Motley Fool Money - Has Biotech Met Its Moment?

Episode Date: July 21, 2025

A surge in private market investment has Fools wondering: is it time to bet bigger on biotech? Tim Beyers and Karl Thiel discuss: - The rise in biotech funding from VCs and wealthy individuals. - The key attributes of an investable biotech. - Which is the better biotech: Viking Therapeutics or Eli Lilly? Companies discussed: VKTX, LLY, MRK Host: Tim Beyers and Karl Thiel Producer: Anand Chokkavelu Engineer: Dan Boyd, Natasha Hall Disclosure: Advertisements are sponsored content and provided for informational purposes only. The Motley Fool and its affiliates (collectively, “TMF”) do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale, or solicitation of any securities advertised herein and makes no representations regarding the suitability, or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax, and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement.Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Is it time to buy biotech? You're listening to Motley Fool Money. Fools, welcome to Motley Fool Money for Monday, July 21st, 2025. I'm your host, Tim Byers. With me, Carl Teal from the Rule Breakers team, welcome to your Rule Breakers podcast. Carl, how you feel in this morning, ready to talk biotech? Caffeinated, I hope? Absolutely. I've plenty caffeinated. I can't ever be too caffeinated. We want to bring this up because we have recent data from LARCA that the total VC funding in biotech increase year over year for the first time since 2021. This is last year, reaching 21.4 billion versus 16.1 billion in 2023. That was a significant increase. Now, that surpassed pre-pandemic levels. Furthermore, 2024 recorded the strongest quarter since early 2022. This has seemed to continue, Carl.

Like, 2024, we ended really strong. But then just recently, the Narcan maker, which is a kind of an anti-narcotic. I don't really know how to describe it here, but a company named Anthea raised 56 million in Series C Capital. And we also have some data that family offices are committing in bigger amounts to biotech and early stage biotech. So, here's my question for you, Carl, before we get into the opportunity in biotech, how are you feeling about this? The private market seems to like biotech more than it has in a while. Is that something we can look forward to as public market biotech investors? So I guess my overall feeling, and this may come through a few different ways and to a lot of

things we talk about today, it's guarded optimism with lots of caveats. basically. I'm glad to see a venture capital. I have to say, to me, when you look at it, it's more like it's stabilizing than that I really see a lot of things going up. I mean, if you look ahead of the 2024 data, the second quarter of this year looks like it's actually going to come in at a five-quarter low. It dropped back down. again. I'm not terribly worried about that. I mean, I, I, what, but I think what you're seeing is this stabilization and this kind of, uh, waiting. But you brought up, um, family office, uh, family offices. And that's, that's a really interesting. And for people who, who don't know,

I mean, these, these are sort of, you know, very wealthy. Yeah, high net worth individuals. Private investors, right, who are or, or who get, you know, they, they tend to, um, I, I, I, I would say that in the past family offices have been, they've often been passion projects when they invest in this sector. Maybe somebody in the family had a particular disease and they want to put money into that disease, something like that. These days, the investments are getting bigger and they are often different family offices are working together or sometimes they're working with a general partner. I feel that they're sort of stepping into the void because they have even longer timelines than a traditional VC.

Their timelines are as long as they want them to be. They are kind of stepping into the void to take care of some of the really early seed stuff. And Anthea is a really interesting company. Eric Schmidt from Google is involved in that one. But, you know, that's a fascinating company. And just the perfect kind of thing for a family office to be involved in. Yeah, I mean, this is super interesting. Let's pivot to the opportunity because, again, we said that biotech has been really hit or miss. It's a big part of the Motley Fool Rule Breakers scorecard has been just short of forever, really since the beginning of the service over 20 years ago. So I want to talk about this because it has been hit or miss. We've twice recommended the XBI, which is a biotech themed ETF, and both positions of lost to the market by 35% and 60% as our recording. Why is now a more interesting time? In addition to

