HORIZON DISCOVERY GROUP PLC
("Horizon", "the Group" or "the Company")
Interim Results for the Six Months Ended 30 June 2016
Strong Revenue Growth and Focus on Operational Gearing Underpin Path to Profitability
CAMBRIDGE, UK, Sept. 20, 2016 (GLOBE NEWSWIRE) -- Horizon Discovery Group plc (LSE:HZD), a world leader in the application of gene editing technologies, announces its interim results for the six months ended 30 June 2016.
Highlights (including post period end):
Financial
- Group revenue increased 19% to £10.2 million (HY15: £8.6 million)
- Products business revenue increased 62% to £4.8 million (HY15: £3.0 million)
- Services business delivered revenue of £5.2 million (HY15: £5.4 million)
- Solid growth in in vivo and in vitro service revenues
- Temporarily reduced molecular screening capacity as the Group consolidates Boston operations into new Cambridge, UK headquarters
- The Group remains eligible to receive future R&D milestones of up to £208 million plus future product royalties (HY15: £158 million) through its Research Biotech business
- Loss Before Interest, Tax, Depreciation and Amortisation of £4.3 million (HY15: £4.9 million) in line with expectations, as the business invests for scale and transitions towards positive EBITDA in 2017
- Cash resources of £13.0 million (FY15: £25.1 million) following one-time investments in new global headquarters in UK, business automation and Avvinity Therapeutics
Commercial
- Strong customer growth continued with more than 1,600 unique customers (+33% increase over HY15)
- Deal signed to integrate Horizon's molecular reference standards into Qiagen's GeneReader NGS workflows
- Partnership formed with Ventana Medical Systems for the provision of reference standards
- Two OEM Agreements with market leading Next Generation Sequencing Company with potential for additional agreements to follow
- Collaboration with Fulcrum Therapeutics for novel CRISPR-based target discovery in genetic diseases with potential for additional future projects
- License of biomanufacturing cell lines to the Centre for Process Innovation (CPI) and the National Institute for Bioprocessing Research and Training (NIBRT)
- Launch of Avvinity Therapeutics, a cancer immunotherapy company formed in a joint venture with Centauri Therapeutics
Financial Guidance and Path to Profit Strategy
- Based on historical H1/H2 revenue weighting (typically 40%:60%) and the current strong trading outlook, full year FY16 revenues are expected to be within a range of £24 million to £26 million. This guidance reflects:
- A reduction in molecular screening capacity as the Group consolidates the Boston facility into its new Cambridge, UK headquarters, expected to reduce revenue by £2.7m in FY16, before returning this part of our business to growth in 2017 on a more profitable basis
- Horizon on course to report positive EBITDA in FY17 in line with the Company's previously stated strategy:
- Path to Profit strategy includes increased business automation and reduction of senior management headcount by a third - activities on track to be complete by end December 2016
- Estimated restructuring costs of closing the Boston facility by the end of 2016 of up to £0.75 million to be recognised in the second half of 2016 that are expected to deliver run rate cost savings of at least £3.0 million from 1 January 2017
- Commitment to deliver overall Group annual cost savings of at least £5 million in 2017
Commenting on the interim results, Dr Darrin Disley, CEO of Horizon Discovery Group, said: "Horizon is making a fundamental contribution to the rapidly growing personalised and genomic medicine markets by deploying our proprietary gene editing platform to build cells and then apply them in an increasingly broad range of applications including genomics research, drug discovery and development, clinical diagnostics and drug manufacturing. Today, our core cell building platform and catalogue of over 23,000 products drives our 'commercial fly-wheel', an engine that generates multiple revenue streams from our cell-based assets. We are pleased to report continued revenue growth driven in particular by continued momentum in our Products business.
"Since our IPO in 2014, Horizon has made strategic investments to build an optimal business model for exploiting our technology platforms and achieve our strategic goal of becoming EBITDA positive in 2017, and sustainably profitable thereafter. We have today announced changes to the shape of our business that will allow us to focus on our core strengths, continue to scale the business on a significantly reduced cost base and drive considerable growth, integration and innovation.
"We are pleased with the progress delivered during the past six months and look forward, with confidence, to building on this in the second half of the year and beyondgiven the encouraging prospects for our newly shaped business. We already see signs in H2 of strong business growth and we have a clear route to profitability."
