what we have here is the reader, which what we call is a Cue Health Monitoring System. So this, as you can see, fits in the palm of the hand. And this reader reads not only the test that we have approval for currently, which is COVID and Mpox, it will also have the ability to read tests that we have in front of the FDA, as well as our future test menu.
So once, you know, as a customer, once you buy a reader, you don't have to rebuy a reader. It's really the cartridges that you'd have to purchase. And the way it works is, say, you know, this is the cartridge in my right hand. You know, you insert the cartridge in the reader, you swab, and put the swab in the cartridge, and that's all you need to do. Once you've done that, you kind of wait for, like, the COVID test that we have, you wait for 20 minutes, and the result comes on the phone through Bluetooth. And you know, we think that's really powerful. And once you have the result on your phone, only a couple of buttons away, and you, you can speak with the provider. Provider can write a prescription, prescription can get delivered to your home. So you...
You know, if you feel unwell, you really don't have to leave the comfort of your home. So we think that's a really good value proposition. Not just for the at-home setting, but it's a great value proposition in the point-of-care setting as well. Next piece I want to talk about is our menu. So today, we have approvals for COVID and Mpox, but what we have in front of the FDA right now is a flu COVID multiplex test, which we've said, you know, we believe that we expect to have that approval for this respiratory season. We have RSV standalone and flu standalone also in front of the FDA. We'd expect to get those approvals after the flu COVID approval comes through.
And what we expect to submit to the FDA in the near future is chlamydia, gonorrhea multiplex test in Q4 of this year, and followed by strep. And then we've also added, you know, to our system, basically to our business, two other kind of rungs of the business. One's called Cue Lab, and one is Cue Pharmacy. So what Cue Lab is, it's at-home test kits. So you could go to the Cue Health shop online and order these at-home test kits. These are third-party test kits, but again, gets delivered to your home in a prepackaged envelope. You do the test, gets sent to a lab, and you get the results on the phone, and then you can kind of do that whole loop again. Same with Cue Pharmacy.
That Cue Pharmacy is really about for kind of health, you know, common health and wellness conditions. Think, you know, ED or hair loss. The beauty of having Cue Lab and Cue Pharmacy is, A, it, you know, will help diversify the revenue base. Secondly, these are large and growing markets. And thirdly, Cue Lab and Cue Pharmacy is really built on the infrastructure that we had already built to kind of close the loop and have that connectedness. So, you know, hopefully that gives a bit of an overview of kind of our technology, where things are, and happy to answer other questions.
Yeah, no, that was a great intro. And again, it, it's fantastic. This is the first time I've been able to handle the reader in person, and it is mind-blowing how small, compact, and sleek the operations and the steps are for, you know, the standard user. So, kudos to that, and the design is pretty cool, as we were just talking about. But so, you know, just to kind of get down to digging into these submissions, the menu expansion plans that you've got in front of you. You know, flu/COVID combo, just wanna really dig into, you know, the advantage of that. You know, RSV obviously down the pipe. That obviously last year was a pretty significant upside to, you know, the historical market size of RSV testing.
So, you know, why flu/ COVID first, and why, you know, RSV flu standalone after? Is there any, you know, regulatory streamlining going on, anything along those factors impacting the cadence?
Yeah, I think the way, you know, we think about how we prioritize our tests, right? We really think about, you know, where's the market at, you know, what you know, what's the awareness for certain tests. If you think about most of the time when people go to a doctor's office, it is for cold and flu-like symptoms. So which is why, you know, respiratory was the kind of first area that we tackled. And then, you know, furthermore, when we think about how do we, you know, how do we look at different tests, that's the market awareness. It is, you know, is there an intersection in that, can the test be used both at-home and point-of-care settings and useful both at-home and point-of-care settings? The reimbursement structure obviously plays a role, and most importantly, it's the...
Is there an actionability, and then that, you know, is there a treatment for the test that we are developing? Because, you know, our real value proposition is, you can get a test, accurate, quick, you know, you can get really quick answers, and if you have a treatment available, you know, that's really, really useful for the patient. So that's how kinda we overall think about how do we, you know, how do we prioritize tests. To your specific question on why the timeline the way it is, you know, it's really driven by FDA timelines. We submitted flu COVID, you know, early enough, so we expect that that would come first, followed by RSV and flu.
Got it. Okay. And then, you know, recently, about $26 million investment from BARDA for a full combo respiratory panel, so flu A, flu B, COVID, RSV. You know, if you get these submissions for the standalones approved, is there, does that streamline the, you know, full combo, or are there any? You know, just thinking about the technical hurdles, be it the trials or the regulatory framework, you know, if you have all the standalones already approved to do a full multiplex combo.
