This is a remarkable success for everyone concerned. BRAIN made it to the stock exchange despite difficult market conditions. A total of 3,608,054 shares were handed over to new investors at a unit price of EUR 9, among them 3,500,000 new shares from a capital increase. Another 108,054 existing shares were issued as part of an over-allotment. Although the issue price was at the lower end of the originally intended price range of EUR 9 to 12, the company states that the order book was even slightly oversubscribed. In all, the bioeconomy pioneer from Zwingenberg in the federal state of Hesse was able to collect some EUR 31.5 million at its initial public offering. After deduction of the costs of issue, these funds are to be mainly used for product development and stepping up marketing of the company’s own products, which include enzymes, microorganisms and natural bioactive substances. “Our pipeline of bio-based solutions that make industrial processes and products more sustainable, efficient, natural and healthy, is currently well-filled with 15 ranges. We will use the funds from our IPO to consistently further develop them,” says Jürgen Eck, BRAIN CEO.

Share quoted at higher than issue price

The circumstances accompanying the IPO were far from rosy. On the day prior to the IPO, the reference index Dax had slipped below the psychologically important 9,000 mark for the first time since October 2014. “The Dax dropped by more than 9% between our announcement of the IPO and the closing of the order book,” Eck reports. The volatility, reflected in a VDAX increase to more than 30 points, also rose sharply compared to the end of 2015, making IPOs difficult if not impossible in the eyes of most investment bankers. Nevertheless, when trading started at the Frankfurt Stock Exchange, the first price quoted for the BRAIN share was clearly above the issue price, at EUR 9.15. 

Although the quotation dropped below the EUR 9 mark in the further course of trading, it appears to have settled meanwhile somewhere above the issue price. “This success shows the strength of the bioeconomy,” BRAIN CEO Eck says confidently. MIG-Fonds, one of BRAIN’s major shareholders, is also convinced of the company’s long-term positive development. “We believe in BRAIN’s potential. If the company puts its growth plans into action, the price will continue to rise,” says Matthias Kromayer, who is in charge of life sciences investments at one of Germany’s most pro-active risk capital investors.

High level of participation by private investors

BRAIN might be able to benefit from two factors: broad participation by private investors, who signed up for around 19% of the placement volume. According to those in the know, about half each of those orders were placed via the XETRA subscription tool and the order option provided by BRAIN mainly to employees and MIG investors. “These channels are very seldom used for IPOs in Germany because the large investment banks have completely forgotten about them, whether out of legal or economic considerations or because they are unaware of their benefits for a stable and more price-elastic shareholder base,” says Wolfgang Blättchen, founder and shareholder of Blättchen Financial Advisory GmbH in the Börsen-Zeitung (German stock exchange newspaper). Whereas Americans aim for private investor ratios of more than 20%, the French and the British tend to aim for 10%. “In Germany, banks announced 2% for Zalando, and even that was probably unusually high by comparison,” says Blättchen, who advised Hesse-based bioeconomy specialist BRAIN on how to involve retail investors. 

BRAIN CEO Eck is convinced that the broad investor base offers additional security for the company. “That makes the share less dependent on technical market mechanisms. Private investors usually look more closely at the company itself and less at chart analyses.” In addition, this group of investors may ensure liquid trading of the share. 

Main takers were generalists

The second factor that might benefit BRAIN on the stock exchange is sector classification. Although this company is purely dedicated to biotechnology, it is not affected by major digital research risks and the extremely long lead times of typical “red” biotech enterprises. The customers who use BRAIN enzymes, natural substances or microorganisms come from the chemical and consumer goods industries, for example (see timeline). The Deutsche Börse therefore allocated BRAIN shares to the specialty chemicals sub-sector. That obviously has consequences for the investor base: “We have a very large proportion of generalist investors who are especially concerned with the issue of sustainability, which is how they came to focus on the bioeconomy. Classical pharmaceutical or biotech investors play a smaller role,” says Eck.

