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Canada has a Silicon Valley of its own, a big one, but you've probably never heard of it, because it's devoted to life sciences, not gadgets like smartphones. It is called Toronto, a city normally associated with bloated banks and some ailing gold miners. The University of Toronto has one of the largest medical schools in North America and produces more peer-reviewed research papers than any other medical centre in the world, according to the Canadian Trade Commissioner Service.

The federal money thrown at biotech research is lavish. The Canadian Institutes of Health Research invests about $1 billion a year "for translation of new knowledge and to nurture talent." Hundreds of millions of dollars are funnelled into grants and fellowships. Ontario has some 51,000 jobs in human health.

Some of the discoveries made in Canada are the stuff of science fiction and have the potential to help millions of people. Researchers at U of T have developed a biodegradable polymer "scaffold" that accelerates bone-tissue regeneration. At McMaster University's Stem Cell and Cancer Research Institute, scientists have invented a process to convert skin into blood.

Given the abundance of biotech research, you would think the Toronto Stock Exchange would be brimming with biotech heavyweights—companies that transformed that research into a dazzling array of commercial products. Sadly, that's not the case. The rate of successful commercialization of Canadian intellectual property discoveries is pathetic compared to the United States, France, Britain, Sweden, Netherlands, Germany, Switzerland and several other countries, even when adjusted for their relative economic size (and especially when adjusted).

True, the TSX is home to more than 100 life sciences companies, but the ones valued at more than $1 billion stand out because of their rarity. Valeant Pharmaceuticals International, formerly Biovail, is a genuine global player, with a market value of $85 billion. It is not, however, primarily engaged in clinical development. Its main businesses are manufacturing and marketing. The largest Canadian company that would qualify as a biotech star is ProMetic Life Sciences, a Quebec biopharmaceuticals company best known for plasma-derived proteins. It has a market value of $1.5 billion.

The life sciences sector in the United States is truly awesome. Based on stock market values at the end of 2014, the combined value of just two American biotech giants, Gilead and Amgen, was greater than all of the more than 1,500 mining companies listed on the TSX. The collective value of a mere four U.S. biggies—Gilead, Amgen, Celgene and Biogen Idec—was larger than all of Canada's Big Six banks plus the insurers Sun Life and Manulife put together. Gilead, Amgen and Celgene, combined, are worth more than General Motors, Ford and Toyota.

Not only are the top U.S. biotech companies huge, their growth has been an investor's dream. Twenty years ago, Gilead was worth about $400 million (U.S.). Ten years ago, its value was $8 billion (U.S.). In late March, Gilead was worth more than $150 billion (U.S.), for a compound annual growth rate of 34% over the past decade.

Are Canadian investors risk-averse by nature, and is that why they shy away from biotech start-ups? Unlikely—they seem to adore risk, as their enthusiasm for geological exploration shows. Yes, biotech can be riskier. It can take a decade or longer to discover a molecule, shepherd it through clinical trials, fund development, obtain regulatory approvals and get a product into hospitals. Disaster can hit at any time during the process, and usually does. But the jackpots can be lavish, as the market values of the top biotech companies show.

So what explains the dearth of biotech giants in Canada? Blame the uneven playing field among start-ups. Suppose your broker offers you a choice of two risky investments: Greed Gold and CardiacArrest Biotech. CardiacArrest is twice as risky, but has twice the potential payoff—or more. Still, only a novice with a head as empty as an echo chamber would pick CardiacArrest. That's because speculative resource companies in Canada can offer flow-through shares, in which the tax losses of the companies during their profitless exploration phase are passed onto shareholders, effectively reducing the net cost of the investment by about 50%. In Canadian mining, capital formation can be a breeze. In biotech, it's a nightmare.

The solution is clear: Level the playing field by allowing life sciences start-ups to use flow-through share financing or some similar tax freebie. The chances of Canada's amazing biotech discoveries making it to market would rise exponentially. The TSX is becoming a bland collection of low-growth resources and financial services companies. It needs a new, high-growth industry. Biotech is ready and eager. The folly is that so much research is going nowhere for lack of financing.