Science 37 Stock for Decentralized Clinical Trials

Nothing like a pandemic to illuminate a thing or two about human nature. For example, people apparently spend way too much time wiping their butts. Or, at the very least, are very inefficient in their use of toilet paper. We also learned quite a bit about clinical trials, though the COVID-19 vaccine studies were atypical in many ways. Thousands of participants, for instance, eagerly signed up to participate so they could earn up to $2,000 contribute to the advancement of science. But that’s the exception, not the rule. About 85% of clinical trials fail to attract enough participants, despite the fact that pharmaceutical companies reportedly spend 40% of those research dollars on recruiting guinea pigs patients. On the flip side, it’s not very easy for patients to find clinical trials. Those failures and inefficiencies are driving a trend known as decentralized clinical trials. 

It’s yet another riff on the telehealth theme, which has hit warp speed over the last 16 months or so, with record amounts of funding pouring into the space. One example we recently wrote about is Babylon Health, which provides virtual healthcare through apps, chats, and video consultations. In the case of decentralized clinical trials, the idea is to shift away from brick-and-mortar sites to remotely controlled studies that allow patients to participate from home using digital tools like apps and wearables. 

A Los Angeles-based firm called Science 37 thinks it has the best platform for decentralized clinical trials. The company is so confident in its Decentralized Clinical Trial Operating System (OS) that it’s going public using other people’s money to make the case through a reverse merger with a special purpose acquisition company (SPAC) called LifeSci Acquisition II Corp (LSAQ). The deal is expected to value the new company at about $1 billion and add about $250 million in cash to the war chest. Let’s conduct our own clinical trial on the potential of Science 37.

Funding to Science 37

Click for company website

Founded in 2014, Science 37 has raised $147.5 million to date from a baker’s dozen of investors. The list is pretty impressive in that it includes some big names from biotech and pharmaceutical circles, including Amgen (AMGN), Sanofi (SAN.PA), and Novartis (NVS). All three are also customers. Another prominent investor is PPD (PPD), a $16 billion global contractor research organization (CRO) that collaborates with Science 37 on clinical trials for drug development. Google’s parent company Alphabet (GOOG) and Lux Ventures have both participated in multiple rounds, including a $40 million venture round last August. That’s also when co-founders Belinda Tan and Noah Craft both stepped down from their leadership roles as chief medical officer and CEO, respectively. 

The guy now at the helm is David Coman, who spent the better part of a decade as a former senior vice president at Quintiles Transnational, another multi-billion-dollar CRO that merged with a health information technology firm called IMS Health shortly after Coman departed. The new company, IQVIA (IQV), is a $46 billion behemoth that we’ll return to a little bit later. 

We first profiled Science 37 and its technology for bringing clinical trials into the home almost four years ago to the day. There have definitely been some tweaks to the platform (no longer called NORA, for one thing) and progress toward building meaningful revenues (defined as $10 million annually or more), so let’s recap the approach and technology before hitting the hard stuff like financials and risk. 

What is a Decentralized Clinical Trial?

The old-school method of conducting clinical trials usually involves setting up a pretty complex infrastructure of disparate brick-and-mortar sites with varying levels of technology and expertise, according to Coman. Data is still captured on paper, he said during the investor presentation (a claim we find a bit hard to believe unless maybe it’s in New Jersey), and then re-entered electronically. Patients are usually required to travel to the centralized site to enroll in the study and to participate in whatever the clinical trial requires. Delays and dropouts are common, among other issues:

Clinical trial model is ripe for disruption.
Credit: Science 37

Decentralized clinical trials, on the other hand, are designed around convenience for the patient, which helps with recruitment and retention. Since the study is not linked to a specific geographic location, it also broadens the pool of potential candidates to better reflect general population diversity. Science 37 recruits its patients through social media associations, provider networks, pharmacy networks, and payer networks. The company employs both telemedicine investigators and nurses on demand, with remote coordinators choreographing the clinical trials. The platform can integrate just about any digital wearable, device, or sensor to provide real-time data.

Science 37 decentralized clinical trial platform.
Credit: Science 37

Customers can pick and choose what elements they want to employ for their studies, from a turnkey decentralized clinical trial where Science 37 orchestrates everything to augmenting a traditional site network with a virtual one that Science 37 manages as part of the overall study.

Advantages of Decentralized Clinical Trials

Science 37 claims to have conducted nearly 100 decentralized clinical trials, while engaging more than 360,000 patients in the process. The slide below highlights some of the advantages, such as retaining patients throughout the trial up to 28% longer than industry average. The name of the game, however, is speed: Science 37 claims pharma companies can generate more than $50 million in additional revenue for every three months they can shave off the drug-approval process.

Advantages of decentralized clinical trials.
Credit: Science 37

One case study from Science 37 illustrates how it can outcompete with traditional CROs. A study to test the efficacy of a blood assay to predict colorectal cancer had reached a late-stage clinical trial. The CRO hired to set up the clinical trial had only enrolled 100 patients out of 14,000 in two months. Science 37 stepped in with the goal of recruiting half of the needed patients. After a month, the company had enrolled 2,000 people. At the halfway point, it had recruited about 5,400 patients versus 1,000 by the CRO, despite having months of a head start. 

