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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 001-39727
SCIENCE 37 HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware84-4278203
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
800 Park Offices Drive, Suite 3606
Research Triangle Park, North Carolina
27709
(Address of Principal Executive Offices)(Zip Code)
Registrant's telephone number, including area code: (984) 377-3737
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Shares of Common Stock, $0.0001 par value per shareSNCE
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
x
Smaller reporting company
x
Emerging growth company
x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yes o No x
As of November 4, 2022, there were 116,663,640 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.


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Science 37 Holdings, Inc.
Form 10-Q
For the Quarter Ended September 30, 2022

Table of Contents
Page

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “seeks,” “projects,” “intends,” “plans,” “may” or “should” or, in each case, their negative or other variations or comparable terminology. They may appear in a number of places throughout this Quarterly Report on Form 10-Q, including Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and include statements regarding our future results of operations and financial position, business strategy, expectation as to the timing and amount of cost savings related to the planned cost reduction program, plans and prospects, existing and prospective products, research and development costs, timing and likelihood of success, and plans and objectives of management for future operations and results.
The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Factors that may impact such forward-looking statements include:
our ability to respond to general economic and financial market conditions, including fluctuations in currency exchange rates, economic instability and inflationary conditions, changes in regulatory environment and/or competitive factors;
our limited operating history;
our ability to raise additional funding to strengthen our core business, expand into additional markets and extend the reach of our operating system;
failure to realize anticipated cost savings;
potential loss or non-renewal of Science 37’s contracts, any delay in our customers’ clinical trials or non-payment by its customers for services that we have performed;
our ability to recognize the anticipated benefits of the Merger (defined below);
our dependence on the clinical trial market;
our reliance on third parties for important products, services and licenses to certain technology and intellectual property rights;
the continuing impact of the COVID-19 pandemic;
political, legal and compliance, operational, regulatory, economic and other risks associated with the international expansion of our operations;
risks related to our technology, intellectual property and data privacy practices;
our exposure to geopolitical risks and changes in applicable laws and regulations;
litigation and regulatory enforcement risks; and
volatility in the trading price of our common stock.
The foregoing list of factors is not exhaustive. You should carefully consider the foregoing factors and other risks and uncertainties discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Furthermore, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.
The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on the Company’s current expectations and beliefs and are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, that information may be limited or incomplete. Our forward-looking statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements
You should read this Quarterly Report on Form 10-Q and the documents that we reference herein and have filed as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. The forward-looking statements contained in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. The Company will not and does not undertake any
3

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obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as require by law.
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Part I - Financial Information
Item 1. Financial Statements
Science 37 Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(unaudited)
(In thousands, except share data)September 30,
2022
December 31,
2021
Assets
Current assets:
Cash and cash equivalents$130,239 $214,601 
Accounts receivable and unbilled services, net9,018 10,699 
Prepaid expenses and other current assets6,664 7,403 
Total current assets145,921 232,703 
Property and equipment, net1,074 1,393 
Operating lease right-of-use assets1,227 2,086 
Capitalized software, net41,049 24,290 
Other assets153 326 
Total assets$189,424 $260,798 
Liabilities, redeemable convertible preferred stock and stockholders’ equity
Current liabilities:
Accounts payable$6,608 $12,819 
Accrued expenses and other liabilities11,877 17,073 
Deferred revenue4,603 5,130 
Total current liabilities23,088 35,022 
Non-current liabilities:
Deferred revenue4,170 2,478 
Operating lease liabilities873 1,322 
Other long-term liabilities1,390 1,477 
Long-term earn-out liability1,300 98,900 
Total liabilities30,821 139,199 
Commitments and Contingencies (Note 10)
Redeemable convertible preferred stock:
Redeemable convertible preferred stock, $0.0001 par value; 100,000,000 shares authorized, 0 issued and outstanding at September 30, 2022 and December 31, 2021, respectively
  
Stockholders’ equity:
Common stock, $0.0001 par value; 400,000,000 shares authorized, 116,574,031 and 114,991,026 issued and outstanding at September 30, 2022 and December 31, 2021, respectively
12 11 
Additional paid-in capital344,984 323,666 
Accumulated other comprehensive income152  
Accumulated deficit(186,545)(202,078)
Total stockholders’ equity158,603 121,599 
Total liabilities, redeemable convertible preferred stock and stockholders’ equity$189,424 $260,798 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Science 37 Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands, except per share data)2022202120222021
Revenue$16,249 $14,236 $54,210 $39,222 
Operating expenses:
Cost of revenue12,157 10,318 41,985 26,246 
Selling, general and administrative24,485 16,932 82,822 37,477 
Depreciation and amortization4,870 1,916 12,569 5,189 
Total operating expenses41,512 29,166 137,376 68,912 
Loss from operations(25,263)(14,930)(83,166)(29,690)
Other income (expense):
Interest income559  748 1 
Sublease income240 230 719 444 
Change in fair value of earn-out liability1,200  97,600  
Other income (expense), net(264)8 (369)12 
Total other income (expense), net1,735 238 98,698 457 
Income (loss) before income taxes(23,528)(14,692)15,532 (29,233)
Income tax expense (benefit)  (1) 
Net income (loss)$(23,528)$(14,692)$15,533 $(29,233)
Earnings (loss) per share:
Basic$(0.20)$(1.78)$0.13 $(4.22)
Diluted$(0.20)$(1.78)$0.12 $(4.22)
Weighted average common shares outstanding:
Basic116,412 8,238 115,935 6,925 
Diluted116,412 8,238 126,717 6,925 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Science 37 Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Three and Nine Months Ended September 30, 2022 and 2021
(unaudited)

