Recce Pharmaceuticals (ASX:RCE) entered into a non-binding term sheet with a Middle Eastern pharmaceutical company for a proposed 10-year exclusive licensing arrangement covering the commercial sales and distribution of Recce's proprietary R327 topical gel for the treatment of diabetic foot infections, according to a Wednesday Australian bourse filing.

The agreement covers Saudi Arabia, the United Arab Emirates, Kuwait, Oman, Bahrain, Qatar, Iraq, Egypt, Algeria, and Morocco. Recce will be responsible for the manufacture and supply of the R327 topical gel.

The agreement is expected to include an upfront signing fee, together with milestone payments totalling up to $3.5 million. Recce is also expected to receive 30% of the net selling price, with an additional 6% annual royalty on net sales of over $50 million per year. The proposed selling price is $1,500 per treatment, subject to agreement with the regulatory authority in Saudi Arabia.

The parties are collaborating to finalize and execute a definitive agreement.

Its shares rose 10% in recent trading on Wednesday.