Science 37 solutions.
Credit: Science 37

Obviously, one key to conducting decentralized clinical trials is the ability to remotely monitor patients. One key partnership for Science 37 on that front is with AiCure, a startup we previously covered that uses facial recognition technology to not only ensure compliance with taking medication but also monitor patient behavior. The platform, for example, can evaluate both facial and vocal expressivity to measure depression in patients. The two companies are expected to collaborate on an investigational treatment for major depressive disorder this summer.

To Buy or Not To Buy

How are those advantages translating into revenues? In 2020, Science 37 reported net bookings of about $56 million, which basically means the company had $56 million worth of contracts in hand. That translates to nearly $24 million in revenue last year. So far in 2021, Science 37 has about $96 million in contracts, which is in line with its projection of $119 million by year’s end. That would bring in about $52 million in revenue in 2021, a 120% jump from the previous year. 

That’s the kind of strong revenue generation we like to see. Of course, Science 37 burning cash faster than it can make it, with a projected loss this year of $48.5 million. That’s just part of the growing pangs of a rapidly expanding company that early investors have come to expect. On the plus, side, the average contract size increased by 80% year over year, from $1.4 million to $2.5 million, with one 36-month government contract worth more than $22 million:

Science 37 contract list.
Credit: Science 37

Of course, it’s not all rainbows and butterflies. Science 37 hasn’t filed proper paperwork with the Securities Exchange Commission yet, so we have to read between the lines. The company does list 46 mostly generic risk factors that run the gamut from regulatory to bad weather. It does note that a “significant percentage” of revenues come from a concentrated group of clients and the “loss of one or more major clients could materially and adversely affect our business.” So that’s a red flag, but given the list of long-term contracts above and the current trajectory, Science 37 appears to be in good shape – at least in the near term.

Our bigger concern is competition, which the company is pretty quick to dismiss as legacy luddites like IQVIA or too immature to matter. The former claims to have 4,200 data scientists on staff and is investing in machine-learning capabilities across its portfolio. Not exactly a dinosaur. Regarding the latter: One of only two companies that Science 37 does mention as direct competitors, Medable, has been around for about six years and has raised more than $200 million for its decentralized clinical trials platform. The Silicon Valley startup is also backed by PPD, among others, and seems to sport similar capabilities.

We’ve profiled at least seven AI healthcare startups automating clinical trials in some form or fashion just last year. And we’ve also come across more than one AI drug discovery company that has added clinical trials to its platform. In other words, it’s a bit disingenuous of Science 37 to suggest it has already conquered the market. 

The investor deck is a little too spick and span – or, in this case, SPAC and spin – for our taste. We’ll check back in with Science 37 and maybe give it a trial run when we have a better look at the numbers.

Conclusion

There’s no denying that the numbers are there in terms of market potential, which Science 37 pegs at $60 billion, with plans to expand in other areas like clinical care. We suspect the total market for decentralized clinical trials may be even higher, given that the average cost of bringing a new drug to market is $1.3 billion. If Science 37 can execute and scale, it could be an interesting company to own. But we’d need more diversification, performance data, and a better understanding of the competitive landscape before considering it a worthy addition to our own tech stock portfolio.

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10 thoughts on “Science 37 Stock for Decentralized Clinical Trials
  1. Looking at their presentation (page 35) they expect growth in Net Bookings to be 100% per year for 2021 and 2022 while longer term it would be 52%.
    Now looking at revenue (page 37): this year revenue growth forecast is 120%, in 2022 – 96%, in 2023 – 78%.
    Share price is now around $10. Overall: it looks good to me.

    1. A bird in hand is worth two in the bush. We don’t pay much attention to things like “bookings” or “forecasts,” only actual revenues. The share price being around $10 is also not an assurance that the stock is fairly valued to begin with. Like the majority of SPACs we cover, this is a pass until they make some proper filing documents with the SEC.

    1. It’s in the above piece. The company they are merging with is LifeSci Acquisition II Corp which trades under the ticker LSAQ. Until the merger is complete, the company is not publicly traded. Since most deals go through, people just assume they will going forward, but there’s no guarantee of that.

    1. Correct. S37 is merging with LifeSci Acquisition II Corp (LSAQ) so that’s the price we look at. Once the deal is finalized, the ticker will likely change to something else. People understandably often find this confusing. If you are holding shares of LSAQ, no action is needed. The conversion happens automagically.

  2. LSAQ price is now $10.15
    Once the deal closes, Science 37 will take over LSAQ’s Nasdaq listing and trade under the ticker SNCE.

    1. Cheers for providing everyone with the future ticker Stan. As we mentioned in response to a comment, the transition happens automagically. No action needed from shareholders who will use the old ticker – LSAQ – until it changes to the new ticker.

  3. LSAQ has $80M in cash assets and has market cap $100M.
    Transaction values Science 37 at an enterprise value of approximately $1.05 billion at closing.
    Plans call for Science 37 to net about $250M in cash from the deal with LSAQ.

    1. These things get confusing in a hurry. We like to keep it simple and look at the market cap of the company once the deal has finalized and use that to calculate our simple valuation ratio.

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