Recce Pharmaceuticals — Supportive advancements on the pipeline
Recce Pharma

Recce Pharmaceuticals (ASX: RCE)

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Research: Healthcare

Recce Pharmaceuticals — Supportive advancements on the pipeline

Recce Pharmaceuticals has announced several positive developments in recent weeks relating to its therapeutic programmes, particularly for lead anti-infective candidate RECCE® 327 (R327). It entered a strategic collaboration with an Indonesian biomedical company, PT Etana Biotechnologies (Etana), which may support the engagement of relatively lower-cost clinical trial sites with potentially deep patient pools in South-East Asia (SEA). The company also recently disclosed positive efficacy results among five patients treated in its Phase I/II study of topical R327 in patients with diabetic foot infections (DFI), and it now plans to expand this programme to additional domestic and global sites. We have raised our valuation to reflect the rolling forward of our estimates and reductions in our R&D and SG&A cost projections, following the most recent quarterly cash flow update. We now obtain a risk-adjusted net present value (rNPV) of A$652.6m (or A$3.20/share), versus A$551.1m previously.

Written by

Pooya Hemami

Analyst - Healthcare

Healthcare

Recce Pharmaceuticals

Supportive advancements on the pipeline

Development update

Healthcare

20 February 2024

Price

A$0.48

Market cap

A$98m

US$0.65/A$

Estimated net cash (A$m) at 31 December 2023

2.4

Shares in issue

203.7m

Free float

56.4%

Code

RCE

Primary exchange

ASX

Secondary exchanges

Frankfurt: R9Q,
OTC: RECEF

Share price performance

%

1m

3m

12m

Abs

(5.77)

13.95

(15.52)

Rel (local)

(8.88)

4.56

(19.37)

52-week high/low

A$0.8

A$0.4

Business description

Recce Pharmaceuticals is an Australian company developing its novel, broad-spectrum synthetic polymer anti-infective drugs for the treatment of several infectious diseases, including sepsis, burn wound infections, urinary tract infections/urosepsis, and diabetic foot infections.

Next events

Start Phase II R327 (IV) study in urinary tract infections

H1 CY24

H124 financial results

February 2024

Analyst

Pooya Hemami OD MBA CFA

+1 646 653 7026

Recce Pharmaceuticals is a research client of Edison Investment Research Limited

Recce Pharmaceuticals has announced several positive developments in recent weeks relating to its therapeutic programmes, particularly for lead anti-infective candidate RECCE® 327 (R327). It entered a strategic collaboration with an Indonesian biomedical company, PT Etana Biotechnologies (Etana), which may support the engagement of relatively lower-cost clinical trial sites with potentially deep patient pools in South-East Asia (SEA). The company also recently disclosed positive efficacy results among five patients treated in its Phase I/II study of topical R327 in patients with diabetic foot infections (DFI), and it now plans to expand this programme to additional domestic and global sites. We have raised our valuation to reflect the rolling forward of our estimates and reductions in our R&D and SG&A cost projections, following the most recent quarterly cash flow update. We now obtain a risk-adjusted net present value (rNPV) of A$652.6m (or A$3.20/share), versus A$551.1m previously.

Year

end

Revenue (A$m)

PBT*
(A$m)

EPS*
(A$)

DPS
(A$)

P/E
(x)

Yield
(%)

06/22

3.1

(11.0)

(0.06)

0.0

N/A

N/A

06/23

4.3

(13.1)

(0.08)

0.0

N/A

N/A

06/24e

3.2

(24.8)

(0.13)

0.0

N/A

N/A

06/25e

8.7

(55.3)

(0.27)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

SEA MoU to support future trials

Recce recently announced that it has established a strategic partnership and memorandum of understanding (MoU) in SEA with Etana, which is designed to facilitate the assessment of Recce’s antimicrobial compounds in late-stage clinical trials in Indonesia and potentially other SEA countries. The collaboration could be fruitful once Recce expands to later-stage global clinical trials, where having access to study sites in lower-cost jurisdictions will be crucial in managing R&D costs.

Phase I/II rapid infusion IV R327 study advancing

Recce’s priority is to advance the intravenous (IV) formulation of R327, particularly for lead indication sepsis (and/or urosepsis) as well as complicated urinary tract infections (UTIs). The ongoing Phase I/II IV R327 study started assessing a 15-minute infusion rate in November, and we expect Recce to provide an update shortly. This trial is expected to inform optimal dosing levels and infusion rates for a subsequent Phase II study in UTI patients, which we project will start in H1 CY24.

