Science 37 Holdings, Inc. (NASDAQ:SNCE) is a leading provider of patient-centric clinical trials and decentralized trial solutions. The company has established itself as a pioneer in the industry, leveraging its proprietary unified technology platform and specialized network to enable more accessible and engaging clinical research. However, the company has faced significant operational challenges in recent periods, leading to financial strain and the need for strategic restructuring.
Business Overview
Science 37's core offering revolves around its patient-centric approach to clinical trials. The company's unified technology platform standardizes and orchestrates the clinical trial process across its network of patient communities, telemedicine investigators, mobile nurse networks, and other specialized resources. This model aims to reduce geographic barriers and improve patient recruitment, retention, representation, and engagement. By centering the clinical trial around the patient, Science 37 seeks to address key industry pain points and drive more efficient and effective drug development.
The company's revenue is primarily generated from contractual arrangements to enable and enhance clinical trials through its technology and services, as well as licensing its unified platform to various life science institutions. Science 37's patient-centric model has gained traction in the market, as evidenced by its growing customer base and expanding partnerships with Contract Research Organizations (CROs) and pharmaceutical companies.
Financials
For the full year 2022, Science 37 reported annual revenue of $70.1 million, a decrease of 18.2% compared to the prior year. The company's net loss for the year was $50.9 million, and it generated negative operating cash flow of $75.4 million and negative free cash flow of $107.3 million. These financial results reflect the operational challenges the company has faced, including reduced opening backlog coverage, changes in revenue contributions from study life-cycles, and significant investments in growth initiatives and technology development.
In the first nine months of 2023, the company's revenue decreased by 18.2% year-over-year to $44.3 million, while its net loss widened to $58.1 million. The company's operating cash flow and free cash flow during this period were also negative, at $33.1 million and $18.4 million, respectively. These declines were primarily driven by reduced opening backlog coverage, changes in revenue contributions, and the impact of the company's cost reduction initiatives.
Operational Restructuring and Cost Savings
In response to the financial and operational challenges, Science 37 has undertaken a comprehensive cost reduction program. In the fourth quarter of 2022 and the first half of 2023, the company implemented two phases of a restructuring plan, which included one-time termination benefits for approximately 221 employees, or 45% of the company's workforce. These actions were aimed at aligning the organization with current business needs and improving the company's financial position.
The restructuring efforts have resulted in significant cost savings, with selling, general, and administrative expenses decreasing by 37.4% in the first nine months of 2023 compared to the same period in the prior year. Additionally, the company has recognized impairment charges of $19.0 million related to its long-lived assets, reflecting the decline in the company's market capitalization and the need to align the carrying value of its assets with their fair value.
Liquidity
As of September 30, 2023, Science 37 had cash and cash equivalents of $56.4 million, down from $108.1 million at the end of 2022. The company's working capital position also declined to $57.4 million, compared to $103.0 million at the end of the prior year. The decrease in cash and working capital was primarily driven by the company's negative operating and free cash flows during the first nine months of 2023.
The company's liquidity position and ability to fund its operations and growth initiatives remain a key concern. Science 37 has stated that it believes the current cash balances will be adequate to support its working capital needs and other liquidity requirements for at least the next twelve months. However, the company may need to seek additional financing or capital in the future to support its long-term growth and technology investments.
Backlog and Bookings
Science 37's backlog, which represents anticipated revenue for work not yet completed or performed, stood at $163.1 million as of September 30, 2023, a decrease of 4.3% compared to the prior year. The company's net bookings, which represent new business awards, increased by 95.5% year-over-year in the third quarter of 2023 to $9.2 million. However, the backlog and net bookings were negatively impacted by changes in scope of ongoing projects during the period, totaling $8.7 million.
The fluctuations in backlog and net bookings reflect the dynamic nature of the company's business and the challenges it has faced in securing new contracts and maintaining the pipeline of work. The company's ability to convert its backlog into revenue and generate consistent new bookings will be crucial for its future financial performance.
Geographic and Segment Diversification
Science 37 primarily generates its revenue from the United States, with no other country representing more than 10% of total revenue. The company operates under a single reporting segment, focused on its patient-centric clinical trial solutions.
While the company has not provided detailed breakdowns of its revenue by geographic region or service offering, its financial results suggest that the majority of its revenue is derived from its core decentralized clinical trial services and technology licensing. The company's ability to expand its geographic reach and diversify its revenue streams could be an important factor in its long-term growth and resilience.
Risks and Challenges
Science 37 faces several key risks and challenges that could impact its future performance. These include:
1. Competitive Landscape: The company operates in a highly competitive industry, with established CROs and technology providers vying for market share in the decentralized clinical trials space.
2. Regulatory and Compliance Risks: The company's business is subject to various regulatory requirements and standards, which could change over time and require significant investments or adaptations.
3. Technology and Innovation Risks: Maintaining the competitiveness and functionality of the company's unified technology platform is crucial, and the pace of technological change in the industry could outpace the company's development efforts.
4. Customer Concentration Risks: A significant portion of Science 37's revenue is derived from a limited number of large customers, making the company vulnerable to changes in these customer relationships or their business priorities.
5. Liquidity and Financing Risks: The company's ability to fund its operations and growth initiatives through its current cash resources or additional financing is a key concern, as it may struggle to access capital markets or secure favorable terms.
Outlook
Science 37 has not provided specific financial guidance for the full year 2023. However, the company has stated that it remains focused on executing its cost reduction initiatives, optimizing its operations, and positioning the business for long-term success. The company's ability to stabilize its financial performance, generate consistent cash flows, and secure new business will be critical in determining its future trajectory.
Conclusion
Science 37 is a pioneer in the patient-centric clinical trials space, leveraging its innovative technology and specialized network to address industry challenges. However, the company has faced significant operational and financial headwinds, leading to a comprehensive restructuring effort and a focus on cost savings and liquidity management. While the company's long-term vision remains compelling, its near-term performance and ability to navigate the competitive landscape will be crucial in determining its future success. Investors should closely monitor Science 37's progress in executing its strategic initiatives and its ability to translate its technological capabilities into sustainable financial results.