bioAffinity Technologies, Inc. (BIAF) Earnings Call Transcript & Summary

Good afternoon, and welcome to the bioAffinity Technologies Business Update Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Julie Anne Overton, Director of Communications. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to today's conference call to discuss bioAffinity Technologies' acquisition of the laboratory assets of Village Oaks Pathology Services. These assets are being acquired by a new wholly owned subsidiary of bioAffinity Technologies, named Precision Pathology Laboratory Services, LLC. Please note that during today's call, bioAffinity Technologies management will be making forward-looking statements and that actual results may differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with the company's business. These risks and uncertainties are detailed in and are qualified by the cautionary statements contained in bioAffinity Technologies' press releases and SEC filings. Furthermore, this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast today, September 19, 2023. bioAffinity Technologies undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call, except as required by law. Joining me on today's call are Maria Zannes, President and Chief Executive Officer of bioAffinity Technologies; and Dr. Roby Joyce, Founder of Village Oaks Pathology Services and the Medical Director of the newly formed Precision Pathology Laboratory Services. Joining us for the Q&A portion of the call will be Michael Dougherty, bioAffinity's CFO. With that, I'd now like to turn the call over to Maria Zannes. Maria?

Thank you, Julie Anne, and thank you to our listeners who are joining us today. Today, I have some exciting and very important news to share with you regarding how we are strengthening the strategic direction of our company. As you read in the morning's press release, the main topic of today's business update call is our acquisition of the laboratory assets of Village Oaks Pathology Services. This is a CAP/CLIA accredited clinical laboratory that for 16 years, has provided exceptional pathology services in Texas and has the ability to expand its services nationwide. Village Oaks has been conducting business under the name Precision Pathology Services and it's no coincidence that our newly established subsidiary shares a similar name to take advantage of Precision's reputation for excellence. Many of you on the call today will recognize that it is Precision Pathology that developed CyPath Lung into a laboratory-developed test for sale to Precision. In fact, we've been working side-by-side with Dr. Joyce and his highly skilled team for the past 5 years. These are the professionals who with Dr. Joyce, will join our team, have joined our team at bioAffinity Technologies. CyPath Lung, of course, is our noninvasive and accurate test, a test built on flow cytometric platform and enhanced by automated analysis, a test to detect early-stage lung cancer. Dr. Roby Joyce, who joins me today on this call founded Village Oaks in 2007, and will continue his work as the Medical Director of the newly formed Precision Pathology Laboratory Services. He also will join us as a member of bioAffinity Technologies Board of Directors. Together, we'll discuss the transaction, why bioAffinity made this decision and what this means for our future. We will then conclude with a Q&A session. bioAffinity Technologies is dedicated to researching and commercializing diagnostic technologies. We are keenly focused on CyPath Lung, a noninvasive test that allows patients to collect their samples at home and physicians to receive actionable results that assist with the clinical decision-making for patients they suspect have lung cancer. Lung cancer is the leading cancer killer, largely due to its diagnosis in late stage. But as Dr. Joyce can confirm, detecting and treating lung cancer at early stage changes the prognosis, offering patients longer, healthier lives. CyPath Lung has shown a high 92% sensitivity in detecting lung cancer in people with small pulmonary nodules. And our test is equally impressive for those suspected of lung cancer who do not have the disease, showing 87% specificity in confirming that someone does not have lung cancer when, indeed, they are cancer-free. With our test, we have the ability to save many people from unnecessary and expensive invasive procedures. In all, CyPath Lung can have a significant positive impact in the early detection of lung cancer. Today's announcement not only strengthens that position by integrating all operational aspects of CyPath Lung under one corporate roof, but it also internalizes the resources needed to more quickly bring to market additional innovative and noninvasive tests that bioAffinity technologies is developing. We continue test marketing CyPath Lung. Our efforts will inform our nationwide rollout and our work to date has generated valuable commercial insights. And perhaps most importantly, physicians appreciate the confidence we bring to the diagnostic process. Our more limited beta marketing approach allows us to ensure that all aspects of the product are efficient, effective and scalable from marketing to physician onboarding and sales to patient sample collection and sample return to logistics and processing and finally, to accurate data analysis and timely patient results to physicians. We are also finalizing new product branding and market positioning to accelerate both awareness and adoption. This acquisition equips us with the resources required to scale up and to optimize our business. By owning the Pathology Laboratory, bioAffinity technologies can better focus resources on CyPath Lung as orders increase. The acquisition also supports our upcoming FDA pivotal trial by internalizing accessioning, processing, analysis and coordination with our CRO that will help us run