Valuation: Raising rNPV to A$652.6m

Given A$4.0m gross cash at Q4 CY23, we expect the company’s funds on hand will maintain operations into Q2 CY24. With the recent 4C statement showing lower than expected cash burn rates, we have reduced our R&D and SG&A cost estimates and we now model that the company will raise A$15m in total funding (down from A$25m previously) before the end of FY24. After rolling our model forward and reflecting reduced cost estimates, we obtain an rNPV valuation of A$652.6m (or A$3.20 per share), up from A$551.1m (or A$2.71 per share) previously.

Collaboration in SEA to support R&D

Recce recently announced that it has established a strategic partnership and MoU in SEA with Indonesian biomedical company Etana. The MoU is designed to facilitate the development, assessment and potential commercialisation of Recce’s broad-spectrum antimicrobial compounds in Indonesia (and in other jurisdictions, as agreed by the parties). Both the Australian and Indonesian governments, as well as Indonesia’s National Research and Innovation Agency, support the collaboration as they seek to improve access to novel infectious diseases drugs to help combat antimicrobial resistance. More than 10% of Indonesia’s population (or c 19.5 million people) have diabetes, which increases the risk of infections including UTIs, one of the indications under active development for the intravenous formulation of Recce’s lead candidate R327, and DFIs, one of the focus development areas for topical R327.

Specific details around the collaboration, including whether any parties or agencies will contribute funding to support future trials involving Recce product candidates (in the regions covered by the collaboration), have not been disclosed. The company is in discussions with Indonesian parties to assess research and clinical projects and it expects to enter into formal agreements in H1 CY24. The Indonesian government has provided access to hospitals for clinical trials, as well as preclinical research facilities. We assume that Etana, which was founded in 2014 and has its own drug development capabilities targeting SEA markets, will at minimum help Recce to recruit clinical trial sites and study investigators in Indonesia, and potentially also other ASEAN member state countries (which collectively cover 670 million individuals). Hence, we see the potential for the collaboration to be particularly helpful to Recce once it expands to later-stage (eg Phase III or pivotal stage) global clinical trial development, where having access to study sites in lower-cost jurisdictions (such as Indonesia and some of the ASEAN countries) will be crucial in managing R&D costs.

We remind readers that in late CY23 Recce secured a landmark commitment from the Australian government to provide up to A$55m in future cash rebates to reimburse upcoming R&D expenditure directed towards the company’s proprietary synthetic anti-infective programmes to June 2025. Notably, this binding agreement with the Australian government’s Department of Industry, Science and Resources (AusIndustry) extends the rebate programme that customarily reimburses 43.5% of eligible R&D expenditures incurred within Australia, to cover the anti-infective R&D activities Recce undertakes anywhere in the world. We expect that the bulk of Recce’s upcoming R&D funding will be directed towards its lead synthetic anti-infective candidate, R327, which is designed to work on multiple levels by interrupting bacterial energy production and cell division and affecting cell membrane permeability, to continuously kill bacteria. In preclinical studies R327 has been shown to be effective against a broad spectrum of Gram-positive and Gram-negative bacteria, including all ESKAPE pathogen bacterial strains (superbugs). The company is advancing the drug candidate as an IV formulation for the treatment of sepsis and for complicated UTIs (cUTIs) and urosepsis, and in topical formulations for burn wound infections and DFIs.

Topical R327 advancing in DFIs after positive efficacy data

Recce announced in January 2024 that its Phase I/II study assessing topical R327 in DFIs met all primary endpoints and it is working to expand the study both domestically and internationally. In October 2022, Recce first announced that it would be assessing its topical (spray-on) R327 formulation to assess mild DFIs, and in December 2022, it received Australian approval to start an open-label Phase I/II study at the South West Sydney Limb Preservation and Wound Research Unit. The study was initially designed to assess topical R327 in this indication in up to 32 patients with mild skin and soft tissue DFIs.