Analyst briefing and conference call today
An analyst briefing will be held at 09:00am BST on Tuesday 20 September at Guildhall Room, 85 Gresham Street, London, EC2R 7HE. There will be a simultaneous live conference call and the presentation will be available on the Group's website at www.horizondiscovery.com. Dial-in details:
Participant dial-in: 0800 694 0257
International dial-in: +44 (0) 1452 555566
Participant code: 78854916
An audio replay file will be made available shortly afterwards via the Company website: www.horizondiscovery.com
For further information from Horizon Discovery Group plc, please contact:
Horizon Discovery Group plc
Darrin Disley, Chief Executive Officer / Richard Vellacott, Chief Financial Officer
On the day of the interim results: Tel +44 (0) 20 3709 5701, thereafter: Tel +44 (0) 1223 655 580
Consilium Strategic Communications (Financial Media and Investor Relations)
Mary-Jane Elliott / Sue Stuart / Matthew Neal / Melissa Gardiner
Tel: +44 (0) 20 3709 5701
Email: horizon@consilium-comms.com
Numis Securities Limited (Joint Broker and NOMAD)
Michael Meade / Freddie Barnfield
Tel: +44 (0) 207 260 1000
RBC Capital Markets (Joint Broker)
Paul Tomasic / Marcus Jackson
Tel: +44 (0) 20 7653 4000
CHAIRMAN'S AND CHIEF EXECUTIVE OFFICER'S REVIEW
Drug discovery is changing.
Drug discovery is changing. Mass market drugs are becoming less common and fewer drugs are being targeted at entire patient populations in the hope that some will respond. Instead, we are witnessing the discovery and development of smart drugs aimed at specific patient groups, or cell and gene therapies aimed at individuals who are more likely to benefit from therapy based on their individual genetics - the era of personalised medicine. The rapidly growing personalised and genomic medicine markets that Horizon operates within are worth a combined £29 billion1.
Horizon - the right business model
To support this more targeted approach to drug discovery and development, Horizon builds and applies cells - human disease models and reagents derived from genetically-engineered cells that our customers use, or that we deploy on their behalf. This allows Horizon to gain knowledge of the genetic drivers of disease, develop novel drugs or cell therapies targeted at these genetic drivers and to develop companion diagnostics that predict patient responses in the clinic. By applying the right genetics, in the right model, in the right context, Horizon's solutions provide biological insights that translate into improved research and development outcomes for drug developers, improved diagnosis of disease and treatment regimens that better serve patients.
Strong markets for Horizon and additional key relationships
The available markets for our products and services business units are stronger than ever. We are pleased to report continued revenue growth underpinned by the announcement of key relationships with customers. Key new relationships have included the market leading next generation sequencing company, Qiagen and Ventana Medical Systems for the provision of reference standards to support ongoing quality control in many labs and assay development / validation efforts.
Research Biotech offers significant future upside
In addition, our Research Biotech business unit is building value as expected as we deploy our extensive intellectual property, gene editing platform, products, services and know-how alongside targeted investment to develop our cancer immunotherapy, synthetic lethality and cell therapy ventures. This activity offers significant upside exposure to the business, providing access to high-value investment areas such as those realised by cancer immunotherapy companies, gene editing companies and gene therapy companies. The Group's strategy is to invest up to £8 million to unlock superior value from our core capabilities.
Evolution keeps Horizon on firm path to profit
Since its IPO in March 2014, Horizon has delivered its strategy of investing in the facilities, systems, offerings, personnel and infrastructure required to scale and to drive towards sustainable, profitable growth. As part of the Group's evolution during this high growth phase, and in line with the Group's firm commitment to a Path to Profit strategy, important reorganisational changes with the business have been put in place. These changes include consolidation of core capabilities, business automation, organisational design improvements and the streamlining of Horizon's senior management team by one third. With our scalable infrastructure now substantially implemented, the Group is focusing on delivering on its commitment to a Path to Profit strategy which would see the business become EBITDA positive in FY2017 and deliver long-term growth based upon core capabilities and continued innovation.
New global headquarters in Cambridge, UK and Centres of Excellence to drive innovation
The Group's transition towards positive EBITDA includes the consolidation of operations from its 23,000 sq. ft. Boston facility into the new Cambridge, UK headquarters. This consolidation will co-locate all of Horizon's cell-based assay development, genetic screening and molecular screening service operations in a single Centre of Excellence which will create revenue synergies, significantly reduce run rate costs and simplify operations. Our decision to temporarily reduce our molecular screening capacity in order to consolidate our Boston operations is expected to deliver significant profitability improvements in the future.
Moving forward, our commercial and research operations will be focused around our in vitro and Screening Centres of Excellence in Europe and our in vivo Centre of Excellence based in the US. These Centres of Excellence provide a consolidated capability for continued innovation and future growth that underpin our powerful fly-wheel product, service and research biotech business model making the most of a more integrated workforce.
Maximising operational gearing
The Group also expects to deliver further cost benefits from its one-off investments in scalable infrastructure, including ERP systems, e-commerce platforms and laboratory automation, and a more integrated and efficient organisational design that is expected to significantly increase operational efficiency, deliver a more productive footprint and reduce the level of management and overhead required to deliver the business.
Summary - optimised for next phase of profitable growth
With growing markets and Horizon's investment in infrastructure, personnel and technologies for long-term growth and success, we remain confident in realising the potential of the Company both for patients, shareholders and all of our stakeholders and we thank our staff for their ongoing strong contribution to the business.
