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Horizon Discovery Group PLC: THE INVESTMENT CASE

Market applauds Horizon Discovery's Dharmacon buy

Enlarged company can become an emerging leader in the application of gene modulation technologies
picture of drug researcher
Demand for both companies' products is rising rapidly

A company that sees its share price surge after a huge share placing and acquisition can fairly confidently assume the market likes the deal.

And that’s where Horizon Discovery PLC (LON:HZD) finds itself after its shares jumped 12% on the back of the purchase of General Electric subsidiary Dharmacon.

It’s not hard to see why the market gave such as positive response.

Revenues to double

At a stroke, Horizon has more than doubled its revenues but more importantly given itself a way in to the hugely important academic section of the drug development market.

Horizon, combined with Dharmacon, can become an emerging leader in the application of gene modulation technologies in life science research, according to Horizon chief executive Darrin Disley.

“Brand recognition, and sales, marketing (including eCommerce) and the distribution channel would transform the opportunity for Horizon's product portfolio."

The purchase cost is US$85mln in cash and shares with a £80mln placing at 205p to fund it.

Backing has come from major institutional shareholders Woodford and Perpetual, which between them will own a 31.5% stake following the transaction. General Electric will own 8.8% of Horizon

Horizon's benefits from Dharmacon acquisition

- Expansion of the product portfolio to gene modulation and gene expression technologies,

- Accessing a global academic/government research customer base where Horizon historically has had little brand awarenes

- Increasing the scalability and global reach of the business by delivering a high proportion of product sales through Dharmacon's eCommerce platfor

- Revenue and cost synergies, with the enlarged group’s cost to be reduced by 10-15% within 18 months and sales to grow again at Dharmacon

Gene editing

Horizon specialises in gene-editing, namely altering the biological codes that tell a cell how to behave.

It designs and engineers genetically-modified cells that replicate certain mutations for use in applied research and clinical applications.

The vast majority of its offering is based around accurately reproducing the mutations and anomalies found in cells that can cause diseases like cancer.

Horizon boasts a catalogue of over 23,000 cell generation and application services. It allows researchers to better understand the genetic drivers of the disease in order to develop therapies to treat it.

Ten of the best selling drugs last year were biologic therapeutics, but access to bioproduction cell lines for their manufacture can be cost prohibitive, which is where Horizon comes in.

Further modification of cells

Underlying its growing market presence, towards the end of 2016 the group licensed its cell line production technology to the Centre for Process Innovation (CPI) and the National Institute for Bioprocessing Research (NIBRT) and Training.

The collaborations mean any organisation that goes through CPI or NIBRT will be able to access Horizon's biomanufacturing cell lines for research purposes.

Terms of the licences will allow for further modification of cells accessed through the CPI or NIBRT and establishes a potential long-term revenue stream for Horizon.

The group’s commercial offering has already been adopted by around 1,400 research organisations across 50 countries.

Sales at the double

Sales in 2016 were £24.1mln (£20.2mln), but 2017 should see these rise to at least £30-35mln, Horizon confirm with the Dharmacon deal.

Product revenues rose by 45% to £11.3mln with immuno-oncology sales rising 40% to £1.5mln as 10 developments now use its platform.

Gross margins rose to 54%, from 49%, reflecting the growing importance of the products division said Horizon and underlying losses [EBITDA] reduced to £3.8mln (FY15: £4.6mln). There was a pre-tax loss of £12.5mln (£10.5mln).


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