Wells Fargo Securities Healthcare Conference 2023

Sep 6, 2023

You everybody for coming. My name is Tim Daly. 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 Q Health. We've got Assam Javed, CFO and Laurel Williams, IR, representing CUE. And a lot of exciting stuff going on with the company, some new money from the government, a lot of stuff in the pipeline. Wanted to hand it over just to give us a little rundown of updates and then we'll dive into questions. Perfect. Thanks, Tim, first off for inviting us. We're super excited to be here to talk to you and to talk about Q in general. So for those who don't know us, right, Q Health is a healthcare technology company with a mission to empower people to live their healthiest lives. If 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 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 Change that and that 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 result right away. So we're really excited about the technology and I've actually brought a reader here in a cartridge. So what we have here Is the reader, which what we call is a Q Health monitoring system. So this as you can see fits in the palm of the hand. And this reader read 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 as a customer, once you buy a reader, You don't have to rebuy your reader, it's really the cartridges that you'd have to purchase. And the way it works is, say, this is the cartridge in my right hand, 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 we think that's really powerful. And once you have the result on your phone, only a couple of buttons away and you can speak with the provider, provider can write a prescription, prescription can get delivered to your home. So 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 and 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 flu COVID multiplex test, which we've said, we believed that we would 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 chlamydogonuria multiplex test in Q4 of this year and followed by Strep. And then we've also added to our system basically to our business 2 other kind of rungs of the business. One is called QLab and one is Q Pharmacy. So what QLab is, it's at home desk kit. So you could go to the Q Health shop online and order these at home desk kits. These are 3rd party desk kits, Again, gets delivered to your home in a prepackaged envelope. You do the test, get sent to a lab and you get the results on the phone and then you can kind of do that whole again. Same with Q Pharmacy, that Q Pharmacy is really about for kind of health, common health and wellness conditions, think ED or hair loss. The beauty of having QLab and Q Pharmacy is, A, it will help diversify the revenue base. Secondly, these are large and growing markets. And thirdly, Qlab and Q Pharmacy is really built On the infrastructure that we had already built to kind of close the loop and have that connectedness. So hopefully that gives a bit of an overview of kind of our technology, where things are and happy to answer other questions. Yes. No, that was a great intro. And again, 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 the standard user. So, kudos to that and the design is pretty cool as we're just talking about. But so just to kind of get down to digging into these submissions, the menu expansion plans that you've got in front of flu COVID combo. Just want to really dig into the advantage of that RSV obviously down the pipe that obviously last year was a pretty significant upside to the historical market size of RSV testing. So why flu COVID first and why RSV flu standalone after? Is there any regulatory streamlining going on, anything along those factors impacting the cadence? Yes, I think the way we think about how we prioritize our tests, right. We really think about Where is the market at? What's the awareness for certain tests? If you think about most of the time that people go to a doctor's office, it is for golden flu like symptoms, which is why respiratory was the kind of first area that we tackled. And then furthermore, when we think about how do we look at different tests, that's The market awareness, it is is that intersection in that is can the test be used both 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 is there a treatment for the test that we are developing because our real value proposition is, you can get a test accurate, quick, you can get really quick answers. And if you have a treatment available, that's really, really useful for the patient. So that's how kind of we overall think about the How do we prioritize that? To your specific question on why the timeline the way it is, It's really driven by FDA timelines. We submitted flu COVID early enough. So we expect that that would come first Followed by RSV and Flu. Got it. Okay. And then recently about $26,000,000 investment from BARDA for a full combo of respiratory panels. So, FLU AVE, flu B, COVID, RSV. If you get these submissions for the standalones approved, is there does that streamline the full combo or are there any just thinking about the technical hurdles, be it the trials or the regulatory framework, if you have all stand alone already approved to do a full multiplex combo. Yes. We're very excited about this BARDA contract. So as you mentioned, dollars 28,000,000 contract, It's essentially a cost reimbursement. So for us to develop this test, take it to clinicals and have an approval, all of that gets reimbursed from a cost standpoint. So our initial estimate is we could have this ready at the by the end of 2024. I think having approval, standalone COVID, standalone flu, standalone RSV, the and the multiplex. I think those approvals help in 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, not too long ago RSV was making all the headlines. Again, not too long ago, the triple demic was what everyone was talking about and being able to have that test in the not too distant future, we think is it will be really good and really powerful. Okay. That's helpful. And the guidance, I think, is for $11,000,000 to $13,000,000 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 Q3 and then growing in the Q4. Is that timeline or the magnitude of the 4th 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 real meat of the respiratory season. Yes. A few key things about our guide, right. So as you said, dollars 11,000,000 to $13,000,000 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 guide suggests that we would have this kind of growth quarter on quarter. From a non COVID standpoint, you're right. 