BIOAFFINITY TECHNOLOGIES, INC. This section presents management's perspective on our financial condition and results of operations. The following discussion and analysis (the "MD&A") is intended to highlight and supplement data and information presented elsewhere in this Quarterly Report, and should be read in conjunction with our interim unaudited condensed consolidated financial statements and notes elsewhere in this Quarterly Report and our audited consolidated financial statements and the related notes and the discussion under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the year endedDecember 31, 2021 included in our Final Prospectus filed with theSEC onSeptember 2, 2022 . The MD&A is also intended to provide you with information that will assist you in understanding our consolidated financial statements, the changes in key items in those consolidated financial statements from year to year, and the primary factors that accounted for those changes. To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of our future financial outcomes. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties, and assumptions that could cause the Company's financial results to differ materially from management's expectations. Factors that could cause such differences are discussed in the "Cautionary Note Regarding Forward-Looking Statements" section of this Quarterly Report and in the "Risk Factors" section of our Final Prospectus. Data as of and for the three and nine months endedSeptember 30, 2022 and 2021 has been derived from our unaudited condensed consolidated financial statements appearing at the beginning of this Quarterly Report. Results for any interim period should not be construed as an inference of what our results would be for any full fiscal year or future period.
Our MD&A is organized as follows:
? Company Overview - Discussion of our business plan and strategy to provide
context for the remainder of the MD&A.
? Results of Operations - Analysis of our financial results comparing the three
and nine months ended
? Liquidity and Capital Resources - Analysis of changes in our cash flows, and
discussion of our financial condition and potential sources of liquidity.
? Critical Accounting Policies and Use of Estimates - Accounting policies that
we believe are important to understanding the assumptions and judgments
incorporated in our reported financial results and forecasts.
Company Overview
Business
bioAffinity Technologies, Inc. (the "Company," "we," or "our") develops
noninvasive, early-stage diagnostics to detect, and is researching targeted
therapies to treat, diseases of the lung and cancer at the cellular level. Our
Company develops proprietary noninvasive diagnostic tests and cancer
therapeutics using technology that preferentially targets cancer cells and cell
populations indicative of a diseased state. Research and optimization of our
platform technologies are conducted in our laboratories at The University of
Texas at San Antonio .
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. Physicians are able to order CyPath® Lung to assist in
their assessment of patients who they suspect may have lung cancer, which will
enable physicians to more confidently distinguish between patients who will
likely benefit from timely intervention and more invasive follow-up procedures
and patients who are likely without disease and can continue annual screening.
CyPath® Lung has the potential to increase overall diagnostic accuracy of lung
cancer, which could lead to increased survival, lower the number of unnecessary
invasive procedures, reduce patient anxiety, and lower medical costs.
Through our wholly owned subsidiary, OncoSelect® Therapeutics, LLC , our research
has led to discoveries and advancement of novel cancer therapeutics that
specifically and selectively target cancer cells. We are focused on expanding
our broad platform technologies to continue developing tests that detect and
therapies that target various types of cancer and potentially other diseases.
17
Recent Developments
? In the third quarter of 2022, the Company completed our IPO, with net proceeds
of
offering expenses. In connection with our IPO, the Company converted almost
? In the third quarter of 2022, the Company raised additional proceeds of
million from the sale of warrants.
? We have determined that an estimated 1,800 participants will be required to be
enrolled in our pivotal clinical trial that is designed to confirm the
sensitivity and specificity of CyPath® Lung in detecting lung cancer in
persons at high risk for the disease, and in particular those people who
display indeterminant lung nodules sized between 6mm and 30 mm that often
present a challenge in diagnosis.
? In the third quarter of 2022, the Company was awarded therapeutic patents in
comprised of porphyrins conjugated to chemotherapeutic agents that can provide
selective treatment for cancer.
? In
Clinic and the Lung Cancer Screening Program at the South Texas Veterans
Company's Scientific and Medical Advisory Board .
Financial
To date, we have devoted a substantial portion of our efforts and financial
resources to the development of our first diagnostic test, CyPath® Lung. As a
result, since our inception in 2014, we have funded our operations principally
through private sales of our equity or debt securities. From October 2021
through the third quarter of 2022, the Company raised an additional $2.7 million
through the sale of bridge notes. In September 2022 , we completed our IPO, with
net proceeds of $6.0 million after underwriting discounts, commissions and
offering expenses, and sold warrants for proceeds of approximately $7.7 million .
As of September 30, 2022 , we had cash and cash equivalents of $13.5 million . We
believe that our available cash will be sufficient to fund our planned
operations for at least 12 months following the date of this Quarterly Report.
