Dive Brief:
- An investor has called for the board of Cue Health to “take immediate action to prevent further destruction of stockholder value.”
- According to Tarsadia Investments, a strategic review is needed to fix the diagnostic company’s “flawed capital allocation and unsustainable cost structure.” It also called for Cue to appoint stockholder representatives to the board.
- A Cue spokesperson said the company’s board is evaluating the letter from Tarsadia and will continue to act in the best interests of all shareholders.
Dive Insight:
Cue grew quickly during the pandemic, but test sales collapsed as the crisis eased, leading Tarsadia to warn that the company is “at risk of being delisted and imminently running out of cash.”
Cue’s main investors as of mid-March were Acme Capital, Koch Industries, Oakmont Corporation and Decheng Capital, each of which owned between 5.9% and 10.1% of the company. Tarsadia is a smaller player but claims to represent investors whose collective holdings make them a top-10 stockholder. That group includes investors who participated in Cue’s series B round in 2018.
In an open letter to the Cue board, Tarsadia accused Cue of failing to “meaningfully adjust its cost structure” as COVID-19 test sales collapsed and of “blindly building a corporate empire without consideration for unsustainable overhead expenses.”
Cue has reduced its headcount, laying off 170 people in June 2022 and eliminating another 388 jobs at the start of 2023, and has reportedly defended its strategy in its interactions with Tarsadia. The investor said it sent a letter to the board in early August and met with members of the board later that month. However, the board expressed confidence in its strategy and opted against adopting Tarsadia’s ideas.
The failure to drive change through private channels led Tarsadia to go public with its concerns. The investor wants the board to conduct a strategic review of the long-term business plan and the capital it requires, and review the cost structure with a goal of achieving $50 million in annualized savings and extending the cash runway into 2025.
Tarsadia has identified R&D and sales and marketing as areas where Cue is spending too much. The investor accused Cue of supporting “too many sales channels that no longer generate sufficient revenues” and called for the company to “reassess and refocus its R&D spend on core product offerings that can drive revenue growth.”
“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,” the Cue spokesperson said via email.