Executive Summary / Key Takeaways

• bioAffinity Technologies is focused on commercializing CyPath Lung, a non-invasive diagnostic test for early-stage lung cancer, leveraging proprietary AI-driven flow cytometry technology that offers quantifiable efficiency advantages over competitors.
• While overall revenue declined in Q1 2025 due to a strategic pivot away from unprofitable services, CyPath Lung testing revenue surged 275%, demonstrating growing market traction for the flagship product.
• Operational improvements have significantly boosted CyPath Lung test processing efficiency (50% increased throughput) and reduced unit costs (25% reduction), enhancing scalability and potential profitability.
• Despite recent financings totaling $4.65 million in gross proceeds (Feb and May 2025), the company faces a critical liquidity shortfall, with cash expected to support operations only through August 2025, raising substantial doubt about its ability to continue as a going concern.
• The investment thesis hinges on the company's ability to rapidly accelerate CyPath Lung sales growth, secure significant additional funding, and successfully advance its clinical and regulatory strategy to overcome substantial financial and market risks.

Setting the Scene: A Novel Approach to Early Lung Cancer Detection

bioAffinity Technologies, Inc. (NASDAQ:BIAF) is a biotechnology company tackling a critical challenge in healthcare: the early detection of lung cancer. Lung cancer remains the leading cause of cancer-related deaths globally, and early diagnosis is paramount to improving survival rates. BIAF's core strategy revolves around its proprietary diagnostic platform, centered on CyPath Lung, a non-invasive test designed to identify lung cancer at its earliest stages.

The company's technological foundation lies in combining flow cytometry with advanced automated data analysis powered by machine learning, a form of artificial intelligence. This platform is designed to analyze cell populations in a patient's sputum (phlegm), specifically targeting and identifying cells indicative of a diseased state, including cancer or cancer-related cells shed from a lung tumor.

This technological approach offers distinct, quantifiable benefits compared to traditional diagnostic methods and some competing technologies. Recent operational enhancements to the CyPath Lung test processing have demonstrably increased data acquisition throughput by 50% and reduced the per-test cost by more than 25%. These improvements are not merely incremental; they materially enhance the scalability and potential profitability of the test without compromising clinical performance. For investors, this technological edge translates into a potential competitive moat, enabling higher margins per test and facilitating broader market penetration through improved cost-effectiveness. The strategic intent behind this R&D is clear: to make CyPath Lung a more efficient and economically attractive diagnostic tool in the fight against lung cancer.

BIAF's journey to its current position includes the formation of OncoSelect Therapeutics, LLC in 2016 to explore therapeutic discoveries, but a pivotal strategic shift occurred with the acquisition of the assets of Village Oaks Pathology Services in September 2023. This led to the formation of Precision Pathology Laboratory Services, LLC (PPLS), a wholly owned subsidiary that now operates a CAP-accredited and CLIA-certified commercial laboratory. This acquisition brought laboratory operations, including CyPath Lung testing, under direct company control, consolidating revenue streams and enabling a focused commercialization effort.

Navigating the Competitive Landscape

The market for lung cancer diagnostics is dynamic and includes a range of competitors employing various technologies, from traditional imaging (like CT scans) to advanced molecular diagnostics and liquid biopsies offered by companies such as Guardant Health (GH), Exact Sciences (EXAS), Veracyte (VCYT), and Illumina (ILMN).

BIAF's CyPath Lung positions itself as a non-invasive, sputum-based test for early detection in high-risk patients. This contrasts with blood-based liquid biopsies offered by companies like Guardant Health and Exact Sciences, or tissue-based genomic assays from firms like Veracyte. While competitors like GH and EXAS often focus on broader genomic profiling or multi-cancer screening, BIAF's current focus is specifically on early lung cancer detection.

Quantitatively, BIAF's recent operational improvements highlight a key competitive advantage in efficiency. The 50% increase in data throughput and 25% reduction in unit cost for CyPath Lung processing suggest that BIAF may be able to deliver its diagnostic service at a lower cost per test compared to the more resource-intensive sequencing or complex biomarker analysis required by some competitors. For instance, while Guardant Health's tests can have higher upfront costs due to advanced genomic analysis, BIAF's efficiency gains could lead to better gross margins (estimated 50-60% post-improvements, potentially competitive with GH's ~60% or EXAS's ~70% depending on scale and service mix). This cost leadership potential could be a significant differentiator in price-sensitive healthcare markets and payer negotiations.