In the second quarter of 2022, we started to recognize revenue from sales of the
CyPath® Lung test by our licensee, Precision Pathology Services, a
CAP-accredited, CLIA-certified clinical pathology laboratory and our licensee.
We have never been profitable and, as of September 30, 2022 , we had total
working capital of $12.6 million , and an accumulated deficit of approximately
$35.0 million . We expect to continue to incur significant operating losses for
the foreseeable future as we continue the development of our diagnostic tests
and therapeutic products and advance them through clinical trials.
We anticipate raising additional cash needed through the private or public sales
of equity or debt securities, collaborative arrangements, or a combination
thereof, to continue to fund our operations and develop our products. There is
no assurance that any such collaborative arrangement will be entered into or
that financing will be available to us when needed in order to allow us to
continue our operations, or if available, on terms acceptable to us. If we do
not raise sufficient funds in a timely manner, we may be forced to curtail
operations, delay our clinical trials, cease operations altogether, or filefor bankruptcy. Results of Operations
Three Months Ended
Net loss for the three months ended
Revenue Our revenue is generated exclusively from royalties for our first diagnostic test, CyPath® Lung, from sales by Precision Pathology Services, a CAP-accredited, CLIA-certified clinical pathology laboratory and our licensee. Although Precision Pathology Services placed CyPath® Lung on its list of tests offered to physicians in second quarter 2022, there was limited marketing of the product until September's IPO made available funds to assemble a marketing team of experts focused on demonstrating the clinical value of CyPath® Lung in the marketplace. The limited test-market launch in theSan Antonio area 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 had revenue of approximately$1,000 during the three months endedSeptember 30, 2022 from the sale of CyPath®Lung ?as a laboratory-developed test (an "LDT"), compared to no revenue in 2021. 18 We expect our revenue to continue to grow for CyPath® Lung as we add physicians prescribing our diagnostic test and expand our outreach to other geographic areas. Our revenues are affected by the test volume of our products, patient adherence rates, payer mix, the levels of reimbursement, and payment patterns of payers and patients. Cost of Sales Cost of sales is comprised primarily of costs related to inventory production and usage and shipment of collection kits to patients and healthcare providers. The increase in cost of sales for the three months endedSeptember 30, 2022 is primarily due to sales of our diagnostic kits in the second quarter of 2022, compared to no sales in the prior year. Operating Expenses Three months Ended Change in 2022 September 30,(1) Versus 2021 2022 2021 $ % (amount in thousands) Operating Expenses Research and development$ 320 $ 331 $ (11 ) -3 % Clinical development 61 34 27 79 %
General and administrative 596 162 434 268 % Total operating expenses$ 977 $ 527 $ 450
85 %
(1) Represents operating expenses from our unaudited condensed consolidated
financial statements for the three-month period ended
2021, respectively. Refer to our notes to unaudited condensed consolidated
financial statements for further discussion.
Operating expenses totaled approximately $1.0 million and $0.5 million during
the three months ended September 30, 2022 and 2021, respectively. The increase
in operating expenses is the result of the following factors.
Research and Development Expenses
Our research and development expenses consist primarily of expenditures for lab operations, preclinical studies, compensation and consulting costs.
Research and development expenses totaled approximately$320,000 and$331,000 for the three months endedSeptember 30, 2022 , and 2021, respectively. The decrease of approximately$11,000 , or -3%, for the three months endedSeptember 30, 2022 , compared to the same period in 2021, was primarily attributable to a decrease in legal costs related to patents and annuities compared to prior year, as well as a decrease in compensation costs due to several employees who were furloughed in the prior year, but are now back full time. The decrease was partially offset due to an increase of$25,000 due to costs related to lab
supplies and reagents. Clinical Development
Clinical development expenses totaled approximately$61,000 and$34,000 for the three months endedSeptember 30, 2022 and 2021, respectively. The increase of approximately$27,000 , or 79%, for the three months endedSeptember 30, 2022 , compared to the same period in 2021 was primarily attributable to an increase of approximately$20,000 in professional fees including consulting fees, as well as increases of approximately$22,000 in clinical study activities related to site costs, compared to 2021 as operations were still being affected by the global pandemic. General and Administrative
Our general and administrative expenses consist primarily of expenditures related to employee compensation, legal, accounting and tax, other professional services, and general operating expenses.