Financing event rather than exit

Right from the outset, the bioeconomy specialists from Zwingenberg took pains to present the IPO as a financing event within a broader growth and industrialisation strategy rather than as an exit event for large shareholders. “For us, it is important to show the capital market that we are able to build a company together with our partners that receives a credible, robust and stable rating from the capital market,” MIG Chairman Kromayer underlines. This is the first IPO of a portfolio company for the risk- capital provider in Munich. So far, at least, the price development indicates that it has been possible to involve mainly long-term investors.

Strongly diversified business areas

Private investors in particular often take their lead from comparable firms when making an investment. People who buy Mercedes shares have a look at how things are going at BMW or VW. Comparisons of this kind will probably be more difficult with regard to BRAIN. While the company follows its own industrialisation strategy with its core offers (enzymes, natural substances, microorganisms), it is active in a variety of markets. 

In the field of biocatalysts, BRAIN is competing with global players of the stature of Novozymes (Denmark) and Dupont (via their Danish subsidiary Danisco). At present, though, both those major groups appear to be concerned primarily with themselves. Novozymes announced a complete reorganisation of its group structure in February, and Dupont is working on a mega-merger with Dow Chemical. Smaller competitors are already waiting on the doorstep. AB Enzymes in Darmstadt, for instance, or Direvo Industrial Biotech which is headquartered in Cologne. Both had good news to report recently. Whereas the parent company of AB Enzymes, Associated British Foods, announced its intention to expand the production facilities of its German subsidiary in Finland, Direvo announced progress in developing a new bio- catalyst mix for the production of bioethanol. In the field of technical enzymes, BRAIN is for example working on biocatalysts for starch processing. Using so-called aurases (enzymes for wound treatment), the bioeconomy specialist intends to gain entry to the medical technology market in years to come.

Biological rather than chemical processes

BRAIN substantially reinforced its natural substance activities in 2014 by gaining majority interest in Analyticon Discovery of Potsdam. Competition in this segment is tough. Alongside major providers of flavours and fragrances such as Senomyx, Symrise, International Flavors & Fragrances or Givaudan, a number of specialists are also active in this field, such as Imax Discovery in Dortmund (taste modulators) or Pure-Circle (stevia) from Malaysia. Several projects centring on natural substances are currently being pursued in Zwingenberg in a wide variety of sectors. The development of taste modulators is mainly directed at the food and beverage industry, for example to reduce sugar or salt content. Bio-substitutes, which are intended to replace chemical processes with biological ones, form another major business area. This includes the development of natural substances with an antimicrobial effect for use in the cosmetics and food industries, or the development of bio-based lubricants. 

Added to these are BRAIN’s cosmetics activities. Key competitors here, apart from the usual major groups such as L’Oréal or Estée Lauder, are above all companies of a similar size: Klapp Cosmetics GmbH or Dr. Babor GmbH & Co. KG, for instance. BRAIN markets its own cosmetics products directly to end customers via the Monteil brand. The strongest sales argument BRAIN has to offer are the biotech ingredients produced by the company itself. In all, the cosmetics industry has been hard pushed to come up with true novelties in recent decades, experts criticise. Even today, creams contain active ingredients such as folic acid or coenzyme Q10, which were discovered back in the 1930s and 1950s respectively. BRAIN creams contain the company’s own TRPV1 inhibitor, among other things. The molecule targeted by this inhibitor, the heat/capsaicin receptor, is responsible for skin irritation upon contact with chilli pepper. BRAIN promises that blocking this molecule reduces skin irritation. The use of a matrix metalloproteinase inhibitor (MMPI) might one day help combat skin ageing.

Several strings to their bow

BRAIN’s third pillar consists of microorganisms. One of the competitors in this field is Evolva Holding. Last year, the Swiss company launched Nootkaton and Valenzen, fragrances manufactured by fermentation, on the market. The French company Libragen S.A. also specialises in the microbial production of cosmetic ingredients. U.S. company Amyris counts on microorganisms to manufacture biogenic fuels, among other things, but also operates in the food and cosmetics ingredients market. BRAIN believes microorganisms have even more to offer: in a few years from now, special microbes might be ready for use to extract rare earths and precious metals from mine tailings or refuse dumps. At present, low global market prices will probably prevent the broad commercial use of these microbial “miners”, but BRAIN has plenty of other strings to its bow.