Redeemable Convertible Preferred StockCommon Stock
Additional
Paid-In
Capital
Accumulated Other Comprehensive Income
Accumulated
Deficit
Total
Stockholders’ Equity
(In thousands)SharesAmountSharesAmount
Balance at December 31, 2021 $ 114,991 $11 $323,666 $ $(202,078)$121,599 
Stock-based compensation— — — — 7,557 — — 7,557 
Proceeds from option exercises— — 723 1 130 — — 131 
Net income— — — — — — 44,894 44,894 
Balance at March 31, 2022 $ 115,714 $12 $331,353 $ $(157,184)$174,181 
Stock-based compensation— — — — 7,103 — — 7,103 
Proceeds from option exercises— — 538 — 369 — — 369 
Net loss— — — — — — (5,833)(5,833)
Foreign currency translation— — — — — 27— 27 
Balance at June 30, 2022 $ 116,252 $12 $338,825 $27 $(163,017)$175,847 
Stock-based compensation— — — — 5,981 — — 5,981 
Proceeds from option exercises— — 322 — 178 — — 178 
Net loss— — — — — — (23,528)(23,528)
Foreign currency translation— — — — — 125 — 125 
Balance at September 30, 2022 $ 116,574 $12 $344,984 $152 $(186,545)$158,603 
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Redeemable Convertible Preferred StockCommon Stock
Additional
Paid-In
Capital
Accumulated Other Comprehensive Income
Accumulated
Deficit
Total
Stockholders’ Equity
(Deficit)
(In thousands)SharesAmountSharesAmount
Balances at December 31, 2020 (as previously reported)
41,587 $143,086 2,765 $1 $1,611 $ $(107,747)$(106,135)
Retroactive application of the recapitalization due to Merger1
33,908 — 2,255 — — — — — 
Balances at December 31, 2020, effect of Merger1
75,495 $143,086 5,020 $1 $1,611 $ $(107,747)$(106,135)
Stock-based compensation— — — — 225 — — 225 
Proceeds from option exercises— — 919 — 332 — — 332 
Net loss— — — — — — (6,826)(6,826)
Balances at March 31, 202175,495 $143,086 5,939 $1 $2,168  $(114,573)$(112,404)
Stock-based compensation— — — — 690 — — 690 
Proceeds from option exercises— — 2,214 — 806 — — 806 
Net loss— — — — — — (7,715)(7,715)
Balances at June 30, 202175,495 $143,086 8,153 $1 $3,664 $ $(122,288)$(118,623)
Stock-based compensation— — — — 998 — — 998 
Proceeds from option exercises— — 189 — 107 — — 107 
Net loss— — — — — — (14,692)(14,692)
Balance at September 30, 202175,495 $143,086 8,342 $1 $4,769 $ $(136,980)$(132,210)
The accompanying notes are an integral part of these condensed consolidated financial statements.

________________________________
1 Historical shares and capital amounts have been retroactively adjusted for reverse recapitalization as described in Note 1 “Company Background and Basis of Presentation” to the audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
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Science 37 Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended September 30,
(In thousands)20222021
Cash flows from operating activities:
Net income (loss)$15,533 $(29,233)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization12,569 5,189 
Non-cash lease expense related to operating lease right-of-use assets859 1,153 
Stock-based compensation19,425 1,913 
Gain on change in fair value of earn-out liability(97,600) 
Loss on foreign currency exchange rates282  
Provision for doubtful accounts147 143 
Changes in operating assets and liabilities:
Accounts receivable and unbilled services1,534 4,059 
Prepaid expenses and other current assets745 (2,862)
Other assets(72)(142)
Accounts payable(8,100)2,110 
Accrued expenses and other current liabilities(6,329)577 
Deferred revenue1,165 2,063 
Operating lease liabilities(449)(948)
Other, net(86)1,318 
Net cash used in operating activities(60,377)(14,660)
Cash flows from investing activities:
Payments related to capitalized software development costs(24,627)(11,339)
Purchases of property and equipment(162)(733)
Net cash used in investing activities(24,789)(12,072)
Cash flows from financing activities:
Proceeds from stock option exercises672 1,245 
Net cash provided by financing activities672 1,245 
Net decrease in cash and cash equivalents(84,494)(25,487)
Effect of foreign currency exchange rate changes on cash132  
Cash and cash equivalents, beginning of period214,601 33,483 
Cash and cash equivalents, end of period$130,239 $7,996 
Supplemental disclosures of non-cash activities
Balance in accounts payable, accrued expenses and other current liabilities, and capitalized stock-based compensation related to capitalized software and fixed asset additions$(3,482)$(2,364)
Right-of-use asset obtained in exchange for operating lease liabilities$ $(1,305)
Balance in prepaid expenses and other current assets related to stock option exercises$5 $ 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Science 37 Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)