However, BIAF operates at a significantly smaller scale than established players like EXAS or ILMN, which have vast resources for R&D, sales, and market penetration. BIAF's smaller scale can result in higher operating costs relative to revenue compared to larger competitors. Furthermore, CyPath Lung's current status as a Laboratory Developed Test (LDT) means it faces less regulatory oversight than FDA-approved diagnostics, potentially making it vulnerable to competitors with full regulatory approvals. While BIAF is pursuing regulatory strategies, including potentially seeking de novo classification from the FDA, this remains a key area of competitive vulnerability.

Despite these challenges, BIAF's unique technology and focus on a non-invasive, cost-efficient approach for early lung cancer detection provide a distinct market positioning. The acceptance of an Australian patent application for CyPath Lung also signals efforts to build a global intellectual property footprint, enhancing its competitive edge internationally. The company's strategic pivot to focus on high-margin services like CyPath Lung, while discontinuing less profitable pathology services, is a direct response to competitive and financial pressures, aiming to streamline operations and concentrate resources on its core growth driver.

Financial Performance and Strategic Pivot in Action

The first quarter of 2025 provided a clear look at BIAF's strategic shift. Consolidated net revenue for the three months ended March 31, 2025, decreased by approximately 23% to $1.85 million, down from $2.41 million in the same period of 2024. This decline was a direct consequence of the company's targeted strategic actions, announced in March 2025, to discontinue certain unprofitable pathology services within its PPLS subsidiary. The goal is to focus resources on higher-margin services, particularly CyPath Lung.

The impact of this strategic focus is evident in the performance of CyPath Lung itself. Despite the overall revenue decrease, CyPath Lung testing revenue saw a significant surge of approximately 275%, growing from $45,000 in Q1 2024 to $169,000 in Q1 2025. This growth was driven by a 200% increase in the total number of test results delivered during the quarter, indicating increasing adoption and demand for the flagship product.

Operating expenses increased modestly by 3% to $4.48 million in Q1 2025 compared to $4.35 million in Q1 2024. This increase occurred despite targeted cost-saving measures expected to deliver $3 million to $4 million in annual savings at PPLS, primarily through labor cost reductions and operational efficiencies. Direct costs and expenses did decrease by 13% ($206,000), reflecting these streamlining efforts. However, clinical development expenses saw a substantial 183% increase ($89,000), primarily due to increased professional fees associated with managing the strategy for the pivotal clinical trial. Selling, general, and administrative expenses also rose by 12% ($267,000), largely driven by increased employee compensation for administrative and sales personnel supporting the planned growth of CyPath Lung sales.

The net result of these dynamics was a widening of the net loss to $2.66 million for the three months ended March 31, 2025, compared to $1.96 million for the same period in 2024. While the net loss per share decreased from $0.20 to $0.16 due to a higher weighted average share count, the absolute loss reflects the ongoing investment in commercialization and clinical development alongside the revenue impact of divesting lower-margin services.

Liquidity, Capital Resources, and the Going Concern Question

A critical factor for investors is BIAF's financial stability and ability to fund its operations and strategic initiatives. The company has historically funded its operations through equity sales, raising approximately $46 million in gross proceeds since inception. However, it has incurred significant losses and negative cash flows from operations, resulting in an accumulated deficit of $56.30 million as of March 31, 2025.

As of March 31, 2025, BIAF's cash and cash equivalents stood at a precarious $0.40 million. Net cash used in operating activities during the quarter was $1.64 million, an improvement from $2.35 million in Q1 2024, partly due to favorable changes in working capital accounts like receivables and payables, despite the increased operating loss.

Recognizing the urgent need for capital, the company undertook financing activities. In February 2025, a warrant inducement agreement generated approximately $1.40 million in gross proceeds. Subsequently, on May 7, 2025, the company completed a public offering, raising an additional $3.25 million in gross proceeds. These financings brought the cash and cash equivalents balance to $2.30 million as of May 13, 2025.