BUSINESS REVIEW
PRODUCTS
Growth in revenue and further expansion of product catalogue
The Products business continues to deliver strong growth, with the molecular reference standards business continuing to be a particularly important driver of organic growth, reporting revenue of £4.8 million during the period, representing strong period on period growth of 62% (six months to 30 June 2015: £3.0 million). The expansion in the cell line and diagnostic reagent inventory has taken the Group's catalogue of products to in excess of 23,000. The growth in size has been contributed by the launch of multiple new high-value products including significant expansion of the patient-derived xenograft catalogue, additional cell-free DNA Reference Standards, new cell-based and in vivo disease models and novel iPS cell lines.
New high value partnerships provide concept-to-sale product and ongoing revenue stream
Horizon's strategy for the products business is to drive an increasing volume of visible and predictable revenue streams through our direct (Off the Shelf) and indirect (OEM) channels. In the first half of 2016 and to date, we announced notable partnerships with Qiagen (a leader in the supply of genomic and diagnostic instrumentation and reagents), Ventana Medical Systems (a leader in immunohistochemistry-based molecular diagnostic products) and with a global leading sequencing platform company. The Ventana agreement is further evidence of our comprehensive service offering to clients, from concept to sale of Reference Standards for assay development, right through to OEM provision.
Three of our new key partnerships are summarised below:
- Partnership formed with Ventana Medical Systems for the provision of reference standards to support their assay development and validation efforts, with Horizon taking primary responsibility for post-development commercialization. Horizon will serve as the primary distribution channel to end customers, thereby providing additional ongoing revenue streams to the Company. The agreement establishes a multi-year programme with the potential to generate significant development fees each year, with several projects currently underway, continuing the Group's successful strategy of embedding products into established and emerging workflows, delivering visible revenue streams at high margin.
- License of an important biomanufacturing cell line to the Centre for Process Innovation (CPI) and the National Institute for Bioprocessing Research and Training (NIBRT). This agreement allows organisations to access cutting-edge bioproduction cell lines at an early stage of drug or technology development, reinforcing Horizon's reputation as a leader and innovator well positioned to support new biomanufacturing programmes around the world.
- Horizon entered into two OEM agreements with a global market leading next generation sequencing company under which Horizon will supply two previously developed HDx(TM) Molecular Reference Standards that cover many of the genes most commonly linked with cancer progression and response to treatment. The Horizon materials will be incorporated into assay kits from the NGS manufacturer for a range of applications including cancer research and diagnostics.
New products and sale channels
During the period, Horizon launched new cell-free DNA products to support the rapidly growing field of liquid tumour biopsies. This was the Group's most successful product launch to date, with monthly customer demand greater than current manufacturing capacity.
We are pleased with progress in our partnerships with ThermoFisher, Abcam and ArcherDx during the period, and their increasing contribution not only to our continued product growth but also to how our products underpin the value chain. Our channels have been further deepened for reagent products through relationships with both well-established global leaders and also highly innovative companies such as Axol Biosciences and Definigen that will allow us to progress opportunities in stem cell and other product opportunities.
The capabilities and value of Bioproduction cell lines, used by customers to enhance the manufacturing of biological drugs, were also strengthened and the first commercial license was signed with Innovent Biologics. The products business model continues to enjoy support from grant funding, including up to £1.4 million for bioproduction initiatives from Innovate UK and the Advanced Manufacturing Supply Chain Initiative, both of which are in progress.
SERVICES
Solid growth in in vivo and in vitro services
Revenues from the Services business were £5.2 million (six months to 30 June 2015: £5.4 million) during the period, with solid growth in in vivo and in vitro service revenues offset by a reduction in molecular screening revenues following our decision to temporarily reduce operational capacity in order to consolidate our screening operations from Boston to our new Global headquarters in Cambridge, UK.
Horizon's strategy for the Services business focuses on paid-for product development and the high value application of its products, both of which contribute additional value to our Products and Research Biotech businesses.
During the period the Group has seen continued organic growth in its custom in vitro and in vivo model generation service, with deepening relationships with biotech and pharma customers in target identification and validation services. Trends emanating from the Group's pharmaceutical customers indicate the pharma industry will continue to outsource more of their model generation needs and, with a wealth of experience in gene editing, Horizon is ideally placed to benefit from this.
Path to Profit strategy: new Centres of Excellence focus on core capabilities and drive innovation
As part of our committed Path to Profit strategy, we have formed Centres of Excellence in Europe for in vitro and screening activities and in the US for in vivo activities. The Centres of Excellence provide a consolidated and more focused capability for innovation and growth that underpin Horizon's powerful fly-wheel product, service and research biotech business model.
The existing St Louis, Missouri, and Boyertown, Pennsylvania, USA operations will provide the Centre of Excellence for in vivo cell building that will co-locate applied R&D with gene editing, advanced disease model generation and application to drive innovation.
The consolidation of all cell-based assay development, genetic screening and molecular screening service operations into the Company's new Cambridge, UK headquarters is expected to significantly focus operations and create business synergies for improved profitability. We estimate restructuring costs of closing the Boston facility by the end of 2016 of up to £0.75 million to be recognised in the second half of this year that will deliver run rate cost savings of at least £3.0 million from 1 January 2017.
