Here is the interview with Alan Kohler, a very interesting interview. I signed up to a trial to get access. There is a lot of interesting background information included.
Audio here:
https://omny.fm/shows/ceo-interviews/james-graham-recce-pharmaceuticalsTranscript below
James, you’re not the CEO of Recce Pharmaceuticals, I think you’re called Executive Director and Sales and Marketing Director, and it seems to me like the company doesn’t have a CEO, is that correct?
That’s right, we really take a sum of all parts approach and try to operate in a democratic type structure wherever possible. Some would say informally I am the CEO, but I would say all colleagues have a value that we’ll attribute to the company going forwards and respect them as such.
What do you mean, some would say you’re CEO? You’ve got Michele Dilizia, who’s Regulatory Affairs and Microbiology – I mean, she’s actually the co-inventor of the microbiology, right? So, is it you two operating as sort of joint CEOs, is that how it works?
Yes, that’s another way to put it. I guess it depends how one values the company’s prospects. Because I was the first investor and I’ve invested in every capital round to date and introduced all capital and developed all commercial activities in support of the technology, which is an incredible technology and deserves the rightful recognition, I therefore have a little bit of extra say per se when it comes to the path forwards. But we’re only as good as the technology that’s created and certainly Michele – hats off to that.
Did you say you were the first investor?
I was the first investor, yes. It started as a passive investment – what’s not to get excited about when you look to new classes of drugs? And that investment turned into a more active investment, not because the company was mismanaged or anything going wrong, but really as the opportunities became present, it needed more hands on deck and I was willing and able to get in there.
Do you mean the first after the founder of the company, Graham Melrose, your grandfather, right?
Correct, first external investor. He was tutoring me at university, he retired, was really a bit down on his luck and tinkering in his laboratory with his test tubes as any good retired scientist does. One day after tutoring, he said, “Come down to the garage, I’ve got something to show you.” There, he pulls out a vile and says, “I think this thing’s got antibiotic properties, do you want to do something with it?” And that was the beginning, I said, “Yeah, absolutely, Pop.” I helped him get into a laboratory, I funded the first part of the company and as any good Australian start-up goes, it’s family, friends and then friends of friends and beyond. That’s where the story began.
That’s amazing, James – you were just out of school at that point, this is 2008. I mean, where’d you get the money for that?
It wasn’t actually my first investment. I had a previous company which was a folding boat company, really innovative, global distribution model where of course flat-pack boat, you can send it all around the world, non-siloed markets as such. We built that and we sold that over a period of about three and a half years prior. I was on the WA Business Angels Committee and naturally, I was trying to cut my teeth in investing in a few bits and pieces. Some have worked, some have not, but I had a bit of cash as a result of that early success, which was a company called Quickboats…
Sorry to interrupt – the Managing Director of that company, Deryck Graham, has the same surname as you, is he your dad?
He’s my uncle.
He’s your uncle?
Yes, so not all family ventures, but certainly the ones that I have particularly liked have been amongst those I know well.
But you made some money out of Quickboats?
I did.
Right, very good. If I can just delve into more deeper history, Graham Melrose, your grandfather, first founded a company called Chemeq?
Yes.
Which also had a material compound – are the compounds that Recce Pharmaceuticals is based on, the same as those in Chemeq?
No, absolutely not. You’d be familiar with, to get a granted patent it can’t be suggested by prior art. The international patent authorities that have reviewed our patents which have been granted around the world have determined: one, not suggested by prior art, which Chemeq would represent if it was to be anything similar; two, commercially useful; and three, be unique and different, obviously. We are not similar in any way other than Dr Melrose’s background as a very internationally recognisable, capable chemist. That was veterinary E coli and staff infections in pigs and poultry. This is human unmet medical needs. Different compounds, different industries, similar basis from Dr Melrose’s background at Johnson & Johnson.
I see. You mentioned that Dr Melrose was down on his luck or I can’t remember exactly what you said – I presume that’s because Chemeq blew up around about that time, right?
