How does Cue Health make money?

Steven Loeb · December 30, 2022 · Short URL:

The company makes most of its money through the sale of its Health Monitoring System

One of the lasting impacts of the pandemic has been a shift toward digital health, and people taking greater control over their own care in a way that is convenient for them. That means telemedicine, in-home care, and tools that can be used to test and diagnose at home. 

One company that has benefitted from that shift is Cue Health, a healthcare technology company that manufactures medical diagnostic products for use in home and clinical settings.

Its solution includes Cue Care, a virtual consultation service, as well as its Health Monitoring System, which includes the Cue Reader, a portable device that can perform a molecular test and connect patients to a mobile health platform, as well as the Cue Dashboard, a web-based application for businesses and organizations to manage their Cue testing program.

It also provides the Cue Dashboard, which includes a scheduler for testing events within the organization, the ability to manage multiple test locations from one centralized portal, a Test Center to view and manage test results in real time, and the capability to view and manage categories of members.

"We are now witnessing what we believe is the beginning of a transformational shift as consumers take control of their own health. In industry after industry, disruptors are using technology to transform the consumer experience. From the way we consume content to the way we travel, we believe consumers and organizations are increasingly looking for a simple, convenient and digital first approach. We further believe that healthcare is finally ripe for a digital transformation and that it will begin with diagnostics, since approximately 70% of all clinical decisions are made utilizing diagnostic data," the company wrote in its S-1 filing with the SEC. 

"We are helping pioneer this healthcare digital transformation, beginning with diagnostics. We started from consumer-centric principles and designed our proprietary platform, the Cue Integrated Care Platform, with a relentless focus on user experience, convenience, and accuracy."

Cue's customers include large employers, health systems, doctor’s offices, and the Department of Defense and the vast majority of its money comes from what it labels as  product revenue.

That is mostly driven by the sale its Cue Health Monitoring System to government entities, healthcare providers, commercial customers, and through agreements with distributors. The majority of this money comes from the sale of Cue Test Kits, with a smaller proportion coming from the sale of Cue Readers and Cue Control Swab Packs.

"Going forward, we continue to expect product revenue to be dominated by the sale of Cue Test Kits, though we expect the proportion of product revenue coming from Cue Readers to increase as we place more of them in the home where they will likely have lower Cue Test Kit pull-through than those in the hands of the public sector, testing administrators or health care providers," the company wrote.

Beginning in 2021, the company also began offering its customers a subscription-based purchasing option, where they would be able to initially purchase a fixed number of Cue Readers at the start of the contract and commit to a fixed number of Cue Test Kits per month for the duration of the subscription agreement. A Cue+ Membership offers users 20% off products and services and costs them $20 per month after a free first month.

"We believe our subscription-based model offers customers maximum utility and allows them to reduce their purchase costs, while simultaneously creating a recurring revenue stream for us. Going forward, we may offer alternate forms of subscription or bundling of products as our product offering expands," wrote Cue. 

In its most recent quarterly earnings, the company revealed it made $66.6 million from this revenue stream, or 86% of its total $69.6 million for Q3.

The company's other revenue arm is labeled as "grant and other revenue," which primarily relates to its cost reimbursement research and development agreement with BARDA, the objective of which is to accelerate the development, validation and FDA clearance of its influenza and COVID-19 diagnostic products. Phase one of agreement was in effect through January 2022, and phase two will go through January 2023. 

Cue received $35.5 million in total for contracts and awards, $21.8 million for phase one and $13.7 million for phase two from BARDA, starting in June 2018 through June 30, 2021. 

In addition, income derived from reimbursement of direct out-of-pocket expenses, overhead allocations, and fringe benefits for research costs associated with U.S. government contracts are also recorded as grant revenue.

The company made $2.9 million from this stream in Q3, or 4% of total revenue.

Cue went public in September 2021, raising $200 million at a $16 IPO price. As of this writing the stock is trading at $2.08 a share.  

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