1. Company Background and Basis of Presentation
Description of Business
Science 37 Holdings, Inc. and its subsidiaries (the “Company” or “Science 37”) is a leading provider of technology-based solutions that enable agile clinical trials and decentralized approaches on behalf of biopharmaceutical sponsors. The Company pioneered agile and decentralization methods and developed the industry’s first Agile Clinical Trial Operating System™ (“OS”) combining its unified technology platform, which orchestrates workflows, generates evidence and harmonizes data seamlessly, with its expansive centralized networks of patient communities, telemedicine investigators, mobile nursing, community providers, remote coordinators and data and devices. By making clinical research more accessible to patients and providers, the OS helps clinical research sponsors achieve faster patient enrollment, enable better patient retention and increase accessibility to representative patient populations. These improvements help accelerate the development of potentially life-saving treatments through faster study timelines and a more representative and diverse patient population. The Company operates under one reporting segment.
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the Company’s financial condition and results of operations have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. The balance sheet as of December 31, 2021 has been derived from the audited consolidated financial statements of the Company, but does not include all the disclosures required by GAAP.
Reclassification
Certain previously reported amounts have been reclassified to conform to the current period presentation.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses for the periods presented. Significant estimates and assumptions are used for, but are not limited to: (1) revenue recognition, (2) allowance for doubtful accounts, (3) long-lived asset recoverability, (4) useful lives of long-lived assets, (5) stock-based compensation, and (6) fair value measurements, including the fair value of the contingent liability related to the Earn-Out Shares as further discussed in Note 2 “Business Combination”.
Emerging Growth Company and Smaller Reporting Company Status
As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to private companies. The Company has elected to use the extended transition period under the JOBS Act until such time the Company is not considered to be an EGC. The adoption dates are discussed in the section below to reflect this election.
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Science 37 Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

The Company is also a smaller reporting company as defined in Item 10(f) of Regulation S-K. Smaller reporting companies may take advantage of scaled disclosure requirements, including, among other things, providing audited financial statements for two fiscal years, in contrast to other reporting companies, which must provide audited financial statements for three fiscal years. To the extent the Company takes advantage of such scaled disclosure requirements, it may make the comparison of its financial statements with other public companies difficult or impossible.
Accounting Pronouncements Recently Adopted
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (ASU 2019-12), which eliminates certain exceptions to the guidance in Income Taxes (Topic 740) related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The Company adopted ASU 2019-12 effective January 1, 2021. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.
Accounting Pronouncements Issued but Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This guidance introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The standard replaces the incurred loss impairment methodology in current GAAP with one that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company does not expect the adoption of the guidance to have a material effect on the Company’s consolidated financial statements. This is primarily based on the Company’s assessment of historical credit losses, customers’ creditworthiness, and the fact that the Company’s trade receivables are short term in duration. The Company plans to adopt the provisions of ASU 2016-13 effective January 1, 2023.
2. Business Combination
On October 6, 2021, the Company consummated a merger (the “Merger”) with LifeSci Acquisition II Corp (“LSAQ”), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), dated May 6, 2021. Pursuant to the Merger Agreement, the Company merged with LSAQ, with the Company treated as the accounting acquirer, LSAQ treated as the accounting acquiree and the Merger Transaction reflected as a reverse recapitalization. Under this method of accounting, the consolidated financial statements of Science 37, Inc. (“Legacy Science 37”) are the historical financial statements of the Company. The net assets of LSAQ were stated at historical costs, with no goodwill or other intangible assets recorded in accordance with GAAP, and were consolidated with Legacy Science 37’s financial statements on the closing date of the Merger Transaction. The shares and net loss per share available to holders of Legacy Science 37’s common and preferred stock prior to the Merger Transaction have been retroactively adjusted as shares reflecting the exchange ratio of approximately 1.815 established in the Merger Agreement.
An aggregate of 30,858,261 shares of the Company’s common stock was issued to LSAQ public shareholders, the LSAQ Sponsor, and private placement (“PIPE”) investors as part of the transaction. As a result of the Merger Transaction, Legacy Science 37 shareholders received aggregate consideration of $233.5 million in 2021, including the PIPE financing, net of LSAQ shareholder redemptions and transaction costs.
In addition, former holders of shares of Legacy Science 37 preferred and common stock and former holders of options to purchase shares of Legacy Science 37 common stock are entitled to receive their respective pro rata shares of up to 12,500,000 additional shares of the Company’s Common Stock (the “Earn-Out Shares”) if certain triggering events are met within 3 years from the date of the Merger. For more information on the Merger transaction, please refer to Note 1 “Company Background and Basis of Presentation” and Note 3 “Business Combination” to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
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Science 37 Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

