Cue Health Inc. (NASDAQ:HLTH) is a healthcare technology company that is pioneering a new continuous care model through its Cue Integrated Care Platform. The company's platform offers individuals and healthcare providers convenient and personalized access to lab-quality diagnostic tests at home and at the point-of-care, as well as on-demand telehealth consultations and treatment options for a wide range of health and wellness needs.

In 2023, Cue Health reported total revenue of $70.9 million, with private sector revenue accounting for 89% or $63 million and public sector revenue making up the remaining 11% or $7.9 million. The company's test cartridge sales reached $58.5 million for the full year. However, the company faced significant challenges, reporting an annual net loss of $373.5 million and negative operating and free cash flows of $137.8 million and $157.6 million, respectively.

The fourth quarter of 2023 saw Cue Health generate $18.8 million in total revenue, with the private sector contributing 91% or $17 million of sales. Test cartridge sales in the quarter were $15.5 million. The company reported a GAAP net loss of $148.4 million or $0.96 per share in the fourth quarter, which included a non-cash impairment charge of $83.6 million for some of its manufacturing lines due to low current volumes. Adjusting for one-time charges, the net loss was $49.1 million or $0.32 per share, and adjusted EBITDA was a loss of $24.4 million.

For the first quarter of 2024, Cue Health is guiding for revenues between $9 million and $11 million.

Business Overview

Cue Health's Cue Integrated Care Platform consists of multiple hardware, software, and diagnostic components, including its proprietary Cue Health Monitoring System, Cue Data and Innovation Layer, Cue Virtual Care Delivery Apps, and Cue Ecosystem Integrations and Apps. The Cue Health Monitoring System is designed to deliver a broad menu of tests through one system, enabling both nucleic acid amplification (NAAT) and immunoassay testing modalities.

In 2023, Cue Health made significant progress in expanding its test menu and integrated care platform capabilities. The company obtained FDA authorizations for its molecular COVID-19 test and its molecular Mpox test, and submitted its RSV test and flu test for de novo approval. Cue Health also expanded its Cue Lab product line, now offering 16 home collection test kits across categories like heart health and sexual health.

On the treatment side, Cue Health has extended its electronic prescription and delivery capability beyond infectious diseases like COVID-19 and flu to include therapeutics for sexually transmitted infections, weight management, and cold sores. This integrated care approach allows users to conveniently obtain lab results, consult with clinicians, and receive necessary treatments.

Cue Health's strategy is focused on menu expansion for its Cue Health Monitoring System as its top priority. The company is making progress on several key tests, including:

RSV Molecular Test

Cue Health has submitted its RSV molecular test for de novo approval and expects a decision in the third quarter of 2024 after providing additional clinical data.

Flu Molecular Test

Cue Health has submitted its flu molecular test for de novo approval and is working to provide additional stability data as requested by the FDA, with a decision expected in the third quarter of 2024.

Flu/COVID-19/RSV Multiplex Test

Cue Health has a $28 million contract with BARDA to develop a combined flu, COVID-19, and RSV multiplex test for both at-home and point-of-care use. The company plans to start clinical trials this summer and aims to have the test on the market by the end of 2024 as an EUA, with a full clearance expected in 2025.

Herpes/Mpox Multiplex Test

Cue Health is in late-stage development of a Herpes and Mpox multiplex test and plans to submit it for EUA in the second quarter of 2024, with an expected authorization by the end of the year.

Cue Health has strategically decided to delay the start of clinical studies for its Chlamydia and Gonorrhea test in order to preserve cash in the near term, while remaining committed to the test's long-term development.

Financials

Cue Health's financial performance in 2023 was impacted by the tempering of COVID-19 testing demand, which resulted in a significant decline in revenue and profitability. The company reported annual revenue of $70.9 million, down from the prior year, with the majority of revenue coming from private sector customers.

The company's gross profit margin was negative 102% for the full year 2023, impacted by lower manufacturing volumes, excess inventory reserves, and a $12 million disputed payment charge. Adjusting for these one-time items, the adjusted gross profit margin was a loss of 50%.

Operating expenses for the year were $240.6 million, excluding cost of revenue and one-time charges. This included $32.6 million in sales and marketing expenses, $150.6 million in R&D expenses, and $57.4 million in G&A expenses. The company implemented a cost reduction plan in 2023, which resulted in over $200 million in annualized cost savings.

Cue Health ended the year with $80.9 million in cash on its balance sheet. The company's current ratio stood at 1.74, and its quick ratio was 1.0, indicating a solid liquidity position. However, the company's accumulated deficit of $443.1 million and negative cash flows raise substantial doubt about its ability to continue as a going concern.

Risks and Challenges

Cue Health faces several key risks and challenges, including:

Regulatory Approvals

The company's commercial success is dependent on its ability to obtain regulatory clearances, approvals, or authorizations for its existing and new product offerings. Delays or failures in this process could significantly impact the company's growth.

Reimbursement and Insurance Coverage

The commercial success of Cue Health's tests is dependent on customers' ability to be reimbursed by insurance or government payors. Unfavorable changes in coverage and reimbursement could adversely affect the company's business.

Manufacturing Capacity and Efficiency

Cue Health's performance is tied to its ability to manufacture products efficiently and at the required quantities to meet customer demand. Disruptions in the supply chain or manufacturing processes could impact the company's operations.

Competitive Landscape

Cue Health faces competition from other diagnostic companies, which could impact its market share and pricing power.

Liquidity and Going Concern

Cue Health's substantial accumulated deficit and negative cash flows raise substantial doubt about its ability to continue as a going concern. The company's ability to secure additional financing or achieve profitability is crucial for its long-term viability.

Outlook

Cue Health's focus on menu expansion for its Cue Health Monitoring System and the continued development of its Cue Integrated Care Platform are key priorities for the company. The successful execution of its regulatory and commercial strategies for tests like RSV, flu, and the combined flu/COVID-19/RSV multiplex test will be critical in driving future growth.

The company's ability to manage its cost structure and preserve its cash runway will also be essential in navigating the current challenging macroeconomic environment. Cue Health's guidance for the first quarter of 2024, with revenue expected to be between $9 million and $11 million, reflects the ongoing headwinds the company is facing.

Conclusion

Overall, Cue Health's progress in expanding its diagnostic capabilities and integrated care platform is commendable, but the company's financial performance and liquidity position remain areas of concern. Investors will closely monitor the company's ability to execute on its strategic priorities, secure necessary regulatory approvals, and achieve profitability in the coming years.