BRAIN Biotech Stock

Today, on SEAT11a, we are joined by Michael Schneiders of BRAIN Biotech AG to present the company's 6 months 2025/'26 financial results. In this presentation, management provides an update on developments across BRAIN Biotech's enzyme business, bioincubator activities, operational progress and current strategic initiatives within the company's biotechnology platform. We are very pleased to have him here today.

Michael, the floor is yours.

Hello. My name is Michael Schneiders. I'm the CFO of BRAIN Biotech AG in Germany. We are a company of industrial biotechnology, i.e., what we're trying to do is actually solve production problems of the world in industrial production with biology. Biology is usually much more gentle to the environment. It's much less energy than chemical processes. And in many instances, also is better for your health is also significantly better in terms of taste profile.

Let me jump a bit more in detail what we do. BRAIN Biotech AG has 2 distinct businesses. On the left-hand side, you see BRAINBiocatalysts, our main business, about EUR 45 million revenues last year, EUR 4.4 million EBITDA margin and around 4% to 6% targeted ratio for R&D. So an R&D-intensive business, which essentially is the core of what we do here at BRAINBiocatalysts, focusing on natural products, mainly in the area of enzymes.

What enzymes? Enzymes are nature's catalysts, i.e., for every biological reaction, if you want to accelerate, you need enzymes. It's in your body. It's in every living microorganism. And we use these living -- we lose essentially these enzymes in our industrial processes to foster and accelerate industrial production.

On the right-hand side, you see our BRAINBioIncubator business. Here, we are talking mostly pharma projects with participation and partnering of projects where we actually license out technology, where we license out interesting IP to third parties and generate income essentially the royalty and fee income. Let me run you through the highlights of our 6M reporting. First of all, within our core segment, BRAINBiocatalysts, we had sequential growth of 4.5% Q2 on Q1 and with a very solid CRO business, that's a contract research business. So that's a service business done on our headquarter here, essentially in the area of industrial biotech.

We have commissioned a new production site in the Netherlands, very important for us. We concentrate all of our baking portfolio, and I will show you some pictures in a minute. Within our BRAINBioIncubator business, 2 highlights to call here. First of all, we have reached the European patent for BMC. BMC is a BRAIN Metagenome Cas, the gene engineering technology called the gene scissor essentially, which allows us to more efficiently modify microorganisms.

Secondly, on the BRAINBioIncubator side, we have licensed a technology also on genome engineering, but here in human use out to a company called Akribion Therapeutics. And Therapeutics has been able to publish a very renowned article in Nature, Nature one of the magazines that every scientist also be published. So very good press for us here called RNA-triggered cell killing with CRISPR-Cas12a2. We give you a hint where we find that article in a minute. So if you retreat, please have a deeper look here.

And last but not least, maintained a solid cash level throughout the 6M, the EUR 4.3 million in cash on the balance sheet. Here's some pictures of our new facility. So state-of-the-art world-class facility, a mixture of basically a production site, warehousing site, analytics, but also application, and that is very important. So on the left upper corner, you see our application lab. So it's a baking lab where we actually do real-life trials on customer dose to improve them and improve them with our enzyme mixes. Once we have final formulations, we have our own test bakery.

Importantly is also we deliver some of our products in form of liquids. You see that in the cold storage here, and we deliver other products in powder form. So you see here the packs of powder essentially in our central warehouse. What is quite nice if the customers walk in our central reception area, they can directly look into the analytics lab, the application lab and the test bakery so that we can have a customer experience center there actually to show the customers our technology and experience our baker products firsthand. So quite excited about the new site here in the Netherlands.

Further going into BRAIN Metagenome Cas. So that is basically a nuclease, which we can use in a way to more efficiently program cells. So programming cells is done with genome engineering. And by having our own proprietary tool, we can make that significantly more efficient. What also is important with that patent, it means you cannot only imply the technology in-house, but we can also apply that technology, essentially for third parties and open up further significant licensing potential by the BMC nuclease.

