Topical R327G set to start Indonesian Phase III study
Recce’s strategic focus in CY25 is on advancing the topical gel formulation (R327G)
of its lead anti-infective therapeutic drug candidate, R327. The company is gearing
up to start a registration-enabling pivotal Phase III study in H1 CY25 for R327G as
a treatment for DFIs. We anticipate that positive results from the trial could lead
to Recce’s earliest R327 commercialisation opportunity, through a launch in South-East
Asia in the DFI indication in H2 CY26. In February 2025, the company completed a Phase
II Australian study for R327G in the treatment of ABSSSI, which gives us confidence
for the upcoming clinical trial for treatment in DFIs.
A recap of the DFI opportunity
DFIs are frequent complications of patients who have diabetes mellitus, particularly
if the condition is not adequately controlled. Approximately 38 million people have diabetes in the US. Of this population, about 2–4% will experience foot ulceration each year, of which 50–60% will result in DFIs due
to the invasion and multiplication of surrounding microorganisms in the area, resulting
in an inflammatory response and tissue damage. DFIs are the leading cause of foot
morbidity in diabetic patients as well as the most common complication from diabetes
leading to hospitalisation. About 20% of moderate to severe DFIs lead to amputation.
| Exhibit 1: Background on ABSSSI and DFIs |
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| Source: Company KOL presentation, March 2025 |
DFIs occur mostly in diabetic patients with peripheral neuropathy and/or peripheral
artery disease, as these increase the risk of an ulcer becoming infected. While most
DFIs are located at relatively superficial layers upon initial clinical presentation,
the infecting microorganisms can spread to deeper tissues, such as fascia, tendons,
muscles, joints and bones. Generally, targeted systemic (oral or IV) antibiotic or
anti-infective therapy is the primary approach for treating DFIs, but certain more
complex forms, such as osteomyelitis (inflammation of the bone), require surgical
debridement. Topical agents (such as silver preparations, antiseptics, bacteriophage
therapy and honey dressings) have been used (usually off-label) in many cases but
these are typically adjunctive to the systemic treatments and thus not likely to be
used as a standalone therapy, except possibly for very mild and/or superficial cases.
The first material clinical evidence of R327’s potential efficacy as a treatment for
DFIs was data in early 2024 from Recce’s Phase I/II study assessing topical R327 in DFIs. This study met all
primary endpoints on five patients, providing signs of proof-of-concept for topical
R327 in this indication. In the trial, patients with mild skin and soft tissue DFIs
were treated with topical R327, either daily or every second day, for 14 days. Recce
reported that the study’s independent safety committee confirmed that the study achieved
its primary safety, tolerability and efficacy endpoints (including resolving or curing
bacterial DFIs). In 80% (four of five) of patients, R327 led to complete cure at the
end of the 14-day therapy period, and in all cases, at the midpoint of therapy (day
seven), a significant reduction of the infection was shown.
Summary of ABSSSI Phase II study results
Following the above mentioned Phase I/II study, Recce engaged in a centralised, open-label Phase II study assessing R327G applied to ABSSSI, which comprise a broader range of indications
than the DFIs and burn wound infections assessed in prior topical R327 human trials.
The Phase II study was primarily conducted by Barwon Health, one of Australia’s largest comprehensive regional health services centres. The trial
was designed to assess R327G’s effectiveness and safety in treating a broad range
of ABSSSI indications, which, in addition to DFIs, can include necrotising fasciitis,
post-operative wound infections, simple abscesses, boils, cellulitis and others. In
the Phase II ABSSSI trial, R327G was applied once daily for seven days to the site
of infection, followed by safety and efficacy evaluations. A possible additional seven-day
R327G treatment period was considered at the investigator’s discretion if indicated,
with repeated safety and efficacy evaluations.
At a virtual key opinion leader (KOL) event on 2 March, Professor Eugene Athan, principal investigator of the Phase II ABSSSI
study, summarised the trial’s primary results, which were first reported in February 2025.
| Exhibit 2: Phase II ABSSSI study results |
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| Source: Company corporate presentation, March 2025 |
The study achieved all primary and secondary efficacy endpoints and met plasma pharmacokinetics
(PK) expectations. After seven days of treatment, 86% of patients (25 of 29) treated
with R327G had a successful clinical response, and at 14 days of treatment, 93% (27
of 29) had achieved a primary efficacy endpoint. Clinical outcomes were assessed using
the Lipsky Clinical Resolution of Infection Scale and/or the Bates Jensen Wound Assessment Tool, both FDA-recognised measures. Importantly, R327G was reported to be safe and well tolerated, with no
serious adverse events. The study enrolled 30 patients in total, with one withdrawing
due to pre-existing pain at the wound site that was deemed unrelated to R327G.