all of this activity in the private market, and we're starting to see more IPOs, why is now an interesting time for you as a biotech investor? What should get the public market investors more excited about this? Yeah. Well, I think our ex-BI positions are sort of of reflective of what's going on in the broader market, which is that in absolute terms, those positions aren't down sharply. I think last time, no, they're just losing to the market, right? They're just losing to the market, right? And that's kind of exactly what you're seeing, which is, you know, as with the VC funding, biotex kind of moving sideways right now. And for a while, the markets were moving, you know, sharply higher. There's been, you know, some more volatility around

that. But the question, why is this a good time to be investing in biotech? I think, you know, let me first briefly say why everything continues to be so negative. You know, the reasons to be negative before were high interest rates, lack of M&A, you know, this sort of overdraft of companies that came public when they shouldn't have early on that the market was still digesting and just the slop that needed to get out of the system. Some of those are getting a little bit better. We actually have seen some really interesting M&A this year, a lot of multi-billion dollar deals, and that's super bullish. But at the same time, some of those are still in place. And then we've got a new collection of worries around what's going on at the FDA, and how are they going to regulate

things, and what's going on with pricing in the political environment? All those things are still hanging over the sector. So, you know, to be a real bull, right now. You do have to be a little bit contrarian and, and, you know, kind of look at a wall of worry that you think this market can climb. I mean, there's still plenty of reasons to be cautious that you can point out. And to the XBI in particular, I guess the reason I've been a little less personally sort of focused on the XBI. I mean, it is a proxy for the whole sector that people, you know, that's sort of the commonly used tool to say, how is biotech doing? Let's look at the XBI. But it's a very broad index. It's got this kind of, you know, equal weighting

formula so that it's getting rebalanced all the time and doesn't favor the large, large cap companies. I think it's a better time, honestly, for taking very careful picks within the sector rather than just broad market exposure. The broad market exposure pays off when things finally turn around. And I do think that happens eventually, but I think, you know, you can maybe do better picking carefully individual companies that can not only get a sort of general industry lift, but also have, you know, some of their own specific things going on that are underappreciated. There's two things I've heard you say to me about when you're talking about biotex that you want to maybe focus in on that might be an interesting play like ones that we want to add to the. the Rule Breaker scorecard, for example. Two things that I have heard from you. One is, if the science is really good and the capital that the company has is good enough,

that's a company that's giving itself a runway to maybe get to scale and develop a blockbuster drug. That may be a worthwhile risk. So that's one I've heard you talk about. But the other is when there's enough there there that the vulture that could come along and acquire this company at a premium, you know, might be salivating a little bit more. And those two things sort of create the conditions for really good potential biotech returns. Do you think we're seeing more of those types of situations right now? I think you're seeing a situation in which, in terms of buying

out companies in which Big Pharma has been a little bit sitting on the sidelines, but they can't really afford to keep doing that. There's companies like Merck has been sort of very open about, you know, that they are out shopping. The wallet is open. They are looking around. You know, they can't put off forever, ever filling in pipelines. There is a lot of big, big cliff, patent cliff situations going on at.

most of the big pharma companies. And a patent cliff, meaning like a drug that is under patent, but going to be forced to become generic. Exactly. So you see companies that have, you know, 20, 30, 40, 60 percent of their revenue is going to, you know, essentially open up to generic competition and largely disappear over the next few years. Yeah. It's a big deal. So that's one thing. But I guess the other thing I'd say into what you just said is, you know, do they have the, the science and do they have the cash? Yes, I would add to that right now. I think you have to be

even more picky, which is do they have the science? Do they have the cash? And are they pretty close to market right now? Having great science. Through to approval almost. Right. You've got to see a through line. I just think there's enough opportunities like that that you don't need to play the hero with earlier stage science. I mean, there's obviously, there's going to be some great payoffs there, but like risk adjusted, I feel like there are a lot of very late stage companies that are near market, on the market, or even on the market and already seeing sharp sales ramps that you can kind of more focus there. Fair enough. All right, we're going to talk about two of them. Up next, which is the better biotech? Viking or Eli Lilly? We're going to battle it out next.

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All right, Carl, let's talk about two companies that you mentioned not playing the hero, you know, companies that have drugs that are either on the market or very, very close to on the market. And we've got a mixture of both. You know, on the market, Eli Lilly has. done exceptionally well with weight loss drugs. Mujaro and Zepbound, they are the strong rivals to one that fools you certainly have heard of called Ozempic. But Viking has a late stage drug, actually more than one late stage drug that is interesting

and competing in this space. So Carl, break it down for us here. You know, when you look at these two, give me one advantage and one disadvantage. of each. Or if you want to, just tell me which of these two do you favor? Look, if you're oriented towards, you know, safety and stability, Lily is plainly the better company to go with here. I mean, they're not only winning in the marketplace. I mean, you know, Mungero and Zetbound have surpassed Ozympic. They also have a tremendous follow-on pipeline. I mean, When you look at who are developing the best next generation,

sort of GLP and related drugs, often they're more than one mechanism. It's GLP plus other mechanisms. Lilly is not necessarily at the top in every category, but they're always near the top. They've really done a great, great job in this area, not to mention the fact that they are a diverse pharmaceutical company with lots of other things going on in other areas.

That said, right now the market is essentially a duopoly between Lilly and Novo Nordisk and, you know, largely about two products, even though there's a few brand name floating around that's really just two compounds, terseptitide and semi-glutide. That is not always going to be this way. And the discontinuation rates of these drugs over like a one-and-two-year period is horrific. I mean, people just, you know, they're not staying on. them, which tells you something about the sort of long-term wear of the side effects of these drugs. So there's a lot of room for improvement, and there's a lot of companies buying to do it. I think Viking is a super interesting pick in the space. I will say, you know, when I talk about companies that are sort of like on the verge of going to market, this is not one of them. They've got a lot of work ahead of them. They are late stage.

They are late stage. They began their phase three. in their injectable formulation of their drug. Their oral drug is a little bit farther behind. We'll see data in the next couple of years, but it still remains to me a relatively speculative bet. That said, it's one where, you know, if you're looking for maximum returns,

I mean, Viking is tiny, tiny, tiny compared to Lily. Could see absolutely massive returns. And this would be one that, to me, you would slot in as a speculative bet in a larger portfolio. I mean, and we sometimes like that in rule breakers. Let me put you on the spot here and say, of these two, actually, before I put you on the spot here, do you think that Viking is a pretty good M&A candidate? Does it fit into that theme of biotechs that are really producing good science, have the cash, very attractive, somebody to come in and swoop this one up.

Oh, it absolutely is. I mean, there's been a tremendous amount of M&A in the sector. I mean, specifically around the obesity space. I mean, companies have been snapped up. And when you look at large pharma that have great needs in the area, like Pfizer, for instance, needs products, their own obesity programs flamed out. You know, you would think they would certainly be in the market to be buying. and they're not the only ones.

That said, Viking has not shown much interest in being acquired so far. So I'm sure these conversations are taking place. And so I assume that Viking is driving a very, very hard bargain. They do have really good data to date. It's early data. So, you know, I don't want to overestimate it, but it's really good. I think they're very confident in the product. and they are a little bit farther ahead than most people.

So I think they're going to ask for a big price tag. Who are you going with then? So are you going with Viking or are you going with Lily? So outperforming over the next five years, who you got? So outperforming, yeah, I will go with Viking just because, I mean, if they hit with this, there's no way Lily is going to be able to, yeah, to, you know, Lily is not going to if they hit, it's a monster. Quinn tipple.

Right, right, exactly. Yeah. but it is certainly way, way riskier. Yeah, I'm going with Viking as well. This is a classic rule breaker. If it hits, it will be a massive multi-bagger. So Viking Therapeutics, the ticker is VKTX. All right, up next, a little trivia.

Get your notepad ready and let us know in the comments, what company is generally considered history's first biotech? We're coming back with that next. The old adage goes, it isn't what you say, it's how you say it, because to truly make an impact, you need to set an example and take the lead. You have to adapt to whatever comes your way. When you're that driven, you drive an equally determined vehicle, the Range Rover Sport. The Range Rover Sport blends power, poise, and performance. Its design is distinctly British and free from unnecessary details, allowing its raw agility to shine through.

It combines a dynamic sporting personality with elegance to deliver a truly instinctive drive. Inside, you'll find true modern luxury with the latest innovations in comfort. Use the cabin air purification system alongside active noise cancellation for all new levels of quality and quiet. Whether you prefer a choice of powerful engines or the plug-in hybrid with an estimated range of 53 miles, there's an option for you. With seven terrain modes to choose from, terrain response to fine-tuned your vehicle for the roads ahead. The Range Rover event is on now. Explore enhance offers atrangeover.com. All right, Carl. So as always, I like to end these with a little bit of trivia, a little bit of history, try to help members understand a little bit more about the market we're talking about. In this case, we've been talking about the biotech market. I'm super curious of your answer here. And I've got a little bit of detail that we'll talk about after I get your answer. But fools, go ahead and give your answer in the comments. What company is generally considered history's first biotech? Carl, what is your answer on this? I am really interested to hear what you say. Well, I'm interested to hear what

you're going to say. I think there's only two possible answers here. Okay, what are they? I'm pretty clear on which it is. You could argue that it's Genentech, but I think it's pretty clearly Cediscorp. Okay, very interesting. So we need to hear more about Cediscorp because when I put this to Gemini, Gemini said, and I'm quoting here, while biotechnology broadly defined has roots in ancient practices like brewing and fermentation, the birth of the modern biotech industry focused on genetic engineering is generally associated with the founding of Genentech. It founded in 1976 by Herbert Boyer and venture capitalist Robert Swanson. So tell me more about Cetus.

Yeah, so Genentech, the argument for that is that they were specifically founded to take care to take advantage of your sort of recombinant DNA techniques to make proteins that you, you know, you couldn't manufacture otherwise. Cetus corp was founded five years before that in 1971. Yeah. Yeah. And it was basically a microbiology company that was set up, you know, initially what they were doing was more sort of industrial, making enzymes and stuff.

But they became a biotech giant. One of their products is still on the market today, ProLukin, and they are the ones who developed PCR, specifically Kerry Mullis at Cediscorp, who I got to interview once. Nobel laureate developed the polymerase chain reaction, which is the DNA amplification technique that is still core today for most gene sequencing. And if nothing else, I think that cements them as the first company. I so interestingly enough that Gemini did mention Cetus but it mentioned Cetus as as the runner-up. I was super curious about this because I think I've told you this even though I've learned more about biotech from you than anybody else.

My grandfather was a research, research doctor at Squib back in the 1950s and 1960s. So I thought like, I have thought not that Squib would be the first biotech, but it would be like, well, Surely this goes back to like the 1930s or 1940s, but nope, it's the 1970s. So this is still a relatively new industry. We're really, you know, if you want to count Cetus, we're 54 years into the industry. That makes us a fairly young industry. Absolutely. Yeah.

And, you know, a lot of the, some of the pioneers are still around. There are companies. I mean, I was just looking surrepta. SRPT is in the news a lot right now, not for good reasons, but for interesting reasons. But I mean, that's just an example of a company that's its original DNA goes back to 1980, right? There's a lot. And biogen goes back to 1970. I mean, it's a lot of these first generation companies are still what's cooking today. And still, and still cooking and still going. All right, Carl, thanks for being here. Thanks for talking biotech. Appreciate that. Fools, as always,

people on the program may have interests in the stocks they talk about, and the Motley Fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check our show notes. For our engineer, Dan Boyd, for our producer, Anand Chaka Baloo, for Carl Teal, I'm Tim Byers. Fools, thank you for tuning in. See you again tomorrow.

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