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 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, from a manufacturing standpoint, 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 what gets approved. So we're ready from a manufacturing standpoint. When we talk to our customers, The number one thing that they're asking for is menu. So as soon as we get COVID flu approved, That would have an impact on what that ramp looks like from a revenue standpoint in the second half of the year. Okay. That's helpful. And what's so unique about the reader and the, I guess, framework pipeline that you've built out here is 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 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 day to day basis. Just curious on thoughts around that. Yes. We do have our KPIs that we monitor. I think if we just step back, what I would say is that, yes, overall testing demand Okay. Our testing volumes across the country are up. And that's also what kind of played into how We thought about our Q3 guide, right. So that's we exited Q2. We started seeing those volumes increase across the country. And if you know, overall volumes increase, volume for Q would also increase. And 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 doctors' 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, as more as the positivity rate increases, as volumes across the country increases, we Our testing volume would also increase accordingly. Okay. No, that's interesting. Yes, and I was actually had a large high throughput multiplex player earlier on a fireside and they were kind of suggesting that it's mostly going to the point of care at least in terms of this round. So it does set up pretty well. But I did want to transition that to pull through the installed base. So rapid growth in the installed base you guys are placing 90,000, 70,000 in the quarter during peak COVID. How large can that installed base get if we maybe even if we isolate, I think you have 12% in the OTC or DTC market. Like how much how penetrated could the reader get? Do you guys have scraped out those numbers or? Yes, we haven't discussed where we think the reader installed base will or can get to. But what I would say is when the pandemic hit, right? That was the time where our the design, the intuitiveness Our whole platform, that's what allowed us to not only get really high installed base of over 250,000 readers had over 300 customers. And I think 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 the at home setting, we think 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 really large market, reimbursement is kind of plumbed in, which is great. And when you think about where we stand versus our the more established peer set, we have some distinct we stack up really well from the footprint of the reader, the cost of the reader, Accuracy is great, etcetera. The only place, the only area that we are a little behind versus more established players is menu. And as we get more menu and we think we're making great strides 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'll have a really good opportunity to kind of Get back into that reader placement growth mode, which we had not too long ago. Okay. No, that's helpful. And yes, again, the complexity of it, I know Dan Hirsch is a medium complexity. So there there is an added level of regulatory scrutiny or steps that you need to really operate this thing at a low skilled labor setting. So appreciate that. And then reimbursement, if you could kind of just update us where what's your reimbursement today on a COVID only versus the tests that are coming through the pipeline, be it standalone multiplex, that'd be great. Yes, I think COVID the Our reimbursement rate is around $50 mark. When we think about flu COVID multiplex. I believe that reimbursement rate is give or take around $140 and some of our other tests that we have in the pipeline, those are north of $50 as well, about $70 or so. So reimbursement rate as well, as I said, they're plumbed in and they're established for kind of all these tests that we are that we have in front of the FDA and the ones that we Back to have in front of the FDA shortly. Okay. That's helpful. And just thinking of as we add plexus, BARDA program. Is that another $50 on top of it if we take flu, COVID and then add RC on top of it? That just the way to think about it as you stack Flexos on? Yes. I think directionally, what we've seen so far, I mean, if you just look at flu COVID, which give or take around $140 standalone COVID at around $50 So I think directionally As you had plexus, it appears that the reimbursement rate would increase. So I think that directional thinking is right. Okay. All right. That's helpful. And again, as I was saying, I was noodling around with the numbers and the pull through rate, if you will, you guys disposable test cartridge revenues quarterly. We have the reader count. So I think it was $30 ish in 2Q first 80 ish the prior quarter and 200 during really high volume peak COVID. What is a good average pull through per box, if you will, from a per test or on the full suite once everything is out in a couple of years from now. Yes. I think the way to think about it is, how does pull through look like in each of the settings, right. So 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. Within the private sector, we have enterprise, direct to consumer and then the provider setting. If we just focus in on the private sector, As you would expect, the provider setting would have the highest pull through. If a doctor has a reader, they're doing multiple tests on that reader almost every day. So you would 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, maybe a little bit higher on enterprise versus direct to consumer, especially if the enterprise that's paying for the test. But directionally, you 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 it. Okay. No, no, that's helpful. And I think you guys have mentioned, so the 12% of the installed base, it's at 260,000, 270 ish 1,000 is DTC and you guys have sized the revenue to be similar in nature. Just curious, once the provider given we were just kind of talking about provider pull through would be significantly higher, that would maybe suggest that provider is 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? Yes. As we sit today and we've even spoken about this in the past, where we do think the provider setting is a large opportunity for us, because as I said, I think we stack up really well against our competitors or our peers. It's just menu. Once we are 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 where you're going within your instinct the opportunity in the provider setting. We definitely believe that there is quite a bit of an opportunity there. Okay, great. And then moving over to non respiratory. So 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 for your application. So more of like a SAM rather than a TAM, if you will. Are they comparable? Is sexual health materially smaller, materially larger, any kind of help there? Yes, I think overall, we've spoken about the respiratory, the current respiratory TAM, if you will. It's a large market from the We've talked about overall a $7,000,000,000 market that we believe there on the respiratory side. On the sexual health side, I think there is the 2 things. There are the market we believe is large, but I also think there's an opportunity here, especially when you think