by Tom Bulford
Posted 13th April 2017
In stock market investment it is better to be too early than too late, but I must admit that my tip for HORIZON DISCOVERY (HZD) in January 2015, shortly after it came on to the stock market, was overly premature. That said I have little doubt that our patience will be rewarded and the share price, up 25% or so within the last fortnight, is now really getting going.
I have just paid a visit to Horizon’s gleaming new building on the Cambridge Research Park, and I think I know why investors have finally seen the light. I’ll come to that in a minute but first let me describe my trip to Cambridge.
I have visited many companies and I have usually come away with a great handle on the way the business works. I see the raw materials going in, the manufacturing process and the finished products. I also get a good idea of the sort of things that can go wrong.
Many years ago I visited a factory in the Potteries that made crockery. I saw the clay, the moulds and the kilns and then watched as the plates sped along a conveyor belt. It was all highly efficient except for one thing.
At one point the conveyor belt turned a rather sharp corner, causing the occasional china plate to fly off.
To save them from shattering on the floor a man was stationed there to catch them. What I especially remember is that he was wearing wicket-keeping gloves!
There was no sign of any emergency cricket equipment as Horizon’s Chris Claxton showed me around. But there was a large room of people sitting at PCs, which could just as easily have been the back office of an insurance company.
And then we looked to the windows of a number of laboratories containing very few people but plenty of white equipment that would not have looked out of place in a kitchen showroom.
It certainly looked as if it had cost a lot of money and it seemed to me that there was plenty of capacity to meet the anticipated rising demand for Horizon’s services.
Above all though what impressed me about this, and other biotechnology facilities that I have been to, is the sheer weight of technology and automation. Computing, robotics, highly sophisticated materials handling and miniaturisation have all made their mark upon this industry.
Global leader in gene editing
Horizon is in a strong position because it foresaw the importance of gene editing long before others. Back in 2007 Horizon’s two founders Dr Chris Torrance and Professor Alberto Bardelli stumbled across Recombinant Adeno-Associated Virus –rAAV for short – which, by using the natural power of viruses to enter cells, was an early platform for gene editing.
Realising just how important this could become they grabbed the rights to use rAAV and the compnay has since supplemented this with other gene editing technologies, notably zinc finger nucleases and CRISPr.
While the latter has made gene editing much easier rAAV and ZFN are still widely used depending upon the specific application.
In recent months I have been writing more and more about gene editing. Biology is the study of life and there is no better way than to get right to the DNA at the heart of every cell, tinker with it and see what can be learned.
This is precisely what is happening in rapidly increasing numbers all over the world. In the first fifteen years of this century one million genomes have been sequenced. Between 2015 and 2020 over 500 million genomes – human, plant and animal – will be sequenced.
This is generating a vast amount of information and the challenge is to translate it into something useful. This discipline of ‘translational genomics’ is where Horizon sits.
With all the necessary tools and extensive practical experience Horizon claims to be the global leader in gene editing.
It can make very specific alterations to the DNA of cells. It is able to manufacture lines of these cells in its own biomanufacturing facility and it also offers laboratory animals that have been modified as disease models.
Whether the customer is simply interested in the function of a gene within a cell, the relationship between genes and drug efficacy – the basis of personalised medicine – or the possibility of using engineered cells as therapies in themselves, Horizon can supply the models.
And here is the really important message.
These models are much more accurate than anything that has been used before.
For example if a researcher wanted to test drugs against lung cancer he would have got hold of some cells taken from a tumour biopsy.
But while those cells came from the tumour of an individual patient they were not necessarily uniform, nor did they necessarily match the cancer cells of other patients.
One reason why drug trials so often fail is that early successes against a small sample of patients are not replicated in a larger sample.
The heterogeneity of cells, or of any other biological materials, means that when for example they are subjected to drugs they give off very confusing, ‘noisy’, signals.
But now when a researcher has a theory that a disease is caused by a particular genetic abnormality of the cell, he can work on cells that are entirely normal apart from this specific genetic pattern of interest. These cells are made and provided by Horizon and they promise to radically improve the efficiency of research and of medicine.
Horizon makes these cellular models on demand, but crucially it retains the IP within each model.
Each time it creates a new one these are added to its catalogue, which now comprises 23,000 products, the majority of which are ‘knock-outs’ i.e. cells that have had one particular gene eliminated. These cells or cell lines can be licensed out for research use, sold as reference standards to validate diagnostic tests, while in another twist Horizon will sometimes accept a carried interest in a customer’s drug project in lieu of payment.
In short Horizon has an ‘asset bank’ of engineered cell or animal models that can be leveraged into multiple revenue streams.
A bright future
Horizon is very confident of its future. The global gene editing market is expected to grow at 31% per year until 2022, Horizon believes that it can increase its share of the market and it has invested accordingly.
Late this month or in early May Horizon will announce its annual results for 2016 and it has already said that revenue will be at least £24m, which compares to £20.2m in 2015.
But this understates Horizon’s growth. This year it has transferred a part of its business from an expensive 23,000 sq ft site in Boston to a much cheaper 8,000 sq ft site in Cambridge, and the inevitable disruption cost £2.7m of lost revenue.
Taking account of that Horizon has already said that revenue this year will be in the £30m-£35m range, and also that the move from Boston to Cambridge will trim £3m from the cost base.
Taken altogether this means that Horizon is on track to deliver a positive EBITDA (Earnings before tax, depreciation and amortization) this year.
As Horizon moves into profit, as it grows its revenues and cements its position as a global leader in cell engineering I expect the shares to rise. As researchers around the world unlock the secrets of life, genetic engineering is going to enjoy rapid growth for several years to come.