Finding the right balance
Six months ago, Adriaan Moelker took over as Chair of the Board, thus assuming management of BRAIN AG. In an interview with News & Views, he talks about his first impressions, his goals, the ongoing transformation process and the future positioning of BRAIN AG on the capital market.
Mr. Moelker, what attracted you to becoming CEO at BRAIN?
Innovation-driven companies have always fascinated me - and the future-oriented biotech sector in particular. I worked in industrial biotechnology for over 20 years, always with a focus on enzymes. Then I changed sectors for six years to see if biotech was all there is. It turns out that for me, biotechnology is indeed my cup of tea. So, joining BRAIN after these years in another sector was like coming home.
As a biotech pioneer, BRAIN has built up an excellent reputation as a research-driven, creative company. Customers and cooperation partners value the company, and the employees are said to be very pleasant to work with. This is a point not to be underestimated.
Can you confirm this after your first own experience?
Yes, I can. The welcome here was very warm and open. I can confirm that it is a pleasure to work at this company, even though we are of course facing great challenges. But the people here are very motivated and cooperative and together we will master the challenges.
What challenges do you mean, exactly?
BRAIN has achieved many technical breakthroughs for its partners, however, the company has never yet turned a profit. Since the IPO in 2016, our shareholders understandably want to see further sales growth, then break-even point and ultimately a profitable business. Therefore, we must now focus on becoming profitable while continuing to innovate and deliver path-breaking outcomes for our customers and partners. This includes building up a profitable products business.
Does this mean that BRAIN now concentrates only on marketing these products?
No, not at all. A technology company like BRAIN lives from developing new things and that will not change. In the last few years we have developed from a pure technology service provider to a technology-driven product provider. A transformation that my predecessor already initiated. I see it as a natural next step for the company.
So what’s going to be different?
The strengths of BRAIN, its broad technological expertise, flexibility, agility and speed have so far been used to develop customer-specific solutions. Now we will increasingly use these strengths for our own product development and marketing. In addition to concentrating on our products business, we also have to find a balance between short-, medium- and long-term R&D projects, because they are the basis for our next bio-based products or solutions. Therefore, we are currently in the process of revising our product portfolio.
Revising it in what way?
My job is to get the company to realize projects as quickly as possible, increase sales and make sure that investments pay off. Unfortunately, this also means that one project or another may be stopped or put on the shelf, even if it is highly exciting from a scientific point of view.
Speaking of sales increase: How does BRAIN earn money at the moment?
At BRAIN we distinguish between product business and so-called tailor-made-solutions (TMS) business. Both are profitable today. In TMS business, the customer pays for the development of a product or solution. In product business, for example, we sell enzyme products – either off the shelf because they already exist for other applications – or newly developed ones if the requirements are so specific that existing enzymes do not fit. We then recover the development costs through the margin on sales. Then there are the partner projects: For some of them, we make advance payments for the R&D services, while others are supported by our R&D services for the entire duration of the project. In both cases, we will later receive license fees.
By the way, we are very flexible with regard to the payment models: starting with advance payments, milestone payments, license income or a share in sales, everything is possible and depends on the respective project and the related negotiations.
Nevertheless, BRAIN AG currently has a negative result. Why?
As a technology-driven company, we continually invest a significant portion of our revenues in the development of new products and solutions. Only in this way can we offer customers and project partners disruptive new solutions. In order to be able to continue financing these R&D activities in the company, we generally want to monetize our activities more strongly in the future.
Are there any other goals you have set yourself besides the goal of making a profit?
Of course the share price should improve. We also want to make the share attractive for more investors by positioning ourselves as a sustainable and socially responsible company in the ESG environment.
Our employees are very important to me. I’m very keen to develop their skills and to make sure that we have a safe and healthy environment to work in. All these priorities are underpinned by our core values, which include a sense of responsibility, innovation and creativity as well as integrity, to name just a few. I’ve refocused the role of HR on these topics.
What does ESG mean and what form does positioning take in this ESG environment?
ESG stands for "Environment", "Social" and "(Corporate) Governance", and the ESG approach has meanwhile become an important standard in the financial industry to define sustainable investments. Accordingly, ESG investments are investments that take into account not only the economic investment objectives but also the ethical and sustainable values of investors. The products and solutions that we develop our microorganisms, enzymes and natural bioactive substances contribute in many ways to greater sustainability. For example, we support our customers in making their industrial processes more environmentally friendly and thus in better achieving the UN Sustainable Development Goals. This is also part of what motivates me and employees at BRAIN: to commit to solutions and products that can promote health or contribute to more sustainability.
Apart from the aspect of sustainability: Are there other arguments in favor of becoming a BRAIN shareholder?
The various business models make BRAIN attractive for shareholders because they acquire a broadly diversified biotechnology portfolio: several technology platforms, tailor-made-solutions business (TMS), proprietary research and product business. This distinguishes us from many other biotech companies. With BRAIN we have several growth areas, so we’re spreading the risk.
Nevertheless, BRAIN’s shareholders – as with other biotech companies – have to be very patient. Why does it generally take so long until a biotechnological product is "ready"?
In our sector, it is typical to have development cycles of 5 to 15 years. From discovery to optimization to scale-up and formulation and eventually registration and commercialization takes a long time. Things can go wrong at all these stages, and then it’s back to the drawing board. The key to success is having a balanced portfolio of projects and being methodical in choosing priority projects. Moreover, working collaboratively with key partners is another crucial success factor. This is what we will focus on in the coming months and years.
What makes BRAIN unique in your eyes?
Above all, three things: our BioArchive, i.e. our unique and comprehensive collection of microorganisms, enzymes, natural products and the associated molecular biology data; the broad range of biotechnological methods that our scientists and laboratory assistants have mastered and which they skillfully combine with the BioArchive resources; and last but not least, the flexibility, creativity and agility of our staff play a huge role in our company’s development.