Diabetic foot ulcers are frequent complications of patients who have diabetes mellitus, if the condition is not adequately controlled. Approximately 37 million people have diabetes in the United States, and among them about 2–4% will obtain foot ulceration each year, of which 50–60% will result in DFIs, the leading cause of foot morbidity in diabetic patients. Diabetes is reported to be the leading cause of non-traumatic lower extremity amputations in the US. Recce believes that topical R327 could potentially be useful in mild DFIs (as more advanced cases require systemic antibiotics), and the recently reported results on five patients provide 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. The company reports that the trial met its primary endpoints of resolving or curing DFIs, and the company is now looking to expand clinical trial sites both in Australia and internationally.

Exhibit 1: Summary of treated patients in the Australian diabetic foot infection Phase I/II study

Patient

Application frequency

Age (yrs)/
Gender

Wound location (aspect)

Clinical response

1

Daily

32/M

Left forefoot lateral

Escalated to systemic therapy

2

Every other day

55/M

Right hallux plantar

Infection resolved/cured

3

Every other day

51/M

Left forefoot plantar

Infection resolved/cured

4

Daily

70/M

Left forefoot plantar

Infection resolved/cured

5

Daily

64/M

Right hallux dorsal

Infection resolved/cured

Source: Recce Pharmaceuticals

Of the five treated patients, four of them had their infection cleared and resolved fully with topical R327 therapy. The only exception was Patient 1, who was already on systemic therapy prior to commencing R327. This patient had several comorbidities (including obesity and neuropathic infection) and his treatment was escalated to systemic therapy at Day 15 (ie after 14 days of R327 treatment). It was noted that at this point, the initial redness and swelling of the wound, as well as its overall size, had already reduced versus baseline. However, investigators still escalated the patient to systemic therapy given the complexities of the significant wound and comorbidities. At the 28-day follow-up (around two weeks after escalation to systemic therapy), the infection was resolved and all therapy was ceased.

For all the remaining cases, R327 led to complete cure at the end of the 14-day therapy period, and in all cases, at the midpoint of therapy (Day 7), a significant reduction of the infection was already noted with associated rapid improvement.

While we recognise that thus far the data set reflects only a limited number of patients (five) treated with topical R327 in DFI, the early results are encouraging and we look forward to further updates as the company expands its DFI programme to other study sites. At this point we maintain our existing probability of success assumption and market launch timing forecasts for R327 in DFI.

Current literature suggests that while topical application of antimicrobials may have merit in many cases (such as patients who do not tolerate oral antibiotics), there is limited high-quality evidence on the appropriate indications, dosages and pharmacokinetics and, consequently, treatment guidelines do not encourage the use of any currently approved topical anti-infective for treating mild DFIs. Hence, there is a considerable opportunity should topical R327 in a controlled setting demonstrate clinical benefit (such as the prevention of DFI progression or recurrence), although we remain cognisant of the historical challenges of topical drugs in this indication.

If the company’s Phase II DFI trial expansion (to sites outside Australia) shows continued positive data for R327, we continue to estimate that the company could start a Phase III pivotal programme for DFIs in CY25, which we model could lead to launch in CY29.

We note that in addition to assessing topical R327 in DFI, a Phase I/II trial for topical R327 in burn wound infections, sponsored by the West Australian health department and conducted at Fiona Stanley Hospital, remains ongoing. In August 2023 the company announced that it had completed stage one of this investigator-led study and will proceed with stage two of the trial, which aims to access a greater population and compare the topical R327 treatment in a head-to-head manner against standard-of-care. Further updates are anticipated during CY24.

R327 continues to advance in rapid infusion trial

We continue to view the IV formulation as Recce’s strongest commercial opportunity, specifically the sepsis (and/or urosepsis) and cUTI indications. The company is prioritising development in this area as its continues to advance a Phase I/II study (trial ID ACTRN12623000448640 at anzctr.org.au) assessing the safety, tolerability and pharmacokinetics of R327 IV at faster infusion rates (compared to R327-001, its initial single-dose IV R327 dose escalation trial). The company expects that faster infusion rates could enable broader access to the drug in primary care and acute patient care settings.

The company reported in September 2023 that it had successfully completed a cohort of both males and females at a 3,000mg dose level at an infusion rate of 30 minutes, which the study’s independent safety committee (ISC) unanimously deemed safe and well-tolerated in October. The ISC then permitted the trial to proceed to the next planned dosing cohort of 3,000mg at a 15-minute infusion rate. In November, Recce reported that the first male and female subjects of this cohort had completed dosing (of 3,000mg) at this faster 15-minute infusion rate as part of the trial. To our knowledge, safety results are favourable to date and this cohort has been fully recruited. The ISC is expected to review urine and plasma drug concentration data shortly and we expect Recce to provide an update thereafter.

