UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
For
the fiscal year ended December 31, 2023.
OR
For
transition period from ____ to ____.
Commission
file number 001-41463
bioAffinity
Technologies, Inc.
(Exact
name of registrant as specified in its charter)
(Address of principal executive offices) (Zip Code)
(210)698-5334
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common stock, par value $0.007 per share BIAF The Nasdaq Stock Market LLC
Tradeable Warrants to purchase Common Stock BIAFW The Nasdaq Stock Market LLC
Securities
registered pursuant to section 12(g) of the Act: None.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
☐ No ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
☐ No ☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes
☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Yes
☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☒
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The
aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based on the closing price
of a share of the registrant’s common stock on June 30, 2023, as reported by the Nasdaq Capital Market on such date was approximately
$14.0 million. Shares of the registrant’s common stock held by each executive officer, director and holder of 5% or more of the
outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This calculation does not reflect a
determination that certain persons are affiliates of the registrant for any other purpose.
The
number of shares outstanding of the issuer’s common stock, $0.007 par value, is 11,514,354 as of March 20, 2024.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the registrant’s definitive proxy statement relating to the 2024 annual meeting of stockholders are incorporated by reference
into Part III of this Annual Report on Form 10-K where indicated. Such definitive proxy statement will be filed with the Securities and
Exchange Commission within 120 days after the end of the registrant’s fiscal year ended December 31, 2023.
TABLE
OF CONTENTS
Page
Cautionary Note Regarding Forward-Looking Statements 3
PART I
Item 1. Business 6
Item 1A. Risk Factors 21
Item 1B. Unresolved Staff Comments 46
Item 1C. Cybersecurity 47
Item 2. Properties 47
Item 3. Legal Proceedings 47
Item 4. Mine Safety Disclosures 47
PART II
Item 6. [Reserved] 48
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 53
Item 8. Financial Statements and Supplementary Data 53
Item 9A. Controls and Procedures 54
Item 9B. Other Information 54
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 54
PART III
Item 10. Directors, Executive Officers and Corporate Governance 55
Item 11. Executive Compensation 55
Item 14. Principal Accountant Fees and Services 55
PART IV
Item 15. Exhibit and Financial Statement Schedules 56
Signatures 59
Throughout
this Annual Report on Form 10-K (the “Annual Report”), the terms “bioAffinity,” “bioAffinity Technologies,”
“we,” “us,” “our” or “Company” refer to bioAffinity Technologies, Inc., a Delaware corporation,
and its wholly owned subsidiaries, OncoSelect® Therapeutics, LLC, a Delaware limited liability company, and Precision
Pathology Laboratory Services, LLC, a Texas limited liability company.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Annual Report contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are predictive
in nature, depend on or refer to future events or conditions, and are sometimes identified by words such as “may,” “could,”
“plan,” “project,” “predict,” “pursue,” “believe,” “expect,”
“estimate,” “anticipate,” “intend,” “target,” “seek,” “potentially,”
“will likely result,” “outlook,” “budget, “objective,” “trend,” or similar expressions
of a forward-looking nature and the negative versions of such expressions. The forward-looking information contained in this report is
generally located under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
but may be found in other locations as well. The forward-looking statements in this report generally relate to the plans and objectives
for future operations of bioAffinity Technologies, Inc. and are based on our management’s reasonable estimates of future results
or trends. Although we believe these forward-looking statements are reasonable, all forward-looking statements are subject to various
risks and uncertainties, and our projections and expectations may be incorrect. The factors that may affect our expectations regarding
our operations include, among others, the following:
● our projected financial position and estimated cash burn rate;
● our estimates regarding expenses, future revenues, and capital requirements;
● the success, cost, and timing of our clinical trials;
● our dependence on third parties in the conduct of our clinical trials;
● the results of market research conducted by us or others;
● our reliance on third parties;
● the increased expenses associated with being a public company; and
● other factors discussed elsewhere in this Annual Report.
Many
of the foregoing risks and uncertainties, as well as risks and uncertainties that are currently unknown to us, are or may be exacerbated
by factors such as the ongoing conflict between Ukraine and Russia, escalating tensions between China and Taiwan, the war in the Middle
East, increasing economic uncertainty and inflationary pressures, and any consequent worsening of the global business and economic environment.
New factors emerge from time to time, and it is not possible for us to predict all such factors. Should one or more of the risks or uncertainties
described in this Annual Report or any other filing with the Securities and Exchange Commission (the “SEC”) occur, or should
the assumptions underlying the forward-looking statements we make herein and therein prove incorrect, our actual results and plans could
differ materially from those expressed in any forward-looking statements. We undertake no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events, or otherwise, except as required by law.
You
should read this Annual Report and the documents that we reference within it with the understanding that our actual future results, performance,
and events and circumstances may be materially different from what we expect.
Website
and Social Media Disclosure
We
use our websites (www.bioaffinitytech.com and ir.bioaffinitytech.com) to share Company information. Information contained on or that
can be accessed through our websites is not, however, incorporated by reference in this Annual Report. Investors should not consider
any such information to be part of this Annual Report.