the 1,800-patient study we anticipate will begin Q1 of 2024. This tighter integration also fosters more effective R&D advancements given that the diagnostic development, the validation process and commercialization can occur under one unified operational structure. This transaction is grounded in our commitment to derisk our operations to drive revenues and to take the reins of our future. A primary motivation of this acquisition is to command and control our growth. Vertical integration enhances our commercial strategy by consolidating and integrating various stages of the diagnostic process from sample collection to testing services to analysis and reporting the results. From a financial perspective, by bringing the pathology laboratory in-house, bioAffinity benefits from financial leverage as revenues that were previously split between the two entities will be consolidated as they are now entirely retained by bioAffinity. This means we will have better control over pricing, which we can have positive implications for both competitiveness in the market and for profit margins. Precision Pathology had a debt revenue of $6.9 million in 2022, and we see continued growth in 2023. During the 6-month period ending June 30, 2023, net revenues increased 12.5% versus the same period in the prior year. Furthermore, Precision Pathology enhances bioAffinity's value proposition to our clients. By offering a comprehensive suite of services, we can serve as a one-stop solution with the intent of drawing more customers and further differentiating ourselves in the marketplace. bioAffinity Technologies and Precision Pathologies, as I said, have worked together for a while, in fact, for 5 years. We have tremendous respect for the work that Dr. Joyce and his team accomplished day in and day out by ensuring that patients and their physicians receive the highest quality of health care. Dr. Joyce likes to say that every sample received by his laboratory is treated as if it came from a loved one. I can attest to that, and I can attest to the fact that the men and women who work at bioAffinity care just as deeply about the work they do. We have had the advantage of working side by side for some time, and we've structured the acquisition to ensure a seamless transition and integration with a focus on long-term, sustainable and profitable growth. From an operations perspective, we expect that integration will be very straightforward as this is a bolt-on complementary business with minimal overlap in staff and functions and existing facilities that serve the needs of the combined company very well. Detailed financials will be shared in our upcoming investor relations materials and future quarterly earnings reports. But in summary, we acquired Precision Pathology for $3.5 million, including $2.5 million in cash that was paid upon signing and $1 million in bioAffinity common stock. Our primary focus now is smooth integration and ensuring that both teams come together with purpose. We're implementing a comprehensive integration plan, which will take place over the next year. Major milestones and updates will be shared with our stakeholders as we move forward. Before I turn the call over to Dr. Joyce, let me provide a bit of background on him. I've worked with him and his skill team for a while as we developed CyPath Lung into a commercial test. And I'm proud to say, I believe I know him well, and I can attest to his dedication to his patients to his employees and to his family. Dr. Joyce is board-certified in anatomic and clinical pathology by the American Board of Pathology, and he is a fellow in the College of American Pathologists. He's also board-certified in neurology by the American Board of Psychiatry and Neurology and he is a fellow in the American Academy of Neurology. In addition to his work at Precision, he has served at Northeast Methodist Hospital in San Antonio, including being Chairman of the Board of Trustees and Chief of Staff of the Methodist Healthcare System. Dr. Joyce received his medical degree from Louisiana State University School of Medical -- of Medicine Center in New Orleans. He completed an internal medicine internship at Fitzsimons Army Medical Center in Denver, his residency in neurology at the Letterman -- there we go. His residency in neurology at the Letterman Army Medical Center in San Francisco and his residency in Pathology at Brooke Army Medical Center in San Antonio. Dr. Joyce is also a retired Army Kernel and his relationships will be important assets with our Department of Defense customers where we have two ongoing studies. We welcome Dr. Joyce to the bioAffinity Board of Directors as part of this acquisition. In addition, he will serve as Medical Director for Precision Pathology Laboratory Services. His background is an ideal fit for his new responsibilities because they are multifaceted, blending clinical expertise with executive leadership to ensure that our tools and services maintain the highest standard of clinical excellence, safety and efficacy. Throughout a career in pathology that spans more than 40 years, he has been a highly regarded speaker in medical and scientific conferences, has held leadership roles on dozens of professional organizations and committees and he has served as a lead author or coauthor on numerous scientific articles. I hold Dr. Joyce in the highest regard for his technical skills for his scientific knowledge and for his integrity. Plus I can tell you he's a heck of a nice guy. The entire team at bioAffinity has enjoyed an extremely productive and collaborative relationship with our new colleagues at Precision Pathology. We share the broad mission of advancing the practice of medicine to help patients in need, and we are committed to the highest level of customer service and product quality. And with that, I'll turn the call over to Dr. Joyce.

