Ipsen has put its proverbial money where its mouth is with its announced plans to acquire rare disease drug developer Clementia Pharmaceuticals for up to $1.31 billion.

Discussing Ipsen’s 2019 plans with analysts on February 16, CEO David Meek declared that the company was looking to add “mid-stage and even later-stage programs” in its areas of specialty. “We are looking for first or best-in-class assets with global rights in our key therapeutic areas of specialty oncology, neurosciences, and rare diseases,” according to a transcript published by Seeking Alpha.

Ipsen would appear to have found what it is seeking where rare diseases are concerned, if it follows through on its announcement yesterday that it will acquire Clementia. Its pipeline of treatments for ultra-rare bone disorders and other diseases with high medical need is led by palovarotene, a Phase III retinoic acid receptor gamma (RARγ) selective agonist indicated for fibrodysplasia ossificans progressiva (FOP), both episodic and chronic-plus-episodic dosing; as well as multiple osteochondromas (MO), and dry eye disease—with possible development in other diseases.

Palovarotene is designed to work by inhibiting excess bone morphogenetic protein (BMP) signaling, which is linked to the progression of FOP and MO. Both are rare, severely-disabling bone disorders for which there are currently no treatment options available.

“The acquisition of Clementia Pharmaceuticals accelerates the ongoing transformation of Ipsen as we are successfully executing on our external innovation strategy to identify and acquire innovative medicines to serve patients with unmet medical needs,” Meek said in a statement yesterday.

Palovarotene is under study in the Phase III registrational MOVE trial evaluating a chronic dosing regimen (NCT03312634), as well as the Phase II MO-Ped Trial in MO (NCT03442985), and a Phase I study launched in October 2018 to assess an eye drop formulation of palovarotene as a potential treatment of dry eye disease.

Ipsen reasons that in acquiring Clementia, it will buy with it a near-term launch opportunity of a largely de-risked asset with limited competition with significant potential to generate more in revenue from additional indications.

Clementia had positioned palovarotene toward the filing of an NDA submission to the FDA in the second half of 2019—a timeframe Ipsen signaled it would stick to. Palovarotene on February 11 won the FDA’s Rare Pediatric Disease designation for FOP, and has previously been granted the agency’s Orphan Drug, Fast Track and Breakthrough designations in FOP, the Orphan Drug designation for MO, and the European Medicines Agency’s orphan drug designation in FOP.

“Through this transaction, we will gain scientific expertise, exceptional talent, and a cornerstone ultra-rare disease drug candidate with rare pediatric disease and breakthrough therapy designations, potential U.S. approval in 2020 and additional indications to follow,” Meek added.

Rights acquired from Roche

Clementia has been developing palovarotene solely since acquiring worldwide licensing rights to the drug from Roche in 2014, in return for paying Roche an undisclosed upfront fee and agreeing to pay clinical and regulatory milestone payments, plus royalties on product sales.

According to a November 7, 2018, regulatory filing, Clementia has agreed to pay Roche up to $11 million tied to achieving regulatory milestones in connection with palovarotene’s three clinical trial programs underway (FOP, MO, and dry eye disease), plus an additional $1 million in regulatory milestone payments for each subsequent indication, if any, and up to a total of $37.5 million in milestone payments tied to achieving sales milestones.

In January 2018, Clementia disclosed, it paid Roche $1 million upon achieving an unspecified clinical milestone for palovarotene the previous month.

Rare disease drugs accounted for €70 million ($79.4 million) or 3.9% of Ipsen’s total 2018 sales of €2.225 billion ($2.525 billion). Among the company’s marketed rare disease drugs is Somatuline® Depot (lanreotide), a long-term treatment for acromegaly for which the company says it is developing extended-release formulations; Nutropin AQ® (somatropin), a pen-administered liquid formulation of recombinant human growth hormone available in more than 20 countries, notably in Europe and Australia; and Increlex® (mecasermin [rDNA origin] injection), a recombinant insulin-like growth factor (IGF-1) that treats growth delay in children.

In 2018, Somatuline generated €846.7 million ($960.8 million) for acromegaly and two oncology indications, up 20.5% from 2017. Nutropin AQ sales fell 11.5% year-over-year to €45.9 million ($52.1 million) due to lower volumes in Europe, while Increlex sales rose 5.3% to €24.1 million ($27.3 million), driven by rising U.S. demand.

“Further developing our presence in rare diseases constitutes a natural path forward for Ipsen,” the company states on its website. “In particular, we will strengthen our portfolio with a particular emphasis on treatments for children.”

The Boards of Directors of both companies have approved the transaction, which is projected to be completed in the second quarter, subject to satisfaction of all closing conditions.

Upfront and CVR payments

Ipsen will pay $25 per share cash upfront for Clementia on completion of the transaction, for an initial $1.04 billion—a 77% premium to Clementia’s 30-day volume-weighted average stock price. Ipsen also agreed to pay deferred payments tied to achieving a future regulatory milestone in the form of a contingent value right (CVR) of $6 per share upon FDA acceptance of the NDA filing for palovarotene for MO, representing an additional potential payment of $263 million.

Ipsen said the acquisition will be fully financed by its existing cash and lines of credit, significantly increasing its level of net debt, however, the company said the deal is expected to have a limited dilutive impact on its core operating margin for 2019 and 2020 given the costs of ongoing clinical trials and preparation for the commercial launch of palovarotene.

As a result, Ipsen has updated its 2019 financial objectives and now expects a core operating margin of around 30% of net sales, down from 31%, excluding other potential investments in pipeline expansion initiatives. Ipsen still expects to achieve sales growth of greater than 13% at current exchange rates, unchanged from earlier guidance.

The acquisition will proceed through a court-approved plan of arrangement pursuant to the Canada Business Corporations Act. Clementia is set to hold a special shareholders meeting on April 9, with approval for the Ipsen acquisition requiring at least two-thirds of the votes cast by Clementia’s shareholders present in person or represented by proxy, as well as the approval of a majority of the votes cast by Clementia’s disinterested shareholders present in person or represented by proxy

“Ipsen’s global commercial presence and capabilities will expedite our shared vision of bringing palovarotene to patients around the world as quickly as possible,” said Clementia CEO Clarissa Desjardins, PhD. “We anticipate a smooth transition of our operations into the Ipsen organization that will continue Clementia’s vision of delivering palovarotene to patients worldwide.”

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