Forward-Looking
Statements
This
Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities
Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve substantial
risks and uncertainties. The forward-looking statements are contained principally in Part I, Item 1. “Business,” Part I,
Item 1A. “Risk Factors,” and Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” but are also contained elsewhere in this Annual Report. In some cases, you can identify forward-looking
statements by terminology such as “may,” “should,” “potential,” “continue,” “expects,”
“anticipates,” “intends,” “plans,” “believes,” “estimates,” and similar expressions.
These statements are based on our current beliefs, expectations, and assumptions and are subject to a number of risks and uncertainties,
many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those
expressed, projected, or implied in or by the forward-looking statements.
You
should refer to Item 1A. “Risk Factors” section of this Annual Report for a discussion of important factors that may cause
our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors,
we cannot assure you that the forward-looking statements in this Annual Report will prove to be accurate. Furthermore, if our forward-looking
statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking
statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our
objectives and plans in any specified time frame, or at all. We do not undertake any obligation to update any forward-looking statements.
Unless the context requires otherwise, references to “we,” “us,” “our,” and “bioAffinity,”
refer to bioAffinity Technologies, Inc. and its subsidiaries.
Summary
of Risk Factors
Risks
Related to Our Financial Position
● We will require additional financing to implement our business plan.
Risks Related to the Acquisition of Precision Pathology
Laboratory Services (“PPLS”)
● We may not be able to enforce claims under the Asset Purchase Agreement.
Risks Related to our Diagnostic Product
● Clinical trials are expensive, time-consuming, and may not be successful.
Risks Related to Our Diagnostic
Tests
● We are currently dependent upon PPLS to offer and perform CyPath® Lung.
● We face substantial competition.
● Our lack of operating experience may make it difficult to manage our growth.
● Our competitive position depends on protection of our intellectual property.
Risks Related to the Operation
of a CAP/CLIA Laboratory
● PPLS may be unable to effectively maintain equipment.
Risks Related to Intellectual
Property Rights
● If we do not obtain patent term extension, our business may be harmed.
● We enjoy only limited geographical protection with respect to certain patents.
Risks Related to Government Regulations
● We may fail to obtain regulatory approval in foreign jurisdictions.
Risks Related to Ownership of Our Common Stock
and Warrants
● We do not expect to pay dividends in the foreseeable future.
● An investment in our Company may involve tax implications.
● Our Certificate of Incorporation permits “blank check” Preferred Stock.
● Our management collectively owns a substantial percentage of our Common Stock.
PART
I
Item
1. Business
Business
Overview
bioAffinity
Technologies, Inc. (the “Company,” “bioAffinity,” “we,” or “our”) develops noninvasive
diagnostics to detect early-stage lung cancer and other diseases of the lung. We are advancing research into our therapeutic discoveries
which could result in broad-spectrum cancer treatments in the future. We develop proprietary noninvasive diagnostic tests using flow
cytometry and automated analysis developed by artificial intelligence (“AI”). Our diagnostic tests analyze cell populations,
including cancer and cancer-related cells, that are indicative of a specific diseased state.
We
were formed as a Delaware corporation on March 26, 2014. On June 15, 2016, we formed OncoSelect® Therapeutics, LLC (“OncoSelect®”),
a Delaware limited liability company and our wholly owned subsidiary which is a preclinical-stage biopharmaceutical discovery company
with a focus on therapeutics that deliver cytotoxic (cell-killing) effects on a broad selection of human cancers from diverse tissues
while having little or no effect on normal cells. On August 14, 2023, we formed Precision Pathology Laboratory Services, LLC (“PPLS”),
a Texas limited liability company and our wholly owned subsidiary. Research and optimization of our platform technologies for in vitro
diagnostics and technologies are conducted in laboratories at The University of Texas at San Antonio and PPLS in San Antonio, Texas.
Our
first diagnostic test, CyPath® Lung, addresses the need for noninvasive detection of early-stage lung cancer. Lung cancer
is the leading cause of cancer-related deaths worldwide. Physicians order CyPath® Lung to assist in their assessment of
patients who are at high risk for lung cancer. The CyPath® Lung test enables physicians to more confidently identify patients
who will likely benefit from timely intervention and more invasive follow-up procedures and those who are likely without lung cancer
and should continue routine screening. CyPath® Lung has the potential to increase overall diagnostic accuracy of lung
cancer, which could lead to increased survival, fewer unnecessary invasive procedures, reduced patient anxiety, and lower medical costs.
CyPath®
Lung uses flow cytometry technology to detect and analyze cell populations in a person’s sputum, or phlegm, to find characteristics
indicative of lung cancer, including cancer and/or cancer-related cells that have shed from a lung tumor. The flow cytometer is a well-established
instrument used in many commercial laboratories. Flow cytometry collects data pertaining to properties of single cells labeled with antibodies
and dyes specific to cell types and characteristics. Sputum is an excellent sample for analysis because it is in direct contact with
any malignancy in the lungs and can provide information about its area of field cancerization and the lung microenvironment. CyPath®
Lung uses automated data analysis developed by AI that allows an entire sample of sputum averaging 16 million cells to be examined
in approximately 30 minutes, allowing for cost-effective, large-scale commercialization.