General and administrative expenses totaled approximately$596,000 and$162,000 for the three months endedSeptember 30, 2022 and 2021, respectively. The increase of approximately$434,000 , or 268%, for the three months endedSeptember 30, 2022 , compared to the same period in 2021, was primarily attributable to an increase of approximately$240,000 due to consulting, legal and professional fees incurred in 2022 compared to 2021 related to board compensation, and other legal and professional fees as a result of being a publicly traded company. Additionally, compensation increased approximately$68,000 as we increased personnel and support services to support the launch of sales of our diagnostic test, CyPath® Lung. 19 Other Income (Expense) Three Months Ended Change in 2022 September 30, Versus 2021 2022 2021 $ % (amount in thousands)
Interest income (expense), net $ (889 )$ (135 ) $ (754 ) 559 % Gain (loss) on change in fair value of convertible notes (3,054 ) (852 ) (2,202 ) 258 % Total other income (expense)$ (3,943 ) $ (987 ) $
(2,956 ) 299 %
Other expense totaled approximately
Interest Income (Expense), net
Interest expense increased approximately$0.8 million , or 559%, to approximately$0.9 million for the three months endedSeptember 30, 2022 , compared to$0.1 million for the three months endedSeptember 30, 2021 . The increase was due to additional convertible notes outstanding during the quarter compared to the same period in the prior year, partially offset by substantially all convertible and bridge notes being converted during the quarter as a result of our IPO. Additionally, in 2022 the Company recorded interest expense of approximately$0.8 million for the amortization of debt discount related to the issuance
of bridge notes.
Gain (loss) on change in fair value of convertible notes
There was a loss of approximately$3.1 million on the change in fair value of convertible notes during the three months endedSeptember 30, 2022 compared to a loss of approximately$0.9 million during the three months endedSeptember 30, 2021 . The change in the fair value of convertible notes resulted primarily from changes in the calculation of the fair value of our stock, the reduction in the expected term and other assumptions during the reported periods. Refer to our notes to unaudited condensed consolidated financial statements for further discussion on our convertible notes.
Nine Months Ended
Net loss for the nine months ended
Revenue Our revenue is generated exclusively from royalties for our first diagnostic test, CyPath® Lung, from sales by Precision Pathology Services, a CAP-accredited, CLIA-certified clinical pathology laboratory and our licensee. Although Precision Pathology Services placed CyPath® Lung on its list of tests offered to physicians in second quarter 2022, there was limited marketing of the product until September's IPO made available funds to assemble a marketing team of experts focused on demonstrating the clinical value of CyPath® Lung in the marketplace. The limited test-market launch in theSan Antonio area 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 had revenue of approximately$2,500 during the nine months endedSeptember 30, 2022 , from the sale of CyPath®Lung ?as an LDT, compared to no revenue in 2021. We expect our revenue to continue to grow for CyPath® Lung as we add physicians prescribing our diagnostic test and expand our outreach to other geographic areas. Our revenues are affected by the test volume of our products, patient adherence rates, payer mix, the levels of reimbursement, and payment patterns of payers and patients. Cost of Sales Cost of sales is comprised primarily of costs related to inventory production and usage and shipment of collection kits to patients and healthcare providers. The increase in cost of sales for the nine months endedSeptember 30, 2022 is primarily due to the launch of sales in the second quarter of 2022, compared to no sales in the prior year. 20 Operating Expenses Nine months Ended Change in 2022 September 30,(1) Versus 2021 2022 2021 $ % (amount in thousands) Operating Expenses Research and development $ 949$ 878 $ 71 8 % Clinical development 142 78 64 82 %
General and administrative 1,298 591 707 120 % Total operating expenses$ 2,389 $ 1,547 $ 842
54 %
(1) Represents operating expenses from our unaudited condensed consolidated
financial statements for the nine-month period ended
2021, respectively. Refer to our notes to unaudited condensed consolidated
financial statements for further discussion.
Operating expenses totaled approximately $2.4 million and $1.5 million during
the nine months ended September 30, 2022 and 2021, respectively. The increase in
operating expenses is the result of the following factors.
Research and Development Expenses
Our research and development expenses consist primarily of expenditures for lab operations, preclinical studies, compensation and consulting costs.
Research and development expenses totaled approximately$949,000 and$878,000 for the nine months endedSeptember 30, 2022 , and 2021, respectively. The increase of approximately$71,000 , or 8%, for the nine months endedSeptember 30, 2022 , compared to the same period in 2021, was primarily attributable to an increase in compensation costs as we added additional research personnel, partially offset by a decrease in the prior year due to several employees who were furloughed for several months and later returned to their positions with the Company. Additionally, the increase was due to an increase of$25,000 in costs related to lab supplies and reagents, as well as an increase of$20,000 related to legal costs in the current year as we maintain our patent portfolio, as well as expand our portfolio to include expanding and protecting our diagnostic and therapeutic platforms. Clinical Development Clinical development expenses totaled approximately$142,000 and$78,000 for the nine months endedSeptember 30, 2022 and 2021, respectively. The increase of approximately$64,000 , or 82%, for the nine months endedSeptember 30, 2022 , compared to the same period in 2021 was primarily attributable to an increase of approximately$40,000 in professional fees including consulting fees, as well as increases of approximately$13,000 in clinical study activities related to site costs, compared to 2021 as operations were still being affected by the global pandemic. General and Administrative
Our general and administrative expenses consist primarily of expenditures related to employee compensation, legal, accounting and tax, other professional services, and general operating expenses.
