Q4 2023 Cue Health Inc Earnings Call
Yeah.
Good day, and thank you for standing by welcome to the Q Health fourth quarter 2023 earnings call.
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After the presentation, there will be a question and answer session.
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Please be advised for today's conference is being recorded.
I'd now like to hand, the conference over to Caroline corner Investor Relations. Please go ahead.
Okay.
Good afternoon, and welcome to accuse fourth quarter and full year 2023 earnings conference call.
With me today are a M could talk chairman and Chief Executive Officer of QL, an awesome go bad Chief Financial Officer.
Before we get started let me begin by reminding you that we may be making forward looking statements, including statements related to the submission of any FDA application and expectations around breakeven clearance and the authorization expectations regarding production capacity expectations related to the availability of our programs and testing volumes.
The performance of our business future financial results and guidance strategy long term growth and overall future prospects as well as the impact of the COVID-19 pandemic.
The statements are subject to risks uncertainties assumptions and other factors that could cause actual results to differ materially from those described these risks and uncertainties include but are not limited to those outlined in today's call as well as other risks identified from time to time in our public statements and reports filed with the SEC forward looking statements that we make on this call.
Based on assumptions and beliefs as of the date. They are made and the company disclaims any obligations to update these statements except as required by law.
In addition on today's call non-GAAP financial measures will be used.
Reconciliations between GAAP and non-GAAP financial measures are included in our earnings release, finally, I would like to mention that the press release and a recording of this call are available on the Investor Relations page of our website.
With that I would like to turn the call over to Abe.
Thank you Caroline and thank you everyone for joining us today, we're excited to share our fourth quarter results and significant progress we made in 2023.
We reported total revenue of $19 million in the fourth quarter ahead of our guidance driven by strong pull through of our installed base of two meters and the continued adoption of our innovative integrated care platform.
2023 was a year of significant milestones for Q2.
<unk> FTA authorizations, specifically, a de novo approval for at home and point of care COVID-19, molecular test the first molecular diagnostic and the first respiratory tests average receive full FDA approval for home use and authorization for our molecular and box that are first sexual health tests.
In 2023, we also submitted our RFP test and fluid test for de Novo approval and were awarded a nearly $30 million contract from BARDA to develop all the way through to full regulatory authorization, a combined test for flu and COVID-19, and RSV for home and professional use.
In addition to our work on our flagship <unk> health monitoring system menu.
We also expanded our COO integrated care platform offerings significantly in 2023.
We now offer <unk> home collection test kits to our <unk> product line, including test kits for categories like heart health and sexual health.
Through Q App, we empower individual conveniently collect test samples at home obtain their lab results digitally and interact with clinicians for lab results interpretation and follow up actions.
Rounding out our offering on the treatment side, we've extended our original electronic prescription and delivery capability for infectious diseases. Like COVID-19 are clear to provide treatments for many more common health needs.
For example, our treatment offerings now include therapeutics for sexually transmitted infection <unk> for weight management and Antivirals for Coke source.
In short we're proud of the great progress, we made in 2023 and driving towards our vision of empowering people to live their healthiest lives.
And we accomplished all this while streamlining our operations over the last year, reducing our cost structure by over $200 million on an annualized basis.
These milestones have positioned us for an exciting 2024, and we are anticipating significant progress on our number one strategic priority menu expansion on the QF monitoring system.
Looking ahead now I would like to provide some updates on test menu expansion for the QF monitoring system.
First the Q RSP molecular test was submitted to the FDA for de Novo approval last may and we've received in response to FDA feedback. We were asked to provide additional clinical data, reflecting the addition of more intense and elderly into our clinical population.
We successfully executed the clinical studies to collect those additional data so very good performance and submitted the additional data to FDA.
We anticipate that an approval for RSP to come in the third quarter of this year. Once we have approval. It's our intention to immediately launch the test to our customers for use with our installed base of over a quarter million Q eaters. Additionally.
