Why is the Recce Pharmaceuticals share price collapsing 26% today?

This pharma share is having a tough time on Monday. But why?

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The Recce Pharmaceuticals Ltd (ASX: RCE) share price has returned from a trading halt and crashed deep into the red.

In afternoon trade, the pharmaceutical company's shares are down 26% to 48 cents.

Why is the Recce Pharmaceuticals share price crashing?

This pharmaceutical company's shares have come under pressure today after it announced the results of an institutional placement.

According to the release, the company has received commitments from new and existing institutional and sophisticated investors for an $8 million placement. This will see the placement of 18.2 million new shares at a price of 44 cents per share.

The release also notes that an unnamed global fund will become a substantial shareholder with a 5%+ interest upon completion of the placement.

In addition, the company is undertaking a $3 million entitlement offer at the same price. The company's directors intend to take up their entitlements in part or in full.

Why is it raising funds?

Recce Pharmaceuticals has laid out its plans for the proceeds of the capital raising. It is as follows:

  • $6 million for clinical trials (significant, unmet medical needs):
    • Phase I/II (I.V.) – UTI/Urosepsis infections
    • Phase II (topical) – Burn wound infections
    • Phase II (topical) – Diabetic Foot infections
  • $2 million for the build out of advanced pre-clinical portfolio (in vitro, in vivo and ex vivo studies).
  • $1 million towards a manufacturing boost, including geographical expansion (USA).
  • $2 million for general working capital (operational costs delivering above).

Commenting on the capital raising, Recce Pharmaceutical's CEO, James Graham, said:

We are thrilled to receive such strong financial interest, particularly among global investment funds. It was important to the Recce team that our shareholders be offered the same opportunity and are pleased to make this available to them. As the world's most clinically advanced New Class of Anti-Infectives at this time it is clear the commercial potential is recognised. With a strengthened balance sheet and multiple clinical trials current, we are now well positioned for the time ahead.

The Recce Pharmaceutical share price is now down 36% over the last 12 months.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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