Q4 2023 Cue Health Inc Earnings Call
Participants
Caroline Corner; IR; ICR Westwicke
Ayub Khattak; Chairman of the Board, President, Chief Executive Officer, Co-Founder; Cue Health Inc
Aasim Javed; Chief Financial Officer; Cue Health Inc
Matt Sykes; Analyst; Goldman Sachs & Company, Inc
Mark Massaro; Analyst; BTIG LLC
Presentation
Operator
Good day, and thank you for standing by, and welcome to the Kew Health Fourth Quarter 2023 earnings call. At this time, all participants are in a listen-only mode. After the presentation, there will be a question and answer session to ask a question. During the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one. Again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Caroline Corner, Investor Relations. Please go ahead.
Caroline Corner
Good afternoon, and welcome to Kew's Fourth Quarter and Full Year 2023 earnings conference call. Joining me today are Eyal, Kotak, Chairman and Chief Executive Officer of Kew wealth, and awesome job Ed 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 applications and expectations around receiving clearance and authorization, expectations regarding production capacity, expectations related to the availability of our programs and testing volumes, the expected 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. These 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 are based on assumptions and belief 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 for 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 Herb.
Ayub Khattak
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 key leaders and the continued adoption of our innovative Q integrated care platform.
2023 was a year of significant milestones. For Q2, we obtained two FDA authorizations, specifically a denovo approval for at-home and point-of-care COVID-19 molecular tests, the first molecular diagnostic and the first respiratory test ever to receive a full FDA approval for home use and authorization for our molecular and box test, our first sexual health care in 2023, we also submitted our RSV test and flu test for de novo approval and were awarded a nearly $30 million contract from Barda to develop all the way through for regulatory authorization. A combined test, our flu COVID-19 and RSV for home and professional use.
In addition to our work on our flagship Q health monitoring system menu, we have also expanded our Q integrated care platform offerings significantly in 2023, we now offer 16 home collection test kits to our Q our product line, including test kits for categories like heart health and sexual health through Q app we empower individuals to conveniently collect samples at home, obtain their lab results digitally and interact with clinicians for lab results, interpretation and follow-up action rounding out our offering on the treatment side, we've extended our original lead time prescription and delivery capability for infectious diseases like COVID-19 and flu to provide treatments for many more common health needs. For example, our treatment offerings now include therapeutics for sexually transmitted infection, GLP ones for weight management and antiviral for cold sores.
In short, we're proud of the great progress we made in 2023 and driving forward our vision of empowering people to live their healthiest place. 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 cue health monitoring system.
Looking ahead, now I'd like to provide some updates on test menu expansion for the QF monitoring system. First, the QRS., the molecular test was submitted to the FDA for denovo approval last May and we received in response to FDA's 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 additional data, so very good performance and submitted the additional data to FDA.
We anticipate an approval for RSV 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 cubic meters. Additionally, we believe that approval of additional tests in our pipeline will help grow our installed reader base. Our flu molecular tests is also meant to the FDA for denovo 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 instance over the last three years with almost no circulation in the Northern Hemisphere. We conducted additional clinical studies in the southern hemisphere, and we're able to collect a sufficient number of Ruby be sample to meet the FDA's requirement. We are still working on providing additional stability data for a higher temperature storage as requested by the FDA. And thus, we would expect a denovo decision preclude later this year.
In the third quarter, in January, we announced that the FDA had declined to issue new air for our flu COVID multiplex test. You may recall this is our first multiplex test submission and sites enabling use for both at home and point of care use. This test performed very well in our clinical studies for both flu and COVID-19 cover the feedback that the FDA had was primarily for us to use a different comparator test for COVID-19 and to provide more real-time stability data. We are 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 barter 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 2020, but we have planned this two-stage approach to getting to market with this test. And the program is funded through the full clearance stage. One is the EUA regulatory pathway. And in support of Stage two, we'll continue our clinical studies throughout the respiratory season in the Northern Hemisphere as we enter and plan to submit for full clearance next year.
Moving to our menu expansion efforts in the sexual health category. We are in late-stage development and plan to submit our herpes plus impact multiplex tests under an EUA. We've had constructive conversations with the FDA regarding our validation plan for our submission. This test will allow us to build our end parts authorization last year to sort of the very large underserved of chronic care herpes testing market with the addition of herpes. This test has strong potential to be a go-to test for anyone experiencing a lesion in the central hub contact. We still plan to submit for an EUA in Q2 2024 and would expect to receive authorization by year end.