New service offerings
During the period, new service offerings have been provided by Horizon including high-throughput immuno-oncology screening, on-demand iPS cell line generation, gene editing of immune cells and immuno-oncology assay and screening capabilities. The Group has also enhanced its CRISPR-based target identification and validation capabilities, further establishing Horizon as the leader in the space, endorsed by its publication in Nature2.
In particular, we announced a collaboration with Fulcrum Therapeutics for novel CRISPR-based target discovery in genetic diseases. The initial programme consists of two projects with the potential for additional future work, and confirms Horizon's role as a preferred partner not only for established biotechnology and pharmaceutical companies, but also for innovative start-ups.
Strong pipeline
Horizon has visibility over a solid Service business pipeline, including multiple high-value partnerships with large pharma around custom cell line generation, drug combination screening and CRISPR screening. Having temporarily reduced the operational capacity of our molecular screening platform, we are pleased to have visibility over a strong pipeline of molecular screening opportunities with leading pharmaceutical and biotechnology customers through FY16 and into the first quarter of FY17.
RESEARCH BIOTECH
Discrete investments in risk-managed, high value portfolio are evolving via partners' programmes
Horizon's Research Biotech strategy is to deliver a risk-managed portfolio of value by supporting the drug development programmes of our partners, and those undertaken internally. This is achieved through the application of our gene editing and disease model generation platform to provide high-value information that has the potential to transform the direction, efficiency and risk profile of programmes. We do this in two ways: by taking a targeted position in the downstream success of partners' development programmes; and by making discrete investments in the fields of immuno-oncology, synthetic lethality, and cell and gene therapy where we have significant know-how and understanding of the technology. This allows us to develop a portfolio of potentially lucrative risk-managed and time-bound programmes with value to be realised through future milestone and royalty revenues, licensing opportunities and equity upside.
Avvinity Therapeutics emerges in rapidly growing immuno-oncology market
During the period, Horizon formed Avvinity Therapeutics, a joint venture with Centauri Therapeutics Limited. The JV created a differentiated new player in the rapidly growing immuno-oncology market, utilising a powerful and proprietary platform to discover and develop novel immuno-oncology therapeutics, for both solid tumours and leukaemias. Avvinity has the exclusive rights in oncology to use the Alphamer therapeutic platform, invented by a Nobel Laureate. We are pleased with progress across our three lead programmes as we build towards a value inflexion point in 2018.
Potential for up to £208 million R&D milestones plus future product royalties
Horizon's Research Biotechnology programmes and alliances have continued to progress in the period, and the Company is eligible to receive future R&D milestones of up to £208 million plus future product royalties, with the next milestone payment not anticipated before 2017.
FINANCIAL REVIEW
Revenue for the six month period ended 30 June 2016 was £10.2 million (HY15: £8.6 million). Horizon's Products business reported strong revenues of £4.8 million during the period (HY15: £3.0 million), with molecular reference standards products continuing to be a particularly strong driver of organic growth.
Horizon's Services business delivered revenue of £5.2 million (HY15: £5.4 million) during the period, with solid growth in in vivo and in vitro service revenues offset by a reduction in molecular screening revenues as we decided to temporarily reduce operating capacity in order to consolidate our screening operations from Boston, US to our new UK headquarters - a decision that will allow us to operate the business at enhanced future profitability.
As expected, revenue recognised from the Research Biotech business was £0.1m (HY15: £0.2 million), and we formed our Avvinity joint venture which holds the potential to add significant equity upside value to the Group.
Operating expenditure for the period was £11.2 million (HY15: £10.6 million), in line with expectations as the business invests in the scalable infrastructure that will support the transition to positive EBITDA in 2017. Operating expenditure included non-cash items of £2.2 million (HY15: £2.0 million) in respect of amortisation of acquired intangible assets, depreciation and share option charges. In addition, an exceptional credit of £0.5 million was recognised relating to contingent consideration on acquisitions.
Loss after tax for the period was £6.0 million (HY15: £6.6 million), in line with the Board's expectations for the first half of the year.
Cash balances as of 30 June 2016 were £13.0 million (FY15: £25.1 million) following one-time capital investments in our new headquarters, business automation systems such as ERP and manufacturing automation and Avvinity Therapeutics that are expected to deliver significant long term value for the Group.
Current trading and outlook
Horizon has delivered a solid first half to the financial year, showing continued revenue growth and investments that will underpin the scale of the Group in line with strategic objectives to drive the Path to Profit strategy that would see the Group deliver a positive EBITDA in 2017.
Horizon's historic revenue profile is weighted towards the second half of the year (typically 40%:60%), and that trend is expected to continue. The Company anticipates continued momentum in Product revenue as the business continues to increase in scale. With respect to the Services business, we expect continued growth other than in molecular screening, for which revenues are expected to contract by £2.7 million as we relocate operations from Boston to Cambridge, UK, before returning to growth in 2017 with increased margins and enhanced profitability.
