Horizon Discovery Adds to Genetic Editing Offerings as GE Takes Stake in Company

GE Healthcare Life Sciences’ gene editing business, Dharmacon, will be acquired by publicly held Horizon Discovery (see Executive Briefing), bringing together two companies in this fast growing market. The $85 million deal expands Horizon Discovery’s product offerings, distribution channels and geographic presence. It also cuts Horizon Discovery’s operating losses by adding a profitable business.


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The purchase will give GE Healthcare Life Sciences a 9% stake in Horizon Discovery, thus maintaining GE’s investment in the gene editing market. GE entered the market with its 2014 acquisition of Dharmacon, which it acquired from Thermo Fisher Scientific as part of a $1.06 billion deal for three businesses (see IBO 1/15/14). Sale of the businesses satisfied regulatory requirements, clearing the way for Thermo Fisher’s acquisition of Life Technologies. In the case of the Dharmacon business, the US Federal Trade Commission cited Thermo Fisher and Life Technologies’ dominant position in the RNAi reagent market as grounds for the divestment.


The Financial Picture

Together, Horizon Discovery and Dharmacon’s 2016 revenues would have been more than $69 million, doubling Horizon Discovery’s standalone sales (see IBO 7/15/17). Yet the combined gene editing businesses, encompassing CRISPR (see Market Profile), RNAi, ZFN, rAAV and transposon techniques, will still be a relatively small player in the broader market for gene editing research tools. Other companies offering both RNAi and CRISPR research products include MilliporeSigma and Thermo Fisher Scientific.

In 2016, Horizon Discovery revenue rose 19.4% to £24.1 million ($32.5 million = £0.74 = $1) (see IBO 6/15/17). Dharmacon recorded revenues of $36.7 million, a 2.4% decline, due to gene expression product lines, according to Horizon Discovery (see Bottom Line). While Horizon Discovery posted an EDITDA loss of £8.4 million ($11.3 million) last year, Dharmacon’s EBITDA before exceptional items totaled $5.4 million, an 11.3% increase. On a pro forma basis, the combined companies’ 2016 EBITDA loss would have been £4.1 million ($5.5 million).


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In addition to narrowing operating loss, the acquisition is also expected to generate cost savings. Within 18 months of the purchase’s closure, Horizon Discovery plans to cut its operating costs by 10%—15%. The acquisition is expected to generate a return on invested capital of 10% by 2020, according to Horizon Discovery, while cost and revenue strategies should be completed within a year of the close.


A New Portfolio

The acquisition enables Horizon Discovery to now compete in a different sector of the genetic engineering market: gene modulation consumables for gene editing, gene silencing and gene expression. Whereas Horizon Discovery was one of the larger companies in the market segment for selling genetically engineered end-products, specifically custom and catalogue cell lines and in vivo models, as well as related services, Dharmacon’s portfolio primarily consists of tools for researchers conducting targeted gene editing in their own labs. Both types of products are used for drug development and discovery, and molecular diagnostics, as well as bioproduction.

The acquisition thus transforms Horizon Discovery into a company heavily focused on products, with 80% of sales from products and 20% from services. In 2016, products and services accounted for 47% and 53% of revenues, respectively. “High-value and high-margin” product sales are expected to represent 70% of the combined companies’ revenues, according to Horizon Discovery.

The acquisition also adds RNAi products to Horizon Discovery’s list of gene editing techniques. As Horizon Discovery stated in its acquisition announcement, RNAi and CRISPR can be used in combination for target identification and validation.


End-Market Access

The purchase also provides Horizon Discovery with larger exposure to the academic and government markets. In 2016, such customers accounted for 60% of Dharmacon sales but less than 20% of Horizon Discovery’s. The more diversified customer base could help Horizon Discovery increase market share, in addition to the larger product portfolio.

The acquisition is also expected to give Horizon Discovery greater distribution capabilities, as it can add Dharmacon’s established distribution channels geographically and provide greater customer access. The purchase immediately bulks up Horizon Discovery’s sales in Asia Pacific. Asia Pacific and Rest of World accounted for 8% of Horizon Discovery’s 2016 sales. For Dharmacon, these regions accounted for 18%.  It will also greatly expand Horizon Discovery’s online presence, as Dhamacon’s website accounts for 90% of its direct sales, compared to less than 10% for Horizon Discovery’s website.

The deal must be approved by Horizon Discovery shareholders and regulatory authorities. A timeline for closing was not provided by Horizon Discovery.

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