Canada: Canadian Public Capital Markets – Punching Above Their Weight In The Life Sciences Sector

Introduction

In recent years, the Canadian market has evolved into a leading platform for the financing and listing of innovation companies on Canadian stock exchanges. A major driver behind this growth has been Canadian investors' appetite for investing in early stage and growth oriented public companies. Canada is emerging as a hub - or you might even say a network of hubs in Toronto, Vancouver and Montreal - for the innovation sectors. Increasingly Canadian companies are choosing to stay in Canada and invite investors from Silicon Valley, Boston and other high profile tech markets to participate in private round financings, initial public offerings (IPOs) and follow on offerings here in Canada. What Do the Market Figures Tell Us About Innovation Companies

Listed in Canada?

While enjoying a formidable combined market capitalization of over $2.3 trillion, the TSX and TSX Venture Exchange (TSX-V), the exchange for public venture companies (in combination referred to as TMX) is indeed more than the world's leading mining, energy and resources market. TMX boasts a vast market for mining and energy companies, with a combined market cap of $412 billion, and includes some of the world's iconic mining and oil and gas enterprises. But these figures hardly tell another amazing story of how the Canadian market has evolved to become a significant ecosystem for hundreds of innovation companies in Life Sciences, Clean Tech and Renewables, Technology and Communications and Media, with a combined market cap of $351 billion.

During 2014 and 2015, 69 new technology and innovation companies went public on the TSX and TSX-V, more than any other industry sector and they raised over $17 billion in equity during the same period.

For investors, there are currently over 420 technology and innovation companies listed on the TSX and TSX-V, offering the opportunity for diversification and to participate in numerous fast-growing businesses–many with global operations.

During the period from 2009 to 2015, TSX and TSX-V listed issuers in the innovation sector completed 178 IPOs and new listings, raised $34 billion and experienced a $128 billion increase in market value.

The exciting data point within this is that Life Sciences companies listed on the TMX have a combined market cap of over $80 billion. While the vast majority (92%) of these companies are pharma businesses, they also include biotech, healthcare facilities, healthcare services and healthcare technology.

What the TMX Has to Offer

The TMX is the fourth largest exchange in the world measured by the amount of capital raised by its issuers. It only trails New York, NASDAQ and Hong Kong. So far in 2016, TMX's shares have outpaced all but two of its 26 peers in the Bloomberg world exchanges index.

The TMX is home to more than 127 Life Sciences companies and in 2015, life sciences companies on the TSX and the TSX-V raised $6.5 billion of capital which includes the $1.8 billion financing of Valeant Pharmaceuticals International Inc. TMX-listed life sciences companies had good investment coverage with approximately 80% of them enjoying analyst reporting. This in turn contributed to better informed investors and traders who were behind the $5.3 billion worth of life sciences companies' shares that were traded on the TMX last year.

The Bought Deal – A Uniquely Canadian Concept

And speaking about innovation, Canada's regulatory regime allows public companies to raise capital through the unique "bought deal" offering in which an investment bank commits to buy the shares of a company and resells them into the market, thereby providing the company with a guarantee of sorts that its financing will be successful. This flexible mechanism is routinely used by issuers to fund growth, as well as by significant shareholders to obtain liquidity, but it is a "made and used in Canada only" mechanism and has not (at least not, yet) been adopted in the U.S.

Canada-U.S. Financing Flexibility

Also of note is that securities regulators have an accommodation in place for Canadian public companies looking to raise capital from U.S. based investors. Generally, if a company has been public in Canada for at least a year and has a public float of more than US$75 million, it may take advantage of the multijurisdictional disclosure system (MJDS). The MJDS permits a company to raise capital in the U.S. with minimal U.S. regulatory and consequential timing risks. Note, however, that a "Southbound MJDS" company must still qualify as a foreign private issuer under US law at the time it files for its offering in the U.S. and annually thereafter.

A Canadian issuer not currently contemplating a U.S. financing may nevertheless also list on a U.S. exchange. In addition to broadening the investor base, a U.S. listing may provide competitive advantages: in a U.S. acquisition, shares may be offered as consideration to shareholders of the target company. Southbound MJDS companies do not face significant additional reporting obligations as a result of a U.S. listing.

Recent examples of Successful Life Sciences Companies Raising Money through Public Offerings

  • Titan Medical Inc., a leading developer of a patented surgical robotic system for use in minimally invasive surgery, went public through the TSX-V's highly successful Capital Pool Company (CPC) program in 2008 before the company had developed a functional prototype of its device. The company has, since then, raised over $100 million through a number of public and private offerings for the development of its SPORT surgical system, and it is now listed on the TSX. The SPORT was recently demonstrated at a leading healthcare conference in Boston.
  • Cynapsus is a specialty, pharmaceutical company developing and preparing to commercialize a Phase 3, fast-acting, easy-to-use, sublingual thin film for the on-demand management of debilitating "off" episodes associated with chronic, progressive neurodegenerative diseases characterized by motor symptoms. Cynapsus originally went public on the TMX through the CPC program and it has raised approximately $150 million through private placements and public offerings over the past 12 years, including US$72.5 million raised through its public offering in the U.S. in 2015. Cynapsus is an excellent example of how a Canadian company may go public and raise substantial capital in the Canadian market and then when it reaches a size and stage of its technology that U.S. investors demand, complete a "re-IPO" in the U.S. with a concurrent co-listing on the NASDAQ, while remaining a Canadian corporation and maintaining its listing on the TSX.

Having regard to the compelling market statistics, Canadian life sciences companies are well advised to explore the advantages of a public listing in Canada.

About BLG

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