We are committed to delivering our Path to Profit strategy that will see overall annual Group cost savings of at least £5 million in 2017, which will include at least £3 million from the relocation of our Boston operations and further savings from our investments in business automation, optimisation of our organisational design and senior management changes, all of which are on track to be completed by the end of December 2016.
Based upon our typical annual revenue weighting, our existing strong pipeline and the temporary reduction in molecular screening operating capacity, we expect full year 2016 revenues to be within a range of £24 million to £26 million.
With positive indicators already seen in H2, the Board has full confidence that the newly shaped Group is positioned for strong business growth and a clear route to reporting a positive EBITDA in 2017.
References:
1Markets and Markets Genomics Market by Products Global Forecast to 2018, January 2014 Visiongain Cell-Based Assays: World Market Prospects 2013-2023, February 2013 Markets and Markets Genomics Market by Products Global Forecast to 2018, January 2014 BCC Research Molecular Diagnostics: Technologies and Global Markets, March 2013.
2Cross, B. C. S. et al. Increasing the performance of pooled CRISPR-Cas9 drop-out screening. Sci. Rep. 6, 31782; doi: 10.1038/srep31782 (2016).
Independent review report to Horizon Discovery Group plc
for the six months ended 30 June 2016
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016 which comprises the consolidated income statement and consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement and related notes 1 to 8. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the AIM Rules of the London Stock Exchange.
As disclosed in the notes to the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report have been prepared in accordance with the accounting policies the Group intends to use in preparing its next annual financial statements.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016 is not prepared, in all material respects, in accordance with the AIM Rules of the London Stock Exchange.
Deloitte LLP
Chartered Accountants and Statutory Auditor
Cambridge, UK
20 September 2016
| HORIZON DISCOVERY GROUP PLC CONDENSED CONSOLIDATED INCOME STATEMENT Six months ended 30 June 2016 |
| Unaudited Six months ended 30 June 2016 £`000 | Unaudited Six months ended 30 June 2015 £`000 | Audited Year ended 31 December 2015 £`000 | |||||||||
| Note | |||||||||||
| REVENUE | 2 | 10,203 | 8,551 | 20,156 | |||||||
| Cost of sales | (5,351 | ) | (4,659 | ) | (10,192 | ) | |||||
| Gross profit | 4,852 | 3,892 | 9,964 | ||||||||
| Other operating income | 2 | 365 | 376 | 806 | |||||||
| Sales, marketing and distribution costs | (2,681 | ) | (2,049 | ) | (5,078 | ) | |||||
| Research and development costs | (2,350 | ) | (2,164 | ) | (5,296 | ) | |||||
| Corporate and administrative expenses | (6,858 | ) | (6,676 | ) | (11,075 | ) | |||||
| Share of results of joint ventures | (142 | ) | - | - | |||||||
| Exceptional items | 3 | 460 | (68 | ) | 391 | ||||||
| OPERATING LOSS | (6,354 | ) | (6,689 | ) | (10,288 | ) | |||||
| Investment income | 2 | 32 | 25 | 70 | |||||||
| Finance costs | (117 | ) | (169 | ) | (326 | ) | |||||
| LOSS BEFORE TAX | (6,439 | ) | (6,833 | ) | (10,544 | ) | |||||
| Taxation | 416 | 259 | 661 | ||||||||
| LOSS FOR THE PERIOD | (6,023 | ) | (6,574 | ) | (9,883 | ) | |||||
| LOSS PER SHARE Basic and diluted (pence) | 4 | (6.4p) | (7.9p) | (11.2p) | |||||||
| HORIZON DISCOVERY GROUP PLC CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME Six months ended 30 June 2016 |
| | Unaudited Six months ended 30 June 2016 £`000 | Unaudited Six months ended 30 June 2015 £`000 | Audited Year ended 31 December 2015 £`000 | ||||||||
| LOSS FOR THE PERIOD | (6,023 | ) | (6,574 | ) | (9,883 | ) | |||||
| Items that may be reclassified subsequently to profit or loss: | |||||||||||
| Exchange differences on translation of foreign operations | 5,090 | (93 | ) | 2,648 | |||||||
| Other comprehensive income for the period net of tax | 5,090 | (93 | ) | 2,648 | |||||||
| TOTAL COMPREHENSIVE INCOME FOR THE PERIOD | (933 | ) | (6,667 | ) | (7,235 | ) | |||||
| Total comprehensive income attributable to: | |||||||||||
| Owners of the Company | (933 | ) | (6,667 | ) | (7,235 | ) | |||||
| Unaudited As at 30 June 2016 £`000 | Unaudited As at 30 June 2015 £`000 | Audited As at 31 December 2015 £`000 | |||||||||
| Note | |||||||||||
| Non current assets | |||||||||||
| Goodwill | 5 | 33,909 | 29,154 | 30,778 | |||||||
| Other intangible assets | 15,296 | 13,703 | 13,619 | ||||||||
| Property, plant and equipment | 11,876 | 7,211 | 7,961 | ||||||||
| Investments | 2,429 | - | - | ||||||||
| 63,510 | 50,068 | 52,358 | |||||||||
| Current assets | |||||||||||
| Inventories | 1,934 | 1,749 | 1,793 | ||||||||
