Horizon Discovery on course for stellar 2017
A world leader in gene editing technology, Horizon Discovery is on course for profitability this year. Mike Scialom finds out how the company is playing a key role in the global genomics paradigm.
Chris Claxton has spent much of the month on tour, waving the flag for the Cambridge company which has become a world-class developer of gene editing technology.
“The annual results are what’s been keeping me busy,” says Horizon Discovery’s vice president of investor relations and corporate communications of its 2016 financial figures published at the end of May.
“I’ve spent the last several weeks on the road meeting with fund managers and investors in the UK, educating them as to why the space we’re focusing on is as exciting as it is and guiding to a top-line revenue of £30m to £35m for 2017 at a positive EBITDA [earnings before interest, tax, depreciation and amortisation].”
The fund managers probably won’t need any caffeine to get excited: Horizon Discovery’s trajectory is creating a buzz all by itself. Group revenue last year rose 19 per cent to £24.1m, margins went up to 54 per cent (from 49 per cent the year before), powered by a products division margin that reached 70 per cent, and it made an EBITDA (before exceptionals) loss of £3.8m, down from £4.6m.
This is all part of the plan for the firm founded in 2007, says Chris. “EBITDA is a key measure on the road towards an organisation becoming cash-independent, it demonstrates internal discipline.
“When we listed on AIM [Alternative Investment Market] in 2014 we indicated a pretty clear strategy – three years of developing our technology, scaling up and investment. 2017 was the year we said we’d be profitable.”
The Q1 data for Horizon this year shows it’s made a strong start, with revenue up 25 per cent year on year, suggesting that £30m-£35m revenue appraisal could actually be modest.
So what’s it all about? Horizon specialises in building cells that support the life sciences, from basic research through drug discovery and manufacturing to clinical diagnostics.
With its HQ in Cambridge (Waterbeach), it also operates sites in Vienna, Austria, and in St Louis and Boyertown in the US. It closed its Boston facility last year – “the revenue was excellent but the cost base was quite high and we said we’d be profitable in 2017, so we relocated that capability to our Cambridge HQ, where it is now operating much more efficiently”.
The firm’s 250-plus employees are delivering genomics advances in an area which is developing very rapidly and producing huge successes. The firm is contributing to three powerful trends in the life sciences, according to its CEO, Dr Darrin Disley:
1. The provision of novel research and drug discovery tools designed to develop personalised medicine and associated companion diagnostics
2. The development of novel cancer immunotherapies
3. The development of cell and gene therapies.
Chris says that “all parts of the business are growing” and talks me through just one example of how the firm has become a world-leading life science company.
“What we offer is a combination of technology and expertise. We offer data insights to particular companies. In total we work with more than 1,600 organisations, including more than 30 of the top 50 global pharmaceutical companies on a regular basis.”
He says: “If someone has colorectal cancer and goes to their doctor, their oncologist will look to prescribe Erbitux, a front-line treatment, but before that the GP will want a test for the KRAS gene. The medical team will need to know what the KRAS gene looks like; around a third of people will have a mutation in that gene and if you have a change you probably won’t respond to Erbitux.
“The problem is, the doctor takes a sample, it goes to the lab, tests are run, back comes an answer which goes to the oncologist. It’s a binary choice – ‘yes’ or ‘no’ – to giving the drug. But the problem is that in tests of this kind, studies have shown that in some cases up to 30 per cent of the time the test result is wrong. Making sure these genetic tests are providing accurate results is like the setting the sights on a rifle: you need something to aim at to test the accuracy of the sights.
“The reason for these mistakes is down to the scientific control. Traditionally, the gold standard has been to use a known sample from another patient, and suffice to say having another patient as the positive control is a very poor choice because your target is very inconsistent.
“At its core Horizon Discovery builds cells, and gene editing is used to make very specific changes to a gene in cells so they accurately reflect what is seen in disease in real patients.”
In a Petri dish? “In a Petri dish. So Horizon builds the cells that mimic a real patient, but the results are better than those from a real patient because you know exactly what you’re getting – we deliver very consistent, very reliable, very trustworthy results so the labs can rely on them. That removes a lot of error and massively reduces the number of mistakes being made, so a doctor can make the right decision for patients – and this reduces the cost of treatments.
“You’re talking about up to 30 per cent of patients who could be getting the wrong drugs, drugs which were of no benefit, and some of the courses involved can cost 30, 40 or 50 thousand pounds. This is one of the fastest-growing parts of our business and it’s an area where we were the innovators.”
Another key part of Horizon’s business is in biologic drug manufacturing. Biologics are proteins which can fight disease in a number of ways, including inhibiting the bits of the immune system that fuel inflammation (these proteins can be very effective in combating arthritis) or being used to directly fight cancer. These drugs – “mainly proteins, or antibodies” – are manufactured in factories that are actually cells.
“Horizon is very good at making changes to cells, and so we provide these biologic drug factories to our customers, having made genetic changes to them to make them as efficient as possible. This is perhaps the fastest-growing part of our business, fuelled by a business model that’s extremely competitive compared to other firms making these products – we have the most efficient factories at the best value.”
In addition to off-the-shelf cell lines and the diagnostic controls and biologic drug manufacturing cells mentioned, Horizon provides a range of high-value, high-margin services for its customers. These services can be pared down to two broad buckets, says Chris.
“First, a customer looks at the catalogue of models of human diseases that we mimic in cells and if there’s one they need that’s not there yet they pay us to develop it and it then goes into our catalogue for our next customer.
“Second, the thing we deliver, primarily to pharmaceutical customers, is data when they have a specialised and tough-to-answer question and our models can provide the answer. For example ‘I have a drug compound and I need to know about drug combination screening to know if certain drugs are toxic with each other’.”
Another powerful way that Horizon is having an impact on healthcare is through cell therapy. Gene editing is now allowing cells to be taken from a person – for example from bone marrow – and a genetic disease in the cells directly treated (say, sickle cell anaemia), and the cells then put back in the patient so the patient’s own cells are operating to fight disease in the body. Horizon is providing services to support this area and is expecting revenues from this area alone of at least £1.6m this year.
Genomics is the 21st-century engineering driver in the same way as the internal combustion engine propelled the automotive and flight industries in the last century. Then, we could explore geography. Today, we’re exploring biology.
This is the year when Horizon Discovery is really coming into its own: it is helping to prise open some of biology’s oysters – so don’t be surprised if you hear lots more about the astounding pearls contained therein soon.
• Interview in association with Grant Thornton’s Vibrant Economy initiative