Thank you, Maria, for those kind words. I'm very excited about the future of bioAffinity, and I'm delighted to join the Board of Directors and to offer my expertise as Medical Director. We have worked side-by-side with Maria and her team for five years as she alluded to, to bring CyPath Lung to market, and I'm delighted by the reactions and comments we are receiving from the medical community. I also have been consistently impressed by bioAffinity's scientific team and management has their ability to utilize tools such as artificial intelligence, automated analysis of sputum samples, which brings a higher level of innovation to the diagnostics industry. I'm particularly excited about CyPath Lung for two reasons: First, my father died of metastatic lung cancer, so this is personal to me; secondly, I know that lung cancer is curable when detected early and before it has spread and CyPath Lung offers early detection of lung cancer. I also know that by combining our expertise and industry relationships, we are now better positioned to expand the CyPath Lung test launch into additional markets, increase utilization and apply our knowledge to develop new tests. In addition to CyPath Lung, our lab offers a wide range of services to physicians who practicing in outpatient clinics and inpatient hospital settings. We also provide COVID-19 and influenza testing anatomical pathology, including a very large menu of morphological stains, particularly for research organizations. We performed DNA extractions, sexual transmitted disease testing and testing for women's and men's health as well as literally thousands of skin biopsies for dermatologists. We currently serve approximately 155 different customer sites including 7 Central Texas hospitals and nearly 600 independently practicing physicians. We have grown steadily since I founded the company 16 years ago, reaching revenue last year of about $6.9 million, as Maria mentioned. As part of bioAffinity, we are better positioned to broaden our service offering and expand our client base. With our enhanced resources, our customers can anticipate access to an even wider range of diagnostic offerings. And let me add to what Maria said about the collaborative working relationship and the strategic fit of our two businesses. From a competitive perspective, our combined scientific, medical and business expertise positions us to advance additional diagnostic platforms that can improve health care across a wide spectrum of medical practices. From the perspective of corporate culture, our two organizations are extremely well-matched. We are passionate about what we do and are committed to making a difference while rising to the challenges each day presents. Finally, but importantly, I want to publicly thank the fine men and women who work at Precision Pathology Laboratory Services who have made our lab a success, and it will help take us in this correlation to an even greater height. I thank you for your attention. And now I'll turn the call back over to my friend, Maria.

Thank you, Dr. Joyce. In conclusion, I want to just sum up the acquisition that we're announcing today and what it represents. It really is a commitment to excellence and to leadership in the diagnostics sector. For bioAffinity, the acquisition has 4 primary benefits. First, we now have greater control over CyPath Lung and of our future. The acquisition allows us to consolidate revenues from our test and gives us greater support for our FDA pivotal trials and additional development. Our R&D activities can be accelerated, and this will expand our product portfolio and further derisk our company. We now have a broader market presence and the opportunity to build upon a reputation for excellence that's shared by both companies. And also, we immediately strengthened our portfolio of services and gained 54 talented colleagues, including, of course, Dr. Joyce. So with that overview, I'd like to open the floor up for a few questions. Operator?

[Operator Instructions] Our first question is from Steve Silver with Argus Research.

Congratulations on the strategic acquisition. I was hoping you could provide a little color on the operating expense assumptions we should be thinking about over the next few quarters as you begin to plan for the expanded CyPath Lung launch, as well as your current thinking on the capital runway given the $2 million payment as part of the acquisition, and then just the shift that it brings to -- from the royalty base structure to full ownership of the staff in the lab as well as some of the initiatives that you mentioned in terms of the pivotal trial starting in next year as well as the expanded R&D opportunities that come with the acquisition. So just your current thoughts and thinking about the capital environment.

So this is Mike Dougherty, the CFO for bioAffinity. So in short, we don't believe that this acquisition of Precision will affect the cash burn rate of bioAffinity consolidation. So we will be taking advantage of the capital market in the near future as we go national and commercialization and start the pivotal FDA trial. Our cash burn continues to be and will continue to be at the present time, $1.5 million a quarter. So we will be looking to take advantage of the capital market in the near term.

