Horizon Discovery Group plc (LSE: HZD), a global leader in the application of gene editing and gene modulation technologies, today announces an unaudited pre-close trading update for the year ended 31 December 2018.
Group financial performance
The Group expects to report FY 2018 revenues of approximately £58.7 million (FY 2017: £36.5 million), approximately £60.5 million on a constant currency basis. Reported revenues represent growth of approximately 61% against the prior year, approximately 66% on a constant currency basis. Revenues on a like-for-like basis (pre-acquisition of Dharmacon) are expected to be approximately £30.1 million (FY 2017: £27.5 million), growth of 9%, and approximately £30.8 million on a constant currency basis, growth of 12%.
The Group also expects to report a significant expansion in gross margins to in excess of 67% (FY 2017: 62%) driven by portfolio optimisation of both products and services. Additionally, EBITDA before exceptional items is expected to be positive and ahead of market expectations. The Group cash balance of not less than £25 million is also well ahead of expectations, as a result of higher gross margins, cost discipline and a focus on debtor collection.
Research products are expected to report revenues of approximately £31.3 million (FY 2017: £12.6 million) growth of 148%, £32.5 million on a constant currency basis, growth of 158%. Dharmacon revenues were approximately £28.7 million, £29.7 million on a constant currency basis, representing a continued return to single digit revenue growth. This has been driven by market share gains in RNAi in all territories and growth in CRISPR reagents, including CRISPR libraries cross sold by Horizon’s key account sales team and used for Functional Genomic Screening by AstraZeneca and other major pharmaceutical customers.
Applied products are expected to report strong growth of 47% in revenues to approximately £15.0 million (FY 2017: £10.2 million), representing 50% growth to £15.3 million on a constant currency basis. Bioproduction, an identified high growth area, delivered a strong performance in the second half of the year, including two new commercial licences that were each in excess of £1 million. The Group’s bioproduction business has made a strong start to 2019.
Revenues from Horizon’s molecular reference standards also continued to grow strongly during the period with continued revenue predictability brought through off-the-shelf product sales. We continued to expand our offering by launching the largest cell-line derived reference standard focused exclusively on myeloid cancer. In addition, we announced that we had developed a set of precisely defined cell line-derived reference standards to support Biocartis’ recently launched Idylla™ microsatellite instability (MSI) Assay. The Group is seeing this strong momentum continuing into 2019.
Service revenues are expected to be approximately £10.8 million (FY 2017: £13.7 million), a decline of 21%, being £11.1 million, a decline of 19%, on a constant currency basis. This resulted from proactive portfolio optimisation to focus on the highest growth opportunities. As reported at the half year, demand for gene editing services remains strong and is expected to keep growing, which forms the basis of the Group’s rationale behind investing in automation to increase its capacity to service expected demand.
Horizon’s market leading capability in the rapidly growing field of CRISPR screening services translated into strong revenue growth in 2018. The lead indicators of demand from large pharmaceutical and biotech companies for 2019 remain very encouraging, with a high quality forward order book visible for the first quarter of 2019, which is at least double the equivalent period in the prior year. We have made significant progress in developing commercial applications of this transformational approach to gene editing including, as recently announced, screening of primary human T cells, which provides significant benefit to the field of immuno-oncology.
In line with its strategy to focus on the highest-growth priorities, Horizon continues to consolidate the lower growth areas of its existing screening capabilities and optimise its in vivo business to leverage growth and gross margin opportunities.
Leveraged R&D and Innovation
The Group achieved 2018 revenue of approximately £1.6 million (FY 2017: £nil) through realising value from its existing R&D assets as planned.
Board and management team changes
Today we separately announced the appointment of Jayesh Pankhania as Chief Financial Officer and member of the Board of Directors effective immediately. Jayesh will succeed Richard Vellacott who is stepping down from the role and the Board today following almost seven valuable years of service at Horizon. Richard will continue with the Company in an advisory capacity for a period of time to facilitate a smooth transition.
Terry Pizzie, Chief Executive Officer of Horizon Discovery, commented: “The second half of 2018 has seen the continued growth of Horizon into a more focused global, commercial and scalable business. As gene editing continues to industrialise, and with an already strong order book for the first half of 2019, we are seeing increasing interest and demand for our products and unique scientific expertise. With positive sales momentum and a strong balance sheet, we are well positioned to execute our invest for growth strategy to build a commanding share in all our chosen markets. We are confident in our growth prospects and look forward to reporting on our exciting progress.”
Annual Financial Results
The Group expects to announce its Annual Financial Results on 29 April 2019.