On the human side, as said, we have out-licensed the technology to a team called Akribion Therapeutics. And the Nature article has confirmed that nuclease has very interesting properties, is essentially able to have program cell killing, which is very, very interesting in cancer therapy. So once you're talking to oncology, actually killing dedicated cells is a very interesting new technology and the team is developing that right now in mouse studies.

Let me jump a bit more into our numbers. So for the 6M, we had the total group revenues minus 7.2% and minus 10% for the core segment BRAINBiocatalysts. This has something to do with market demand, but also with the relocation of our production to the Netherlands that came to some production interruptions. Good news is it seems like the trough of growth is behind us. So Q2 has been growing on Q1 with 4.5% sequential growth. Our research-intensive CRO contract research organization business actually has been very solid throughout the quarter, and we expect it to stay solid throughout the year.

The BRAINBioIncubator business has been very solid so far year-to-date, up 20%, also driven by a larger milestone income in the first quarter of EUR 1 million coming out of Pharvaris-licensed product here. And on the adjusted EBITDA side, you can see a result close to breakeven, which I think is a very strong reading given that the revenues have been down. So we have been managing a better adjusted EBITDA despite the fact that the revenues have been shrinking, I think speaking clearly in favor of cost control, which we have put in place.

We'll also see the number of employees that we have been down by about 5.6% in the number of employees, which explains essentially also part of the cost-cutting efforts, which we have done within the company.

Let me quickly go to our targets. We have unchanged targets for the full year. We have unchanged targets for the midterm targets. So this year, we are still expecting to have revenues around the level of last year in our BRAINBiocatalysts. We are looking at an adjusted EBITDA margin in the range of 10% with CapEx of around EUR 3 million, which includes the CapEx for the expansion of our Netherlands site. For segment BRAINBioIncubator, we're looking at revenues around EUR 5 million, and we raised the guidance because of the income of the milestone already with 3M results to positive adjusted EBITDA.

In the midterm, we're still from the base year, targeting to more or less double the revenue size. We're looking at growing the adjusted EBITDA margin from 10% today to about 15% in the core segment, so have positive operating leverage. And in the BRAINBioIncubator with further commercializing projects, we see significant additional upsides here. So why should you invest? We think we clearly embarked on a strategy of profitable growth, particularly in the core segment, specialty enzymes. We have a large growing addressable market. So our total addressable target market is around EUR 2 billion. We have sales of around EUR 50 million, so ample space to grow for us.

We clearly see a trend of more biological solutions. We sought out after industrial partners and also looking at outsourcing partners. It's situated for that. We have successfully commercialized a couple of our BRAINBioIncubator project and keep doing so. And last but not least, our products and solutions like to address several of the UN sustainability goals.

If you're intrigued, please feel free to visit us also on investor conferences. You're going to be presenting the equity forum in August, at the Baader Investment Conference in Munich in September and again at Frankfurt on the Eigenkapitalforum on November 23 to 25. If you have any questions in the meantime, feel free to give us a call here or contact Investor Relations. Thank you very much for your attention.

Thank you, Michael, for guiding us through BRAIN Biotech AG's financial results. This presentation provided an overview of developments across the company's enzyme activities, bioincubator projects, biotechnology platform and operational progress during the reporting period. You can find this video and many more management presentations from listed companies on SEAT11a. Thanks for watching, and we look forward to welcoming you back soon on SEAT11a.

BRAIN Biotech AG is a leading European industrial biotechnology company, leveraging enzyme engineering and bio-based solutions across multiple industries. Today, Michael Schneiders, Chief Financial Officer, presents the 12-month fiscal year 2024-'25 financial results, highlighting operational performance, key financial drivers and the strategic developments shaping BRAIN Biotech AG's outlook. Michael, the stage is yours.

Hello. My name is Michael Schneiders. I'm the CFO of BRAIN Biotech AG in Germany. And before I allude you on our 12-month full year figures, let me quickly remind you what BRAIN Biotech is all about. BRAIN Biotech is a successful niche player in research, development and production of enzymes. So what are enzymes? Enzymes are nature's catalysts. So almost any reaction which you will have in nature is accelerated by enzymes. And we use these same mechanism which nature uses actually to apply enzymes to industrial processes and in many cases, actually replace chemical agents by biological agents, which is searched after by industry, but also by consumers.