Well, actually Chemeq had blown up some years prior. Graham had left the board, he left when it was around a $600 million market cap company. He had started in his garage, much like Recce had began, and he had retired. He built the company to a peak of about $900 million market cap, it was producing out of a $50 million dollar manufacturing facility and it was selling product worldwide – a fair time to retire, I mean he was in his late-70s at that point. When he retired, the board and management that took over changed the business model overnight. They went from a manufacturing model which was working, to a licensing model, which they as lawyers – I love lawyers, but these lawyers didn’t quite know what they were doing – stripped the manufacturing facility and moved to a licensing model.
No one will take on a licence if they don’t own the intellectual property and the business model was therefore shot. Some three or so years after Graham’s retirement, having not sold a single share and all of his life’s work gone into that, he went down like a good captain or prior captain with the ship.
That wasn’t a very good decision to hang onto his shares, really, come on…
No, I think he was a little bit proud and sometimes proud doesn’t pay the bills, and no, I don’t think it was wise either.
I don’t think you would have done that, James.
I don’t think I would have either! [Laughs] Who knows?
The company ended up going broke because it got sued by the shareholders – I mean, this is all history and not really relevant I guess to Recce, but it is interesting.Look, it is interesting, and just to be clear, management had breached a covenant on a convertible note that had been taken on, and in breaching the note, I personally think the bondholders of the convertible note wanted the technology and pulled the covenant on it anyway. So the suing was actually their trying to get, as they did get, a technology. But they found, like the board at the time, that they couldn’t do anything with it because there was no manufacturing facility in place. It was a really sad story of greed before any real capability, given that when you take a flame away from the fire, the thing falls apart. That was that, and thankfully there’s no connection between the two other than the capable inventory that is Dr Graham Melrose in all his glory as a polymer chemist.
He’s only just, this month, stepped down as Chief Research Officer at Recce Pharmaceuticals. I mean, he must be getting on now?
He has, yeah.
How old is he now?
I probably shouldn’t say but he’s 86, turning 87. He’s extremely capable – you know, as people get older it seems the kids have left home, they’re too old to have any hobbies, most of their friends have dropped off the perch anyway and they pick up their invention books and they think, and he thinks brilliantly. Now and then, one of those thoughts just takes the oxygen from the air and that has been, firstly, the discovery of Recce 327, but more recently the discovery of an anti-viral compound, Recce 529, with its higher affinity for viral cells. Graham has retired, he was very upset by me initially putting that word in the announcement, so we had to change it to resign. But no, it is a retirement based on age and health.
Why was he upset?
He’s just a tough old bugger. I love him but god, you call an old person old and they don’t like it. They say, “No, I’ve still got it, I’ve resigned, I’ve not retired.” “All right, that’s okay, Gramps.” So he’s happily in the background and we still have an excellent relationship with him.
Okay, so on these two compounds, 327 and 529, you put out a release in – I can’t remember now. That’s right, you put out one release on the 16th of July saying that they had both been picked up by Path BioAnalytics and then you had to put out a correction saying it wasn’t both of them, it was only 327 and not 529. And your share price has taken off about this because it was all about finding treatment for SARS-COV-2, the virus that causes COVID-19. But it seems to me, looking at your website, that 327, the one that they’re investigating, only deals with bacteria, not viruses, and 529 is the one that deals with viruses, so how come it’s COVID-19?
First and foremost, we are an infectious disease company and for simplicity, because of this new class of antibiotics – antibiotics, typically bio, being natural, biotic. There is nothing natural in our compounds. We are primarily focused on interacting with the proteinaceous layer of bacterial cells. We’ve since discovered a high affinity and interaction with viral cells. The challenge in our communication is, when you say to the world, “we’re an antibiotic…” people get it. But you say to the world, “Oh, we’re some new category that you’ve never heard of and we’re going to try to make you understand it,” it’s too damn hard.
So we just instead collectively call it an antibiotic, but as I say, nothing bio in our biotics and therefore, with our synthetic mechanism of action are able to overcome natural processes and have what we want, not what’s given to us from nature. We do have that capability against a broad range of infectious diseases in both bacterial and viral cells.
But James, I look at your website under ‘Product candidates’ it’s very clear, it says, “Recce 327, bacterial infections. Recce 529, viral infections.” Like, it isn’t mucking around, it’s clear.
