He's young and green, all of these things take time.
First, I would have a professional saddle fitter out to evaluate your saddle fit. Since he is so sensitive, a very slight ill fit might cause some of this behavior.
Next, I would add a ThinLine pad under your saddle, half pad
or contour pad
. These pads are thin, so as not to change saddle fit, but they are very shock absorbing, encouraging the horse to round more readily and work through his back. A ThinLine really improved my sensitive TBxArab gelding.
Finally, just keep working. Be as soft in the saddle as you can. Don't punish or pull him back hard for his big transition, just keep transitioning until he gives you a nicer one, even if it's just slightly nicer, and praise him like crazy for it and quit for the day. He is young and green, and it takes a LOT of muscle and balance to give those nice soft transitions. They will come with time. Some work over trot poles and on trail rides will help build his muscle and improve balance.
Since he is a bit "out there" and gets distracted, I would consider his diet and turnout schedule.
He should be getting as much turnout as possible, preferablly 24/7 with just stall time to eat. He needs time and room to run off any of that nervous energy. It helps if he's in a large paddock or pasture with a friend or three.
If he's on any grains, sweet feed, or pelleted feeds, I would consider taking him off of them. Diets high in sugars and starches can cause "ADD" type behavior in horses. Switch him over to a more natural, forage based diet consisting of lots and lots of grass hay or Timothy hay and a concentrated feed like a ration balancer (Triple Crown 30% is one of the best, you only feed 1-2 lbs a day for full nutrition) or a good broad spectrum vitamin/mineral supplement mixed with some flax and beet pulp or alfalfa pellets (add a little water to make it all stick). A change in diet REALLY improved my gelding's overall behavior and work ethic. He also keeps his weight on now with a LOT less feed (he was my "hard keeper").