The Next Step

---

In December 2005, Cita NeuroPharmaceuticals Inc. (Mississauga, ON) was acquired by Winnersh, U.K.-based Vernalis — yet another example of the frequently seen cross-border M&A deal.
It’s not exactly what former president and CEO Anthony Giovinazzo saw for the company. But with Canada’s current investment climate, he also didn’t see much alternative.
“The hope I had was that, strategically, we would get to the point of having several clinical assets in late-stage development, that we would have had a public entity, that we would have had currency value in our stock, and that I could have taken the second step in the strategy which was to go out and acquire . . . two or three companies and create a Canadian-based neuroscience company of some real substance,” Giovinazzo says.
“That is my long-term goal, but I keep banging my head against a wall.”

Getting Organized
Cita NeuroPharmaceuticals originally started out in 1997 as Go Bang Therapeutics Ltd., a spin-off of Queen’s University (Kingston, ON). It changed its name to GB Therapeutics Ltd. in 2002, and again in the spring of 2005 to Cita.
The five original scientific founders had diverse backgrounds, Giovinazzo says, primarily focused in medicinal chemistry and neuropharmacology. Their goal was to work in the area of nitric oxide mimetics — copying what nitric oxide does chemically and physiologically in the body — with applications in neurological and cardiovascular diseases.
“Over a period of roughly four years, (the scientific founders) raised small amounts of money from seed investors in Canada, and they were themselves the full-time management team, taking on whatever spare time they had from their responsibilities at the university,” Giovinazzo explains.
In 2002, VenGrowth Advanced Life Sciences (Toronto, ON) conducted due diligence, and contacted Giovinazzo about taking on a consulting position to help with the company’s business plan.
“(VenGrowth) wasn’t convinced that the company had organized itself to choose the best strategy (going) forward and to manage and execute (it) accordingly,” he says.
Giovinazzo worked closely with the founding scientists, as well as Queen’s University’s tech transfer office, Parteq Innovations (Kingston, ON), to redirect the company’s focus to the central nervous system (CNS). He took over the company’s management in November 2002.
The company decided to look at in-licensing drug candidates that dealt with primarily with the pain market.
“The rationale was that neurodegenerative disease drug candidates would take longer to go through the clinic and would be more expensive, and pain drug candidates would be less expensive to take through the clinic and would move through the clinic more rapidly,” he says.
The company had its eyes on a promising pain compound at an Italian company, Chiesi Farmaceutici (Parma, Italy).
In July 2004, Cita in-licensed the neuropathic pain molecule, and was also interested in a Chiesi Parkinson’s candidate. Chiesi, however, wasn’t interested in selling.
“They were reluctant at that point to engage in a negotiation, as they wanted us to demonstrate that we would be able to accomplish what we had indicated . . . that we would in fact accelerate the neuropathic pain molecule and add value both from a clinical perspective and a commercial perspective,” Giovinazzo explains.
He says Cita was able to beat out competing bids and bring Chiesi to the negotiation table by doing just that.
“Having demonstrated that we could in fact add value to the pain molecule and accelerate it through the clinical process . . . we went back and began to negotiate the rights to the Parkinson’s molecule,” he explains.
The company sealed the deal by taking a unique approach.
Cita signed a deal with Chiesi that provided the Italian firm with attractive royalties and co-marketing rights, on top of which Chiesi staff were offered roles on a joint management team that would monitor the molecule’s progress on a quarterly basis.
“That was very significant as a strategy on our part, because all other comers had been indicating that once they acquired the molecule, it was theirs and Chiesi would no longer have any input or insight into what was going on,” Giovinazzo says.
These two candidates went on to become CNP3381, Cita’s pain molecule, and CNP1512, the Parkinson’s molecule.

Financing Struggle
With these two lead candidates in hand, Cita had products in clinical trials, and was being courted by several investment bankers.
Giovinazzo says Canada’s limited capital base, and the need to raise funds to push these candidates through their respective trials, Cita decided to pursue an IPO.
Partway through the process, Giovinazzo received a call from a European investment banker letting him know a company, Vernalis, was interested in acquiring Cita.
After extensive bi-lateral due diligence, the deal was completed in December 2005.
Though some in the industry have concerns about the number of Canadian biotech and pharma companies being acquired by large, foreign firms, Giovinazzo points out that while it’s easy to scoff, it’s a different situation when you’re on the other side of the fence.
“What do you do if you can’t raise the money in your own country?” he asks. “In our case, we weren’t seeking to do that. We were hoping to go public, but we were going public in the middle of the summer, and it looked like our valuation was going to be substantially lower than what we were offered.”
Giovinazzo says that while the company was looking to raise funds through an IPO, the deal with Vernalis proved to be more attractive.
Considering the company’s next major milestone was to either push one candidate through Phase II, or the other through Phase III, finding sufficient funding was essential.
“When the board and I sat down to look at the option of taking the M&A or the IPO, it became clear that the M&A deal had much greater value and confirmed resources to complete the clinical trials process,” Giovinazzo says.
“That is the story of a number of Canadian public biotech companies,” he says. “They’re having to raise money at the most inopportune time, which feeds a cycle of, ‘why invest in biotech because I don’t get the value I’m looking for.’
“And (it) further feeds this myopia of, ‘I’d rather invest in biotech in the U.S. or Europe because Canadian companies don’t seem to have what it takes to create value.’ It’s a very vicious circle.”
While the deal with Vernalis was beneficial for Cita in terms of dollars and cents — Vernalis agreed to pay $29.5 million US with Vernalis shares and through the acquisition of Cita liabilities, along with an additional $35 million US in shares or cash to be paid upon the completion of certain milestones — it also ended up being positive in other ways.
Vernalis plans to operate Cita as a wholly owned subsidiary, keeping the Canadian office open, and taking advantage of the Canadian staff’s neurological expertise. Additionally, Vernalis will continue the planned trials — a Phase II for CNP3381 in diabetic neuropathic pain and a Phase III for CNP1512 in Parkinson’s disease, both scheduled to start later this year.

The Road Ahead
As for Giovinazzo, he’s keeping his options open.
With more than 27 years in international merchant banking and venture capital — including having served as the president of MDS Capital Corp.’s (Toronto, ON) neuroscience partner’s fund — and being involved with several startups in the past, Giovinazzo is looking to put his extensive experience to use.
Giovinazzo says he’s been approached by several companies to take on senior management rolls such as chief business officer or CEO, but is also thinking of taking his experience with Cita and using it to help other companies.
“I’m also thinking about doing this again,” Giovinazzo says, noting that he has been approached by several mid-tier European and U.S. pharmaceutical companies that have CNS assets.
He is also interested in joining a board of directors for either a late-stage private or public company, “In the hope, as a true independent director with appropriate accreditation and significant experience in the biopharmaceutical field, (I’ll) be able to help other teams and other boards steer the course,” he says.