Moving to our chlamydia and gonorrhea test, the test is 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 start 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 stroke program. We remain committed to our full pipeline in respiratory and sexual health testing while being mindful of the need to balance near term cost and long-term opportunity and feel we have a very strong near-term pipeline. Both categories as soon as we receive FDA authorization will be ready to launch into our existing sales channels and then continue progressing menu expansion, such as the chlamydia and gonorrhea and strep throat test through clinical studies. As a reminder, all the QF monitoring system tests show the same cartridge backbone and manufacturing process, including our combined flu COVID RSV test. Our new testing products will be made on our automated production lines without significant additional capital investment with demonstrated reliable production at scale, Olink produced and sold over 17 million molecular tests to date. As I mentioned earlier, we've made significant progress on the Q integrated care platform. Our solution that seamlessly extends the capability of our foundational QLT monitoring system in its current form. The platform enables end to end customer journey from obtaining an accurate diagnosis to consultation with a health care provider through our apps to receiving check payment via delivery or local pharmacy pickup. We have integrated many of the building blocks of the last 18 months in 2022, we launched care, allowing for video consultation with clinicians and prescription delivery. Since then, we've seen traction with our installed base. And today we offer tests and treatments across the care spectrum, including not just antivirals but therapeutics ranging from GLP-1 two treatments for STI.s.
In summary, 2023 was a year of significant accomplishment by the team at Q and we're 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 healthier lives. We look forward to updating you on the progress in the coming quarters.
With that, I'll turn the call over to Aasim.
Aasim Javed
Thank you and good afternoon. Now let's walk through our fourth quarter financial results and Q1 guidance. Q2 Q4 total revenue was $18.8 million compared with $17.5 million in the third quarter of 2023. In the quarter, our private sector contributed 91% or $17 million of sales. Public sector revenues were $1.8 million for the fourth quarter. Total test cartridge sales were $15.5 million. Q4 product gross profit was a loss of $18.4 million adjusted for one-time inventory charges, product gross profit was a loss of $2.7 million. Gross profit is impacted by lower manufacturing volumes and includes noncash items.
Excluding depreciation, amortization and stock-based compensation, our 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, a decrease of 43% from $56.1 million of spend in Q4 2022. We continue to remain focused on the development of our near term 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 $0.96 per share. Adjusted for one-time inventory and noncash impairment charges, net loss was $49.1 million or $0.32 per share. Adjusted EBITDA was a loss of $24.4 million.
Moving on to full year 2023, Q's total revenue of $70.9 million. Private sector revenue accounted for 89% or $63 million, and public sector revenue accounted for 11% or $7.9 million. tese cartridge sales were $58.5 million in 2023. Adjusted product gross profit for 2023 was a loss of $35.2 million and exclude the disputed vendor payment and one-time inventory charges. Adjusted operating expenses for 2023 were $240.6 million. Excluding cost of revenue.
Sales and marketing expense was $32.6 million. R&D expense was $150.6 million and G&A expense was $57.4 million, while adjusted operating expenses exclude the previously mentioned impairment charge of long-lived assets and restructuring expenses. Adjusted net loss for the full year 2023 was $267.2 million or $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 $80.9 million. And now I'd like to move to our guidance. We expect revenues of $9 million to $11 million for the first quarter. With that, I would like to thank you for your attention, and I'll now turn the call over to the operator for questions.
Question and Answer Session
Operator
(Operator Instructions)
Matt Sykes, Goldman Sachs.
Matt Sykes
Good afternoon and thanks taking my questions. Maybe just first a for you just on menu expansion strategy. Just curious as how you're how you're thinking about it now. I mean, I know you're you're submitting additional information on flu and RSV, but you've also got the barter contract for the multiplex test. Is there a rationale for continuing the work on this stand-alone tests and not just skipping to the multi-plex, given you've got the funding from Barda, like are there commercial reasons people still want stand-alone tests? Are you too far along in the kind of clinical trial portion to to kind of give up on the stand-alone tests. I just would love to get kind of your thoughts on how you're thinking about that?
Ayub Khattak
Yes, I think, Mike, sorry, thanks, Matt, for the question. With RSP, we do have the de novos submitted on. We already went and got the additional clinical data for infinite infants and the elderly We submitted, I feel really good about the performance, and we're just waiting for a decision at this point. And with flu, we have the denovo 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 stability, temperature stability, data, higher storage temperatures and you know, not only those, but we have the herpes and pox herpes is super valuable. And we see this as a transformative offering offering. It's really no additional point-of-care test. And then as you pointed out, flu, COVID, RSV, it's a really great opportunity on site.
It's fully funded by Barda. It's in a really good place and done. So the way, we look at combo tests versus single tests. They both have a place in the market. There is no approved test for RSV in the home at all. And it's a valuable test in the point-of-care as well. So it's also a risk mitigation strategy you have, of course, a lot of people will prefer the flu COVID RSV test over NRC task but at the same time, being able to bring that test to market soon and then follow up with something that's has additional capability, that's our strategy. And from a reimbursement perspective, in the point of care, it has different billing codes and down. And so it can work really well to have both single target assays as well as combo test.
Matt Sykes
Got it. Very helpful. Thank you. And then just any color you can provide on sort of the performance and DOORS sort of materiality of revenues in the Q lab business?
Aasim Javed
Yes, from a Q lab to pharmacy standpoint, you know, we we launched that last year. As you know, we're seeing some good trends there. We think it's a large market. So we think over time. This will be a meaningful part of our business at this point, we're not breaking out those revenues forecast.
Matt Sykes
Thank you very much.