Additionally, we believe that approval of additional tests in our pipeline will help grow our installed base.
Our flu molecular test has also sent to the FDA for de Novo approval last year.
During the review process. The FDA asked that we provide a greater number of clinical samples for flu B, which has had a low incidence over the last three years with almost no circulation in the northern hemisphere.
We are conducting additional clinical studies in the southern hemisphere, and we're able to collect a sufficient number of flu b sample to meet the fda's requirement.
We are still working on providing additional stability data for higher temperature storage as requested by the FDA and thus we would expect it de Novo decision preclude later this year in the third quarter.
In January we announced that the FDA had declined tuition UA for our fluid Covid multiplex tests you may recall that this is our first multiplex test submission and thoughts, enabling us where both at home and point of care use.
This test performed very well in our clinical studies robust flu and COVID-19. However.
However, the feedback that the FDA had was primarily for us to use a different comparator tests for COVID-19 and to provide more real time stability data.
We're in active dialogue with the FDA to address these items, we hope to resubmit this application and achieve optimization in the second half of the year.
To complete our respiratory pipeline update we're making strides with our combined flu RSV and Covid all in one multiplex test supported by $28 million BARDA contract.
We plan to start clinical trials. This summer in the southern Hemisphere and aim to have this test on market by the end of 2024 as an EUA progressing to a full clearance in 2025.
We have planned this two stage approach to getting to market with a test and the program is funded through the <unk>.
Stage, one is the EUA regulatory pathway and in support of stage. Two we will continue our clinical studies through the respiratory season in the northern Hemisphere winter and plan to submit for full clearance next year.
Okay.
Moving to our menu expansion efforts in the sexual health category.
We are in late stage development and plan to submit our herpes plus embark multiplex test under the EUA.
We've had constructive conversations with the FDA regarding our validation plan for our submission.
Tests will allow us to build on our end parts authorization last year, just sort of a very large underserved chronic care herpes testing market.
With addition of herpes. This test has strong potential to be a go to test for anyone experiencing a region in the sexual health context.
We still plan to submit for EUA in Q2, 2024, and would expect to receive authorization by year end.
Moving to our chlamydia and gonorrhea tests, with Texas development complete and ready to enter into clinical studies, we have sites contracted and the IRB process is complete however, we strategically decided to delay the startup of our clinical studies for chlamydia and gonorrhea tests to preserve cash in the near term.
This action is similar to what we decided with the strep that program.
We remain committed to our full pipeline of respiratory and sexual health test, while being mindful of the need to balance near term costs and long term opportunity and feel we have a very strong near term pipeline in both categories.
As soon as we receive FDA authorizations, we will be ready to launch into our existing sales channels and then continued progressing menu expansion such as the chlamydia and gonorrhea and stress tested preclinical studies.
As a reminder, all of the QF monitoring system test show, the same cartridge backbone and manufacturing process, including our combined Blue Covid RSV test.
Our new testing products will be made on our automated production line without significant additional capital investment we've demonstrated reliable production at scale, having produced and sold over 17 million molecular test to date.
As I mentioned earlier, we've made significant progress on the queue integrated care platform or solution that seamlessly extend the capability of our foundational QF monitoring.
And its platform the platform enables end to end customer journey from obtaining an accurate diagnosis to computation with a health care provider through our apps to receiving treatment delivery or local pharmacy pickup.
We have integrated many of the building blocks of the last 18 months and 2022, we launched acute care, allowing for video consultation with clinicians and prescription delivery. Since then we've seen traction with our installed base and today, we offer test achievements across the care spectrum, including not just antiviral therapeutics ranging from <unk> one.
To treatments for STI.
In summary, 2023, it was a year of significant accomplishment by the team at Q are well positioned for an exciting 2024 with a much lower cost structure as we continue to expand our test menu drive adoption of our integrated care platform and empower people to live their healthiest lives.
We look forward to updating you on our progress in the coming quarters with that I'll turn the call over to awesome.
