viewHorizon Discovery Group PLC

Horizon Discovery at the forefront of personal medicine

It took 13 years and almost US$3bn to decode the mysteries of the human genome – a project that was declared complete in 2003.  However, this was the genome of one person in one state of health at one moment of time. 


It took 13 years and almost US$3bn to decode the mysteries of the human genome – a project that was declared complete in 2003. 

However, this was the genome of one person in one state of health at one moment of time. 

Today, the costs of repeating this undertaking have come down to US$1,000 and the timescales involved are measured in hours rather than years.

This means it is not just possible, but financially viable to screen patients on an individual basis, ushering in an era of personalised medicine.

Most diseases, such as cancer are associated with genomic variations, which may predispose how a patient’s disease progresses or how they react to treatment.

The desire to understand individual differences in a patient’s genetic makeup and how this correlates to an individual’s disease predisposition, onset, prognosis and even how they will respond to treatment has led to an explosion in the number of experiments that seek to mimic these genetic variations in the lab.

All of this creates the perfect storm for Horizon Discovery Group (LON:HZD), the Cambridge-based life sciences specialist operating at the cutting edge of this science.

Its specialty is human gene editing, which in very basic terms means it is able to produce a pair of human cell lines identical with the exception of carefully selected mutations.  

These cell lines act as a surrogate for a patient in a state of good health versus diseased health and enables drug makers to develop novel medicines that target the specific genetic drivers of a disease and implement shorter, less costly and targeted clinical trials.

“Horizon has built its business around a very broad, flexible gene editing platform,” said Chief Executive Dr Darrin M Disley.

“It means we are able to take information from human genome sequencing efforts and edit the code of human cells to recapitulate those genetic changes that scientists and our customers use to create drugs to treat the disease.”

This can be demonstrated in the development of a lung cancer drug called Iressa that was developed by AstraZeneca (LON:AZN).

Published data using Horizon’s platform technology to recreate the drug clinical trials in a test-tube suggest that hundreds of millions of pounds might have been saved ahead of developing Iressa as it turned out at the end of years of development to only work in a small (4.8%) sub-group of patients with a particular genetic mutation.

Horizon’s GENESIS platform is described by City broker Panmure Gordon as Horizon’s “killer app”.

It can use the adeno-associated virus as a guided missile for “delivering, cutting and pasting” the desired DNA sequence to create X-MAN cell lines.

From this the Company has created a unique, revenue generative business that counts AstraZeneca, Bayer, Boehringer Ingelheim, Genentech, Jannssen, Novartis and Roche amongst almost 1,000 customers.

It sells reagent products for anywhere between US$20 and US$1,000 each, licenses cell lines for up to US$20,000 per year, and its technology is also integral to contracted research programs sold at $10,000 up to $3mln.

At the same time it partners with a number of drug discovery programmes that have yielded on-going R&D payments plus potential future milestone payments of £158,000,000 plus royalties on future drug sales.

The majority of the Company’s turnover comes from products and services with H1, 2014 revenue growth of 63% over H1, 2013 reported in the recent pre-close trading statement issued.  

The latter prong of this business model, which the firm calls leveraged R&D revenue, can be considered as the “jam on top”. H1, 2014 R&D payments increased 75% and cumulative future milestones by 27% over H1, 2013.

“Our ambition is to be a fully-integrated life sciences business that can provide solutions to problems at every stage of the healthcare paradigm from sequence to treatment,” says Chief Executive Darrin Disley.

“What I mean by that is we are selling services and intellectual property assets to every stage from genome sequence to patient treatment in the pharmaceutical value chain.

“This is not a traditional risky biotech. We have a de-risked business model that combines revenue generating products and services [which is a compound annual growth rate of more than 126% between 2008-2013] with a leveraged R&D element, which gives you some of that biotech upside with a very controlled downside risk profile.”

Horizon listed on AIM in March, the group raised £68.6mln including £40mln of new funds, which will support the Company continue upon its high international growth trajectory.

The stock market quote and inflow of cash also provides the group with the currency to go out and make selected bolt-on purchases.

It has already in-licensed an additional gene editing platform called CRISPR, while it paid £4.74mln for CombinatoRx, which “targets the tougher to reach disease mutations and assesses how to combine drug therapies to get the best results.”

In CombinatoRx, Horizon acquired a business that last year turned over £4.8mln at a 20% EBIT margin, brings with it £34mln of milestone payments and has had £18mln invested in the platform, for a total cash consideration of £4.74 mln.

Panmure, which is broker to Horizon, reacted to the deal by raising its valuation to 220p a share. 

But the market has been slow to react with the stock bubbling along at around 171p, 9p below its float price.

Panmure’s healthcare analyst Mike Mitchell predicts the group will post sales of £10mln this year, and a pre-tax loss of £4.8mln as the company continues to build scale and reinvest in the business. By 2016, turnover is expected to have doubled, giving a £1.1mln profit.

In a note initiating coverage, Mitchell said Horizon was “extremely well placed” for growth, thanks to its innovative platform and products, expertise in oncology and translational genomics, guided by “world class management.”

“Most importantly, however, these characteristics mean Horizon is well placed to solve many of the problems that have bedevilled drug development historically, and the acute challenges of delivering successful, effective healthcare solutions at reduced cost,” he concluded.

Quick facts: Horizon Discovery Group PLC

Price: 103.5 GBX

Market: AIM
Market Cap: £163.02 m

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