BRAIN Biotech has 2 distinct areas of operations. First of all, our products business called BRAINBiocatalysts. And secondly, our incubator business called BRAINBioIncubator. In the products business, we specialize on enzyme products, microorganisms and ingredients, mostly for the food and beverage industry. On the BRAINBioIncubator, we are looking more at participation in projects with very high value potential with partners and many of them circle around the pharmaceutical industry.

On the core business, we do about EUR 45.4 million of revenues with an EBITDA margin around 10% and a strong R&D ratio of around 5%. In the Incubator, we have made about EUR 4.2 million of recurring revenues. As I said, and that is the icing on the cake, essentially a lot of potential for future milestone royalty income from these projects.

On the core business, BRAINBiocatalysts, we operate essentially with 3 distinct business model. First of all, products business, where we sell enzyme product to the food production, food beverage production and segments like baking, for example, fruit juice, wine, starch processing for bio-eth. On the CRO business, the so-called contract research organization, we, on behalf of our customers, execute exciting science projects, which help them to develop sustainable projects in industrial production. And the so-called CDMO CMO business, which is a contract development and manufacturing organization, we lend essentially our know-how and our manufacturing equipment to third parties to manufacture on their behalf. What is the practice of all of that? That is a shared technology platform, which goes from discovering new enzymes to engineering and developing new enzymes, to express these enzymes in microbial host, do the whole fermentation up to 10 acute fermenters we have started, to the complete scale up and then the DSP, the so-called downstream processing to get a product that is really being shipped to customers.

Let me bring over some key messages for our 12-month figures. First of all, within the BRAINBiocatalysts segment, we hired a new EVP, Johan Jansen-Storbacka, a very strong individual joining us from a major competitor, focusing on driving growth in the future and drive them to integrate the acquired businesses of the past. Secondly, we have commissioned a beautiful new plant in the Netherlands, which is not only a manufacturing site, but also a showcase for our baking competency with the baking competence center, which we're now fully commissioning and we would like to have a grand opening of that facility somewhere in the summer of this year.

All of our [ participations ] are either daughter companies we have bought over time, are now fully owned for BRAINBiocatalysts, which means actually we can now harvest a lot of synergies between these individual companies. In the Incubator, we had a particularly strong year on execution. We had very positive news flow also from Pharvaris, one of our major pharma partners, with significant potential for royalty income going forward. And you will see it in the numbers later, we have exercised a very high cost discipline in this segment.

On cash, we still hold EUR 6.2 million in cash, which I will call solid. And we have now initiated several actions to boost growth for the future, particularly circling around the synergies, particularly circling around effectively the entity sales performance, hiring new sales director and having hired more sales force altogether to drive future growth.

Let me dive in a bit deeper within BRAINBiocatalysts. We have now fully aligned with the organization reporting. Our R&D budget is now almost entirely focused on enzyme and microbial strain development business. Our own proprietary CRISPR-Cas system helps us actually to more efficiently engineer these microbial strains and becomes a competitive advantage for us. We are now establishing next to our hub in Cardiff, the Continental European hub in the Netherlands, where we have consolidated essentially 2 locations and also the commissioning is running fully as planned.

Breatec, our baking business, the last remaining minority, which we bought out. And I said before, which will open the path to get the full synergies out of this.

Within the Incubator segment, a very strong and important transformation happened at the beginning of the year. We have been able to successfully out-license the CRISPR-Cas technology in human use to a company called Akribion Therapeutics. And with that, also transferred 15 people into this new entity, leading to significant cost reduction immediately, but at the same time, keeping a lot of future milestone and royalty potential.

We have been able to announce a partner in the gold -- BioGold/Urban mining program, where we essentially recycle biologically out of incineration waste or also things like motherboards, gold and can we do it in a fully biological process and [indiscernible] Switzerland is helping us to refine the process and then finally sell the gold thereafter. We have also been successfully announcing a cooperation with Corbion, a leader of natural ingredients in the field of food, where we have apparently active, an antioxidant where we actually develop it now together to market reach, and Corbion will market the product, BRAIN will essentially get royalties and milestone.