Thank you and good afternoon.
Let's walk through our fourth quarter financial results and first quarter guidance.
Curious fourth quarter total revenue was $18 $8 million compared with $17 $5 million in the third quarter of 2023.
In the quarter, a private sector contributed 91% or $17 million of sales.
Public sector revenues were $1 million for the fourth quarter.
Total desktop sales were $15 $5 million.
Q4 product gross profit was a loss of $18 4 million.
Adjusted for onetime inventory charges product gross profit was a loss of $2 7 million.
Gross profit is impacted by lower manufacturing volumes and includes non cash items.
Excluding depreciation amortization and stock based compensation.
Adjusted product gross profit would be positive.
Total operating expenses in the quarter were $48 $3 million, excluding cost of revenue and the noncash impairment of long lived assets.
Q4, operating expenses were down 49% from the year ago quarter due to our cost reduction efforts.
Sales and marketing expenses were $6 $2 million in the fourth quarter, a decrease of 68% from Q4 2022, driven by a decrease in payroll digital and marketing costs.
R&D expenses were $32 2 million for Q4.
He is a 43% from $56 $1 million of spend in Q4 2022.
We continue to remain focused on the development of our neocon menu.
G&A expenses were $9 $9 million during the quarter a decline of 48% from Q4 2022 spend of $19 2 million.
In the quarter, we recognized a noncash impairment charge of $83 $6 million for some of our manufacturing lines due to low current volumes.
Having said that these lines are usable once volume picks up.
As a result, GAAP net loss in the fourth quarter was $148 4 million.
Or <unk> 96 per share.
Adjusted for onetime inventory in noncash impairment charges net loss was $49 1 million or 32 cents per share.
Adjusted EBITDA was a loss of $24 4 million.
Moving on to full year 2023, Q as total revenue was $70 9 million.
Private sector revenue accounted for 89% or $63 million and public sector revenue accounted for 11% or $7 9 million.
Desktop sales were $58 $5 million in 2023.
Adjusted profit gross profit for 2023 was a loss of $35 2 million and <unk>.
Exclude the disputed vendor payment and onetime inventory targets.
Adjusted operating expenses for 2023 or $246 million, excluding cost of revenue.
Sales and marketing expense was $32 6 million.
R&D expense was $156 million.
G&A expense was $57 4 million.
Adjusted operating expenses exclude the previously mentioned impairment charge of long lived assets and restructuring expenses.
Adjusted net loss for the full year 2020 fee was $267 2 million or.
A $1 75 per share and adjusted EBITDA for the year was a loss of $163 $8 million.
Moving to the balance sheet, we ended the year with cash of $89 million.
Now I'd like to move to our guidance, we expect revenues of $911 million for the first quarter.
With that I would like to thank you for your attention and I will now turn the call over to the operator for questions.
As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced.
To withdraw your question. Please press star one one again.
Please standby, while we compile the Q&A roster.
Okay.
Our first question will come from the line of Joseph <unk> with Morgan Stanley.
Your line is now open.
Hey, Josh your line is open.
Okay.
Hi.
Our next question will come from the line of Mac Sykes with Goldman Sachs.
Hi, good afternoon, thanks for taking my questions.
And maybe just first for you just on menu expansion strategy just curious as how you are you are.
Thinking about it now I mean, I know you are.
Youre submitting additional information.
For the flu and RSV, but you've also got the BARDA contract for the multiplex test.
Is there a rationale for continuing the work on the Standalone test and not just skipping to the multiplex Kevin you've got the funding from BARDA like are there commercial reasons people still want to standalone costs or are you too far along in the clinical trial portion too.
Give up on the on the Standalone test I, just would love to get kind of your thoughts on how youre thinking about that.
Yes, Thanks, Mike.
Great. Thanks, Matt for the question with RSP, we do have the de Novo submitted.