3. Revenue from Contracts with Customers
Unsatisfied Performance Obligations
As of September 30, 2022, the aggregate amount of transaction price allocated to the unsatisfied performance obligations was $171.2 million. The Company expects to recognize this revenue over the remaining contract term of the individual projects, with contract terms generally ranging from one month to 8.8 years. The amount of unsatisfied performance obligations is lower than the potential contractual revenue since it excludes revenue that is constrained. Revenue amounts excluded due to constraints include those amounts under contracts that (i) are wholly unperformed in which the customer has a unilateral right to cancel the arrangement, or (ii) require the Company to undertake numerous activities to fulfill the performance obligations, including various activities that are outside of the Company’s control.
Timing of Billing and Performance
During the three and nine months ended September 30, 2022, the Company recognized approximately $0.5 million and $4.6 million of revenue, respectively, that was included in the deferred revenue balance at the beginning of the periods. During the three and nine months ended September 30, 2022, revenue recognized from performance obligations partially satisfied in previous periods was $1.4 million and $3.5 million, respectively. These cumulative catch-up adjustments primarily related to contract modifications executed in the current period, which resulted in changes to the transaction price and changes in estimates such as estimated total costs.
Accounts Receivable, Unbilled Services, and Deferred Revenue
Accounts receivable and unbilled services (including contract assets) consisted of the following:
(In thousands)September 30, 2022December 31, 2021
Accounts receivable$7,162 $8,143 
Unbilled services2,272 2,825 
Total accounts receivable and unbilled services9,434 10,968 
Allowance for doubtful accounts(416)(269)
Total accounts receivable and unbilled services, net$9,018 $10,699 
As of September 30, 2022 and December 31, 2021, contract assets of $2.3 million and $2.8 million, respectively, were included in unbilled services.
Deferred revenue as of September 30, 2022 and December 31, 2021 was $8.8 million and $7.6 million, respectively. Changes in the Company’s accounts receivable, unbilled services and deferred revenue balances were impacted by timing differences between the Company’s satisfaction of performance obligations under its contracts, achievement of billing milestones, and customer payments.
Revenue by Geography
Substantially all of the Company’s revenue for the three and nine months ending September 30, 2022 and 2021 was derived from services performed within the United States. No other country represented more than 10% of total revenue for either period.
Concentration of Credit Risk
Financial assets that subject the Company to credit risk primarily consist of cash and cash equivalents, accounts receivable and unbilled services. Based on the short-term nature and historical realization of the financial assets, as well as the reputable credit ratings of the financial institutions holding the deposits, the Company believes it bears minimal credit risk.
For the three months ended September 30, 2022 and 2021, two and four customers individually (totaling 24.4% and 58.7% of revenues, respectively) accounted for greater than 10% of revenue. For the nine months ended September 30,
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Science 37 Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

2022 and 2021, two and three customers individually (totaling 26.9% and 57.7% of revenues, respectively) accounted for greater than 10% of revenue, respectively.
As of September 30, 2022 and December 31, 2021, two and three customers individually (totaling 45.4% and 78.4% of accounts receivable, net, respectively) accounted for greater than 10% of accounts receivable, net, respectively.
4. Capitalized Software, net
For the nine months ended September 30, 2022 and 2021, the Company capitalized $28.8 million and $13.5 million, respectively, of internal use software and recognized amortization expense of $12.1 million and $4.9 million, respectively.
Estimated amortization expense for the years ending December 31, 2022 through December 31, 2025 is as follows:
(In thousands)Amortization Expense
Year:
2022 (excluding the nine months ended September 30, 2022)
$4,785 
2023
18,523 
2024
14,483 
2025
3,258 
The following represents capitalized software balances as of September 30, 2022 and December 31, 2021:
September 30, 2022December 31, 2021
(In thousands)
Gross
Amount
Accumulated
Amortization
Net
Amount
Gross
Amount
Accumulated
Amortization
Net
Amount
Capitalized software$71,037 $(29,988)$41,049 $42,192 $(17,902)$24,290 
5. Leases
The following table presents lease liability maturities and balance sheet classification as of September 30, 2022:
(in thousands)
Years Ending December 31,Operating Leases
2022 (excluding the nine months ended September 30, 2022)
$189 
2023674 
2024599 
2025138 
202611 
2027 and thereafter
 
Total future minimum lease payments1,611 
Less imputed interest(124)
Total lease liability$1,487 
Balance Sheet classification of lease liabilities reported as of September 30, 2022:
Current liabilities: Accrued expenses and other liabilities$614 
Non-current liabilities: Operating lease liabilities873 
Total$1,487 
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Science 37 Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

6. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following:
(In thousands)September 30, 2022December 31, 2021
Compensation, including bonuses, fringe benefits, and payroll taxes$7,295 $11,611 
Professional fees, investigator fees, and pass-through expenses2,379 3,174 
Commissions payable1,418 1,168 
Current portion of operating lease liabilities614 1,120 
Other171  
Total accrued expenses and other liabilities$11,877 $17,073 
7. Fair Value Measurements
Financial instruments, including cash and cash equivalents, are recorded at cost, which approximates fair value. Former holders of shares of Legacy Science 37 common stock were allocated Earn-Out Shares in connection with the completion of the Merger. These Earn-Out Shares are accounted for as a liability and require fair value measurement on a recurring basis. Due to the significant unobservable inputs that are required to value these shares, they are classified as Level 3 in the fair value hierarchy. Please refer to Note 11 “Earn-Out Shares” for additional details surrounding the valuation methodology for the Earn-Out Shares.
None of the Company’s non-financial assets or liabilities are subject to fair value measurement on a non-recurring basis. There were no transfers between fair value measurement levels during the nine months ended September 30, 2022.
The following table summarizes the fair values of the Company’s assets and liabilities that are measured and reported at fair value on a recurring basis as of September 30, 2022:
(In thousands)Level 1Level 2Level 3Total
Assets:
Money market funds$125,382 $ $ $125,382 
Total$125,382 $ $ $125,382 
Liabilities:
Earn-out liability related to shareholders$ $ $1,300 $1,300 
Total$ $ $1,300 $1,300 
The following table summarizes the fair values of the Company’s assets and liabilities that are measured and reported at fair value on a recurring basis as of December 31, 2021:
(In thousands)Level 1Level 2Level 3Total
Assets:
Money market funds$19,033 $ $ $19,033 
Total$19,033 $ $ $19,033 
Liabilities:
Earn-out liability related to shareholders$ $ $98,900 $98,900 
Total$ $ $98,900 $98,900 
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Science 37 Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

8. Earnings (Loss) Per Share
The following table presents the calculation of basic and diluted earnings (loss) per share for the Company’s common stock (as adjusted for the Merger Exchange Ratio as described in Note 2 “Business Combination” ):
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands, except per share amounts)2022202120222021
Numerator:
Net income (loss)$(23,528)$(14,692)$15,533 $(29,233)
Denominator:
Basic weighted average common shares outstanding
116,412 8,238 115,935 6,925 
Effect of dilutive securities:
Stock options  9,829  
Restricted stock units  937  
ESPP  16  
Diluted weighted average common shares outstanding116,412 8,238 126,717 6,925 
Earnings (loss) per share:
Basic$(0.20)$(1.78)$0.13 $(4.22)
Diluted$(0.20)$(1.78)$0.12 $(4.22)
In connection with the closing of the Merger, the Company adopted an Employee Stock Purchase Plan (the “ESPP”). Please refer to Note 12 “Share-Based Compensation” for information regarding the ESPP as well as the ESPP offering period that began on September 1, 2022.
Potential common shares that are considered anti-dilutive are excluded from the computation of diluted earnings per share. Potential common shares related to stock-based awards issued under stock-based compensation programs, preferred stock and warrants may be determined to be anti-dilutive based on the application of the treasury stock method. Potential common shares are also considered anti-dilutive in periods when the Company incurs a net loss. Earn-Out Shares are contingent upon the price of the Company’s common stock over a specified period of time and the target stock prices have not been achieved as of the end of the reporting period.
The number of potential shares outstanding that were anti-dilutive and were excluded from the computation of diluted earnings per share, weighted for the portion of the period they were outstanding, were as follows (as adjusted for the Merger Exchange Ratio as described in Note 2 “Business Combination”):
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)2022202120222021
Redeemable convertible preferred stock 75,495  75,495 
Stock options26,279 15,809 16,095 15,373 
Restricted stock units5,307    
ESPP81    
Warrants 12  12 
Earn-Out Shares12,500  12,500  
Total anti-dilutive shares44,167 91,316 28,595 90,880 
9. Related-Party Transactions
For the three and nine months ended September 30, 2022, the Company had revenue of $1.1 million and $5.4 million, respectively, from Pharmaceutical Product Development, LLC (“PPD”), a wholly-owned subsidiary of Thermo Fisher Scientific, Inc. and a shareholder who beneficially owns 5% or more of the Company’s common stock. For the three and nine months ended September 30, 2021, the Company had revenue of $2.8 million and $10.8 million, respectively, from
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Science 37 Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

