Canada’s coterie of life-sciences venture capital firms are raising new funds on the heels of a slew of lucrative buyouts of domestic startups and a decade of strong returns.
But despite their solid performance, they still haven’t convinced the country’s giant pension plans outside Quebec to invest in funds that largely focus on developing Canada’s abundance of home-grown health-sciences breakthroughs.
“Recent success stories may have some institutions wondering why they haven’t been more open-minded to investing in Canadian life-science innovation,” said Anne Woods, managing director, life science and health care, with Royal Bank of Canada’s RBCx innovation banking group.
On Tuesday, Amplitude Ventures is set to announce it has closed its second precision medicine-focused fund since spinning out of Business Development Bank of Canada. Amplitude raised $263-million for the fund, up from the $204-million it raised for its first fund in 2019.
On its heels is Genesys Capital, which has closed two-thirds of its $150-million fundraising goal for its fourth fund. Lumira Ventures, meanwhile, is about to embark on fundraising for its next core fund, after raising US$223-million in 2021, the largest domestic life-sciences venture fund in two decades. Amorchem next month will begin raising its third preseed and seed-stage investment fund, aiming to repeat the $45.5-million from its 2017 fund.
Canada’s life-sciences sector has flourished in recent years after a string of U.S.-listed initial public offerings and US$1-billion-plus takeovers of Fusion Pharmaceuticals, Inversago Pharma Inc., Bellus Health Inc. and Chinook Therapeutics Inc. In 2021, Trillium Therapeutics Inc. and Baylis Medical Co. Inc.’s cardiovascular-device unit sold for 10-figure sums.
Several Vancouver-area companies are aiming to build global life-sciences anchors, including two that developed lucrative COVID-19 therapies: AbCellera Biologics and Acuitas Therapeutics. Their outlook is optimistic despite a pullback by biotech investors globally in the past two years, which has been replaced by a surge of takeovers by pharma giants.
Business Development Bank of Canada this week said its venture investments in life sciences have generated an average internal return of 22.6 per cent over the past decade, well above levels for information technology and clean technology. That includes the internal fund previously managed by Amplitude’s founding partners, Dion Madsen and Jean-François Pariseau, which was BDC’s top-performing venture capital (VC) pool.
“We have few funds in life sciences in Canada, but they’re delivering the goods,” said Jérôme Nycz, executive vice-president with BDC Capital.
For its new fund, Amplitude tapped a core group of Quebec-based investors that have backed the sector for years, including the Caisse de dépôt et placement du Québec, Fonds de solidarité FTQ, Teralys Capital, the Quebec government’s Investissement Québec arm, BDC and Fonds CSN, plus returning investors RBCx and Vancouver City Savings Credit Union. New investors include Northleaf Capital, the B.C. government’s InBC fund and Montreal’s Goodman family.
Amplitude in recent years has opened a venture-creation studio with Germany’s Evotec SE and brought on veteran biotech entrepreneur-investors Nancy Harrison and Ali Tehrani as a venture partner and partner, respectively. It has also funded high-profile Canadian drug developers, including Deep Genomics, Congruence Therapeutics and Repare Therapeutics.
But Canada’s life-sciences venture capitalists say that, despite the success, the continued no-show of Canada’s giant pension funds has limited how much they can raise and deploy.
“There’s a lack of doors open for life-sciences venture across Canada,” said Cédric Bisson, a partner with Montreal-based fund-of-funds firm Teralys.
Mr. Bisson said that if Canada’s life-science VC firms were based in the U.S. or Europe “with the same degree of performance, they would have easily raised double the amount of funds” from local investors. Partners with Amplitude, Lumira and Genesys agreed that was the case.
The limited pool of money has hindered the participation by Canadian life-sciences VC firms in the most promising startups they have backed, as those companies attracted later-stage investment. That means most of the big returns have gone to large American and European investors when companies sell out, including weight-loss drug developer Inversago.
“It’s a missed opportunity for them and the Canadian economy in general,” Mr. Pariseau said.
To make up for a lack of domestic capital, governments have stepped in, funding VC firms through Crown corporations, including Export Development Canada, Farm Credit Canada and BDC, as well as programs such as the Venture Capital Catalyst Initiative.
Some pension funds, including Ontario Municipal Employees Retirement System, Ontario Teachers’ Pension Plan, Canada Pension Plan Investment Board, Public Sector Pension Investment Board and British Columbia Investment Management Corporation have dabbled in venture and growth capital, backing individual companies and funds.
But other than the Caisse, they have largely avoided investing in early-stage startups. They have also stayed away from Canadian life-sciences ventures, with the exception of CPPIB, which has backed Fusion, a Hamilton-based cancer drug developer, and Toronto’s Deep Genomics as part of a global mandate in the sector.
The issue, observers say, is that pension funds typically view potential investments as too small and risky to justify the required due diligence for managers of pensioner deposits, who would prefer to write cheques in the tens or hundreds of millions of dollars at a time. Institutional investors that do focus on the space, notably Fonds FTQ, build teams with deep technical backgrounds and experience to assess emerging medical science opportunities.
Calls for pension funds to put more into VC and innovation are getting louder amid a fierce debate about whether they invest enough at home. The federal government has launched a working group led by former Bank of Canada governor Stephen Poloz that is collecting ideas from pension fund chief executives and board chairs about how to attract more of the large institutional asset managers’ capital to invest at home.
Lumira managing general partner Peter van der Velden suggested pension funds could back the sector through funds-of-funds or collectively pool funds to invest, as “then they wouldn’t have to build infrastructure” to do so in-house.
Fonds FTQ’s life-sciences vice-president, Geneviève Guertin, said that, with the recent ESG push among global funds, “I don’t see a better sector than biotech if you want to have an impact and make sure your dollars are giving you financial and societal returns.”
Sean Silcoff
James Bradshaw