Troubled testmaker Cue Health under investor pressure to change course

After watching its share price evaporate alongside sharply declining interest in COVID-19 diagnostics, the testmaker Cue Health is now facing public appeals from investors to change course and appoint new representatives to its board.

The company made a name for itself developing portable, cartridge-based tests for infectious diseases and by signing high-profile deals to serve as the pandemic-era provider of COVID screeners to the NBA and Major League Baseball. 

But after completing a $200 million IPO in late 2021—and, while knowing that demand wouldn't last forever, outlining plans to expand into at-home tests for the flu and respiratory syncytial virus, as well as other diseases and conditions—Cue’s stock value has since slid into sub-dollar territory, dropping nearly 98% from the high of $20 when it went public down to about 50 cents today.

Tarsadia Investments, saying they represent a group of family stockholders that had backed Cue during its pre-pandemic series B round in 2018, has called upon the company’s board to launch a strategic review of its business plan before Cue runs out of money.

In a public letter, the firm noted how Cue’s quarterly product revenues have plummeted—from over $220 million during the heyday of COVID testing sales in late 2021, to just under $10 million in the company’s most recent earnings report, versus nearly $66 million in operating expenses.

“We have been investors in Cue Health for over five years and are strong believers in the potential for the company’s industry-leading technology to transform how acute and chronic conditions are diagnosed,” Tarsadia said in its letter. 

“However, the company has failed to adapt to a rapidly changing post-COVID reality,” the firm said, describing industry-wide shortfalls after diagnostic developers made boom-time investments in manufacturing and hiring staff, before going bust as the public moved on from the pandemic mindset and stopped seeking test results.

At Cue, that included increasing the company’s headcount from 99 in January 2020 to 1,585 by the end of December 2021, according to Tarsadia. 

Going forward, the investment firm has pushed Cue to refocus efforts on its core diagnostic products and chase large-scale commercial test supply deals—and proposed cutting out its recently launched expansions into pharmacy offerings, with home deliveries of over-the-counter and prescription drugs for erectile dysfunction and herpes, as well as birth control, hair loss and other medications.

“We believe Cue must achieve an additional $50 million in annualized cost savings to extend its liquidity runway into 2025,” said Tarsadia, which also urged the company to consider exiting the at-home testing business altogether, by “eliminating the infrastructure and marketing spend supporting direct-to-consumer and small and medium sized customers that have historically generated limited revenues.”

Tarsadia said it would also submit a legal request to inspect Cue’s books and called for the board to appoint “independent stockholder representatives” to help the company search for long-term strategic alternatives.

In a statement, a spokesperson for Cue Health said: “Cue’s Board of Directors consistently reviews our strategy to ensure that we are on the best path to creating long-term shareholder value and appreciates constructive feedback on our business. Members of our Board and management team have engaged with Tarsadia Investments on multiple occasions to hear their perspectives. Our Board is evaluating the letter and will continue to act in the best interests of all shareholders as we execute on our strategic plan.” 

Earlier this month, Cue announced that it had been awarded a $28 million federal contract to develop a molecular combination test for spotting COVID-19, RSV and influenza A and B, designed for over-the-counter and point-of-care use.

Backed by the Biomedical Advanced Research and Development Authority, known as BARDA, the test will aim to help differentiate between the separate diseases, which typically present with similar symptoms.

Editor's note: This story was updated with a statement from Cue Health.