We
conducted a 150-patient test validation trial of people at high risk for lung cancer including patients with the disease (N=28) and those
who were cancer-free (N=122) that resulted in CyPath® Lung’s overall 88% specificity, meaning the ability to correctly
identify a person without cancer, and 82% sensitivity, meaning the ability to correctly identify cancer in a person with the disease.
For the subset of patients in this trial who had lung nodules 20 millimeters (“mm”) or smaller, this trial resulted in 92%
sensitivity, 87% specificity, 99% negative predictive value, and 88% accuracy. In this subset of 132 individuals with small nodules,
119 patients were cancer-free and 13 had confirmed lung cancer. The detection of small lung nodules in people who have early-stage cancer
can increase lung cancer survival.
Through
OncoSelect®, our research has led to discoveries of novel potential cancer therapeutics that specifically and selectively
target cancer cells that have been grown in petri dishes.
In
September 2023, through our wholly owned subsidiary PPLS, we acquired the assets of Village Oaks Pathology Services, P.A.,(“Village
Oaks”) a Texas professional association d/b/a Precision Pathology Services, including a clinical anatomic and clinical pathology
laboratory and related services business in San Antonio, Texas. The laboratory is accredited by the College of American Pathologists
(“CAP”) and certified under the Clinical Laboratory Improvement Amendments of 1988 (“CLIA”).
Recent
Developments
Registered
Direct Offering
On
March 6, 2024, we raised $2.5 million in gross proceeds from the sale to four institutional investors of (1) 1,600,000 shares of our
common stock (the “Shares”), par value $0.007 per share (“Common Stock”) in a registered direct offering, and
(2) warrants to purchase an aggregate of 1,600,000 shares of Common Stock (the “Common Warrants”) with an exercise price
of $1.64 in a concurrent private placement. See “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” for a more detailed discussion of this transaction.
CPT
Code Specific to CyPath® Lung for Proprietary Laboratory Analyses
On
November 30, 2023, we announced that the Centers for Medicare and Medicaid Services (“CMS”) had made a final determination
for payment for CyPath® Lung, our noninvasive test for early-stage lung cancer, for the 2024 calendar year. Effective
January 1, 2024, CyPath® Lung is on CMS’ 2024 clinical laboratory fee schedule. The CPT Proprietary Laboratory Analyses
(“PLA”) code assigned to CyPath® Lung is 0406U with the descriptor “Oncology (lung), flow cytometry,
sputum, 5 markers (meso-tetra [4- carboxyphenyl] porphyrin [TCPP], CD206, CD66b, CD3, CD19), algorithm reported as likelihood of lung
cancer.”
CyPath®
Lung Branding
In
2023, we developed a series of marketing tools based on branding for CyPath® Lung that emphasize our test’s
ability to assist physicians with next steps in patient care. In January 2024, we began using the new marketing materials with both physicians
and patients. The branding concepts were developed by the marketing and advertising firms of Havas Health & You, Trinity Life Sciences,
and K2MD to build the CyPath® Lung brand and position it for success in the cancer diagnostics sector.
PPLS
Passes CAP Inspection
On
January 11, 2024, PPLS successfully passed its bi-annual CAP inspection necessary for continuing operations. CAP accreditation ensures
that laboratories meet the highest standards of quality and patient care under the Clinical Laboratory Improvement Amendments (CLIA),
including personnel qualifications, equipment, facilities, safety protocols, and overall management and quality of testing.
Jamie
Platt, Ph.D., Joins Board of Directors
In
December 2023, Jamie Platt, Ph.D., Managing Director and Chief Executive Officer of Pictor Limited, where she is leading a turnaround
by restructuring and accelerating product development, joined the bioAffinity Technologies Board of Directors. Dr. Platt has more than
two decades of experience bringing novel diagnostic technologies to global markets. She was instrumental in merger and acquisition exits
for two diagnostic companies with a combined value of approximately $1 billion. She previously was Chief Operating Officer of Personal
Genome Diagnostics which was acquired by LabCorp for $575 million. We believe Dr. Platt’s scientific acumen, business leadership,
and board experience will contribute to the Company’s growth and successful commercialization of CyPath® Lung.
Sandeep
Bansal, M.D., Joins Medical and Science Advisory Board
In
February 2024, Sandeep Bansal, M.D., Medical Director of Pennsylvania’s Lung Innovations Network, joined our Medical and Scientific
Advisory Board. Dr. Bansal is Board certified in pulmonary disease, critical care medicine and interventional pulmonology and has also
served as principal investigator of multiple clinical research trials and peer reviewer for several medical journals. Lung Innovations
Network, a patient-centered practice that offers comprehensive lung care to over 10,000 patients in central and western Pennsylvania,
incorporated CyPath® Lung into its practice to aid in the detection of early-stage lung cancer in March 2024. We believe
Dr. Bansal’s experience as both clinician and researcher is an important asset for bioAffinity Technologies.
