Clementia to Launch IPO, Despite So-So Phase II Trials and Investor Skepticism

August 1, 2017
By Mark Terry, BioSpace.com Breaking News Staff

Montreal, Quebec – Clementia Pharmaceuticals is just about ready to launch its initial public offering (IPO), but some analysts are skeptical.

Clementia plans to raise over $100 million with 7.15 million shares of common stock at $13 to $15 per share. Its pending ticker is CMTA. The lead underwriters are Morgan Stanley and Leerink Partners, and Wedbush and BTIG Research as co-managers.

There are a couple reasons some investors and analysts have expressed concerns. The primary one is the company’s lead product, palovarotene, which is being developed to treat Fibrodysplasia Ossificans Progressiva (FOP), an ultra-rare disease that can lead to severe movement restriction and death. The other condition is Multiple Osteochondroma (MO), another rare disease, this one that causes benign bone tumors.

The problem is that the company tested palovarotene in a 40-patient Phase II trial, but it failed to show statistically significant results. Clementia moved ahead into a Phase III trial based on data hinting that the drug cut formation of new extraskeletal bone by 50 percent. And in patients who did grow extra bone, the volumes were about 70 percent lower than those in the placebo group.

This is not particularly dazzling data to pin an IPO on, although it’s interesting data. Roche had originally developed the drug, testing it on more than 800 people, but abandoned it after it failed to significantly improve lung density in moderate-to-severe emphysema patients.

Donovan Jones, writing for Seeking Alpha, said, “The company has a promising pipeline of treatments with potentially broad applications, but the lack of statistically significant results in trial to date leads me to suggest investors AVOID the IPO and watch the company for its 2019 initial Phase III results.”

Most of the money raised would go toward clinical trials. The company has indicated that $65 million would go towards its Phase III trial of palovarotene for FOP, $25 million for the Phase II/III trials of palovarotene to treat MO, and about $10 million will go toward Phase I and Phase II trials of palovarotene for dry eye disease. The rest, if there is any, would go towards working capital and expenses.

Another issue that might make investors wary is the company’s deficit. It has no revenue at this point, but it has a deficit as of March 31, 2017, of $190.8 million. A familiar story with small biotechs that don’t have products on the market.

Another concern is the ability to find enough patients for its clinical trials. Clementia admits it is new to Phase III clinical trials and has limited experience in preparing and submitting regulatory filings. But the diseases being investigated are very rare, as well, and may have difficulties finding enough patients to fill out its roster. Kim Khan, writing for Heavy, says, “Compliance is a very difficult part of drug development and the pharmaceutical industry is turning to the cloud to make it more reliable and efficient…. Second, the advantage of having the only drug for a rare disease is the rarity itself. ‘The number of patients suffering from FOP and MO is small and has not been established with precision,’ Clementia said. If it’s smaller than expected, then there may not be enough patients for clinical trials to be completed. And if the drug is approved, the revenue may be very small.”

The upside is that if the drug, a RARy agonist, is proven to be effective, it may be effective in a larger number of indications, such as fibrosis and scarring, seen as in dry eye disease.