PPD. In addition, as of September 30, 2022 and December 31, 2021, the Company had receivables of $0.6 million and $2.0 million, respectively, from PPD.
For the three and nine months ended months ended September 30, 2021, the Company had revenue of $0.3 million and $0.6 million, respectively, from Novartis Pharma AG, who had a 50% ownership in dRX Capital AG, a shareholder who, until July 2021, had a minority interest in the Company and a seat on the Company’s Board of Directors. In July 2021, dRX Capital AG was dissolved and their interest in the Company was distributed to their owners. This dissolution and distribution did not cause any other shareholder of the Company to obtain a minority interest in the Company.
For the three and nine months ended September 30, 2021, the Company had revenue of $0 and $0.4 million from AlloVir a company in which Redmile Group, LLC has a minority interest. Entities affiliated with Redmile Group, LLC collectively own 5% or more of the Company’s common stock. The Company did not have revenue from AlloVir during the nine months ended September 30, 2022.
10. Commitments and Contingencies
Legal Proceedings
The Company is subject to proceedings incidental to its business. The Company records accruals for claims, suits, investigations, and proceedings when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company reviews these contingencies regularly and records or adjusts accruals related to such matters to reflect the impact and status of any settlements, rulings, advice of counsel or other information pertinent to a particular matter. Gain contingencies are not recognized. Legal costs associated with contingencies are expensed as incurred. Since these matters are inherently unpredictable, assessing contingencies is highly subjective and requires judgments about future events.
As of September 30, 2022, the Company had no material contingent losses recorded.
Please refer to Note 5 “Leases” for information regarding lease commitments and Note 11 “Earn-Out Shares” for information regarding the contingent obligation related to the Earn-Out Shares.
11. Earn-Out Shares
In accordance with the Merger Agreement, former holders of shares of Legacy Science 37 common stock (including shares received as a result of the conversion of Legacy Science 37 preferred stock) and former holders of options to purchase shares of Legacy Science 37 are entitled to receive their respective pro rata shares of up to 12,500,000 Earn-Out Shares if, during the three years following the consummation of the Merger, the volume weighted average price of Science 37’s Common Stock for a period of at least 20 days out of 30 consecutive trading days:
i.is equal to or greater than $15.00, a one-time aggregate issuance of 5,000,000 Earn-Out Shares will be made (“Trigger 1”); and
ii.is equal to or greater than $20.00, a one-time aggregate issuance of 7,500,000 Earn-Out Shares will be made (“Trigger 2”).
As of December 31, 2021, the stockholders and option holders were estimated to receive approximately 10,914,421 and 1,585,579 Earn-Out Shares, respectively, based on the fully diluted capitalization table of Legacy Science 37. The fair value of the Earn-Out Shares was approximately $10.35 (Trigger 1) and approximately $8.20 (Trigger 2) per share as of December 31, 2021.
As of September 30, 2022, the stockholders and option holders are estimated to receive approximately 11,098,317 and 1,401,683 Earn-Out Shares, respectively. The fair value of the Earn-Out Shares was approximately $0.16 (Trigger 1) and approximately $0.09 (Trigger 2) per share as of September 30, 2022.
The estimated fair value of the Earn-Out Shares was determined using a Monte Carlo simulation valuation model using a distribution of potential outcomes on a monthly basis over the earn-out Period using the most reliable information available. This valuation method falls into Level 3 fair value hierarchy for inputs used in measuring fair value and is based on inputs that are unobservable and significant to the overall fair value measurement. Unobservable inputs are inputs that
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Science 37 Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

reflect the Company's judgment concerning the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. To the extent that the valuation is based on models or inputs that are unobservable in the market, the determination of fair value requires management to exercise a high degree of judgment. Change in significant unobservable inputs could result in a higher or lower fair value measurement of the liability associated with of the Earn-Out shares. Assumptions used in the valuation were as follows:
September 30, 2022December 31, 2021
Stock price$1.61 $12.47 
Expected volatility80.0 %55.0 %
Risk-free interest rate4.22 %0.91 %
Forecast period (in years)2.0 2.8 
Former Science 37 Shareholders
The Company has determined that the contingent obligation to issue Earn-Out Shares to former Science 37 shareholders is not indexed to the Company's stock under ASC Topic 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity, and therefore equity treatment is precluded. The Triggering Event that determines the issuance of the Earn-Out Shares includes terms that are not solely indexed to the common stock of the Company and, as such, liability classification is required. For the nine months ended September 30, 2022, there was a decrease in the fair value of the earn-out liability of $97.6 million, which was recorded as a gain in “Change in fair value of earn-out liability” within the condensed consolidated statements of operations. In accordance with the Merger Agreement, Earn-Out Shares attributable to former Science 37 option holders who discontinue providing service before the occurrence of the Triggering Event are reallocated to the remaining eligible former stockholders and former option holders.
The earn-out liability is recorded on the balance sheet as a non-current liability because potential payment of the liability will be settled in the Company’s common shares. The following table presents a reconciliation of changes in the carrying amount of the contingent earn-out liability classified as Level 3 fair value hierarchy using significant unobservable inputs for the nine months ended September 30, 2022:

(In thousands)Earn-Out Liability
Balance at December 31, 2021
$98,900 
Change in fair value related to option holder forfeitures181 
Change in fair value related to share valuation inputs(97,781)
Total change in fair value recognized in earnings$(97,600)
Balance at September 30, 2022
$1,300 
Former Science 37 Option Holders
The contingent obligation to issue Earn-Out Shares to former Science 37 option holders falls within the scope of ASC 718, Compensation - Stock Compensation, because the option holders are required to continue providing service until the occurrence of the Triggering Event(s). For the three and nine months ended September 30, 2022, the Company recorded approximately $1.5 million and $5.3 million, respectively, in stock-based compensation expense related to the Earn-Out Shares. Approximately $1.4 million of unrecognized compensation expense was remaining at September 30, 2022, which is expected to be recognized over the remaining derived service period of 0.1 years (Trigger 1) and 0.4 years (Trigger 2).
12. Stock-Based Compensation
The Company has one equity-based compensation plan, the Science 37 Holdings, Inc. 2021 Incentive Award Plan (the “2021 Plan”) from which stock-based compensation awards can be granted to employees, consultants, and non-executive directors. Prior to the consummation of the Merger in the fourth quarter of 2021, the Company granted stock options to employees under the Science 37, Inc. 2015 Stock Option Plan (the “2015 Plan”). No further awards have been or will be made under the 2015 Plan following the effectiveness of the 2021 Plan. The 2021 Plan allows for the grant of awards in the
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Science 37 Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