Based on the data from the dose escalation phase in healthy volunteers of the above trial, optimal dosing levels and infusion rates will be decided for the subsequent Phase II clinical study, which will be conducted in patients with uncomplicated or recurrent UTIs. We expect this Phase II trial to commence in the coming weeks (in H1 CY24) with likely readouts (including ex-vivo analysis) in Q2 or Q3 CY24. We expect insights from both trials to influence the design of the planned separate global (ie including US sites) Phase II multiple-dose efficacy trial in UTIs/urosepsis.

We expect Recce to submit an Investigational New Drug application to the US FDA and then start this separate multiple-dose Phase II efficacy study in UTIs/urosepsis in or around mid-CY24. We assume that if the results of the urosepsis study are positive, the pivotal Phase III programme (and overall commercial sepsis programme) would include all forms of sepsis. We anticipate the start of such pivotal sepsis studies (in Europe and the United States) in H2 CY25 and we maintain our estimate for potential approval and commercialisation in sepsis in H2 CY28.

Financials: Raise extends runway into CY24

Recce’s latest 4C quarterly cash flow statement (for the quarter ending 31 December 2023, or fiscal Q224) showed a quarterly operating cash flow loss of A$2.29m, dampened by the receipt of a A$2.28m R&D tax rebate during the period. The company used the proceeds from the tax credit to pay down advances from Radium Capital (short-term borrowings specifically drawn as advance payments for the company’s anticipated R&D tax credit proceeds, as described in our prior update note). Altogether the company ended the period with a gross cash balance of A$4.0m, and we continue to expect that going forward, the company will receive R&D tax credit proceeds (or grants) at 43.5% of prior-year R&D expenditure levels. During the quarter, the company reported A$3.6m in gross R&D costs and A$1.0m in SG&A-related cash expenses, itself down from A$1.5m from the three months ending 30 September 2023. For the half-year, gross R&D expenditures were A$6.5m, coming below our A$7.8m forecast.

Following the prior 4C quarterly update (for the period ending 30 September), as discussed in our prior update note, we estimated Q124 gross debt at A$3.85m. With the A$2.28m debt repayment in Q224, we estimate Q224 gross debt at A$1.57m and Q224 net cash at A$2.44m.

While H124 financial results are not expected until late February, given the H124 trends from the 4C statement, we have reduced our FY24 R&D and SG&A expense forecasts accordingly. We now expect FY24 R&D and SG&A expenses to be A$20.0m and A$7.6m respectively, down from A$25.0m, and A$10.0m respectively. We have also reduced our FY25 R&D and SG&A forecasts to A$51.2m and A$8.1m respectively, down from A$55.7m and A$10.4m respectively.

We continue to expect R&D expenditure to rise significantly in FY25 (starting H2 CY24), as we project costs for the US Phase II multi-dose UTI/urosepsis study will then start to ramp up, and as cited earlier, we anticipate increasing costs for the DFI programme with global trial site engagement.

We expect R&D spending to increase year-on-year in FY25 given the ramping up of clinical trial activities for each of the four sought indications in our model (sepsis, UTIs, DFIs and burn wounds). Any delays to the start of such activities would reduce our funding estimates over this period but may push back our potential launch forecasts.

We now anticipate FY24e and FY25e net operating cash burn rates of A$24.7m (down from A$32.7m previously) and A$54.9m (A$61.0m previously). We estimate the company’s cash runway lasts into Q2 CY24 and model the company will raise A$15m (A$25m previously) in total additional funding (modelled as illustrative debt) before the end of FY24.

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 in the future prioritises sepsis (and/or urosepsis) and cUTIs and puts its remaining development programmes on hold until the initial R327 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.

We view sepsis as the primary driver of the company’s valuation and expect Recce will prioritise the sepsis (and/or urosepsis) and cUTI indications. Assuming the company continues to develop all four planned clinical-stage indications, we now assume Recce would need to raise an additional A$205m (vs A$225m previously) in total by FY29 before becoming sustainably cash flow positive. As per our usual Edison methodology, we model these raises as illustrative debt.