And it is, that’s correct. They both have early indication, excellent indication in many instances against a range of them, that yes, one is bacterial focused, one is viral focused. Now, could one say that one won’t work against the other? No, but you do have to product separate and that’s what we’ve done there. Just to be really clear on the COVID front. CSIRO initially took on two of the candidates, 327 and 529 – this is the Doherty Institute as well – but with the outbreak of COVID in Victoria itself and some other challenges amongst the organisation in regards to their human resources able to only take on so much work at one point in time, we decided with them to drop one compound and send instead, two compounds to one university – I shouldn’t say the name of it, a significant university in the United States, that could work in parallel.
So we have two COVID programs working in parallel and yes, Australia lost the opportunity of the better anti-viral compound, but it’s not to suggest at all the 327 won’t have inter-reaction. I think it will, but to what degree we’re still to find out.
We’re talking about potential treatment here, right? It’s obviously not a vaccine
Correct, no.
What exactly does it do to either a bacterial infection or a viral infection?
The compound, if you can think of it, it’s a polymer. A polymer is many beads stuck together in a structure or a formulation. Some of those beads in the structure have a high affinity or high attraction to the proteins of a cell wall, so they moved away from healthy cells to be attracted to the protein of bacterial cells. What makes bacterial cells different to any other healthy human cell in the body is their what’s called ‘high metabolic processes’ or ‘internal cellular pressure’. We cause, through a physico-chemical inter-reaction – and I can get really technical – those cells to burst. We cause bacterial cells to burst and we do not harm any other healthy human cell.
When it comes to viruses and the virus invades a human cell, it too suddenly creates that very similar cellular structure. It’s called a protein envelope and we interact with that protein envelope through a very similar mechanism of action, as we do with bacteria and we therefore get that outcome of being able to get on top of that infection. We’re not a vaccine, we’re not a preventative per se, but as a curative to get on top of the infection that’s there we’ve shown great capability.
Have these things been through all the phase trials?
No, so this is entering first phase one human studies in Australia in the second half of the calendar year for IV administration, so for primary focus of sepsis. But recognising COVID is increasingly an intravascular disease, it may have application to that as well. But we also have a pending human ethics trial committee submission in a West Australian hospital, or I should say under the WA Health Department, for topical administration, particularly focused on burn wounds patients. You can consider it as kind of a spray-on solution. So, two clinical trials anticipated within the near six months, both of those is Recce 327, the only qualified infectious disease awarded FDA product in the world for sepsis. If we do have a good indication there, consistent with the indications in all animal studies to date, the sky’s the limit.
Just say that again, it’s the only FDA approved – what was that? Explain what that is and what the significance of that is.
Absolutely, Alan – and I’m sorry if I’m getting a bit technical. The FDA has a legal designation which is called a ‘qualified infectious disease designation’, it’s actually a law over there. That is under what’s called the GAIN Act, Generating Antibiotic Initiatives Now Act. What that is therefore to do, is to provide incentive for new antibiotics to be created or new anti-infective drugs, because there hasn’t been a new class in over 30 years. We, under that legal legislation, were granted qualified infectious disease designation for Recce 327. What that means is it provides us with 10 years of market exclusivity from time of approval above and beyond our patent position, and that time of approval, that 10 years of market exclusivity, being government-backed.
Furthermore, we have expedited regulatory review all the way through to that intended market approval. That facilitates that pathway over there which is about 48 per cent of the world’s antibiotic market and on a dollar basis, 3 per cent here in Australia.
It gives you 10 years exclusivity from approval…?
Correct.
Exclusivity of what?
Sorry, focused on sepsis, sepsis being blood poisoning.
I see. You would be the only new antibiotic allowed for sepsis for that period?
Essentially so, yes. We, to my knowledge, are the only company in the world that has that designation for sepsis.
But first, you’ve got to get through all the phase one, two and three trials, right?
Yes, that is correct, yes, but with the expedited review that facilitates that.
Well, that in itself is 10 years away, isn’t it?
Phase one will be about 12 months. Phase two would probably be about 18 months. The beauty about our space, unlike all other spaces, is what is the problem? The problem is bacteria. Bacteria or viral cells are easy to monitor, if they’re there, it’s not working. If the count is going up, it’s not working. If the count is going down, you are working and therefore, is it working better than another drug or whatever the situation may be. The time to get a clinically significant outcome is small. The cost in doing it is small and therefore it reduces the otherwise typical drug development pathway.
