Currently one of the most successful life science companies in the country, Horizon has gone from strength to strength since IPO. Recent developments in the company's legacy include a complete reorganisation of their business structure, a consolidation of their Boston, USA operations to Cambridge, UK, a doubling of their share price since December 2016, and a vision to shift their business firmly in favour of products over services. As their leadership position in the fields of gene editing, human disease modeling, immuno-oncology and cell therapy becomes ever more firmly cemented, we met up with CEO Darrin Disley to ask whether they will achieve their goal of a positive EBITDA by the end of the year and sustainable cash generation in 2018, and what else is on the horizon for their company... Here are 9 key takeaways from the conversation:
1. Going for gold
Horizon has positioned itself at the nexus of 21st century healthcare, operating in three converging and highly-invested areas: personalised medicine, immuno-oncology and cell and gene therapy. Darrin likens Horizon’s role to that of the great tool providers that underpinned the American gold rush.
"In the new gold rush, we're the supplier of the picks and shovels – the Levi Strauss of the sector. We enable researchers to elucidate the genetic basis of diseases like cancer and develop novel molecular and genomic medicines that target these route drivers. In this our 10th year we aim to return to positive EBITDA having achieved this in our first two years of operation driven by increased sales volumes to our customers in pharma, biotech, diagnostics and academia." - Darrin Disley
2. The market for gene editing has greatly expanded in the last decade - and will only continue to grow
In a pre-Illumina era – around 2007 – DNA sequencing was likely to cost around $10 million per genome, so demand for the range of downstream products and services of the type we now provide was simply not present. As such, Horizon's operated as a service provider with a niche products business at their time of going public in March 2014. However, thanks to DNA sequencing now becoming a high-volume, low-cost commodity accessible to all and the advent of easier to use gene editing technologies such as CRISPR, Horizon is able to a pursue a more product-based business model.
"Our objective over the next 3 years is to become an 80% product business 20% services business. This makes sense from a cell builder's point of view. All the cost is in making the first cell: everything else we’re doing is deriving additional products (DNA, RNA, Proteins, FFPE-embedded cells) and applying them across academic research and drug discovery, development manufacture and clinical diagnosis of patients. The costs once you’ve made the first cell are incremental so we see each cell line as an asset to be sweated. Our products business is highly scalable and we are targeting a 30% revenue CAGR at a >70% gross margin whilst our services business (the product shop window) will grow at a 15% revenue CAGR at a >50% gross margin.
The difference between us and Levi Strauss is that we’re finding the gold too! We are in a position to gain some upside value in terms of drug or diagnostic test milestones and product royalties or holding equity in spin-out ventures formed with partners and investors" - Darrin Disley
3. A focus on products means a move away from services focus - and this required some difficult decisions
Horizon's move away from services and towards products was needed with regards to their operations stateside:
"We had to make some tough decisions on the services side. 70,000 square feet of our 100,000 square feet operational footprint was based stateside with a strong service focus. Our cell-based molecular screening operations based in Boston, USA were completely disconnected to our cell building and cell-based assay development operations here in the UK. Ultimately we went into the IPO telling people we were going to be acquisitive: if you’ve got 100,000 square feet of space with 70,000 square feet of it dedicated to services, and you’ve made an indication you’re moving in the direction of a products business because that’s how to scale revenue and margin, then you have to consolidate the services footprint to drive down cost, drive upside synergies and remove complexity and network effects from your operations. So strategically it was the right thing to do to re-locate our Boston, USA site and all attendant jobs to the UK." - Darrin Disley
4. Horizon deftly handled tough re-organisation and scale-up decisions
During their recent business reorganisation, which involved moving much of their operations from Boston, MA to Cambridge, UK, Horizon adopted a fair and open 'bottom up' approach, where all levels and functions of the workforce were consulted over 9 months in order to make the right decisions as to the correct organisational design that would enable the company to decide where to play, how to win and how to organise themselves to win.