We note that the company has an at-the-market (ATM) equity financing facility with Acuity Capital that expires in January 2026, which provides it with up to A$20m of standby equity capital. Recce is not required to use the ATM and may terminate it at any time without cost or penalty.

Valuation

We continue to determine an rNPV for Recce, applying a 12.5% discount rate to its four primary development programmes. Aside from reductions to R&D and SG&A expenditures as described above, our core valuation and modelling assumptions are essentially unchanged (see our initiation note for details). After rolling forward our estimates and updating our forex assumptions (primarily assuming A$0.65/US$, versus A$0.66/US$ previously) we obtain a new rNPV valuation, inclusive of A$2.4m estimated Q224e net cash as of 31 December 2023, of A$652.6m (or A$3.20 per share), versus A$551.1m (or A$2.71 per share) previously. The increase in rNPV is largely driven by the reduction in near-term cost estimates as well as the present-value effects of rolling forward our forecasts.

As stated earlier, our model assumes all future financing needs will be raised through illustrative debt, as per usual Edison methodology. If our projected funding need of A$205m is raised through equity issuances at the prevailing market price of c A$0.48, our effective value per share would decrease to A$1.36 (including cash raised via equity).

Exhibit 2: Recce Pharmaceuticals rNPV valuation

Product

Indication

Launch

Sales (A$m) in 2032

NPV
(A$m)

Probability of success

rNPV
(A$m)

rNPV/basic share (A$)

R327 (IV)

Sepsis

H2 CY28

3,599

4,185

15%

624

3.06

R327 (IV)

Complicated UTI

CY29

387

446

15%

53

0.26

R327 (topical)

Burn wounds

CY28

275

268

20%

41

0.20

R327 (topical)

Diabetic foot infections

CY29

128

125

15%

7

0.03

Corporate costs

(75.6)

(75.6)

(0.37)

Estimated net cash at 31 December 2023

2.4

2.4

0.01

Total equity value

652.6

3.20

Source: Edison Investment Research

Exhibit 3: Financial summary

A$(000)

2020

2021

2022

2023

2024e

2025e

Year end 30 June

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

1,122

1,857

3,085

4,311

3,188

8,700

Cost of Sales

0

0

0

(0)

(0)

(0)

Gross Profit

1,122

1,857

3,085

4,311

3,188

8,700

Sales, General & Administrative

(3,136)

(9,511)

(7,677)

(9,779)

(7,591)

(8,078)

Net Research & Development

(2,071)

(5,657)

(6,285)

(7,330)

(20,000)

(51,154)

EBITDA

 

 

(4,085)

(13,311)

(10,878)

(12,797)

(24,403)

(50,532)

Depreciation & amortisation of intangible assets

0

0

0

0

0

0

Depreciation, amortisation & other

(201)

(296)

(188)

(217)

(157)

(374)

Normalised Operating Profit (ex. amort, SBC, except.)

(4,231)

(8,389)

(10,809)

(12,689)

(24,560)

(50,906)

Operating profit before exceptionals

(4,286)

(13,607)

(11,065)

(13,014)

(24,560)

(50,906)

Exceptionals including asset impairment

0

0

0

54

0

0

Other

0

0

0

0

0

0

Reported Operating Profit

(4,286)

(13,607)

(11,065)

(12,960)

(24,560)

(50,906)

Net Finance income (costs)

(31)

94

79

(117)

(249)

(4,368)

Profit Before Tax (norm)

 

 

(4,317)

(13,513)

(10,986)

(13,131)

(24,809)

(55,274)

Profit Before Tax (FRS 3)

 

 

(4,317)

(13,513)

(10,986)

(13,077)

(24,809)

(55,274)

Tax

0

0

0

0

0

0

Profit After Tax and minority interests (norm)

(4,317)

(13,513)

(10,986)

(13,131)

(24,809)

(55,274)

Profit After Tax and minority interests (FRS 3)

(4,317)

(13,513)

(10,986)

(13,077)

(24,809)

(55,274)

Average Basic Number of Shares Outstanding (m)

127.2

155.4

174.1

174.0

191.0

203.7

EPS - normalised (A$)

 

 

(0.03)

(0.09)

(0.06)

(0.08)

(0.13)

(0.27)

EPS - normalised and fully diluted (A$)

 

