Dive Brief:

• Cue Health is laying off 170 manufacturing employees citing “economic challenges” and cuts in U.S. government funding for COVID-19 testing.
• The cuts come three weeks after the Biden administration decided to move $10 billion from COVID-19 testing to vaccines and other treatments. Cue Health received a $481 million government contract in 2020 to scale up production of its point-of-care COVID-19 test.
• With the COVID-19 testing market shrinking, Cue Health is expanding its test portfolio to cover influenza and other infectious diseases to add post-pandemic growth drivers.

Dive Insight:

San Diego-based Cue Health grew quickly during the pandemic, increasing its headcount from 99 at the start of 2020 to 1,254 by the end of August 2021. Fueled by a $200 million initial public offering, the headcount expansion continued over the final few months of 2021, with Cue Health ending the year with 1,585 full-time staffers.

Now, the company “has made the difficult decision to reduce its manufacturing workforce by 170 people,” a spokesperson said.

The spokesperson attributed the cuts to “the economic challenges that are impacting many industries as well as the U.S. government’s recent decision to reduce funding for COVID-19 testing.” Last year, Cue Health’s Department of Defense contract accounted for 62% of total sales, leading it to warn investors that it has historically relied on a small number of customers and could suffer if they cut their purchases of COVID-19 tests.

Cue Health is now working through that scenario. Public sector contracts brought in 2% of revenues in the first quarter, after the DoD agreement ended.

Private sector growth offset the completion of the DoD contract, enabling Cue Health to post sales just below the top of its $170 million to $180 million target range, but a broad slowdown is coming. Cue Health is forecasting second quarter sales of $50 million to $55 million. 

As the COVID-19 market has shrunk, Cue Health has ramped up efforts to establish longer-term growth drivers. Talking to investors on a first quarter results conference call last month, Cue Health CEO Ayub Khattak framed the recent submission of a De Novo application for a COVID-19 test as paving the way for filings in other indications.

An influenza submission is planned for the third quarter and a respiratory syncytial virus test and chlamydia-gonorrhea multiplex kit are forecast to begin clinical studies this year.

Investors are skeptical about Cue Health’s ability to pivot from COVID-19. Having gone public with a $3 billion market cap, Cue Health has seen its valuation decrease to around $550 million. The latest 11% decline came with yesterday’s disclosure of the cuts and brought the stock down toward its all-time low of $3.70. Faced with difficulties, Cue Health is sticking to its long-term plan.

“We remain confident in our long-term strategy as we continue to broaden the number of customers we serve and advance our menu of future care offerings, reinforcing our mission to improve how healthcare is delivered by making it more efficient and timely, ultimately leading to better outcomes for people’s health,” a spokesperson said.