Continuation
of Department of Defense Research
In
the fourth quarter of 2023, we began selling CyPath® Lung tests to the Department of Defense (DOD) to conduct an observational
study, “Detection of Abnormal Respiratory Cell Populations in Lung Cancer Screening Patients Using the CyPath® Lung
Assay,” and for research and development on using bronchoalveolar lavage fluid as a biological sample to assess cardiopulmonary
function and exercise performance in military personnel post COVID-19 infection. An additional research study was opened by Brooke Army
Medical Center in March 2023 to collect bronchoalveolar lavage samples to advance the research and development of a lung cancer test
to be used in conjunction with bronchoscopy to improve diagnostic accuracy with combined testing.
Acquisition
of Laboratory
On
September 18, 2023, PPLS consummated the acquisition of a clinical anatomic and clinical pathology laboratory and related services business
in San Antonio, Texas, pursuant to the terms of an Asset Purchase Agreement dated September 18, 2023, that we entered into with Village
Oaks Pathology Services, P.A., a Texas professional association d/b/a Precision Pathology Services, and Roby P. Joyce, M.D. PPLS is accredited
by the College of American Pathologists (“CAP”) and certified under the Clinical Laboratory Improvement Amendments of 1988
(“CLIA”). Founded in 2007 by Dr. Joyce, the Medical Director and Laboratory Director of the clinical pathology laboratory
prior to and after the acquisition, has provided pathology services to physicians practicing in a variety of outpatient settings. Since
September 2021, Village Oaks, under the trade name Precision Pathology Services, has offered CyPath® Lung for sale as
a laboratory developed test (“LDT”) for the detection of early-stage lung cancer. In addition to CyPath® Lung,
PPLS intends to continue to offer a range of laboratory services including respiratory testing for SARS-CoV-2 and influenza, anatomical
pathology, morphological stains, histological services, DNA extractions, STI testing, and women’s and men’s health testing.
Pursuant
to the terms of the Asset Purchase Agreement, PPLS acquired the laboratory assets, which included all of the assets owned by Village
Oaks other than medical assets, including the CLIA certification and CAP accreditation, which are assets Village Oaks used in connection
with its management and operation of a clinical pathology laboratory, now owned by PPLS, and related services business and assumed certain
liabilities and obligations. Pursuant to the terms of the Asset Purchase Agreement, Village Oaks received $3,500,000 in consideration
for the assets to be purchased by PPLS, of which $1,000,000 was paid by the issuance of 564,972 shares of our restricted Common Stock
to a trust controlled by Dr. Joyce which share number was determined by dividing $1,000,000 by $1.77, the average of the trading day
closing prices for the 30 days prior to September 15, 2023, rounded to the nearest whole share.
Pursuant
to the Asset Purchase Agreement, PPLS assumed all liabilities and obligations and obtained any and all rights, title and interest of
Village Oaks in and to (1) all leases for equipment and personal property related to the laboratory assets, pursuant to an Assumption
Agreement by and between Village Oaks and PPLS; (2) certain other contracts related to the laboratory assets, including the license to
develop, manufacture, use, market, and sell CyPath® Lung pursuant to the Assumption Agreement; (3) all accounts payable
of Village Oaks as of September 18, 2023, that were incurred in the ordinary course of business consistent with past custom and practice;
and (4) the lease of the premises used in connection with operation of the CLIA-certified and CAP-accredited clinical pathology laboratory,
pursuant to an Assignment and Assumption of Lease by and between and PPLS.
In
connection with the Asset Purchase Agreement, PPLS entered into various other agreements, including a Management Services Agreement with
Village Oaks, a Succession Agreement with Village Oaks and Dr. Joyce, and a Professional Services Agreement with Village Oaks pursuant
to which PPLS will provide comprehensive management and administrative services to Village Oaks in connection with the operation of its
professional cytopathology, histopathology, and clinical and anatomic pathology interpretation medical services practice. PPLS will provide
space, equipment, administrative, management and clinical personnel, billing and collection, and related management services to Village
Oaks in exchange for a management fee of 70% of the net revenues received by Village Oaks from the provision of the medical services.
The
Succession Agreement provides that Dr. Joyce, as holder of 100% of the issued and outstanding stock of Village Oaks, and Village Oaks
are restricted from disposing of their equity interests in Village Oaks, subject to certain exceptions, without the prior written consent
of us and Village Oaks.
Pursuant
to a Professional Services Agreement, Village Oaks provides pathology interpretation services as requested on behalf of PPLS based on
the professional fees approved for the CPT code for the services provided under the Medicare Physician Fee Schedule in the locality where
the test is performed.
In
connection with the Asset Purchase Agreement, we entered into an Executive Employment Agreement with Dr. Joyce for a term of three years,
pursuant to which he serves as the Medical Director and Laboratory Director of PPLS, at a base salary of $333,333 per year. Pursuant
to the Joyce Employment Agreement, Dr. Joyce was also appointed to serve on our Board of Directors.
