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Will a Plea from Investors Spur Change for Cue Health?

The company, which once raised $200 million in an IPO, has struggled since the COVID-19-testing demand dropped.

Omar Ford

September 1, 2023

3 Min Read
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Image Credit: Parradee Kietsirikul via iStock / Getty Images

At one point, Cue Health was at the forefront of COVID-19-testing. The San Diego, CA-based company, when it was private, was able to raise $100 million in a series C round, showing that investors were really getting behind it. The firm even raised $200 million in a traditional IPO during the height of the pandemic.

But now that the COVID-19 testing bubble has burst the company’s story has changed significantly. Some investors are now asking the company to change course. Tarsadia Investments, which provides investment services to long-term stockholders of Cue sent a letter to the firm’s board expressing their concern for the future of the company.

"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. However, the company has failed to adapt to a rapidly changing post-COVID reality,” Tarsadia wrote to Cue’s board. “Tarsadia attempted to engage with the board on numerous occasions about our mounting concerns over the company’s declining cash balance and the continued destruction of stockholder value. We have urged the board to initiate a strategic alternatives process, realign costs, and enhance the board. To date, the board has failed to take any concrete action on our proposals, and time is running out for stockholders – urgent change is needed, and it is time for the board to act.”

Specifically, Tarsadia is asking the board to:

  1. Conduct a strategic review of management’s standalone long-term business plan and the capital required to execute upon that plan. 

  2. Review the company’s flawed approach to capital allocation and realign its unsustainable cost structure.

  3. And have Cue appoint independent stockholder representatives to the board who can contribute a sense of urgency and fresh perspective to board deliberations.

The investor group went on to write, “Stockholders have experienced a -97% decline in the share price from the IPO; quarterly product revenues have declined - 97% from $223 million in 3Q21 when the company conducted its IPO to $8 million this past quarter; and Morgan Stanley’s research analysts project that Cue will soon run out of cash and be required to raise $75 million in new equity in 4Q23, which will result in over 50% dilution to existing shareholders.”

“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,” a spokesperson for Cue told MD+DI. “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.” 

The Highs & Lows of COVID-19 Testing in 2023

Cue began the year announcing lay offs – a resulting from sagging testing demand. The firm had a victory in June, by winning de novo authorization for COVID-19 home tests. But the measure came on the heels of WHO announcing COVID-19  was no longer a public health emergency of international concern, though it still poses a global threat.

The COVID-19 testing story has been wildly different for some companies. Hologic, which used its “COVID cash” for a series of tuck-in acquisitions once the testing demand waned, is in a better place.

Abbott Laboratories had enough diversified offerings to move it past any obstacles it might have faced because of a lack of demand for COVID-19 testing. However, the company did engage in layoffs – cutting about 418 positions from its Westbrook, Maine facility according to a report from the Portland Press Herald.

About the Author(s)

Omar Ford

Omar Ford is MD+DI's Editor-in-Chief. You can reach him at [email protected].

 

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