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Lumira Ventures has raised the largest Canadian life sciences venture capital fund in two decades, drawing US$220-million from investors.

But Lumira managing general partner Peter van der Velden called out Canada’s pension plans outside of Quebec for failing to back the Toronto firm’s fourth venture fund, or the teeming domestic life sciences sector as a whole.

“The Canadian pension plans are not really engaged in this space, which is tragic because they’re missing out,” he said in an interview. “There’s no other way to put it. ... It’s just not something they understand.”

The life sciences sector has been one of the biggest sources of venture capital-backed initial public offerings in the past five years in the United States. Health care and biotech-focused venture capital funds have outperformed information technology funds in seven of the past eight years, according to Cambridge Associates. In Canada, the domestic sector has broken records for public and private fundraising and produced a string of IPOs.

But in Canada there has been a dearth of domestic support for homegrown startups. According to Montreal-based fund-of-funds investor Teralys Capital, a Lumira backer, Canadian life sciences startups that raised US$40-million-plus financings since early 2017 drew just 10 per cent of their funds from domestic investors, compared with 44 per cent for IT companies.

“The life sciences asset class is performing extremely well. We’re creating real companies that improve or change the lives of people, and on top of that it generates financial returns,” Teralys partner Cedric Bisson said. But “Canadian investors don’t invest and they don’t invest enough. Our companies are good but Canadian investors on average are missing out. It’s time the big pension funds came in.”

Lumira, one of a handful of Canadian life sciences venture capital firms, has had a solid run lately. Two Lumira-backed B.C. drug developers, Zymeworks Inc. and Aurinia Pharmaceuticals Inc. , achieved US$1-billion-plus valuations after going public. Lumira has realized returns on “exits” by eight of its companies since early 2020. Lumira said it also raised an extra US$35-million fund backed by an unidentified global pharmaceutical company, but gave no details.

Lumira drew most of its domestic institutional support from Quebec, where the Fonds de solidarité FTQ, the Caisse de dépôt et placement du Québec, Fondaction and Teralys have been long-standing backers of the sector. Toronto funds-of-funds investors Northleaf Capital and Kensington Capital also invested.

Other Canadian backers were Vancouver City Savings Credit Union, the investment arms of the Ontario and Quebec governments, BDC Capital and Royal Bank of Canada , which has backed two domestic life sciences venture capital firms as part of a new strategy to deepen ties with Canadian technology firms.

Lumira also drew investment from unnamed Canadian wealthy individuals and family offices as well as foreign investors Alexandria Venture Investments, Angelini Pharma, China Grand Pharmaceutical and Healthcare Holdings, and Amana Global Partners.

“It’s a burgeoning sector and I think it will accelerate,” said Anthony Mouchantaf, director of venture capital with RBC’s technology and innovation banking group, known as RBCx. “I think bigger institutions will see the light and enter the fray.”

Two Canadian pension funds, Canada Pension Plan Investment Board and Public Sector Pension Investment Board, have stepped up investments in the life sciences sector, but as part of global strategies. CPP has announced one investment in Canada, backing Hamilton’s Fusion Pharmaceuticals Inc. last year.

Lumira’s Mr. van der Velden said Canadian pension funds “are now public policy-enabled private-equity firms [where] managers have little incentive to allocate their capital to outside managers – even to sectors and managers that have delivered terrific returns for investors.” He said, “They don’t have any health care expertise and can’t figure out if what we do makes sense.”

Mr. Mouchantaf at RBC said it’s challenging for generalist funds to invest. Drug and health care companies are often “esoteric to the lay observer,” and must undertake years of costly research, trials and finally obtain regulatory approval before they can take products to market.

“It’s a hits-based business” that requires investors to have technical knowledge, he said. By comparison, he said, it’s easier and quicker to determine whether an IT company can succeed.

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