Our
First Diagnostic Test – CyPath® Lung
Lung
cancer remains the most commonly diagnosed cancer and the leading cause of cancer-related deaths worldwide. Globally, there were an estimated
2.21 million lung cancer cases and 1.8 million lung cancer deaths in 2020, as reported by the World Health Organization in its 2020 Cancer
Fact Sheet. According to the American Lung Association (“ALA”), screening for individuals at high risk for lung cancer has
the potential to improve lung cancer survival rates by finding disease at an earlier stage when it is more likely to be curable. A study
published in the New England Journal of Medicine titled “Survival of patients with stage I lung cancer detected on CT screening”
dated October 26, 2006, reported that the survival rate of individuals with Stage I lung cancer who underwent surgical resection within
one month after diagnosis had a ten-year survival rate of 92%, as compared to the overall five-year survival rate in the U.S. of 26.5%
as reported by the ALA. Unfortunately, most lung cancer is detected in late stages. The results of a large national clinical trial that
was reported in the New England Journal of Medicine in an article dated August 4, 2011, titled “Reduced Lung-Cancer Mortality
with Low-Dose Computed Tomographic Screening” showed that screening for lung cancer using low-dose computed tomography (“LDCT”)
resulted in a reduction of the mortality rate by 20% as compared to screening by X-ray if LDCT screening is used by patients at high
risk for lung cancer on an annual basis. Therefore, LDCT scans are recommended for screening of an estimated 14 million Americans who
are at high risk for lung cancer. If half of these high-risk individuals were screened, more than 12,000 lung cancer deaths could be
prevented, according to the ALA. However, the New England Journal of Medicine article also reported that LDCT was shown to have
a low positive predictive value of less than 4%. This means that for every 100 people who receive a positive result from LDCT screening
and are suspected of having lung cancer, only four actually have the disease. A reliable, noninvasive, and cost-effective diagnostic
test can increase diagnosis of early-stage lung cancer while lowering the number of unnecessary and invasive procedures for patients
with a false positive result from LDCT screening. (A false positive test result indicates that the patient has lung cancer when he or
she does not have the disease.)
CyPath®
Lung is a test for early-stage lung cancer that is designed to meet the need for greater diagnostic certainty. Based on our internal
analysis, its use in conjunction with LDCT is predicted to improve the positive predictive value (the probability that patients with
a positive LDCT scan truly have the disease) by a factor of five. Our analysis concludes that improving the positive predictive value
of LDCT with the use of CyPath® Lung has the potential to subject fewer patients to the stresses of misdiagnosis or unnecessary
diagnostic procedures, such as biopsies, while also reducing healthcare costs.
CyPath®
Lung uses flow cytometry technology to detect and analyze cell populations in a person’s sputum, or phlegm, to find characteristics
indicative of lung cancer, including cancer and/or cancer-related cells that have shed from a lung tumor. The flow cytometer is a well-established
instrument used in many commercial laboratories. Flow cytometry collects data pertaining to properties of single cells labeled with antibodies
and dyes specific to cell types and characteristics. Sputum is an excellent sample for analysis because it is in direct contact with
any malignancy in the lungs and can provide information about its area of field cancerization and the lung microenvironment. While studies
have shown that expert cytological analysis of sputum can detect cancerous and pre-malignant cells, the level of scrutiny required for
the analysis is not feasible in the laboratory routine, according to an October 22, 2009, article, “Premalignant and malignant
cells in sputum from lung cancer patients,” published in Cancer Cytopathology. The process of looking at microscopy slides
is an extremely laborious approach and demands years of expertise. CyPath® Lung uses flow cytometry and automated data
analysis developed by AI that allows for an entire sample of sputum averaging 16 million cells to be examined in approximately 30 minutes,
allowing for cost-effective, large-scale commercialization.
In
particular, CyPath® Lung uses a synthetic porphyrin called meso-tetra (4-carboxyphenyl) porphyrin (“TCPP”).
Porphyrins are biological pigments that, when exposed to ultraviolet light at certain wavelengths, can result in the cell fluorescing
a red or purplish color that can be detected under a microscope or by flow cytometry, according to an article titled “Laboratory
Diagnosis of Porphyria,” published in Diagnostics (Basel) on July 26, 2021. Porphyrins can be man-made, like TCPP, or they
can be naturally occurring, like heme that is responsible for the red color in red blood cells. Cancer cells are known to take up certain
porphyrins in higher amounts than non-cancer cells, and the high affinity for cancer cells displayed by TCPP makes it an excellent bio-label
for cancer, according to an article published in Progress in Clinical and Biological Research in 1984 titled “A comparative
study of 28 porphyrins and their abilities to localize in mammary mouse carcinoma: uroporphyrin I superior to hematoporphyrin derivative.”
As used in CyPath® Lung, the proportion of cells with high TCPP fluorescence intensity in a patient’s sputum sample
is a significant predictor of lung cancer. We hold multiple patents protecting our use of TCPP for the diagnosis, monitoring, and treatment
of cancer. In addition, we have multiple domestic and foreign patent applications to protect the use of flow cytometry and our AI-developed
automated analysis platform in the detection of lung cancer and other lung diseases using sputum as a sample.
