Cambridge, UK, 29 July 2020: Horizon Discovery Group plc (LSE: HZD) ("Horizon", "the Group" or “the Company”), a cell engineering company focused on commercialising the application of gene editing and gene modulation to accelerate scientific innovation and biopharmaceutical drug development, today provides an unaudited pre-close trading update for the six months ended 30 June 2020. The Company plans to report its half year 2020 results on 17 August 2020.
Horizon expects to report half year 2020 revenues of approximately £22.4 million (HY 2019: £26.1 million, c. -13.9%)1, approximately £22.0 million (c. -15.5%) on a constant currency basis. The change was largely due to the rapid reduction of academic research work caused by the COVID-19 pandemic impacting the Group’s Research Reagents business unit and was broadly in line with Board expectations. The greatest impact was seen in the second quarter of 2020, most notably in April. This was then followed by a period of sustained recovery, which resulted in large parts of the business regaining momentum and returning towards 2019 levels of revenue by the end of June 2020.
Gross margin from continuing operations1 is expected to be approximately 66.0% (HY 2019: 71.2%). The margin decline is primarily due to the impact of COVID-19 on manufacturing costs and additional provisioning for aged inventory. Adjusted EBITDA is expected to be a loss of £4.6 million (HY 2019: £0.0 million1).
The Group’s cash position was bolstered by a successful Placing in April 2020, which raised £6.9 million in gross proceeds, and was further strengthened by the implementation of enhanced cash control measures implemented in April. Taking this into account, the Group had cash and cash equivalents of £23.6 million as of 30 June 2020 (HY 2019: £24.8 million; FY 2019: £18.8 million). The Group’s strong balance sheet provides financial flexibility to ensure operational delivery and continued strategic investment to fully benefit from market recovery.
1. In December 2019, the Company completed its divestment of its non-core In Vivo business unit to Envigo RMS LLC. Revenues generated in the period in the financial year that the Company owned In Vivo are excluded from the Company’s continuing operations
Terry Pizzie, Chief Executive Officer of Horizon Discovery, commented:
“Thanks to the fantastic efforts of our staff, we have continued to operate effectively throughout the crisis and have built stronger and deeper relationships with our biopharma customers based on our ability to add value in difficult conditions. Our customers have increasingly adopted outsourcing as a
solution to their own business challenges and we have become recognised as an invaluable long-term partner.
“We expect the trend for increased outsourcing to continue, for these relationships to endure and facilitate high level access within our biopharma customer base that will help lay the foundations for commercialising our new high growth areas.
“We are encouraged by our H2 2020 prospects and look forward to the remainder of the year with optimism and confidence about the Group’s strategy and prospects.”
Performance by Business Unit
Revenue for the Research Reagents business was £16.0 million, down 15.3% against the same period in the prior year, with trading significantly impacted by COVID-19. Academic and government research labs account for approximately 50% of the Research Reagents business unit’s revenues, and the closure of many of these facilities starting from mid-March, led to a rapid reduction in orders for RNAi and CRISPR reagents and cell line products.
In April, revenues for reagents reduced to a low of 56% of the same period in 2019. Trading started to improve in May as researchers began to return to work and, by the end of June, trading had recovered to 2019 levels.
As a result of the repositioning of the Group’s Cell Line Engineering (CLE) business, with a new value proposition, pricing and go-to-market strategy introduced at the end of Q1 2020, demand has increased significantly in Q2. This is not yet reflected in the reported revenues as a result of c. 10-week project delivery and revenue recognition timelines. Given the significant increase in demand, the Group has committed to additional investment in lab equipment and automation of approximately £3.5 million over the next 18 months, to further increase capacity to levels 25 times those of January 2019. To conserve near-term cash, this investment will be largely funded through leasing equipment. More detail on this will be provided at the Group’s half year 2020 results. In H2 2020, the Group also expects to benefit from demand for CLE from academic and government research, as most researchers return to work following the loosening of lock-down restrictions.
For the first time, the results for this business unit now include Diagnostics due to operational synergies, including e-commerce. Diagnostics revenues were down 8.5% from H1 2019. The Group expects this part of the business to return to growth in H2 2020.
Overall revenue of £4.4 million represented a 2.8% increase on the same period in the prior year. In line with typical biopharma spending patterns, the Screening business saw a relatively flat first quarter. However, after the initial slowdown in late March, the Group saw a notable increase in orders from its biopharma customer base, as these companies responded to the challenges of the COVID-19 crisis by prioritising key projects and supplementing their own in-house resources by outsourcing both CRISPR screening and High Throughput Screening (HTS). The Group expects the trend for outsourcing to continue in H2 2020.
Overall revenue of £2.0 million for H1 2020 was down 29.7% on the same period in the prior year, with revenues suffering from the impact of COVID-19 restrictions and changes of prioritisation within bioproduction facilities globally, resulting in delays to evaluations of our CHO cell line. Pick-up in activity in May and June indicates a potential road to recovery in H2 2020.
The Group remains excited about its collaboration with Mammoth Biosciences and the development of a suite of next generation engineered CHO lines as these initiatives are progressing well.
After establishing a new Base Editing business unit in H1 2020, the Group has making good progress working with its early access customers, including a large global pharma company, to assess and shape the development of this technology. The Group believes this technology is well-positioned to benefit both the CAR-T therapy market and the gene therapy market.
Supporting COVID-19 Research
Horizon’s products and services are being used by our customers in several important areas of COVID-19 research, including in efforts to uncover the virus’ weaknesses, find targets for potential therapies and help guide vaccine design. The Group’s RNAi and CRISPR reagents are being used by high profile organisations such as the Krogan Lab, based at University of California San Francisco. Nevan Krogan, PhD, Professor of Cellular Molecular Pharmacology at UCSF, who leads the facility, has cited Horizon’s ability to be quick and flexible in meeting the laboratory’s needs for CRISPR and siRNA reagents as being instrumental in the rapid progression of its COVID research.
The fundamental drivers and demands for Horizon’s products and services remain strong and the Group is confident of a return to growth in the second half of 2020. Horizon remains focused on executing its strategy, and the management team is excited about the continued expansion of its screening market and the opening-up of new high growth areas that will come from commercialising its investments in BioProduction and Base Editing.
Horizon’s strong balance sheet position provides financial flexibility to ensure operational delivery and continued R&D investment to fully benefit from market recovery. The Group will continue to prudently manage the business, ensuring operational delivery and focused investment in order to be in a strong position as markets normalise.
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