about doing sexual health test at home where there's an opportunity for the market to grow. Sexual health is one of those tests that 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 our product stacks up really well for us to gain share. Okay. That's helpful. And I think moving over to QLab and QPharmacy here. So really interesting concepts. Just are these more of like an add on, a way to supplement the kind of core of the business or are these truly true growth factors, profit centers. Just how should we think about the potential size of these two businesses the future? Yes. I mean both of these, I mean Q Lab and Q Pharmacy, I mean these segments or these markets, AR large and the growing market. So for us, as we thought about launching this, it's really we're just using our existing infrastructure. So we built the infrastructure to have everything connected and Q Lab and Q Pharmacy just uses that same infrastructure. So adding more products on QLab or adding more products in Q Pharmacy is actually not a heavy lift for us. So as we sit here and we think about kind of what SKU look like in the future, these two aspects Can become a material part to our top line. And also right now, a lot of our test menu is respiratory. What QLab and QPharmacy can do is also 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 within Q 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 on to the reader or is there technical limitations or cost throughput, anything on that front? Yes. Those tests are those are 3rd party tests. So That remains kind of 3rd party test that you resource and we can sell through our shop. No, we have our pipeline. 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, right now we're really focused on respiratory and sexual health, but there's versatility in that our Q health monitoring system. We could have immunoassays, so cholesterol, HbA1c, Then there's versatility and the way we collect, right. So we can do swab, blood, urine. So the opportunity set is large for our development. We're evaluating and once we have kind of more milestones and specific tests To speak about for our future milestones, we'd be happy to do so. Okay. Perfect. And I did want to move over to cost margins. So big milestone here, dollars 150,000,000 annualized cost savings. Can you kind of just run us through cash burn, cost savings initiatives, what has been done, what's maybe potentially left to go, is all the low hanging fruit picked or is there still some easy wins, if you will, on the cost front? Yes. Look, we made some tough decisions early this year. We took out $150,000,000 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 $150,000,000 So if you just look at our OpEx line item, Q22223 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 over $200,000,000 of CapEx. That's in the rearview mirror. So as we look forward, 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, our current manufacturing lines could produce from a capacity standpoint probably over $1,000,000,000 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 it's very automated. You can Change what you're making, etcetera. And then when you think about the other really large cost that we've borne in the past has been R and D. And the first kind of leg of that R and D, we spent over $200,000,000 on getting to where we have gotten to. But all these most of these costs are in the rearview mirror. As we sit here today, we have a lot of what we believe catalyst upcoming both from a regulatory standpoint and revenue standpoint. So cost in the rearview mirror, cost structure having come down quite a bit. And then you have these kind of commercial and regulatory catalyst upcoming. I think that puts us in a healthy position as you think about cash flow, breakeven, etcetera. And we've spoken about publicly that we do expect to be EBITDA breakeven in early 2025. What does that all mean from a cash and cash burn standpoint? Currently at the end of Q2, we had about $130,000,000 of cash. Every quarter our cash burn has come down. We expect that trend to continue And it will continue because we expect to have revenue catalyst. At the same time, we're always focused on extending cash runway. So that's something we just always will be focused on. And then finally, I'd say, look, We always have been and we continue to evaluate financing opportunities to bolster our cash position. Okay. That's helpful. All right. And then just thinking about we've got a few minutes here. If we were to think about the R and D requirements for a new test launch, right, dollars 200,000,000 of R and D cumulative, I think, spends maybe that's 5, 6 tests kind of in the books, if you will, in terms of the heavy lifting on that front. BARDA roughly $30,000,000 for the combo test kind of $30,000,000 to $50,000,000 range per test, a good framework to think about for incremental menu. Yes, I think it's very dependent. It really depends on the kind of test, the number of analytes on a test. Obviously, if you have multiplexers like for this BARDA, you would assume then you need more enrollees for clinical studies. So it really depends on that. But I think a couple of things that a lot of our test so far. You think about flu, COVID and now this BARDA contract, a lot of it had we had funding for that in the past 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, we'll obviously evaluate what we want to do from expansion of menu vis a 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 what does that mean for our balance sheet and our runway and our P and L, etcetera. We're very conscious about cash runway keeping 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 will be happy to do that. But again, the good thing is cost 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 We want to be very thoughtful in what are the next kind of menu sets that we want to go after. Okay, and we got about 1.5 minute here. Just want to touch on go to market sales force. You guys do leverage healthcare distributors. And just curious, 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. We're pretty adamant that they're there to say. Just curious how to break into that market, if you will, and does it require do you have the tools internally and your external partners to do so? Yes, I mean, we have an established customer base of over 300 customers, right. And again, the number one thing that we keep talking to them and they keep Yes, it's menu. So we have good relationships on the enterprise side, direct to consumer, as we discussed, is about 4% of our business give or take. And then on the provider side, it's a combination of going through distributors and we have relationships with all of the distributor, all of the key distributors 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 Once we have this menu set, we have the we expect to have this kind of revenue ramp and that is also driving our comfort and thoughts around getting to that EBITDA breakeven of 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 yes, appreciate it.