We
developed an algorithm as part of a test validation trial that used machine learning to distinguish samples from high-risk patients who
had lung cancer from those who are cancer-free. Results of the trial were published January 21, 2023, in the peer-reviewed journal Respiratory
Research. Village Oaks developed CyPath® Lung for sale as an LDT in accordance with the standards of the CAP and the
regulations and guidance of the CLIA program, which is administered by CMS.
CyPath®
Lung can be put into routine lab use without requiring expert evaluation of samples or being subject to operator bias. Our approach
allows the entire sputum sample to be rapidly analyzed. The numerical analysis developed with machine learning captures complex interactions
between lung cancer, the microenvironment, and areas of field cancerization that would be difficult if not impossible for individuals
to predict or detect reliably by eye. For example, during test development, we discovered that viability staining density suggests a
link with apoptosis, or cell death, that is linked to many cancers, including lung cancer. Our model also suggests that specific markers
of immune cell populations may be informative as to the presence of cancer in the lung. These findings are the result of our machine
learning approach to automated analysis.
CyPath®
Lung uses sputum that is obtained noninvasively by patients in the privacy of their home. Physicians most often order the test
for patients after CT imaging reveals one or more pulmonary nodules that are suspected to be lung cancer. A patient collects his or her
sample using a hand-held, noninvasive assist device, ICU Medical’s Acapella® Choice Blue, that acts to break up
mucus in the lungs and help a person cough up sputum from the lung into a collection cup. The Acapella® Choice Blue has
been 510(k) cleared by the FDA as a positive expiratory pressure device to help mobilize lung secretions in people with certain lung
conditions.
The
sputum sample is shipped overnight by the patient to PPLS and processed into a single-cell suspension, then labeled with antibodies that
distinguish different cell types and the synthetic porphyrin TCPP that identifies cancer cells and/or cancer-associated cells. Our test
can analyze an average sputum sample containing about 16 million cells in approximately 30 minutes using integrated software for high-throughput,
user-friendly standardized analysis of flow cytometric sample data. A physician’s report is generated within minutes after data
acquisition. The report stratifies the patient into one of two risk groups. Those patients deemed “likely or very likely”
to have cancer may benefit from aggressive intervention. Those “unlikely or very unlikely” to have a malignancy may continue
imaging surveillance. The physician also receives a numerical score between 0.1 to 1.0, with 0.1-0.49 being a negative result and 0.5
to 1.0 considered positive for lung cancer. The proprietary automated analysis software was developed and is wholly owned and patent
protected by bioAffinity Technologies.
Physicians
receive test results within three days after the laboratory receives the patient’s sputum sample. CyPath® Lung testing
helps identify patients who should undergo more aggressive follow-up procedures to confirm a suspected lung cancer. When CyPath®
Lung sample analysis determines a patient is unlikely or very unlikely to have lung cancer, the result can serve to support a physician’s
decision to monitor this patient by following a recommended LDCT screening routine.
As
reported in an article titled “Detection of Early-Stage Lung Cancer in Sputum using Automated Flow Cytometry and Machine Learning,”
published in Respiratory Research on January 21, 2023, we conducted a 150-patient test validation trial of people at high risk
for lung cancer including patients with the disease (N=28) and those who were cancer-free (N=122) that resulted in CyPath®
Lung’s overall 88% specificity, meaning the ability to correctly identify a person without cancer, and 82% sensitivity, meaning
the ability to correctly identify cancer in a person with the disease. For the subset of patients in this trial who had lung nodules
20 mm or smaller or no nodules at all, this trial resulted in 92% sensitivity, 87% specificity, 99% negative predictive value, and 88%
accuracy. In this subset of 132 individuals with small nodules, 119 patients were cancer-free and 13 had confirmed lung cancer. Eight
out of 10 (80%) of Stage I tumors were correctly identified. Sensitivity is the percentage of persons with the disease – in this
case, lung cancer – who are correctly identified by the test. Specificity is the percentage of persons without lung cancer who
are correctly identified by the test. The cancer group included all lung cancer types, but mostly squamous cell carcinoma and adenocarcinoma
lung cancer (in near equal numbers), showing that CyPath® Lung detects all types of lung cancer. The detection of small
lung nodules in people who have early-stage cancer can increase lung cancer survival.
In
this 19-month test validation trial participants provided a sputum sample and were released from the study after a physician either confirmed
the individual was cancer-free by examination of CT imaging or confirmed the presence of lung cancer by biopsy. Flow cytometry and patient
data used in the analysis produced results that included (1) the proportion of cells with a high ratio of high TCPP fluorescence intensity
over cell size; (2) the proportion of cells with an intermediate ratio of fluorescence intensity caused by the viability dye (FVS510)
over cell size; (3) the proportion of cells that were CD206 negative but positive for one or more of the following markers: CD66b (granulocytes),
CD3 (T cells), and CD19 (B cells); and (4) patient age.