We already went and got the additional clinical data for infinite intense in the elderly we submitted it we feel really good about the performance and we're just waiting for a decision at this point and with flu. We have submitted we went and got the additional flu b per the FDA request feel really good about that clinical performance and now we're just generating some.
The ability to temperature stability data higher storage temperatures.
And.
Not only does but we have the herpes and pox.
He is a super valuable.
This is a transformative offering offering there's really no additional point of care test and then as you pointed out blue coat RSV, it's a really great opportunity.
Excited fully funded by BARDA, it's in a really good place and.
So the way we look at combo test versus single task. They both have a place in the market.
There is no.
<unk> test for RSV in the home at all today.
I will test and then point of care as well. So yes, it's also risk mitigation strategy.
You have.
Of course, a lot of people prefer the flu COVID-19 RSV test over in <unk>, but at the same time.
Bring that test to market soon and then follow up with something Thats.
<unk> has additional capability, that's our strategy and from a reimbursement perspective, and the point of care and Theres different billing codes and.
So it can work really well to have the single.
<unk> assays as well as combo test.
Got it very helpful. Thank you and then just any color you can provide on sort of the performance <unk> sort of materiality of revenues into Q lab business.
Yes from Q lab pharmacy standpoint.
We launched that last year as you know we're seeing some good trends, we think it's a large market.
So we think over time this will be a meaningful part of our business.
At this point were not breaking out those revenues.
Revenues.
Got it okay. Thank you very much.
Our next question will come from the line of Mark Massaro with BTG.
Yeah.
Hey, guys can you hear me okay.
Yes, we can hear you.
Great.
Cool.
Could you remind me of the size.
The herpes and box market.
Your decision to delay the Cta.
<unk> clinical studies are.
Little bit surprising given that.
It's a well understood market, it's a very large market.
And so maybe could you just walk me through the rationale to delay the start of.
Of the <unk> clinical studies and maybe.
And I understand the rationale to preserve cash, but can you just give us maybe a ballpark sense.
What the clinical trial for <unk>.
Wood cost as you pursue it relative to some of the other studies like herpes at Amdocs.
Yeah. Good question. So herpes is the most common STD.
Chlamydia gonorrhea very comment as well, but herpes is the most common and the big difference here in terms of how we look at the.
Sort of near term opportunity and the cash needs is that theres, a EUA pathway for the Empire herpes combo, we already have the <unk> test authorized and we're just building on that to add the herpes.
Detection there so.
Very different.
Sort of regulatory costs clinical study type cost.
Comparison between herpes and box and Chlamydia gonorrhea chlamydia.
<unk> is a very attractive market as well.
But herpes and Pax has an opportunity.
A really really good market, but with a much different cost profile for getting it through authorization. So we see that as potentially much more and much more near term.
Revenue.
And with much less cash out to be able to get that validation done for authorization. So that's really the key dynamic at play.
Okay that makes sense and then maybe a question on the update that you provided on January four 2024.
With respect to the FDA feedback that you received.
I think you had indicated that.
The.
The EUA request was not a priority.
And so they decided they werent going to advance review of the EUA Covid.
You are planning to pursue herpes an impasse as an EUA.
Have you had conversations with the FDA about the EUA pathway.
Just curious what your confidence is that that would be a priority for the agency.
Yes, with fluke Covid, we feel really good about the performance the effectiveness and the value of that test in particular felt really good about the clinical performance, it's better than what we feel like we've seen in the market and it's been authorized so we have been working with the FDA. There is an active dialogue to see how we can get that test through the process and address the feedback that they have.
Provided.
And as a reminder, we do have the flu Covid RSV test in the way we are expecting to get that into clinical study. This summer in the southern hemisphere, and thats going to have a two stage approach.
<unk> pathway for it for this year, but we're also.
Going through all the way through the full submission and Thats all BARDA funded so.
With regards to.
The.
Sort of wording there.
They are still looking at <unk> and it's really just about addressing that feedback more than I think it is about how they pray.
Prioritize that.