form of: (i) incentive stock options; (ii) non-qualified stock options; (iii) stock appreciation rights; (iv) restricted stock; (v) restricted stock units (“RSUs”); (vi) dividend equivalents; and (vii) other stock and cash based awards.
In May 2022, the Company began granting RSUs to certain officers and employees, and to the Board of Directors. The RSUs are contingent upon continued service and vest over time in annual or bi-annual installments over the vesting period, which is typically 1 to 3 years. The fair value of the RSUs is based on the Company’s closing stock price on the grant date. The fair value of the RSUs is amortized straight-line over the vesting period.
In connection with the closing of the Merger, the Company adopted an Employee Stock Purchase Plan (the “ESPP”). The ESPP is a shareholder-approved plan under which substantially all employees may voluntarily enroll to purchase the Company’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market value of the stock as of the beginning or end of the six-month offering periods. Employees may not purchase more than 5,000 shares annually under the plan.
The first six-month ESPP offering period began on September 1, 2022. The fair value of the shares under the ESPP is calculated on the first day of the offering period (the grant date) using the Black-Scholes valuation model and is amortized straight-line over the six-month offering period. For additional information on the ESPP, refer to the section labeled “Equity Incentive Plans” in the Company’s prospectus, dated January 25, 2022, filed with the Securities and Exchange Commission (“SEC”) in accordance with Rule 424(b)(3) of the Securities Act on February 10, 2022.
The following table summarizes stock option awards outstanding as of September 30, 2022, as well as activity during the nine months then ended:
(In thousands, except per share amounts)Number of
Options
Weighted Average
Exercise Price
Outstanding at December 31, 202125,425 $5.30 
Granted4,323 10.55 
Exercised(1,583)0.57 
Forfeited(2,162)8.02 
Outstanding at September 30, 202226,003 $6.26 
The following table summarizes RSU awards outstanding as of September 30, 2022, as well as activity during the nine months then ended:
(In thousands, except per share amounts)Number of
RSUs
Weighted Average
Grant Date Fair Value
Aggregate Fair Value
Outstanding at December 31, 2021 $ 
Granted9,072 $2.19 
Vested $ 
Forfeited(100)$3.29 
Outstanding at September 30, 20228,972 $2.18 $19,559 
As of September 30, 2022, the total unrecognized compensation expense related to outstanding stock options and RSU awards was $51.3 million and $17.4 million, respectively, which the Company expects to recognize over a weighted-average period of 2.66 and 2.76 years, respectively.
As of September 30, 2022, the total unrecognized compensation expense related to the ESPP was $0.1 million, which the Company expects to recognize over a period of 0.41 years.
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Science 37 Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

