Ritter Pharmaceuticals Inc., a Century City biotech firm seeking regulatory approval for its lactose intolerance drug, raised $20 million in its initial public offering last week and will apply the bulk of the proceeds to midstage clinical trials.

The firm, which claims its treatment has the potential to become the first prescription drug for treating lactose intolerance and sees a $1.2 billion U.S. market opportunity for the product, debuted at $5 a share and closed its first trading day essentially flat at $4.96.

“We would have rather gone out at $10 a share, but our large investors made it very clear they felt the $5 price was where it should be,” said Chief Executive Michael Step. “Our market cap and valuation came in very similar to other companies of our size and stage of development.”

He referenced Evoke Pharma Inc. of Solana Beach and San Francisco’s Jaguar Animal Health Inc., both of which are developing of gastrointestinal medications and trade around $5 a share.

The company is chasing a market for treating lactose intolerance, an impaired ability to digest a sugar found in dairy products that affects 30 million to 50 million Americans. Most patients try to avoid dairy, which is hidden in many foods; take supplements before eating dairy to help break down lactose; or eat lactose product substitutes, which might not taste the same or aren’t always available.

If approved, lactose intolerant people would take Ritter’s drug two times a day for a month and then be able to eat dairy without taking further medication for the foreseeable future.

“It’s a phenomenal gift for these people,” Step said.

Ritter sold an over-the-counter version of its product in 2005, but quickly realized a pharmaceutical medication would be a better route.

The first product was a dietary supplement, and the Food and Drug Adminsitration limited Ritter’s ability to make claims about the product’s efficacy. It was also difficult to manufacture and distribute because the supplement was made with probiotics that have a limited shelf life.

The new product is a powder that dissolves in liquid, like the old one, but it’s made from sugars rather than probiotics.

Before going public, the firm raised $20 million from family, friends and venture capital firms Javelin Venture Partners and Stonehenge Partners. Step estimated it will take 18 months before the firm sees data from its upcoming clinical trials.

For reprint and licensing requests for this article, CLICK HERE.