A newly formed company has already successfully enabled several dozen drug development projects to move forward in a virtual setting, creating a blueprint for transforming the $60B clinical trial industry, notes Adam Johnson, editor of Bullseye Brief.
Whereas drug trials have traditionally relied on doctors to manage patients according to localized rules and protocols, a virtual approach centralizes everyone on a common platform… with the added benefit of concierge teams who keep parties connected.
Virtual drug trials enable faster enrollment, greater patient connectivity and broader participation. This is the first major change/challenge to the clinical trial model in nearly a century, and like other disruptive innovations which have taken flight during Covid, it offers a highly scaleable solution with much greater reach.
Life Science Acquisition II Corp. (LSAQ) is the SPAC I bought in December which recently announced its merger target: Science 37 Technologies, Inc. — a decentralized, online platform which enables clinical drug trials to advance more quickly and at lower cost.
After the closing, LSAQ shares will be exchanged one for one with new Science 37 shares and the ticker will change (as yet undetermined).
Science 37 is the first and only drug development company to feature a blockchain-like platform where connected participants have real-time access to all data sets. The company has orchestrated nearly 100 clinical trials to date and will likely book $50-55M in revenue this year (+120% YoY).
Proceeds from the SPAC merger and related PIPE transaction will provide $250M in net cash, upon closing during a July timeframe. Notable backers include Amgen, Novartis and UAE sovereign wealth fund Mubadala. Early drug development customers include Genentech, J&J and Moderna.
Pro-forma valuation of 5.8x 2023 EV/EBITDA represents a discount of 50-75% to relevant healthcare peers. LSAQ/Science 37 is an attractively priced near-term asset with strong long-term appreciation potential.
The traditional clinical trial model is ripe for disruption, and Science 37’s Decentralized Clinical Trial operating system (DCT) provides an ideal solution for solving multiple issues that make drug trials costly and time-consuming.
Because it’s an online platform with integrated artificial intelligence, Science 37 can more easily tap into online patient groups, reaching up to three times as many potential trial participants.
Drug development companies utilizing the Science 37 platform have enrolled patients 15 times faster than traditional drug trials and retained them up to 28% longer, ultimately saving $54M in trial costs during the first 3 months.
This is especially compelling considering 80% of drug trials have historically faced delays, and patients have tended to drop out at a rate of 20%.
Science 37 is on track to double revenue and bookings this year. The average earn out per trial is $3-6M, and the company’s first-mover advantage in virtual trial development has created a strong pipeline of new business.
Management is guiding to another doubling of revenue/bookings in 2022, based on the pipeline from established customers. For 2023 and beyond, the company believes revenue growth will moderate to 30-50%.
I am always a bit hesitant to accept company guidance hook-line-and-sinker, but the past two years have been strong and provide a baseline. Using 2023 EV/EBITDA estimates, Science 37 trades at a 50% discount to other medtech platforms.
My target of $28 derives from multiplying 2025 estimated revenues of $358M (the company’s 2023 revenue guidance of $183M plus two additional years of 40% growth) by the average 12.3 EV/EBITDA multiple of peers, divided by 130M shares outstanding and discounted back to the present at 5%.