Yeah, we're, we're very excited about this, uh, BARDA contract. So as you mentioned, a $28 million contract. It's, you know, it's essentially a cost reimbursement. So for us to develop this test, take it to clinicals, and have an approval, uh, all of that gets reimbursed from a cost standpoint. So, you know, our initial estimate is, you know, we, we could have this, uh, ready, uh, at the, by the end of, uh, 2024. I think having approval, standalone COVID, standalone flu, standalone RSV, then the multiplex, I think those approvals help in, uh, you know, this, uh, this triplex kind of approval down the road. And we feel really good about our ability to kind of develop and then eventually commercialize. Because as you said, you know, not too long ago, RSV was making all the headlines.
Again, not too long ago, the triple-demic was what everyone was talking about. Being able to have that test in the not-too-distant future, we think it would be really good and, you know, really powerful.
Okay, that's helpful. And you know, the guidance, I think, is for $11 million-$13 million next quarter. You guys have talked to returning to growth in the second half of the year, with non-COVID testing contributing a small amount in the third quarter and then growing in the fourth quarter. Is that, you know, I guess, timeline or the magnitude of the fourth quarter impact really dependent on the timing of the approval? Or do you think that the timing of the approval will be adequate to capture the, you know, the real meat of the respiratory season?
Yeah, a few key things about our, our guide, right? So, as I said, $11 million-$13 million. You know, we've been saying for a while now that we expect to return to growth on a sequential basis in the second half of the year, and that's what our, our guide suggests. That, you know, we, we would have this, kind of growth quarter-over-quarter. From a non-COVID standpoint, you're right. You know, we expect to start to have that revenue in the second half, start small, and then grow from that standpoint. Of course, the exact timing of, you know, the date when we get our approval for flu COVID, does have an impact on what that magnitude could look like. But what I would say is, you know, from a manufacturing standpoint, you know, we're ready.
These are the same test, the same manufacturing plant and lines can produce all of our tests that are in development or/and that would get approved. So, you know, we're ready from a manufacturing standpoint. When we talk to our customers, you know, the number one thing that they're asking for is, is menu. So as soon as we get COVID flu approved, that would have an impact on, you know, what that ramp looks like from a revenue standpoint in the second half of the year.
Okay, that's helpful. And, you know, what's so unique about the reader and the, I guess, framework pipeline that you've built out here is, you know, the app, and I imagine a lot of data on the back end, which helps you inform, whether it be capacity planning or your own budgeting or your own forecasting. So I'd be remiss to ask if you've seen any inflection in the KPIs, given, you know, the recent headlines, new wave, if you will, a lot of high-profile positive cases over the past week. Is that something that you are able to monitor real time, you see, you know day-to-day basis. Just curious on thoughts around that.
Yeah, we, you know, do have our KPIs that we monitor. I think if we just step back, what I would say is that, you know, yes, overall testing demand, you know, testing volumes across the country are up. And that's also what kind of played into how we thought about our Q3 guide, right? Because as we exited Q2, we started seeing those volumes increase across the country. And if, you know, overall volumes increase, volumes for Cue would also increase.
You know, that, and the fact that we have a really large installed base, I think I haven't mentioned this yet, we have over 250,000 readers, in doctor's offices, in people's homes in the country, and that large installed base, allows us to kind of, drive from a volume standpoint. So you're right, you know, as more, as the positivity rate increases, as volumes across the country increases, we, our testing volume, would also increase accordingly.
Okay. Well, that's interesting. Yeah, I actually had a large, high throughput, multiplex player earlier on the fire side, and they were kind of suggesting that it's mostly going to the point of care, at least, in terms of this, this round. So does set up pretty well. But I did wanna transition that to, you know, pull through the install base. So, you know, rapid growth in the install base, you guys are placing, you know, 90,000, 70,000 in the quarter, during peak COVID. You know, how large can that install base get, if we, maybe even if we isolate, I think you have 12% in the OTC or DTC market, like, how penetrated could the reader get? Do you guys have scrapped out those numbers or?
Yeah, we are, you know, we have, haven't discussed, you know, where we think the reader install base will or can get to, but what I would say is, you know, when the pandemic hit, right, that was the time where our, you know, the design, the intuitiveness of our whole platform, that's what allowed us to not only get the really high install base of over 250,000 readers at over 300 customers. And I think, you know, as we get more menu, it will spur more demand, not just from a cartridge standpoint, but from a reader standpoint as well.
