Reframing Biotech Value: Spend-to-Market-Cap

In this episode of Excess Returns, we’re joined again by Dan Rasmussen of Verdad Advisors for a wide-ranging conversation that challenges some of the most popular narratives in markets today. From private equity and private credit risks to AI-driven capital cycles and overlooked opportunities in biotech and international equities, Dan offers a deeply research-driven perspective on where investors may be misallocating capital and where future returns could emerge. Alongside Justin and special guest co-host Kai Wu, the discussion connects valuation, incentives, and innovation in a market environment shaped by concentration, leverage, and technological change.

Main topics covered
• Why private equity performance continues to disappoint and where the biggest structural risks are emerging
• The growing stress in private credit and what rising bankruptcies signal for lower middle-market deals
• Why democratizing private equity through 401ks, interval funds, and ETFs may create more problems than solutions
• How AI CapEx is changing the economics of Big Tech and why asset-light models may be getting worse, not better
• The case for diversifying away from U.S. concentration toward international markets and international small value
• Why bubbles are often necessary for innovation and how to think about AI through that historical lens
• How investors may be underestimating valuation and growth bankruptcy risk in the Mag 7
• Why biotech is one of the hardest sectors to model and how Verdad rebuilt its framework from scratch
• How intangible value, clinical trial data, specialist ownership, and peer momentum can improve biotech investing
• What capital starvation, M&A dynamics, and global competition mean for biotech’s future returns

Timestamps
00:00 Introduction and market narratives
02:20 Revisiting private equity risks and performance
06:58 Private credit stress and bankruptcy signals
10:58 Private equity in 401ks and interval fund risks
14:52 Private assets in ETFs and liquidity concerns
15:45 Why bubbles drive innovation and capital formation
20:13 AI CapEx, Mag 7 concentration, and valuation risk
25:24 International diversification and market leadership
29:41 Why Verdad turned to biotech research
37:13 Rebuilding biotech valuation and quality metrics
44:26 Clinical trial data and peer momentum insights
49:17 Portfolio construction and long-short biotech strategies
51:00 Capital starvation, AI, and biotech’s setup
53:58 Research culture, humility, and evolving quant models