And last but not least, SolasCure, our wound debridement wound healing agent has now closed the IIb extension of the clinical trials, these are about to announce a supportive preliminary data sets pretty soon on that trial and fundraising for the next round of clinical trials, i.e., IIb and Phase III actually is now right on the way.

Let me now jump into the numbers. So clearly, with the revenue shrinking this year by 9.2%, we have not been satisfied. What we have been satisfied with is actually that we have been able to keep adjusted EBITDA roughly on the level of last year despite the fact that last year we had EUR 1.5 million milestone income, which we couldn't repeat this year. So on the cost base, I think we have done an excellent job. On the growth, we clearly have to take challenges, and that's why we have also launched more growth initiatives.

On BRAINBiocatalysts, sales have been falling by 4.4%. Of that around 3 percentage points is U.S. dollar translation into Europe. The rest has been general weakness of sales in that segment, which in the BRAINBioIncubator, you see a more pronounced fall in revenues, but that's also largely to do with EUR 1.5 million milestone received last year that couldn't be repeated, but also a particularly weak business in the area of content research in the direction of pharma. The reason for that is that after the Trump administration came into play, we essentially cut back a lot of university funding and with that also many venture capital funds got nervous to fund new innovative drugs, which we have felt in our contract research organization as well.

As said, EBITDA more or less flat on last year despite the lower sales. Where does that come? It comes largely out of cost cutting we have done. So if I can put your attention to a material expense ratio and also to adjust the personnel expense ratio, you will see we haven't changed much from the last year, but the absolute number of employees has been falling from 307 to 281, and that explains a larger part of the cost cutting. On top of that, we have done a lot of optimizations within the organization. Cash still sitting at EUR 6.2 million, which I would call solid and adequate for now.

This is the mix of our revenues. And you can see for a company of our size, we have a remarkably international business, about 25% of our business is done in the United States. We also have a very stronghold across Continental Europe. And Continental Europe and the U.S. explains the majority of our revenues across the globe. Germany has been shrinking in the absolute importance over the last couple of years, and we now I would say we are international player.

Let me put on some risk factors with the relocation of the Netherlands facilities. So of course, there will also be some temporary production interruptions, which might weight our growth in Q1 and Q2. We will be holding extra stock for safety stock to be able to deliver our customer requirements that will lead to slightly higher working capital over the year. And of course, volatility is more or less becoming a new normal so that we cannot deny the geopolitical risks will stay high and erratic. And also, we do expect the U.S. dollar, we have 25% sales exposure to the United States to remain quite weak but soft for the rest of the year.

It brings me now to the initial guidance for the year, which we do always have a qualitative statement and an affordable quantitative statement when we publish the full year end numbers in about a months' time. So we expect for the core segment BRAINBiocatalysts revenues to stay around the level of last fiscal year, so around EUR 45.4 million with adjusted EBITDA margin around 10% and CapEx in the range of EUR 3 million.

For the BRAINBioIncubator segment, we are seeing growth, so revenues of around EUR 5 million or plus and adjusted EBITDA around breakeven, which would also be a significant improvement year-on-year. The midterm targets of reaching EUR 100 million revenues, i.e., doubling recurring base and adjusted EBITDA margin of 15%, i.e., increasing by 5 percentage points on the EBITDA margin remains unchanged.

Next reporting will happen with the 3M numbers on February 25th, and please feel free to visit [ seat11a web ] on the AGM on March 11th, if we do in presence, basically around the corner of our head offices.

Thank you very much for your attention. If you have any further questions, please feel free to contact Martina Schuster, Investor Relations or myself directly. Thank you very much.

Thank you, Michael, for the comprehensive overview of BRAIN Biotech AG's 12-month fiscal year 2024-'25 financial results. For investors who would like to explore the company further, additional video presentations and insights are available on seat11a, offering a deeper understanding of BRAIN Biotech AG's strategy, innovation pipeline and long-term value drivers.