Right, but still it’s five years off. I mean if it’s not 10 years, it’s five years.
No, no. I can show you plenty of evidence, you’ve got about a 12 months phase one, 18 months phase two. If you’d need to do a phase three as opposed to given it’s an unmet medical need, go into market straight away and do post-market monitoring, you’re talking maybe another couple of years. Three and a half years is what I’d anticipate, but call it five if you want. The average patient in sepsis is half a million US dollars each to the private health insurer over there. It’s well worth the journey.
Yeah, no I’m not saying it’s not, absolutely not. But all of this is for sepsis, do you have any trials booked for viruses?
The viral trials at this moment are pre-clinical, so they are in laboratory and then into animals, ferrets, that is. That is done in the United States as well as here in Australia in a Melbourne institute.
That’s what you’ve announced this month, is that right?
That’s correct, yes. The topical human ethics submission I mentioned earlier, that’s a collapsed phase one/phase two, so that would likely be even closer to market if you think of the overall position. I’d call it a capital growth journey rather than a dividend play for some time ahead.
Of course, but the topical is not for viruses, obviously, that’s for burn infections?
Correct – wound infections in general, but with a particular emphasis on burns.
Well, obviously the market’s got excited about viruses and in particular, COVID-19. What’s the likely path forward on that? I mean, you haven’t started phase one trials on any of those things yet, have you?
We haven’t started phase one trials, but we have done a number of viral studies in animals in, I believe, rats by example. And we used a viral cell that was as close to coronavirus as we humanly could find and we actually had what’s called a BLOQ, which is a below limit of quantification – or keeping it really simple, a cure. These animals that had influenza respiratory virus, so in their lungs in a very high concentration of viral cells, we entirely eradicated the virus and they were happy little animals thereafter. The indication of potential in animals was very good and we now need to continue that to see if we can firm it up with the potential of bringing it into humans. We are not a COVID pop-up shop. I call the COVID side of things part of our infectious disease portfolio.
Right, but your share price has popped up. [Laughs]
Well, it was doing that before we mentioned COVID as well. The recognition of the importance of new medicine, the value of this whole new class of drugs, I think is something that I’ve invested in every round to date by example. I see it, other people are starting to see it, we’ve pushed it for many years, what’s not to be excited about.
What’s the next step? Is it, these poor ferrets get infected with COVID-19?
Yeah, well, they do, they’re in a bunker, but due to the danger of the disease itself, it’s about four floors below ground surface. In Australia, I think it was CSIRO’s Disease Preparedness Institute, that will be going ahead and equally, in parallel, in a prestigious United States university as well. Between the two studies, I’d anticipate news flow of one form or another. I’m quietly confident, but given the challenge that is, we’ll have to wait and see.
Can you tell us about your cash position? And I note, by the way, on that subject that your CFO is not full time, he actually works for Pitcher Partners.
He does, but he invests as if he’s an executive, it’s amazing. I’ve worked with quite a few CFOs along the way, they’ve typically got a very conservative view on things, a risk appetite of a pensioner I’d even say. He’s invested about $100,000 dollars of his own money in us, and actual capital, I’m not talking sweat equity there, true capital invested. And he is a wonderful support with his CFO team.
Okay, so how much cash are you burning per month?
We have a fixed monthly burn rate of about $130,000 dollars a month. It’s our variable costs on top of that such as the COVID program, say, or our topical burn study or sepsis. That greatly affects our month on month activity. If I step back to our recent quarterly, which is from the quarter just prior to now, we had about $4 million dollars cash at bank. We have about two and a half to three million dollars of R&D credits. When you consider cash at bank, plus the R&D credits which were rapidly capitalising on at this moment, we’ve got some small millions in the bank at this moment which is fine for our near-term purposes. We’re not raising capital, we’re delivering on our objectives and I think that will greatly affect our prospects going forwards.
You’re not going to take advantage of the $1.30 share price?
No, I’m taking advantage of the opportunities we’ve created. I think we have a number of ways to create further opportunity. We’ve got money, we don’t need money at this moment and doubling down on what we think our near-term opportunities are, I’d rather get a little further ahead.
Okay, thanks very much for talking to us, James.
Pleasure, Alan.
That was James Graham, the Executive Director Marketing and Business Development for Recce Pharmaceuticals.
(20min delay)