So if you think about, you know, the at-home setting, we think, you know, we, because of our connectedness, being able to do kind of telehealth and then treatment delivered to you, there's a real value proposition in the at-home setting. So as we have more cartridges or more menu, we think we'd be able to kind of install more readers at the at-home setting. And when you think about point of care, which we think is a, you know, really large market, reimbursement is kind of plumbed in, which is great. And when you think about where we stand versus our, you know, the more established peer set, you know, we have some distinct, you know, we stack up really well from the footprint of the reader, the cost of the reader, accuracy is great, et cetera.
The only place, the only area that we are a little behind versus some of the more established peers is menu.
Mm-hmm.
As we get more menu, and we think we're making great strides, and in the not-too-distant future, we would have caught up or maybe even gone ahead from a menu standpoint. At that point, I think we'd have a really good opportunity to kind of get back into that reader placement growth mode, which, you know, which we had not too long ago.
Mm-hmm. Okay, no, that's helpful. And, and yeah, again, the complexity of it, I know, you know, Danaher's Cepheid is a, I think, medium complexity, so there is an added level of regulatory scrutiny or steps that you need-
Mm-hmm
... to really operate this thing at a low-skilled labor setting.
Yeah.
Appreciate that. And then, you know, reimbursement, if you could kind of just update us where, you know, what's your reimbursement today on a COVID-only versus, you know, the tests that are coming through the pipeline, be it standalone, multiplex, that'd be great?
Yeah. I think COVID-only reimbursement rates are, are around the $50 mark. When we think about flu, COVID, multiplex, I believe that reimbursement rate is, you know, give or take, around $140. And some, some of our other tests that we have in the pipeline, those are, those are north of $50 as well, you know, about $70 or so. So, you know, reimbursement rate as well, you know, as I said, they're, they're plumbed in and, you know, and they're established for kind of all these tests that we are, you know, that we have in front of the FDA and we- and the ones that we expect to have in front of the FDA, shortly.
Okay. Well, that's helpful. And just thinking of, as we add plexes, you know, the BARDA program, is that another $50 on top of it? You know, if we take flu, COVID, and then add RSV on top of it, is that just the way to think about it as you stack-
Yeah
- the multiplexes on?
I think, you know, directionally, what we've seen so far, I mean, if you just look at, you know, flu, COVID, which is, give or take, around $140, standalone, COVID at around $50. So I think directionally, as you add plexes, it appears that, you know, the reimbursement rate would increase. So I think that directional thinking is right.
Okay. All right. That's helpful. Again, as I was saying, I was noodling around with the numbers and you know, the pull-through rate, if you will, you know, you guys disclose disposable test cartridge revenues quarterly. You know, we have the reader count, so I think it was you know, $30-ish in 2Q versus you know, $80-ish the prior quarter and $200 during you know, really high volume pre-COVID. You know, what is a good average pull-through per box, if you will, you know, from a you know, per test or you know, on the full suite once everything's out, you know, in a couple of years from now?
Yeah, I think the way to think about it is, you know, how does pull-through look like in each of the settings, right? So, you know, when we step back, what do we think about, how do we think about our customer categories? There's the public sector, right? And then there is the private sector. And within the private sector, we have enterprise, direct-to-consumer, and then the provider setting. You know, if we just focus in on the private sector, you, as you would expect, the provider setting would have the highest pull-through. You know, if a doctor has a reader, they're, you know, they're doing multiple tests on that reader, you know, almost every day, so you, you'd have a high pull-through on that.
As you look at the enterprise and direct-to-consumer setting, those pull-throughs will be relatively similar over time, again, once we have a broader suite. You know, maybe a little bit higher on enterprise versus direct-to-consumer, especially if the, you know, enterprise is paying for the test.
Mm-hmm.
But, you know, directionally, I think direct-to-consumer and enterprise, relatively in the same ballpark, provider setting, a lot higher from a pull-through standpoint, kind of exactly what we expect or how we measure that. It's not something we've talked about publicly, but at the right time, we would discuss that.
Okay. No, no, that's, that's helpful. And I think you guys have mentioned, so the 12% of the install base, that's at 260-270-ish thousand, is DTC, and you guys have sized the revenue to be similar in nature. Just curious, what's the provider, given we were just kind of talking about provider pull-through, would be significantly higher? That would maybe suggest that provider has really some upside potential, or I guess, in terms of just general market penetration. Is that the right way to be thinking about it, as we sit today?