| Trade and other receivables | 8,501 | 5,697 | 9,652 | ||||||||
| Cash and cash equivalents | 13,028 | 32,497 | 25,067 | ||||||||
| 23,463 | 39,943 | 36,512 | |||||||||
| Total assets | 86,973 | 90,011 | 88,870 | ||||||||
| Current liabilities | |||||||||||
| Trade and other payables | (5,718 | ) | (7,078 | ) | (6,779 | ) | |||||
| (5,718 | ) | (7,078 | ) | (6,779 | ) | ||||||
| Net current assets | 17,745 | 32,865 | 29,733 | ||||||||
| Non-current liabilities | |||||||||||
| Deferred tax | (965 | ) | (2,051 | ) | (1,277 | ) | |||||
| Deferred consideration | - | (1,466 | ) | (958 | ) | ||||||
| (965 | ) | (3,517 | ) | (2,235 | ) | ||||||
| Total liabilities | (6,683 | ) | (10,595 | ) | (9,014 | ) | |||||
| Net assets | 80,290 | 79,416 | 79,856 | ||||||||
| Equity | |||||||||||
| Share capital | 6 | 2,580 | 2,565 | 2,571 | |||||||
| Share premium account | 61,812 | 61,746 | 61,774 | ||||||||
| Share option reserve | 2,077 | 1,830 | 1,936 | ||||||||
| Merger reserve | 34,453 | 32,406 | 33,274 | ||||||||
| Retained earnings | (20,632 | ) | (19,131 | ) | (19,699 | ) | |||||
| Total equity | 80,290 | 79,416 | 79,856 | ||||||||
| HORIZON DISCOVERY GROUP PLC CONDENSED CONSOLIDATED BALANCE SHEET 30 June 2016 |
| HORIZON DISCOVERY GROUP PLC CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Six months ended 30 June 2016 | |||||||
| Share capital £`000 | Share premium account £`000 | Share option reserve £`000 | Merger reserve £`000 | Retained earnings £`000 | Total £`000 | ||
| Balance at 1 January 2016 | 2,571 | 61,774 | 1,936 | 33,274 | (19,699) | 79,856 | |
| Loss for the period | - | - | - | - | (6,023) | (6,023) | |
| Shares issued | 1 | 38 | - | - | - | 39 | |
| Contingent share consideration to be issued on Haplogen acquisition | 8 | - | - | 1,179 | - | 1,187 | |
| Accumulated other comprehensive income | - | - | - | - | 5,090 | 5,090 | |
| Credit to equity for equity settled share based payment transactions | - | - | 141 | - | - | 141 | |
| Balance at 30 June 2016 | 2,580 | 61,812 | 2,077 | 34,453 | (20,632) | 80,290 | |
| Share capital £`000 | Share premium account £`000 | Share option reserve £`000 | Merger reserve £`000 | Retained earnings £`000 | Total £`000 | |||||||
| Balance at 1 January 2015 | 2,414 | 37,583 | 1,635 | 29,402 | (12,464 | ) | 58,570 | |||||
| Loss for the period | - | - | - | - | (6,574 | ) | (6,574 | ) | ||||
| Shares issued | 146 | 24,868 | - | 3,004 | - | 28,018 | ||||||
| Share issue costs | - | (896 | ) | - | - | - | (896 | ) | ||||
| Options exercised | 5 | 191 | - | - | - | 196 | ||||||
| Accumulated other comprehensive income | - | - | - | - | (93 | ) | (93 | ) | ||||
| Credit to equity for equity settled share based payment transactions | - | - | 195 | - | - | 195 | ||||||
| Balance at 30 June 2015 | 2,565 | 61,746 | 1,830 | 32,406 | (19,131 | ) | 79,416 | |||||
| Unaudited Six months ended 30 June 2016 £`000 | Unaudited Six months ended 30 June 2015 £`000 | Audited Year ended 31 December 2015 £`000 | ||||||||
| Note | ||||||||||
| Net cash outflow from operating activities | 7 | (3,644 | ) | (5,748 | ) | (10,953 | ) | |||
| Investing activities | ||||||||||
| Interest received | 32 | 25 | 70 | |||||||
| Acquisition of subsidiaries net of cash acquired and associated settlement costs | | - | (2,946 | ) | (2,946 | ) | ||||
| Acquisition of investment in a joint venture | (2,571 | ) | - | - | ||||||
| Purchases of property, plant and equipment | (4,652 | ) | (1,058 | ) | (2,689 | ) | ||||
| Proceeds from sale of property, plant and equipment | 46 | - | 1 | |||||||
| Purchase of intangible assets | (1,422 | ) | (527 | ) | (1,212 | ) | ||||
| Net cash used in investing activities | (8,567 | ) | (4,506 | ) | (6,776 | ) | ||||
| Financing activities | ||||||||||
| Proceeds on issue of shares net of expenses | 14 | 24,299 | 24,328 | |||||||
| Net cash from financing activities | 14 | 24,299 | 24,328 | |||||||
| Effect of exchange rate changes | 158 | (1 | ) | 15 | ||||||
| Net (decrease)/ increase in cash and cash equivalents | (12,039 | ) | 14,044 | 6,614 | ||||||
| Cash and cash equivalents at beginning of period | 25,067 | 18,453 | 18,453 | |||||||
| Cash and cash equivalents at end of period | 13,028 | 32,497 | 25,067 | |||||||
| HORIZON DISCOVERY GROUP PLC CONDENSED CONSOLIDATED CASHFLOW STATEMENT Six months ended 30 June 2016 |
| HORIZON DISCOVERY GROUP PLC NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION Six months ended 30 June 2016 |
- ACCOUNTING POLICIES
General information
This condensed consolidated interim financial information does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2015 were approved by the Board of Directors and have been delivered to the Registrar of Companies. The audit report on those accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain any statement under section 498(2) or (3) of the Companies Act 2006.