Great. And the prepared remarks made it sound like there would be the opportunity to streamline the pivotal trial once it begins next year. Obviously, it's going to be a multiyear trial. But is there any material benefit to the timeline that we could start thinking about in terms of the execution of the pivotal trial?

We will be going to FDA shortly with a pre-submission with our design, and we have the protocol and the design of the trial done, and we look to open sites first quarter of next year. We're also working, not surprisingly, with the active military in the VA to partners that we've had in previous trials, one in particular with the military, the active military now, the DOD has two smaller trials that we've undertaken with them. And I think that will help us a good deal with the pivotal trial. One in getting the volunteers, the participants and two, in getting a diverse group of individual sets needed for that larger trial.

The next question is from [ Aaron Thomason ], a Private Investor.

First of all, I just want to say congratulations to Dr. Joyce. I am personally thrilled that you're joining the company. I've seen you participate on the introduction to CyPath videos and some other materials and your expertise that you bring to the company, I think, is an asset -- a huge asset. My question is, obviously, you had a choice to keep your company private or to join bioAffinity. What -- and you gave some background about the advantages of combining talents but this really seems like a rave endorsement of bioAffinity for you to join. And I'm curious about why you think your combined efforts will be successful.

First of all, thank you for your kind comments, Aaron. It's the people. People make any organization and the culture of the company. And there was such a perfect match between the culture of the company of bioAffinity and our company. I am a very much loyal individual, particularly to my employees. I have numerous other offers to purchase my laboratory. But none of the other companies, although some of the really great companies, none of them had the culture or the -- or in order to have the familiarity of working with any of them. So to me, this is just a no-brainer, if you park the expression, from a neurologist. But yes, just -- this made perfect sense to me, particularly after we've worked together for 5 years. I mean I know this company, they know me. And it's just been so collegial even during difficult times. It's really hard to bring a test, a new procedure as a laboratory-developed test. And even through those rough growing pains, everyone pulled together and we got it done. But that's a great question. Thank you.

This is Maria. I just have to say we're very pleased that Dr. Joyce was willing to work with us from the very beginning and just can't be happier that he is now our partner and now more than a partner, is part of bioAffinity. I very much look forward to working with him internally. He is -- he's here, he couldn't be more integrated into the company. He's a Board member, he is the Medical Director of Precision. They certainly will help us also with bioAffinity on grander things so thank you.

I have a follow-up question. So I'm curious -- so you all mentioned earlier that it should allow you to expand more rapidly to be able to do the national rollout. How will this acquisition really do that? Like how does it allow you to -- I'm guessing you're going to have to have at least several regional labs, right? In order to do a national rollout?

So Precision Pathology has the ability to scale and the beauty of CyPath Lung is that it can accept samples from all over the country into one centralized laboratory. And as you can understand, there's economies of scale with that. One of the work that we've done with Dr. Joyce and his team over the last year as we've been commercial is to really hone in on and make sure that we have accessioning and onboarding and work with the physicians done just to a tea. And so I think that, that is an important part of working with Precision is its scalability and it's a workforce that has already been trained and the fact that we have the processes in place the very first discussion with a physician to the fact -- to the end result where he gets the results for his patient. So we don't have plans for acquisition of any additional clinical laboratories at this time, but we do have plans to grow.

Okay. And if I can, one more question. So Dr. Joyce mentioned the $6.9 million in revenue that Precision Pathology brings in. And I'm guessing that gets added to the books of bioAffinity, right?

That is correct. And in the future, as we mentioned earlier, too, as CyPath Lung grows and commercializes nationally, we'll now be able to consolidate 100% of that revenue, whereas before we split that evenly with Precision.

Right. And I believe the centers for Medicaid and Medicaid services any day now should publish what your reimbursement rate is starting October 1, so...

Yes. So I'm glad you brought that up. So we do have -- and we did receive from the American Medical Association, the AMA, a code that was specific for CyPath Lung. Very shortly thereafter, the advisory Board of the -- CMS, the Center for Medicare and Medicaid Services reviewed and proposed a fee, which at this point, I don't -- I'm not able to give. But very shortly, we're hoping in the next even week that CMS will come out with that fee and move forward. But we do have a -- and we're pleased with what was advised. We do have August -- October 1, the ability to use that code specific for CyPath Lung, which we'll do.