The global ABSSSI market was valued by Fortune Business Insights at US$7.3bn in 2018 and is projected to reach US$25.9bn in 2032. Drug-resistant bacterial strains, particularly
methicillin-resistant Staphylococcus aureus (MRSA), remain an area of particular concern in many skin and skin structure infections.
To our knowledge, no topical antibiotic has specific globally-recognised approval
for usage for the treatment of DFIs. Treatment guidelines by the International Working Group on the Diabetic Foot and the Infectious Diseases
Society of America indicate that currently available and/or approved topical therapies
or antibiotics have effectiveness limitations in the treatment of DFIs. Hence, we
believe there is opportunity for a novel topical therapeutic such as R327G, as we
expect a standalone topical therapeutic option would be convenient for patients (given
the relative ease of drug administration), aid in treatment compliance, provide a
concentrated dose at the presumed site of interest and also lower the risk of systemic
side effects often associated with oral or IV antibiotics.
Topical R327G set to start Indonesian Phase III study
Recce has been finalising the steps in recent months to advance R327G towards registration-enabling
pivotal studies that would transition the company to a commercial-stage entity, if
successful. Notably, the company announced in December 2024 that it had received clearance from Badan POM (BPOM), the Indonesian Drug and Food Regulatory Authority, to start its registrational
Phase III study in Indonesia of R327G in DFIs. Recce is in final stages of manufacturing
of the topical gel product and placebo. Once completed and the product is sent to
Indonesia, the company expects to commence patient dosing imminently, as the relevant
Indonesian clinical trial sites and hospitals are ready to start dosing.
The Indonesian Phase III study will be a double-blinded placebo-controlled design
with a planned total enrolment of 300 patients, where R327G will be compared to placebo
(with 200 subjects planned to receive R327G and 100 to receive placebo). The study
will be initially conducted at PT Siloam International Hospitals, the largest private
hospital network in Indonesia. The company expects the study to run for approximately
12 months. However, given the high efficacy response rates shown in the Phase II ABSSSI
study, Recce anticipates the Indonesian registrational Phase III DFI study may reach
a statistically significant efficacy result after the completion of treatment on c
100 patients (compared to the trial’s planned enrolment of 300 patients). Recce expects
to report interim data (on c 105 patients) from the Phase III study, consistent with
the BPOM-approved study protocol, by Q1 CY26. If this is the case, the company expects
to be positioned to launch R327 in Indonesia in CY26, and our model continues to assume
a potential launch in Indonesia and other Association of Southeast Asian Nations (ASEAN) territories in H2 CY26.
Recce is receiving significant funding and infrastructure support from key Indonesian
stakeholders, including the Indonesian Ministry of Health, for the registrational
Phase III DFI programme. As a result, the company expects its total cost to complete
the study will be US$2m, not including the effects from the 43.5% R&D rebate scheme
under the company’s advanced overseas funding status with the Australian government.
Hence, the net cost to Recce may only be c US$1.2m.
| Exhibit 3: Commercialisation pathway for R327G |
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| Source: Company corporate presentation, March 2025 |
Recce also expects to start a Phase III ABSSSI study in Australia and New Zealand
in CY25. As explained in detail below, the company also plans to submit an IND application
with the US FDA in H2 CY25 or H1 CY26, which will permit US-based clinical trials
on R327G. Altogether, we continue to anticipate potential commercialisation for R327G
in ABSSSI in CY28 in the US, Australia and Europe. We believe the company’s near-term
focus on advancing the ABSSSI and DFI indications for R327G is providing a clear path
to future revenues.
IV R327 continues to hold promise in sepsis and cUTIs
We continue to view the IV formulation as Recce’s strongest commercial R327 opportunity,
specifically in the sepsis (and/or urosepsis) and complex urinary tract infection
(cUTI) indications. The company in June 2024 reported it had completed the Phase I/II study (trial ID ACTRN12623000448640 at anzctr.org.au)
assessing the safety, tolerability and PK of IV R327 at faster infusion rates (compared
to R327-001, its initial single-dose IV R327 dose escalation trial). The Phase I/II rapid infusion study met all of its primary endpoints and demonstrated
significant antibacterial activity. Detailed results were discussed in our prior note.
As a reminder, according to the Centers for Discease Control and Prevention, at least 1.7 million American adults develop sepsis annually, with 350,000 of them
dying of the acute disease or being discharged to hospice (‘end of life’) care. One
in three people who die in a hospital have or will have developed sepsis.