The total amount of stock-based compensation expense recognized in the unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021 was as follows:
Statement of operations classificationThree Months Ended September 30,Nine Months Ended September 30,
(In thousands)2022202120222021
Cost of revenue (stock options, RSUs and ESPP)$505 $129 $1,481 $346 
Selling, general and administrative (stock options, RSUs and ESPP)3,710 869 12,669 1,567 
Selling, general and administrative (Earn-Out Shares)1,524  5,275  
Total stock-based compensation expense$5,739 $998 $19,425 $1,913 
Stock-based compensation expense recognized in the statements of operations may differ from the impact of stock-based compensation to additional paid in capital due to stock-based compensation capitalized as part of software development activities.
13. Income Taxes
The Company has incurred net operating losses since inception and is forecasting additional losses through December 31, 2022. No U.S. Federal or material state income taxes are expected for 2022 and foreign income taxes are expected to be immaterial; as such, the provision for income taxes recorded as of September 30, 2022 was immaterial. Due to the Company’s history of losses since inception, there is not enough evidence at this time to support the conclusion that the Company will generate future income of a sufficient amount and nature to utilize the benefits of the Company’s net deferred tax assets. Accordingly, as of September 30, 2022 and December 31, 2021, the Company provided a full valuation allowance against its net deferred tax assets since, as of that time, the Company could not assert that it was more likely than not that these deferred tax assets would be realized.
14. Subsequent Events
On November 10, 2022, the Company committed to and commenced a cost reduction program. This program included a reduction in force affecting 90 employees (representing approximately 16% of total employees prior to these actions). The Company’s Board of Directors approved the program on November 9, 2022 and the majority of the affected employees were informed of the reduction in force on November 10, 2022. The Company expects the majority of the reduction in force to be completed by the end of the fourth quarter of 2022. The Company expects that the cost reduction program will generate annual gross cash savings of approximately $21 million.
Total cash expenditures for the cost reduction program are estimated at $3.5 million to $3.8 million, substantially all of which are related to employee severance costs. The Company expects to recognize most of these pre-tax reduction in force charges in the fourth quarter of 2022. The Company’s estimates are subject to a number of assumptions, and actual results may differ. The Company may also incur additional costs not currently contemplated due to events that may occur as a result of, or that are associated with, the cost reduction program.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our results of operations and financial condition. The following discussion should be read in conjunction with the Company’s condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. This discussion contains forward-looking statements which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks described in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and other documents filed by us from time to time with the Securities and Exchange Commission (“SEC”). Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “we,” “us,” “our,” and “the Company” are intended to mean the business and operations of Science 37, Inc. (“Legacy Science 37”) prior to the Merger and to Science 37 Holdings, Inc. following the closing of the Merger.
Overview of Our Business and Services
Science 37 is a leading provider of technology-based solutions that enable agile clinical trials and decentralized approaches on behalf of biopharmaceutical sponsors. The Company pioneered agile and decentralization methods and developed the industry’s first Agile Clinical Trial Operating System™ (“OS”) combining its unified technology platform, which orchestrates workflows, generates evidence and harmonizes data seamlessly, with its expansive centralized networks of patient communities, telemedicine investigators, mobile nursing, community providers, remote coordinators and data and devices. By making clinical research more accessible to patients and providers, we believe that the OS helps clinical research sponsors achieve faster patient enrollment, enable better patient retention and increase accessibility to representative patient populations. We believe that these improvements help accelerate the development of potentially life-saving treatments through faster study timelines and a more representative and diverse patient population. The Company operates under one reporting segment.
Key Factors Affecting Our Performance
We review certain key performance measures, as discussed below, to evaluate our business and results, measure performance, identify trends, formulate plans and make strategic decisions. We believe that the presentation of such metrics is useful to the Company’s investors because they are used to measure and model the performance of companies such as ours.
We derive our revenue primarily from contractual arrangements to enable and enhance clinical trials through technology and services as well as licensing our proprietary technology platform to a variety of life science institutions. Thus, the following factors have been important to our business and we expect them to impact our business, results of operations and financial condition in future periods:
Core business growth
Our sustained growth will require continued adoption and utilization of our products and service offerings by new and existing customers. Our revenue growth rate and long-term profitability are affected by our ability to expand our customer base through market penetration and drive broader adoption of our technology platform. Our financial performance will depend on our ability to attract, retain and sell additional solutions to our customers under favorable contractual terms.
Expansion into adjacent markets
Maintaining our growth will require additional expansion of our offerings across key verticals, including Contract Research Organization (“CRO”) partnerships, electronic clinical outcome assessment capabilities, real-world evidence, clinical care, and diversity in clinical research. Our financial performance will depend on our ability to continue to execute our expansion across these key verticals with favorable contractual terms.
Continued investment in growth
We plan to continue investing in our business, including our internally developed OS, so we can capitalize on our market opportunity and increase awareness of the value that can be realized with decentralized clinical trials. We also expect to continue to make focused investments in marketing to drive brand awareness, increase the number of opportunities and further penetrate the market. We also intend to make certain investments in our general and administrative functions as we scale to meet our reporting, compliance and other obligations as a public company.
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Although we expect these activities will negatively impact our results in the near term, we believe that these investments will contribute to our long-term growth and positively impact our business and results of operations.
Inflation
Our long-term contracts generally include inflation or cost of living adjustments for the portion of the services to be performed beyond one year from the contract date. In the event actual inflation rates are greater than our contractual inflation rates or cost of living adjustments, inflation could have a material adverse effect on our operations or financial condition.
Backlog and Net Bookings
Our backlog represents anticipated revenue for work not yet completed or performed (i) under signed contracts, letters of intent and, in some cases, bookings that are supported by other forms of written communication and (ii) where there is sufficient or reasonable certainty about the customer’s ability and intent to fund and commence the services within six months. Backlog and backlog conversion (defined as quarterly revenue for the period divided by opening backlog for that period) vary from period to period depending upon new authorizations, contract modifications, cancellations and the amount of revenue recognized under existing contracts.
We continually evaluate our backlog to determine if any previously awarded work is no longer expected to be performed. If we determine that previously awarded work is no longer probable of performance, we will remove the value from our backlog based on the risk of cancellation. We recognize revenue from these bookings as services are performed, provided the Company has received proper authorization from the customer. We exclude revenue that has been recognized and reported in the statement of operations from backlog.
Although an increase in backlog will generally result in an increase in future revenue to be recognized over time (depending on future contract modifications, contract cancellations and other adjustments), an increase in backlog at a particular point in time does not necessarily correspond to an increase in revenue during a particular period. The timing and extent to which backlog will result in revenue depends on many factors, including the timing of commencement of work, the rate at which services are performed, scope changes, cancellations, delays, receipt of regulatory approvals and the nature, duration, size, complexity, and phase of the studies. The Company’s contracts generally have terms ranging from several months to several years. In addition, delayed projects remain in backlog unless they are canceled. As a result of these and other factors, our backlog might not be a reliable indicator of future revenue and we might not realize all or any part of the revenue from the authorizations in backlog as of any point in time.
Net bookings represent new business awards, net of contract modifications, contract cancellations, and other adjustments. Net bookings represent the minimum contractual value for the initial planned duration of a contract as of the contract execution date. The minimum fixed fees, upfront implementation fees and technology and support fees are included in net bookings. Estimates of variable revenue for utilization in excess of the contracted amounts are not included in the value of net bookings. Net bookings vary from period to period depending on numerous factors, including customer authorization volume, sales performance and the overall outlook of the life sciences industry, among others.
Our backlog as of September 30, 2022 and 2021 was as follows: