Biotechnology continues to show strong and steady investment worldwide. Broadly defined, biotech uses technology to harness or influence natural biological processes and organisms, with applications that span health and medicinal, agroscience and genetic engineering. The first two quarters of 2017 saw a $3.87B of VC investment in biotech across 259 deals worldwide. This is on track to maintain pace with 2016’s $6.63B across 504 deals. Therapeutics a hot subsector poised for growth Biotech therapeutics, which is focused on the creation of novel compounds and molecules for the development of new medicines, is a particularly strong area. Current activity shows strong growth and the potential for greater capital deployment in hot therapeutics subsectors including diagnostics, neuroscience, and advanced therapies. Oncology remains a dominant area of this subsector, while the central nervous system is a strong and growing area, especially as firms look for treatments for ailments such as Alzheimer’s disease in an aging population. Antibiotics, antibodies, and anti-infectives continue to gain attention. Funding challenges lead to early exits Despite rising interest in the biotech sector, many biotech startups struggle to raise sufficient funding, especially in the early-stages. Much of this challenge stems from the inherent nature of biotech rather than lack of potential. In contrast to sectors such as information technology (IT), development lead times are long, sometimes in excess of fifteen years, while the chances of achieving a marketable product is often estimated at five percent or less. As a result, to satisfy investors seeking measurable results, many biotech companies look to early IPOs not as a true exit, but rather as a way to fuel ongoing growth. US remains dominant in global biotech activity In terms of both the number of companies and total investment dollars, the US dominates the global biotechnology sector. Local biotech startup activity is especially driven by broader life sciences activity in Boston, Los Angeles, San Diego, and the San Francisco Bay Area, with additional activity clusters gathered around leading universities across the country. US biotechs’ competitive advantage stems from three areas: the risk-taking attitude of local VCs, the high per capita healthcare spend in the US, and the economy of scale that the US market offers for the marketing and sale of biopharmaceutical products. Biotech activity in Europe remains strong, but lacks the critical mass seen in the US due to the spread of life sciences clusters across the continent. European market access also remains fragmented, despite ongoing EU efforts. The strongest activity levels are currently seen in the UK and Switzerland, where the large number of biopharmaceutical groups create a rich environment for life sciences. However, restrictions on immigration following Brexit could adversely impact the growth of the UK biopharmaceutical industry in the future. The competitive cost for researchers is also spurring biotech activity in areas such as Paris, Munich and Berlin, as well as the Nordics, northern Italy, Ireland and Spain. Due to the small size and number of European investors focused on biotech and life sciences, many European biotech startups turn to the US to seek funding opportunities. © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #Q2VC