Recce continues to plan a Phase II study of IV R327 in patients with cUTIs (including
urosepsis patients) that will include US study sites. Given that management’s near-term
priority is to start the Indonesia Phase III DFI study in H1 CY25 and a Phase III
ABSSSI study in Australia later in CY25, we now anticipate the IV R327 study will
only start in H1 CY26, particularly as we expect that US IND clearance will be needed
before study commencement. We will await further information from management, in terms
of timelines and relevant endpoints for the upcoming IV R327 study in cUTI patients.
US IND filing still in the works
Recce also expects to submit an IND application to the US FDA in H2 CY25 or H1 CY26,
for both the topical and IV formulations of R327. Previously we had anticipated IND
clearance in H1 CY25, but we believe the company is currently focusing its efforts
on advancing the R327G Indonesian and Australia Phase III studies. We expect that
IND clearance would enable Recce to either expand its planned Phase III Australia
ABSSSI R327G study to include US study sites or to start a separate US Phase III ABSSSI
study. We also expect the IND clearance of the IV formulation to inform development
steps for a Phase II cUTI (and urosepsis) trial with US study sites, but, as stated
above, we do not anticipate such a study to start until H1 CY26.
We now assume potential approval and commercialisation of IV R327 in sepsis and cUTI
in H2 CY29 (versus H1 CY29 previously). However, we may revisit our assumptions once
the US IND has been cleared by the FDA and/or greater clarity is provided by management
on the expected data points and timelines for the US-centric studies.
Positive preclinical data on R327 in lung disease models
At its KOL event in March, Recce presented preclinical data supporting a nebulised
or aerosolised formulation of R327 in treating non-tuberculous mycobacteria (NTM). Mycobacteria are a form of bacteria naturally present in air, soil and dust. Two
species of mycobacteria known to cause human illness are Mycobacterium tuberculosis,
which causes tuberculosis, and Mycobacterium leprae, which causes leprosy. The other
Mycobacterium species are generally classified as NTM. NTM is regularly breathed in
to the lungs and, in most people, these bacteria do not cause any harm. However, in
a small number of vulnerable individuals, NTM can form an infection in the lungs,
although it is not believed to be contagious. More than 86,000 people are believed
to be living with NTM lung disease in the US, with infection more prevalent in older
age groups and in people with compromised immune systems and chronic lung diseases
(such as cystic fibrosis).
Specifically, Recce reported promising preclinical activity of R327 against Mycobacterium abscessus, a form of NTM that tends to be prone to drug-resistance. M. abscessus infections can occur in patients with cystic fibrosis or other chronic lung diseases,
and current treatment protocols require systemic antibacterial medications (often
a combination of drugs) for six months to one year, or longer.
| Exhibit 4: Nebulised R327 effectiveness in lung disease model |
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| Source: Company KOL presentation, March 2025 |
The company demonstrated preclinical efficacy against M.abscessus in a mouse model, showing activity against the bacteria in the lung (when administered
through nebulised delivery, see Exhibit 4), and also against M. abscessus skin infection (Exhibit 5). Importantly, the drug was shown to be safe when delivered
to the lung in a nebulised fashion. Altogether, the company reports that R327 shows
promising efficacy against both lung and skin infections caused by M.abscessus.
| Exhibit 5: R327 efficacy against M.abscessus skin infection |
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| Source: Company KOL presentation, March 2025 |
Given the data, we believe the company will pursue further activities to advance R327
towards a pulmonary disease programme. As per usual Edison policy, our valuation model
does not include preclinical stage programmes, but further advancement of pulmonary
R327 treatment approaches would provide upside potential to our valuation.
| Exhibit 6: Recce development pipeline |
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| Source: Company corporate presentation, March 2025 |
Our timeline assumptions for R327G commercialisation are unchanged, as we continue
to expect initial R327G commercialisation for DFIs in Indonesia and ASEAN territories
in H2 CY26. We have pushed back our IV R327 launch timing by about two quarters, and
we now anticipate IV R327 commercialisation in H2 CY29 (vs H1 CY29 previously).
Financials and valuation
Recce’s H125 financials (six months ending 31 December 2024) reflected a mildly higher operating cash loss
than we had anticipated despite lower-than-expected R&D costs. We attribute this difference
largely to the fact that the company did not recognise US$2.2m in grant funding in
H125 from the US Department of Defense, whereas our model had assumed that the funding
would have been recognised during the period. This grant had been awarded in July 2024 to support Recce’s activities in assessing R327G as a treatment for burn wound infections
(and reduce risk of bacteraemia). We expect Recce to now recognise this grant in its
H225 financials. The company reported A$6.7m in Australian R&D tax credit revenue
(which reflects a cash tax rebate for the company’s eligible R&D activities over FY24),
which was in line with our forecast for the period.