That's the.
The length of their language, but I think that at the end of the day, it's really about.
Addressing feedback and getting the test through the regulatory process. So yes, certainly there are time to market advantages for the EUA process.
And so continuing to leverage that where we can.
But that's not in place of a de Novo, it's really just a staged approach that would say that.
As a sort of permanent.
Objective, it's sort of staged approach to getting to that full de novo like we did with Covid. We first got an EUA then we've got the de Novo for it.
Okay got it and then maybe one for awesome, just as we think about extending the cash runway. Obviously you announced another workforce reduction in January just can you give us a sense for.
Was that a $30 million use of cash in Q4, and maybe walk me through how youre thinking about.
<unk>.
The cash utilization per quarter here in 'twenty four.
Yeah, we've taken significant measures to reduce our cash utilization in fact, despite the decline in COVID-19 revenues across the industry in 2023, our cash utilization in 2003 was actually less than it was in 2022. So as you mentioned we've taken.
200 million out from a cost structure standpoint on an annualized basis and look going forward. We continue to remain very focused on our strategies are highlighted in our prepared remarks, and we continue to remain very judicious with.
Where we deploy on cash so continue to remain focused on.
The decrease in cash utilization and an increase in run rate.
Okay, but no no targets two.
To provide us with.
Yes.
Think about gosh.
Go forward et cetera.
We continue to decrease our cash utilization in one of the things I've mentioned in the Paas as well is we continue to evaluate.
Opportunities and options too.
Bolster our balance sheet.
Okay. Thanks, guys appreciate the time.
As a reminder, that is star one one to ask a question.
Our next question will come from the line of Joseph <unk> with Morgan Stanley.
Hello. This is Hugo on the call for <unk> I apologize for earlier, we had some technical issues on our end.
Couple of questions from me could you comment on your comfort with the pricing structure for both enterprise and consumer settings, and do you anticipate that current pricing for both the reader and the cartridges can still generate enough demand.
Yes.
The pricing that we have.
Adopted.
There's a lot of factors that go into that so we look at demand we look at also reimbursement.
And if you look at the reader in particular, you mentioned that if you compare that to other laboratory analyzers in the point of care space Youre looking at a literal order of magnitude difference and that sort of cost to get the reader versus the laboratory analyzers that have similar capabilities. So we feel really good about the REIT.
And the cost structure there and.
There are various programs in both the consumer side and the point of care side that allow the customer to get the reader.
At no cost and so.
Really what we are our goal is to increase the installed base because as we've seen as we've mentioned for Q4 still a lot of pull through on each installed.
Each reader thats in the field and so.
The dynamic with the reader is you want to get that out there and then you want to allow the customer to get value from that and continue to to purchase cartridges and that dynamic will be even better with more menu and so that's really what why menu expansion is our number one priority.
Because we want that installed base to pull through and get value out of a lot of additional menu items.
Got it. Thank you for that color and also earlier in the year you made some changes to your board of directors.
And you also plan to add additional independent director to the board in the future as well.
Since the changes to the board should we anticipate any meaningful changes to your business strategy. What are some focus areas that are in discussion.
We announced a few weeks ago that we entered into the cooperation agreement with heart failure to AD Board member Rishi.
And this is really so that we can move forward in harmony with our shareholders.
Really incorporate their point of view, we feel good that those conversations are now behind us in Q can execute on our strategy I think the show their commitment to working with our shareholders.
And one of the main agenda items that we've been hearing was cost structure needs to come down and we have been actively working on that last year and as I.
As I mentioned in my prepared remarks that we have achieved over $200 million of.
<unk>.
Cost reduction.
In the year so.
We think we're really.
Executing on what our shareholders want to maximizing the shareholder value with our approach of flooring.
Lowering the cost executing on menu menu expansion is our number one priority. So I think that what <unk> seen is that we have incorporated these strategies into our into our strategy as well.
Thank you.
Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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Okay.
Okay.