Operator
Our next question will come from the line of Mark Massaro ATIG.
Mark Massaro
I guess can you hear me okay?
Ayub Khattak
Yes, we gave up.
Mark Massaro
Great call. So I am could you remind me of the size of the herpes and pox market, your decision to delay the CT/NG clinical studies or a little bit surprising, given that it's a well understood market, it's a very large market come in so maybe could you just walk me through the rationale to delay that start of the CT/NG clinical studies? And maybe I understand the rationale of preserved cash, but can you just give us maybe a ballpark sense of what the clinical trial for CTNG would cost as you pursue it relative to some of the other studies like herpes and pump?
Ayub Khattak
Yes, good question. So herpes is the most common STV. chlamydia gonorrhea, very common 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 there is the EUA pathway for and Ampol HRP's combo. We already have the PoC test authorized, and we're just building on that to add the herpes detection there. So it's a it's a very different sort of regulatory costs or clinical study type cost comparison between herpes and box and chlamydia gonorrhea. So chlamydia gonorrhea is very attractive market as well. But herpes and POX has an opportunity to be a really a really good market. But with a much different cost profile for getting it through authorization. So we see that as potentially much more much more near term to 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.
Mark Massaro
Okay. That makes sense. And then maybe a question on the update that you provided on January fourth, 2024.
With respect to the FDA feedback that you received on, I think you had indicated that the I think the EUA request was not a priority on. And so they decided they weren't going to advance review of the EUA COVID, yet you are planning to pursue herpes and past 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?
Ayub Khattak
Yes. With flu 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 then authorize So we've been working with the FDA. There's natural dialogue to see how we can get that test through the process and address the feedback they provided. And as a reminder, we do have the flu COVID RSV test and the way we're expecting to get that into clinical study this summer in the southern hemisphere. And that's going to have a two-stage approach so there's EUA pathway forward for this year, but we're also following through always, through the full submission, and that's all part of funded. So and with regards to, you know, the the sort of wording there. They are still looking at EUAs and done. It's really just about addressing that feedback more than I think it is about how they prioritize it on that's the length that their language on. But I think that at the end of the day, it's really about them addressing feedback and getting the tests through the regulatory process. So yes, certainly there are on time to market advantages for the EUA process. And so we want to continue to leverage that where we can, but that's not in place of the denovo. That's really just a staged approach. So I wouldn't say that EUA is a sort of permanent objective. It's sort of staged approach to getting to that full turnover like we did with COVID. We first got an EUA and we've got the de novo for it.
Mark Massaro
Okay. Got it. And then maybe one for us. And 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 you're thinking about on the cash utilization per quarter here in 24.
Aasim Javed
We've taken significant measures to reduce the cash utilization. In fact, despite the decline in COVID revenues across the industry in 2023, our gas utilization and 23 was actually less than it was in 2022. So as you mentioned, we've taken out [$200 million] out from our cost structure standpoint on an annualized basis. And going forward, we continue to remain very focused on strategies are highlighted in our prepared remarks, and we'll continue to remain very judicious with where we deploy on our cash or continue to remain focused on decreasing cash utilization and increasing runway.
Mark Massaro
Okay. But no, no targets too to provide us with?
Aasim Javed
As we think about cash and go go forward, et cetera. You know, as I said, we continue to decrease our cash utilization. All of the things I've mentioned in the past as well as we continue to evaluate all opportunities and options to bolster our balance sheet.
Mark Massaro
Okay. Thanks, guys. Appreciate the time.
Operator
Tejas Savant, Morgan Stanley.
Hello. This is Yuko on the call for taking us. I apologize for earlier, we had some technical issues on our end. A couple of questio s 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?
Ayub Khattak
Yes, the pricing though we've adopted there, so there's a lot of factors that go into that. We look at demand, we look at also reimbursement on. 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, you're looking at a literal order of magnitude difference in the sort of cost to get the reader versus the laboratory analyzers that have similar capabilities so feel really good about the reader and the cost structure there. And 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're our goal is to increase the installed base because as we've seen and as we mentioned for Q4, still a pull through on each install and in each reader that's in the field and so on. There is the dynamic with the reader as you want to get that out there and then you want to allow the customer to get value from that and continuing 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 this 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, whatever focus areas that are in discussion?
Ayub Khattak
We announced a few weeks ago that we entered into the cooperation agreement with TAR, Sadia to add Board member, Richie. And this is really so we can move forward in harmony with our shareholders and really incorporate their point of view, we feel good that those conversations are now behind us and can execute on our strategy, I think, to show their commitment to working with our shareholders on one. The main agenda items that we've been hearing was the cost structure needs to come down, and we have been actively working on that last year. And as I mentioned in my prepared remarks that we have achieved over $200 million of them cost reduction in the year. So I think we're really executing on what our shareholders want to are maximizing the shareholder value with our approach of lowering the cost, executing on menu menu expansion as our number one priority. So I think that what you've seen is that we've incorporated these strategies into our into our strategy as well.
Thank you.
Operator
Thank you. This concludes today's conference call and thank you for participating. You may now disconnect.