The
CyPath® Lung technology is based on scientific work originating at Los Alamos National Laboratory in collaboration with
St. Mary’s Hospital in Colorado. In the Los Alamos research study, sputum samples from lung cancer patients were differentiated
from non-cancer samples with 100% accuracy. This early research was conducted with sputum from 12 uranium miners. Microscope slides of
sputum samples were labeled with the synthetic fluorescent porphyrin TCPP. The Los Alamos research study of 12 uranium miners included
eight men with cancer and four healthy individuals. Researchers were blinded to the sample origin and looked for the presence of highly
fluorescent cells indicating uptake of TCPP as an indicator of lung cancer. The length of the study and specific follow-up was not reported,
but researchers did report that one patient entering the study as a healthy subject was correctly diagnosed with cancer by the test.
Later, a blinded clinical trial was conducted and results published September 2015 in an article titled “Early Detection of Lung
Cancer with Meso-Tetra (4-Carboxyphenyl) Porphyrin-Labeled Sputum” in the Journal of Thoracic Oncology. This study reported
on an earlier version of CyPath® Lung that used a fluorescent microscope to directly identify cells labeled with TCPP
in one-third or less of the sputum sample. For each trial participant, researchers manually scanned 12 microscope slides labeled with
TCPP for the presence of red fluorescent cells (“RFCs”) displaying a spectral signature that indicated uptake of TCPP in
the cell. In addition to measuring the spectral signature, the fluorescent intensity and cell size of RFCs were measured. The test data,
including fluorescent intensity over cell size, was analyzed. The trial was conducted over 24 months and resulted in 81% test accuracy,
77.9% sensitivity, and 65.7% specificity in the ability to correctly differentiate between samples from lung cancer patients and those
at high risk who were cancer-free. The Patriquin trial required participants to provide a sputum sample and CT imaging of the lungs.
Those in the cancer cohort underwent a biopsy to confirm lung cancer. High-risk patients displaying indeterminate nodules were followed
for 18 months to confirm they were cancer-free. The Patriquin study concluded that optimizing the test to provide for analysis of the
entire sputum sample would improve results.
On
January 1, 2024, the Medicare reimbursement code 0406U specific for CyPath® Lung became effective after multiple regulatory
decisions in 2023 leading to approval. On June 6, 2023, the American Medical Association (“AMA”) approved a Current Procedural
Terminology (“CPT”) Proprietary Laboratory Analysis (“PLA”) code specifically for use with CyPath®
Lung, which was publicly released on June 30, 2023. The new CPT code became effective for use on October 1, 2023. On November 30, 2023,
we announced CMS’ final determination for payment for CyPath® Lung, and CyPath® Lung is on CMS’
2024 clinical laboratory fee schedule. The CPT PLA code assigned to CyPath® Lung is 0406U with the descriptor “Oncology (lung),
flow cytometry, sputum, 5 markers (meso-tetra [4- carboxyphenyl] porphyrin [TCPP], CD206, CD66b, CD3, CD19), algorithm reported as likelihood
of lung cancer.”
We
have an agreement with GO2 Partners to produce patient collection kits and to provide warehousing and distribution services for sending
out the kits. Laboratory reagents, supplies, and equipment are commercially available through multiple vendors. Sample processing, labeling,
and data collection can be accomplished by a laboratory technician skilled in general laboratory techniques. Data analysis leading to
a physician’s report is done by automated analysis software fully integrated into the test.
To
our knowledge, CyPath® Lung is the first cancer diagnostic that combines flow cytometry and automated analysis to predict
the presence of lung cancer from sputum samples.
The
Cancer Diagnostics Market and CyPath® Lung
The
global cancer diagnostic market is projected to grow from an estimated $102.24 billion in 2022 to $162.57 billion in 2030, with a compound
annual growth rate (“CAGR”) of 6.1%, according to a market research report issued by Research and Markets in June
2023. A January 2023 report, also by Research and Markets, stated that the market worldwide for lung cancer diagnostic tests was
estimated at $2.6 billion in 2022 and is projected to reach $4.7 billion by 2030, with a CAGR of 7.8% over 2022-2030. We have the potential
to play a significant role in the cancer diagnostic market because our platform is noninvasive, cost-effective, and has the potential
to lead to better patient outcomes.
Comparison
of CyPath® Lung to Current Standards of Care
Our
business model is to immediately address the need for a quick-to-market, noninvasive, cost-effective lung cancer diagnostic that will
save lives and reduce medical costs. The U.S. Preventive Services Task Force recommended new guidelines for screening in March 2021,
nearly doubling the number of Americans at high risk for lung cancer who are recommended for annual screening to 14 million people, according
to the ALA. In November 2023, the American Cancer Society updated its guidelines for lung cancer screening to include all former smokers
over the age of 50 regardless of when they quit, increasing the number of American adults eligible for screening to 19 million. China
has an estimated 300 million smokers, according to the World Health Organization. In Europe, it is estimated that there is one new case
of lung cancer diagnosed every minute, with incidence rates for males the highest in Eastern European countries and a five-year survival
rate of only 13%, as reported by a May 2021 article, “Lung cancer screening in Europe: where are we in 2021?” published in
Translational Lung Cancer Research. We expect to pursue CE marking of CyPath® Lung for sale in the European Union.