The next question is from Steven Cantor with SAC Consulting.

Congratulations, and I've had the pleasure of doing a quick walk through the pathology labs a couple of years back. And definitely, I felt the passion and dedication and expertise of the people so this is a wonderful acquisition. So my question is considering the amount of cash that was paid, $2.5 million and the $1.5 million quarterly burn and the anticipated consolidated financials, which quarter does the company project it will need additional capital to move forward?

Yes. I would project third quarter of '24.

Got it. So the FDA clinical trial is projected to start in the first quarter, so the company will gather data prior to needing to raise additional capital. Is that the case also, Michael?

We intend to begin the -- this is Maria, obviously, not Michael. We intend to open our trial in first quarter of next year and take advantage of the markets as we can. We can't give a specific date, obviously.

Right. But you anticipate having some data before you go into the markets, right?

No. The trial itself will be a 2-year trial. There won't be data released until the end of that trial. It's a prospective trial.

Right. No, I just meant that the company will have collected some data prior to going into the clinical trial part of collecting data will start prior to raising capital. That's what I wanted to understand.

Yes. I got -- I appreciate that. I think I'm getting a little confused by the idea of collecting data. We will enroll patients perhaps...

Got it. Okay. Yes, that's what I was -- yes, that's what I was looking for. Congratulations again on the acquisition.

Ms. Overton, I understand you have a pre-submitted question.

Yes. Thank you, Operator. We did get a question earlier. Could you provide more commentary on where you expect to focus the R&D efforts, including specific tests and perhaps development timetables to go with that?

Surely, I'll take that, and I'm going to turn to Dr. Joyce as well as we get into what we're looking at. We have a very robust diagnostic platform with CyPath Lung, particularly looking at test for lung diseases, and we're looking to expand the diagnostic platform, probably first with COPD, which where we are now conducting research. We look to developing a test for COPD similar in design to what we do with CyPath Lung in the sense that it will be a flow cytometric that we will have automated analysis and that we will be using sputum and collection in a similar way. That's very exciting to us, and we look -- we intend late quarter of next year to be doing some smaller clinical trials or proof-of-concept trials with the test is designed. We're also looking at and working towards a test that would be a complement to bronchoscopy, again, taking advantage of our expertise and our platform that we use with CyPath Lung and that also looking at, of course, asthma would be the third test there that we would be interested in pursuing. I want to say that our research to develop these tests right now has begun with the active military with two small trials with the Brooke Army Medical Hospital here that is helping us both with bronchoscopy and with COPD. They're also looking at and working with us to advance CyPath Lung with the military, with the active military in the Department of Defense. And so that's a very important market for us. But Dr. Joyce, you can talk a little bit about COPD and asthma -- respiratory that's something you...

Yes. Thank you, Maria. One of the first things that popped in my head when I first started talking to Maria and her team in their research lab in UT Health Science Center, it's -- or UTSA was [indiscernible] will be great to use for COPD and asthma differentiation because when I used to practice general medicine, you would think in medical school, you're told that COPD is one disease, Asthma is an entirely different disease, and they're easy to differentiate. Well, that's not the case in clinical practice. It's very difficult because some of the symptoms overlap. So it's really interesting, just recently, there was what was called the CHAIN study that stands for something, that's irrelevant of 831 patients. And of those, 15%, and they were both mixed asthma or COPD patients. 15% of the patients had what was called the asthma COVID -- asthma, chronic obstructive pulmonary disease overlap syndrome. So what we've been seeing clinically was very accurate. There are patients that have symptoms of both, but they are two entirely different diseases. Allergies trigger asthma. COPD is due to damage to lung tissue by smoking or inhaling pollutants. So this will be very useful for a clinician trying to decide on which arm of the treatment algorithm shall I take, is it COPD or is this asthma or is this the overlap. So I think this will be another dilemma for pulmonologists that this test will really help them decide on treatment.

This concludes our question-and-answer session. I would like to turn the conference back over to Maria Zannes for any closing remarks.

Thank you. I want to thank everyone for joining the call today, and thank you, especially those who ask questions, we very much appreciate it. We are -- as you can tell, all very excited about the new chapter, and we're very confident in the bright future that lies ahead for bioAffinity Technologies and its subsidiary, Precision Pathology Laboratory Services. We'll be hosting another update in a few months to discuss our process and our advancements. So stay tuned. And once again, I want to thank you for your time and your support.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.