The TSX Venture Exchange is either badly broken or doing just what it was designed to do, depending on the sector you canvass.
Junior resource-sector companies and investors say there are systemic problems with the TSX Venture Exchange (TSX-V) and various regulatory organizations that have made it an increasingly difficult place in which to raise venture capital.
Canada’s biotech sector appears not to have the same concerns – though it may be a special case.
Over the last three or four years, the life sciences sector has been one of the few bright lights on the venture exchange, said Joe Garcia, a partner with Blake, Cassels & Graydon LLP.
Garcia specializes in corporate finance, mergers and acquisitions, and has been involved in several recent initial public offerings.
“It’s done incredibly well,” he said of the sector.
Between 2014 and 2015, while more than 200 junior miners were bumped down to the NEX (the exchange’s basement for dormant companies), 24 life sciences companies went public on the Toronto Stock Exchange (TSX) and 10 issued public offerings on the TSX-V.
TSX-V-listed life sciences companies raised more than $900 million in equity during that time, and Garcia said companies on the TSX raised $6.7 billion.
It’s no coincidence that the biotech sector has prospered on both exchanges at a time when resource companies have languished.
“Venture technology is counter-cyclical to venture resources,” said Doug Janzen, former CEO of Cardiome Pharma Corp. (TSX:COM) and current CEO of Aequus Pharmaceuticals (TSX-V:AQS), which has raised $11 million in private placements in recent months.
When resource companies were enjoying a supercycle – which ended in 2011 – the biotech sector languished.
One local success story is Vancouver’s ESSA Pharma Inc. (TSX:EPI; Nasdaq:EPIX). It debuted on the TSX-V in December 2015, but didn’t stay there long.
“Last year we did a direct listing on the venture exchange,” Garcia said. “They did so well on the venture exchange, their valuation was so high, that we almost immediately worked with them to graduate to the TSX and get a Nasdaq listing.”
Another Vancouver life sciences company, Neovasc Inc. (TSX:NVC; Nasdaq:NVCN), last year raised US$87 million in equity.
Vancouver’s Aquinox Pharmaceuticals Inc. (Nasdaq:AQXP) didn’t even need the TSX-V stepladder – it went straight onto the Nasdaq in March 2014. It raised $46 million with its IPO and, in September 2015, raised $98 million.
Were it not for the venture exchange, Garcia said, many Canadian startups might never attract the venture capital they need to go public on bigger exchanges like the TSX and Nasdaq.
“It shows that our market is unique and has advantages with a two-tiered Canadian market. It allows companies to go public early, on the venture exchange, and then graduate at an appropriate time to the TSX. It’s like an incubator and allows companies to get out a bit earlier than they might otherwise be able to get out.”
James Hatton, a partner at Farris, Vaughan, Wills & Murphy LLP and chairman of LifeSciences BC, agreed.
Without the TSX Venture Exchange, he said, “Aequus wouldn’t be a public company. I think there are some companies that have gone public via that mechanism that would have had a tougher time going straight to Nasdaq.”
Biotech stock indexes have generally been down in recent weeks. The Nasdaq Biotechnology Index has fallen 14% since the beginning of the year.
But Garcia and Hatton attribute that to general global stock market volatility.
“Biotechs are doing reasonably well,” Hatton said, “even though the market’s turned down in the short run.”
Added Garcia, “[Market volatility] is not good for anybody. But if we look at it over a period of time, I would say my experience with the venture exchange has been really positive.”