VC Investment Activity in Canadian Life Sciences Companies: A Commentary

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VC Investment Activity In Canadian Life Sciences Companies is a special contribution from David Kornacki, CVCA’s Associate, Research & Product

With CVCA’s Q32019 report just around the corner, I wanted to take a moment and dive a bit deeper than usual in a sector. More specifically, I wanted to zero into the trends we’re seeing in the life sciences sector. Why? Since 2013, life sciences has always been second behind information and communication technologies (ICT) in our data comparing industries. This alone is reason enough for a closer look.

Slide 12 from the CVCA’s H12019 Venture Capital & Private Equity Canadian Market Overview. View the Full Report Here.

Although the number of deals is not back up to the all-time high of 112 deals in 2015 (yet), as of 2018, VC investment activity in the life sciences industry has been increasing year-over-year on average, with the average yearly percent change in deals of +15.3% and +23.5% in dollars invested since 2013. By comparison, the ICT sector has only averaged a yearly +6.3% change in deals and a 19.3% change in dollars invested in the same 2013 – 2018 time period. If the first half of 2019 is indicative of the remainder of the year, 2019 is on pace to surpass 2018 figures.

Unsurprisingly, average investment size in the life sciences has been increasing steadily as well, with a 5‑year average (20132018) of $6.5M CAD per deal, second only to the cleantech sector’s $$6.93M CAD per deal.

Upon further examination, the therapeutic drugs & biologics” sub-sector seems to be the driving force of the sector (companies such as Fusion Pharmaceuticals Inc., DalCor Pharmaceuticals Inc., etc.) and has historically captured the biggest portion of activity in the life sciences sector, on average accounting for 33% of all deals and 56% of all dollars in the sector from 2013 – 2018.

All of that said, the life sciences sector isn’t just fizzle with no bang. Of the top ten VC-Backed IPOs since 2013, three of the companies were companies in the life sciences sector; the most recent VC-Backed IPO in life sciences being Montreal-Based Milestone Pharmaceuticals (NASDAQ:MIST), raising $111M USD with a market cap of $374M USD when listing on the NASDAQ earlier this year.

Exit opportunities can provide fantastic returns as well. Just this year, TVM Capital Life Science won the CVCA VC deal of the year award for their investment in life science company, AurKa Pharma. TVM Capital received an impressive internal rate of return of 348% and 9.3x multiple of invested capital when they successfully exited AurKa — the highest IRR we’ve seen in an awards nomination since 2001.

Earlier I mentioned that the life sciences sector has historically been second to ICT and often overshadowed as a result. Given the points I mentioned, yearly percent change in deals and dollars, rising average deal sizes, VC-Backed IPOs in life sciences, and award-winning return metrics, this shouldn’t be the case. Life sciences in Canada should be a sector that we’re all keeping an eye on.