Letter from the CEO

Dear shareholders,

“Biotech the Future” was the motto under which we started our anniversary year in January 2023, which celebrates thirty years of BRAIN Biotech. The biotechnology industry is increasingly in the public spotlight as the provider of a technology that is crucial to solving some of society’s greatest challenges in the areas of food, health, and the environment – which was the reason that led us to choose this motto. As part of an image campaign, employees from across the Group also shared their thoughts about this motto, describing in entertaining videos what “Biotech the Future” means to them. Overall, the event we held to commemorate our 30th anniversary went well – according to both my own observations as well as feedback from our guests.

The past financial year was successful in many respects. Despite the many macroeconomic challenges we faced, we remained true to our corporate strategy and consistently pursued the path on which we set out four years ago to becoming a profitable growth company.

We fully met the financial targets we set for 2022/23 financial year while facing strong headwinds: These included high inflation that drove our input costs up, tight labor markets and higher labor costs, ongoing supply chain disruptions, an increasingly multipolar political environment and sharply rising interest rates.

More than ever, clear focus and accountability on the part of both the Management Board and our employees were crucial in making this financial year a successful one:

  • The Biocatalysts business proved to be very robust overall, with a strong end-of-year spurt, despite initial technical problems with the commissioning of the second large-scale fermenter.
  • Our recent acquisition, Breatec, delivered strong growth and rising margins throughout the year.
  • WeissBioTech continues its recovery in terms of revenue and earnings following its successful repositioning.
  • The BioScience segment performed well overall with solid “TMS” business and a continuation of strong partnerships.
  • Our Akribion genomics team made significant scientific progress and generated its first commercial royalty income.
  • With the successful integration of the BioProducts segment under the leadership and banner of Biocatalysts, we have begun to accelerate the realization of revenue and cost synergies in the products business.

Ambitious new mid-term goals

Over the past few months, we at BRAIN Biotech Group have again taken many steps to position our company for a strong future. We have translated our ambitious growth strategy into new, challenging medium-term goals for the Group. We communicated these new targets and our One-BioProducts strategy, which forms an important basis for achieving these ambitious goals, for the first time at our Capital Markets Day in February 2023.

As the core of our One-BioProducts strategy we have combined our enzyme product companies under the umbrella of Biocatalysts Ltd. in order to develop the Group into a leading international specialty enzymes and food ingredients company. The acquisition of the remaining minority shares in Biocatalysts Ltd. in May 2023 was a prerequisite for this measure, and in the subsequent months we focused on integrating the businesses.

In addition to an overall more efficient organization, we expect the reorganization to raise Biocatalysts’ profile in the global markets for specialty enzymes and food ingredients. The company has strong brand recognition as it has been established in the market for forty years and enjoys an excellent reputation, particularly in the food and pharmaceutical industries.

Focus on specialty enzymes

Enzymes play a central role in the bioeconomy. They can make production processes more sustainable and more environmentally compatible. They enable the more efficient utilization of renewable resources such as plant biomass. They can replace traditional chemical methods in industrial processes, reducing the use of pollutants. They can reduce the energy consumption of an industrial process. They can also help remove pollutants and contaminants and recycle valuable metals without the use of harsh chemicals. Enzymes are a key to the recycling of (organic) residual streams and thereby form an important building block in the bio-based circular economy.

The enzyme product range under the Biocatalysts umbrella comprises around 350 specialty enzymes, in other words, enzymes that are tailored to specific tasks in industrial processes. For example, they are adapted to specific process conditions such as temperature, pH, and substrate specificity to make processes more efficient.

Enzymes and other microbially produced proteins, such as so-called alternative proteins, will be in even greater demand from the food industry in the future. The food and beverages industry is our most important target market, which was another reason for us to bundle our enzyme businesses and further integrate our R&D capabilities.

Research campus as a driver of innovation

Our shareholders from the region around our research campus in Zwingenberg may ask themselves: What role will the “nucleus” of BRAIN Biotech play in the Group in the future? The answer is: It will remain the engine for new bioprocesses, innovative products, and optimized production organisms within the Group. Already today, research and development services for the entire Group are increasingly being performed in Zwingenberg. When it comes to optimizing production strains for large-scale production at Biocatalysts or a contract manufacturer, or establishing new bioprocesses, the employees in Zwingenberg make an important contribution with their expertise.