Yeah, as we sit today, and then we've even spoken about this, in the past, where we do think the provider setting is, you know, is a large opportunity for us. You know, because, as I said, I think we stack up really well against our competitors or our peers. It's just menu.
Mm-hmm.
You know, once we're able to get menu, I think we have a real good opportunity here on both kind of brownfield opportunities as well as greenfield opportunities. So I think, you know, where you're going with and your instinct on the, you know, the opportunity in the provider setting, we definitely believe that there's a, you know, quite a bit of an opportunity there.
Okay, great. And then, you know, moving over to, you know, non-respiratory. So, you know, within the reader, you guys are working on chlamydia, gonorrhea. You've got strep down the road. Just curious about how you think about the size of these markets, you know, for your application. So more of like a SAM rather than a TAM, if you will. Are they comparable? Is sexual health, you know, materially smaller, materially larger? Any kind of help there?
Yeah, I think, you know, overall, we've, we've spoken about, you know, the respiratory, the current respiratory TAM, if you will. It's a large market, you know, from... And we've, we've talked about overall, a $7 billion market that we believe is there on the respiratory side. On the sexual health side, I think there is, there are two things. There are, you know, the market we believe is large, but I also think there's an opportunity here, especially when you think about doing sexual health tests at home, where there's an opportunity for the market to grow. You know, sexual health is one of those tests that, you know, a lot of people would prefer to do those at home, versus going to a doctor's office. I think overall, both markets are large.
I think currently, respiratory market is probably a little larger than the sexual health market, but I think, again, those are large enough markets and, you know, our product stacks up really well, for us to gain share.
Okay, that's helpful. And I think, you know, moving over to Cue Lab and Cue Pharmacy here, so really interesting concepts. Just, are these, you know, more of like a, an add-on, a way to supplement the kind of core of the business, or are these truly, you know, true growth vectors, profit centers? Just how should we think about, you know, the potential size of these two businesses in the future?
Yeah, I mean, both these, I mean, Cue Lab and Cue Pharmacy, I mean, these segments or these markets are large and they're growing markets. So for us, you know, as we thought about launching this, we, you know, it's really... We're just using our existing infrastructure.
Mm-hmm.
So we built the infrastructure to have everything connected, and then Cue Lab and Cue Pharmacy just uses that same infrastructure. So adding more products on Cue Lab or adding more products on Cue Pharmacy is actually not a heavy, heavy lift for us. So as, as we sit here and we think about kind of what does Cue look like in the future, you know, these two aspects can become a material part to our top line. And also, you know, right now, a lot of our test menu is respiratory.
Mm-hmm.
What Cue Lab and Cue Pharmacy can do is also, you know, take away those fluctuations over time that you would otherwise have in a company that has a lot of revenue related to respiratory.
Okay, that's helpful. And then, you know, within Cue Health at Home, I think you have 13 at-home test kits offered. Just curious, is there an ambition in the future to bring those onto the reader or, or is there, you know, technical limitations or, cost throughput? Anything on that front?
Yeah, those tests are third-party tests. So, you know, that remains kind of third-party tests that, you know, we source, and we can sell through our shop. Now, we have our pipeline, you know, we've talked about respiratory, sexual health pipeline that we've been talking about. So from our platform, I think what's really interesting about our platform is there's a lot of versatility. So what I mean by that is, you know, right now we're, you know, really focused on respiratory and sexual health, but there's versatility in that, you know, our Cue Health Monitoring System, we could have, you know, immunoassays, so cholesterol, HbA1c. Then there's versatility in the way we collect, right? So we can do swab, blood, urine. So the opportunity set is large for our development.
You know, we're evaluating, and once we have kind of more milestones and specific tests to speak about for our future milestones, we, we'd be happy to do so.
Okay, perfect. And I did want to move over to costs, margins. So, you know, big milestone here, $150 million annualized cost savings. You know, can you kind of just run us through cash burn, you know, cost savings initiatives, what has been done, what's maybe potentially left to go? You know, is all the low-hanging fruit picked or, or, you know, is there still some, you know, easy wins, if you will, on the cost front?
Yeah, look, we made, we made some tough decisions early this year. You know, we, you know, we took out $150 million of costs on an annualized basis, and we did it in a couple of quarters, so we did it sooner than what we had initially spoken about, and we came in at over $150 million. So if you just look at our OpEx line item, Q2 2023 versus Q4 2022, and Q4 is kind of what we use as a baseline, our OpEx is almost 40% down. And then you just look at our overall costs, right? So a lot of our costs are in the rearview mirror. So you think about manufacturing, we've built 17 manufacturing lines, you know, over $200 million of CapEx.