We
conducted market research in the U.S. with pulmonologists, oncologists, cardiothoracic surgeons, radiologists, and internists engaged
in the diagnosis and treatment of lung cancer to help assess their reactions to our diagnostic tool. Research revealed a strong interest
in CyPath® Lung, driven by the high level of unmet clinical need for noninvasive diagnostics. A survey conducted with
240 pulmonologists and internists, the primary audience for the test, showed that 96% would use CyPath® Lung if it were
available today as an adjunct used for diagnosis after LDCT screening. Physicians responded favorably to a noninvasive diagnostic technology
that gives them more confidence in their decision to proceed with more aggressive follow-up procedures if the test comes back positive.
If test results are negative, physicians can rule out lung cancer, thus reducing the number of costly invasive procedures that result
from the LDCT false-positive rate.
CyPath®
Lung Business Development Plan
We
believe in the viability of our business plan based on the circumstances surrounding our business that are known to us as of the date
of this Annual Report. However, the timing, strategies, and stages of our business plan may evolve in light of new circumstances that
cannot be predicted with certainty at this time. Our business plan envisions four phases of expanding market entry into the U.S., the
EU, and worldwide that are timed to maximize our resources and minimize market risk. Phase 1 of our business plan has already begun with
a limited market launch of our LDT CyPath® Lung in Texas. This limited test market launch is designed to evaluate our
marketing program and help us ensure each step in the care pathway – from the initial order by physicians to sputum collection
and processing, to generating and delivering the patient report – is efficient and effective. This limited test market approach
allows us to refine future positioning and develop strategic insight for our CyPath® Lung test before expanding to a larger
market.
We
believe that our strategy related to a limited market launch is proving successful. On March 5, 2024, we reported accelerating growth
of 375% in CyPath® Lung tests ordered and processed over from December 1, 2023, through February 29, 2024, as compared
to the prior three-month period. We attribute the growth in sales to three 2023 initiatives that came to fruition early in 2024: (1)
CMS’ inclusion of reimbursement for CyPath® Lung on its 2024 clinical laboratory fee schedule; (2) the hiring of
our new National Director of Sales, Dallas Coleman, who is experienced and well respected in the pulmonary field; and (3) marketing materials
for the newly branded CyPath® Lung that emphasize our test’s ability to assist physicians with next steps in patient
care.
The
next step in our marketing plan is expansion into the Southwest market area in 2024 followed by a staged nationwide expansion of sales
and marketing beginning later in 2024. In addition to introducing pulmonologists, family practitioners, and other providers to CyPath®
Lung, we are selling CyPath® Lung tests to the Department of Defense, which represents a significant potential market
for CyPath® Lung. Phase 2 of our business plan anticipates entering the EU market with CyPath® Lung as
a CE-marked IVD test with sales in the Netherlands, followed by a staged EU expansion. Phase 3 of our business plan focuses on the marketing
of an FDA-cleared CyPath® Lung test, beginning with a pivotal clinical trial in the U.S. Toward that end, we intend to
voluntarily seek FDA clearance of the CyPath® Lung as a Class II IVD medical device for the detection of lung cancer.
We have designed our pivotal trial with guidance from our Clinical Research Organization (“CRO”), Courante Oncology, and
we are preparing a pre-submission that will be submitted to the FDA for review and feedback. We anticipate a three-year diagnostic trial
including an 18-month patient enrollment of approximately 1,800 patients. Similar to the test validation trial, the planned pivotal trial
will analyze flow cytometry and patient data including (1) the proportion of cells with a high ratio of high TCPP fluorescence intensity
over cell size; (2) the proportion of cells with an intermediate ratio of fluorescence intensity caused by the viability dye (FVS510)
over cell size; (3) the proportion of cells that were CD206 negative but positive for one or more of the following markers: CD66b (granulocytes),
CD3 (T cells), and CD19 (B cells); and (4) patient age. Patient enrollment is scheduled to begin in 2024 at up to 20 collection sites.
Assuming the study is successful, we intend to submit a de novo classification request to the FDA within six months of study completion.
Phase 4 of our business plan accelerates the market presence of CyPath® Lung in countries in Asia, Eastern Europe, and
Australia after obtaining FDA marketing authorization.
At
each phase of commercialization, we plan to develop messaging and marketing programs, including key convention attendance, digital marketing,
social media presence, and advertising, to create an “inbound” lead generation mechanism that delivers our message to our
target audience. In addition, we plan to collaborate with key opinion leaders (“KOLs”) to expand our pool of third-party
experts and speakers. We will provide support and collateral materials, including posters, presentations, videos, and peer-reviewed papers,
to our KOLs who will present data and their experience with CyPath® Lung at key meetings. This content can be shared across
platforms, including websites and sales tools, and will be used as references to support our product claims as well as sales and marketing
efforts to physicians, reference laboratories, and patients. We will also work with lung cancer advocacy groups throughout all phases
to support the message that routine screening can save lives by diagnosing cancer at an early stage.
The
Competition for CyPath® Lung
CyPath®
Lung has not been tested directly against its competitors’ products, but a comparison of the published performance numbers
suggests CyPath® Lung is among the highest performing tests on the market. Furthermore, CyPath® Lung is
noninvasive – not even requiring a needle stick – and cost effective, and processing and analysis procedures are easy to
perform.
Published