General and administrative expenses totaled approximately$1.3 million and$591,000 for the nine months endedSeptember 30, 2022 and 2021, respectively. The increase of approximately$707,000 , or 120%, for the nine months endedSeptember 30, 2022 , compared to the same period in 2021, was primarily attributable to an increase of approximately$470,000 related to consulting, legal and professional fees incurred in 2022 compared to 2021 as we prepared for a potential IPO. Additionally, compensation increased approximately$90,000 as we increased personnel and support services to support the launch of sales of our diagnostic test, CyPath® Lung. 21 Other Income (Expense) Nine Months Ended Change in 2022 September 30,(1) Versus 2021 2022 2021 $ % (amount in thousands)
Interest income (expense), net$ (2,435 ) $ (364 ) $ (2,071 ) 569 % Gain on debt extinguishment 212 239 (27 ) -11 % Gain (loss) on change in fair value of convertible notes (1,867 ) 924 (2,791 ) -302 % Total other income (expense)$ (4,090 ) $ 799 $
(4,889 ) -612 %
(1) Represents other income (expense) from our unaudited condensed consolidated
financial statements for the nine-month period ended
2021, respectively. Refer to our notes to unaudited condensed consolidated
financial statements for further discussion.
Other income (expense) totaled approximately
Interest Income (Expense), net
Interest expense increased$2.1 million , or 569%, to approximately$2.4 million for the nine months endedSeptember 30, 2022 , compared to$228,000 for the nine months endedSeptember 30, 2021 . The increase was due to additional convertible notes outstanding during the same period in the prior year. Additionally, in 2022 the Company recorded interest expense of approximately$2.0 million for the amortization of debt discount related to the issuance of bridge notes.
Gain on Extinguishment of Debt
InMarch 2021 , the Company received a second draw$0.2 million PPP Loan (the "PPP Loan"), and inApril 2022 , received forgiveness from the SBA, and recorded a gain of$212,000 on the extinguishment of the PPP Loan. InApril 2020 , the Company received an initial$0.2 million PPP Loan, and inJune 2021 , received forgiveness from the SBA, and recorded a gain of$239,000 on the extinguishment of the PPP Loan.
Gain (loss) on change in fair value of convertible notes
There was a loss of approximately$1.9 million on the change in fair value of convertible notes during the nine months endedSeptember 30, 2022 compared to a gain of approximately$0.9 million during the nine months endedSeptember 30, 2021 . The change in the fair value of convertible notes resulted primarily from changes in the calculation of the fair value of our stock, the reduction in the expected term and other assumptions during the reported periods. Refer to our notes to unaudited condensed consolidated financial statements for further discussion on our convertible notes.
Liquidity and Capital Resources
To date, we have funded our operations primarily through our initial public
offering, exercise of warrants, and the sale of our equity and debt securities,
resulting in gross proceeds of approximately
We have incurred losses since our inception in 2014 as a result of significant expenditures for operations and research and development and, prior toApril 2022 , the lack of any approved diagnostic test or therapeutic products to generate revenue. For the nine months endedSeptember 30, 2022 and 2021, we had net losses of$6.5 million and$0.8 million , respectively, and we expect to incur substantial additional losses in future periods. We have an accumulated deficit of approximately$35.0 million as ofSeptember 30, 2022 . Cash and cash equivalents were approximately$13.5 million as ofSeptember 30, 2022 . Based on our current level of expected operating expenditures, we expect to be able to fund our operations for at least 12 months following the date of this Quarterly Report. We continue to seek sources of financing, including to fund our continued operations and research and development programs. To raise additional capital, we may sell additional equity or debt securities, or enter into collaborative, strategic and/or licensing transactions. There can be no assurance that we will be able to complete any financing transaction in a timely manner or on acceptable terms or otherwise or enter into a collaborative or strategic transaction. If we are not able to raise additional cash, we may be forced to delay, curtail, or cease development of our diagnostic tests or therapeutic products, or cease operations altogether.
22
© Edgar Online, source