A few examples:

  • For the R&D activities of Akribion Genomics, our colleagues at the Bioprocess Development technology unit act as a kind of service provider: They produce the important ribonucleoproteins (RNPs), which are the forms of Akribion’s nucleases that are active in cells.
  • The Enzyme Engineering technology adds new specialty enzymes to the BioProducts product portfolio.
  • The Enzyme Engineering technology also develops custom specialty enzymes on behalf of customers, using our bioinformatics-based discovery and engineering methods. The enzymes are engineered to have the desired properties, such as increased stability, enhanced activity, or optimized substrate specificity. The genes encoding the desired enzymes are introduced into engineered microbial production organisms using, among other things, our proprietary genome editing tools, so that the microorganisms can subsequently produce the desired enzyme in large quantities. The corresponding bioprocess is developed to pre-industrial scale in Zwingenberg and then transferred, for example, to Biocatalysts Ltd. in Cardiff.

With our outstanding enzyme expertise, our application know-how in various niche markets and last year’s production capacity expansion at Biocatalysts Ltd., we are well positioned to meet industry requirements.

Development of Akribion Genomics activities

In the 2022/23 financial year, our Akribion Genomics team continued to prepare for the company’s spin-off. The team has already received initial awards for its innovations and business plans in start-up competitions, including first place in a life sciences award bestowed by a distinguished panel of judges from the pharmaceutical industry.

The technology involves cytotoxic nucleases, which the scientists hope to develop into a new class of precision cancer therapies and advanced genome editing tools. The proprietary nuclease G-dase E® is unique because of its novel mechanism of action, which distinguishes it from existing CRISPR nucleases. The European Patent Office has granted a new patent for BRAIN Biotech’s G-dase E® nucleases as a substance patent in September 2023.

New three-pillar reporting structure

With the consolidation of the product businesses, we changed our reporting structure to a new three-pillar reporting structure for the first half-year. We thereby aim to make the Group’s operating performance in the three business segments even more transparent – including for you, our shareholders. We are also aligning our external reporting with our internal management model.

Apart from the divestiture of L.A. Schmitt GmbH, the composition of the BioIndustrial segment remains unchanged and has been renamed “BioProducts.” The BioProducts segment combines all of the Group’s product-related activities in the area of application-oriented fermentation and formulation. The focus is on the food, beverage, and pharmaceutical industries. The large-scale fermentation capacities of Biocatalysts logically also form part of this segment.

We have removed the “BioIncubator” and “BRAIN Biotech Holding business units” from the BioScience segment and instead we now report these separately. The BioScience segment now only comprises the Tailor-Made Solutions (TMS) activities of BRAIN Biotech Zwingenberg and the activities of AnalytiCon Discovery.

Uniting for the home straight

People outside the company repeatedly ask us two questions: When will we break even, and what about our low share price?

As far as breakeven is concerned, we are on a very good track despite the high investments in our genome editing platform. In fact, I am proud to remind you that the EBITDA breakeven point (excluding Akribion) has been reached, as announced three years ago. The next logical goals are to become EBIT positive and generate a positive operating cashflow.

Regarding the company’s low valuation on the stock market, I can assure you that we are all working hard to create the foundation for a much higher valuation. This means staying on course towards our strategic objectives such as building the BioProducts business and monetizing the Incubator projects. It also means staying true to our mission, “Biotech the Future,” because we are a biotechnology company at heart. However, it also means delivering results on a day-to-day basis, in terms of revenue growth and profitability. This should lead to a sustainably higher share price. I firmly believe that the share price will follow the company’s positive growth, performance, and fundamentals in the medium term.

I would like to take this opportunity to thank the approximately 330 employees of the BRAIN Biotech Group for their outstanding commitment over the past year: For their reliability in dealing with our customers, for their perseverance in solving challenging tasks, for their courage in implementing unconventional ideas, for their solution-oriented thinking, and for their flexibility in the face of rapidly changing conditions. They all contribute to the fact that we enjoy an excellent reputation among our customers not only as a solution provider but also as a product supplier.

The motto “Biotech the Future” quoted at the beginning of this letter describes what drives us and the business activities of the BRAIN Biotech Group, including beyond our anniversary year: We aim to continue to contribute to the biologization of industrial production processes, in other words, the replacement of conventional processes with biological processes or process steps, and the development of new processes or products based on microorganisms and enzymes.

Tackling climate change and the loss of biodiversity is an urgent task for industry and the economy as a whole, as well as for policymakers and society. Our contribution is to make our biotechnological expertise available, which we have continuously expanded over three decades, so that positive environmental effects can be achieved in industrial production. We will continue to make our contribution with vigor and passion, while always keeping in mind our financial goal of becoming a sustainably profitable company.

We are well on our way to becoming one of the leading suppliers of specialty enzymes in both Europe and beyond. We will continue to need your support. The management and all employees appreciate your continued patience, which some of you have already exercised over extended periods, and the confidence you share with us in the company’s development and growth. We would be all the more pleased if you would continue to place your trust in us and remain associated with us as shareholders.

Adriaan Moelker