(0.03)

(0.09)

(0.06)

(0.08)

(0.13)

(0.27)

EPS - (IFRS) (A$)

 

 

(0.03)

(0.09)

(0.06)

(0.08)

(0.13)

(0.27)

Dividend per share (A$)

0.0

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

505

501

439

608

613

417

Intangible Assets

0

0

0

0

0

0

Tangible Assets

505

501

439

608

613

417

Investments in long-term financial assets

0

0

0

0

0

0

Current Assets

 

 

2,739

21,181

12,185

1,947

1,238

1,160

Short-term investments

0

0

0

0

0

0

Cash

2,682

20,873

11,582

1,562

852

774

Other

57

308

603

386

386

386

Current Liabilities

 

 

(885)

(1,078)

(2,447)

(4,850)

(4,850)

(4,850)

Creditors

(885)

(1,078)

(2,447)

(1,802)

(1,802)

(1,802)

Short term borrowings

0

0

0

(3,048)

(3,048)

(3,048)

Long Term Liabilities

 

 

(46)

(100)

(115)

(295)

(13,815)

(68,815)

Long term borrowings

0

0

0

0

(13,520)

(68,520)

Other long-term liabilities

(46)

(100)

(115)

(295)

(295)

(295)

Net Assets

 

 

2,313

20,504

10,061

(2,589)

(16,813)

(72,087)

CASH FLOW STATEMENT

 

 

 

 

 

 

 

 

Operating Income

(4,286)

(13,607)

(11,065)

(12,960)

(24,560)

(50,906)

Movements in working capital

253

144

1,532

(152)

0

0

Net interest and financing income (expense)

(31)

94

79

(117)

(249)

(4,368)

Depreciation & other

201

296

188

217

157

374

Taxes and other adjustments

55

5,218

256

325

0

0

Net Cash Flows from Operations

 

 

(3,807)

(7,856)

(9,010)

(12,687)

(24,652)

(54,900)

Capex and capitalised expenditures

(6)

(76)

(40)

(39)

(161)

(178)

Acquisitions/disposals

0

0

0

0

0

0

Interest received & other investing activities

0

0

0

0

0

0

Net Cash flows from Investing activities

 

(6)

(76)

(40)

(39)

(161)

(178)

Net proceeds from share issuances

6,980

26,338

287

102

10,585

0

Net movements in long-term debt

0

0

0

0

13,520

55,000

Dividends

0

0

0

0

0

0

Other financing activities

(888)

(215)

(528)

2,604

0

0

Net Cash flows from financing activities

 

6,092

26,123

(240)

2,706

24,105

55,000

Effects of FX on Cash & equivalents

0

0

0

0

0

0

Net Increase (Decrease) in Cash & equivalents

2,279

18,191

(9,291)

(10,020)

(709)

(78)

Cash & equivalents at beginning of period

403

2,682

20,873

11,582

1,562

852

Cash & equivalents at end of period

2,682

20,873

11,582

1,562

852

774

Closing net debt/(cash)

 

 

(2,682)

(20,873)

(11,582)

1,487

15,716

28,740

Lease debt

83

127

75

251

251

251

Closing net debt/(cash) inclusive of IFRS 16 lease debt

(2,599)

(20,746)

(11,507)

1,737

15,966

28,990

Free cash flow

(3,813)

(7,932)

(9,051)

(12,726)

(24,814)

(55,078)

Source: Company accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Recce Pharmaceuticals and prepared and issued by Edison, in consideration of a fee payable by Recce Pharmaceuticals. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Recce Pharmaceuticals and prepared and issued by Edison, in consideration of a fee payable by Recce Pharmaceuticals. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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Dentsu Group — Return to organic growth forecast for FY24

Dentsu’s FY23 net revenue was a touch above guidance at Q3, with a better-than-expected operating margin reflecting a good Q4 in Japan, further boosted by a short delay in an IT project pushed out to Q124. The results were accompanied by the news of a change in global CFO, with the role reverting to Yushin Soga, who held the role until January 2023. As anticipated, net revenue outside Japan declined, although there was some trading improvement in the US in Q4. A thorough business review is now in progress, with the next mid-term plan due early in H2. In the meantime, the balance sheet is strong, with leverage reduced to 0.6x EBITDA, and share buybacks will be resumed. We regard the rating as undemanding.

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