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Chapter 1: What is the main topic discussed in this episode?
Is biotech getting unfairly ignored? You're listening to Motley Fool Money. Welcome, Fools. I'm your host, Tim Beyers. With me are two of my longtime Rule Breakers teammates, Carl Thiel and Tom King. Thanks for being here, guys. Yeah, it's great to be here. Good to be here. We're going to preview some biotech earnings. We're also going to check in on one that reported this morning.
We're going to paint a picture of an industry that probably deserves a little bit more love, a little bit more attention. Get your coffee ready because it's biotech time. Let's talk about biotech approvals, Karl, and what's going on at the FDA. It does seem as though things are a little bit, let's call it turbulent.
Let me just paint a little quick background here, which is that 2025 was an absolutely tremendous year for the industry. I don't know if many people realize this, but biotech as a whole, the XBI, for instance, outperformed Nvidia in 2025. It was a very strong year after a very, very long bleak period. I do think there's actually a lot of enthusiasm continuing into 2026.
But I don't know what it is about me, Tim. I got to throw cold water on stuff. I just want to sound, there's a few alarm bells or a few flags out there that I think are interesting and that people need to be aware of. And one of them is the sort of continuing chaos, I guess, that we're seeing at FDA, for want of a better word.
It does seem as though there was a warning from a former senior executive here. I think this man's name is Richard Pasdor, who is the former longtime head of the oncology division. I've often heard you talk about the JPMorgan conference, Carl, and how important it is to the biotech industry. Sounds like he had some spicy things to say at that conference.
Yeah, he did. This is just a couple of weeks ago in mid-January. He wasn't just the head of oncology, he is one of five people who headed up CDER, the main drug approval division. Extremely senior position at FDA. One of five people who did that during 2025 because there was so much turnover in the role.
And, you know, one of the things that he told the big pharma people at the conference was that he was worried that the firewall of between political appointees and drug reviewers has been breached is was was his quote. And that the pharma industry is continuing to underestimate the damage that's already been done now.
You know, you can certainly dismiss that as the thoughts of a long serving bureaucrat who doesn't like the changes that he's seen at the industry.
But, you know, what he called chaos and whether that's the results of just turnover or politics or anything else going on, it does seem to describe some of the, you know, seemingly contra contradictory approaches that we're we've been seeing to regulation recently.
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Chapter 2: What are the current challenges at the FDA affecting drug approvals?
There's been talking about having easier standards for rare diseases, where you can basically get on the market with a single study, as long as you have some confirmatory evidence, which would make that faster and easier. There's been talk about a, quote, plausible mechanism pathway.
Basically, where the agency could approve drugs based on limited clinical data, basically if the biology makes sense. Think about it, it's like if you have a disease that's marked by an enzyme deficiency and you give them the enzyme, that makes sense that that would work. When you have that plausible mechanism, you can take basically less data to support it.
These are all things that industry is super excited about. The thing is, there's sort of an operating reality on the ground that seems to be coming out differently than that. And that's where I think there's a lot of confusion right now, is because in some ways, the FDA actually seems to be raising the bar on rare disease rather than lowering it.
And we've seen that come out in a few different ways.
Let's talk about those. I would love a couple of examples here.
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Chapter 3: How did biotech outperform NVIDIA in 2025?
What we want to understand as investors is, do we need to be more careful about the types of biotech companies we're looking at here? What we thought would be a reasonable approval cycle is no longer. What are some examples of what we're seeing in the industry right now?
Yeah. You said, what types of products or what types of approvals? I think that's a very good point right there. A lot of controversy seems to come particularly around things that go through the The CBER, the biologics division, so gene therapies and cell therapies, things in that space seem to be particularly unpredictable right now. We just saw that this past week.
A company called Regenexx Bio was expecting approval of a drug on February 8th for a disease called Hunter syndrome. That's almost certainly not going to happen now. What's interesting is that it's because a different drug, a different gene therapy, had a complication come up in clinical trials.
Basically, they found a tumor that had developed in somebody that had been treated with the drug four years ago, and so they put it on clinical hold to investigate that further. I want to point out, these are bad, fatal diseases. There's some tolerance for side effects and bad outcomes and stuff with therapies when you're addressing a fatal, rare genetic disease.
This was a benign tumor, but a tumor, nonetheless, it developed in somebody who'd been treated four years earlier. Unclear if it's related to the gene therapy itself, but certainly a red flag and putting it on hold to investigate that is called for. That's the right call. What's weird is that they put another drug that is just about to get approval, supposedly, on hold.
because it's similar there was no evidence of problems in that it it uses a somewhat different vector i mean all these things use slightly different vectors even if they're all technically um in the same class it seems to contradict what fda had been saying previously which is that they were going to be more tolerant of these fatal rare diseases and that's not what we're seeing
Last point on this, or last question, I guess I should say, before we move on to our next section here. But does this make you... raise the bar for what we would consider a reasonable biotech investment and say, like Rule Breakers, do we need a bit more development, like a biotech company that's more mature before they make it to the scorecard, or does this really not change anything?
I think that you have to realistically put extra risk around anything in the gene therapy cell therapy space. Okay. You know, I mean, we're just seeing that. We've seen it too many times at this point to not recognize that.
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Chapter 4: What risks should investors consider when investing in biotech?
I still think there are some really, really interesting possibilities in that space. But, you know, you have to maybe build in extra timelines for more questions, for things being delayed and stuff like that, unfortunately. On the other hand, you know, we may finally start to see some things get sped up and we can talk about that a little bit maybe in our next segment.
Okay. Tom, any thoughts on this? Does it make you more or less interested in biotechs to bring to the scorecard?
I think Carl said it pretty well. I think we've seen the current skepticism around vaccines and mRNA-based therapies. I think Carl put it pretty well. You just got to factor that into your risks when you consider the sector and those particular subsectors within the biotech industry.
Still like biotech? Maybe lengthen your timeline for how long you're going to stay invested in these companies. Up next, we're going to do some biotech earnings predictions. Stay tuned. You're listening to Motley Fool Money. Vitaminihyllilta, moi!
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We are back with Karl Thiel and Tom King. I'm Tim Beyers. Let's start with some earnings predictions here. We've got some big names that are reporting this week, guys. I'm going to start with Eli Lilly, ticker LLY. I'll give you some of the background on this. This is a big company, and they have like for some others. We're going to get into another one here.
But weight loss drugs, oh boy, that has been a big driver for Lilly. Earnings per share, consensus estimate, a range of $6.99 to $7.86. The consensus estimate is $7.48, revenue of $17.85 billion. Roughly, this is over 30% relative earnings growth year-over-year. Big numbers here. Tom, I'll start with you. Are you expecting a beat, a raise, or a miss for Eli Lilly in its upcoming quarter here?
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