This consolidated interim financial information has been reviewed, not audited.
Basis of preparation
The annual financial statements of Horizon Discovery Group plc are prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRIC) interpretations as adopted by the European Union and the Companies Act 2006 applicable to companies reporting under IFRS. The condensed consolidated set of financial statements included in this half-yearly financial report has not been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union.
The accounting policies adopted in the preparation of the condensed consolidated interim information are consistent with those followed in the preparation of the Group's financial statements for the year ended 31 December 2015 except where disclosed otherwise in this note.
Risks and uncertainties
An outline of the key risks and uncertainties faced by the Group was described on pages 41 to 43 of the Company's Annual Report and Financial Statements for the year ended 31 December 2015 including, competition, technology and intellectual property risks. A further assessment was made at the half year and the significant risks identified were unchanged from those in the annual report. Specifically, the Board does not consider the recent vote in the UK to exit the European Union will materially impact the Group's underlying business and as such will not necessitate any change to the Group's identified risks. It is anticipated that the risk profile will not significantly change for the remainder of the year. Risk is an inherent part of doing business and the strong cash position of the Group, along with the growth profile of the business, leads the Directors to believe that the Group is well placed to manage business risks successfully.
Going concern
The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, support the conclusion that there is a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future, a period of not less than twelve months from the date of this report. Accordingly, the going concern basis has been adopted in preparing the half-yearly financial information.
Investments in joint ventures
The Group's joint venture is Avvinity Therapeutics Limited over which the Group has a contractual arrangement to jointly share the control over the economic activity of the company with another party. The group's interest in joint ventures is accounted for in the consolidated financial statements using the equity method of accounting.
Investments in joint ventures are initially recognised at cost. The cost is measured at the cost of equity plus costs directly attributable to the investment.
In applying the equity method of accounting, the Group's share of the joint venture's profits or losses are recognised in profit or loss. These movements are adjusted against the carrying value of the investment.
Services performed under R&D services agreements with equity method investees are recognised as revenue in these financial statements to the extent that they represent services which are consistent with other contracts for R&D services with non-equity method investees. They are not eliminated against the Group's share of profit or loss in these circumstances.
1. ACCOUNTING POLICIES (Continued)
Adoption of new and revised standards
There are no new standards that have been issued but are not yet effective for the financial year that are expected to have a material impact on the Group.
| HORIZON DISCOVERY GROUP PLC NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION Six months ended 30 June 2016 |
2. REVENUE
An analysis of the Group's revenue is as follows:
| Unaudited Six months ended 30 June 2016 £`000 | Unaudited Six months ended 30 June 2015 £`000 | Audited Year ended 31 December 2015 £`000 | |||
| Products | 4,835 | 2,979 | 7,835 | ||
| Services | 5,233 | 5,401 | 12,151 | ||
| Research Biotech | 135 | 171 | 170 | ||
| 10,203 | 8,551 | 20,156 | |||
| Other operating income | 365 | 376 | 806 | ||
| Interest received | 32 | 25 | 70 | ||
| 10,600 | 8,952 | 21,032 | |||
3. EXCEPTIONAL ITEMS
| Unaudited Six months ended 30 June 2016 £`000 | Unaudited Six months ended 30 June 2015 £`000 | Audited Year ended 31 December 2015 £`000 | |||||||
| Acquisition related costs | - | (68 | ) | (182 | ) | ||||
| Legal and intellectual property costs | - | - | (375 | ) | |||||
| Decrease in expected settlement of contingent consideration | 460 | - | 948 | ||||||
| 460 | (68 | ) | 391 | ||||||
The exceptional item in the current period is a gain recognised in the income statement following management revising its expectation of the probable settlement amount of the contingent consideration payable on the Haplogen Genomics GmbH acquisition.