That's in the rearview mirror. So as we look forward, you know, we'd have very minimal CapEx, if any. So when we have all these tests come online and when we have ramp in volume, we don't need to do any CapEx. In fact, you know, our current manufacturing lines could produce, from a capacity standpoint, probably over $1 billion of revenue without us having to add manufacturing lines. The other really cool thing about our manufacturing lines is that each of our lines can build all of the tests that we've been talking about. So, you know, it's very automated, you can, you know, change what you're making, et cetera. And then when you think about the other really large cost that we've borne in the past, has been R&D.
And the first kind of leg of that R&D, we spent over $200 million on getting to where we have gotten to. But all these, you know, most of these costs are in the rearview mirror. As we sit here today, we have a lot of what we believe catalysts upcoming, both from a regulatory standpoint and revenue standpoint. So costs in the rearview mirror, cost structure having come down quite a bit, and then you have these kind of commercial and regulatory catalysts upcoming. I think that puts us in a, you know, healthy position as you think about cash flow, break even, et cetera. And we've, we've spoken about publicly that we do expect to be EBITDA break even in early 2025. So, you know, what does that all mean from a cash and cash burn standpoint?
You know, currently, at the end of Q2, we had about $130 million of cash. Every quarter, our cash burn has come down. We expect that trend to continue and, you know, and, yeah, and it will continue because we expect to have, you know, revenue catalysts. At the same time, we're always focused on extending cash runway. So, you know, that- that's something we just always will be focused on. And then finally, I'd say, look, you know, we, we always have been, and we continue to evaluate financing opportunities to bolster our cash position.
Okay. No, it's helpful. All right, and then just thinking about, you know, we've got a few minutes here. If we were to think about the R&D requirements for a new test launch, right? You know, $200 million of R&D cumulative, I think, spent, maybe that's five, six tests, kind of, you know, in the books, if you will, in terms of the heavy lifting on that front. You know, BARDA, roughly $30 million for the combo test. Is kind of that $30 million-$50 million range per test a good framework to think about for incremental menu?
Yeah, I think it's very dependent. It really depends on the kind of test, the number of analytes, on a test. Obviously, you know, if you have multiplexes, like for this BARDA, you would assume then, you know, you need more enrollees for a clinical study. So it really depends on that. But I think a couple of things that, you know, a lot of our tests so far, I think, what, flu, COVID, and now this, this BARDA contract, a lot of it, we've had funding for that in the past from, from BARDA, so that's obviously helped. And a lot of these costs, again, are in the rearview mirror. They're behind us.
On a go-forward basis, you know, we'll obviously evaluate what we want to do from expansion of menu, vis-à-vis what is the market for that menu, what is the cost for that to develop that menu, and how does that translate into what are. You know, what does that mean for our balance sheet and our runway and our P&L, et cetera. So, you know, we're very conscious about cash runway, keeping, you know, a lid on cost. So I think that evaluation will be ongoing, and as we have more to discuss on what our future menu looks like, we'll be happy to do that. But again, the good thing is, costs are behind us. There's a lot of versatility in our platform, as I discussed, so there's a lot of opportunity.
I think for us, we just, you know, we wanna be very thoughtful in what are the next kind of menu sets that we, we want to go after.
Okay. And we got about a minute and a half here. Just wanna touch on, you know, go-to-market, sales force. You guys do leverage healthcare distributors. And just curious, you know, the selling point for respiratory versus selling point for sexual health. Obviously, you've got incumbents in the sexual health space for the molecular side, who are pretty adamant that they're there to stay. Just curious on, you know, how to break into that market, if you will. And do you have the tools internally and your external partners to do so?
Yeah, I mean, we, you know, we have an established customer base of over 300 customers, right? And, and again, the number one thing that we keep talking to them, and they keep asking us, is, is menu. So, you know, we have good relationships on the enterprise side. Direct to consumer, as we discussed, is about 12% of our business, give or take. And then on the provider side, you know, it's, it's a combination of going through distributors, and we have relationships with all of the key distributors, then going and for the larger hospital systems, going directly to them. So I think it really comes down to, once we have menu, we believe we stack well, and we have an established customer base that is asking for menu.
I think the combination of that gives us belief and comfort that, you know, once we have this menu set, we expect to have this kind of revenue ramp. And that is also driving our comfort and thoughts around getting to that EBITDA breakeven or positivity in early 2025.
Okay, perfect. We are actually right on time, so that's good on us. Perfect. So thank you guys, obviously, for attending. Thanks, everybody, for listening and yeah, appreciate it.