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Here's Why Clementia Pharmaceuticals Rocketed Higher Today

Brian Orelli, The Motley Fool

What happened

Shares of Clementia Pharmaceuticals (NASDAQ: CMTA) are up 74% at 11:55 a.m. EST because the Canadian biotech is being bought by the French drugmaker Ipsen for $25 per share. The deal also includes a contingent value right (CVR) that could garner investors another $6 per share.

So what

With just one drug in clinical development, Clementia looks like a prototypical biotech that was built to eventually be acquired. The company is developing a drug that stimulates the retinoic acid receptor gamma called palovarotene, which it's testing as a treatment for two rare bone disorders called fibrodysplasia ossificans progressiva (FOP) and multiple osteochondromas (MO), as well as other diseases.

In the second half of this year, the company plans to file for FDA approval for the occasional treatment of FOP when it flares up, setting up a potential approval next year. It's also testing the drug for chronic dosing for FOP in a late-stage study.

Further back, palovarotene is in a midstage clinical trial for MO and an early stage study for dry eye disease. It also has a few other molecules in the same class as palovarotene that are in preclinical development.

The aforementioned $6 CVR will be paid out after the FDA accepts the marketing application for palovarotene for the treatment of MO.

Hand shaking

Image source: Getty Images.

Now what

Clementia's shares are trading above $25, suggesting either investors think there's a good chance that palovarotene will work in MO and the CVR will payout or they're hoping that someone will come in and outbid Ipsen. Considering the substantial premium Ipsen is paying, the latter seems unlikely, but certainly not impossible. This is the biotech industry, after all.

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Brian Orelli and The Motley Fool have no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.