| HORIZON DISCOVERY GROUP PLC NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION Six months ended 30 June 2016 |
4. LOSS PER SHARE
The calculations of basic and diluted loss per share are based upon the following data:
| Unaudited Six months ended 30 June 2016 £`000 | Unaudited Six months ended 30 June 2015 £`000 | Audited Year ended 31 December 2015 £`000 | |||||||||
| Loss | |||||||||||
| Loss for the purposes of basic and diluted loss per share being net loss attributable to owners of the Company | (6,023 | ) | (6,574 | ) | (9,883 | ) | |||||
| Number of shares | |||||||||||
| Weighted average number of ordinary shares for the purposes of basic and diluted loss per share | 94,122,253 | 83,126,612 | 88,490,671 | ||||||||
| Loss per share | (6.4p) | (7.9p) | (11.2p) | ||||||||
Basic EPS is calculated by dividing the earnings attributable to ordinary owners of the parent by the weighted average number of shares outstanding during the period. Diluted EPS is calculated on the same basis as basic EPS but with a further adjustment to the weighted average shares in issue to reflect the effect of all potentially dilutive share options. The number of potentially dilutive share options is derived from the number of share options and awards granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the period.
IAS 33 - Earnings per Share, requires presentation of diluted earnings per share where a company could be called upon to issue shares that would decrease net profit or increase net loss per share. No adjustment has been made to the basic loss per share as at 30 June 2016, as the exercise of share options would have the effect of reducing the loss per ordinary share, and therefore is not dilutive.
| HORIZON DISCOVERY GROUP PLC NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION Six months ended 30 June 2016 |
5. GOODWILL
| £`000 | |||
| Cost At 30 June 2015 Effects of movements in foreign exchange Measurement period adjustment to acquisition of subsidiary Sage Laboratories Inc | (unaudited) 29,154 1,831 (387) | ||
| Measurement period adjustment to acquisition of subsidiary Haplogen Genomics | 180 | ||
| At 31 December 2015 Effects of movements in foreign exchange | 30,778 3,131 | ||
| At 30 June 2016 | 33,909 | ||
| Accumulated impairment losses | |||
| At 30 June 2015, 31 December 2015 and 30 June 2016 | - | ||
| Net book value | |||
| At 30 June 2016 | 33,909 | ||
| At 31 December 2015 | 30,778 | ||
| At 30 June 2015 | 29,154 | ||
6. SHARE CAPITAL
Share capital as at 30 June 2016 amounted to £2,580,000. During the period, the Group issued 85,903 ordinary shares through the exercise of employee share options. Included within closing share capital are 842,128 ordinary shares issuable as part of contingent consideration relating to the acquisition of Horizon Genomics GmbH. These were issued during July 2016. The value of the 842,128 shares to be issued (£1,187,400) was determined on the basis of the closing price of Horizon Discovery Group plc ordinary shares at 30 June 2016. The nominal value of the shares to be issued is presented in share capital and the excess of the fair value over the nominal value is presented in the merger reserve.
| HORIZON DISCOVERY GROUP PLC NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION Six months ended 30 June 2016 |
| HORIZON DISCOVERY GROUP PLC NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION Six months ended 30 June 2016 |
7. NOTES TO THE CASH FLOW STATEMENT
| Unaudited Six months ended 30 June 2016 £`000 | Unaudited Six months ended 30 June 2015 £`000 | Audited Year ended 31 December 2015 £`000 | |||||||
| Loss for the period | (6,023 | ) | (6,574 | ) | (9,883 | ) | |||
| Adjustments for: | |||||||||
| Investment revenues | (32 | ) | (25 | ) | (70 | ) | |||
| Finance costs | 117 | 169 | 326 | ||||||
| Depreciation of property, plant and equipment | 1,140 | 921 | 1,972 | ||||||
| Amortisation of intangible assets | 871 | 844 | 1,736 | ||||||
| Share of loss after tax from joint venture | 142 | - | - | ||||||
| Tax credit | (416 | ) | (259 | ) | (661 | ) | |||
| Change in fair value deferred consideration | (364 | ) | - | (1,290 | ) | ||||
| Share option charge | 141 | 195 | 301 | ||||||
| Operating cash flows before movements in working capital | (4,424 | ) | (4,729 | ) | (7,569 | ) | |||
| Decrease/(increase) in inventories | 3 | (356 | ) | (402 | ) | ||||
| Decrease/(increase) in receivables | 1,267 | 577 | (3,072 | ) | |||||
| (Decrease)/increase in payables | (801 | ) | (1,365 | ) | (35 | ) | |||
| Cash generated by operations | (3,955 | ) | (5,873 | ) | (11,078 | ) | |||
| Tax credit received | 311 | 125 | 125 | ||||||
| Net cash from operating activities | (3,644 | ) | (5,748 | ) | (10,953 | ) | |||
8. RELATED PARTY TRANSACTIONS
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation. There has been no material change in the type of related party transactions described in the financial statements for the year ended 31 December 2015.