Pinned straw:
Initial details and thoughts on the capital raise (deeper look later in the week/weekend):
Details summary:
- Offer closes 31 July.
- Total A$10m: A$8.0 million institutional placement and A$2.0 million SPP
- Offer Price of A$0.45 (Offer Price), a 25% discount to last close $0.60
- Funds raised under the Offer will see Recce through to the completion of Phase II/III trials and potential for commercialisation in South East Asia with immediate catalysts to announce to market
- $27m cash position post raise (including non-dilutive funding pending) to fund RCE to FY26. Note debt of $9m for R&D rebate advances should be offset from this, but there will also be a lot more R&D rebates generated as the cash balance is spent (so mostly net out).
Initial Thoughts:
· SPP is standard ($30k per shareholder, may extend offer if over sub)
· 25% Raise discount: more than anyone ever wants but reasonable given market and being a biotech. Confident management are not giving things away and have a keen eye on dilution which is only ~15%.
· Use of Funds: all value increasing activities and most of it should attract R&D rebates and or additional grants, so a multiplier on shareholder funds.
· Balance sheet: Is now very strong and allows them to go hard on accelerating the key programs. I like that they are playing it safe on the cash runway.
· Participate: I will most likely participate, I was holding off some of the funds I wanted to invest in RCE for the next capital raise, just thought it would be another 6mths away.
· Addition of new institutional shareholders and increased liquidity is generally a positive.
I will have a much closer look later in the week or on the weekend, most info is old, but the planned program over the next year is new and needs a closer look.
Disc: I own RL+SM
Debt Facility (17/6/25)
Recce has just secured a US$20m (~A$30m) debt facility with Avenue Capital Group, which is “mostly” Non-Dilutive. The 36 month term at 12.75% includes warrants at 8% of the value of funds drawn based on 5 day WAP plus an option to convert up to $1m (I assume USD) of the principle at close.
So, all up based on the current market cap of 88m, dilution may be around 5%... so not significant and much lower than around 30% which would be the dilution if they raised this amount in straight equity.
As I noted earlier in the month RCE had effectively A$34.5m available in cash or borrowing capacity against R&D rebates. These funds are expected to cover Phase 3 in Indonesia and Australia. The additional A$30m debt close to doubles the amount and provides capital for commercial roll out in ASIAN in late 2026 following Phase 3 in Indonesia.
The fact that RCE management have taken on debt to support post Phase 3 approval commercialisation capital requirements is a show of confidence if nothing else. The 3 year term of the debt is also an indication they are confident of being revenue generating by 2027 at the latest.
The announcement goes into more detail on the terms, it is not cheap debt by any means, but for a company in REC’s position it looks like a reasonable deal and provided they make it through Phase 3 it is a far better option than a straight capital raise for shareholder return. If they don’t make it through Phase 3 then it’s all worth next to nothing anyway, so a fair risk from my point of view.
Disc: I own RL+SM
Offer Shortfall (3/6/25)
Of the $10.8m 1 for 6 entitlement offer that closed on May 9th (after a 4 day extension) only $3.4m was filled, hence the significant delay in this announcement while they found a home for the $7.4m shortfall with institutional and sophisticated investors.
But they have and all is good, with $16m now in the bank (inc the $5m institutional placement), plus $8.5m likely to come from R&D rebates plus another $10m from R&D advances, RCE has $34.5m fire power to push on with the Phase 3 DFI trial and registration in Indonesia for targeted revenue in 2026 PLUS Phase 3 ABSSSI trials in Australia and Investigational New Drug (IND) application with the FDA.
The bases are loaded, now we wait for a fat pitch with the Phase 3 results…
I am not surprised they struggled to fill the entitlement offer, in fact they got more than I expected and I am pleasantly surprised they found a home for the balance in a month – well done James, it’s a very hard job.
Beyond the normal risks of Phase 3 (which I hope is low for RCE given P2 results), we currently have the RF Kennedy risk around the FDA. RCE looks to be doing most of it’s trials outside of the US, there is a concern in the Australian biotech industry that there may be a push to have the FDA only approve based on research done in the US. This would be a major issue for a lot of companies and cause massive delays on may drugs into the US, which is probably why it would likely be withdrawn or become more selective (ie Australia may be ok). I also think that the critical health issues of AMR and if R327 can overcome it, it will find some sort of way through to approval with the FDA.
So time to settle back and wait for news of the start of Phase 3 and some more definitive timelines on initial read outs and results.
Disc: I own RL+SM
Recce has launched a $15.8m capital raise to fund ABSSSI Phase 3 trials in Australia and Phase 3 DFI Registrational Topical Clinical Trials in Indonesia. I thought we may get this in March, but it seems to have taken a while to line up the first $5m commitment from an Australian private investor (good result in this market). $10.8m is being raised by a non-renounceable entitlement offer to existing shareholders, with a shortfall facility enabling investors to take up more than their entitlement, so may end up getting a reasonable amount of the $10.8m, but it will be a tough slog in this market.
They are expecting another $8.5m in R&D tax rebates and to be able to borrow $10m against future R&D tax rebates to also help fund the Phase 3 trials.
So they may end up with $36m (pre costs) in the bank and are seemingly on track for some revenues in 2026 from Indonesia.
The pain point is the $0.28 raise price, but as much as the dilution hurts, it’s a small price to pay to move forward into Phase 3. Their share price has had a lot of pressure from US issues in the current market as all Biotech’s have had and the Opthea result I sure hasn’t helped confidence for Australian late stage Biotech investors.
Entitlement closes 5th of May, so I expect the share price will revolve around the 28c offer price in the meantime. Hopefully they have some positive news to share before then to support the raise.
Disc: I own RL+SM