Despite these capital raises, management explicitly states that the cash on hand as of May 13, 2025, is expected to support operations only through August 2025. This assessment leads management to conclude that substantial doubt exists about the company's ability to continue as a going concern for at least twelve months from the financial statement issuance date (May 15, 2025). The company's ability to continue is dependent on generating significantly increased revenue or securing further capital through equity/debt, strategic relationships, or grants.

Compounding the financial risk, the company's stockholders' equity of approximately $1.40 million as of March 31, 2025, falls below the Nasdaq requirement of $2.50 million. This non-compliance, alongside the previously received notice regarding the minimum bid price requirement, poses a risk to the company's Nasdaq listing, which could negatively impact stock liquidity and access to future capital markets.

Outlook and Strategic Priorities

While BIAF did not provide specific quantitative financial guidance, the qualitative commentary and recent actions outline a clear strategic direction focused on accelerating the commercial growth of CyPath Lung. The company is increasing resources to expand sales in high-potential national markets, building on the 275% revenue growth seen in Q1 2025.

A key strategic move was the increase in the list price of CyPath Lung to $2,900 from $1,900, effective April 1, 2025. This decision was made after evaluating reimbursement provisions with private insurance carriers and is intended to optimize payment terms and potentially improve revenue per test.

The significant increase in clinical development expenses signals the company's commitment to advancing its clinical strategy, likely related to its pivotal clinical trial, which is crucial for potential future regulatory approvals and broader market acceptance. Progress in strengthening the intellectual property portfolio, evidenced by the Australian patent acceptance, further supports the long-term commercialization strategy.

The company also continues to explore strategic partnerships for its therapeutic discoveries, although the primary near-term focus is clearly on the diagnostic segment. The release of "CyPath Lung In Practice," highlighting clinical utility through case studies, is part of the effort to drive physician adoption and market acceptance.

The outlook, therefore, is one of intense focus on execution: driving CyPath Lung sales, managing costs effectively at PPLS to realize the targeted $3 million to $4 million in annual savings, advancing clinical trials, and, most critically, securing the necessary funding to bridge the liquidity gap beyond August 2025.

Key Risks for Investors

Investing in BIAF involves significant risks, prominently highlighted by the going concern uncertainty. The company's ability to continue operations is directly tied to its success in generating substantial revenue growth from CyPath Lung and, more immediately, its ability to raise additional capital. There is no guarantee that future financing will be available when needed or on terms acceptable to the company. Failure to secure funding could force delays, curtailment of operations, or even cessation of business.

The path to profitability remains uncertain. Despite the promising growth in CyPath Lung sales and efforts to reduce costs, the company continues to incur significant operating losses. The ability to achieve and sustain profitability depends on successful commercialization, favorable reimbursement, and efficient operations, all of which carry execution risk.

The regulatory status of CyPath Lung as an LDT, while allowing current sales, exposes the company to potential changes in regulatory requirements and competition from diagnostics with full FDA approval.

Furthermore, the risk of de-listing from Nasdaq due to non-compliance with minimum bid price and stockholders' equity requirements could negatively impact the stock's liquidity and investor sentiment. The concentration of voting power among management also means that minority investors may have limited influence over key corporate decisions.

Conclusion

bioAffinity Technologies presents a compelling, albeit high-risk, investment narrative centered on its differentiated CyPath Lung diagnostic test. The company's proprietary technology, combining flow cytometry and AI, offers quantifiable advantages in efficiency and cost, positioning it strategically in the competitive landscape of early lung cancer detection. The recent surge in CyPath Lung revenue, juxtaposed with an overall revenue decline driven by a strategic pivot away from less profitable services, underscores the company's focused commercialization effort and the initial traction of its flagship product. Operational improvements further enhance the test's scalability and margin potential.

However, the significant financial challenges, including substantial losses and a critical near-term liquidity shortfall, cast a long shadow over the company's future. The explicit going concern warning highlights the urgent need for successful execution on both commercial growth and capital raising fronts. For investors, the story of BIAF is one of a promising technology and focused strategy battling against the clock and the need for substantial funding. The ability to rapidly accelerate CyPath Lung sales, secure necessary financing, and navigate regulatory pathways will be the critical determinants of whether BIAF can translate its technological potential into sustainable value.