"It was extremely inclusive. Right from the get-go there was a transparency throughout the entirety of the organisation for what we were trying to achieve. A number of functional teams were formed, and the leadership for those teams came from the employees themselves. They were guided by the top management but it really was a genuine bottom up approach." - Chris Claxton, VP Investor Relations and Corporate Communications
5. Horizon is confident that it can deliver a positive EBITDA this year
Horizon has committed itself to a positive EBITDA this year. That means at least £1... What gives Darrin confidence that this can be achieved?
"We’ve now had a first trading quarter of 25% growth year on year versus 2016 which gives us confidence. We’ve always had a strong second half year: it’s always been a 40-60% split. Last year's Q4 was a record quarter and December was a record month, so we know the second half of the year will be stronger." - Darrin Disley
6. Horizon sits in a prime position in the gene editing space, despite competitors' presence
Whilst Horizon has access to rAAV, ZFN, CRISPR and Transposon gene editing platforms, Darrin is adamant that Horizon's rAAV technology is especially suited to precision gene editing applications and cites the hundreds of clinical trials, for diseases both common and rare, that are in progress. Why? Because it's a system that is inherently better suited to the fundamentals required by gene and cell therapy (i.e. delivery, precision, control of off-target effects) applications than the other platforms out there.
"We’re performing genome surgery. If you’re going into surgery you’d prefer a surgeon who has all the tools in the kit and 10 years of experience at using either singularly or in combination based on the procedure at hand. One doesn’t just pull out the one tool and hope for the best outcome. All these tools do different things, and there is no perfect tool. “- Darrin Disley
7. Horizon's technology has applications beyond health
Biotechnology and gene editing technology cuts across many areas of scientific and economic interest, from healthcare through to food production and sustainable energy creation. Horizon's gene editing platforms and cell builder’s model can address the need to feed, fuel and heal a global population that is ageing at the rate of 1-5h per day.
"The UK's industrial strategy is all about feed, fuel, heal. In any of these areas, if you can identify a genetic trait in a bacteria, plant, animal or human that allows you relate to an industrial of healthcare outcome then you are in a position to influence that outcome (e.g. greater food production at reduced cost, increased bio-fuel production and the development of more targeted medicines). So of course we’re already being approached to do this type of work as a service or R&D collaboration and this will lead to launch of new research tools and products." - Darrin Disley
8. Buy British!
Darrin is confident in Britain's success in the biotech sector and wants to build Horizon as a scalable, innovative and commercially successful British life science company, but most definitely not a boring one!
"11% of the world’s innovation in life sciences comes from the UK. The global healthcare industry runs into trillions of dollars, the biggest industry by far - it dwarfs the internet. Just because you might not understand the jargon and vernacular doesn’t mean you shouldn’t invest in it. Trust the analysts, invest deep and broad, hold long and accept that you can’t short life science stocks." - Darrin Disley
9. What investors should be on the lookout for?
In addition to the guidance of positive EBIDTA, Darrin understands that investors will be keen to see Horizon make good on its goals to push towards a more products-based business model, and is confident that they will see Horizon transition towards this 80% products 20% services model within the next three years.
"A lot of the value of our business comes from being that Levi Strauss company enabling the gold rush, but yes whilst it’s fantastic to make the picks, shovels and jeans etc., what if there’s a seam to be mined and you can generate a piece of that gold yourself? That is what we will continue to aspire to achieve on top of the revenue and profits.” - Darrin Disley
Horizon was founded by Dr Chris Torrance and Professor Alberto Bardelli in 2007 when they came across an impressive gene editing platform, rAAV, which enabled the ability to tailor-make cell lines with virtually any genomic modification.
Since teaming up in September 2007 with current CEO and President Research Biotech, Dr Darrin M Disley and President Products Dr Paul Morrill, the company has grown rapidly, with offices in the UK, Europe and the U.S., and now supplies advanced research tools and expert services to over 1,400 organizations engaged in genomics research and the development of personalized medicines around the world, including major pharmaceutical, biotechnology and diagnostic companies as well as leading academic research centers.
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