The company reported an H125 operating cash burn rate of A$6.9m and an operating (EBIT)
loss of A$7.1m, which compare to our H125 forecast of A$6.2m for both of these measures.
The company’s results were driven by A$8.4m in gross R&D expenses, which came in below
our A$11.0m R&D expense forecast. In our view, the lower-than-anticipated R&D spending
rate reflects the fact that the company’s R&D activities were focused on the R327G
formulation (namely, the completion of the ABSSSI Phase II study and preparation for
the upcoming Phase III DFI study). Hence, we believe that less spending was allocated
towards IV R327 during the period and for preparations for an eventual US IND filing.
We have updated our forecasts and valuation to reflect the recent forex changes (we
now assume US$0.63/A$, versus our prior assumption of US$0.65/A$). We have reduced
our FY26 R&D expenses to reflect a one to two quarter postponement in the timing of
expenditures for the planned US Phase II IV R327 study in cUTI/urosepsis, as we now
expect this study to start in H1 CY26 (vs H2 CY25 previously). We have also reduced
our FY25 R&D forecast given the trends shown in H125. We expect FY25 and FY26 R&D
spending to be A$13.5m and A$30.2m, respectively, versus our prior estimates of A$13.8m
and A$56.9m, respectively. Altogether, we project free cash outflows of A$16.6m and
A$43.6m in FY25 and FY26, respectively, versus our prior estimates of A$15.9m and
A$71.5m.
At end-H125 (31 December), Recce reported gross cash of A$1.94m and A$3.96m in debt,
resulting in a net debt position of A$2.02m (excluding A$0.8m in lease liabilities).
Recce expects to receive an A$0.74m advance loan from Endpoints Capital in Q325 (Q1
CY25), which reflects a loan to be drawn against a portion of the R&D tax credit payment
that the company expects to receive in H2 CY25 (which corresponds to a rebate for
Recce’s eligible R&D spending activities since end-FY24). Once the company receives
the applicable R&D tax credit payment from the Australian government (in H2 CY25),
it expects to repay the loan to Radium Capital.
In terms of our valuation, as stated above, we have scaled back our launch timelines
for IV R327 in sepsis and cUTIs to H2 CY29 (versus H1 CY29 previously), as we do not
expect new clinical trials for IV R327 until H1 CY26 at the earliest. We have also
rolled forward our estimates and adjusted for forex assumptions.
| Exhibit 7: Recce Pharmaceuticals rNPV valuation |
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| Source: Edison Investment Research |
Given the above changes, we now obtain an rNPV, inclusive of A$2.0m Q225 net debt,
of A$610.1m (or A$2.68 per share), versus A$593.6m (or A$2.60 per share) previously.
Altogether, the increased valuation is due to rolling forward our model and the strengthening
of the US dollar (versus the Australian dollar), offset by pushing back our timeline
forecast for IV R327 commercialisation.
We assume the company’s funds on hand will last into Q4 FY25, and hence Recce has
an imminent funding need. For modelling purposes, we continue to anticipate that Recce
will raise an additional A$20m in late FY25, modelled as illustrative debt. We assume
clinical trial-related costs for each of the four indications in our model (ABSSSI,
sepsis, cUTIs and burn wounds) will ramp up significantly in FY26. Any delays to the
start of such activities would reduce our funding estimates over this period but may
push back our potential launch forecasts.
Depending on the availability of capital, the company may decide to prioritise certain
programmes, which may affect the timing of launches in non-prioritised indications
and affect our overall valuation. Our current funding model assumes Recce will advance
all four programmes in parallel. However, if the company prioritises R327G in ABSSSI
and DFIs and puts its remaining development programmes on hold until the initial R327G
commercial approval, this would reduce its overall funding need as it could subsequently
apply post-launch commercial revenue towards resuming R&D and product development
activities in the remaining targeted indications. In addition, partnerships and/or
non-dilutive forms of funding (such as third-party sponsorship of clinical trials)
could also reduce the future funding need, although these are not specifically included
in our forecasts.
Assuming the company continues to develop all four planned clinical-stage indications,
we continue to project Recce would need to raise an additional A$140m in total net
proceeds by FY29 before becoming sustainably cash flow positive. As per the usual
Edison methodology, we model these raises as illustrative debt. If our projected funding
need of A$140m is raised through equity issuances at the prevailing market price of
c A$0.37, our effective value per share would decrease to A$1.23 (including cash raised
via equity).
| Exhibit 8: Financial summary |
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| Source: Company accounts, Edison Investment Research |
