By Natallie Rocha | San Diego Union-Tribune
Cue Health, the once high-flying San Diego biotech supplying rapid COVID-19 test kits to the NBA and Google, is laying off all employees and shutting down on Friday.
Cue’s closure comes a week after the U.S. Food and Drug Administration warned consumers to throw away its COVID-19 test kits because they could give false results. The San Diego firm said on Thursday it stopped selling the COVID-19 tests, its only fully FDA-approved commercial product.
The company notified employees on Monday that its entire workforce will be laid off effective Friday, according to Cue’s Worker Adjustment and Retraining Notification Act (WARN) paperwork filed with the state of California.
Earlier this month, Cue laid off half of its workforce, or 230 employees, to cut costs and refocus its pipeline of products.
The latest WARN notice informed the state that Cue is accelerating the end date for these employees from July to Friday. Employees will receive their final paycheck this week, which includes compensation and benefits they would have received through July.
After the last round of layoffs, Cue, which has eight locations across the county in Sorrento Valley and Vista, had about 250 employees left. Now, those remaining 250 workers are also getting laid off this week.
“Due to the fluid nature of this situation and based on the information available at this time, the Board of Directors of Cue Health has determined that the affected employees’ employment will conclude effective May 24, 2024,” Cue Health’s chief human resource officer, Allison Blackwell wrote in the notice. “Similarly, the Company is concurrently informing all remaining US employees that their jobs are affected, and, as such, every remaining U.S. employee who has not yet received a WARN Notice, including Company leadership, is receiving a WARN notification today.”
Cue Health has been skirting the edge of a financial cliff since the demand and government funding for COVID-19 tests dropped off over the past year.
Early in the pandemic, Cue inked major partnerships to supply rapid COVID-19 tests for the NBA and big companies, like Google. The biotech grew its headcount from 99 employees in January 2020 to 1,515 full-time employees at the end of 2022.
The company, which was founded in 2010, soared into the public market with a $200 million IPO in 2021, fueled by its first commercial product, the COVID-19 test. Its market cap swelled to $2.3 billion.
In hindsight, the company’s rapid rise was enabled by the once-in-a-generation circumstances of the pandemic allowing for fast-track approval of its product. Additionally, record levels of private investment in 2021 and early contracts to provide testing for the Department of Defense, the NBA, Google, NASA, Netflix and more fueled Cue’s ascent.
Its sleek, high-tech kit delivered results in 15 minutes straight to a smartphone and was one of the first to get fast-track approval from the FDA during the pandemic. Then, the company notched the notable achievement of securing the first, full FDA approval for an at-home COVID-19 test last June.
In 2021, SEC filings show that Cue recorded $86 million in profit but in 2022 and 2023, the company lost $194 million and $373 million respectively.
Even after layoffs, Cue struggled. In its March filing with the Securities and Exchange Commission, Cue wrote that its near-term revenue “will almost exclusively depend on sales of our COVID-19 test until we can obtain regulatory clearance or other appropriate authorization for, and commercialize additional tests.”
Cue tried to expand its diagnostic services into at-home tests for sexual health, heart health and metabolic tests where samples are sent to a lab and the results go straight to the user’s phone. Cue also enabled its smartphone app to connect users to telehealth services.
In recent months, Cue tried to get fast-track approval for other test products, including its tests for flu and RSV. But those clearances didn’t materialize.
The company’s only commercial diagnostic tests on the market at the time were its COVID-19 and mpox, previously known as monkeypox, tests.
With its losses mounting and no new revenue streams in sight, Cue warned in its March filing to the SEC that “These factors, underscored by the inherent uncertainty of obtaining timely regulatory approvals, when considered in the aggregate, raise substantial doubt about our ability to continue as a going concern.”
Jay Lichter, managing partner of local life science investment firm Avalon Bioventures, said that while he’s not intimately familiar with Cue Health’s business, he said it is not surprising that a biotech company would fall hard and fast relying on a single product. While Cue Health’s test was hit by regulatory issues from the FDA, Lichter said any number of things could kill a company.
“You’re very much at risk with a single product,” Lichter said. “It could be that you have a supply chain issue … It could be you have the disease go away and the market is gone. So you have a lot of things that could go wrong.”
Lichter added that his firm stopped investing in diagnostic companies years ago to focus on biotechs developing therapeutics to treat cancer and other diseases. While diagnostics — such as test makers — play a vital role in health care, he said a successful test solution often turns a smaller return than a successful therapy.
Diagnostic products are almost as difficult, time-consuming and expensive to develop as therapeutic products, but the value is one-tenth of the therapeutic, Lichter said.
“In this business, whether it’s therapeutics or diagnostics or whatever, there’s so many ways for things to go wrong,” he said. “And then you make all the right decisions and still things can go against you. Sometimes it’s just bad luck, as opposed to bad management. Sometimes it’s bad management. I couldn’t say with Cue if it was bad luck or bad management, but in the end, you know when you’re a single product company you have to protect that business.”
Lichter noted that all of the government grants that went to COVID-19-related companies like Cue, appeared as revenue and blew up these businesses. But in fact, “those subsidies go away” then “the market goes away and the whole thing is like a double collapse.”
“The demand (for COVID-19 products) is way down — and you can just look at Pfizer revenue and you can see that as well,” Lichter said. “COVID is just not that big of a problem — it’s still around, but you’re not getting half the population testing twice a week like you did three years ago.
“In some ways, it’s a bit of a perfect storm, but also somewhat predictable. When the government is throwing billions of dollars a year at COVID anything and you know, everybody gets money. Then that money starts to dry up and it’s only the really special companies that survive.”
At Cue Health, as demand for COVID-19 tests continued to decline and funding sources dried up, the company conducted multiple rounds of layoffs over the past 12 months.
Then, the latest blow came via the FDA’s warning letter on May 9, which urged company leaders to stop selling its COVID-19 test.
An FDA inspection of Cue Health facilities late last year found that the company had modified its COVID-19 tests in a way that reduced its reliability to detect the virus. The warning letter says Cue changed its product without telling the FDA and as a result, the tests aren’t as accurate as they should be to meet previously approved safety standards.
All of this comes after Cue’s board stepped in to reshape its leadership and expenses in the face of declining market value and investor pressure.
In March, Cue’s longtime CEO and co-founder, Ayub Khattak, stepped down. He was replaced by Cue co-founder Clint Sever. Additionally, last month, Cue Chief Financial Officer Aasim Javed resigned.
Amid the leadership shakeup, Cue’s board also initiated a strategic review of its options, including the potential sale of the company.
However, the attempts to change the trajectory of Cue’s fate were unsuccessful.
Cue Health did not immediately respond to the Union-Tribune’s request for comment.