The Toronto Stock Exchange is in a battle to keep Canadian companies listing their shares at home as a stream of firms opts for U.S. exchanges instead.

Since 2020, nearly two dozen Canadian-headquartered companies have decided to skip the Toronto exchange to list directly on either the Nasdaq Stock Market or New York Stock Exchange, raising close to US$1.4 billion in the process. 

Life sciences and pharmaceutical firms including AbCellera Biologics Inc. and Repare Therapeutics Inc. make up the largest chunk of that capital. Experts say they have sought out the US, where a larger base of investors, analysts and bankers supports the sector. 

Even in natural resources, the historical strength of Canadian capital markets, some firms are looking south. Vancouver-based, Alaska-focused US GoldMining Inc. plans a $20 million initial public offering in the U.S. this year.

Bypassing the Toronto Stock Exchange (known by TSX) and smaller TSX Venture exchange has been costly for Canada’s capital markets. TMX Group Ltd., which operates both exchanges, is working to convince domestic life-sciences companies to list in Toronto and to bring others that have departed back, but it says help is needed from the country’s banks and investment community.

“We need the entire ecosystem to work together,” TSX CEO and global head, capital formation for TMX Group Loui Anastasopoulos said. “Nasdaq, that’s their strength, that’s their bread and butter. That’s an investor base that supports life sciences very very well. We are trying to build out support for life sciences in Canada.”

DUPLICATING TECH SUCCESS

The Toronto exchange has faced this problem before with the technology industry and has been successful in working with banks and investors to attract more tech listings, Anastasopoulous said. He hopes to duplicate the approach with life sciences. 

Based on TMX Group’s criteria of what constitutes a Canadian company, only 14 firms have bypassed domestic exchanges since 2014, the company said. At the same time, the TSX and TSX-V attracted 77 new international listings in 2021 and 2022, such as Brazil’s Sigma Lithium Corp., which more than offsets the number of Canadian firms listing elsewhere, according to Anastasopoulos. 

The catch is analysts see some weakness in TMX Group’s capital formation. Toronto IPO activity in the first quarter rose to C$266 million (US$199 million) from C$61 million a year earlier, but “remains significantly below the long-term average” of C$1.2 billion, BMO Capital Markets analyst Etienne Ricard wrote in a note to clients last week.

New listings on the TSX/TSX-V hit a seven-year high in the first quarter, Ricard wrote. But he cautioned that “we suspect the increase to be largely ETFs-related, which generate lower fees relative to corporate issuers.”

To be sure, a few Canadian firms have ended up regretting listing in the US. Tea retailer DavidsTea Inc. announced in March it would switch to Toronto from New York eight years after the Mount Royal, Quebec-based company raised US$111 million on Nasdaq. Cannabis producer Tilray Brands Inc. also returned to Canada’s largest exchange in 2021.

There have also been a handful of wins in life sciences. A dual listing by eye-care products maker Bausch + Lomb Corp. raised C$711 million in the biggest Canadian IPO of 2022.

Still, the trend of Canadian firms bypassing local exchanges altogether continues, in a sign that domestic businesses see cheaper capital available over an extended period south of the border. That’s appealing to Canadian life-sciences companies since there is “very little buyer demand” in Canada, according University of Calgary finance professor Ari Pandes.

“We’re a smaller market, you can’t be all things to everyone,” he said, adding that Toronto continues to attract energy and mining listings from international destinations, where firms are “skipping their own home market.”